UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
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x
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Annual
report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 31,
2009.
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or
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¨
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Transition
report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period from
to
.
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Commission
file number: 001-33975
United
States Gasoline Fund, LP
(Exact
name of registrant as specified in its charter)
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Delaware
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20-8837263
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer
Identification
No.)
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1320
Harbor Bay Parkway, Suite 145
Alameda,
California 94502
(Address
of principal executive offices) (Zip code)
(510)
522-9600
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
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Units
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NYSE
Arca, Inc.
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(Title
of each class)
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(Name
of exchange on which
registered)
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Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. ¨
Yes x No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. ¨
Yes x No
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. x
Yes ¨ No
Indicate
by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
¨
Yes ¨ No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
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Large
accelerated filer ¨
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Accelerated
filer x
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Non-accelerated
filer ¨
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Smaller
reporting company ¨
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(Do
not check if a smaller reporting company)
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
¨
Yes x No
The aggregate market value
of the registrant’s units held by non-affiliates of the registrant as of June
30, 2009 was: $91,616,000.
The
registrant had 1,900,000 outstanding units as of March 15, 2010.
DOCUMENTS
INCORPORATED BY REFERENCE:
None.
UNITED
STATES GASOLINE FUND, LP
Table
of Contents
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Part
I.
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Page
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Item
1. Business.
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1
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Item
1A. Risk Factors.
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52
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Item
1B. Unresolved Staff Comments.
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69
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Item
2. Properties.
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69
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Item
3. Legal Proceedings.
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69
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Item
4. Reserved.
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69
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Part
II.
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Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities.
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69
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Item
6. Selected Financial Data.
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70
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Item
7. Management’s Discussion and Analysis of Financial Condition and Results
of Operations.
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70
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Item
7A. Quantitative and Qualitative Disclosures About Market
Risk.
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87
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Item
8. Financial Statements and Supplementary Data.
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89
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Item
9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
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108
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Item
9A. Controls and Procedures.
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108
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Item
9B. Other Information.
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108
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Part
III.
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Item
10. Directors, Executive Officers and Corporate
Governance.
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108
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Item
11. Executive Compensation.
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114
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Item
12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
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115
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Item
13. Certain Relationships and Related Transactions, and Director
Independence.
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115
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Item
14. Principal Accountant Fees and Services.
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116
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Part
IV.
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Item
15. Exhibits and Financial Statement Schedules.
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117
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Exhibit
Index.
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117
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Signatures
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119
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Part
I
What
is UGA?
The
United States Gasoline Fund, LP (“UGA”) is a Delaware limited partnership
organized on April 12, 2007. UGA maintains its main business office at 1320
Harbor Bay Parkway, Suite 145, Alameda, California 94502. UGA is a commodity
pool that issues limited partnership interests (“units”) traded on the NYSE
Arca, Inc. (the “NYSE Arca”). It operates pursuant to the terms of
the Amended and Restated Agreement of Limited Partnership dated as of
February 11, 2008 (the “LP Agreement”), as amended from time to time, which
grants full management control to United States Commodity Funds LLC (the
“General Partner”).
The
investment objective of UGA is for the changes in percentage terms of its units’
net asset value (“NAV”) to reflect the changes in percentage terms of the spot
price of gasoline (also known as reformulated gasoline blendstock for oxygen
blending, or “RBOB”) for delivery to the New York harbor, as measured by the
changes in the price of the futures contract for gasoline traded on the New York
Mercantile Exchange (the “NYMEX”) 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, less UGA’s
expenses. UGA’s units began trading on February 26, 2008. The General
Partner is the general partner of UGA and is responsible for the management of
UGA.
Who
is the General Partner?
The
General Partner is a single member limited liability company that was formed in
the state of Delaware on May 10, 2005. Prior to June 13, 2008, the General
Partner was known as Victoria Bay Asset Management, LLC. It maintains its main
business office at 1320 Harbor Bay Parkway, Suite 145, Alameda, California
94502. The General Partner 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. Wainwright previously owned an
insurance company organized under Bermuda law, which has been liquidated, and a
registered investment adviser firm named Ameristock Corporation, which has been
distributed to the Wainwright shareholders. The General Partner is a member of
the National Futures Association (the “NFA”) and registered as a commodity pool
operator (“CPO”) with the Commodity Futures Trading Commission (the “CFTC”) on
December 1, 2005.
On May
12, 2005, the General Partner formed the United States Oil Fund, LP
(“USOF”), another limited partnership that 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 for light, sweet crude oil traded
on the NYMEX, less USOF’s expenses. USOF’s units began trading on April 10,
2006. The General Partner is the general partner of USOF and is
responsible for the management of USOF.
On
September 11, 2006, the General Partner formed the United States Natural Gas
Fund, LP (“USNG”), another limited partnership that 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 on natural gas traded on the NYMEX, less USNG’s
expenses. USNG’s units began trading on April 18, 2007. The General Partner is
the general partner of USNG and is responsible for the management of
USNG.
On June
27, 2007, the General Partner formed the United States 12 Month Oil Fund, LP
(“US12OF”), also a limited partnership that 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. The General Partner is the general partner of
US12OF and is responsible for the management of US12OF.
1
On April
13, 2007, the General Partner formed the United States Heating Oil Fund, LP
(“USHO”), also a limited partnership that is a commodity pool and issues units
traded on the NYSE Arca. The investment objective of USHO is for the
changes in percentage terms of its units’ NAV to reflect the changes in
percentage terms of the spot price of heating oil (also known as No. 2 fuel oil)
delivered 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. The General Partner is the
general partner of USHO and is responsible for the management of
USHO.
On June
30, 2008, the General Partner formed the United States Short Oil Fund, LP
(“USSO”), also a limited partnership that is a commodity pool and issues units
traded on the NYSE Arca. The investment objective of USSO is for the
changes in percentage terms of its units’ NAV to inversely 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 as traded on the NYMEX, less USSO’s expenses.
USSO’s units began trading on September 24, 2009. The General Partner is the
general partner of USSO and is responsible for the management of
USSO.
On June 27, 2007, the
General Partner formed the United States 12 Month Natural Gas Fund, LP
(“US12NG”), also a limited partnership that is a
commodity pool and issues units traded on the NYSE Arca. The investment
objective of US12NG 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 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. The
General Partner is the general partner of US12NG and is responsible for the
management of US12NG.
USOF,
USNG, US12OF, USHO, USSO and US12NG are collectively referred to herein as the
“Related Public Funds”. For more information about each of the
Related Public Funds, investors in UGA may call 1-800-920-0259 or go online to
www.unitedstatescommodityfunds.com.
The
General Partner has filed a registration statement for two other exchange traded
security funds, the United States Brent Oil Fund, LP (“USBO”) and the United
States Commodity Index Funds Trust (“USCI”). The investment objective of USBO
will be 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 on Brent crude oil
traded on the ICE Futures, less USBO’s expenses. The investment
objective of USCI will be for the daily changes in percentage terms of its
units’ NAV to reflect the daily changes in percentage terms of the SummerHaven
Dynamic Commodity Index (“SDCI”) Total Return, less USCI’s
expenses.
The
General Partner is required to evaluate the credit risk of UGA to the futures
commission merchant, oversee the purchase and sale of UGA’s units by certain
authorized purchasers (“Authorized Purchasers”), review daily positions and
margin requirements of UGA and manage UGA’s investments. The General Partner
also pays the fees of ALPS Distributors, Inc., which acts as the marketing agent
for UGA (the “Marketing Agent”) and Brown Brothers Harriman & Co.
(“BBH&Co.”), which acts as the administrator (the “Administrator”)
and the custodian (the “Custodian”) for UGA.
Limited
partners have no right to elect the General Partner on an annual or any other
continuing basis. If the General Partner voluntarily withdraws, however, the
holders of a majority of UGA’s outstanding units (excluding for purposes of such
determination units owned, if any, by the withdrawing General Partner and
its affiliates) may elect its successor. The General Partner may not be removed
as general partner except upon approval by the affirmative vote of the holders
of at least 66 and 2/3 percent of UGA’s outstanding units (excluding units
owned, if any, by the General Partner and its affiliates), subject to the
satisfaction of certain conditions set forth in the LP
Agreement.
2
The
business and affairs of the General Partner are managed by a board of directors
(the “Board”), 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 and the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Notwithstanding the foregoing, the Management Directors have the authority to
manage the General Partner pursuant to its limited liability company agreement,
as amended from time to time. Through its Management Directors, the General
Partner manages the day-to-day operations of UGA. The Board has an audit
committee which is made up of the three independent directors (Peter M.
Robinson, Gordon L. Ellis and Malcolm R. Fobes III). For additional information
relating to the audit committee, please see “Item 10. Directors, Executive
Officers and Corporate Governance – Audit Committee” in this annual report on
Form 10-K.
How
Does UGA Operate?
The net
assets of UGA consist primarily of investments in futures contracts for
gasoline, but may also consist of investment contracts for other types of
gasoline, crude oil, heating oil, natural gas and other petroleum-based fuels
that are traded on the NYMEX, ICE Futures or other U.S. and foreign exchanges
(collectively, “Futures Contracts”). UGA may also invest in other
gasoline-related investments such as cash-settled options on Futures Contracts,
forward contracts for gasoline, cleared swap contracts and over-the-counter
transactions that are based on the price of gasoline, crude oil and other
petroleum-based fuels, Futures Contracts and indices based on the foregoing
(collectively, “Other Gasoline-Related Investments”). For convenience and unless
otherwise specified, Futures Contracts and Other Gasoline-Related Investments
collectively are referred to as “Gasoline Interests” in this annual report on
Form 10-K.
UGA
invests in Gasoline 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 Futures Contracts and Other
Gasoline-Related Investments. In pursuing this objective, the primary focus of
the General Partner is the investment in Futures Contracts and the management of
UGA’s investments in short-term obligations of the United States of two years or
less (“Treasuries”), cash and/or cash equivalents for margining purposes and as
collateral.
The
investment objective of UGA is for the changes in percentage terms of its units’
NAV to reflect the changes in percentage terms of the spot price of gasoline, as
measured by the changes in the price of the futures contract on gasoline (also
known as RBOB), for delivery to the New York harbor, as traded on the NYMEX 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, less UGA’s expenses. It is not the intent of UGA
to be operated in a fashion such that its NAV will equal, in dollar terms, the
spot price of gasoline or any particular futures contract based on
gasoline.
UGA seeks
to achieve its investment objective by investing in a mix of Futures Contracts
and Other Gasoline-Related Investments such that the changes in its NAV will
closely track the changes in the price of the NYMEX futures contract for
gasoline delivered to the New York harbor (the “Benchmark Futures Contract”).
The General Partner believes changes in the price of the Benchmark Futures
Contract have historically exhibited a close correlation with the changes
in the spot price of gasoline. On any valuation day (a valuation day is any NYSE
Arca trading day as of which UGA calculates its NAV as described herein), the
Benchmark Futures Contract is the near month contract for gasoline traded
on the NYMEX unless the near month contract will expire within two weeks of the
valuation day, in which case the Benchmark Futures Contract is the next month
contract for gasoline traded on the NYMEX.
As a
specific benchmark, the General Partner endeavors to place UGA’s trades in
Futures Contracts and Other Gasoline-Related Investments and otherwise manage
UGA’s investments so that A will be within plus/minus 10 percent of B,
where:
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·
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A
is the average daily change in UGA’s NAV for any period of 30 successive
valuation days; i.e., any NYSE Arca
trading day as of which UGA calculates its NAV,
and
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|
|
·
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B
is the average daily change in the price of the Benchmark Futures Contract
over the same period.
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3
*PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
4
*PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
An
investment in the units provides a means for diversifying an investor’s
portfolio or hedging exposure to changes in gasoline prices. An investment in
the units allows both retail and institutional investors to easily gain this
exposure to the gasoline market in a transparent, cost-effective
manner.
The
expected correlation of the price of UGA’s units, UGA’s NAV and the price of the
Benchmark Futures Contract is illustrated in the following diagram:
5
The
General Partner employs a “neutral” investment strategy intended to track
changes in the price of the Benchmark Futures Contract regardless of
whether the price goes up or goes down. UGA’s “neutral” investment strategy
is designed to permit investors generally to purchase and sell UGA’s units for
the purpose of investing indirectly in gasoline in a cost-effective manner,
and/or to permit participants in the gasoline or other industries to hedge the
risk of losses in their gasoline-related transactions. Accordingly, depending on
the investment objective of an individual investor, the risks generally
associated with investing in gasoline and/or the risks involved in hedging may
exist. In addition, an investment in UGA involves the risk that the changes in
the price of UGA’s units will not accurately track the changes in the Benchmark
Futures Contract.
The
Benchmark Futures Contract will be changed from the near month contract to
expire to the next month contract to expire during one day each month. On that
day, UGA will close or sell its Gasoline Interests and will also reinvest or
“roll” in new Gasoline Interests.
The
anticipated monthly dates on which the Benchmark Futures Contracts will be
changed and UGA’s Gasoline Interests will be “rolled” in 2010 are posted on
UGA’s website at www.unitedstatesgasolinefund.com, and are subject to change
without notice.
UGA’s
total portfolio composition is disclosed on its website each day that the NYSE
Arca is open for trading. The website disclosure of portfolio holdings is made
daily and includes, as applicable, the name and value of each Gasoline Interest,
the specific types of Other Gasoline-Related Investments and characteristics of
such Other Gasoline-Related Investments, Treasuries, and amount of the cash
and/or cash equivalents held in UGA’s portfolio. UGA’s website is publicly
accessible at no charge. UGA’s assets are held in segregated accounts pursuant
to the Commodity Exchange Act (the “CEA”) and CFTC regulations.
The
units issued by UGA 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 units in
the Creation Basket. Similarly, only Authorized Purchasers may redeem units and
only in blocks of 100,000 units called Redemption Baskets. The purchase price
for Creation Baskets and the redemption price for Redemption Baskets is the
actual NAV of the units purchased or redeemed calculated at the end of the
business day when notice for a purchase or redemption is received by UGA. In
addition, Authorized Purchasers pay UGA a $1,000 fee for each order placed to
create one or more Creation Baskets or redeem one or more Redemption
Baskets. The NYSE Arca publishes an approximate NAV intra-day based
on the prior day’s NAV and the current price of the Benchmark Futures Contract,
but the basket price is determined based on the actual NAV at the end of the
day.
While
UGA issues units only 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.
What
is UGA’s Investment Strategy?
In
managing UGA’s assets, the General Partner does not use a technical trading
system that issues buy and sell orders. The General Partner instead employs a
quantitative methodology whereby each time a Creation Basket is sold, the
General Partner purchases Gasoline Interests, such as a Futures Contract for
gasoline traded on the NYMEX, that have an aggregate market value that
approximates the amount of Treasuries and/or cash received upon the issuance of
the Creation Basket.
As an
example, assume that a Creation Basket is sold by UGA, and that UGA’s closing
NAV per unit is $50.00. In that case, UGA would receive $5,000,000 in proceeds
from the sale of the Creation Basket ($50.00 NAV per unit multiplied by 100,000
units, and excluding the Creation Basket fee of $1,000). If one were to assume
further that the General Partner wants to invest the entire proceeds from the
Creation Basket in the Benchmark Futures Contract and that the market value of
the Benchmark Futures Contract is $59,950, UGA would be unable to buy the exact
number of Benchmark Futures Contracts with an aggregate market value equal to
$5,000,000. Instead, UGA would be able to purchase 83 Benchmark Futures
Contracts with an aggregate market value of $4,975,850. Assuming a margin
requirement equal to 10% of the value of the Benchmark Futures Contract, UGA
would be required to deposit $497,585 in Treasuries and cash with the futures
commission merchant through which the Benchmark Futures Contracts were
purchased. The remainder of the proceeds from the sale of the Creation Basket,
$4,502,415, would remain invested in cash, cash equivalents, and Treasuries as
determined by the General Partner from time to time based on factors such as
potential calls for margin or anticipated redemptions.
6
The
specific Futures Contracts purchased depends on various factors, including a
judgment by the General Partner as to the appropriate diversification of UGA’s
investments in futures contracts with respect to the month of expiration, and
the prevailing price volatility of particular contracts. While the General
Partner has made significant investments in NYMEX Futures Contracts, as UGA
reaches certain accountability levels or position limits on the NYMEX, or for
other reasons, it may invest in Futures Contracts traded on other exchanges or
may invest in Other Gasoline-Related Investments such as contracts in the
“over-the-counter” market.
The
General Partner does not anticipate letting UGA’s Futures Contracts expire and
taking delivery of the underlying commodity. Instead, the General Partner closes
existing positions, e.g., when it changes the
Benchmark Futures Contract or it otherwise determines it would be appropriate to
do so and reinvests the proceeds in new Futures Contracts or Other
Gasoline-Related Investments. Positions may also be closed out to meet orders
for Redemption Baskets and in such case proceeds for such baskets will not be
reinvested.
By
remaining invested as fully as possible in Futures Contracts or Other
Gasoline-Related Investments, the General Partner believes that the changes in
percentage terms in UGA’s NAV will continue to closely track the changes in
percentage terms in the prices of the Benchmark Futures Contract. The General
Partner believes that certain arbitrage opportunities result in the price of the
units traded on the NYSE Arca closely tracking the NAV of UGA. Additionally,
Futures Contracts traded on the NYMEX have closely tracked the spot price of
gasoline for delivery to the New York harbor. Based on these expected
interrelationships, the General Partner believes that the changes in the price
of UGA’s units as traded on the NYSE Arca have closely tracked and will continue
to closely track the changes in the spot price of gasoline. For performance data
relating to UGA’s ability to track its benchmark, see “Management’s Discussion
and Analysis of Financial Condition and Results of Operations – Tracking UGA’s
Benchmark”.
What
are Futures Contracts?
Futures
Contracts are agreements between two parties. One party agrees to buy gasoline
from the other party at a later date at a price and quantity agreed-upon when
the contract is made. Futures Contracts are traded on futures exchanges,
including the NYMEX. For example, the Benchmark Futures Contract is traded on
the NYMEX in units of 42,000 gallons (1,000 barrels). The price of gasoline
futures contracts on the NYMEX 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.
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 UGA”.
Impact of Accountability Levels,
Position Limits 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 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 UGA
is not) 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. futures exchanges, such as the NYMEX, limit
the daily price fluctuation for Futures Contracts. Currently, the ICE
Futures imposes position and accountability limits that are similar to those
imposed by the NYMEX but does not limit the maximum daily price
fluctuation.
7
The
accountability levels for the Benchmark Futures Contract and other Futures
Contracts traded on the NYMEX are not a fixed ceiling, but rather a threshold
above which the NYMEX may exercise greater scrutiny and control over an
investor’s positions. The current accountability level for any one month in the
Benchmark Futures Contract is 5,000 net contracts. In addition, the NYMEX
imposes an accountability level for all months of 7,000 net futures contracts
for investments in futures contracts for gasoline. If UGA and the Related Public
Funds exceed these accountability levels for investments in the futures contract
for gasoline, the NYMEX will monitor UGA’s and the Related Public Funds’
exposure and ask for further information on their activities including the total
size of all positions, investment and trading strategy, and the extent of
liquidity resources of UGA and the Related Public Funds. If deemed necessary by
the NYMEX, it could also order UGA and the Related Public Funds to reduce their
aggregate net position back to the accountability level. In addition, the ICE
Futures maintains the same accountability levels, position limits and monitoring
authority for its gasoline contract as the NYMEX. As of December 31, 2009, UGA
and the Related Public Funds held a net of 803 futures contracts for gasoline
traded on the NYMEX. As of December 31, 2009, UGA did not hold any Futures
Contracts traded on the ICE Futures.
If the
NYMEX or the ICE Futures orders UGA to reduce its position back to the
accountability level, or to an accountability level that the NYMEX or the ICE
Futures deems appropriate for UGA, such an accountability level may impact the
mix of investments in Gasoline Interests made by UGA. To illustrate, assume that
the price of the Benchmark Futures Contract and the unit price of UGA are
each $10, and that the NYMEX has determined that UGA may not own more than
10,000 Benchmark Futures Contracts. In such case, UGA could invest up to $1
billion of its daily net assets in the Benchmark Futures Contract (i.e., $10 per contract
multiplied by 1,000 (a Benchmark Futures Contract is a contract for 42,000
gallons (1,000 barrels) multiplied by 10,000 contracts)) before reaching the
accountability level imposed by the NYMEX. Once the daily net assets of the
portfolio exceed $1 billion in the Benchmark Futures Contract, the portfolio may
not be able to make any further investments in the Benchmark
Futures Contract. If the NYMEX were to impose limits at the $1 billion level (or
another level), UGA anticipates that it would invest the majority of its assets
above that level in a mix of other Futures Contracts or Other Gasoline-Related
Investments in order to meet its investment objective.
See
“Risk Factors—Risks Associated With Investing Directly or Indirectly in
Gasoline—Regulation of the commodity interests and energy markets is extensive
and constantly changing; future regulatory developments are impossible to
predict but may significantly and adversely affect UGA.”
In
addition to accountability levels, the NYMEX and the ICE Futures impose position
limits on contracts held in the last few days of trading in the near month
contract to expire. It is unlikely that UGA will run up against such position
limits because UGA’s investment strategy is to close out its positions and
“roll” from the near month contract to expire to the next month contract
beginning two weeks from expiration of the contract.
U.S.
futures exchanges, including the NYMEX, also limit the amount of price
fluctuation for Futures Contracts. For example, the NYMEX imposes a $0.25
per gallon ($10,500 per contract) price fluctuation limit for the Benchmark
Futures Contract. This limit is initially based off the previous trading day’s
settlement price. If any Benchmark Futures Contract is traded, bid, or offered
at the limit for five minutes, trading is halted for five minutes. When trading
resumes it begins at the point where the limit was imposed and the limit is
reset to be $0.25 per gallon in either direction of that point. If another halt
were triggered, the market would continue to be expanded by $0.25 per gallon in
either direction after each successive five-minute trading halt. There is no
maximum price fluctuation limit during any one trading session.
U.S.
futures exchanges, including the NYMEX, currently do not implement fixed
position limits for Futures Contracts held outside of the last few days of
trading in the near month contract to expire. However, on January 26,
2010, the CFTC published a proposed rule that, if implemented, would set fixed
position limits on energy Futures Contracts, including the NYMEX RBOB gasoline
futures contract, NYMEX Henry Hub natural gas futures contract, NYMEX Light
Sweet crude oil futures contract and NYMEX New York Harbor No. 2 heating oil
futures contract, along with any contract based upon these
contracts. The proposed position limits would be set as a percentage
of the open interest in these contracts for the spot month, any single month,
and all months combined. Additionally, the proposed rule would
aggregate positions in the enumerated contracts and those based upon such
contracts, including contracts listed on separate exchanges. This
proposal is currently undergoing a 90-day public comment period.
UGA
anticipates that to the extent it invests in Futures Contracts other
than gasoline contracts (such as futures contracts for crude oil, natural
gas, and other petroleum-based fuels) and Other Gasoline-Related Investments, it
will enter into various non-exchange-traded derivative contracts to hedge the
short-term price movements of such Futures Contracts and Other Gasoline-Related
Investments against the current Benchmark Futures Contract.
8
Examples of the position and price limits imposed are as
follows:
|
Futures
Contract
|
Position
Accountability
Levels
and Limits
|
Maximum
Daily
Price
Fluctuation
|
||
|
NYMEX
Gasoline
(physically
settled)
|
Any
one month: 5,000 net futures / all months: 7,000 net futures, but not to
exceed 1,000 contracts in the last three days of trading in the spot
month.
|
$0.25
per gallon ($10,500 per contract) for all months. If any contract is
traded, bid, or offered at the limit for five minutes, trading is halted
for five minutes. When trading resumes, the limit is expanded by $0.25 per
gallon in either direction. If another halt were triggered, the market
would continue to be expanded by $0.25 per gallon in either direction
after each successive five-minute trading halt. There will be no maximum
price fluctuation limits during any one trading
session.
|
||
|
ICE
NYH (RBOB) Gasoline
(financially
settled)
|
Any
one month: 7,000 net futures / all months: 7,000 net futures, but not to
exceed 1,000 contracts in the last three days of trading in the spot
month.
|
There
is no maximum daily price fluctuation limit.
|
||
|
NYMEX
Light, Sweet Crude Oil
(physically
settled)
|
Any
one month: 10,000 net futures / all months: 20,000 net futures, but not to
exceed 3,000 contracts in the last three days of trading in the spot
month.
|
$10.00
per barrel ($10,000 per contract) for all months. If any contract is
traded, bid, or offered at the limit for five minutes, trading is halted
for five minutes. When trading resumes, the limit is expanded by $10.00
per barrel in either direction. If another halt were triggered, the market
would continue to be expanded by $10.00 per barrel in either direction
after each successive five-minute trading halt. There will be no maximum
price fluctuation limits during any one trading
session.
|
||
|
NYMEX
Light, Sweet Crude Oil
(financially
settled)
|
Any
one month: 20,000 net futures / all months: 20,000 net futures, but not to
exceed 2,000 contracts in the last three days of trading in the spot
month.
|
There
is no maximum daily price fluctuation limit.
|
||
|
NYMEX
Heating Oil
(physically
settled)
|
Any
one month: 5,000 net futures / all months: 7,000 net futures, but not to
exceed 1,000 contracts in the last three days of trading in the spot
month.
|
$0.25
per gallon ($10,500 per contract) for all months. If any contract is
traded, bid, or offered at the limit for five minutes, trading is halted
for five minutes. When trading resumes, the limit is expanded by $0.25 per
gallon in either direction. If another halt were triggered, the market
would continue to be expanded by $0.25 per gallon in either direction
after each successive five-minute trading halt. There will be no maximum
price fluctuation limits during any one trading
session.
|
9
|
NYMEX
Natural Gas
(physically
settled)
|
Any
one month: 6,000 net futures / all months: 12,000 net futures, but not to
exceed 1,000 contracts in the last three days of trading in the spot
month.
|
$3.00
per million British thermal units (“mmBtu”) ($30,000 per contract) for all
months. If any contract is traded, bid, or offered at the limit for five
minutes, trading is halted for five minutes. When trading resumes, the
limit is expanded by $3.00 per mmBtu in either direction. If another halt
were triggered, the market would continue to be expanded by $3.00 per
mmBtu in either direction after each successive five-minute trading halt.
There will be no maximum price fluctuation limits during any one trading
session.
|
||
|
ICE
Natural Gas
(cleared
swaps)
|
Any
one month: 6,000 net futures / all months: 12,000 net futures, but not to
exceed 1,000 contracts in the last three days of trading in the spot
month.
|
There
is no maximum daily price fluctuation limit.
|
||
|
ICE
Brent Crude Futures
(physically
settled)
|
There
are no position limits.
|
There
is no maximum daily price fluctuation limit.
|
||
|
ICE
West Texas Intermediate (“WTI”)
(financially
settled)
|
Any
one month: 10,000 net futures / all months: 20,000 net futures, but not to
exceed 3,000 contracts in the last three days of trading 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. Futures Contracts tend to be more volatile than stocks and bonds
because price movements for gasoline are more currently and directly influenced
by economic factors for which current data is available and are traded by
gasoline futures traders throughout the day. These economic factors 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 UGA invests a
significant portion of its assets in Futures Contracts, the assets of UGA,
and therefore the prices of UGA 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 UGA’s futures positions
have declined in value, UGA may be required to post additional variation margin
to cover this decline. Alternatively, if UGA futures positions have increased in
value, this increase will be credited to UGA’s account.
10
What
is the Gasoline Market and the Petroleum-Based Fuel Market?
UGA may
purchase Futures Contracts traded on the NYMEX that are based on gasoline.
The ICE Futures also offers an RBOB Gasoline Futures Contract which trades in
units of 42,000 U.S. gallons (1,000 barrels). The RBOB Gasoline Futures Contract
is cash settled against the prevailing market price for RBOB gasoline in the New
York harbor. It may also purchase contracts on other exchanges, including the
ICE Futures, the Singapore Exchange and the Dubai Mercantile
Exchange.
Gasoline. Gasoline is the
largest single volume refined product sold in the U.S. and accounts for almost
half of national oil consumption. The gasoline futures contract listed and
traded on the NYMEX trades in units of 42,000 gallons (1,000 barrels) and is
based on delivery at petroleum products terminals in the New York harbor, the
major East Coast trading center for imports and domestic shipments from
refineries in the New York harbor area or from the Gulf Coast refining centers.
The price of gasoline has historically been volatile.
In 2005,
the NYMEX introduced new physical specifications for unleaded gasoline contracts
to reflect the changes in the national standards for such fuels. Unleaded
gasoline using MTBE was being phased out and replaced with unleaded gasoline
using ethanol. As a result, NYMEX introduced a new gasoline futures contract in
2005. The new futures contract trades under the ticker symbol “RB”. The
pre-existing unleaded gasoline futures contract, ticker symbol “HU”, ceased
trading on December 29th, 2006. For a period of approximately 15 months both
contracts were traded on the NYMEX.
Light, Sweet Crude
Oil. Crude oil is the world’s most actively traded commodity.
The futures contracts for light, sweet crude oil that are traded on the NYMEX
are the world’s most liquid forum for crude oil trading, as well as the world’s
largest volume futures contract trading on a physical commodity. Due to the
liquidity and price transparency of oil futures contracts, they are used as a
principal international pricing benchmark. The futures contracts for light,
sweet crude oil trade on the NYMEX in units of 1,000 U.S. barrels (42,000
gallons) and, if not closed out before maturity, will result in delivery of oil
to Cushing, Oklahoma, which is also accessible to the international spot markets
via pipelines. In Europe, Brent crude oil is the standard for futures contracts
and is primarily traded on the ICE Futures. Brent crude oil is the price
reference for two-thirds of the world’s traded oil. The ICE Brent Futures is a
deliverable contract with an option to cash settle which trades in units of
1,000 barrels (42,000 U.S. gallons). The ICE Futures also offers a
WTI Futures Contract which trades in units of 1,000 barrels. The WTI
Futures Contract is cash settled against the prevailing market price for U.S.
light sweet crude oil.
Demand
for petroleum products by consumers, as well as agricultural, manufacturing and
transportation industries, determines demand for crude oil by refiners. Since
the precursors of product demand are linked to economic activity, crude oil
demand will tend to reflect economic conditions. However, other factors such as
weather also influence product and crude oil demand.
Crude oil
supply is determined by both economic and political factors. Oil prices (along
with drilling costs, availability of attractive prospects for drilling, taxes
and technology, among other factors) determine exploration and development
spending, which influence output capacity with a lag. In the short run,
production decisions by the Organization of
Petroleum Exporting Countries (“OPEC”) also affect supply and prices. Oil export
embargoes and the current conflict in Iraq represent other routes through which
political developments move the market. It is not possible to predict the
aggregate effect of all or any combination of these factors.
Heating Oil. Heating oil,
also known as No. 2 fuel oil, accounts for about 25% of the yield of a barrel of
crude oil, the second largest “cut” from oil after gasoline. The heating oil
futures contract listed and traded on the NYMEX trades in units of 42,000
gallons (1,000 barrels) and is based on delivery in the New York harbor, the
principal cash market trading center. The price of heating oil has historically
been volatile.
Natural
Gas. Natural gas accounts for almost a quarter of U.S. energy
consumption. The natural gas futures contract listed and traded on the
NYMEX trades in units of 10,000 mmBtu and is based on delivery at the Henry Hub
in Louisiana, the nexus of 16 intra- and interstate natural gas pipeline systems
that draw supplies from the region’s prolific gas deposits. The pipelines serve
markets throughout the U.S. East Coast, the Gulf Coast, the Midwest, and up to
the Canadian border. The price of natural gas has historically been
volatile.
11
Why
Does UGA Purchase and Sell Futures Contracts?
UGA’s
investment objective is for the changes in percentage terms of its units’ NAV to
reflect the changes in percentage terms of the Benchmark Futures Contract, less
UGA’s expenses. UGA invests primarily in Futures Contracts. UGA seeks to have
its aggregate NAV approximate at all times the aggregate market value of
the Futures Contracts (or Other Gasoline-Related Investments) it
holds.
Other
than investing in Futures Contracts and Other Gasoline-Related Investments, UGA
only invests in assets to support these investments in Gasoline Interests. At
any given time, most of UGA’s investments are in Treasuries, cash and/or cash
equivalents that serve as segregated assets supporting UGA’s positions
in Futures Contracts and Other Gasoline-Related Investments. For example,
the purchase of a Futures Contract with a stated value of $10 million would not
require UGA to pay $10 million upon entering into the contract; rather, only a
margin deposit, generally of 10% to 15% of the stated value of the Futures
Contract, would be required. To secure its Futures Contract obligations,
UGA would deposit the required margin with the futures commission merchant
and would separately hold, through its Custodian, Treasuries, cash and/or
cash equivalents in an amount equal to the balance of the current market
value of the contract, which at the contract’s inception would be $10 million
minus the amount of the margin deposit, or $9.0 million (assuming a 10%
margin).
12
As a
result of the foregoing, typically 10% to 15% of UGA’s assets are held as margin
in segregated accounts with a futures commission merchant. In addition to
the Treasuries or cash it posts with the futures commission merchant for
the Futures Contracts it owns, UGA holds, through the Custodian,
Treasuries, cash and/or cash equivalents that can be posted as margin or as
collateral to support its over-the-counter contracts. UGA earns interest income
from the Treasuries and/or cash equivalents that it purchases,
and on the cash it holds through the Custodian. UGA anticipates that the earned
interest income will increase the NAV and limited partners’ capital contribution
accounts. UGA reinvests the earned interest income, holds it in cash, or uses it
to pay its expenses. If UGA reinvests the earned interest income, it makes
investments that are consistent with its investment objective.
What
is the Flow of Units?
13
What
are the Trading Policies of UGA?
Liquidity
UGA
invests only in Futures Contracts and Other Gasoline-Related Investments
that are traded in sufficient volume to permit, in the opinion of the General
Partner, ease of taking and liquidating positions in these financial
interests.
Spot
Commodities
While the
gasoline Futures Contracts traded on the NYMEX can be physically settled, UGA
does not intend to take or make physical delivery. UGA may from time to time
trade in Other Gasoline-Related Investments, including contracts based on
the spot price of gasoline.
While
UGA’s historical ratio of initial margin to total assets has generally ranged
from 10% to 15%, the General Partner endeavors to have the value of UGA’s
Treasuries, cash and/or cash equivalents, whether held by UGA or posted as
margin or collateral, at all times approximate the aggregate market value of its
obligations under UGA’s Futures Contracts and Other Gasoline-Related
Investments. While the General Partner does not intend to leverage UGA’s assets,
it is not prohibited from doing so under the LP Agreement.
Borrowings
Borrowings
are not used by UGA unless UGA is required to borrow money in the event of
physical delivery, UGA trades in cash commodities, or for short-term needs
created by unexpected redemptions. UGA maintains the value of its Treasuries,
cash and/or cash equivalents, whether held by UGA or posted as margin or
collateral, to at all times approximate the aggregate market value of its
obligations under its Futures Contracts and Other Gasoline-Related Investments.
UGA has not established and does not plan to establish credit
lines.
In
addition to Futures Contracts, there are also a number of listed options on the
Futures Contracts on the principal futures exchanges. These contracts offer
investors and hedgers another set of financial vehicles to use in managing
exposure to the gasoline market. Consequently, UGA may purchase options on
gasoline futures contracts on these exchanges in pursuing its investment
objective.
In
addition to the Futures Contracts and options on the Futures Contracts, there
also exists an active non-exchange-traded market in derivatives tied to
gasoline. These derivatives transactions (also known as over-the-counter
contracts) are usually entered into between two parties. Unlike most of the
exchange-traded Futures Contracts or exchange-traded options on the Futures
Contracts, each party to such contract bears the credit risk that the other
party may not be able to perform its obligations under its
contract.
Some
gasoline-based derivatives transactions contain fairly generic terms and
conditions and are available from a wide range of participants. Other
gasoline-based derivatives 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 gasoline- or petroleum-based
fuels that have terms similar to the Futures Contracts. Others take the form of
“swaps” in which the two parties exchange cash flows based on pre-determined
formulas tied to the gasoline spot price, forward gasoline price, the Benchmark
Futures Contract price, or other gasoline futures contract price. For example,
UGA may enter into over-the-counter derivative contracts whose value will be
tied to changes in the difference between the gasoline spot price, the Benchmark
Futures Contract price, or some other futures contract price traded on the NYMEX
or ICE Futures and the price of other Futures Contracts that may be invested in
by UGA.
To
protect itself from the credit risk that arises in connection with such
contracts, UGA may enter into agreements with each counterparty that provide for
the netting of its overall exposure to its counterparty, such as the agreements
published by the International Swaps and Derivatives Association, Inc. UGA also
may require that the counterparty be highly rated and/or provide collateral or
other credit support to address UGA’s exposure to the
counterparty.
14
The
General Partner assesses or reviews, as appropriate, the creditworthiness of
each potential or existing counterparty to an over-the-counter contract pursuant
to guidelines approved by the General Partner’s Board of Directors. Furthermore,
the General Partner, on behalf of UGA, only enters 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
U.S. Securities and Exchange Commission (the “SEC”), (c) insurance companies
domiciled in the United States, or (d) producers, users or traders of energy,
whether or not regulated by the CFTC. Any entity acting as a counterparty shall
be regulated in either the United States or the United Kingdom unless otherwise
approved by the General Partner’s Board of Directors after consultation with its
legal counsel. Existing counterparties are also reviewed periodically by the
General Partner.
UGA may
employ spreads or straddles in its trading to mitigate the differences in its
investment portfolio and its goal of tracking the price of the Benchmark Futures
Contract. UGA would use a spread when it chooses to take simultaneous long and
short positions in futures written on the same underlying asset, but with
different delivery months. The effect of holding such combined positions is to
adjust the sensitivity of UGA to changes in the price relationship between
futures contracts which will expire sooner and those that will expire later. UGA
would use such a spread if the General Partner felt that taking such long and
short positions, when combined with the rest of its holdings, would more closely
track the investment goals of UGA, or if the General Partner felt it would lead
to an overall lower cost of trading to achieve a given level of economic
exposure to movements in gasoline prices. UGA would enter into a straddle when
it chooses to take an option position consisting of a long (or short) position
in both a call option and put option. The economic effect of holding certain
combinations of put options and call options can be very similar to that of
owning the underlying futures contracts. UGA would make use of such a straddle
approach if, in the opinion of the General Partner, the resulting combination
would more closely track the investment goals of UGA or if it would lead to an
overall lower cost of trading to achieve a given level of economic exposure to
movements in gasoline prices.
UGA has
not employed any hedging methods since all of its investments have been made
over an exchange. Therefore, UGA has not been exposed to counterparty
risk.
Pyramiding
UGA has
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?
BBH&Co.
is the registrar and transfer agent for the units. BBH&Co. is also the
Custodian for UGA. In this capacity, BBH&Co. holds UGA’s Treasuries,
cash and/or cash equivalents pursuant to a custodial agreement. In
addition, in its capacity as Administrator for UGA, BBH&Co. performs certain
administrative and accounting services for UGA and prepares certain SEC and CFTC
reports on behalf of UGA. The General Partner pays BBH&Co.’s fees for these
services.
BBH&Co.’s
principal business address is 50 Milk Street, Boston, MA
02109-3661. BBH&Co., a private bank founded in 1818, is not a publicly
held company nor is it insured by the Federal Deposit Insurance Corporation.
BBH&Co. 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. BBH&Co. 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.
UGA also
employs ALPS Distributors, Inc. as a Marketing Agent. The General Partner
pays the Marketing Agent’s fees. In no event may the aggregate compensation paid
to the Marketing Agent and any affiliate of the General Partner for
distribution-related services in connection with the offering of units exceed
ten percent (10%) of the gross proceeds of the offering.
15
ALPS’s
principal business address is 1290 Broadway, Suite 1100, Denver, CO
80203. ALPS is the marketing agent for UGA. ALPS is a broker-dealer
registered with the Financial Industry Regulatory Authority (“FINRA”) and a
member of the Securities Investor Protection Corporation.
UBS
Securities LLC (“UBS Securities”) is UGA’s futures commission merchant. UGA and
UBS Securities have entered into an Institutional Futures Client Account
Agreement. This Agreement requires UBS Securities to provide services to UGA in
connection with the purchase and sale of Gasoline Interests that may be
purchased or sold by or through UBS Securities for UGA’s account. UGA pays the
fees of UBS Securities.
UBS
Securities’s principal business address is 677 Washington Blvd, Stamford, CT
06901. UBS Securities is a futures clearing broker for UGA. UBS Securities is
registered in the U.S. with FINRA as a broker-dealer and with the CFTC as a
futures commission merchant. UBS Securities is a member of the NFA and of
various U.S. futures and securities exchanges.
UBS
Securities is the defendant in two purported securities class actions pending in
District Court of the Northern District of Alabama, brought by holders of stocks
and bonds of HealthSouth, captioned In re HealthSouth
Corporation Stockholder, No. CV-03-BE-1501-S and In re HealthSouth
Corporation Bondholder Litigation, No. CV-03-BE-1502-S. Both complaints
assert liability under the Exchange Act.
On June
27, 2007, the Securities Division of the Secretary of the Commonwealth of
Massachusetts (“Massachusetts Securities Division”) filed an administrative
complaint (the “Complaint”) and notice of adjudicatory proceeding against UBS
Securities LLC, captioned In The Matter of UBS Securities, LLC, Docket No.
E-2007-0049, which alleges, in sum and substance, that UBS Securities has been
violating the Massachusetts Uniform Securities Act (the “Act”) and related
regulations by providing the advisers for certain hedge funds with gifts and
gratuities in the form of below market office rents, personal loans with below
market interest rates, event tickets, and other perks, in order to induce those
hedge fund advisers to increase or retain their level of prime brokerage fees
paid to UBS Securities. The Complaint seeks a cease and desist order from
conduct that violates the Act and regulations, to censure UBS Securities, to
require UBS Securities to pay an administrative fine of an unspecified amount,
and to find as fact the allegations of the Complaint.
On June
26, 2008, the Massachusetts Securities Division filed an administrative
complaint and notice of adjudicatory proceeding against UBS Securities and UBS
Financial Services, Inc. (“UBS Financial”), captioned In the Matter of UBS
Securities, LLC and UBS Financial Services, Inc., Docket No. 2008-0045, which
alleged that UBS Securities and UBS Financial violated the Act in connection
with the marketing and sale of auction rate securities.
On July
22, 2008, the Texas State Securities board filed an administrative proceeding
against UBS Securities and UBS Financial captioned the Matter of the Dealer
Registrations of UBS Financial Services, Inc. and UBS Securities LLC, SOAH
Docket No. ###-##-####, SSB Docket No. 08-IC04, alleging violations of the
anti-fraud provision of the Texas Securities Act in connection with the
marketing and sale of auction rate securities.
On July
24, 2008 the New York Attorney General (“NYAG”) filed a complaint in Supreme
Court of the State of New York against UBS Securities and UBS Financial
captioned State of New York v. UBS Securities LLC and UBS Financial Services,
Inc., No. 650262/2008, in connection with UBS’s marketing and sale of auction
rate securities. The complaint alleges violations of the anti-fraud provisions
of New York state statutes and seeks a judgment ordering that the firm buy back
auction rate securities from investors at par, disgorgement, restitution and
other remedies.
On August
8, 2008, UBS Securities and UBS Financial reached agreements in principle with
the SEC, the NYAG, the Massachusetts Securities Division and other state
regulatory agencies represented by the North American Securities Administrators
Association (“NASAA”) to restore liquidity to all remaining client’s holdings of
auction rate securities by June 30, 2012. On August 20, 2008, the Texas
proceeding was dismissed and withdrawn. On October 2, 2008, UBS Securities and
UBS Financial entered into a final consent agreement with the Massachusetts
Securities Division settling all allegations in the Massachusetts Securities
Division’s administrative proceeding against UBS Securities and UBS Financial
with regards to the auction rate securities matter. On December 11, 2008, UBS
Securities and UBS Financial executed an Assurance of Discontinuance in the
auction rate securities settlement with the NYAG. On the same day, UBS
Securities and UBS Financial finalized settlements with the
SEC.
16
On August
14, 2008, the New Hampshire Bureau of Securities Regulation filed an
administrative action against UBS Securities relating to a student loan issuer,
the New Hampshire Higher Education Loan Corp. (“NHHELCO”). The complaint alleges
fraudulent and unethical conduct in violation of New Hampshire state statues.
The complaint seeks an administrative fine, a cease and desist order, and
restitution to NHHELCO. The claim does not impact the global settlement with the
SEC, NYAG and NASAA relating to the marketing and sale of auction rate
securities to investors.
Further,
UBS Securities, like most full service investment banks and broker-dealers,
receives inquiries and is sometimes involved in investigations by the SEC,
FINRA, the New York Stock Exchange (the “NYSE”) and various other regulatory
organizations, exchanges and government agencies. UBS Securities fully
cooperates with the authorities in all such requests. UBS Securities regularly
discloses to the FINRA arbitration awards, disciplinary action and regulatory
events. These disclosures are publicly available on the FINRA’s website at www.finra.org. Actions with
respect to UBS Securities’ futures commission merchant business are publicly
available on the website of the National Futures Association (http://www.nfa.futures.org/).
UBS
Securities will act only as clearing broker for UGA and as such will be paid
commissions for executing and clearing trades on behalf of UGA. UBS Securities
has not passed upon the adequacy or accuracy of this annual report on Form 10-K.
UBS Securities neither will act in any supervisory capacity with respect to the
General Partner nor participate in the management of the General Partner or
UGA.
UBS
Securities is not affiliated with UGA or the General Partner. Therefore, UGA
does not believe that UGA has any conflicts of interest with UBS Securities or
their trading principals arising from their acting as UGA’s futures commission
merchant.
Currently,
the General Partner does not employ commodity trading advisors. If, in the
future, the General Partner does employ commodity trading advisors, it will
choose each advisor based on arm’s-length negotiations and will consider the
advisor’s experience, fees and reputation.
Fees of UGA
Fees
and Compensation Arrangements with the General Partner and Non-Affiliated
Service Providers*
|
Service Provider
|
Compensation Paid by the General
Partner
|
|
|
Brown
Brothers Harriman & Co.,
Custodian
and Administrator
|
Minimum
amount of $75,000 annually for its custody, fund accounting and fund
administration services rendered to all 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 UGA’s and the Related Public
Funds’ combined net assets, (b) 0.0465% for UGA’s and the Related Public
Funds’ combined net assets greater than $500 million but less than $1
billion, and (c) 0.035% once UGA’s and the Related Public Funds’ combined
net assets exceed $1 billion.**
|
|
|
ALPS
Distributors, Inc., Marketing Agent
|
|
0.06%
on UGA’s assets up to $3 billion; 0.04% on UGA’s assets in excess of $3
billion.
|
|
*
|
The
General Partner pays this
compensation.
|
|
**
|
The
annual minimum amount will not apply if the asset-based charge for all
accounts in the aggregate exceeds $75,000. The General Partner also will
pay transaction charge fees to BBH&Co., ranging from $7.00 to $15.00
per transaction for the funds.
|
17
Compensation
to the General Partner
|
Assets
|
Management Fee
|
|
|
All
assets
|
0.60%
of
NAV
|
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 UGA’s total assets and subtracting any
liabilities.
Fees
and Compensation Arrangements between UGA and Non-Affiliated Service
Providers***
|
Service Provider
|
Compensation Paid by UGA
|
|
|
UBS
Securities LLC, Futures Commission Merchant
|
Approximately
$3.50 per buy or sell; charges may vary
|
|
|
Non-Affiliated
Brokers
|
Approximately
0.12% of assets
|
|
***
|
UGA
pays this compensation.
|
|
Assets
|
Licensing Fee
|
|
|
First
$1,000,000,000
|
0.04%
of NAV
|
|
|
After
the first $1,000,000,000
|
0.02%
of NAV
|
|
****
|
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. UGA is
responsible for its pro rata share of the assets held by UGA and the
Related Public Funds.
|
Expenses
Paid by UGA through December 31, 2009 in dollar terms:
|
Expenses:
|
Amount in Dollar Terms
|
|||
|
Amount
Paid to General Partner:
|
$ | 474,543 | ||
|
Amount
Paid in Portfolio Brokerage Commissions:
|
$ | 90,757 | ||
|
Other
Amounts Paid or Accrued*****:
|
$ | 529,839 | ||
|
Total
Expenses Paid or Accrued:
|
$ | 1,095,139 | ||
|
Expenses
Waived******:
|
$ | (382,703 | ) | |
|
Total
Expenses Paid or Accrued******:
|
$ | 712,436 | ||
|
*****
|
Includes
expenses relating to the registration of additional units, legal fees,
auditing fees, printing expenses, licensing fees and tax reporting fees
and fees paid to the independent directors of the General
Partner.
|
|
******
|
The
General Partner, 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 December 31,
2009. The General Partner has no obligation to pay such expenses in
subsequent periods.
|
18
Expenses
Paid by UGA through December 31, 2009 as a Percentage of Average Daily Net
Assets:
|
Expenses:
|
Amount
as a Percentage of
Average
Daily Net Assets
|
|
|
Amount
Paid to General Partner:
|
0.60
% annualized
|
|
|
Amount
Paid in Portfolio Brokerage Commissions:
|
0.11
% annualized
|
|
|
Other
Amounts Paid or Accrued:
|
0.67
% annualized
|
|
|
Total
Expenses Paid or Accrued:
|
1.38
% annualized
|
|
|
Expenses
Waived:
|
(0.48)
% annualized
|
|
|
Net
Expense Ratio:
|
0.90
%
annualized
|
Other
Fees. UGA also pays the fees and expenses associated with its
tax accounting and reporting requirements with the exception of certain initial
implementation service fees and base service fees which are paid by the General
Partner. These fees are estimated to be $321,000 for the fiscal year
ended December 31, 2009. In addition, UGA is responsible for the fees
and expenses, which may include director and officers’ liability insurance, of
the independent directors of the General Partner in connection with their
activities with respect to UGA. These director fees and expenses may
be shared with other funds managed by the General Partner. These fees
and expenses for 2009 were $433,046, and UGA’s portion of such fees was
$3,734.
Form
of Units
Registered
Form. Units are issued in registered form in accordance with the LP
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 limited partners and holders of the units in certificated form
in the registry (the “Register”). The General Partner recognizes transfers of
units in certificated form only if done in accordance with the LP Agreement. The
beneficial interests in such units are held in book-entry form through
participants and/or accountholders in the Depository Trust Company
(“DTC”).
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 banks, brokers,
dealers, trust companies and others 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
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
Transfers of
Units Only Through DTC. The units are only transferable through the
book-entry system of DTC. Limited partners 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 definitive security in respect of
such interest.
19
DTC has
advised UGA 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.
Transfer/Application
Requirements. All purchasers of UGA’s units, and potentially any
purchasers of units in the future, who wish to become limited partners or other
record holders and receive cash distributions, if any, or have certain other
rights, must deliver an executed transfer application in which the purchaser or
transferee must certify that, among other things, he, she or it agrees to be
bound by UGA’s LP Agreement and is eligible to purchase UGA’s securities. Each
purchaser of units must execute a transfer application and certification. The
obligation to provide the form of transfer application is imposed on the seller
of units or, if a purchase of units is made through an exchange, the form may be
obtained directly through UGA. Further, the General Partner may request each
record holder to furnish certain information, including that holder’s
nationality, citizenship or other related status. A record holder is a
unitholder that is, or has applied to be, a limited partner. An investor who is
not a U.S. resident may not be eligible to become a record holder or one of
UGA’s limited partners if that investor’s ownership would subject UGA to the
risk of cancellation or forfeiture of any of UGA’s assets under any federal,
state or local law or regulation. If the record holder fails to furnish the
information or if the General Partner determines, on the basis of the
information furnished by the holder in response to the request, that such holder
is not qualified to become one of UGA’s limited partners, the General Partner
may be substituted as a holder for the record holder, who will then be treated
as a non-citizen assignee, and UGA will have the right to redeem those
securities held by the record holder.
A
transferee’s broker, agent or nominee may complete, execute and deliver a
transfer application and certification. UGA may, at its discretion, treat the
nominee holder of a unit as the absolute owner. In that case, the beneficial
holder’s rights are limited solely to those that it has against the nominee
holder as a result of any agreement between the beneficial owner and the nominee
holder.
A person
purchasing UGA’s existing units, who does not execute a transfer application and
certify that the purchaser is eligible to purchase those securities acquires no
rights in those securities other than the right to resell those securities.
Whether or not a transfer application is received or the consent of the General
Partner obtained, UGA’s units are securities and are transferable according to
the laws governing transfers of securities.
Any
transfer of units will not be recorded by the transfer agent or recognized by
the General Partner unless a completed transfer application is delivered to the
General Partner or the Administrator. When acquiring units, the transferee of
such units that completes a transfer application will:
|
·
|
be
an assignee until admitted as a substituted limited partner upon the
consent and sole discretion of the General Partner and the recording of
the assignment on the books and records of the
partnership;
|
|
·
|
automatically
request admission as a substituted limited
partner;
|
|
·
|
agree to be bound by the terms and conditions of,
and execute, UGA’s LP
Agreement;
|
|
·
|
represent that such transferee has the capacity
and authority to enter into UGA’s LP
Agreement;
|
|
·
|
grant powers of attorney to UGA’s General Partner
and any liquidator of UGA;
and
|
|
·
|
make
the consents and waivers contained in UGA’s LP
Agreement.
|
An
assignee will become a limited partner in respect of the transferred units upon
the consent of UGA’s General Partner and the recordation of the name of the
assignee on UGA’s books and records. Such consent may be withheld in the sole
discretion of UGA’s General Partner.
20
If
consent of the General Partner is withheld, such transferee shall be an
assignee. An assignee shall have an interest in the partnership equivalent to
that of a limited partner with respect to allocations and distributions,
including, without limitation, liquidating distributions, of the partnership.
With respect to voting rights attributable to units that are held by assignees,
the General Partner shall be deemed to be the limited partner with respect
thereto and shall, in exercising the voting rights in respect of such units on
any matter, vote such units at the written direction of the assignee who is the
record holder of such units. If no such written direction is received, such
units will not be voted. An assignee shall have no other rights of a limited
partner.
Until a
unit has been transferred on UGA’s books, UGA and the transfer agent may treat
the record holder of the unit as the absolute owner for all purposes, except as
otherwise required by law or stock exchange regulations.
Withdrawal
of Limited Partners
As
discussed in the LP Agreement, if the General Partner gives at least fifteen
(15) days’ written notice to a limited partner, then the General Partner may for
any reason, in its sole discretion, require any such limited partner to withdraw
entirely from the partnership or to withdraw a portion of its partner capital
account. If the General Partner does not give at least fifteen (15) days’
written notice to a limited partner, then it may only require withdrawal of all
or any portion of the capital account of any limited partner in the following
circumstances: (i) the unitholder made a misrepresentation to the General
Partner in connection with its purchase of units; or (ii) the limited
partner’s ownership of units would result in the violation of any law or
regulations applicable to the partnership or a partner. In these circumstances,
the General Partner without notice may require the withdrawal at any time, or
retroactively. The limited partner thus designated shall withdraw from the
partnership or withdraw that portion of its partner capital account specified,
as the case may be, as of the close of business on such date as determined by
the General Partner. The limited partner thus designated shall be deemed to have
withdrawn from the partnership or to have made a partial withdrawal from its
partner capital account, as the case may be, without further action on the part
of the limited partner and the provisions of the LP Agreement shall apply.
Calculating
NAV
UGA’s NAV
is calculated by:
|
·
|
Taking the current market value of its total
assets; and
|
|
·
|
Subtracting
any liabilities
|
In
addition, in order to provide updated information relating to UGA for use by
investors and market professionals, the NYSE Arca calculates and disseminates
throughout the core trading session on each trading day an updated indicative
fund value. The indicative fund value is calculated by using the prior day’s
closing NAV per unit of UGA as a base and updating that value throughout the
trading day to reflect changes in the most recently reported trade price for the
Benchmark Futures Contract on the NYMEX. The prices reported for the
active Benchmark Futures Contract month are adjusted based on the prior
day’s spread differential between settlement values for the relevant contract
and the spot month contract. In the event that the spot month contract is also
the Benchmark Futures Contract, the last sale price for that contract is not
adjusted. 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 the NAV is calculated only once at the end of each trading day
based upon the relevant end of day values of UGA’s investments.
21
The
indicative fund value is 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 the NYMEX are 10:00 a.m.
New York time to 2:30 p.m. New York time. This means that there is a gap in time
at the beginning and the end of each day during which UGA’s units are traded on
the NYSE Arca, but real-time NYMEX trading prices for gasoline futures contracts
traded on the NYMEX are not available. As a result, during those gaps there will
be no update to the indicative fund value.
The NYSE
Arca disseminates the indicative fund value through the facilities of CTA/CQ
High Speed Lines. In addition, the indicative fund value is published on the
NYSE Arca’s website and is 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 UGA units on the NYSE Arca.
Investors and market professionals are able throughout the trading day to
compare the market price of UGA and the indicative fund value. If the market
price of UGA units diverges significantly from the indicative fund value, market
professionals will have an incentive to execute arbitrage trades. For example,
if UGA appears to be trading at a discount compared to the indicative fund
value, a market professional could buy UGA units on the NYSE Arca and sell
short gasoline futures contracts. Such arbitrage trades can tighten the
tracking between the market price of UGA and the indicative fund value and thus
can be beneficial to all market participants.
In
addition, other Futures Contracts, Other Gasoline-Related Investments and
Treasuries held by UGA are 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 are not 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 near month Futures Contracts
for gasoline traded on the NYMEX.
Creation
and Redemption of Units
UGA
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 UGA or the distribution by UGA of the amount of
Treasuries and any cash represented by the baskets being created or redeemed,
the amount of which is based on the combined NAV of the number of units included
in the baskets being created or redeemed determined after 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) 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 General Partner. The Authorized Purchaser Agreement provides the
procedures for the creation and redemption of baskets and for the delivery of
the Treasuries and any cash required for such creations and redemptions. The
Authorized Purchaser Agreement and the related procedures attached thereto may
be amended by UGA, without the consent of any limited partner or unitholder or
Authorized Purchaser. Authorized Purchasers pay a transaction fee of $1,000 to
UGA for each order they place to create or redeem one or more baskets.
Authorized Purchasers who make deposits with UGA in exchange for baskets receive no fees, commissions or other form of compensation or
inducement of any kind from either UGA or the General Partner, and no such
person will have any obligation or responsibility to the General Partner or UGA
to effect any sale or resale of units. As of December 31, 2009, 6
Authorized Purchasers had entered into agreements with UGA. During
the year ended December 31, 2009, UGA issued 29 Creation Baskets and redeemed 20
Redemption Baskets.
Certain
Authorized Purchasers are expected to have the facility to participate directly
in the physical gasoline market and the gasoline futures market. In some cases,
an Authorized Purchaser or its affiliates may from time to time acquire gasoline
or sell gasoline and may profit in these instances. The General Partner believes
that the size and operation of the gasoline market make it unlikely that an
Authorized Purchaser’s direct activities in the gasoline or securities markets
will impact the price of gasoline, Futures Contracts, or the price of the
units.
22
Each
Authorized Purchaser is required to be registered as a broker-dealer under the
Exchange Act and is a member in good standing with FINRA, or exempt from being
or otherwise not required to be licensed as a broker-dealer or a member of
FINRA, and 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 General Partner has agreed to indemnify the
Authorized Purchasers against certain liabilities, including liabilities under
the Securities Act of 1933, as amended, 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 LP Agreement and the form of Authorized Purchaser Agreement
for more detail, each of which is incorporated by reference into this annual
report on Form 10-K.
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 any of
the NYSE Arca, the NYMEX or the NYSE is closed for regular trading. Purchase
orders must be placed by 12:00 p.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 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 UGA, 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
UGA (net of estimated accrued but unpaid fees, expenses and other liabilities)
on the date the order to purchase is accepted as the number of units to be
created under the purchase order is in proportion to the total number of units
outstanding on the date the order is received. The General Partner determines,
directly in its sole discretion or in consultation with the Administrator, the
requirements for Treasuries and the amount of cash, including the maximum
permitted remaining maturity of a Treasury and proportions of Treasury and cash
that may be included in deposits to create baskets. The Marketing Agent will
publish such requirements at the beginning of each business day. The amount of
cash deposit required is the difference between the aggregate market value of
the Treasuries required to be included in a Creation Basket Deposit as of 4:00
p.m. New York time on the date the order to purchase is properly received and
the total required deposit.
Delivery
of Required Deposits
An
Authorized Purchaser who places a purchase order is responsible for transferring
to UGA’s account with the Custodian the required amount of Treasuries and cash
by the end of the third business day following the purchase order date. Upon
receipt of the deposit amount, the Administrator directs 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. The expense and risk of delivery
and ownership of Treasuries until such Treasuries have been received by the
Custodian on behalf of UGA is borne solely by the Authorized
Purchaser.
Because
orders to purchase baskets must be placed by 12:00 p.m., New York time, but the
total payment required to create a basket during the continuous offering period
will not be determined until after 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. UGA’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.
23
Rejection
of Purchase Orders
The
General Partner acting by itself or through the Marketing Agent may reject a
purchase order or a Creation Basket Deposit if:
|
|
·
|
it
determines that the investment alternative available to UGA at that time
will not enable it to meet its investment
objective;
|
|
·
|
it
determines that the purchase order or the Creation Basket Deposit is not
in proper form;
|
|
|
·
|
it
believes that the purchase order or the Creation Basket Deposit would have
adverse tax consequences to UGA or its
unitholders;
|
|
|
·
|
the
acceptance or receipt of the Creation Basket Deposit would, in the opinion
of counsel to the General Partner, be unlawful;
or
|
|
|
·
|
circumstances
outside the control of the General Partner, Marketing Agent or Custodian
make it, for all practical purposes, not feasible to process creations of
baskets.
|
None of
the General Partner, Marketing Agent or 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 12:00 p.m. New York time or
the close of regular trading on the NYSE, 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 UGA not later than 3:00 p.m. 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 UGA’s account at the Custodian the
non-refundable transaction fee due for the redemption order. Authorized
Purchasers may not withdraw a redemption request.
Determination
of Redemption Distribution
The
redemption distribution from UGA consists of a transfer to the redeeming
Authorized Purchaser of an amount of Treasuries and cash that is in the same
proportion to the total assets of UGA (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 General Partner, directly or in consultation with the
Administrator, determines the requirements for Treasuries and the amounts of
cash, including the maximum permitted remaining maturity of a Treasury, and the
proportions of Treasuries and cash that may be included in distributions to
redeem baskets. The Marketing Agent will publish such requirements as of 4:00
p.m. New York time on the redemption order date.
24
Delivery
of Redemption Distribution
The
redemption distribution due from UGA will be delivered to the Authorized
Purchaser by 3:00 p.m. New York time on the third business day following the
redemption order date if, by 3:00 p.m. New York time on such third business day,
UGA’s DTC account has been credited with the baskets to be redeemed. If UGA’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
UGA receives the fee applicable to the extension of the redemption distribution
date which the General Partner may, from time to time, determine and the
remaining baskets to be redeemed are credited to UGA’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 General
Partner, the Custodian will also be authorized to deliver the redemption
distribution notwithstanding that the baskets to be redeemed are not credited to
UGA’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 General Partner may from time to time determine.
Suspension
or Rejection of Redemption Orders
The
General Partner 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 the NYMEX is closed other than customary weekend or holiday
closings, or trading on the NYSE Arca or the NYMEX 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 General Partner determines to be necessary for
the protection of the limited partners. For example, the General Partner may
determine that it is necessary to suspend redemptions to allow for the orderly
liquidation of UGA’s assets at an appropriate value to fund a redemption. If the
General Partner has difficulty liquidating its positions, e.g., because of a
market disruption event in the futures markets, a suspension of trading by the
exchange where the futures contracts are listed 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 General Partner, the Marketing Agent, the Administrator, 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 General Partner will reject a
redemption order if the order is not in proper form as described in the
Authorized Purchaser Agreement or if the fulfillment of the order, in the
opinion of its counsel, might be unlawful. The General Partner 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 General Partner 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 UGA for its expenses in connection with the creation and redemption
of baskets, an Authorized Purchaser is required to pay a transaction fee to UGA
of $1,000 per order to create or redeem baskets. An order may include multiple
baskets. The transaction fee may be reduced, increased or otherwise changed by
the General Partner. The General Partner shall notify DTC of any change in the
transaction fee and will not implement any increase in the fee for the
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 General Partner and UGA if they are required by law to pay any
such tax, together with any applicable penalties, additions to tax or interest
thereon.
Secondary
Market Transactions
As noted,
UGA 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 UGA or the
distribution by UGA of the amount of Treasuries and cash represented by the
baskets being created or redeemed, the amount of which will be based on 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.
25
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 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
UGA at the time the Authorized Purchaser purchased the Creation Baskets and 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 Futures Contract market and the market for Other Gasoline-Related
Investments. The prices of units offered by Authorized Purchasers are expected
to fall between UGA’s NAV and the trading price of the units on the NYSE Arca at
the time of sale. 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. Authorized Purchasers who make deposits
with UGA in exchange for baskets receive no fees, commissions or other form of
compensation or inducement of any kind from either UGA or the General Partner,
and no such person has any obligation or responsibility to the General Partner
or UGA to effect any sale or resale of units. Units 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 Futures Contracts
market and the market for Other Gasoline-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 Futures Contracts and Other Gasoline-Related
Investments may be reduced after the close of the NYMEX at 2:30 p.m. New York
time. As a result, during this time, trading spreads, and the resulting premium
or discount, on the units may widen.
Prior
Performance of UGA
UGA’s
units began trading on the American Stock Exchange (the “AMEX”) on February 26,
2008 and are offered on a continuous basis. As a result of the acquisition of
the AMEX by NYSE Euronext, UGA’s units commenced trading on the NYSE Arca on
November 25, 2008. As of December 31, 2009, the total amount of money raised by
UGA from Authorized Purchasers was $126,264,653 the total number of Authorized
Purchasers was 6; the number of baskets purchased by Authorized Purchasers was
42; the number of baskets redeemed by Authorized Purchasers was 23; and the
aggregate amount of units purchased was 4,200,000. For more information on the
performance of UGA, see the Performance Tables below.
Since its
initial offering of 30,000,000 units, UGA has not made any subsequent offering
of its units. As of December 31, 2009, UGA had issued 4,200,000 units, 1,900,000
of which were outstanding. As of December 31, 2009, there were 25,800,000 units
registered but not yet issued.
Since the
offering of UGA units to the public on February 26, 2008 to December 31, 2009,
the simple average daily change in its benchmark futures contract was -0.011%,
while the simple average daily change in the NAV of UGA over the same time
period was -0.012%. 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 Benchmark Futures Contract, the average error in daily tracking
by the NAV was -0.674%, meaning that over this time period UGA’s tracking error
was within the plus or minus 10% range established as its benchmark tracking
goal.
26
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
|
Dollar
Amount Offered*:
|
$ | 1,500,000,000 | ||
|
Dollar
Amount Raised:
|
$ | 126,264,653 | ||
|
Organizational
and Offering Expenses**:
|
||||
|
SEC
registration fee:
|
$ | 184,224 | ||
|
FINRA
registration fee:
|
$ | 151,000 | ||
|
Listing
fee:
|
$ | 5,000 | ||
|
Auditor’s
fees and expenses:
|
$ | 27,500 | ||
|
Legal
fees and expenses:
|
$ | 217,078 | ||
|
Printing
expenses:
|
$ | 162,901 | ||
|
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
September 1, 2009, initial offering costs and a portion of ongoing
expenses were paid for by the General Partner. Following September 1,
2009, UGA has recorded these
expenses.
|
Compensation
to the General Partner and Other Compensation UGA:
Expenses
paid by UGA through December 31, 2009 in dollar terms:
|
Expenses:
|
Amount in Dollar Terms
|
|||
|
Amount
Paid to General Partner:
|
$ | 474,543 | ||
|
Amount
Paid in Portfolio Brokerage Commissions:
|
$ | 90,757 | ||
|
Other
Amounts Paid*:
|
$ | 529,839 | ||
|
Total
Expenses Paid or Accrued:
|
$ | 1,095,139 | ||
|
Expenses
Waived**:
|
$ | (382,703 | ) | |
|
Total
Expenses Paid or Accrued Including Expenses Waived:
|
$ | 712,436 | ||
|
*
|
Includes
expenses relating to the registration of additional units, legal fees,
auditing fees, printing expenses, licensing fees and tax reporting fees
and fees paid to the independent directors of the General
Partner.
|
|
**
|
The
General Partner, 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. The General Partner
has no obligation to continue such payment into subsequent
periods.
|
Expenses
paid by UGA through December 31, 2009 as a Percentage of Average Daily Net
Assets:
|
Expenses:
|
Amount as a Percentage of
Average Daily Net Assets
|
|
|
Amount
Paid to General Partner:
|
0.60%
annualized
|
|
|
Amount
Paid in Portfolio Brokerage Commissions:
|
0.11%
annualized
|
|
|
Other
Amounts Paid:
|
0.67%
annualized
|
|
|
Total
Expenses Paid or Accrued:
|
1.38%
annualized
|
|
|
Expenses
Waived:
|
(0.48)%
annualized
|
|
|
Total
Expenses Paid or Accrued Including Expenses Waived:
|
0.90%
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 December 31, 2009):
|
$ | 126,263,653 | ||
|
Total
Net Assets as of December 31, 2009:
|
$ | 69,185,740 | ||
|
Initial
NAV per Unit as of Inception:
|
$ | 50.00 | ||
|
NAV
per Unit as of December 31, 2009:
|
$ | 36.41 | ||
|
Worst
Monthly Percentage Draw-down:
|
October
2008 (38.48%)
|
|||
|
Worst
Peak-to-Valley Draw-down:
|
June 2008 – December 2008 (69.02%)
|
|||
|
Number
of Unitholders (as of December 31, 2009)
|
5,131 | |||
27
COMPOSITE
PERFORMANCE DATA FOR UGA
|
Rates of return*
|
||||||||
|
Month
|
2008
|
2009
|
||||||
|
January
|
- | 16.23 | % | |||||
|
February
|
(0.56 | )%** | 0.26 | % | ||||
|
March
|
(2.39 | )% | 2.59 | % | ||||
|
April
|
10.94 | % | 2.07 | % | ||||
|
May
|
15.60 | % | 30.41 | % | ||||
|
June
|
4.80 | % | 1.65 | % | ||||
|
July
|
(12.79 | )% | 6.24 | % | ||||
|
August
|
(3.88 | )% | (3.71 | )% | ||||
|
September
|
(9.36 | )% | (3.38 | )% | ||||
|
October
|
(38.48 | )% | 10.96 | % | ||||
|
November
|
(21.35 | )% | 1.00 | % | ||||
|
December
|
(15.72 | )% | 0.55 | % | ||||
|
Annual
Rate of Return
|
(59.58 | )%** | 80.16 | % | ||||
|
*
|
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.
|
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.
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-trough 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.
Prior
Performance of the Related Public Funds
28
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 December 31, 2009, the total amount of money raised by USOF
from its authorized purchasers was $24,257,292,570; the total number of
authorized purchasers of USOF was 17; the number of baskets purchased by
authorized purchasers of USOF was 4,752; the number of baskets redeemed by
authorized purchasers of USOF was 4,121; and the aggregate amount of units
purchased was 475,200,000. USOF employs an investment strategy in its operations
that is similar to the investment strategy of UGA, except that its benchmark is
the near month contract to expire for light, sweet crude oil delivered to
Cushing, Oklahoma.
Since the
offering of USOF units to the public on April 10, 2006 to December 31, 2009, the
simple average daily change in its benchmark oil futures contract was -0.027%,
while the simple average daily change in the NAV of USOF over the same time
period was -0.022%. 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 daily
movement of the benchmark oil futures contract, the average error in daily
tracking by the NAV was 1.56%, 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 December 31, 2009, the total amount of money raised by USNG
from its authorized purchasers was $10,435,093,775; the total number of
authorized purchasers of USNG was 14; the number of baskets purchased by
authorized purchasers of USNG was 5,821; the number of baskets redeemed by
authorized purchasers of USNG was 1,326; and the aggregate amount of units
purchased was 582,100,000. USNG employs an investment strategy in its operations
that is similar to the investment strategy of UGA, except its benchmark is the
near month contract for natural gas delivered at the Henry Hub,
Louisiana.
Since the
offering of USNG units to the public on April 18, 2007 to December 31, 2009, the
simple average daily change in its benchmark futures contract was -0.181%, while
the simple average daily change in the NAV of USNG over the same time period was
-0.179%. 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
0.392%, meaning that over this time period USNG’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 invests in a mixture of listed crude oil
futures contracts, other non-listed oil related investments, Treasuries, cash
and cash equivalents. As of December 31, 2009, the total amount of money raised
by US12OF from its authorized purchasers was $224,069,815; the total number of
authorized purchasers of US12OF was 4; the number of baskets purchased by
authorized purchasers of US12OF was 75; the number of baskets redeemed by
authorized purchasers of US12OF was 34; and the aggregate amount of units
purchased was 7,500,000. US12OF employs an investment strategy in its operations
that is similar to the investment strategy of UGA, except that its benchmark is
the average of the prices of the near month contract to expire and the following
eleven months contracts for light, sweet crude oil delivered to Cushing,
Oklahoma.
29
Since the
offering of US12OF units to the public on December 6, 2007 to December 31, 2009,
the simple average daily change in its benchmark oil futures contract was
-0.004%, while the simple average daily change in the NAV of US12OF over the
same time period was -0.003%. 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 benchmark oil futures contract, the average error in daily
tracking by the NAV was -0.107%, meaning that over this time period US12OF’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 changes in percentage terms of its units’ NAV to
reflect the 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
may invest 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 9, 2008 and are offered on a
continuous basis. As of December 31, 2009, the total amount of money raised by
USHO from its authorized purchasers was $27,750,399; the total number of
authorized purchasers of USHO was 6; the number of baskets purchased by
authorized purchasers of USHO was 8; the number of baskets redeemed by
authorized purchasers of USHO was 2; and the aggregate amount of units purchased
was 800,000. USHO employs an investment strategy in its operations that is
similar to the investment strategy of UGA, except that its benchmark is the near
month contract for heating oil delivered to the New York harbor.
Since the
offering of USHO units to the public on April 9, 2008 to December 31, 2009, the
simple average daily change in its benchmark futures contract was -0.093%, while
the simple average daily change in the NAV of USHO over the same time period was
-0.093%. The average daily difference was 0%. As a percentage of the daily
movement of the benchmark futures contract, the average error in daily tracking
by the NAV was -0.696%, meaning that over this time period USHO’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 changes in percentage terms of its units’ NAV to
inversely 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 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 invests in short positions in
listed crude oil futures contracts, other non-listed oil related investments,
Treasuries, cash and cash equivalents. As of December 31, 2009, the total amount
of money raised by USSO from its authorized purchasers was $14,290,534; the
total number of authorized purchasers of USSO was 7; the number of baskets
purchased by authorized purchasers of USSO was 3; no baskets were redeemed by
authorized purchasers of USSO; and the aggregate amount of units purchased was
300,000. USSO employs an investment strategy in its operations that is similar
to the investment strategy of UGA, except that its benchmark is the inverse of
the near month contract for light, sweet crude oil delivered to Cushing,
Oklahoma.
Since the
offering of USSO units to the public on September 24, 2009 to December 31, 2009,
the inverse of the simple average daily change in its benchmark futures contract
was -0.164%, while the simple average daily change in the NAV of USSO over the
same time period was -0.167%. 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
inverse of the daily movement of the benchmark futures contract, the average
error in daily tracking by the NAV was -0.179%, 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 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 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 invests in a mixture of listed natural gas
futures contracts, other non-listed natural gas related investments, Treasuries,
cash and cash equivalents. As of December 31, 2009, the total amount of money
raised by US12NG from its authorized purchasers was $40,652,357; the total
number of authorized purchasers of US12NG was 2; the number of baskets purchased
by authorized purchasers of US12NG was 8; the number of baskets redeemed by
authorized purchasers of US12NG was 1; and the aggregate amount of units
purchased was 800,000. US12NG employs an investment strategy in its operations
that is similar to the investment strategy of UGA, except that its benchmark is
the average of the prices of the near month contract to expire and the following
eleven months contracts for natural gas delivered at the Henry Hub,
Louisiana.
30
Since the
offering of US12NG units to the public on November 18, 2009 to December 31,
2009, the simple average daily change in its benchmark futures contracts was
0.291%, while the simple average daily change in the NAV of US12NG over the same
time period was 0.287%. 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 0.089%, meaning that over this time period US12NG’s tracking
error was within the plus or minus 10% range established as its benchmark
tracking goal.
The
General Partner has filed a registration statement for two other exchange traded
security funds, USBO and USCI. The investment objective of USBO will be
for the daily changes in percentage terms of its units’ NAV to reflect the
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 traded on
the ICE Futures, less USBO’s expenses. The investment objective of USCI will be
for the daily changes in percentage terms of its units’ NAV to reflect the daily
changes in percentage terms of the SDCI Total Return, less USCI’s
expenses.
There are
significant differences between investing in UGA and the Related Public Funds
and investing directly in the futures market. The General Partner’s results with
UGA and 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. Moreover, given the different
investment objectives of UGA and the Related Public Funds, the performance of
UGA may not be representative of results that may be experienced by the other
Related Public Funds. For more information on the performance of the Related
Public Funds, see the Performance Tables below.
USOF:
Experience
in Raising and Investing in Funds through December 31, 2009
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
|
Dollar
Amount Offered *:
|
$ | 71,257,630,000 | ||
|
Dollar
Amount Raised:
|
$ | 24,257,292,570 | ||
|
Organizational
and Offering Expenses **:
|
||||
|
SEC
registration fee:
|
$ | 2,480,174 | ||
|
FINRA
registration fee:
|
$ | 603,500 | ||
|
Listing
fee:
|
$ | 5,000 | ||
|
Auditor’s
fees and expenses:
|
$ | 495,850 | ||
|
Legal
fees and expenses:
|
$ | 2,040,875 | ||
|
Printing
expenses:
|
$ | 285,230 | ||
|
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
General Partner in connection with the initial public offering. Following
December 31, 2006, USOF has recorded these
expenses.
|
31
Compensation
to the General Partner and Other Compensation USOF:
Expenses
Paid by USOF through December 31, 2009 in dollar terms:
|
Expenses:
|
Amount in Dollar Terms
|
|||
|
Amount
Paid to General Partner:
|
$ | 20,842,027 | ||
|
Amount
Paid in Portfolio Brokerage Commissions:
|
$ | 7,159,498 | ||
|
Other
Amounts Paid *:
|
$ | 8,770,873 | ||
|
Total
Expenses Paid:
|
$ | 36,772,398 | ||
|
*
|
Includes
expenses relating to the registration of additional units, legal fees,
auditing fees, printing expenses, licensing fees and tax reporting fees
and fees paid to the independent directors of the General
Partner.
|
Expenses
Paid by USOF through December 31, 2009 as a Percentage of Average Daily Net
Assets:
|
Expenses in USOF Offering:
|
Amount as a Percentage
of Average Daily Net Assets
|
|
|
Amount
Paid to General Partner:
|
0.46%
annualized
|
|
|
Amount
Paid in Portfolio Brokerage Commissions:
|
0.16%
annualized
|
|
|
Other
Amounts Paid:
|
0.19%
annualized
|
|
|
Total
Expenses Paid:
|
0.81%
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
December 31, 2009):
|
$ | 24,257,292,570 | ||
|
Total
Net Assets as of December 31, 2009:
|
$ | 2,471,252,817 | ||
|
Initial
NAV per Unit as of Inception:
|
$ | 67.39 | ||
|
NAV
per Unit as of December 31, 2009:
|
$ | 39.16 | ||
|
Worst
Monthly Percentage Draw-down:
|
October
2008 (31.57)%
|
|||
|
Worst
Peak-to-Valley Draw-down:
|
June 2008 – February 2009 (75.84)%
|
|||
|
Number
of Unitholders (as of December 31, 2009)
|
84,835 | |||
COMPOSITE
PERFORMANCE DATA FOR USOF
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
|
Rates of return*
|
||||||||||||||||
|
Month
|
2006
|
2007
|
2008
|
2009
|
||||||||||||
|
January
|
– | (6.55 | )% | (4.00 | )% | (14.60 | )% | |||||||||
|
February
|
– | 5.63 | % | 11.03 | % | (6.55 | )% | |||||||||
|
March
|
– | 4.61 | % | 0.63 | % | 7.23 | % | |||||||||
|
April
|
3.47 | %** | (4.26 | )% | 12.38 | % | (2.38 | )% | ||||||||
|
May
|
(2.91 | )% | (4.91 | )% | 12.80 | % | 26.69 | % | ||||||||
|
June
|
3.16 | % | 9.06 | % | 9.90 | % | 4.16 | % | ||||||||
|
July
|
(0.50 | )% | 10.57 | % | (11.72 | )% | (2.30 | )% | ||||||||
|
August
|
(6.97 | )% | (4.95 | )% | (6.75 | )% | (1.98 | )% | ||||||||
|
September
|
(11.72 | )% | 12.11 | % | (12.97 | )% | 0.25 | % | ||||||||
|
October
|
(8.45 | )% | 16.98 | % | (31.57 | )% | 8.43 | % | ||||||||
|
November
|
4.73 | % | (4.82 | )% | (20.65 | )% | (0.51 | )% | ||||||||
|
December
|
(5.21 | )% | 8.67 | % | (22.16 | )% | (0.03 | )% | ||||||||
|
Annual
Rate of Return
|
(23.03 | )%** | 46.17 | % | (54.75 | )% | 14.14 | % | ||||||||
|
*
|
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.
|
32
For a
definition of draw-down, please see text below “Composite Performance Data for
UGA”.
USNG:
Experience
in Raising and Investing in Funds through December 31, 2009
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
|
Dollar
Amount Offered*:
|
$ | 24,056,500,000 | ||
|
Dollar
Amount Raised:
|
$ | 10,435,093,775 | ||
|
Organizational
and Offering Expenses**:
|
||||
|
SEC
registration fee:
|
$ | 1,361,084 | ||
|
FINRA
registration fee:
|
$ | 377,500 | ||
|
Listing
fee:
|
$ | 5,000 | ||
|
Auditor’s
fees and expenses:
|
$ | 274,350 | ||
|
Legal
fees and expenses:
|
$ | 1,614,956 | ||
|
Printing
expenses:
|
$ | 73,270 | ||
|
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 General Partner.
Following April 18, 2007, USNG has recorded these
expenses.
|
Compensation
to the General Partner and Other Compensation USNG:
Expenses
paid by USNG through December 31, 2009 in dollar terms:
|
Expenses:
|
Amount in Dollar Terms
|
|||
|
Amount
Paid to General Partner:
|
$ | 19,802,761 | ||
|
Amount
Paid in Portfolio Brokerage Commissions:
|
$ | 12,603,078 | ||
|
Other
Amounts Paid*:
|
$ | 8,074,997 | ||
|
Total
Expenses Paid:
|
$ | 40,480,836 | ||
|
*
|
Includes
expenses relating to the registration of additional units, legal fees,
auditing fees, printing expenses, licensing fees and tax reporting fees
and fees paid to the independent directors of the General
Partner.
|
33
Expenses
paid by USNG through December 31, 2009 as a Percentage of Average Daily Net
Assets:
|
Expenses:
|
Amount as a Percentage
of Average Daily Net Assets
|
|
|
Amount
Paid to General Partner:
|
0.55%
annualized
|
|
|
Amount
Paid in Portfolio Brokerage Commissions:
|
0.35%
annualized
|
|
|
Other
Amounts Paid:
|
0.23%
annualized
|
|
|
Total
Expenses Paid:
|
1.13%
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 December 31, 2009):
|
$ | 10,435,093,775 | ||
|
Total
Net Assets as of December 31, 2009:
|
$ | 4,525,107,163 | ||
|
Initial
NAV per Unit as of Inception:
|
$ | 50.00 | ||
|
NAV
per Unit as of December 31, 2009:
|
$ | 10.07 | ||
|
Worst
Monthly Percentage Draw-down:
|
July
2008 (32.13)%
|
|||
|
Worst
Peak-to-Valley Draw-down:
|
June 2008 – November 2009 (85.89)%
|
|||
|
Number
of Unitholders (as of December 31, 2009)
|
203,277 | |||
COMPOSITE
PERFORMANCE DATA FOR USNG
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
|
Rates of return*
|
||||||||||||
|
Month
|
2007
|
2008
|
2009
|
|||||||||
|
January
|
– | 8.87 | % | (21.49 | )% | |||||||
|
February
|
– | 15.87 | % | (5.47 | )% | |||||||
|
March
|
– | 6.90 | % | (11.81 | )% | |||||||
|
April
|
4.30 | %** | 6.42 | % | (13.92 | )% | ||||||
|
May
|
(0.84 | )% | 6.53 | % | 10.37 | % | ||||||
|
June
|
(15.90 | )% | 13.29 | % | (4.63 | )% | ||||||
|
July
|
(9.68 | )% | (32.13 | )% | (8.70 | )% | ||||||
|
August
|
(13.37 | )% | (13.92 | )% | (27.14 | )% | ||||||
|
September
|
12.28 | % | (9.67 | )% | 26.03 | % | ||||||
|
October
|
12.09 | % | (12.34 | )% | (13.31 | )% | ||||||
|
November
|
(16.16 | )% | (6.31 | )% | (11.86 | )% | ||||||
|
December
|
0.75 | % | (14.32 | )% | 13.91 | % | ||||||
|
Annual
Rate of Return
|
(27.64 | )%** | (35.68 | )% | (56.73 | )% | ||||||
|
*
|
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.
|
For a
definition of draw-down, please see text below “Composite Performance Data for
UGA”.
34
US12OF:
Experience
in Raising and Investing in Funds through December 31, 2009
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
|
Dollar
Amount Offered *:
|
$ | 3,718,000,000 | ||
|
Dollar
Amount Raised:
|
$ | 224,069,815 | ||
|
Organizational
and Offering Expenses**:
|
||||
|
SEC
registration fee:
|
$ | 129,248 | ||
|
FINRA
registration fee:
|
$ | 151,000 | ||
|
Listing
fee:
|
$ | 5,000 | ||
|
Auditor’s
fees and expenses:
|
$ | 60,700 | ||
|
Legal
fees and expenses:
|
$ | 301,279 | ||
|
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 General Partner in connection with the initial public
offering. Following March 31, 2009, US12OF has recorded these
expenses.
|
Compensation
to the General Partner and Other Compensation US12OF:
Expenses paid by US12OF through December 31, 2009 in dollar
terms:
|
Expenses:
|
Amount in Dollar Terms
|
|||
|
Amount
Paid to General Partner:
|
$ | 922,534 | ||
|
Amount
Paid in Portfolio Brokerage Commissions:
|
$ | 52,790 | ||
|
Other
Amounts Paid *:
|
$ | 798,777 | ||
|
Total
Expenses Paid or Accrued:
|
$ | 1,774,101 | ||
|
Expenses
Waived**:
|
$ | (108,246 | ) | |
|
Total
Expenses Paid or Accrued Including Expenses Waived:
|
$ | 1,665,855 | ||
|
*
|
Includes
expenses relating to the registration of additional units, legal fees,
auditing fees, printing expenses, licensing fees and tax reporting fees
and fees paid to the independent directors of the General
Partner.
|
|
**
|
The
General Partner, 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
General Partner has no obligation to continue such payment in subsequent
periods.
|
Expenses paid by US12OF through December 31, 2009 as a
Percentage of Average Daily Net Assets:
|
Expenses:
|
Amount as a Percentage
of Average Daily Net Assets
|
|
|
Amount
Paid to General Partner:
|
0.60%
annualized
|
|
|
Amount
Paid in Portfolio Brokerage Commissions:
|
0.03%
annualized
|
|
|
Other
Amounts Paid:
|
0.52%
annualized
|
|
|
Total
Expenses Paid or Accrued:
|
1.15%
annualized
|
|
|
Expenses
Waived:
|
(0.07)%
annualized
|
|
|
Total
Expenses Paid or Accrued Including Expenses Waived:
|
1.08%
annualized
|
35
|
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 December
31, 2009):
|
$ | 224,069,815 | ||
|
Total
Net Assets as of December 31, 2009:
|
$ | 165,523,309 | ||
|
Initial
NAV per Unit as of Inception:
|
$ | 50.00 | ||
|
NAV
per Unit as of December 31, 2009:
|
$ | 40.37 | ||
|
Worst
Monthly Percentage Draw-down:
|
October
2008 (29.59)%
|
|||
|
Worst
Peak-to-Valley Draw-down:
|
June
2008–February 2009 (66.97)%
|
|||
|
Number
of Unitholders (as of December 31, 2009)
|
6,875 | |||
COMPOSITE
PERFORMANCE DATA FOR US12OF
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
|
Rates of return*
|
||||||||||||
|
Month
|
2007
|
2008
|
2009
|
|||||||||
|
January
|
– | (2.03 | )% | (7.11 | )% | |||||||
|
February
|
– | 10.48 | % | (4.34 | )% | |||||||
|
March
|
– | (0.66 | )% | 9.22 | % | |||||||
|
April
|
– | 11.87 | % | (1.06 | )% | |||||||
|
May
|
– | 15.47 | % | 20.40 | % | |||||||
|
June
|
– | 11.59 | % | 4.51 | % | |||||||
|
July
|
– | (11.39 | )% | 1.22 | % | |||||||
|
August
|
– | (6.35 | )% | (2.85 | )% | |||||||
|
September
|
– | (13.12 | )% | (0.92 | )% | |||||||
|
October
|
– | (29.59 | )% | 8.48 | % | |||||||
|
November
|
– | (16.17 | )% | 2.31 | % | |||||||
|
December
|
8.46 | %** | (12.66 | )% | (1.10 | )% | ||||||
|
Annual
Rate of Return
|
8.46 | %** | (42.39 | )% | 29.23 | % | ||||||
|
*
|
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.
|
For a
definition of draw-down, please see text below “Composite Performance Data for
UGA”
USHO:
Experience
in Raising and Investing in Funds through December 31, 2009
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
|
Dollar
Amount Offered*:
|
$ | 500,000,000 | ||
|
Dollar
Amount Raised:
|
$ | 27,750,399 | ||
|
Organizational
and Offering Expenses**:
|
||||
|
SEC
registration fee:
|
$ | 142,234 | ||
|
FINRA
registration fee:
|
$ | 151,000 | ||
|
Listing
fee:
|
$ | 5,000 | ||
|
Auditor’s
fees and expenses:
|
$ | 27,500 | ||
|
Legal
fees and expenses:
|
$ | 121,321 | ||
|
Printing
expenses:
|
$ | 106,584 | ||
|
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 General Partner. Following August 31, 2009, USHO has
recorded these expenses.
|
36
Compensation
to the General Partner and Other Compensation USHO:
Expenses
paid by USHO through December 31, 2009 in dollar terms:
|
Expenses:
|
Amount in Dollar Terms
|
|||
|
Amount
Paid to General Partner:
|
$ | 109,681 | ||
|
Amount
Paid in Portfolio Brokerage Commissions:
|
$ | 18,418 | ||
|
Other
Amounts Paid*:
|
$ | 333,904 | ||
|
Total
Expenses Paid:
|
$ | 462,003 | ||
|
Expenses
Waived **:
|
$ | (299,225 | ) | |
|
Total
Expenses Paid or Accrued Including Expenses Waived:
|
$ | 162,778 | ||
|
*
|
Includes
expenses relating to the registration of additional units, legal fees,
auditing fees, printing expenses, licensing fees and tax reporting fees
and fees paid to the independent directors of the General
Partner.
|
|
**
|
The
General Partner, 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. The General
Partner has no obligation to continue such payment into subsequent
periods.
|
Expenses
paid by USHO through December 31, 2009 as a Percentage of Average Daily Net
Assets:
|
Expenses:
|
Amount as a Percentage
of Average Daily Net Assets
|
|
|
Amount
Paid to General Partner:
|
0.60%
annualized
|
|
|
Amount
Paid in Portfolio Brokerage Commissions:
|
0.10%
annualized
|
|
|
Other
Amounts Paid:
|
1.83%
annualized
|
|
|
Total
Expenses Paid:
|
2.53%
annualized
|
|
|
Expenses
Waived:
|
(1.64)%
annualized
|
|
|
Total
Expenses Paid or Accrued Including Expenses Waived:
|
0.89%
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 December 31,
2009):
|
$ | 27,750,399 | ||
|
Total
Net Assets as of December 31, 2009:
|
$ | 16,525,095 | ||
|
Initial
NAV per Unit as of Inception:
|
$ | 50.00 | ||
|
NAV
per Unit as of December 31, 2009:
|
$ | 27.54 | ||
|
Worst
Monthly Percentage Draw-down:
|
October
2008 (28.63)%
|
|||
|
Worst
Peak-to-Valley Draw-down:
|
June
2008 – February 2009 (69.17)%
|
|||
|
Number
of Unitholders (as of December 31, 2009)
|
1,154 | |||
37
COMPOSITE
PERFORMANCE DATA FOR USHO
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
|
Rates of return*
|
||||||
|
Month
|
2008
|
2009
|
||||
|
January
|
– | 0.05 | % | |||
|
February
|
– | (11.34 | )% | |||
|
March
|
– | 6.73 | % | |||
|
April
|
2.84 | %** | (3.85 | )% | ||
|
May
|
15.93 | % | 23.13 | % | ||
|
June
|
5.91 | % | 4.55 | % | ||
|
July
|
(12.18 | )% | 0.39 | % | ||
|
August
|
(8.41 | )% | (2.71 | )% | ||
|
September
|
(9.77 | )% | (0.48 | )% | ||
|
October
|
(28.63 | )% | 7.60 | % | ||
|
November
|
(18.38 | )% | 0.19 | % | ||
|
December
|
(17.80 | )% | 2.23 | % | ||
|
Annual
Rate of Return
|
(56.12 | )%** | 25.52 | % | ||
|
*
|
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.
|
For a
definition of draw-down, please see text below “Composite Performance Data for
UGA”
USSO:
Experience
in Raising and Investing in Funds through December 31, 2009
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
|
Dollar
Amount Offered *:
|
$ | 1,500,000,000 | ||
|
Dollar
Amount Raised:
|
$ | 14,290,534 | ||
|
Organizational
and Offering Expenses **:
|
||||
|
SEC
registration fee:
|
$ | 49,125 | ||
|
FINRA
registration fee:
|
$ | 75,500 | ||
|
Listing
fee:
|
$ | 5,000 | ||
|
Legal
fees and expenses:
|
$ | 512,460 | ||
|
Printing
expenses:
|
$ | 23,945 | ||
|
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 General
Partner.
|
38
Compensation
to the General Partner and Other Compensation USSO:
Expenses
paid by USSO through December 31, 2009 in dollar terms:
|
Expenses:
|
Amount in Dollar Terms
|
|||
|
Amount
Paid to General Partner:
|
$ | 20,150 | ||
|
Amount
Paid in Portfolio Brokerage Commissions:
|
$ | 4,695 | ||
|
Other
Amounts Paid *:
|
$ | 212,443 | ||
|
Total
Expenses Paid:
|
$ | 237,288 | ||
|
Expenses
Waived **:
|
$ | (206,444 | ) | |
|
Total
Expenses Paid or Accrued Including Expenses Waived:
|
$ | 30,844 | ||
|
*
|
Includes
expenses relating to legal fees, auditing fees, printing expenses,
licensing fees and tax reporting fees and fees paid to the independent
directors of the General Partner.
|
|
**
|
The
General Partner, 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. The General
Partner has no obligation to continue such payment into subsequent
periods.
|
Expenses
paid by USSO through December 31, 2009 as a Percentage of Average Daily Net
Assets:
|
Expenses:
|
Amount as a Percentage
of Average Daily Net Assets
|
|
|
Amount
Paid to General Partner:
|
0.60%
annualized
|
|
|
Amount
Paid in Portfolio Brokerage Commissions:
|
0.14%
annualized
|
|
|
Other
Amounts Paid:
|
6.33%
annualized
|
|
|
Total
Expenses Paid:
|
7.07%
annualized
|
|
|
Expenses
Waived:
|
(6.15)%
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 December
31, 2009):
|
$ | 14,290,534 | ||
|
Total
Net Assets as of December 31, 2009:
|
$ | 13,196,305 | ||
|
Initial
NAV per Unit as of Inception:
|
$ | 50.00 | ||
|
NAV
per Unit as of December 31, 2009:
|
$ | 43.99 | ||
|
Worst
Monthly Percentage Draw-down:
|
October
2009 (8.65)%
|
|||
|
Worst
Peak-to-Valley Draw-down:
|
September
2009-December 2009 (12.02)%
|
|||
|
Number
of Unitholders (as of December 31, 2009)
|
185 | |||
39
COMPOSITE
PERFORMANCE DATA FOR USSO
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
|
Rates of return*
|
||||
|
Month
|
2009
|
|||
|
January
|
– | |||
|
February
|
– | |||
|
March
|
– | |||
|
April
|
– | |||
|
May
|
– | |||
|
June
|
– | |||
|
July
|
– | |||
|
August
|
– | |||
|
September
|
(2.90 | )%** | ||
|
October
|
(8.65 | )% | ||
|
November
|
(0.25 | )% | ||
|
December
|
(0.57 | )% | ||
|
Annual
Rate of Return
|
(12.02 | )%** | ||
|
*
|
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.
|
For a
definition of draw-down, please see text below “Composite Performance Data for
UGA”
US12NG:
Experience
in Raising and Investing in Funds through December 31, 2009
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
|
Dollar
Amount Offered *:
|
$ | 1,500,000,000 | ||
|
Dollar
Amount Raised:
|
$ | 40,652,357 | ||
|
Organizational
and Offering Expenses **:
|
||||
|
SEC
registration fee:
|
$ | 82,445 | ||
|
FINRA
registration fee:
|
$ | 75,500 | ||
|
Listing
fee:
|
$ | 5,000 | ||
|
Auditor’s
fees and expenses:
|
$ | 2,500 | ||
|
Legal
fees and expenses:
|
$ | 202,252 | ||
|
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 General
Partner.
|
Compensation
to the General Partner and Other Compensation US12NG:
Expenses
paid by US12NG through December 31, 2009 in dollar terms:
|
Expenses:
|
Amount in Dollar Terms
|
|||
|
Amount
Paid to General Partner:
|
$ | 16,490 | ||
|
Amount
Paid in Portfolio Brokerage Commissions:
|
$ | 9,284 | ||
|
Other
Amounts Paid*:
|
$ | 141,553 | ||
|
Total
Expenses Paid:
|
$ | 167,327 | ||
|
Expenses
Waived **:
|
$ | (136,678 | ) | |
|
Total
Expenses Paid or Accrued Including Expenses Waived:
|
$ | 30,649 | ||
40
|
*
|
Includes
expenses relating to legal fees, auditing fees, printing expenses,
licensing fees and tax reporting fees and fees paid to the independent
directors of the General Partner.
|
|
**
|
The
General Partner, 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. The General
Partner has no obligation to continue such payment into subsequent
periods.
|
Expenses
paid by US12NG through December 31, 2009 as a Percentage of Average Daily Net
Assets:
|
Expenses:
|
Amount
as a Percentage
of Average Daily Net
Assets
|
|
|
Amount
Paid to General Partner:
|
0.60%
annualized
|
|
|
Amount
Paid in Portfolio Brokerage Commissions:
|
0.34%
annualized
|
|
|
Other
Amounts Paid:
|
5.15%
annualized
|
|
|
Total
Expenses Paid:
|
6.09%
annualized
|
|
|
Expenses
Waived:
|
(4.97)%
annualized
|
|
|
Total
Expenses Paid or Accrued Including Expenses Waived:
|
1.12%
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 December 31,
2009):
|
$ | 40,652,357 | ||
|
Total
Net Assets as of December 31, 2009:
|
$ | 37,637,148 | ||
|
Initial
NAV per Unit as of Inception:
|
$ | 50.00 | ||
|
NAV
per Unit as of December 31, 2009:
|
$ | 53.77 | ||
|
Worst
Monthly Percentage Draw-down:
|
November
2009 (0.02)%
|
|||
|
Worst
Peak-to-Valley Draw-down:
|
November
2009 (0.02)%
|
|||
|
Number
of Unitholders (as of December 31, 2009)
|
1,276 | |||
COMPOSITE
PERFORMANCE DATA FOR US12NG
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
|
Rates of return*
|
|||
|
Month
|
2009
|
||
|
January
|
– | ||
|
February
|
– | ||
|
March
|
– | ||
|
April
|
– | ||
|
May
|
– | ||
|
June
|
– | ||
|
July
|
– | ||
|
August
|
– | ||
|
September
|
– | ||
|
October
|
– | ||
|
November
|
(0.02 | )%** | |
|
December
|
7.56 | % | |
|
Annual
Rate of Return
|
7.54 | %** | |
|
*
|
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.
|
41
For a
definition of draw-down, please see text below “Composite Performance Data for
UGA”
Other
Related Commodity Trading and Investment Management Experience
Until
December 31, 2009, Ameristock Corporation was an affiliate of the General
Partner. Ameristock Corporation is a California-based registered
investment advisor registered under the Investment Advisers 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, as amended (the “1940 Act”), that focuses on large cap U.S.
equities that has $219,616,809 in assets as of December 31, 2009. 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.
Investments
The
General Partner applies substantially all of UGA’s assets toward trading
in Futures Contracts and Other Gasoline-Related Investments and investments
in Treasuries, cash and/or cash equivalents. The General Partner has sole
authority to determine the percentage of assets that are:
· held
on deposit with the futures commission merchant or other custodian,
· used
for other investments, and
· held
in bank accounts to pay current obligations and as reserves.
The
General Partner deposits substantially all of UGA’s net assets with the
Custodian or other custodian. When UGA purchases a Futures Contract and certain
exchange traded Other Gasoline-Related Investments, UGA is required to deposit
with the selling 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 Gasoline Interests at maturity. This deposit is known as
“margin.” UGA invests the remainder of its assets equal to the difference
between the margin deposited and the market value of the Futures Contract in
Treasuries, cash and/or cash equivalents.
UGA’s
assets are held in segregated accounts pursuant to the CEA and CFTC regulations.
The General Partner believes that all entities that hold or trade UGA’s assets
are based in the United States and are subject to United States
regulations.
Approximately
10% to 15% of UGA’s assets have normally
been committed as margin for commodity futures contracts. However, from
time to time, the percentage of assets committed as margin may be substantially
more, or less, than such range. The General Partner invests the balance of UGA’s
assets not invested in Gasoline Interests or held in margin as reserves to be
available for changes in margin. All interest income is used for UGA’s
benefit.
The
futures commission merchant, a government agency or a commodity exchange could
increase margins applicable to UGA 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 taken.
42
The
Commodity Interest Markets
General
The CEA
governs the regulation of commodity interest transactions, markets and
intermediaries. In December 2000, the CEA was amended by the Commodity Futures
Modernization Act of 2000 (the “CFMA”), which substantially revised the
regulatory framework governing certain commodity interest transactions and the
markets on which they trade. The CEA, as amended by the CFMA, now provides for
varying degrees of regulation of commodity interest transactions depending upon
the variables of the transaction. In general, these variables include (1) the
type of instrument being traded (e.g., contracts for future delivery, options,
swaps or spot contracts), (2) the type of commodity underlying the instrument
(distinctions are made between instruments based on agricultural commodities,
energy and metals commodities and financial commodities), (3) the nature of the
parties to the transaction (retail, eligible contract participant, or eligible
commercial entity), (4) whether the transaction is entered into on a
principal-to-principal or intermediated basis, (5) the type of market on which
the transaction occurs, and (6) whether the transaction is subject to clearing
through a clearing organization. Information regarding commodity interest
transactions, markets and intermediaries, and their associated regulatory
environment, is provided below.
Futures
Contracts
A futures
contract is a standardized contract traded on, or subject to the rules of, an
exchange that calls for the future delivery of a specified quantity and type of
a commodity at a specified time and place. Futures contracts are traded on a
wide variety of commodities, including agricultural products, bonds, stock
indices, interest rates, currencies, energy and metals. The size and terms of
futures contracts on a particular commodity are identical and are not subject to
any negotiation, other than with respect to price and the number of contracts
traded between the buyer and seller.
The
contractual obligations of a buyer or seller may generally be satisfied by
taking or making physical delivery of the underlying commodity or by making an
offsetting sale or purchase of an identical futures contract on the same or
linked exchange before the designated date of delivery. The difference between
the price at which the futures contract is purchased or sold and the price paid
for the offsetting sale or purchase, after allowance for brokerage commissions,
constitutes the profit or loss to the trader. Some futures contracts, such as
stock index contracts, settle in cash (reflecting the difference between the
contract purchase/sale price and the contract settlement price) rather than by
delivery of the underlying commodity.
In market
terminology, a trader who purchases a futures contract is long in the market and
a trader who sells a futures contract is short in the market. Before a trader
closes out his long or short position by an offsetting sale or purchase, his
outstanding contracts are known as open trades or open positions. The aggregate
amount of open positions held by traders in a particular contract is referred to
as the open interest in such contract.
Forward
Contracts
A forward
contract is a contractual obligation to purchase or sell a specified quantity of
a commodity at or before a specified date in the future at a specified price
and, therefore, is economically similar to a futures contract. Unlike futures
contracts, however, forward contracts are typically traded in the
over-the-counter markets and are not standardized contracts. Forward contracts
for a given commodity are generally available for various amounts and maturities
and are subject to individual negotiation between the parties involved.
Moreover, generally there is no direct means of offsetting or closing out a
forward contract by taking an offsetting position as one would a futures
contract on a U.S. exchange. If a trader desires to close out a forward contract
position, he generally will establish an opposite position in the contract but
will settle and recognize the profit or loss on both positions simultaneously on
the delivery date. Thus, unlike in the futures contract market where a trader
who has offset positions will recognize profit or loss immediately, in the
forward market a trader with a position that has been offset at a profit will
generally not receive such profit until the delivery date, and likewise a trader
with a position that has been offset at a loss will generally not have to pay
money until the delivery date. In recent years, however, the terms of forward
contracts have become more standardized, and in some instances such contracts
now provide a right of offset or cash settlement as an alternative to making or
taking delivery of the underlying commodity.
43
The
forward markets provide what has typically been a highly liquid market for
foreign exchange trading, and in certain cases the prices quoted for foreign
exchange forward contracts may be more favorable than the prices for foreign
exchange futures contracts traded on U.S. exchanges. The forward markets are
largely unregulated. Forward contracts are, in general, not cleared or
guaranteed by a third party. Commercial banks participating in trading foreign
exchange forward contracts often do not require margin deposits, but rely upon
internal credit limitations and their judgments regarding the creditworthiness
of their counterparties. In recent years, however, many over-the-counter market
participants in foreign exchange trading have begun to require that their
counterparties post margin.
Further,
as the result of the CFMA, over-the-counter derivative instruments such as
forward contracts and swap agreements (and options on forwards and physical
commodities) may begin to be traded on lightly-regulated exchanges or electronic
trading platforms that may, but are not required to, provide for clearing
facilities. Exchanges and electronic trading platforms on which over-the-counter
instruments may be traded and the regulation and criteria for that trading are
more fully described below under “Futures Exchanges and Clearing Organizations.”
Nonetheless, absent a clearing facility, UGA’s trading in foreign exchange and
other forward contracts is exposed to the creditworthiness of the counterparties
on the other side of the trade.
Options
on Futures Contracts
Options
on futures contracts are standardized contracts traded on an exchange. An option
on a futures contract gives the buyer of the option the right, but not the
obligation, to take a position at a specified price (the striking, strike, or
exercise price) in the underlying futures contract or underlying interest. The
buyer of a call option acquires the right, but not the obligation, to purchase
or take a long position in the underlying interest, and the buyer of a put
option acquires the right, but not the obligation, to sell or take a short
position in the underlying interest.
The
seller, or writer, of an option is obligated to take a position in the
underlying interest at a specified price opposite to the option buyer if the
option is exercised. Thus, the seller of a call option must stand ready to take
a short position in the underlying interest at the strike price if the buyer
should exercise the option. The seller of a put option, on the other hand, must
stand ready to take a long position in the underlying interest at the strike
price.
A call
option is said to be in-the-money if the strike price is below current market
levels and out-of-the-money if the strike price is above current market levels.
Conversely, a put option is said to be in-the-money if the strike price is above
the current market levels and out-of-the-money if the strike price is below
current market levels.
Options
have limited life spans, usually tied to the delivery or settlement date of the
underlying interest. Some options, however, expire significantly in advance of
such date. The purchase price of an option is referred to as its premium, which
consists of its intrinsic value (which is related to the underlying market
value) plus its time value. As an option nears its expiration date, the time
value shrinks and the market and intrinsic values move into parity. An option
that is out-of-the-money and not offset by the time it expires becomes
worthless. On certain exchanges, in-the-money options are automatically
exercised on their expiration date, but on others unexercised options simply
become worthless after their expiration date.
Regardless
of how much the market swings, the most an option buyer can lose is the option
premium. The option buyer deposits his premium with his broker, and the money
goes to the option seller. Option sellers, on the other hand, face risks similar
to participants in the futures markets. For example, since the seller of a call
option is assigned a short futures position if the option is exercised, his risk
is the same as someone who initially sold a futures contract. Because no one can
predict exactly how the market will move, the option seller posts margin to
demonstrate his ability to meet any potential contractual
obligations.
Options
on Forward Contracts or Commodities
Options
on forward contracts or commodities operate in a manner similar to options on
futures contracts. An option on a forward contract or commodity gives the buyer
of the option the right, but not the obligation, to take a position at a
specified price in the underlying forward contract or commodity. However,
similar to forward contracts, options on forward contracts or on commodities are
individually negotiated contracts between counterparties and are typically
traded in the over-the-counter market. Therefore, options on forward contracts
and physical commodities possess many of the same characteristics of forward
contracts with respect to offsetting positions and credit risk that are
described above.
44
Swap
Contracts
Swap
transactions generally involve contracts between two parties to exchange a
stream of payments computed by reference to a notional amount and the price of
the asset that is the subject of the swap. Swap contracts are principally traded
off-exchange, although recently, as a result of regulatory changes enacted as
part of the CFMA, certain swap contracts are now being traded in electronic
trading facilities and cleared through clearing organizations.
Swaps are
usually entered into on a net basis, that is, the two payment streams are netted
out in a cash settlement on the payment date or dates specified in the
agreement, with the parties receiving or paying, as the case may be, only the
net amount of the two payments. Swaps do not generally involve the delivery of
underlying assets or principal. Accordingly, the risk of loss with respect to
swaps is generally limited to the net amount of payments that the party is
contractually obligated to make. In some swap transactions one or both parties
may require collateral deposits from the counterparty to support that
counterparty’s obligation under the swap agreement. If the counterparty to such
a swap defaults, the risk of loss consists of the net amount of payments that
the party is contractually entitled to receive less any collateral deposits
it is holding.
Some swap
transactions are cleared through central counterparties. These
transactions, known as cleared swaps, involve two counterparties first agreeing
to the terms of a swap transaction, then submitting the transaction to a
clearing house that acts as the central counterparty. Once submitted to the
clearing house, the original swap transaction is novated and the central
counterparty becomes the counterparty to a trade with each of the original
parties based upon the trade terms determined in the original
transaction. In this manner each individual swap counterparty reduces
its risk of loss due to counterparty nonperformance because the clearing house
acts as the counterparty to each transaction.
Participants
The two
broad classes of persons who trade commodities are hedgers and speculators.
Hedgers include financial institutions that manage or deal in interest
rate-sensitive instruments, foreign currencies or stock portfolios, and
commercial market participants, such as farmers and manufacturers, that market
or process commodities. Hedging is a protective procedure designed to
effectively lock in prices that would otherwise change due to an adverse
movement in the price of the underlying commodity, for example, the adverse
price movement between the time a merchandiser or processor enters into a
contract to buy or sell a raw or processed commodity at a certain price and the
time he must perform the contract. In such a case, at the time the hedger
contracts to physically sell the commodity at a future date he will
simultaneously buy a futures or forward contract for the necessary equivalent
quantity of the commodity. At the time for performance of the contract, the
hedger may accept delivery under his futures contract and sell the commodity
quantity as required by his physical contract or he may buy the actual
commodity, sell it under the physical contract and close out his position by
making an offsetting sale of a futures contract.
The
commodity interest markets enable the hedger to shift the risk of price
fluctuations. The usual objective of the hedger is to protect the profit that he
expects to earn from farming, merchandising, or processing operations rather
than to profit from his trading. However, at times the impetus for a hedge
transaction may result in part from speculative objectives and hedgers can end
up paying higher prices than they would have, for example, if current market
prices are lower than the locked in price.
Unlike
the hedger, the speculator generally expects neither to make nor take delivery
of the underlying commodity. Instead, the speculator risks his capital with the
hope of making profits from price fluctuations in the commodities. The
speculator is, in effect, the risk bearer who assumes the risks that the hedger
seeks to avoid. Speculators rarely make or take delivery of the underlying
commodity; rather they attempt to close out their positions prior to the
delivery date. Because the speculator may take either a long or short position
in commodities, it is possible for him to make profits or incur losses
regardless of whether prices go up or down.
45
Futures
Exchanges and Clearing Organizations
Futures
exchanges provide centralized market facilities in which multiple persons have
the ability to execute or trade contracts by accepting bids and offers from
multiple participants. Futures exchanges may provide for execution of trades at
a physical location utilizing trading pits and/or may provide for trading to be
done electronically through computerized matching of bids and offers pursuant to
various algorithms. Members of a particular exchange and the trades executed on
such exchange are subject to the rules of that exchange. Futures exchanges and
clearing organizations are given reasonable latitude in promulgating rules and
regulations to control and regulate their members. Examples of regulations by
exchanges and clearing organizations include the establishment of initial margin
levels, rules regarding trading practices, contract specifications, speculative
position limits, daily price fluctuation limits, and execution and clearing
fees.
Clearing
organizations provide services designed to mutualize or transfer the credit risk
arising from the trading of contracts on an exchange or other electronic trading
facility. Once trades made between members of an exchange or electronic trading
facility have been confirmed, the clearing organization becomes substituted for
the clearing member acting on behalf of each buyer and each seller of contracts
traded on the exchange or trading platform and in effect becomes the other party
to the trade. Thereafter, each clearing member party to the trade looks only to
the clearing organization for performance. The clearing organization generally
establishes some sort of security or guarantee fund to which all clearing
members of the exchange must contribute; this fund acts as an emergency buffer
that is intended to enable the clearing organization to meet its obligations
with regard to the other side of an insolvent clearing member’s contracts.
Furthermore, the clearing organization requires margin deposits and continuously
marks positions to market to provide some assurance that its members will be
able to fulfill their contractual obligations. Thus, a central function of the
clearing organization is to ensure the integrity of trades, and members
effecting transactions on an exchange need not concern themselves with the
solvency of the party on the opposite side of the trade; their only remaining
concerns are the respective solvencies of their own customers, their clearing
broker and the clearing organization. The clearing organizations do not deal
with customers, but only with their member firms and the guarantee of
performance for open positions provided by the clearing organization does not
run to customers.
U.S.
Futures Exchanges
Futures
exchanges in the United States are subject to varying degrees of regulation by
the CFTC based on their designation as one of the following: a designated
contract market, a derivatives transaction execution facility, an exempt board
of trade or an electronic trading facility.
A
designated contract market is the most highly regulated level of futures
exchange. Designated contract markets may offer products to retail customers on
an unrestricted basis. To be designated as a contract market, the exchange must
demonstrate that it satisfies specified general criteria for designation, such
as having the ability to prevent market manipulation, rules and procedures to
ensure fair and equitable trading, position limits, dispute resolution
procedures, minimization of conflicts of interest and protection of market
participants. Among the principal designated contract markets in the United
States are the Chicago Board of Trade, the Chicago Mercantile Exchange and the
NYMEX. Each of the designated contract markets in the United States must provide
for the clearance and settlement of transactions with a CFTC-registered
derivatives clearing organization.
A
derivatives transaction execution facility (a “DTEF”) is a new type of exchange
that is subject to fewer regulatory requirements than a designated contract
market but is subject to both commodity interest and participant limitations.
DTEFs limit access to eligible traders that qualify as either eligible contract
participants or eligible commercial entities for futures and option contracts on
commodities that have a nearly inexhaustible deliverable supply, are highly
unlikely to be susceptible to the threat of manipulation, or have no cash
market, security futures products, and futures and option contracts on
commodities that the CFTC may determine, on a case-by-case basis, are highly
unlikely to be susceptible to the threat of manipulation. In addition, certain
commodity interests excluded or exempt from the CEA, such as swaps, etc. may be
traded on a DTEF. There is no requirement that a DTEF use a clearing
organization, except with respect to trading in security futures contracts, in
which case the clearing organization must be a securities clearing agency.
However, if futures contracts and options on futures contracts on a DTEF are
cleared, then it must be through a CFTC-registered derivatives clearing
organization, except that some excluded or exempt commodities traded on a DTEF
may be cleared through a clearing organization other than one registered with
the CFTC.
46
An exempt
board of trade is also a newly designated form of exchange. An exempt board of
trade is substantially unregulated, subject only to CFTC anti-fraud and
anti-manipulation authority. An exempt board of trade is permitted to trade
futures contracts and options on futures contracts provided that the underlying
commodity is not a security or securities index and has an inexhaustible
deliverable supply or no cash market. All traders on an exempt board of trade
must qualify as eligible contract participants. Contracts deemed eligible to be
traded on an exempt board of trade include contracts on interest rates, exchange
rates, currencies, credit risks or measures, debt instruments, measures of
inflation, or other macroeconomic indices or measures. There is no requirement
that an exempt board of trade use a clearing organization. However, if contracts
on an exempt board of trade are cleared, then it must be through a
CFTC-registered derivatives clearing organization. A board of trade electing to
operate as an exempt board of trade must file a written notification with the
CFTC.
An
electronic trading facility is a new form of trading platform that operates by
means of an electronic or telecommunications network and maintains an automated
audit trail of bids, offers, and the matching of orders or the execution of
transactions on the electronic trading facility. The CEA does not apply to, and
the CFTC has no jurisdiction over, transactions on an electronic trading
facility in certain excluded commodities that are entered into between
principals that qualify as eligible contract participants, subject only to CFTC
anti-fraud and anti-manipulation authority. In general, excluded commodities
include interest rates, currencies, securities, securities indices or other
financial, economic or commercial indices or measures.
The
General Partner intends to monitor the development of and opportunities and
risks presented by the new less-regulated exchanges and exempt boards as well as
other trading platforms currently in place or that are being considered by
regulators and may, in the future, allocate a percentage of UGA’s assets to
trading in products on these exchanges. Provided UGA maintains assets exceeding
$5 million, UGA would qualify as an eligible contract participant and thus would
be able to trade on such exchanges.
Non-U.S.
Futures Exchanges
Non-U.S.
futures exchanges differ in certain respects from their U.S. counterparts.
Importantly, non-U.S. futures exchanges are not subject to regulation by the
CFTC, but rather are regulated by their home country regulator. In contrast to
U.S. designated contract markets, some non-U.S. exchanges are principals’
markets, where trades remain the liability of the traders involved, and the
exchange or an affiliated clearing organization, if any, does not become
substituted for any party. Due to the absence of a clearing system, such
exchanges are significantly more susceptible to disruptions. Further,
participants in such markets must often satisfy themselves as to the individual
creditworthiness of each entity with which they enter into a trade. Trading on
non-U.S. exchanges is often in the currency of the exchange’s home jurisdiction.
Consequently, UGA is subject to the additional risk of fluctuations in the
exchange rate between such currencies and U.S. dollars and the possibility that
exchange controls could be imposed in the future. Trading on non-U.S. exchanges
may differ from trading on U.S. exchanges in a variety of ways and, accordingly,
may subject UGA to additional risks.
Accountability
Levels and Position Limits
The CFTC
and U.S. designated contract markets 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 a hedger, which UGA is not) may hold, own or
control. Among the purposes of accountability levels and position limits is to
prevent a corner or squeeze on a market or undue influence on prices by any
single trader or group of traders. The position limits currently established by
the CFTC apply to certain agricultural commodity interests, such as grains
(oats, barley, and flaxseed), soybeans, corn, wheat, cotton, eggs, rye, and
potatoes, but not to interests in energy products. In addition, U.S. exchanges
may set accountability levels and position limits for all commodity interests
traded on that exchange. For example, the current accountability level for
investments at any one time in gasoline Futures Contracts (including investments
in the Benchmark Futures Contract) on the NYMEX is 7,000 contracts. The NYMEX
also imposes position limits on contracts held in the last few days of trading
in the near month contract to expire. The ICE Futures has recently adopted
similar accountability levels and position limits for certain of its futures
contracts that are traded on the ICE Futures and settled against the price of a
contract listed for trading on a U.S. designated contract market such as the
NYMEX. Certain exchanges or clearing organizations also set limits on
the total net positions that may be held by a clearing broker. In general, no
position limits are in effect in forward or other over-the-counter contract
trading or in trading on non-U.S. futures exchanges, although the principals
with which UGA and the clearing brokers may trade in such markets may impose
such limits as a matter of credit policy. For purposes of determining
accountability levels and position limits, UGA’s commodity interest positions
will not be attributable to investors in their own commodity interest
trading.
47
On
January 26, 2010, the CFTC published a proposed rule that, if implemented, would
set fixed position limits on certain energy Futures Contracts, including the
NYMEX RBOB gasoline futures contract, NYMEX Henry Hub natural gas futures
contract, NYMEX Light Sweet crude oil futures contract and NYMEX New York Harbor
No. 2 heating oil futures contract, along with any contract based upon these
contracts. The proposed position limits would be set as a percentage
of the open interest in these contracts for the spot month, any single month,
and all months combined. Additionally, the proposed rule would
aggregate positions in the enumerated contracts and those based upon such
contracts, including contracts listed on separate exchanges. This
proposal is currently undergoing a 90-day public comment period.
Daily
Price Limits
Most U.S.
futures exchanges (but generally not non-U.S. exchanges) may limit the amount of
fluctuation in some futures contract or options on a futures contract prices
during a single trading day by regulations. These regulations specify what are
referred to as daily price fluctuation limits or, more commonly, daily limits.
The daily limits establish the maximum amount that the price of a futures or
options on a futures contract may vary either up or down from the previous day’s
settlement price. Once the daily limit has been reached in a particular futures
or options on a futures contract, no trades may be made at a price beyond the
limit. Positions in the futures or options contract may then be taken or
liquidated, if at all, only at inordinate expense or if traders are willing to
effect trades at or within the limit during the period for trading on such day.
Because the daily limit rule governs price movement only for a particular
trading day, it does not limit losses and may in fact substantially increase
losses because it may prevent the liquidation of unfavorable positions. Futures
contract prices have occasionally moved to the daily limit for several
consecutive trading days, thus preventing prompt liquidation of positions and
subjecting the trader to substantial losses for those days. The concept of daily
price limits is not relevant to over-the-counter contracts, including forwards
and swaps, and thus such limits are not imposed by banks and others who deal in
those markets.
In
contrast, the NYMEX does not impose daily limits but rather limits the amount of
price fluctuation for Futures Contracts. For example, the NYMEX imposes a
$0.25 per gallon ($10,500 per contract) price fluctuation limit for the
Benchmark Futures Contract. This limit is initially based off the previous
trading day’s settlement price. If any Benchmark Futures Contract is
traded, bid, or offered at the limit for five minutes, trading is halted for
five minutes. When trading resumes it begins at the point where the limit was
imposed and the limit is reset to be $0.25 per gallon in either direction
of that point. If another halt were triggered, the market would continue to be
expanded by $0.25 per gallon in either direction after each successive
five-minute trading halt. There is no maximum price fluctuation limit during any
one trading session.
Commodity
Prices
Commodity
prices are volatile and, although ultimately determined by the interaction of
supply and demand, are subject to many other influences, including the
psychology of the marketplace and speculative assessments of future world and
economic events. Political climate, interest rates, treaties, balance of
payments, exchange controls and other governmental interventions as well as
numerous other variables affect the commodity markets, and even with
comparatively complete information it is impossible for any trader to predict
reliably commodity prices.
Regulation
Futures
exchanges in the United States are subject to varying degrees of regulation
under the CEA depending on whether such exchange is a designated contract
market, DTEF, exempt board of trade or electronic trading facility. Derivatives
clearing organizations are also subject to the CEA and CFTC regulation. The CFTC
is the governmental agency charged with responsibility for regulation of futures
exchanges and commodity interest trading conducted on those exchanges. The
CFTC’s function is to implement the CEA’s objectives of preventing price
manipulation and excessive speculation and promoting orderly and efficient
commodity interest markets. In addition, the various exchanges and clearing
organizations themselves exercise regulatory and supervisory authority over
their member firms.
48
The CFTC
possesses exclusive jurisdiction to regulate the activities of CPOs and
commodity trading advisors and has adopted regulations with respect to the
activities of those persons and/or entities. Under the CEA, a registered CPO,
such as the General Partner, is required to make annual filings with the CFTC
describing its organization, capital structure, management and controlling
persons. In addition, the CEA authorizes the CFTC to require and review books
and records of, and documents prepared by, registered CPOs. Pursuant to this
authority, the CFTC requires CPOs to keep accurate, current and orderly records
for each pool that they operate. The CFTC may suspend the registration of
a CPO (1) if the CFTC finds that the operator’s trading practices tend to
disrupt orderly market conditions, (2) if any controlling person of the operator
is subject to an order of the CFTC denying such person trading privileges on any
exchange, and (3) in certain other circumstances. Suspension, restriction or
termination of the General Partner’s registration as a CPO would prevent it,
until that registration were to be reinstated, from managing UGA, and might
result in the termination of UGA. UGA itself is not required to be registered
with the CFTC in any capacity.
The CEA
gives the CFTC similar authority with respect to the activities of commodity
trading advisors. If a trading advisor’s commodity trading advisor registration
were to be terminated, restricted or suspended, the trading advisor would be
unable, until the registration were to be reinstated, to render trading advice
to UGA.
The CEA
requires all futures commission merchants, such as UGA’s clearing brokers, to
meet and maintain specified fitness and financial requirements, to segregate
customer funds from proprietary funds and account separately for all customers’
funds and positions, and to maintain specified books and records open to
inspection by the staff of the CFTC. The CFTC has similar authority over
introducing brokers, or persons who solicit or accept orders for commodity
interest trades but who do not accept margin deposits for the execution of
trades. The CEA authorizes the CFTC to regulate trading by futures commission
merchants and by their officers and directors, permits the CFTC to require
action by exchanges in the event of market emergencies, and establishes an
administrative procedure under which customers may institute complaints for
damages arising from alleged violations of the CEA. The CEA also gives the
states powers to enforce its provisions and the regulations of the
CFTC.
UGA’s
investors are afforded prescribed rights for reparations under the CEA.
Investors may also be able to maintain a private right of action for violations
of the CEA. The CFTC has adopted rules implementing the reparation provisions of
the CEA, which provide that any person may file a complaint for a reparations
award with the CFTC for violation of the CEA against a floor broker or a futures
commission merchant, introducing broker, commodity trading advisor, CPO, and
their respective associated persons.
Pursuant
to authority in the CEA, the NFA has been formed and registered with the CFTC as
a registered futures association. At the present time, the NFA is the only
self-regulatory organization for commodity interest professionals, other than
futures exchanges. The CFTC has delegated to the NFA responsibility for the
registration of commodity trading advisors, CPOs, futures commission merchants,
introducing brokers, and their respective associated persons and floor brokers.
The General Partner, each trading advisor, the selling agents and the clearing
brokers are members of the NFA. As such, they are subject to NFA standards
relating to fair trade practices, financial condition and consumer protection.
UGA itself is not required to become a member of the NFA. As the self-regulatory
body of the commodity interest industry, the NFA promulgates rules governing the
conduct of professionals and disciplines those professionals that do not comply
with these rules. The NFA also arbitrates disputes between members and their
customers and conducts registration and fitness screening of applicants for
membership and audits of its existing members.
The
regulations of the CFTC and the NFA prohibit any representation by a person
registered with the CFTC or by any member of the NFA, that registration with the
CFTC, or membership in the NFA, in any respect indicates that the CFTC or the
NFA, as the case may be, has approved or endorsed that person or that person’s
trading program or objectives. The registrations and memberships of the parties
described in this summary must not be considered as constituting any such
approval or endorsement. Likewise, no futures exchange has given or will give
any similar approval or endorsement.
49
The
regulation of commodity interest trading in the United States and other
countries is an evolving area of the law. The various statements made in this
summary are subject to modification by legislative action and changes in the
rules and regulations of the CFTC, the NFA, the futures exchanges, clearing
organizations and other regulatory bodies.
The
function of the CFTC is to implement the objectives of the CEA of preventing
price manipulation and other disruptions to market integrity, avoiding systemic
risk, preventing fraud and promoting innovation, competition and financial
integrity of transactions. As mentioned above, this regulation, among other
things, provides that the trading of commodity interest contracts generally must
be upon exchanges designated as contract markets or DTEFs and that all trading
on those exchanges must be done by or through exchange members. Under the CFMA,
commodity interest trading in some commodities between sophisticated persons may
be traded on a trading facility not regulated by the CFTC. As a general matter,
trading in spot contracts, forward contracts, options on forward contracts or
commodities, or swap contracts between eligible contract participants is not
within the jurisdiction of the CFTC and may therefore be effectively
unregulated. The trading advisors may engage in those transactions on behalf of
UGA in reliance on this exclusion from regulation. However,
legislation currently under consideration by the U.S. Congress would remove the
exclusion provided to these transactions and place them under federal
regulation. The proposed legislation would subject these contracts to
new capital, margin, recordkeeping, and reporting requirements.
In
general, the CFTC does not regulate the interbank and forward foreign currency
markets with respect to transactions in contracts between certain sophisticated
counterparties such as UGA or between certain regulated institutions and retail
investors. Although U.S. banks are regulated in various ways by the Federal
Reserve Board, the Comptroller of the Currency and other U.S. federal and state
banking officials, banking authorities do not regulate the forward
markets.
While the
U.S. government does not currently impose any restrictions on the movements of
currencies, it could choose to do so. The imposition or relaxation of exchange
controls in various jurisdictions could significantly affect the market for that
and other jurisdictions’ currencies. Trading in the interbank market also
exposes UGA to a risk of default since failure of a bank with which UGA had
entered into a forward contract would likely result in a default and thus
possibly substantial losses to UGA.
The CFTC
is prohibited by statute from regulating trading on non-U.S. futures exchanges
and markets. The CFTC, however, has adopted regulations relating to the
marketing of non-U.S. futures contracts in the United States. These regulations
permit certain contracts traded on non-U.S. exchanges to be offered and sold in
the United States.
Commodity
Margin
Original
or initial margin is the minimum amount of funds that must be deposited by a
commodity interest trader with the trader’s broker to initiate and maintain an
open position in futures contracts. Maintenance margin is the amount (generally
less than the original margin) to which a trader’s account may decline before he
must deliver additional margin. A margin deposit is like a cash performance
bond. It helps assure the trader’s performance of the futures contracts that he
or she purchases or sells. Futures contracts are customarily bought and sold on
initial margin that represents a very small percentage (ranging upward from less
than 2%) of the aggregate purchase or sales price of the contract. Because of
such low margin requirements, price fluctuations occurring in the futures
markets may create profits and losses that, in relation to the amount invested,
are greater than are customary in other forms of investment or speculation. As
discussed below, adverse price changes in the futures contract may result in
margin requirements that greatly exceed the initial margin. In addition, the
amount of margin required in connection with a particular futures contract is
set from time to time by the exchange on which the contract is traded and may be
modified from time to time by the exchange during the term of the
contract.
50
Brokerage
firms, such as UGA’s clearing brokers, carrying accounts for traders in
commodity interest contracts may not accept lower, and generally require higher,
amounts of margin as a matter of policy to further protect themselves. The
clearing brokers require UGA to make margin deposits equal to exchange minimum
levels for all commodity interest contracts. This requirement may be altered
from time to time in the clearing brokers’ discretion.
Trading
in the over-the-counter markets where no clearing facility is provided generally
does not require margin but generally does require the extension of credit
between counterparties. This extension of credit generally takes the
form of transfers of collateral and/or independent amounts. Collateral is
transferred between counterparties during the term of an over-the-counter
transaction based upon the changing value of the transaction, while independent
amounts are fixed amounts posted by one or both counterparties at the start of
an over-the-counter transaction.
When a
trader purchases an option, there is no margin requirement; however, the option
premium must be paid in full. When a trader sells an option, on the other hand,
he or she is required to deposit margin in an amount determined by the margin
requirements established for the underlying interest and, in addition, an amount
substantially equal to the current premium for the option. The margin
requirements imposed on the selling of options, although adjusted to reflect the
probability that out-of-the-money options will not be exercised, can in fact be
higher than those imposed in dealing in the futures markets directly.
Complicated margin requirements apply to spreads and conversions, which are
complex trading strategies in which a trader acquires a mixture of options
positions and positions in the underlying interest.
Margin
requirements are computed each day by a trader’s clearing broker. When the
market value of a particular open commodity interest position changes to a point
where the margin on deposit does not satisfy maintenance margin requirements, a
margin call is made by the broker. If the margin call is not met within a
reasonable time, the broker may close out the trader’s position. With respect to
UGA’s trading, UGA (and not its investors personally) is subject to margin
calls.
Finally,
many major U.S. exchanges have passed certain cross margining arrangements
involving procedures pursuant to which the futures and options positions held in
an account would, in the case of some accounts, be aggregated and margin
requirements would be assessed on a portfolio basis, measuring the total risk of
the combined positions.
SEC
Reports
UGA makes
available, free of charge, on its website, its annual reports on Form 10-K, its
quarterly reports on Form 10-Q, its current reports on Form 8-K and amendments
to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Exchange Act as soon as reasonably practicable after these forms are filed with,
or furnished to, the SEC. These reports are also available from the SEC
though its website at: www.sec.gov.
CFTC
Reports
UGA also
makes available its monthly reports and its annual reports required to be
prepared and filed with the NFA under the CFTC regulations.
Intellectual
Property
The
General Partner owns trademark registrations for UNITED STATES GASOLINE FUND
(U.S. Reg. No. 3486625) for “fund investment services in the field of gasoline
futures contracts, cash-settled options on gasoline futures contracts, forward
contracts for gasoline, over-the-counter transactions based on the price of
gasoline, and indices based on the foregoing,” in use since February 22, 2008,
and UGA UNITED STATES GASOLINE FUND, LP (and Design) (U.S. Reg. No. 3638984) for
“investment services in the field of gasoline futures contracts and other
gasoline related investments,” in use since February 26, 2008. UGA
relies upon these trademarks through which it markets its services and strives
to build and maintain brand recognition in the market and among current and
potential investors. So long as UGA continues to use these trademarks
to identify its services, without challenge from any third party, and properly
maintains and renews the trademark registrations under applicable laws, rules
and regulations, it will continue to have indefinite protection for these
trademarks under current laws, rules and regulations.
51
Item 1A. Risk
Factors.
The
risk factors should be read in connection with the other information included in
this annual report on Form 10-K, including Management’s Discussion and Analysis
of Financial Condition and Results of Operations and UGA’s financial statements
and the related notes.
Risks
Associated With Investing Directly or Indirectly in Gasoline
Investing
in Gasoline Interests subjects UGA to the risks of the gasoline industry and
this could result in large fluctuations in the price of UGA’s
units.
UGA is
subject to the risks and hazards of the gasoline industry because it invests in
Gasoline Interests. The risks and hazards that are inherent in the gasoline
industry may cause the price of gasoline to widely fluctuate. If UGA’s units
accurately track the percentage changes in the terms of the Benchmark Futures
Contract or the spot price of gasoline, then the price of its units may also
fluctuate. The exploration for crude oil, the raw material used in the
production of gasoline, and production of gasoline are uncertain processes with
many risks. The cost of drilling, completing and operating wells for crude oil
is often uncertain, and a number of factors can delay or prevent drilling
operations or production of gasoline, including:
· unexpected
drilling conditions;
· pressure
or irregularities in formations;
· equipment
failures or repairs;
· fires
or other accidents;
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adverse
weather conditions;
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pipeline
ruptures, spills or other supply disruptions;
and
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shortages
or delays in the availability of drilling rigs and the delivery of
equipment.
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Gasoline
transmission, distribution, gathering, and processing activities involve
numerous risks that may affect the price of gasoline.
There are
a variety of hazards inherent in gasoline transmission, distribution, gathering,
and processing, such as leaks, explosions, pollution, release of toxic
substances, adverse weather conditions (such as hurricanes and flooding),
pipeline failure, abnormal pressures, uncontrollable flows of crude oil,
scheduled and unscheduled maintenance, physical damage to the gathering or
transportation system, and other hazards which could affect the price of
gasoline. To the extent these hazards limit the supply or delivery of gasoline,
gasoline prices will increase.
The
price of gasoline fluctuates on a seasonal basis and this would result in
fluctuations in the price of UGA’s units.
Gasoline
prices fluctuate seasonally. For example, during the winter months the heating
season can have a major impact on prices in the fuel industry. During the summer
months, people are more likely to travel by automobile when taking spring and
summer vacations along with weekend trips. The increase in travel drives fuel
demand and gasoline prices typically follow.
Refineries
usually use the spring months for major routine maintenance and to retool for
summer gasoline blends required in various parts of the country to meet air
emission requirements. Refinery maintenance as well as unplanned shut-downs
reduce gasoline production. Depending on inventory levels and the strength of
gasoline demand, this situation may put pressure on prices until additional
gasoline supplies can be imported.
52
Supply
interruptions may also affect inventories. For example, the Gulf Coast
hurricanes of 2005 had a major impact on energy-producing facilities in the Gulf
of Mexico, where roughly one-third of oil production in the United States
occurs. In addition, the effects remain as repairs are continuing at some
production and pipeline facilities that were severely damaged.
Changes
in the political climate could have negative consequences for gasoline
prices.
Tensions
with Iran, the world’s fourth largest oil exporter, could put oil exports in
jeopardy. Other global concerns include civil unrest and sabotage affecting the
flow of oil from Nigeria, a large oil exporter. Meanwhile, friction continues
between the governments of the United States and Venezuela, a major exporter of
oil to the United States. Additionally, a series of production cuts by members
of OPEC followed by a refusal to subsequently increase oil production have
tightened world oil markets.
Limitations
on ability to develop additional sources of oil could impact future prices of
gasoline.
In the
past, a supply disruption in one area of the world has been softened by the
ability of major oil-producing nations such as Saudi Arabia to increase output
to make up the difference. Now, much of that spare reserve capacity has been
absorbed by increased demand. In addition, consumption of gasoline and other oil
products is increasing around the world, especially in rapidly growing countries
such as India and China, which is now the world’s second-largest energy user.
According to the United States Government’s Energy Information Administration,
global oil demand is expected to rise by more than 7 million barrels per day in
2010, compared with a decrease in demand of 1.8 million barrels a day in 2009
and largely unchanged demand in 2008. Gasoline demand in the United States has
been growing less than in developing nations, but the United States remains the
world’s largest gasoline consumer, using an average of 377.5 million gallons
a day in 2008.
Gasoline
refinement and production is subject to government regulations which could have
an impact on the price of gasoline.
Gasoline
refinement and production in North America are subject to regulation and
oversight by the Federal Energy Regulatory Commission and various state
regulatory agencies. For example, as a result of changes in fuel specifications,
United States refiners in the spring and summer of 2006 began phasing out the
fuel additive methyl tertiary butyl ether (“MTBE”) and replacing it with
ethanol. The switch to ethanol, which is mandated by federal law, has resulted
in a tightened supply and higher prices for this grain-based product. Although
increased use of ethanol is expected to bring environmental benefits, ethanol
adds to gasoline production costs because it currently is more expensive than
the MTBE it is replacing.
Various
formulations and compositions of gasoline as may be required by different state
environmental laws and/or the U.S. Government may impact the price of
gasoline.
Some
areas of the country are required to use special formulations of gasoline.
Environmental programs, aimed at reducing carbon monoxide, smog, and air toxics,
include the Federal and/or state-required oxygenated, reformulated, and
low-volatility (evaporates more slowly) gasolines. Other environmental programs
put restrictions on transportation and storage. The reformulated gasolines
required in some urban areas and in California cost more to produce than
conventional gasoline served elsewhere, increasing the price paid at the pump.
Changing standards in the future may further impact the price of gasoline in
this regard.
53
The
price of UGA’s units may be influenced by factors such as the short-term supply
and demand for gasoline and the short-term supply and demand for UGA’s units.
This may cause the units to trade at a price that is above or below UGA’s NAV
per unit. Accordingly, changes in the price of units may substantially vary from
the changes in the spot price of gasoline. If this variation occurs, then
investors may not be able to effectively use UGA as a way to hedge against
gasoline-related losses or as a way to indirectly invest in
gasoline.
While it
is expected that the trading prices of the units will fluctuate in accordance
with changes in UGA’s NAV, the prices of units may also be influenced by other
factors, including the short-term supply and demand for gasoline and the units.
There is no guarantee that the units will not trade at appreciable discounts
from, and/or premiums to, UGA’s NAV. This could cause changes in the price of
the units to substantially vary from changes in the spot price of gasoline.
This may be harmful to investors because if changes in the price of units vary
substantially from changes in the Benchmark Futures Contract or the spot price
of gasoline, then investors may not be able to effectively use UGA as a way
to hedge the risk of losses in their gasoline-related transactions or as a way
to indirectly invest in gasoline.
Changes
in UGA’s NAV may not correlate with changes in the price of the Benchmark
Futures Contract. If this were to occur, investors may not be able to
effectively use UGA as a way to hedge against gasoline-related losses or as a
way to indirectly invest in gasoline.
The
General Partner endeavors to invest UGA’s assets as fully as possible in
short-term Futures Contracts and Other Gasoline-Related Investments so that the
changes in percentage terms of the NAV closely correlate with the changes in
percentage terms in the price of the Benchmark Futures Contract. However,
changes in UGA’s NAV may not correlate with the changes in the price of the
Benchmark Futures Contract for several reasons as set forth below:
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UGA
(i) may not be able to buy/sell the exact amount of Futures Contracts and
Other Gasoline-Related Investments to have a perfect correlation with NAV;
(ii) may not always be able to buy and sell Futures Contracts or Other
Gasoline-Related Investments at the market price; (iii) may not experience
a perfect correlation between the spot price of gasoline and the
underlying investments in Futures Contracts, Other Gasoline-Related
Investments and Treasuries, cash and/or cash equivalents; and (iv) is
required to pay fees, including brokerage fees and the management
fee, which will have an effect on the
correlation.
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Short-term
supply and demand for gasoline may cause changes in the market price
of the Benchmark Futures Contract to vary from the changes in UGA’s NAV if
UGA has fully invested in Futures Contracts that do not reflect such
supply and demand and it is unable to replace such contracts with Futures
Contracts that do reflect such supply and demand. In addition, there are
also technical differences between the two markets, e.g., one is a
physical market while the other is a futures market traded on exchanges,
that may cause variations between the spot price of gasoline and the
prices of related futures
contracts.
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UGA
plans to sell and buy only as many Futures Contracts and Other
Gasoline-Related Investments that it can to get the changes in percentage
terms of the NAV as close as possible to the changes in percentage terms
in the price of the Benchmark Futures Contract. The remainder of its
assets will be invested in Treasuries, cash and cash equivalents and will
be used to satisfy initial margin and additional margin requirements, if
any, and to otherwise support its investments in Gasoline Interests.
Investments in Treasuries, cash and/or cash equivalents, both directly and
as margin, will provide rates of return that will vary from changes in the
value of the spot price of gasoline and the price of the Benchmark
Futures Contract.
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In
addition, because UGA incurs certain expenses in connection with its
investment activities, and holds most of its assets in more liquid
short-term securities for margin and other liquidity purposes and for
redemptions that may be necessary on an ongoing basis, the General Partner
is generally not able to fully invest UGA’s assets in Futures Contracts or
Other Gasoline-Related Investments and there cannot be perfect correlation
between changes in UGA’s NAV and changes in the price of the Benchmark
Futures Contract.
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As
UGA grows, there may be more or less correlation. For example, if UGA only
has enough money to buy three Benchmark Futures Contracts and it needs to
buy four contracts to track the price of gasoline then the correlation
will be lower, but if it buys 20,000 Benchmark Futures Contracts and it
needs to buy 20,001 contracts then the correlation will be higher. At
certain asset levels, UGA may be limited in its ability to purchase the
Benchmark Futures Contract or Other Gasoline-Related Investments due to
accountability levels imposed by the relevant exchanges. To the extent
that UGA invests in these other Futures Contracts or Other
Gasoline-Related Investments, the correlation with the Benchmark Futures
Contract may be lower. If UGA is required to invest in other Futures
Contracts and Other Gasoline-Related Investments that are less correlated
with the Benchmark Futures Contract, UGA would likely invest in
over-the-counter contracts to increase the level of correlation of UGA’s
assets. Over-the-counter contracts entail certain risks described below
under “Over-the-Counter Contract
Risk.”
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54
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UGA
may not be able to buy the exact number of Futures Contracts and Other
Gasoline-Related Investments to have a perfect correlation with the
Benchmark Futures Contract if the purchase price of Futures
Contracts required to be fully invested in such contracts is higher than
the proceeds received for the sale of a Creation Basket on the day the
basket was sold. In such case, UGA could not invest the entire proceeds
from the purchase of the Creation Basket in such futures contracts (for
example, assume UGA receives $4,000,000 for the sale of a Creation Basket
and assume that the price of a Futures Contract for gasoline is $59,950,
then UGA could only invest in only 66 Futures Contracts with an aggregate
value of $3,956,700), UGA would be required to invest a percentage of the
proceeds in cash, Treasuries or other liquid securities to be deposited as
margin with the futures commission merchant through which the contracts
were purchased. The remainder of the purchase price for the Creation
Basket would remain invested in Treasuries, cash and/or cash equivalents
or other liquid securities as determined by the General Partner from time
to time based on factors such as potential calls for margin or anticipated
redemptions. If the trading market for Futures Contracts is suspended or
closed, UGA may not be able to purchase these investments at the last
reported price for such
investments.
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If
changes in UGA’s NAV do not correlate with changes in the price of the Benchmark
Futures Contract, then investing in UGA may not be an effective way to hedge
against gasoline-related losses or indirectly invest in gasoline.
The
Benchmark Futures Contract may not correlate with the spot price
of gasoline and this could cause changes in the price of the units to
substantially vary from the changes in the spot price of gasoline. If this were
to occur, then investors may not be able to effectively use UGA as a way to
hedge against gasoline-related losses or as a way to indirectly invest in
gasoline.
When
using the Benchmark Futures Contract as a strategy to track the spot price
of gasoline, at best the correlation between changes in prices of such
Gasoline Interests and the spot price of gasoline can be only approximate.
The degree of imperfection of correlation depends upon circumstances such as
variations in the speculative gasoline market, supply of and demand for such
Gasoline Interests and technical influences in futures trading. If there is a
weak correlation between the Gasoline Interests and the spot price
of gasoline, then the price of units may not accurately track the price
of gasoline and investors may not be able to effectively use UGA as a way
to hedge the risk of losses in their gasoline-related transactions or as a way
to indirectly invest in gasoline.
UGA
may experience a loss if it is required to sell Treasuries at a price lower than
the price at which they were acquired.
The value
of Treasuries generally moves inversely with movements in interest rates. If UGA
is required to sell Treasuries at a price lower than the price at which they
were acquired, UGA will experience a loss. This loss may adversely impact the
price of the units and may decrease the correlation between the price of the
units, the price of the Benchmark Futures Contract and Other Gasoline-Related
Investments, and the spot price of gasoline.
Certain
of UGA’s investments could be illiquid which could cause large losses to
investors at any time or from time to time.
UGA may
not always be able to liquidate its positions in its investments at the desired
price. It is difficult to execute a trade at a specific price when there is a
relatively small volume of buy and sell orders in a market. A market disruption,
such as a foreign government taking political actions that disrupt the market in
its currency, its gasoline production or exports, or in another major export,
can also make it difficult to liquidate a position. Alternatively, limits
imposed by futures exchanges or other regulatory organizations, such as
accountability levels, position limits and daily price fluctuation limits, may
contribute to a lack of liquidity with respect to some commodity
interests.
Unexpected
market illiquidity may cause major losses to investors at any time or from time
to time. In addition, UGA has not and does not intend at this time to establish
a credit facility, which would provide an additional source of liquidity and
instead will rely only on the Treasuries, cash and/or cash equivalents that it
holds. The anticipated large value of the positions in Futures Contracts that
the General Partner will acquire or enter into for UGA increases the risk of
illiquidity. The Other Gasoline-Related Investments that UGA invests in, such as
negotiated over-the-counter contracts, may have a greater likelihood of being
illiquid since they are contracts between two parties that take into account not
only market risk, but also the relative credit, tax, and settlement risks under
such contracts. Such contracts also have limited transferability that results
from such risks and from the contract’s express limitations.
55
Because
both Futures Contracts and Other Gasoline-Related Investments may be illiquid,
UGA’s Gasoline Interests 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.
If
the nature of hedgers and speculators in futures markets has shifted such that
gasoline purchasers are the predominant hedgers in the market, UGA might have to
reinvest at higher futures prices or choose Other Gasoline-Related
Investments.
The
changing nature of the hedgers and speculators in the gasoline market influences
whether futures prices are above or below the expected future spot price. In
order to induce speculators to take the corresponding long side of the same
futures contract, gasoline producers must generally be willing to sell futures
contracts at prices that are below expected future spot prices. Conversely, if
the predominant hedgers in the futures market are the purchasers of the gasoline
who purchase futures contracts to hedge against a rise in prices, then
speculators will only take the short side of the futures contract if the futures
price is greater than the expected future spot price of gasoline. This can have
significant implications for UGA when it is time to reinvest the proceeds from a
maturing Futures Contract into a new Futures Contract.
While
UGA does not intend to take physical delivery of gasoline under its Futures
Contracts, physical delivery under such contracts impacts the value of the
contracts.
While it
is not the current intention of UGA to take physical delivery of gasoline under
its Futures Contracts, futures contracts are not required to be cash-settled and
it is possible to take delivery under some of these contracts. Storage costs
associated with purchasing gasoline could result in costs and other liabilities
that could impact the value of Futures Contracts or Other Gasoline-Related
Investments. Storage costs include the time value of money invested in gasoline
as a physical commodity plus the actual costs of storing the gasoline less any
benefits from ownership of gasoline that are not obtained by the holder of a
futures contract. In general, Futures Contracts have a one-month delay for
contract delivery and the back month (the back month is any future delivery
month other than the spot month) includes storage costs. To the extent that
these storage costs change for gasoline while UGA holds Futures Contracts or
Other Gasoline-Related Investments, the value of the Futures Contracts or Other
Gasoline-Related Investments, and therefore UGA’s NAV, may change as
well.
The
price relationship between the near month contract and the next month contract
that compose the Benchmark Futures Contract will vary and may impact both the
total return over time of UGA’s NAV, as well as the degree to which its total
return tracks other gasoline price indices’ total returns.
The
design of UGA’s Benchmark Futures Contract is such that every month it begins by
using the near month contract to expire until the near month contract is within
two weeks of expiration, when the near month contract is sold and replaced with
the next month contract to expire. In the event of a gasoline futures market
where near month contracts trade at a higher price than next month to expire
contracts, a situation described as “backwardation” in the futures market, then
absent the impact of the overall movement in gasoline prices the value of the
benchmark contract would tend to rise as it approaches expiration. As a result,
the total return of the Benchmark Futures Contract would tend to track higher.
Conversely, in the event of a gasoline futures market where near month contracts
trade at a lower price than next month contracts, a situation described as
“contango” in the futures market, then absent the impact of the overall movement
in gasoline prices the value of the benchmark contract would tend to decline as
it approaches expiration. As a result the total return of the Benchmark Futures
Contract would tend to track lower. When compared to total return of other price
indices, such as the spot price of gasoline, the impact of backwardation and
contango may lead the total return of UGA’s NAV to vary significantly. In the
event of a prolonged period of contango, and absent the impact of rising or
falling gasoline prices, this could have a significant negative impact on UGA’s
NAV and total return.
56
Regulation
of the commodity interests and energy markets is extensive and constantly
changing; future regulatory developments are impossible to predict but may
significantly and adversely affect UGA.
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 futures transactions in the United States is a
rapidly changing area of law and is subject to modification by government and
judicial action.
The
regulation of commodity interest transactions in the United States is a rapidly
changing area of law and is subject to ongoing modification by governmental and
judicial action. Considerable regulatory attention has been focused on
non-traditional investment pools which are publicly distributed in the United
States. There is a possibility of future regulatory changes altering, perhaps to
a material extent, the nature of an investment in UGA or the ability of UGA to
continue to implement its investment strategy. In addition, various national
governments have expressed concern regarding the disruptive effects of
speculative trading in the energy markets and the need to regulate the
derivatives markets in general. The effect of any future regulatory change on
UGA is impossible to predict, but could be substantial and adverse.
In the
wake of the economic crisis of 2008 and 2009, the Administration, federal
regulators and Congress are revisiting the regulation of the financial sector,
including securities and commodities markets. These efforts are likely to result
in significant changes in the regulation of these markets.
Currently,
a number of proposals that would alter the regulation of Gasoline Interests are
being considered by federal regulators and Congress. These proposals include the
imposition of fixed position limits on energy-based commodity futures contracts,
extension of position and accountability limits to futures contracts on non-U.S.
exchanges previously exempt from such limits, and the forced use of
clearinghouse mechanisms for all over-the-counter transactions. Certain
proposals would aggregate and limit all positions in energy futures held by a
single entity, whether such positions exist on U.S. futures exchanges, non-U.S.
futures exchanges, or in over-the-counter contracts. While it cannot be
predicted at this time what reforms will eventually be made or how they will
impact UGA, if any of the aforementioned proposals are implemented, UGA’s
ability to meet its investment objective may be negatively impacted and
investors could be adversely affected.
Additionally,
on January 26, 2010, the CFTC published a proposed rule that, if implemented,
would set fixed position limits on certain energy Futures Contracts including
the NYMEX RBOB gasoline futures contract, NYMEX Henry Hub natural gas futures
contract, NYMEX Light Sweet crude oil futures contract and NYMEX New York Harbor
No. 2 heating oil futures contract, along with any contract based upon these
contracts. The proposed position limits would be set as a percentage
of the open interest in these contracts for the spot month, any single month,
and all months combined. Additionally, the proposed rule would
aggregate positions in the enumerated contracts and those based upon such
contracts, including contracts listed on separate exchanges. This
proposal is currently undergoing a 90-day public comment period.
Investing
in UGA for purposes of hedging may be subject to several risks including the
possibility of losing the benefit of favorable market movement.
Participants
in the gasoline or in other industries may use UGA as a vehicle to hedge the
risk of losses in their gasoline-related transactions. There are several risks
in connection with using UGA 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. In a hedging
transaction, the hedger may be concerned that the hedged item will increase in
price, but must recognize the risk that the price may instead decline and if
this happens he will have lost his opportunity to profit from the change in
price because the hedging transaction will result in a loss rather than a gain.
Thus, the hedger foregoes 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.
57
When
using futures contracts as a hedging technique, at best, the correlation between
changes in prices of 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 gasoline products, technical influences in futures trading, and differences
between anticipated energy costs being hedged and the instruments underlying the
standard 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.
In
addition, using an investment in UGA as a hedge for changes in energy costs
(e.g., investing in
crude oil, heating oil, gasoline, natural gas or other fuels, or electricity)
may not correlate because changes in the spot price of gasoline may vary from
changes in energy costs because changes in the spot price of gasoline may vary
from changes in energy costs because changes in the spot price of gasoline may
not be at the same rate as changes in the price of other energy products, and,
in any case, the spot price of gasoline may not reflect the refining,
transportation, and other costs that may impact the hedger’s energy
costs.
An
investment in UGA may provide little or no diversification benefits. Thus, in a
declining market, UGA may have no gains to offset losses from other investments,
and an investor may suffer losses on an investment in UGA
while incurring losses with respect to other asset classes.
Historically,
Futures Contracts and Other Gasoline-Related Investments have generally been
non-correlated to the performance of other asset classes such as stocks and
bonds. Non-correlation means that there is a low statistically valid
relationship between the performance of futures and other commodity interest
transactions, 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, UGA’s performance were to move in
the same general direction as the financial markets, investors will obtain
little or no diversification benefits from an investment in the units. In such a
case, UGA may have no gains to offset losses from other investments, and
investors may suffer losses on their investment in UGA at the same time they
incur losses with respect to other investments.
Variables
such as drought, floods, weather, embargoes, tariffs and other political events
may have a larger impact on gasoline prices and gasoline-linked instruments,
including Futures Contracts and Other Gasoline-Related Investments, than on
traditional securities. These additional variables may create additional
investment risks that subject UGA’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 price of gasoline and prices of other financial assets, such as
stocks and bonds, are negatively correlated. In the absence of negative
correlation, UGA cannot be expected to be automatically profitable during
unfavorable periods for the stock market, or vice versa.
UGA’s
Operating Risks
UGA
is not a registered investment company so unitholders do not have the
protections of the 1940 Act.
UGA is
not an investment company subject to the 1940 Act. Accordingly, investors 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
General Partner is leanly staffed and relies heavily on key personnel to manage
trading activities.
In
managing and directing the day-to-day activities and affairs of UGA, the General
Partner 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 UGA.
Furthermore, Messrs. Mah and Hyland are currently involved in the
management of the Related Public Funds, and the General Partner has filed a
registration statement for two other exchange traded security funds, USBO and
USCI. 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 UGA and Related Public Fund
matters. Mr. Hyland will spend approximately 85% of his time on UGA and
Related Public Fund matters. To the extent that the General Partner establishes
additional funds, even greater demands will be placed on Messrs. Gerber, Mah
and Hyland, as well as the other officers of the General Partner and its
Board of Directors.
58
Accountability
levels, position limits, and daily price fluctuation limits set by the exchanges
have the potential to cause a tracking error, which could cause the price of
units to substantially vary from the price of the Benchmark Futures Contract and
prevent investors from being able to effectively use UGA as a way to hedge
against gasoline-related losses or as a way to indirectly invest in
gasoline.
U.S.
designated contract markets such as the NYMEX 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 UGA is
not) may hold, own or control. For example, the current accountability level for
investments at any one time in the Benchmark Futures Contract is 7,000.
While this is not a fixed ceiling, it is a threshold above which the NYMEX may
exercise greater scrutiny and control over an investor, including limiting an
investor to holding no more than 7,000 Benchmark Futures Contracts. With regard
to position limits, the NYMEX limits an investor from holding more than 1,000
net futures in the last 3 days of trading in the near month contract to
expire.
In
addition to accountability levels and position limits, the NYMEX also sets daily
price fluctuation limits on 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 particular futures contract, no trades
may be made at a price beyond that limit.
For
example, the NYMEX imposes a $0.25 per gallon ($10,500 per contract) price
fluctuation limit for the Benchmark Futures Contract. This limit is initially
based off of the previous trading day’s settlement price. If any Benchmark
Futures Contract is traded, bid, or offered at the limit for five minutes,
trading is halted for five minutes. When trading resumes it begins at the point
where the limit was imposed and the limit is reset to be $0.25 per gallon in
either direction of that point. If another halt were triggered, the market would
continue to be expanded by $0.25 per gallon in either direction after each
successive five-minute trading halt. There is no maximum price fluctuation limit
during any one trading session.
U.S.
futures exchanges, including the NYMEX, currently do not implement fixed
position limits for Futures Contracts held outside of the last few days of
trading in the near month contract to expire. However, on January 26,
2010, the CFTC published a proposed rule that, if implemented, would set fixed
position limits on energy Futures Contracts, including the NYMEX RBOB gasoline
futures contract, NYMEX Henry Hub natural gas futures contract, NYMEX Light
Sweet crude oil futures contract and NYMEX New York Harbor No. 2 heating oil
futures contract, along with any contract based upon these
contracts. The proposed position limits would be set as a percentage
of the open interest in these contracts for the spot month, any single month,
and all months combined. Additionally, the proposed rule would
aggregate positions in the enumerated contracts and those based upon such
contracts, including contracts listed on separate exchanges. This
proposal is currently undergoing a 90-day public comment period.
All of
these limits may potentially cause a tracking error between the price of the
units and the price of the Benchmark Futures Contract. This may in turn prevent
investors from being able to effectively use UGA as a way to hedge against
gasoline-related losses or as a way to indirectly invest in
gasoline.
UGA has
not limited the size of its offering and is committed to utilizing substantially
all of its proceeds to purchase Futures Contracts and Other Gasoline-Related
Investments. If UGA encounters accountability levels, position limits, or price
fluctuation limits for gasoline contracts on the NYMEX, it may then, if
permitted under applicable regulatory requirements, purchase Futures Contracts
on the ICE Futures or other exchanges that trade listed gasoline futures. The
Futures Contracts available on the ICE Futures are comparable to the contracts
on the NYMEX, but they may have different underlying commodities, sizes,
deliveries, and prices. In addition, certain of the Futures Contracts available
on the ICE Futures are subject to accountability levels and position
limits.
59
There
are technical and fundamental risks inherent in the trading system the General
Partner intends to employ.
The
General Partner’s trading system is quantitative in nature and it is possible
that the General Partner might make a mathematical error. In addition, it is
also possible that a computer or software program may malfunction and cause an
error in computation.
To
the extent that the General Partner uses spreads and straddles as part of its
trading strategy, there is the risk that the NAV may not closely track the
changes in the Benchmark Futures Contract.
Spreads
combine simultaneous long and short positions in related futures contracts that
differ by commodity (e.g., long crude oil and
short gasoline), by market (e.g., long WTI crude futures,
short Brent crude futures), or by delivery month (e.g., long December, short
November). Spreads gain or lose value as a result of relative changes in price
between the long and short positions. Spreads often reduce risk to investors,
because the contracts tend to move up or down together. However, both legs of
the spread could move against an investor simultaneously, in which case the
spread would lose value. Certain types of spreads may face unlimited risk, e.g., because the price of a
futures contract underlying a short position can increase by an unlimited amount
and the investor would have to take delivery or offset at that
price.
A
commodity straddle takes both long and short option positions in the same
commodity in the same market and delivery month simultaneously. The buyer of a
straddle profits if either the long or the short leg of the straddle moves
further than the combined cost of both options. The seller of a straddle profits
if both the long and short positions do not trade beyond a range equal to the
combined premium for selling both options.
If the
General Partner were to utilize a spread or straddle position and the spread
performed differently than expected, the results could impact UGA’s tracking
error. This could affect UGA’s investment objective of having its NAV closely
track the changes in the Benchmark Futures Contract. Additionally, a loss on a
spread position would negatively impact UGA’s absolute return.
UGA
and the General Partner may have conflicts of interest, which may permit them to
favor their own interests to the detriment of unitholders.
UGA and
the General Partner may have inherent conflicts to the extent the General
Partner attempts to maintain UGA’s asset size in order to preserve its fee
income and this may not always be consistent with UGA’s objective of having the
value of its units’ NAV track changes in the Benchmark Futures Contract. The
General Partner’s officers, directors and employees do not devote their time
exclusively to UGA. These persons are directors, officers or employees of other
entities that may compete with UGA for their services. They could have a
conflict between their responsibilities to UGA and to those other
entities.
In
addition, the General Partner’s principals, officers, directors or employees may
trade futures and related contracts for their own account. A conflict of
interest may exist if their trades are in the same markets and at the same time
as UGA trades using the clearing broker to be used by UGA. A potential conflict
also may occur if the General Partner’s principals, officers, directors or
employees trade their accounts more aggressively or take positions in their
accounts which are opposite, or ahead of, the positions taken by
UGA.
The
General Partner has sole current authority to manage the investments and
operations of UGA, and this may allow it to act in a way that furthers its own
interests which may create a conflict with the best interests of investors.
Limited partners have limited voting control, which will limit the ability to
influence matters such as amendment of the LP Agreement, change in UGA’s basic
investment policy, dissolution of this fund, or the sale or distribution of
UGA’s assets.
The
General Partner serves as the general partner to each of UGA and the Related
Public Funds and will serve as the general partner for USBO and the sponsor
for USCI, if such funds offer their securities to the public or begin
operations. The General Partner may have a conflict to the extent that its
trading decisions for UGA may be influenced by the effect they would have on the
other funds it manages. These trading decisions may be influenced since the
General Partner also serves as the general partner for all of the funds, and is
required to meet all of the funds’ investment objectives as well as UGA’s. If
the General Partner believes that a trading decision it made on behalf of UGA
might (i) impede its other funds from reaching their investment objectives, or
(ii) improve the likelihood of meeting its other funds’ objectives, then the
General Partner may choose to change its trading decision for UGA, which could
either impede or improve the opportunity for UGA to meet its investment
objective. In addition, the General Partner is required to indemnify the
officers and directors of its other funds if the need for indemnification
arises. This potential indemnification will cause the General Partner’s assets
to decrease. If the General Partner’s other sources of income are not sufficient
to compensate for the indemnification, then the General Partner may terminate
and investors could lose their investment.
60
Unitholders
may only vote on the removal of the General Partner and limited partners have
only limited voting rights. Unitholders and limited partners will not
participate in the management of UGA and do not control the General Partner so
they will not have influence over basic matters that affect UGA.
Unitholders
that have not applied to become limited partners have no voting rights, other
than to remove the General Partner. Limited partners will have limited voting
rights with respect to UGA’s affairs. Unitholders may remove the General Partner
only if 66 2/3% of the unitholders elect to do so. Unitholders and limited
partners will not be permitted to participate in the management or control of
UGA or the conduct of its business. Unitholders and limited partners must
therefore rely upon the duties and judgment of the General Partner to manage
UGA’s affairs.
The
General Partner may manage a large amount of assets and this could affect UGA’s
ability to trade profitably.
Increases
in assets under management may affect trading decisions. In general, the General
Partner does not intend to limit the amount of assets of UGA that it may manage.
The more assets the General Partner 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.
UGA
could terminate at any time and cause the liquidation and potential loss of an
investor’s investment and could upset the overall maturity and timing of
an investor’s investment portfolio.
UGA may
terminate at any time, regardless of whether UGA has incurred losses, subject to
the terms of the LP Agreement. In particular, unforeseen circumstances,
including the death, adjudication of incompetence, bankruptcy, dissolution, or
removal of the General Partner could cause UGA to terminate unless a majority
interest of the limited partners within 90 days of the event elects to continue
the partnership and appoints a successor general partner, or the affirmative
vote of a majority in interest of the limited partners subject to certain
conditions. However, no level of losses will require the General Partner to
terminate UGA. UGA’s termination would cause the liquidation and potential loss
of an investor’s investment. Termination could also negatively affect the
overall maturity and timing of an investor’s investment portfolio.
Limited
partners may not have limited liability in certain circumstances, including
potentially having liability for the return of wrongful
distributions.
Under
Delaware law, a limited partner might be held liable for UGA obligations as if
it were a General Partner if the limited partner participates in the control of
the partnership’s business and the persons who transact business with the
partnership think the limited partner is the General Partner.
A limited
partner will not be liable for assessments in addition to its initial capital
investment in any of UGA’s capital securities representing units. However, a
limited partner may be required to repay to UGA any amounts wrongfully returned
or distributed to it under some circumstances. Under Delaware law, UGA may not
make a distribution to limited partners if the distribution causes UGA’s
liabilities (other than liabilities to partners on account of their partnership
interests and nonrecourse liabilities) to exceed the fair value of UGA’s assets.
Delaware law provides that a limited partner who receives such a distribution
and knew at the time of the distribution that the distribution violated the law
will be liable to the limited partnership for the amount of the distribution for
three years from the date of the distribution.
61
With
adequate notice, a limited partner may be required to withdraw from the
partnership for any reason.
If the
General Partner gives at least fifteen (15) days’ written notice to a limited
partner, then the General Partner may for any reason, in its sole discretion,
require any such limited partner to withdraw entirely from the partnership or to
withdraw a portion of its partner capital account. The General Partner may
require withdrawal even in situations where the limited partner has complied
completely with the provisions of the LP Agreement.
UGA’s
existing units are, and any units UGA issues in the future will be, subject to
restrictions on transfer. Failure to satisfy these requirements will preclude a
transferee from being able to have all the rights of a limited
partner.
No
transfer of any unit or interest therein may be made if such transfer would (a)
violate the then applicable federal or state securities laws or rules and
regulations of the SEC, any state securities commission, the CFTC or any other
governmental authority with jurisdiction over such transfer, or (b) cause UGA to
be taxable as a corporation or affect UGA’s existence or qualification as a
limited partnership. In addition, investors may only become limited partners if
they transfer their units to purchasers that meet certain conditions outlined in
the LP Agreement, which provides that each record holder or limited partner or
unitholder applying to become a limited partner (each a record holder) may be
required by the General Partner to furnish certain information, including that
holder’s nationality, citizenship or other related status. A transferee who is
not a U.S. resident may not be eligible to become a record holder or a limited
partner if its ownership would subject UGA to the risk of cancellation or
forfeiture of any of its assets under any federal, state or local law or
regulation. All purchasers of UGA’s units, who wish to become limited partners
or record holders, and receive cash distributions, if any, or have certain other
rights, must deliver an executed transfer application in which the purchaser or
transferee must certify that, among other things, he, she or it agrees to be
bound by UGA’s LP Agreement and is eligible to purchase UGA’s securities. Any
transfer of units will not be recorded by the transfer agent or recognized by
UGA unless a completed transfer application is delivered to the General Partner
or the Administrator. A person purchasing UGA’s existing units, who does not
execute a transfer application and certify that the purchaser is eligible to
purchase those securities acquires no rights in those securities other than the
right to resell those securities. Whether or not a transfer application is
received or the consent of the General Partner obtained, UGA’s units will be
securities and will be transferable according to the laws governing transfers of
securities. See “Transfer of Units.”
UGA
does not expect to make cash distributions.
The
General Partner has not previously made any cash distributions and intends to
re-invest any realized gains in additional Gasoline Interests rather than
distributing cash to limited partners. Therefore, unlike mutual funds, commodity
pools or other investment pools that actively manage their investments in an
attempt to realize income and gains from their investing activities and
distribute such income and gains to their investors, UGA generally does not
expect to distribute cash to limited partners. An investor should not invest in
UGA if it will need cash distributions from UGA to pay taxes on its share of
income and gains of UGA, if any, or for any other reason. Although UGA does not
intend to make cash distributions, the income earned from its 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 Gasoline Interests and investors adversely react to being taxed on such
income without receiving distributions that could be used to pay such tax. If
this income becomes significant then cash distributions may be
made.
There
is a risk that UGA will not earn trading gains sufficient to compensate for the
fees and expenses that it must pay and as such UGA may not earn any
profit.
UGA pays
brokerage charges of approximately 0.12%, (including futures commission merchant
fees of $3.50 per buy or sell), any licensing fees for the use of intellectual
property, registration fees with the SEC, FINRA, or other regulatory agency in
connection with offers and sales of the units subsequent to the initial offering
of the units including the legal, printing, accounting and other expenses
associated therewith. UGA also pays the fees and expenses, including directors
and officers liability insurance, of the independent directors, management fees
of 0.60% of NAV on its average net assets, tax accounting and reporting costs,
and over-the-counter spreads and extraordinary expenses (e.g., subsequent offering
expenses, other expenses not in the ordinary course of business, including the
indemnification of any person against liabilities and obligations to the extent
permitted by law and required under the LP Agreement and under agreements
entered into by the General Partner on UGA’s behalf 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 expenses and the settlement of claims
and litigation) that can not be quantified. These fees and expenses must be paid
in all cases regardless of whether UGA’s activities are profitable. Accordingly,
UGA must earn trading gains sufficient to compensate for these fees and expenses
before it can earn any profit.
62
If
offerings of the units do not raise sufficient funds to pay UGA’s future
expenses and no other source of funding of expenses is found, UGA may be forced
to terminate and investors may lose all or part of their
investment.
Prior to
the offering of units that commenced on February 26, 2008, all of UGA’s expenses
were funded by the General Partner and its affiliates. These payments by the
General Partner and its affiliates were designed to allow UGA the ability
to commence the public offering of its units. UGA now directly pays certain of
these fees and expenses. The General Partner will continue to pay other
fees and expenses, as set forth in the LP Agreement. If the General Partner and
UGA are unable to raise sufficient funds to cover their expenses or locate any
other source of funding, UGA may be forced to terminate and investors may lose
all or part of their investment.
UGA
may incur higher fees and expenses upon renewing existing or entering into new
contractual relationships.
The
clearing arrangements between the clearing brokers and UGA generally are
terminable by the clearing brokers once the clearing broker has given UGA
notice. Upon termination, the General Partner may be required to renegotiate or
make other arrangements for obtaining similar services if UGA intends to
continue trading in Futures Contracts or Other Gasoline-Related Investments at
its present level of capacity. The services of any clearing broker 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 clearing
arrangements.
UGA
may miss certain trading opportunities because it will not receive the benefit
of the expertise of independent trading advisors.
The
General Partner does not employ trading advisors for UGA; however, it reserves
the right to employ them in the future. The only advisor to UGA is the General
Partner. A lack of independent trading advisors may be disadvantageous to UGA
because it will not receive the benefit of a trading advisor’s
expertise.
An
unanticipated number of redemption requests during a short period of time could
have an adverse effect on the NAV of UGA.
If a
substantial number of requests for redemption of Redemption Baskets are received
by UGA during a relatively short period of time, UGA may not be able to satisfy
the requests from UGA’s assets not committed to trading. As a consequence, it
could be necessary to liquidate positions in UGA’s trading positions before the
time that the trading strategies would otherwise dictate
liquidation.
The
financial markets are currently in a period of disruption and UGA does not
expect these conditions to improve in the near future.
Currently
and throughout 2008 and 2009, the financial markets have experienced very
difficult conditions and volatility as well as significant adverse
trends. The conditions in these markets have resulted in a decrease
in 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. A continued recession or a depression could adversely
affect the financial condition and results of operations of UGA’s service
providers and Authorized Purchasers which would impact the ability of the
General Partner to achieve UGA’s investment objective.
63
The
failure or bankruptcy of a clearing broker could result in a substantial loss of
UGA’s assets; the clearing broker could be subject to proceedings that impair
its ability to execute UGA’s trades.
Under
CFTC regulations, a clearing broker maintains customers’ assets in a bulk
segregated account. If a clearing broker fails to do so, or is unable to satisfy
a substantial deficit in a customer account, its 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
UGA, are entitled to recover, even in respect of property specifically traceable
to them, only a proportional share of all property available for distribution to
all of that clearing broker’s customers. The bankruptcy of a clearing broker
could result in the complete loss of UGA’s assets posted with the clearing
broker; though the vast majority of UGA’s assets are held in Treasuries, cash
and/or cash equivalents with UGA’s custodian and would not be impacted by the
bankruptcy of a clearing broker. UGA 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 commodity interest contracts are
traded.
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 UGA’s
trades.
The
failure or insolvency of UGA’s custodian could result in a substantial loss of
UGA’s assets.
As noted
above, the vast majority of UGA’s assets are held in Treasuries, cash and/or
cash equivalents with UGA’s custodian. The insolvency of the custodian could
result in a complete loss of UGA’s assets held by that custodian, which, at any
given time, would likely comprise a substantial portion of UGA’s total
assets.
Third
parties may infringe upon or otherwise violate intellectual property rights or
assert that the General Partner has infringed or otherwise violated their
intellectual property rights, which may result in significant costs and diverted
attention.
The
success of UGA depends on the ability of the General Partner to accurately
implement trading systems, and any failure to do so could subject UGA to losses
on such transactions.
The
General Partner uses mathematical formulas built into a generally available
spreadsheet program to decide whether it should buy or sell Gasoline Interests
each day. Specifically, the General Partner uses the spreadsheet to make
mathematical calculations and to monitor positions in Gasoline Interests and
Treasuries and correlations to the spot price of gasoline. The General Partner
must accurately process the spreadsheets’ outputs and execute the transactions
called for by the formulas. In addition, UGA relies on the General Partner to
properly operate and maintain its computer and communications systems. Execution
of the formulas and operation of the systems are subject to
human error. Any failure, inaccuracy or delay in implementing any of the
formulas or systems and executing UGA’s transactions could impair its ability to
achieve UGA’s investment objective. It could also result in decisions to
undertake transactions based on inaccurate or incomplete information. This could
cause substantial losses on transactions.
64
UGA
may experience substantial losses on transactions if the computer or
communications system fails.
UGA’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 General Partner 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 General Partner’s and UGA’s reputations, increased operational
expenses and diversion of technical resources.
If
the computer and communications systems are not upgraded, UGA’s financial
condition could be harmed.
The
development of complex computer and communications systems and new technologies
may render the existing computer and communications systems supporting UGA’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 General Partner will need to make
corresponding upgrades to continue effectively its trading activities. UGA’s
future success will depend on UGA’s ability to respond to changing technologies
on a timely and cost-effective basis.
UGA
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.
UGA
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 General Partner uses to conduct trading activities. Failure
or inadequate performance of any of these systems could adversely affect the
General Partner’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 UGA’s available capital. For example,
unavailability of price quotations from third parties may make it difficult or
impossible for the General Partner to use its proprietary software that it
relies upon to conduct its trading activities. Unavailability of records from
brokerage firms may make it difficult or impossible for the General Partner 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 General Partner to
reconcile its records of transactions with those of another party or to
accomplish settlement of executed transactions.
The
occurrence of a terrorist attack, or the outbreak, continuation or expansion of
war or other hostilities could disrupt UGA’s trading activity and materially
affect UGA’s profitability.
The
operations of UGA, the exchanges, brokers and counterparties with which UGA does
business, and the markets in which UGA does business could be severely disrupted
in the event of a major terrorist attack or the outbreak, continuation or
expansion of war or other hostilities. The terrorist attacks of September 11,
2001 and the war in Iraq, global anti-terrorism initiatives and political unrest
in the Middle East and Southeast Asia continue to fuel this
concern.
Risk
of Leverage and Volatility
If
the General Partner permits UGA to become leveraged, investors could lose all or
substantially all of their investment if UGA’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 interests’)
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 value in excess of the commodity pool’s assets. While this
leverage can increase the pool’s profits, relatively small adverse movements in
the price of the pool’s futures contracts can cause significant losses to the
pool. While the General Partner has not and does not currently intend to
leverage UGA’s assets, it is not prohibited from doing so under the LP Agreement
or otherwise.
65
The
price of gasoline is volatile which could cause large fluctuations in the price
of units.
Movements
in the price of gasoline may be the result of factors outside of the General
Partner’s control and may not be anticipated by the General Partner. Among the
factors that can cause volatility in the price of gasoline are:
|
|
·
|
worldwide
or regional demand for energy, which is affected by economic
conditions;
|
|
|
·
|
the
domestic and foreign supply and inventories of oil and
gas;
|
|
|
·
|
weather
conditions, including abnormally mild winter or summer weather, and
abnormally harsh winter or summer
weather;
|
|
|
·
|
availability
and adequacy of pipeline and other transportation
facilities;
|
|
|
·
|
domestic
and foreign governmental regulations and
taxes;
|
|
|
·
|
political
conditions in gas or oil producing
regions;
|
|
|
·
|
technological
advances relating to energy usage or relating to technology for
exploration, production, refining and petrochemical
manufacturing;
|
|
|
·
|
the
ability of members of OPEC to agree upon and maintain oil prices and
production levels;
|
|
|
·
|
the
price and availability of alternative fuels;
and
|
|
|
·
|
the
impact of energy conservation
efforts.
|
Since
UGA’s commencement of operations on February 26, 2008, there has been tremendous
volatility in the price of the Benchmark Futures Contract. For
example, the price of the NYMEX Futures Contract for gasoline started 2009 at
$1.0620 per gallon which was the low for 2009. Prices rose sharply
over the course of 2009 and hit a peak on June 16, 2009 of $2.071 per gallon.
The NYMEX Futures Contract for gasoline ended 2009 at $1.752 per gallon, up
approximately 64.93% over 2009 (investors are cautioned that these represent
prices for gasoline on a wholesale basis and should not be directly compared to
retail prices at a gasoline service station). The General Partner
anticipates that there will be continued volatility in the price of the NYMEX
Futures Contract for gasoline and futures contracts for other petroleum-based
commodities. Consequently, investors should know that this volatility can lead
to a loss of all or substantially all of their investment in UGA.
The
impact of environmental and other governmental laws and regulations may affect
the price of gasoline.
Since
gasoline prices correlate to crude oil prices, law and regulations that affect
the price of crude oil impact the price of gasoline. Environmental and other
governmental laws and regulations have increased the costs to plan, design,
drill, install, operate and abandon oil wells. Other laws have prevented
exploration and drilling of crude oil in certain environmentally sensitive
federal lands and waters. Several environmental laws that have a direct or an
indirect impact on the price of gasoline include, but are not limited to, the
Clean Air Act, Clean Water Act, Resource Conservation and Recovery Act, and the
Comprehensive Environmental Response, Compensation and Liability Act of
1980.
The
limited method for transporting and storing gasoline may cause the price of
gasoline to increase.
Gasoline
is transported throughout the United States by way of pipelines, barges,
tankers, trucks and rail cars and is stored in aboveground and underground
storage facilities. These systems may not be adequate to meet demand, especially
in times of peak demand or in areas of the United States where gasoline service
is already limited due to minimal pipeline and storage infrastructure. As a
result of the limited method for transporting and storing gasoline, the price of
gasoline may increase.
66
Over-the-Counter
Contract Risk
Over-the-counter
transactions are subject to little, if any, regulation.
A portion
of UGA’s assets may be used to trade over-the-counter Gasoline Interest
contracts, such as forward contracts or swap or spot contracts. Over-the-counter
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 are essentially unregulated by the CFTC. Investors therefore do
not receive the protection of CFTC regulation or the statutory scheme of the CEA
in connection with this trading activity by UGA. The markets for
over-the-counter contracts rely upon the integrity of market participants in
lieu of the additional regulation imposed by the CFTC on participants in the
futures markets. The lack of regulation in these markets could expose UGA in
certain circumstances to significant losses in the event of trading abuses or
financial failure by participants.
UGA
will be subject to credit risk with respect to counterparties to
over-the-counter contracts entered into by UGA or held by special purpose or
structured vehicles.
UGA also
faces the risk of non-performance by the counterparties to the over-the-counter
contracts. Unlike in futures contracts, 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 UGA, in which case UGA could suffer
significant losses on these contracts.
If a
counterparty becomes bankrupt or otherwise fails to perform its obligations due
to financial difficulties, UGA may experience significant delays in obtaining
any recovery in a bankruptcy or other reorganization proceeding. UGA may obtain
only limited recovery or may obtain no recovery in such
circumstances.
UGA
may be subject to liquidity risk with respect to its over-the-counter
contracts.
Over-the-counter
contracts may have terms that make them less marketable than Futures Contracts.
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 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 over-the-counter
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.
Risk
of Trading in International Markets
Trading
in international markets could expose UGA to credit and regulatory
risk.
The
General Partner invests primarily in Futures Contracts, a significant portion of
which are traded on United States exchanges, including the NYMEX. However, a
portion of UGA’s trades 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. None of the CFTC,
NFA, or any domestic exchange regulates activities of any foreign boards of
trade or exchanges, including the execution, delivery and clearing of
transactions, nor has the 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 UGA, 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, UGA
has less legal and regulatory protection than it does when it trades
domestically.
67
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 UGA to credit risk. Trading in non-U.S. markets also leaves
UGA susceptible to swings in the value of the local currency against the U.S.
dollar. 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.
International
trading activities subject UGA to foreign exchange risk.
The price
of any non-U.S. Futures Contract, option on any non-U.S. Futures Contract, or
other non-U.S. Other Gasoline-Related Investment, and, therefore, the potential
profit and loss on such contract, 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 UGA even if the
contract traded is profitable.
UGA’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 may be in a more developmental stage so that prior price
histories may not be indicative of current price dynamics. In addition, UGA 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 General Partner bases
its strategies may not be as reliable or accessible as it is for U.S.
exchanges.
Tax
Risk
An
investor’s tax liability may exceed the amount of distributions, if any, on
its units.
Cash or
property will be distributed at the sole discretion of the General Partner. The
General Partner has not and does not currently intend to make cash or other
distributions with respect to units. Investors will be required to pay U.S.
federal income tax and, in some cases, state, local, or foreign income tax, on
their allocable share of UGA’s taxable income, without regard to whether they
receive distributions or the amount of any distributions. Therefore, the tax
liability of an investor with respect to its units may exceed the amount of cash
or value of property (if any) distributed.
An
investor’s allocable share of taxable income or loss may differ from its
economic income or loss on its units.
Due to
the application of the assumptions and conventions applied by UGA in making
allocations for tax purposes and other factors, an investor’s allocable share of
UGA’s income, gain, deduction or loss may be different than its economic profit
or loss from its units for a taxable year. This difference could be temporary or
permanent and, if permanent, could result in it being taxed on amounts in excess
of its economic income.
Items
of income, gain, deduction, loss and credit with respect to units could be
reallocated if the IRS does not accept the assumptions and conventions applied
by UGA in allocating those items, with potential adverse consequences for an
investor.
The U.S.
tax rules pertaining to partnerships are complex and their application to large,
publicly traded partnerships such as UGA is in many respects uncertain. UGA
applies certain assumptions and conventions in an attempt to comply with the
intent of the applicable rules and to report taxable income, gains, deductions,
losses and credits in a manner that properly reflects unitholders’ economic
gains and losses. These assumptions and conventions may not fully comply with
all aspects of the Internal Revenue Code (the “Code”) and applicable Treasury
Regulations, however, and it is possible that the U.S. Internal Revenue Service,
will successfully challenge UGA’s allocation methods and require UGA to
reallocate items of income, gain, deduction, loss or credit in a manner that
adversely affects investors. If this occurs, investors may be required to file
an amended tax return and to pay additional taxes plus deficiency
interest.
68
UGA
could be treated as a corporation for federal income tax purposes, which may
substantially reduce the value of the units.
UGA has
received an opinion of counsel that, under current U.S. federal income tax laws,
UGA will be treated as a partnership that is not taxable as a corporation for
U.S. federal income tax purposes, provided that (i) at least 90 percent of UGA’s
annual gross income consists of “qualifying income” as defined in the Code, (ii)
UGA is organized and operated in accordance with its governing agreements and
applicable law and (iii) UGA does not elect to be taxed as a corporation for
federal income tax purposes. Although the General Partner anticipates that UGA
has satisfied and will continue to satisfy the “qualifying income” requirement
for all of its taxable years, that result cannot be assured. UGA 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 UGA 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, UGA would be subject to tax on its net income for the year at
corporate tax rates. In addition, although the General Partner does not
currently intend to make distributions with respect to units, any distributions
would be taxable to unitholders as dividend income. Taxation of UGA as a
corporation could materially reduce the after-tax return on an investment in
units and could substantially reduce the value of the units.
|
Item
1B.
|
Unresolved
Staff Comments.
|
Not
applicable.
|
Item
2.
|
Properties.
|
Not
applicable.
|
Item
3.
|
Legal
Proceedings.
|
Although
UGA may, from time to time, be involved in litigation arising out of its
operations in the normal course of business or otherwise, UGA is currently not a
party to any pending material legal proceedings.
|
Item
4.
|
Reserved.
|
|
Item
5.
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity
Securities.
|
Price
Range of Units
UGA’s
units have traded on the NYSE Arca under the symbol “UGA” since November
25, 2008. Prior to trading on the NYSE Arca, UGA’s units previously
traded on the AMEX under the symbol “UGA” since its initial public offering on
February 26, 2008. The following table sets forth the range of reported high and
low sales prices of the units as reported on the AMEX and NYSE Arca, as
applicable, for the periods indicated below.
|
High
|
Low
|
|||||||
|
Fiscal year 2009
|
||||||||
|
First
quarter
|
$ | 26.30 | $ | 19.73 | ||||
|
Second
quarter
|
$ | 35.13 | $ | 23.32 | ||||
|
Third
quarter
|
$ | 35.71 | $ | 28.07 | ||||
|
Fourth
quarter
|
$ | 37.82 | $ | 31.73 | ||||
|
High
|
Low
|
|||||||
|
Fiscal year 2008
|
||||||||
|
First
quarter (beginning February 26, 2008)
|
$ | 50.93 | $ | 46.00 | ||||
|
Second
quarter
|
$ | 67.03 | $ | 47.97 | ||||
|
Third
quarter
|
$ | 67.66 | $ | 43.71 | ||||
|
Fourth
quarter
|
$ | 48.54 | $ | 16.10 | ||||
69
As of
December 31, 2009, UGA had 5,131 holders of units.
Dividends
UGA has
not made and does not currently intend to make cash distributions to its
unitholders.
Issuer
Purchases of Equity Securities
UGA does
not purchase units directly from its unitholders; however, in connection with
its redemption of baskets held by Authorized Purchasers, UGA redeemed 20 baskets
(comprising 2,000,000 units) during the year ended December 31,
2009.
|
Item
6.
|
Selected
Financial Data.
|
Financial
Highlights (for the years ended December 31, 2009 and 2008, and the period from
April 12, 2007 (inception) to December 31, 2007)
(Dollar
amounts in 000’s except for per unit information)
|
Year ended
December 31, 2009
|
Year ended
December 31, 2008
|
Period from
April 12, 2007 to
December 31, 2007
|
||||||||||
|
Total
assets
|
$ | 69,578 | $ | 20,369 | $ | 1 | ||||||
|
Net
realized and unrealized gain (loss) on futures
transactions, inclusive of commissions
|
$ | 32,948 | $ | (9,949 | ) | $ | - | |||||
|
Net
income (loss)
|
$ | 32,580 | $ | (9,799 | ) | $ | - | |||||
|
Weighted-average
limited partnership units
|
2,072,603 | 413,548 | - | |||||||||
|
Net
income (loss) per unit
|
$ | 16.20 | $ | (29.79 | ) | $ | - | |||||
|
Net
income (loss) per weighted average unit
|
$ | 15.72 | $ | (23.69 | ) | $ | - | |||||
|
Cash
and cash equivalents at end of year/period
|
$ | 61,883 | $ | 11,692 | $ | 1 | ||||||
|
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
|
The
following discussion should be read in conjunction with the financial statements
and the notes thereto of UGA included elsewhere in this annual report on
Form 10-K.
Forward-Looking
Information
This
annual report on Form 10-K, including this “Management’s Discussion and Analysis
of Financial Condition and Results of Operations,” contains forward-looking
statements regarding the plans and objectives of management for future
operations. This information may involve known and unknown risks, uncertainties
and other factors that may cause UGA’s actual results, performance or
achievements to be materially different from future results, performance or
achievements expressed or implied by any forward-looking statements.
Forward-looking statements, which involve assumptions and describe UGA’s
future plans, strategies and expectations, are generally identifiable by use of
the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,”
“believe,” “intend” or “project,” the negative of these words, other
variations on these words or comparable terminology. These forward-looking
statements are based on assumptions that may be incorrect, and UGA cannot assure
investors that the projections included in these forward-looking statements will
come to pass. UGA’s actual results could differ materially from those
expressed or implied by the forward-looking statements as a result of various
factors.
70
UGA has
based the forward-looking statements included in this annual report on Form 10-K
on information available to it on the date of this annual report on Form
10-K, and UGA assumes no obligation to update any such forward-looking
statements. Although UGA undertakes no obligation to revise or update any
forward-looking statements, whether as a result of new information, future
events or otherwise, investors are advised to consult any additional disclosures
that UGA may make directly to them or through reports that UGA in the
future files with the SEC, including annual reports on Form 10-K, quarterly
reports on Form 10-Q and current reports on Form 8-K.
Introduction
UGA, a
Delaware limited partnership, is a commodity pool that issues units that may be
purchased and sold 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 of the spot price of gasoline, as measured by the changes in
the price of the futures contract for gasoline (also known as reformulated
gasoline blendstock for oxygen blending, or “RBOB”, for delivery to the New York
harbor), traded on the NYMEX that is the near month contract to expire, except
when the near month contract is within two weeks of expiration, in which case it
will be measured by the futures contract that is the next month contract to
expire, less UGA’s expenses.
UGA seeks
to achieve its investment objective by investing in a combination of Futures
Contracts and Other Gasoline-Related Investments such that changes in its NAV,
measured in percentage terms, will closely track the changes in the price
of the Benchmark Futures Contract, also measured in percentage terms. UGA’s
General Partner believes the daily changes in the prices of the Benchmark
Futures Contract have historically closely tracked the daily changes in the spot
price of gasoline. It is not the intent of UGA to be operated in a fashion such
that the NAV will equal, in dollar terms, the spot price of gasoline or any
particular futures contract based on gasoline. Management believes that it is
not practical to manage the portfolio to achieve such an investment goal when
investing in listed gasoline futures contracts and Other Gasoline-Related
Investments.
On any
valuation day, the Benchmark Futures Contract is the near month futures contract
for gasoline traded on the NYMEX unless the near month contract is within
two weeks of expiration in which case the Benchmark Futures Contract is the next
month contract for gasoline traded on the NYMEX. “Near month
contract” means the next contract traded on the NYMEX due to expire. “Next month
contract” means the first contract traded on the NYMEX due to expire after the
near month contract.
The
regulation of Gasoline Interests in the United States is a rapidly changing area
of law and is subject to ongoing modification by governmental and judicial
action. As stated under the heading, “Risk Factors” in Item 1A of
this annual report on Form 10-K, regulation of the commodity interests and
energy markets is extensive and constantly changing; future regulatory
developments in the commodity interests and energy markets are impossible to
predict but may significantly and adversely affect UGA.
Currently,
a number of proposals to alter the regulation of Gasoline Interests are being
considered by federal regulators and legislators. These proposals include the
imposition of hard position limits on energy-based commodity futures contracts,
the extension of position and accountability limits to futures contracts on
non-U.S. exchanges previously exempt from such limits, and the forced use of
clearinghouse mechanisms for all over-the-counter transactions. An additional
proposal would aggregate and limit all positions in energy futures held by a
single entity, whether such positions exist on U.S. futures exchanges, non-U.S.
futures exchanges, or in over-the-counter contracts. The CFTC has also recently
published a proposed rule that would impose fixed position limits on certain
energy futures contracts without the need for any new legislation to be passed.
If any of the aforementioned proposals is implemented, UGA’s ability to meet its
investment objective may be negatively impacted and investors could be adversely
affected.
The
General Partner of UGA, which is registered as a CPO with the CFTC, is
authorized by the LP Agreement to manage UGA. The General Partner is authorized
by UGA in its sole judgment to employ and establish the terms of employment for,
and termination of, commodity trading advisors or futures commission
merchants.
71
Gasoline
futures prices exhibited an uneven upward trend during the year ended December
31, 2009. The price of the Benchmark Futures Contract started the period at
$1.0620 per gallon which was the low of the period. Prices rose sharply over the
course of the year and hit a peak on June 16, 2009 of $2.071 per gallon. The
year ended with the Benchmark Futures Contract at $2.053 per gallon, up
approximately 93.31% over the year (investors are cautioned that these represent
prices for gasoline on a wholesale basis and should not be directly compared to
retail prices at a gasoline service station). Similarly, UGA’s NAV rose during
the year from a starting level of $20.21 per unit to a high of $37.82 per unit
on October 27, 2009. UGA’s NAV reached its low for the year on February 18, 2009
at $19.73 per unit. UGA’s NAV on December 31, 2009 was $36.41, up approximately
80.16% over the year. The return of approximately 93.31% on the Benchmark
Futures Contract listed above is a hypothetical return only and could not
actually be achieved by an investor holding futures contracts. An investment in
gasoline futures contracts would need to be rolled forward during the time
period described in order to achieve such a result.
For the
first four months of 2009, the gasoline futures market remained primarily in a
state of contango, meaning that the price of the near month gasoline futures
contract was typically higher than the price of the next month gasoline futures
contract, or contracts further away from expiration. At the beginning of
May of 2009, the gasoline futures market moved into a backwardation market and
remained there through the end of the first half of 2009. In September
2009, the gasoline futures market moved from a backwardation market into
contango, and ended the year ended December 31, 2009 in contango. A
backwardation market is one in which the price of the near month gasoline
futures contract is higher than the price of the next month gasoline futures
contract, or contracts further away from expiration. For a discussion of
the impact of backwardation and contango on total returns, see “Term Structure
of Gasoline Prices and the Impact on Total Returns.”
Valuation
of Futures Contracts and the Computation of the NAV
The NAV
of UGA’s units is calculated 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 on the NYSE Arca typically closes at 4:00 p.m. New York
time. The Administrator uses the NYMEX closing price (determined at the earlier
of the close of the NYMEX or 2:30 p.m. New York time) for the contracts held on
the NYMEX, but calculates or determines the value of all other UGA investments,
including ICE Futures contracts or other futures contracts, as of the earlier of
the close of the NYSE Arca or 4:00 p.m. New York time.
Results
of Operations and the Gasoline Market
Results of Operations. On
February 26, 2008, UGA listed its units on the AMEX under the ticker symbol “UGA.” On that day,
UGA established its initial offering price at $50.00 per unit and issued 300,000
units to the initial Authorized Purchaser, Kellogg Capital Group, LLC, in
exchange for $15,001,000 in cash. As a result of
the acquisition of the AMEX by NYSE Euronext, UGA’s units no longer
trade on the AMEX and commenced trading on
the NYSE Arca on November 25, 2008.
Since its
initial offering of 30,000,000 units, UGA has not made any subsequent offering
of its units. As of December 31, 2009, UGA had issued 4,200,000 units, 1,900,000
of which were outstanding. As of December 31, 2009, there were 25,800,000 units
registered but not yet issued.
More
units may have been issued by UGA than are outstanding due to the redemption of
units. Unlike funds that are registered under the 1940 Act, units that have been
redeemed by UGA cannot be resold by UGA. As a result, UGA contemplates that
additional offerings of its units will be registered with the SEC in the
future in anticipation of additional issuances and redemptions.
For the Year Ended December
31, 2009 Compared to the Period from February 26, 2008 (Commencement of
Operations) to December 31, 2008
Since UGA
was conducting operations for only a portion of the year ended December 31,
2008, the comparison of the results of operations for the year ended December
31, 2009 and the period from February 26, 2008 to December 31, 2008 may not be
meaningful.
As of
December 31, 2009, the total unrealized gain on gasoline Futures Contracts owned
or held on that day was $5,883,944 and UGA established cash deposits, including
cash investments in money market funds, that were equal to $63,237,601. UGA held
97.86% of its cash assets in overnight deposits and money market funds at the
Custodian, while 2.41% of the cash balance was held as margin deposits for the
Futures Contracts purchased. The ending per unit NAV on December 31,
2009 was $36.41.
72
By
comparison, as of December 31, 2008, the total unrealized gain on Futures
Contracts owned or held on that day was $1,431,721 and UGA established cash
deposits, including cash investments in money market funds, that were equal to
$18,806,351. UGA held 62.17% of its cash assets in overnight deposits and money
market funds at the Custodian, while 37.83% of the cash balance was held as
margin deposits for the Futures Contracts purchased. The ending per unit NAV on
December 31, 2008 was $20.21. The increase in the per unit NAV from December 31,
2008 to December 31, 2009 was primarily a result of higher prices for gasoline
and the related increase in the value of the gasoline Futures Contracts that UGA
had invested in between the year ended December 31, 2008 and the year ended
December 31, 2009.
Portfolio Expenses. UGA’s
expenses consist of investment management fees, brokerage fees and
commissions, certain offering costs, licensing fees, the fees and expenses of
the independent directors of the General Partner and expenses relating to tax
accounting and reporting requirements. UGA pays the General Partner a
management fee of 0.60% of its average net assets. The fee is accrued
daily.
During
the year ended December 31, 2009, the daily average total net assets of UGA were
$62,768,546. The management fee paid by UGA during the period
amounted to $376,611, which was calculated at 0.60% of its average net assets
and was accrued daily. By comparison, during the period ended
December 31, 2008, the daily average total net assets of UGA were
$19,270,440. The management fee paid by UGA during the period amounted to
$97,932, which was calculated at 0.60% of its average net assets and was accrued
daily.
In
addition to the management fee, UGA pays all brokerage fees and other
expenses, including certain tax reporting costs, licensing fees for the use of
intellectual property, ongoing registration or other fees paid to the
SEC, FINRA and any other regulatory agency in connection
with offers and sales of its units subsequent to the initial offering and
all legal, accounting, printing and other expenses associated
therewith. The total of these fees and expenses for the year ended December
31, 2009 was $189,295, as compared to $48,598 for the period ended December 31,
2008. The increase in expenses from the period ended December 31,
2008 to the year ended December 31, 2009 was primarily due to the current
reporting period being longer than the comparison period and from UGA’s
increased size and activity that resulted from its increased size. UGA incurred
$1,080 in fees or other expenses relating to the registration and offering of
additional units for the year ended December 31, 2009. UGA did not
incur any fees or other expenses relating to the registration and offering of
additional units for the period ended December 31, 2008.
UGA is
responsible for paying its portion of the directors’ and officers’
liability insurance of the General Partner and the fees and expenses of the
independent directors of the General Partner who are also the General Partner’s
audit committee members. UGA shares these fees and expenses
with the Related Public Funds based on the relative assets of each fund
computed on a daily basis. These fees and expenses for calendar year 2009
amounted to a total of $433,046 for all funds, and UGA’s portion of such fees
and expenses was $3,734.
By
comparison, for the period ended December 31, 2008, these fees and expenses
amounted to a total of $282,000 for all funds, and UGA’s portion of such fees
and expenses was $2,759. The increase in directors’ expenses incurred
by UGA from the period ended December 31, 2008 compared to the year ended
December 31, 2009 was primarily due to payment for directors’ and officers’
liability insurance and an increase in the compensation awarded to the
independent directors of the General Partner. Effective as of March 3, 2009, the
General Partner obtained directors’ and officers’ liability insurance covering
all of the directors and officers of the General Partner. Previously, the
General Partner did not have liability insurance for its directors and officers;
instead, the independent directors received a payment in lieu of directors’ and
officers’ liability insurance coverage.
UGA also
incurs commissions to brokers for the purchase and sale of Futures Contracts,
Other Gasoline-Related Investments or Treasuries. During the year ended
December 31, 2009, total commissions paid to brokers amounted to
$74,584. By comparison, during the period ended December 31, 2008,
total commissions paid to brokers amounted to $16,173. The increase in the total
commissions paid to brokers from the period ended December 31, 2008 to the year
ended December 31, 2009 was primarily a function of the increase in UGA’s
average total net assets, increased redemptions and creations of units during
the year ended December 31, 2009 and the reporting period being longer than the
comparison period. The increase in assets required UGA to purchase a
greater number of futures contracts and incur a larger amount of commissions. As
an annualized percentage of total net assets, the figure for the year ended
December 31, 2009 represents approximately 0.12% of total net
assets. By comparison, the figure for the period ended December 31,
2008 represented 0.10% of total net assets. However, there can be no assurance
that commission costs and portfolio turnover will not cause commission expenses
to rise in future quarters.
73
The fees
and expenses associated with UGA’s audit expenses and tax accounting and
reporting requirements are paid by UGA. These costs are estimated to be
$321,000 for the year ended December 31, 2009. The General Partner,
though under no obligation to do so, agreed to pay certain expenses, including
those relating to audit expenses and tax accounting and reporting requirements
normally borne by UGA to the extent that such expenses exceeded 0.15% (15 basis
points) of UGA’s NAV, on an annualized basis, through December 31,
2009. The General Partner has no obligation to continue such payment
into subsequent years.
Interest Income. UGA seeks to
invest its assets such that it holds Futures Contracts and Other
Gasoline-Related Investments in an amount equal to the total net assets of its
portfolio. Typically, such investments do not require UGA to pay the full amount
of the contract value at the time of purchase, but rather require UGA to post an
amount as a margin deposit against the eventual settlement of the contract. As a
result, UGA retains an amount that is approximately equal to its total net
assets, which UGA invests in Treasuries, cash and/or cash equivalents. This
includes both the amount on deposit with the futures commission merchant as
margin, as well as unrestricted cash and cash equivalents held with UGA’s
Custodian. The Treasuries, cash and/or cash equivalents earn interest that
accrues on a daily basis. For the year ended December 31, 2009, UGA
earned $94,681 in interest income on such cash holdings. Based on
UGA’s average daily total net assets, this was equivalent to an annualized yield
of 0.15%. UGA did not purchase Treasuries during the year ended
December 31, 2009 and held all of its funds in cash and/or cash equivalents
during this time period. By comparison, for the period ended December
31, 2008, UGA earned $270,986 in interest income on such cash holdings. Based on
UGA’s average daily total net assets, this was equivalent to an annualized yield
of 1.66%. UGA did not purchase Treasuries during the period ended December
31, 2008 and held all of its funds in cash and/or cash equivalents during this
time period. Interest rates on short-term investments in the United States,
including cash, cash equivalents, and short-term Treasuries, were sharply lower
during the year ended December 31, 2009 compared to the period ended December
31, 2008. As a result, the amount of interest earned by UGA as a percentage of
total net assets was lower during the year ended December 31, 2009 compared to
the period ended December 31, 2008.
For the Three Months Ended
December 31, 2009 Compared to the Three Months Ended December 31,
2008
Portfolio Expenses. During
the three months ended December 31, 2009, the daily average total net assets
of UGA were $66,567,924. The management fee paid by UGA during the period
amounted to $100,672, which was calculated at 0.60% of its average net assets
and was accrued daily. By comparison, during the three months ended December 31,
2008, the daily average total net assets of UGA were $10,660,237. The
management fee paid by UGA during the period amounted to $16,078, which was
calculated at 0.60% of its average net assets and was accrued
daily.
In
addition to the management fee, UGA pays all brokerage fees and other
expenses, including certain tax reporting costs, licensing fees for the use of
intellectual property, ongoing registration or other fees paid to the
SEC, FINRA and any other regulatory agency in connection
with offers and sales of its units subsequent to the initial offering and
all legal, accounting, printing and other expenses associated
therewith. The total of these fees and expenses for the three months ended
December 31, 2009 was $48,620, as compared to $7,656 for the three months ended
December 31, 2008. The increase in expenses from the three months
ended December 31, 2008 to the three months ended December 31, 2009 was
primarily due to higher expenses, including increased brokerage fees, increased
licensing fees and increased tax reporting costs due to the greater number of
unitholders each year. UGA did not incur any fees or other expenses relating to
the registration and offering of additional units for the three months ended
December 31, 2009 or for the three months ended December 31, 2008.
UGA is
responsible for paying its portion of the directors’ and officers’
liability insurance of the General Partner and the fees and expenses of the
independent directors of the General Partner who are also the General Partner’s
audit committee members. UGA shares these fees and expenses with the
Related Public Funds based on the relative assets of each fund computed on a
daily basis. These fees and expenses for the three months ended December 31,
2009 amounted to a total of $119,250 for all funds, and UGA’s portion of such
fees and expenses was $4,890.
74
By
comparison, for the three months ended December 31, 2008, these fees and
expenses amounted to a total of $68,750 for all funds, and UGA’s portion of such
fees and expenses was $383. The increase in directors’ expenses incurred by UGA
from the three months ended December 31, 2008 to the three months ended December
31, 2009 was primarily due to payment for directors’ and officers’ liability
insurance and an increase in the compensation awarded to the independent
directors of the General Partner. Effective as of March 3, 2009, the
General Partner obtained directors’ and officers’ liability insurance covering
all of the directors and officers of the General Partner. Previously, the
General Partner did not have liability insurance for its directors and officers;
instead, the independent directors received a payment in lieu of directors’ and
officers’ liability insurance coverage.
UGA also
incurs commissions to brokers for the purchase and sale of Futures Contracts,
Other Gasoline-Related Investments or Treasuries. During the three months
ended December 31, 2009, total commissions paid to brokers amounted to
$17,282. By comparison, during the three months ended December 31,
2008, total commissions paid to brokers amounted to $5,423. The increase in the
total commissions paid to brokers for the three months ended December 31, 2009
was primarily a function of the increase in UGA’s average total net assets and
increased redemptions and creations during the three months ended December 31,
2009. The increase in assets required UGA to purchase a greater number of
futures contracts and incur a larger amount of commissions. As an
annualized percentage of total net assets, the figure for the three months
ended December 31, 2009 represents 0.10% of total net assets. By
comparison, the figure for the three months ended December 31, 2008 represented
approximately 0.20% of total net assets. However, there can be no assurance that
commission costs and portfolio turnover will not cause commission expenses to
rise in future quarters.
The fees
and expenses associated with UGA’s audit expenses and tax accounting and
reporting requirements are paid by UGA. No amounts were required to be paid
for audit expenses and tax accounting and reporting requirements for the three
months ended December 31, 2009.
Interest Income. UGA seeks to
invest its assets such that it holds Futures Contracts and Other
Gasoline-Related Investments in an amount equal to the total net assets of its
portfolio. Typically, such investments do not require UGA to pay the full amount
of the contract value at the time of purchase, but rather require UGA to post an
amount as a margin deposit against the eventual settlement of the contract. As a
result, UGA retains an amount that is approximately equal to its total net
assets, which UGA invests in Treasuries, cash and/or cash equivalents. This
includes both the amount on deposit with the futures commission merchant as
margin, as well as unrestricted cash and cash equivalents held with UGA’s
Custodian. The Treasuries, cash and/or cash equivalents earn interest that
accrues on a daily basis. For the three months ended December 31, 2009, UGA
earned $9,118 in interest income on such cash holdings. Based on
UGA’s average daily total net assets, this was equivalent to an annualized yield
of 0.05%. UGA did not purchase Treasuries during the three months ended
December 31, 2009 and held all of its funds in cash and/or cash equivalents
during this time period. By comparison, for the three months ended December 31,
2008, UGA earned $23,244 in interest income on such cash
holdings. Based on UGA’s average daily total net assets, this was
equivalent to an annualized yield of 0.87%. UGA did not purchase Treasuries
during the three months ended December 31, 2008 and held all of its funds in
cash and/or cash equivalents during this time period. Interest rates
on short-term investments in the United States, including cash, cash
equivalents, and short-term Treasuries, were sharply lower during the three
months ended December 31, 2009 compared to the three months ended December 31,
2008. As a result, the amount of interest earned by UGA as a percentage of total
net assets was lower during the three months ended December 31,
2009.
Tracking UGA’s Benchmark. UGA
seeks to manage its portfolio such that changes in its average daily NAV, on a
percentage basis, closely track the changes in the average daily price of the
Benchmark Futures Contract, also on a percentage basis. Specifically, UGA seeks
to manage the portfolio such that over any rolling period of 30 valuation days,
the average daily change in the NAV is within a range of 90% to 110% (0.9 to
1.1) of the average daily change in the price of the Benchmark Futures Contract.
As an example, if the average daily movement of the price of the Benchmark
Futures Contract for a particular 30-day time period was 0.5% per day, UGA’s
management would attempt to manage the portfolio such that the average daily
movement of the NAV during that same time period fell between 0.45% and 0.55%
(i.e., between 0.9 and
1.1 of the benchmark’s results). UGA’s portfolio management goals do not include
trying to make the nominal price of UGA’s NAV equal to the nominal price of the
current Benchmark Futures Contract or the spot price for gasoline. Management
believes that it is not practical to manage the portfolio to achieve such an
investment goal when investing in listed gasoline Futures
Contracts.
75
For the
30 valuation days ended December 31, 2009, the simple average daily change in
the Benchmark Futures Contract was -0.003%, while the simple average daily
change in the NAV of UGA over the same time period was -0.006%. 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
Futures Contract, the average error in daily tracking by the NAV was 5.354%,
meaning that over this time period UGA’s tracking error was within the plus or
minus 10% range established as its benchmark tracking goal. The first chart
below shows the daily movement of UGA’s NAV versus the daily movement of the
Benchmark Futures Contract for the 30-day period ended December 31,
2009.
*PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS
76
*PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS
Since the
offering of UGA units to the public on February 26, 2008 to December 31,
2009, the simple average daily change in the Benchmark Futures Contract was
-0.011%, while the simple average daily change in the NAV of UGA over the same
time period was -0.012%. 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 Benchmark Futures Contract, the average error in daily tracking
by the NAV was -0.674%, meaning that over this time period UGA’s tracking error
was within the plus or minus 10% range established as its benchmark tracking
goal.
An
alternative tracking measurement of the return performance of UGA versus the
return of its Benchmark Futures Contract can be calculated by comparing the
actual return of UGA, measured by changes in its NAV, versus the expected changes in its NAV
under the assumption that UGA’s returns had been exactly the same as the daily
changes in its Benchmark Futures Contract.
For the
year ended December 31, 2009, the actual total return of UGA as measured by
changes in its NAV was 80.16%. This is based on an initial NAV of $20.21 on
December 31, 2008 and an ending NAV as of December 31, 2009 of $36.41.
During this time period, UGA made no distributions to its unitholders. However,
if UGA’s daily changes in its NAV had instead exactly tracked the changes in the
daily return of the Benchmark Futures Contract, UGA would have ended 2009 with
an estimated NAV of $36.74, for a total return over the relevant time period of
81.79%. The difference between the actual NAV total return of UGA of 80.16% and
the expected total return based on the Benchmark Futures Contract of 81.79% was
an error over the time period of -1.63%, which is to say that UGA’s actual total
return trailed the benchmark result by that percentage. Management believes that
a portion of the difference between the actual return and the expected
benchmark return can be attributed to the net impact of the expenses and the
interest that UGA collects on its cash and cash equivalent holdings. During the
year ended December 31, 2009, UGA received interest income of $94,681, which is
equivalent to a weighted average interest rate of 0.15% for 2009. In addition,
during the year ended December 31, 2009, UGA also collected $29,000 from its
Authorized Purchasers creating or redeeming baskets of units. This income also
contributed to UGA’s actual return. However, if the total assets of UGA continue
to increase, management believes that the impact on total returns of these fees
from creations and redemptions will diminish as a percentage of the total
return. During the year ended December 31, 2009, UGA incurred net expenses of
$565,906. Income from interest and Authorized Purchaser collections
net of expenses was $(442,225), which is equivalent to a weighted average net
interest rate of (0.70)% for the year ended December 31, 2009.
77
By
comparison, for the period ended December 31, 2008, the actual total return of
UGA as measured by changes in its NAV was -59.58%. This was based on an initial
NAV of $50.00 on February 26, 2008 and an ending NAV as of December
31, 2008 of $20.21. During this time period, UGA made no distributions to
its unitholders. However, if UGA’s daily changes in its NAV had instead exactly
tracked the changes in the daily return of the Benchmark Futures Contract, UGA
would have ended 2008 with an estimated NAV of $20.09, for a total return over
the relevant time period of -59.81%. The difference between the actual NAV total
return of UGA of -59.58% and the expected total return based on the Benchmark
Futures Contract of -59.81% was an error over the time period of 0.23%, which is
to say that UGA’s actual total return exceeded the benchmark result by that
percentage. Management believes that a portion of the difference between
the actual return and the expected benchmark return can be attributed to the
impact of the interest that UGA collects on its cash and cash equivalent
holdings. During the period ended December 31, 2008, UGA received interest
income of $270,986, which is equivalent to a weighted average interest rate of
1.66% for the period ended December 31, 2008. In addition, during the period
ended December 31, 2008, UGA also collected $10,000 from Authorized Purchasers
creating or redeeming baskets of units. This income also contributed
to UGA’s actual return. During the period ended December 31, 2008,
UGA incurred net expenses of $146,530. Income from interest and
Authorized Purchaser collections net of expenses was $134,456, which is
equivalent to a weighted average net interest rate of 0.82% for the period ended
December 31, 2008.
There are
currently three factors that have impacted or are most likely
to impact UGA’s ability to accurately track its Benchmark Futures
Contract.
First,
UGA may buy or sell its holdings in the then current Benchmark Futures Contract
at a price other than the closing settlement price of that contract on the day
during which UGA executes the trade. In that case, UGA may pay a price that is
higher, or lower, than that of the Benchmark Futures Contract, which could cause
the changes in the daily NAV of UGA to either be too high or too low relative to
the changes in the Benchmark Futures Contract. In 2009, management attempted to
minimize the effect of these transactions by seeking to execute its purchase or
sale of the Benchmark Futures Contract at, or as close as possible to, the end
of the day settlement price. However, it may not always be possible for UGA to
obtain the closing settlement price and there is no assurance that failure to
obtain the closing settlement price in the future will not adversely impact
UGA’s attempt to track the Benchmark Futures Contract over time.
Second,
UGA earns interest on its cash, cash equivalents and Treasury
holdings. UGA is not required to distribute any portion of its income to its
unitholders and did not make any distributions to unitholders in 2009. Interest
payments, and any other income, were retained within the portfolio and added to
UGA’s NAV. When this income exceeds the level of UGA’s expenses for its
management fee, brokerage commissions and other expenses (including ongoing
registration fees, licensing fees and the fees and expenses of the
independent directors of the General Partner), UGA will realize a net yield that
will tend to cause daily changes in the NAV of UGA to track slightly higher than
daily changes in the Benchmark Futures Contract. During the year ended December
31, 2009, UGA earned, on an annualized basis, approximately 0.15% on its cash
holdings. It also incurred cash expenses on an annualized basis of 0.60% for
management fees and approximately 0.12% in brokerage commission costs related to
the purchase and sale of futures contracts, and 0.18% for other expenses. The
foregoing fees and expenses resulted in a net yield on an annualized basis of
approximately (0.75)% and affected UGA’s ability to track its benchmark. If
short-term interest rates rise above the current levels, the level of deviation
created by the yield would decrease. Conversely, if short-term interest rates
were to decline, the amount of error created by the yield would increase. When
short-term yields drop to a level lower than the combined expenses of the
management fee and the brokerage commissions, then the tracking error becomes a
negative number and would tend to cause the daily returns of the NAV to
underperform the daily returns of the Benchmark Futures
Contract.
78
Third,
UGA may hold Other Gasoline-Related Investments in its portfolio that may
fail to closely track the Benchmark Futures Contract’s total return movements.
In that case, the error in tracking the Benchmark Futures Contract could result
in daily changes in the NAV of UGA that are either too high, or too low,
relative to the daily changes in the Benchmark Futures Contract. During 2009,
UGA did not hold any Other Gasoline-Related Investments. However, there can be
no assurance that in the future UGA will not make use of such Other
Gasoline-Related Investments which may have the effect of increasing transaction
related expenses and result in increased tracking error.
Term Structure of Gasoline Futures
Prices and the Impact on Total Returns. Several factors determine the
total return from investing in a futures contract position. One factor that
impacts the total return that will result from investing in near month
gasoline futures contracts and “rolling” those contracts forward each month is
the price relationship between the current near month contract and the next
month contract. For example, if the price of the near month contract is higher
than the next month contract (a situation referred to as “backwardation” in the
futures market), then absent any other change there is a tendency for the price
of a next month contract to rise in value as it becomes the near month contract
and approaches expiration. Conversely, if the price of a near month contract is
lower than the next month contract (a situation referred to as “contango” in the
futures market), then absent any other change there is a tendency for the price
of a next month contract to decline in value as it becomes the near month
contract and approaches expiration.
As an
example, assume that the price of gasoline for immediate delivery (the “spot”
price), was $2.00 per gallon, and the value of a position in the near month
futures contract was also $2.00. Over time, the price of a gallon of gasoline
will fluctuate based on a number of market factors, including demand for
gasoline relative to its supply. The value of the near month contract
will likewise fluctuate in reaction to a number of market factors. If
investors seek to maintain their position in a near month contract and not take
delivery of the gasoline, every month they must sell their current near month
contract as it approaches expiration and invest in the next month
contract.
If the
futures market is in backwardation, e.g., when the expected price
of gasoline in the future would be less, the investor would be buying a next
month contract for a lower price than the current near month contract.
Hypothetically, and assuming no other changes to either prevailing gasoline
prices or the price relationship between the spot price, the near month contract
and the next month contract (and ignoring the impact of commission costs and the
interest earned on Treasuries, cash and/or cash equivalents), the value of the
next month contract would rise as it approaches expiration and becomes the new
near month contract. In this example, the value of the $2.00 investment would
tend to rise faster than the spot price of gasoline, or fall slower. As a
result, it would be possible in this hypothetical example for the spot price of
gasoline to have risen to $2.50 after some period of time, while the value of
the investment in the futures contract would have risen to $2.60, assuming
backwardation is large enough or enough time has elapsed. Similarly, the spot
price of gasoline could have fallen to $1.50 while the value of an investment in
the futures contract could have fallen to only $1.60. Over time, if
backwardation remained constant, the difference would continue to
increase.
If the
futures market is in contango, the investor would be buying a next month
contract for a higher price than the current near month contract.
Hypothetically, and assuming no other changes to either prevailing gasoline
prices or the price relationship between the spot price, the near month contract
and the next month contract (and ignoring the impact of commission costs and the
interest earned on cash), the value of the next month contract would fall as it
approaches expiration and becomes the new near month contract. In this example,
it would mean that the value of the $2.00 investment would tend to rise slower
than the spot price of gasoline, or fall faster. As a result, it would be
possible in this hypothetical example for the spot price of gasoline to
have risen to $2.50 after some period of time, while the value of the investment
in the futures contract will have risen to only $2.40, assuming contango is
large enough or enough time has elapsed. Similarly, the spot price of
gasoline could have fallen to $1.50 while the value of an investment in the
futures contract could have fallen to $1.40. Over time, if contango remained
constant, the difference would continue to increase.
The chart
below compares the price of the near month contract to the price of the next
month contract over the last 10 years (1999-2009). When the price of the near
month contract is higher than the price of the next month contract, the market
would be described as being in backwardation. When the price of the near month
contract is lower than the price of the next month contract, the market would be
described as being in contango. Although the prices of the near month contract
and the price of the next month contract do tend to move up or down together, it
can be seen that at times the near month prices are clearly higher than the
price of the next month contract (backwardation), and other times they are below
the price of the next month contract (contango). In addition, investors can
observe that gasoline prices, both near month and next month, often
display a seasonal pattern in which the price of gasoline tends to rise in the
summer months and decline in the winter months. This mirrors the physical demand
for gasoline, which typically peaks in the summer.
79
*PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS
An
alternative way to view backwardation and contango data over time is to subtract
the dollar price of the next month gasoline futures contract from the dollar
price of the near month gasoline futures contract. If the resulting number is a
positive number, then the price of the near month contract is higher than the
price of the next month and the market could be described as being in
backwardation. If the resulting number is a negative number, then the near month
price is lower than the price of the next month and the market could be
described as being in contango. The chart below shows the results from
subtracting the next month price from the price of the near month contract for
the 10 year period between 2000 and 2009. Investors will note that the near
month gasoline futures contract spent time in both backwardation and contango.
Investors will further note that the markets display a very seasonal pattern
that corresponds to the seasonal demand patterns for gasoline mentioned above.
That is, in many, but not all cases, the price of the near month is higher than
the next month during the middle of the summer months as the price of gasoline
for delivery in those summer months rises to meet peak demand. At the same time,
the price of the near month, when that month is just before the onset of
spring, does not rise as far or as fast as the price of a next month contract
whose delivery falls closer to the start of the summer
season.
80
*PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS
While the
investment objective of UGA is not to have the market price of its units match,
dollar for dollar, changes in the spot price of gasoline, contango and
backwardation have impacted the total return on an investment in UGA units
during the past year relative to a hypothetical direct investment in
gasoline. For example, an investment in UGA units made on December 31, 2008 and
held to December 31, 2009 increased based upon the changes in the NAV for UGA
units on those days, by 80.16%, while the spot price of gasoline for immediate
delivery during the same period increased by 81.79% (note: this comparison
ignores the potential costs associated with physically owning and storing
gasoline, which could be substantial). By comparison, an investment in UGA units
made on February 26, 2008 and held to December 31, 2008 decreased, based upon
the changes in the NAV for UGA units on those days, by -59.58%, while the spot
price of gasoline for immediate delivery during the same period decreased by
-59.81% (note: this comparison ignores the potential costs associated with
physically owning and storing gasoline, which could be
substantial).
Periods
of contango or backwardation do not materially impact UGA’s investment objective
of having the percentage changes in its per unit NAV track the percentage
changes in the price of the Benchmark Futures Contract since the impact of
backwardation and contango tended to equally impact the percentage changes in
price of both UGA’s units and the Benchmark Futures Contract. It is
impossible to predict with any degree of certainty whether backwardation or
contango will occur in the future. It is likely that both conditions will occur
during different periods.
Gasoline
Market. During the year ended December 31, 2009, the price of
unleaded gasoline in the United States was impacted by several factors. The
price of the Benchmark Futures Contract on January 2, 2009 was at $1.0620 per
gallon. It rose sharply over the course of the quarter and hit a peak on June
16, 2009 of $2.071 per gallon. The year ended with the Benchmark Futures
Contract at $2.053 per gallon, up approximately 93.31% over this time period
(investors are cautioned that these represent prices for gasoline on a wholesale
basis and should not be directly compared to retail prices at a gasoline service
station).
81
During
the year ended December 31, 2009, the price of crude oil, the raw material from
which gasoline is refined, rose approximately 77.94% from approximately $44.60
per barrel to approximately $79.36 per barrel. The price of crude oil was
influenced by several factors, including ongoing weak demand for crude oil
globally and modest decreases in the production levels of crude oil. However,
oil prices still increased as investors looked forward to improvements in the
global economy. Management believes however that should the global economic
situation remain weak, there is a meaningful possibility that crude oil prices
could retreat from their current levels.
Management
believes that over both the medium-term and the long-term, changes in the price
of crude oil will exert the greatest influence on the price of refined petroleum
products such as gasoline. At the same time, there can be other factors that,
particularly in the short term, cause the price of gasoline to rise (or fall),
more (or less) than the price of crude oil. For example, higher gasoline prices
cause American consumers to reduce their gasoline consumption, particularly
during the high demand period of the summer driving season and gasoline prices
are impacted by the availability of refining capacity. Furthermore, a slowdown
or recession in the U.S. economy may have a greater impact on U.S. gasoline
prices than on global crude oil prices. As a result, it is possible that changes
in gasoline prices may not match the changes in crude oil prices.
Unleaded Gasoline Price Movements in
Comparison to Other Energy Commodities and Investment Categories. The
General Partner believes that investors frequently measure the degree to which
prices or total returns of one investment or asset class move up or down in
value in concert with another investment or asset class. Statistically, such a
measure is usually done by measuring the correlation of the price movements of
the two different investments or asset classes over some period of time. The
correlation is scaled between 1 and -1, where 1 indicates that the two
investment options move up or down in price or value together, known as
“positive correlation,” and -1 indicating that they move in completely opposite
directions, known as “negative correlation.” A correlation of 0 would mean that
the movements of the two are neither positively or negatively correlated, known
as “non-correlation.” That is, the investment options sometimes move up and down
together and other times move in opposite directions.
For the
ten year time period between 1999 and 2009, the chart below compares the monthly
movements of unleaded gasoline prices versus the monthly movements of the prices
of several other energy commodities, such as natural gas, crude oil and heating
oil, as well as several major non-commodity investment asset classes, such as
large cap U.S. equities, U.S. government bonds and global equities. It can be
seen that over this particular time period, the movement of unleaded gasoline on
a monthly basis was not strongly correlated, positively or negatively, with the
movements of large cap U.S. equities, U.S. government bonds or global equities.
However, movements in unleaded gasoline had a strong positive correlation to
movements in crude oil and heating oil. Finally, unleaded gasoline had a
positive, but weaker, correlation with natural gas.
|
10 Year Correlation
Matrix 1999-2009
|
Large
Cap U.S.
Equities
(S&P
500)
|
U.S. Govt.
Bonds
(EFFAS U.S.
Government
Bond Index)
|
Global
Equities
(FTSE
World
Index)
|
Crude Oil
|
Heating
Oil
|
Natural
Gas
|
Unleaded
Gasoline
|
|||||||||||||||||||||
|
Large
Cap U.S. Equities (S&P 500)
|
1.000 | -0.259 | 0.966 | 0.152 | 0.087 | 0.023 | 0.135 | |||||||||||||||||||||
|
U.S.
Govt. Bonds (EFFAS U.S. Government Bond Index)
|
1.000 | -0.237 | -0.127 | -0.078 | 0.128 | -0.214 | ||||||||||||||||||||||
|
Global
Equities (FTSE World Index)
|
1.000 | 0.246 | 0.165 | 0.084 | 0.196 | |||||||||||||||||||||||
|
Crude
Oil
|
1.000 | 0.783 | 0.334 | 0.724 | ||||||||||||||||||||||||
|
Heating
Oil
|
1.000 | 0.466 | 0.613 | |||||||||||||||||||||||||
|
Natural
Gas
|
1.000 | 0.257 | ||||||||||||||||||||||||||
|
Unleaded
Gasoline
|
1.000 | |||||||||||||||||||||||||||
|
source: Bloomberg, NYMEX
|
||||||||||||||||||||||||||||
PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS
82
The chart
below covers a more recent, but much shorter, range of dates than the above
chart. Over the one year period ended December 31, 2009, unleaded gasoline
continued to have a strong positive correlation with crude oil and heating oil.
During this period, it also had a mildly negative correlation with the movements
of natural gas. The correlation between unleaded gasoline
and both large cap U.S. equities and global equities, which had been essentially
non-correlated over the prior ten year period ended December 31, 2009 continued
to be essentially non-correlated over the one-year period ended December 31,
2009. Finally, the results showed that unleaded gasoline and U.S.
government bonds, which had essentially been non-correlated for the prior ten
year period, were negatively correlated over this more recent time
period.
|
Correlation Matrix
2009
|
Large
Cap U.S.
Equities
(S&P
500)
|
U.S. Govt.
Bonds
(EFFAS U.S.
Government
Bond Index)
|
Global
Equities
(FTSE
World
Index)
|
Crude
Oil
|
Heating
Oil
|
Natural
Gas
|
Unleaded
Gasoline
|
|||||||||||||||||||||
|
Large
Cap U.S. Equities (S&P 500)
|
1.000 | 0.303 | 0.974 | 0.182 | 0.325 | 0.139 | -0.083 | |||||||||||||||||||||
|
U.S.
Govt. Bonds (EFFAS U.S. Government Bond Index)
|
1.000 | 0.284 | -0.264 | -0.347 | -0.016 | -0.544 | ||||||||||||||||||||||
|
Global
Equities (FTSE World Index)
|
1.000 | 0.216 | 0.320 | 0.149 | -0.043 | |||||||||||||||||||||||
|
Crude
Oil
|
1.000 | 0.769 | 0.255 | 0.576 | ||||||||||||||||||||||||
|
Heating
Oil
|
1.000 | 0.253 | 0.714 | |||||||||||||||||||||||||
|
Natural
Gas
|
1.000 | -0.267 | ||||||||||||||||||||||||||
|
Unleaded
Gasoline
|
1.000 | |||||||||||||||||||||||||||
|
source: Bloomberg, NYMEX
|
||||||||||||||||||||||||||||
PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS
Investors
are cautioned that the historical price relationships between gasoline and
various other energy commodities, as well as other investment asset classes, as
measured by correlation may not be reliable predictors of future price movements
and correlation results. The results pictured above would have been different if
a different range of dates had been selected. The General Partner believes that
gasoline has historically not demonstrated a strong correlation with equities or
bonds over long periods of time. However, the General Partner also believes that
in the future it is possible that gasoline could have long term correlation
results that indicate prices of gasoline more closely track the movements of
equities or bonds.
83
The correlations between
gasoline, crude oil, natural gas and heating oil are relevant because the
General Partner endeavors to invest UGA’s assets in Futures Contracts and Other
Gasoline-Related Investments so that daily changes in percentage terms in UGA’s
NAV correlate as closely as possible with daily changes in percentage terms in
the price of the Benchmark Futures Contract. If certain other fuel-based
commodity futures contracts do not closely correlate with the gasoline
Futures Contracts then their use could lead to greater tracking error. As noted,
the General Partner also believes that the changes in percentage terms in the
price of the Benchmark Futures Contract will closely correlate with changes in
percentage terms in the spot price of gasoline.
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. UGA’s application of these policies involves judgments
and actual results may differ from the estimates used.
The
General Partner has evaluated the nature and types of estimates that
it makes in preparing UGA’s financial statements and related
disclosures and has determined that the valuation of its investments which
are not traded on a United States or internationally recognized futures exchange
(such as forward contracts and over-the-counter contracts) involves a critical
accounting policy. The values which are used by UGA for its forward
contracts are provided by its commodity broker who uses market prices when
available, while over-the-counter contracts are 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 and valued on a daily basis. In addition, UGA estimates interest income on
a daily basis using prevailing interest rates earned on its cash and cash
equivalents. These estimates are adjusted to the actual amount received on
a monthly basis and the difference, if any, is not considered
material.
Liquidity
and Capital Resources
UGA has
not made, and does not anticipate making, use of borrowings or other lines of
credit to meet its obligations. UGA has met, and it is anticipated that UGA will
continue to meet, its liquidity needs in the normal course of business from the
proceeds of the sale of its investments or from the Treasuries, cash and/or cash
equivalents that it intends to hold at all times. UGA’s liquidity needs include:
redeeming units, providing margin deposits for its existing Futures Contracts or
the purchase of additional Futures Contracts and posting collateral for its
over-the-counter contracts and, except as noted below, payment of its expenses,
summarized below under “Contractual Obligations.”
UGA
currently generates cash primarily from (i) the sale of Creation Baskets and
(ii) interest earned on Treasuries, cash and/or cash equivalents. UGA has
allocated substantially all of its net assets to trading in Gasoline Interests.
UGA invests in Gasoline 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 Futures Contracts and Other
Gasoline-Related Investments. A significant portion of the NAV is held in cash
and cash equivalents that are used as margin and as collateral for UGA’s
trading in Gasoline Interests. The balance of the net assets is held in
UGA’s account at its custodian bank. Interest earned on UGA’s interest-bearing
funds is paid to UGA. During the year ended December 31, 2009, UGA’s expenses
exceeded the interest income UGA earned and the cash earned from the sale of
Creation Baskets and the redemption of Redemption Baskets. To the extent
expenses have exceeded interest income, UGA’s NAV will be negatively
impacted.
UGA’s
investment in Gasoline Interests may be subject to periods of illiquidity
because of market conditions, regulatory considerations and other reasons. For
example, most commodity exchanges limit the fluctuations in futures contracts
prices during a single day by regulations referred to as “daily limits.” During
a single day, no trades may be executed at prices beyond the daily limit. Once
the price of a futures contract has increased or decreased by an amount
equal to the daily limit, positions in the contracts can neither be taken nor
liquidated unless the traders are willing to effect trades at or within the
specified daily limit. Such market conditions could prevent UGA from promptly
liquidating its positions in futures contracts. During the year ended
December 31, 2009, UGA was not forced to purchase or liquidate any of its
positions while daily limits were in effect; however, UGA cannot predict whether
such an event may occur in the future.
84
Prior to
the initial offering of UGA, all payments with respect to UGA’s expenses were
paid by the General Partner. UGA does not have an obligation or
intention to refund such payments by the General Partner. The General
Partner is under no obligation to pay UGA’s current or future expenses. Since
the initial offering of units, UGA has been responsible for expenses relating to
(i) management fees, (ii) brokerage fees and commissions, (iii) licensing
fees for the use of intellectual property, (iv) ongoing registration expenses in
connection with offers and sales of its units subsequent to the initial
offering, (v) other expenses, including certain tax reporting costs, (vi) fees
and expenses of the independent directors of the General Partner and (vii) other
extraordinary expenses not in the ordinary course of business, while the General
Partner has been responsible for expenses relating to the fees of the Marketing
Agent, the Administrator and the Custodian and registration expenses relating to
the initial offering of units. If the General Partner and UGA are
unsuccessful in raising sufficient funds to cover these respective expenses or
in locating any other source of funding, UGA will terminate and investors may
lose all or part of their investment.
Market
Risk
Trading
in Futures Contracts and Other Gasoline-Related Investments, such as
forwards, involves UGA entering into contractual commitments to purchase or
sell gasoline at a specified date in the future. The aggregate market value of
the contracts will significantly exceed UGA’s future cash requirements
since UGA intends to close out its open positions prior to settlement. As a
result, UGA is generally only subject to the risk of loss arising from
the change in value of the contracts. UGA considers the “fair value” of its
derivative instruments to be the unrealized gain or loss on the contracts. The
market risk associated with UGA’s commitments to purchase gasoline is limited to
the aggregate market value of the contracts held. However, should UGA enter into
a contractual commitment to sell gasoline, it would be required to make delivery
of the gasoline at the contract price, repurchase the contract at prevailing
prices or settle in cash. Since there are no limits on the future price of
gasoline, the market risk to UGA could be unlimited.
UGA’s
exposure to market risk depends on a number of factors, including the
markets for gasoline, the volatility of interest rates and foreign exchange
rates, the liquidity of the Futures Contracts and Other Gasoline-Related
Investments markets and the relationships among the contracts held by UGA.
Drastic market occurrences could ultimately lead to the loss of all or
substantially all of an investor’s capital.
Credit
Risk
When UGA
enters into Futures Contracts and Other Gasoline-Related Investments, it is
exposed to the credit risk that the counterparty will not be able to meet its
obligations. The counterparty for the Futures Contracts traded on the NYMEX
and on most other foreign futures exchanges is the clearinghouse associated
with the particular exchange. In general, clearinghouses are backed by their
members who may be required to share in the financial burden resulting from the
nonperformance of one of their members and, therefore, this additional member
support 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. There can be no assurance that any
counterparty, clearinghouse, or their members or their financial backers will
satisfy their obligations to UGA in such circumstances.
The
General Partner attempts to manage the credit risk of UGA by following
various trading limitations and policies. In particular, UGA generally posts
margin and/or holds liquid assets that are approximately equal to the market
value of its obligations to counterparties under the Futures Contracts and Other
Gasoline-Related Investments it holds. The General Partner has implemented
procedures that include, but are not limited to, executing and clearing trades
only with creditworthy parties and/or requiring the posting of collateral or
margin by such parties for the benefit of UGA to limit its credit
exposure.
UBS
Securities, UGA’s commodity broker, or any other broker that may be retained by
UGA in the future, when acting as UGA’s futures commission merchant in accepting
orders to purchase or sell Futures Contracts on United States exchanges,
is required by CFTC regulations to separately account for and segregate as
belonging to UGA, all assets of UGA relating to domestic Futures Contracts
trading. These futures commission merchants are not allowed to commingle UGA’s
assets with its other assets. In addition, the CFTC requires commodity brokers
to hold in a secure account UGA’s assets related to foreign Futures Contracts
trading.
If, in
the future, UGA purchases over-the-counter contracts, see “Item 7A. Quantitative
and Qualitative Disclosures About Market Risk” for a discussion of
over-the-counter contracts.
85
As of December 31, 2009, UGA had
deposits in domestic and foreign financial institutions, including cash
investments in money market funds, in the amount of $63,237,601. This amount is
subject to loss should these institutions cease operations.
Off
Balance Sheet Financing
As of
December 31, 2009, UGA has no loan guarantee, 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 that service providers undertake in performing
services which are in the best interests of UGA. While UGA’s exposure under
these indemnification provisions cannot be estimated, they are not expected to
have a material impact on UGA’s financial position.
Redemption
Basket Obligation
In order
to meet its investment objective and pay its contractual obligations described
below, UGA requires liquidity to redeem units, which redemptions must be in
blocks of 100,000 units called Redemption Baskets. UGA has to
date satisfied this obligation by paying from the cash or cash equivalents
it holds or through the sale of its Treasuries in an amount proportionate
to the number of units being redeemed.
Contractual
Obligations
UGA’s
primary contractual obligations are with the General Partner. In return for its
services, the General Partner is entitled to a management fee calculated monthly
as a fixed percentage of UGA’s NAV, currently 0.60% of NAV on its average daily
net assets.
The
General Partner agreed to pay the start-up costs associated with the
formation of UGA, primarily its legal, accounting and other costs in connection
with the General Partner’s registration with the CFTC as a CPO and the
registration and listing of UGA and its units with the SEC, FINRA and the
AMEX, respectively. However, since UGA’s initial offering of units, offering
costs incurred in connection with registering and listing additional units of
UGA are directly borne on an ongoing basis by UGA, and not by the General
Partner.
The
General Partner pays the fees of the Marketing Agent and the fees of the
Custodian and transfer agent, BBH&Co., as well as BBH&Co.’s fees for
performing administrative services, including in connection with the preparation
of UGA’s financial statements and its SEC and CFTC reports. The General Partner
and UGA have also entered into a licensing agreement with the NYMEX
pursuant to which UGA and the affiliated funds managed by the General Partner
pay a licensing fee to the NYMEX. UGA also pays the fees and expenses
associated with its tax accounting and reporting requirements with the exception
of certain initial implementation service fees and base service fees which are
paid by the General Partner. The General Partner, though under no obligation to
do so, agreed to pay certain costs for tax reporting and audit expenses normally
borne by UGA to the extent that such expenses exceeded 0.15% (15 basis points)
of UGA’s NAV, on an annualized basis, through at least December 31, 2009. The General Partner has no
obligation to continue such payment into subsequent periods.
In addition to the General Partner’s
management fee, UGA pays its brokerage fees (including fees to a futures
commission merchant), over-the-counter dealer spreads, any licensing fees
for the use of intellectual property, and, subsequent to the initial offering,
registration and other fees paid to the SEC, FINRA, or other regulatory agencies
in connection with the offer and sale of units, as well as legal, printing,
accounting and other expenses associated therewith, and extraordinary expenses.
The latter are expenses not incurred in the ordinary course of UGA’s
business, including expenses relating to the indemnification of any person
against liabilities and obligations to the extent permitted by law and under the
LP Agreement, the bringing or defending of actions in law or in equity or
otherwise conducting litigation and incurring legal expenses and the settlement
of claims and litigation. Commission payments to a futures commission
merchant are on a contract-by-contract, or round turn, basis. UGA also pays a
portion of the fees and expenses of the independent directors of the General
Partner. See Note 3 to the Notes to Financial
Statements.
86
The
parties cannot anticipate the amount of payments that will be required under
these arrangements for future periods, as UGA’s NAVs and trading levels to meet
its investment objectives will not be known until a future date. These
agreements are effective for a specific term agreed upon by the parties with an
option to renew, or, in some cases, are in effect for the duration of UGA’s
existence. Either party may terminate these agreements earlier for certain
reasons described in the agreements.
Item
7A. Quantitative and Qualitative Disclosures About Market
Risk.
Over-the-Counter
Derivatives
In the
future, UGA may purchase over-the-counter contracts. Unlike most of the
exchange-traded Futures Contracts or exchange-traded options on such futures,
each party to an over-the-counter contract bears the credit risk that the other
party may not be able to perform its obligations under its
contract.
Some
gasoline-based derivatives transactions contain fairly generic terms and
conditions and are available from a wide range of participants. Other
gasoline-based derivatives 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 gasoline- or petroleum-based
fuels that have terms similar to the Futures Contracts. Others take the form of
“swaps” in which the two parties exchange cash flows based on pre-determined
formulas tied to the spot price of gasoline, forward gasoline prices or
gasoline futures prices. For example, UGA may enter into over-the-counter
derivative contracts whose value will be tied to changes in the difference
between the spot price of gasoline, the price of Futures Contracts
traded on the NYMEX and the prices of other Futures Contracts in which UGA
may invest.
To
protect itself from the credit risk that arises in connection with such
contracts, UGA may enter into agreements with each counterparty that provide for
the netting of its overall exposure to such counterparty, such as the agreements
published by the International Swaps and Derivatives Association, Inc. UGA
also may require that the counterparty be highly rated and/or provide
collateral or other credit support to address UGA’s exposure to the
counterparty. In addition, it is also possible for UGA and its counterparty to
agree to clear their agreement through an established futures clearinghouse such
as those connected to the NYMEX or the ICE Futures. In that event, UGA would no
longer have credit risk of its original counterparty, as the clearinghouse would
now be UGA’s counterparty. UGA would still retain any price risk associated with
its transaction.
The
creditworthiness of each potential counterparty is assessed by the General
Partner. The General Partner assesses or reviews, as appropriate, the
creditworthiness of each potential or existing counterparty to an
over-the-counter contract pursuant to guidelines approved by the Board.
Furthermore, the General Partner on behalf of UGA only enters 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, or (d) producers, users or traders of energy, whether or not
regulated by the CFTC. Any entity acting as a counterparty shall be regulated in
either the United States or the United Kingdom unless otherwise approved by the
Board after consultation with its legal counsel. Existing counterparties are
also reviewed periodically by the General Partner.
UGA
anticipates that the use of Other Gasoline-Related Investments together with its
investments in Futures Contracts will produce price and total return results
that closely track the investment goals of UGA. However, there can be no
assurance of this. Over-the-counter contracts may result in higher
transaction-related expenses than the brokerage commissions paid in connection
with the purchase of Futures Contracts, which may impact UGA’s ability to
successfully track the Benchmark Futures Contract.
UGA may
employ spreads or straddles in its trading to mitigate the differences in its
investment portfolio and its goal of tracking the price of the Benchmark Futures
Contract. UGA would use a spread when it chooses to take simultaneous long and
short positions in futures written on the same underlying asset, but with
different delivery months. The effect of holding such combined positions is to
adjust the sensitivity of UGA to changes in the price relationship between
futures contracts which will expire sooner and those that will expire later. UGA
would use such a spread if the General Partner felt that taking such long and
short positions, when combined with the rest of its holdings, would more closely
track the investment goals of UGA, or if the General Partner felt it would lead
to an overall lower cost of trading to achieve a given level of economic
exposure to movements in gasoline prices. UGA would enter into a straddle when
it chooses to take an option position consisting of a long (or short) position
in both a call option and put option. The economic effect of holding certain
combinations of put options and call options can be very similar to that of
owning the underlying futures contracts. UGA would make use of such a straddle
approach if, in the opinion of the General Partner, the resulting combination
would more closely track the investment goals of UGA or if it would lead to an
overall lower cost of trading to achieve a given level of economic exposure to
movements in gasoline prices.
87
During the year ended December 31,
2009, UGA did not employ any hedging methods such as those described above since
all of its investments were made over an exchange. Therefore, during the year
ended December 31, 2009, UGA was not exposed to counterparty
risk.
88
|
Item
8.
|
Financial
Statements and Supplementary Data.
|
United
States Gasoline Fund, LP
Index
to Financial Statements
|
Documents
|
Page
|
||
|
Management’s
Annual Report on Internal Control Over Financial
Reporting.
|
90
|
||
|
Reports
of Independent Registered Public Accounting Firm.
|
91
|
||
|
Statements
of Financial Condition at December 31, 2009 and 2008.
|
93
|
||
|
Schedule
of Investments at December 31, 2009 and 2008.
|
94
|
||
|
Statements
of Operations for the years ended December 31, 2009 and 2008 and the
period from April 12, 2007 (inception) to December 31,
2007.
|
96
|
||
|
Statements
of Changes in Partners’ Capital for the years ended December 31, 2009 and
2008 and the period from April 12, 2007 (inception) to December 31,
2007.
|
97
|
||
|
Statements
of Cash Flows for the years ended December 31, 2009 and 2008 and the
period from April 12, 2007 (inception) to December 31,
2007.
|
98
|
||
|
Notes
to Financial Statements for the years ended December 31, 2009 and
2008 and the period from April 12, 2007 (inception) to December 31,
2007.
|
99
|
89
Management’s
Annual Report on Internal Control Over Financial Reporting.
UGA’s
management assessed the effectiveness of UGA’s internal control over financial
reporting as of December 31, 2009. In making this assessment, it used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission in Internal Control
Integrated Framework. Based on the assessment, UGA’s management believes
that, as of December 31, 2009, its internal control over financial reporting is
effective.
90
Attestation
Report of Registered Public Accounting Firm.
Report
of Independent Registered Public Accounting Firm
Auditors’
Report on Internal Control over Financial Reporting
To the
Partners of
United
States Gasoline Fund, LP
We have
audited the internal control over financial reporting of United States Gasoline
Fund, LP (the “Fund”) as of December 31, 2009, based on criteria established in
Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. The Fund’s management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Annual Report on Internal
Control Over Financial Reporting. Our responsibility is to express an opinion on
the Fund’s internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed by, or
under the supervision of, the company’s principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company’s board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the
financial statements.
Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our
opinion, the Fund maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2009, based on the criteria
established in Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the financial statements as of and for the year
ended December 31, 2009, of the Fund and our report dated March 16, 2010
expressed an unqualified opinion on those financial statements.
/s/
SPICER JEFFRIES LLP
Greenwood
Village, Colorado
March 16,
2010
91
Report
of Independent Registered Public Accounting Firm
To the
Partners of
United
States Gasoline Fund, LP
We have
audited the accompanying statements of financial condition of United States
Gasoline Fund, LP (the “Fund”) as of December 31, 2009 and 2008, including the
schedule of investments as of December 31, 2009 and 2008 and the related
statements of operations, changes in partners’ capital and cash flows for the
years ended December 31, 2009 and 2008 and the period from April 12, 2007
(inception) through December 31, 2007. These financial statements are the
responsibility of the Fund’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of United States Gasoline Fund, LP as
of December 31, 2009 and 2008, and the results of its operations and its cash
flows for the years ended December 31, 2009 and 2008 and the period from April
12, 2007 (inception) through December 31, 2007, in conformity with accounting
principles generally accepted in the United States of America.
We also
have audited, in accordance with standards of the Public Company Accounting
Oversight Board (United States), the Fund's internal control over financial
reporting as of December 31, 2009, based on criteria established in Internal
Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated March 16,
2010 expressed an unqualified opinion on the Fund's internal control over
financial reporting.
/s/
SPICER JEFFRIES LLP
Greenwood
Village, Colorado
March 16,
2010
92
United
States Gasoline Fund, LP
Statements
of Financial Condition
At
December 31, 2009 and 2008
|
2009
|
2008
|
|||||||
|
Assets
|
||||||||
|
Cash
and cash equivalents
|
$ | 61,883,040 | $ | 11,691,510 | ||||
|
Equity
in UBS Securities LLC trading accounts:
|
||||||||
|
Cash
|
1,354,561 | 7,114,841 | ||||||
|
Unrealized
gain on open commodity futures contracts
|
5,883,944 | 1,431,721 | ||||||
|
Receivable
from General Partner
|
256,355 | 126,348 | ||||||
|
Interest
receivable
|
2,868 | 4,251 | ||||||
|
Other
assets
|
197,365 | - | ||||||
|
Total
assets
|
$ | 69,578,133 | $ | 20,368,671 | ||||
|
Liabilities
and Partners' Capital
|
||||||||
|
General
Partner management fees (Note 3)
|
$ | 34,774 | $ | 5,902 | ||||
|
Professional
fees payable
|
350,250 | 150,794 | ||||||
|
Brokerage
commission fees payable
|
2,700 | 1,400 | ||||||
|
Other
liabilities
|
4,669 | 1,156 | ||||||
|
Total
liabilities
|
392,393 | 159,252 | ||||||
|
Commitments and Contingencies
(Notes 3, 4 and 5)
|
||||||||
|
Partners'
Capital
|
||||||||
|
General
Partner
|
- | - | ||||||
|
Limited
Partners
|
69,185,740 | 20,209,419 | ||||||
|
Total
Partners' Capital
|
69,185,740 | 20,209,419 | ||||||
|
Total
liabilities and partners' capital
|
$ | 69,578,133 | $ | 20,368,671 | ||||
|
Limited
Partners' units outstanding
|
1,900,000 | 1,000,000 | ||||||
|
Net
asset value per unit
|
$ | 36.41 | $ | 20.21 | ||||
|
Market
value per unit
|
$ | 36.58 | $ | 19.46 | ||||
See accompanying notes to financial
statements.
93
United
States Gasoline Fund, LP
Schedule
of Investments
At
December 31, 2009
|
Number of
Contracts
|
Gain on Open
Commodity
Contracts
|
% of
Partners'
Capital
|
||||||||||
|
Open
Futures Contracts - Long
|
|
|
|
|||||||||
|
United
States Contracts
|
|
|||||||||||
|
NYMEX
RBOB Gasoline Futures contracts, expire February 2010
|
803 | $ | 5,883,944 | 8.50 | ||||||||
|
|
Principal Amount
|
Market Value
|
||||||||||
|
Cash
Equivalents
|
||||||||||||
|
United
States - Money Market Funds
|
||||||||||||
|
Fidelity
Institutional Government Portfolio - Class I
|
$ | 23,038,038 | $ | 23,038,038 | 33.30 | |||||||
|
Goldman
Sachs Financial Square Funds - Government Fund – Class SL
|
20,397,483 | 20,397,483 | 29.48 | |||||||||
|
Morgan
Stanley Institutional Liquidity Fund - Government
Portfolio
|
10,000,309 | 10,000,309 | 14.45 | |||||||||
|
Total
Cash Equivalents
|
$ | 53,435,830 | 77.23 | |||||||||
See
accompanying notes to financial
statements.
94
United
States Gasoline Fund, LP
Schedule
of Investments
At
December 31, 2008
|
Number of
Contracts
|
Gain on Open
Commodity
Contracts
|
% of
Partners'
Capital
|
||||||||||
|
Open
Futures Contracts - Long
|
|
|
|
|||||||||
|
United
States Contracts
|
|
|||||||||||
|
NYMEX
RBOB Gasoline Futures contracts, expire February 2009
|
453 | $ | 1,431,721 | 7.08 | ||||||||
|
Principal Amount
|
Market Value
|
|||||||||||
|
Cash
Equivalents
|
||||||||||||
|
United
States - Money Market Funds
|
||||||||||||
|
Goldman
Sachs Financial Square Funds - Government Fund – Class SL
|
$ | 3,031,801 | $ | 3,031,801 | 15.00 | |||||||
|
Goldman
Sachs Financial Square Funds - Treasury Instruments Fund
|
1,812,771 | 1,812,771 | 8.97 | |||||||||
|
Total
Cash Equivalents
|
$ | 4,844,572 | 23.97 | |||||||||
See
accompanying notes to financial statements.
95
United
States Gasoline Fund, LP
Statements
of Operations
For
the years ended December 31, 2009 and 2008 and the period from April 12, 2007
(inception) to December 31, 2007
|
Period from
|
||||||||||||
|
Year Ended
|
Year Ended
|
April 12, 2007 to
|
||||||||||
|
December 31, 2009
|
December 31, 2008
|
December 31, 2007
|
||||||||||
|
Income
|
||||||||||||
|
Gain
(loss) on trading of commodity futures contracts:
|
||||||||||||
|
Realized
gain (loss) on closed positions
|
$ | 28,570,005 | $ | (11,364,767 | ) | $ | - | |||||
|
Change
in unrealized gain on open positions
|
4,452,223 | 1,431,721 | - | |||||||||
|
Interest
income
|
94,681 | 270,986 | - | |||||||||
|
Other
income
|
29,000 | 10,000 | - | |||||||||
|
Total
income (loss)
|
33,145,909 | (9,652,060 | ) | - | ||||||||
|
Expenses
|
||||||||||||
|
General
Partner management fees (Note 3)
|
376,611 | 97,932 | - | |||||||||
|
Professional
fees
|
350,250 | 150,794 | - | |||||||||
|
Brokerage
commission fees
|
74,584 | 16,173 | - | |||||||||
|
Other
expenses
|
20,816 | 7,979 | - | |||||||||
|
Total
expenses
|
822,261 | 272,878 | - | |||||||||
|
Expense
waiver (Note 3)
|
(256,355 | ) | (126,348 | ) | - | |||||||
|
Net
expenses
|
565,906 | 146,530 | - | |||||||||
|
Net
income (loss)
|
$ | 32,580,003 | $ | (9,798,590 | ) | $ | - | |||||
|
Net
income (loss) per limited partnership unit
|
$ | 16.20 | $ | (29.79 | ) | $ | - | |||||
|
Net
income (loss) per weighted average limited partnership
unit
|
$ | 15.72 | $ | (23.69 | ) | $ | - | |||||
|
Weighted
average limited partnership units outstanding
|
2,072,603 | 413,548 | - | |||||||||
See
accompanying notes to financial statements.
96
United
States Gasoline Fund, LP
Statements
of Changes in Partners' Capital
For
the years ended December 31, 2009 and 2008 and the period from April 12, 2007
(inception) to December 31, 2007
|
General Partner
|
Limited Partners
|
Total
|
||||||||||
|
Balances,
at Inception
|
$ | - | $ | - | $ | - | ||||||
|
Initial
contribution of capital
|
20 | 980 | 1,000 | |||||||||
|
Balances,
at December 31, 2007
|
20 | 980 | 1,000 | |||||||||
|
Addition
of 1,300,000 partnership units
|
- | 46,114,901 | 46,114,901 | |||||||||
|
Redemption
of 300,000 partnership units
|
(20 | ) | (16,107,872 | ) | (16,107,892 | ) | ||||||
|
Net
loss
|
- | (9,798,590 | ) | (9,798,590 | ) | |||||||
|
Balances,
at December 31, 2008
|
- | 20,209,419 | 20,209,419 | |||||||||
|
Addition
of 2,900,000 partnership units
|
- | 80,148,752 | 80,148,752 | |||||||||
|
Redemption
of 2,000,000 partnership units
|
- | (63,752,434 | ) | (63,752,434 | ) | |||||||
|
Net
income
|
- | 32,580,003 | 32,580,003 | |||||||||
|
Balances,
at December 31, 2009
|
$ | - | $ | 69,185,740 | $ | 69,185,740 | ||||||
|
Net
Asset Value Per Unit
|
||||||||||||
|
At
April 12, 2007 (inception)
|
$ | - | ||||||||||
|
At
February 26, 2008 (commencement of operations)
|
$ | 50.00 | ||||||||||
|
At
December 31, 2008
|
$ | 20.21 | ||||||||||
|
At
December 31, 2009
|
$ | 36.41 | ||||||||||
See
accompanying notes to financial statements.
97
United
States Gasoline Fund, LP
Statements
of Cash Flows
For
the years ended December 31, 2009 and 2008 and the period from April 12, 2007
(inception) to December 31, 2007
|
Year Ended
|
Year Ended
|
Period from
April 12, 2007 to
|
||||||||||
|
December 31, 2009
|
December 31, 2008
|
December 31, 2007
|
||||||||||
|
Cash
Flows from Operating Activities:
|
||||||||||||
|
Net
income (loss)
|
$ | 32,580,003 | $ | (9,798,590 | ) | $ | - | |||||
|
Adjustments
to reconcile net income (loss) to net cash provided by (used in) operating
activities:
|
||||||||||||
|
(Increase)
decrease in commodity futures trading account - cash
|
5,760,280 | (7,114,841 | ) | - | ||||||||
|
Unrealized
gain on futures contracts
|
(4,452,223 | ) | (1,431,721 | ) | - | |||||||
|
Increase
in receivable from General Partner
|
(130,007 | ) | (126,348 | ) | - | |||||||
|
(Increase)
decrease in interest receivable
|
1,383 | (4,251 | ) | - | ||||||||
|
Increase
in other assets
|
(197,365 | ) | - | - | ||||||||
|
Increase
in management fees payable
|
28,872 | 5,902 | - | |||||||||
|
Increase
in professional fees payable
|
199,456 | 150,794 | - | |||||||||
|
Increase
in brokerage commission fees payable
|
1,300 | 1,400 | - | |||||||||
|
Increase
in other liabilities
|
3,513 | 1,156 | - | |||||||||
|
Net
cash provided by (used in) operating activities
|
33,795,212 | (18,316,499 | ) | - | ||||||||
|
Cash
Flows from Financing Activities:
|
||||||||||||
|
Subscription
of partnership units
|
80,148,752 | 46,114,901 | 1,000 | |||||||||
|
Redemption
of partnership units
|
(63,752,434 | ) | (16,107,892 | ) | - | |||||||
|
Net
cash provided by financing activities
|
16,396,318 | 30,007,009 | 1,000 | |||||||||
|
Net
Increase in Cash and Cash Equivalents
|
50,191,530 | 11,690,510 | 1,000 | |||||||||
|
Cash and Cash
Equivalents, beginning of period
|
11,691,510 | 1,000 | - | |||||||||
|
Cash and Cash
Equivalents, end of period
|
$ | 61,883,040 | $ | 11,691,510 | $ | 1,000 | ||||||
See
accompanying notes to financial statements.
98
Notes
to Financial Statements
For
the years ended December 31, 2009 and 2008 and the period from April 12, 2007
(inception) to December 31, 2007
NOTE
1 - ORGANIZATION AND BUSINESS
The
United States Gasoline Fund, LP (“UGA”) was organized as a limited partnership
under the laws of the state of Delaware on April 12, 2007. UGA is a commodity
pool that issues limited partnership units (“units”) that may be purchased and
sold on the NYSE Arca, Inc. (the “NYSE Arca”). Prior to November 25, 2008, UGA’s
units traded on the American Stock Exchange (the “AMEX”). UGA will continue in
perpetuity, unless terminated sooner upon the occurrence of one or more events
as described in its Amended and Restated Agreement of Limited Partnership
dated as of February 11, 2008 (the “LP Agreement”). The investment objective of
UGA is for the changes in percentage terms of its units’ net asset value to
reflect the changes in percentage terms of the spot price of gasoline (also
known as reformulated gasoline blendstock for oxygen blending, or “RBOB”) for
delivery to the New York harbor as measured by the changes in the price of the
futures contract for gasoline traded on the New York Mercantile Exchange (the
“NYMEX”) 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, less UGA’s expenses. UGA accomplishes
its objective through investments in futures contracts for gasoline, crude oil,
natural gas, heating oil and other petroleum-based fuels that are traded on the
NYMEX, ICE Futures or other U.S. and foreign exchanges (collectively, “Futures
Contracts”) and other gasoline-related investments such as cash-settled options
on Futures Contracts, forward contracts for gasoline and over-the-counter
transactions that are based on the price of gasoline, crude oil and other
petroleum-based fuels, Futures Contracts and indices based on the foregoing
(collectively, “Other Gasoline-Related Investments”). As of December 31, 2009,
UGA held 803 gasoline Futures Contracts traded on the NYMEX.
UGA
commenced investment operations on February 26, 2008 and has a fiscal year
ending on December 31. United States Commodity Funds LLC (formerly known as
Victoria Bay Asset Management, LLC) (the “General Partner”) is responsible
for the management of UGA. The General Partner is a member of the National
Futures Association (the “NFA”) and became a commodity pool operator
registered with the Commodity Futures Trading Commission effective December 1,
2005. The General Partner is also the general partner of the United States Oil
Fund, LP (“USOF”), the United States Natural Gas Fund, LP (“USNG”), the
United States 12 Month Oil Fund, LP (“US12OF”) and the United States Heating Oil
Fund, LP (“USHO”), which listed their limited partnership units on the AMEX
under the ticker symbols “USO” on April 10, 2006, “UNG” on April 18, 2007,
“USL” on December 6, 2007 and “UHN” on April 9, 2008, respectively. As a result
of the acquisition of the AMEX by NYSE Euronext, each of USOF’s, USNG’s,
US12OF’s, UGA’s and USHO’s units commenced trading on the NYSE Arca on November
25, 2008. The General Partner is also the general partner of the
United States Short Oil Fund, LP (“USSO”) and the United States 12 Month Natural
Gas Fund, LP, which listed their limited partnership units on the NYSE Arca on
September 24, 2009 and November 18, 2009, respectively. The General Partner has
also filed registration statements to register units of the United States Brent
Oil Fund, LP (“USBO”) and the United States Commodity Index Funds Trust
(“USCI”).
UGA
issues units to certain authorized purchasers (“Authorized Purchasers”) by
offering baskets consisting of 100,000 units (“Creation Baskets”) through
ALPS Distributors, Inc. (the “Marketing Agent”). The purchase price for a
Creation Basket is based upon the net asset value of a unit calculated
shortly after the close of the core trading session on the NYSE Arca on the day
the order to create the basket is properly received. In addition, Authorized
Purchasers pay UGA a $1,000 fee for each order placed to create one or more
Creation Baskets or redeem one or more baskets consisting of 100,000 units
(“Redemption Baskets”). Units may be purchased or sold on a nationally
recognized securities exchange in smaller increments than a Creation Basket or
Redemption Basket. Units purchased or sold on a nationally recognized securities
exchange are not purchased or sold at the net asset value of UGA but rather at
market prices quoted on such exchange.
In
November 2007, UGA initially registered 30,000,000 units on Form S-1 with the
U.S. Securities and Exchange Commission (the “SEC”). On February 26,
2008, UGA listed its units on the AMEX under the ticker symbol “UGA”. On that
day, UGA established its initial net asset value by setting the price at $50.00
per unit and issued 300,000 units in exchange for $15,001,000. UGA also
commenced investment operations on February 26, 2008 by purchasing Futures
Contracts traded on the NYMEX based on gasoline. As of December 31,
2009, UGA had registered a total of 30,000,000 units and had a total of
1,900,000 units outstanding.
99
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue
Recognition
Commodity
futures contracts, forward contracts, physical commodities, and related options
are recorded on the trade date. All such transactions are recorded on the
identified cost basis and marked to market daily. Unrealized gains or losses on
open contracts are reflected in the statement of financial condition and in the
difference between the original contract amount and the market value (as
determined by exchange settlement prices for futures contracts and related
options and cash dealer prices at a predetermined time for forward contracts,
physical commodities, and their related options) as of the last business day of
the year or as of the last date of the financial statements. Changes in the
unrealized gains or losses between periods are reflected in the statement of
operations. UGA earns interest on its assets denominated in U.S. dollars on
deposit with the futures commission merchant at the 90-day Treasury bill
rate. In addition, UGA earns interest on funds held at the custodian at
prevailing market rates earned on such investments.
Brokerage
Commissions
Brokerage
commissions on all open commodity futures contracts are accrued on a full-turn
basis.
Income
Taxes
UGA is
not subject to federal income taxes; each partner reports his/her allocable
share of income, gain, loss deductions or credits on his/her own income tax
return.
Additions
and Redemptions
Authorized
Purchasers may purchase Creation Baskets or redeem Redemption Baskets only in
blocks of 100,000 units equal to the net asset value of the units calculated
shortly after the close of the core trading session on the NYSE Arca on the day
the order is placed.
UGA
receives or pays the proceeds from units sold or redeemed within three business
days after the trade date of the purchase or redemption. The amounts due from
Authorized Purchasers are reflected in UGA’s statement of financial condition as
receivable for units sold, and amounts payable to Authorized Purchasers upon
redemption are reflected as payable for units redeemed.
Partnership
Capital and Allocation of Partnership Income and Losses
Profit or
loss shall be allocated among the partners of UGA in proportion to the number of
units each partner holds as of the close of each month. The General Partner may
revise, alter or otherwise modify this method of allocation as described in the
LP Agreement.
Calculation
of Net Asset Value
UGA’s net
asset value is calculated on each NYSE Arca trading day by taking the current
market value of its total assets, subtracting any liabilities and dividing the
amount by the total number of units issued and outstanding. UGA uses the closing
price for the contracts on the relevant exchange on that day to determine the
value of contracts held on such exchange.
Net
Income (Loss) per Unit
Net
income (loss) per unit is the difference between the net asset value per
unit at the beginning of each period and at the end of each period. The
weighted average number of units outstanding was computed for purposes of
disclosing net income (loss) per weighted average unit. The weighted average
units are equal to the number of units outstanding at the end of the period,
adjusted proportionately for units redeemed based on the amount of time the
units were outstanding during such period. There were no units held by the
General Partner at December 31, 2009.
100
Offering
Costs
Offering
costs incurred in connection with the registration of additional units after the
initial registration of units are borne by UGA. These costs include
registration fees paid to regulatory agencies and all legal, accounting,
printing and other expenses associated with such offerings. These costs will be
accounted for as a deferred charge and thereafter amortized to expense over
twelve months on a straight-line basis or a shorter period if
warranted.
Cash
Equivalents
Cash
equivalents include money market funds and overnight deposits or time deposits
with original maturity dates of three months or less.
Use
of Estimates
The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires UGA’s
management to make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of the revenue
and expenses during the reporting period. Actual results could differ from those
estimates and assumptions.
NOTE 3
- FEES PAID BY THE FUND AND RELATED PARTY TRANSACTIONS
General
Partner Management Fee
Under the
LP Agreement, the General Partner is responsible for investing the assets of UGA
in accordance with the objectives and policies of UGA. In addition, the General
Partner has arranged for one or more third parties to provide administrative,
custody, accounting, transfer agency and other necessary services to UGA. For
these services, UGA is contractually obligated to pay the General Partner a fee,
which is paid monthly, that is equal to 0.60% per annum of average daily net
assets.
Ongoing
Registration Fees and Other Offering Expenses
UGA pays
all costs and expenses associated with the ongoing registration
of its units subsequent to the initial offering. These costs include
registration or other fees paid to regulatory agencies in connection with the
offer and sale of units, and all legal, accounting, printing and other expenses
associated with such offer and sale. For the years ended December 31, 2009
and 2008 and the period from April 12, 2007 (inception) to December 31, 2007,
UGA incurred $1,080, $0 and $0, respectively, in registration fees and
other offering expenses.
Directors’
Fees and Expenses
UGA is
responsible for paying its portion of the directors’ and officers’ liability
insurance of the General Partner and the fees and expenses of the independent
directors of the General Partner who are also the General Partner’s audit
committee members. UGA shares these fees and expenses with USOF, USNG,
US12OF, USHO, USSO and US12NG based on the relative assets of each fund,
computed on a daily basis. These fees and expenses for the calendar year 2009
amounted to a total of $433,046 for all funds and UGA’s portion of such fees and
expenses was $3,734. For the calendar year ended December 31, 2008
and the period from April 12, 2007 (inception) to December 31, 2007, these fees
and expenses were $282,000 and $286,000, respectively, and UGA’s portion of such
fees and expenses was $2,759 and $0, respectively.
Licensing
Fees
As
discussed in Note 4, UGA entered into a licensing agreement with the NYMEX
on May 30, 2007. Pursuant to the agreement, UGA and the affiliated funds managed
by the General Partner pay a licensing fee that is equal to 0.04% for the
first $1,000,000,000 of combined assets of the funds and 0.02% for combined
assets above $1,000,000,000. During the years ended December 31, 2009 and 2008
and the period from April 12, 2007 (inception) to December 31, 2007, UGA
incurred $14,846, $5,219 and $0, respectively, under this
arrangement.
101
Investor
Tax Reporting Cost
The fees
and expenses associated with UGA’s audit expenses and tax accounting and
reporting requirements are paid by UGA. These costs are approximately
$321,000 for the year ended December 31, 2009.
Other
Expenses and Fees and Expense Waivers.
In
addition to the fees described above, UGA pays all brokerage fees and other
expenses in connection with the operation of UGA, excluding costs and
expenses paid by the General Partner as outlined in Note 4. The
General Partner, though under no obligation to do so, agreed to pay certain
expenses, to the extent that such expenses exceed 0.15% (15 basis points) of
UGA’s NAV, on an annualized basis. The General Partner has no obligation to
continue such payment into subsequent periods.
NOTE
4 - CONTRACTS AND AGREEMENTS
UGA is
party to a marketing agent agreement, dated as of January 18, 2008, with
the Marketing Agent and the General Partner, whereby the Marketing Agent
provides certain marketing services for UGA as outlined in the agreement. The
fee of the Marketing Agent, which is borne by the General Partner, is equal
to 0.06% on UGA’s assets up to $3 billion; and 0.04% on UGA’s assets in excess
of $3 billion.
The above
fees do not include the following expenses, which are also borne by the General
Partner: the cost of placing advertisements in various periodicals; web
construction and development; or the printing and production of various
marketing materials.
UGA is
also party to a custodian agreement, dated January 16, 2008, with Brown Brothers
Harriman & Co. (“BBH&Co.”) and the General Partner, whereby BBH&Co.
holds investments on behalf of UGA. The General Partner pays the fees of
the custodian, which are determined by the parties from time to time. In
addition, UGA is party to an administrative agency agreement, dated February 7,
2008, with the General Partner and BBH&Co., whereby BBH&Co. acts as the
administrative agent, transfer agent and registrar for UGA. The General Partner
also pays the fees of BBH&Co. for its services under this agreement and such
fees are determined by the parties from time to time.
Currently,
the General Partner pays BBH&Co. for its services, in the foregoing
capacities, a minimum amount of $75,000 annually for its custody, fund
accounting and fund administration services rendered to UGA and each of the
affiliated funds managed by the General Partner, as well as a $20,000 annual fee
for its transfer agency services. In addition, the General Partner pays
BBH&Co. an asset-based charge of (a) 0.06% for the first $500 million of
UGA’s, USOF’s, USNG’s, US12OF’s, USHO’s, USSO’s and US12NG’s combined net
assets, (b) 0.0465% for UGA’s, USOF’s, USNG’s, US12OF’s, USHO’s, USSO’s and
US12NG’s combined net assets greater than $500 million but less than $1 billion,
and (c) 0.035% once UGA’s, USOF’s, USNG’s, US12OF’s, USHO’s, USSO’s and US12NG’s
combined net assets exceed $1 billion. The annual minimum amount will not apply
if the asset-based charge for all accounts in the aggregate exceeds $75,000. The
General Partner also pays transaction fees ranging from $7.00 to $15.00 per
transaction.
UGA has
entered into a brokerage agreement with UBS Securities LLC (“UBS Securities”).
The agreement requires UBS Securities to provide services to UGA in connection
with the purchase and sale of Futures Contracts and Other Gasoline-Related
Investments that may be purchased and sold by or through UBS Securities for
UGA’s account. The agreement provides that UBS Securities charge UGA commissions
of approximately $7 per round-turn trade, plus applicable exchange and NFA fees
for Futures Contracts and options on Futures Contracts.
On May
30, 2007, UGA and the NYMEX entered into a licensing agreement whereby UGA was
granted a non-exclusive license to use certain of the NYMEX’s settlement prices
and service marks. The agreement has an effective date of April 10, 2006. Under
the licensing agreement, UGA and the affiliated funds managed by the
General Partner pay the NYMEX an asset-based fee for the license, the terms of
which are described in Note 3.
102
UGA
expressly disclaims any association with the NYMEX or endorsement of UGA by the
NYMEX and acknowledges that “NYMEX” and “New York Mercantile Exchange” are
registered trademarks of the NYMEX.
NOTE
5 - FINANCIAL INSTRUMENTS, OFF-BALANCE SHEET RISKS AND
CONTINGENCIES
UGA
engages in the trading of futures contracts and options on futures
contracts (collectively, “derivatives”). UGA is exposed to both market risk,
which is the risk arising from changes in the market value of the contracts, and
credit risk, which is the risk of failure by another party to perform according
to the terms of a contract.
UGA may
enter into futures contracts and options on futures contracts to gain exposure
to changes in the value of an underlying commodity. A futures contract obligates
the seller to deliver (and the purchaser to accept) the future delivery of a
specified quantity and type of a commodity at a specified time and place. Some
futures contracts may call for physical delivery of the asset, while others are
settled in cash. The contractual obligations of a buyer or seller may generally
be satisfied by taking or making physical delivery of the underlying commodity
or by making an offsetting sale or purchase of an identical futures contract on
the same or linked exchange before the designated date of delivery.
The
purchase and sale of futures contracts and options on futures contracts require
margin deposits with a futures commission merchant. Additional deposits may be
necessary for any loss on contract value. The Commodity Exchange Act requires a
futures commission merchant to segregate all customer transactions and assets
from the futures commission merchant’s proprietary activities.
Futures
contracts involve, to varying degrees, elements of market risk (specifically
commodity price risk) and exposure to loss in excess of the amount of variation
margin. The face or contract amounts reflect the extent of the total exposure
UGA has in the particular classes of instruments. Additional risks associated
with the use of futures contracts are an imperfect correlation between movements
in the price of the futures contracts and the market value of the underlying
securities and the possibility of an illiquid market for a futures
contract.
All of
the futures contracts currently traded by UGA are exchange-traded. The risks
associated with exchange-traded contracts are generally perceived to be less
than those associated with over-the-counter transactions since, in
over-the-counter transactions, UGA must rely solely on the credit of its
respective individual counterparties. However, in the future, if UGA were
to enter into non-exchange traded contracts, it would be subject to the credit
risk associated with counterparty non-performance. The credit risk from
counterparty non-performance associated with such instruments is the net
unrealized gain, if any. UGA also has credit risk since the sole counterparty to
all domestic and foreign futures contracts is the clearinghouse for the
exchange on which the relevant contracts are traded. In addition, UGA bears the
risk of financial failure by the clearing broker.
UGA’s
cash and other property, such as U.S. Treasuries, deposited with a futures
commission merchant are considered commingled with all other customer funds
subject to the futures commission merchant’s segregation requirements. In the
event of a futures commission merchant’s insolvency, recovery may be limited to
a pro rata share of segregated funds available. It is possible that the
recovered amount could be less than the total of cash and other property
deposited. The insolvency of a futures commission merchant could result in the
complete loss of UGA’s assets posted with that futures commission merchant;
however, the vast majority of UGA’s assets are held in Treasuries, cash and/or
cash equivalents with UGA’s custodian and would not be impacted by the
insolvency of a futures commission merchant. Also, the failure or insolvency of
UGA’s custodian could result in a substantial loss of UGA’s assets.
UGA
invests a portion of its cash in money market funds that seek to maintain a
stable net asset value. UGA is exposed to any risk of loss associated with an
investment in these money market funds. As of December 31, 2009 and 2008, UGA
had deposits in domestic and foreign financial institutions, including cash
investments in money market funds, in the amounts of $63,237,601 and
$18,806,351, respectively. This amount is subject to loss should these
institutions cease operations.
103
For
derivatives, risks arise from changes in the market value of the contracts.
Theoretically, UGA is exposed to a market risk equal to the value of futures
contracts purchased and unlimited liability on such contracts sold short. As
both a buyer and a seller of options, UGA pays or receives a premium at the
outset and then bears the risk of unfavorable changes in the price of the
contract underlying the option.
UGA’s
policy is to continuously monitor its exposure to market and counterparty risk
through the use of a variety of financial, position and credit exposure
reporting controls and procedures. In addition, UGA has a policy of requiring
review of the credit standing of each broker or counterparty with which it
conducts business.
The
financial instruments held by UGA are reported in its statement of
financial condition at market or fair value, or at carrying amounts that
approximate fair value, because of their highly liquid nature and short-term
maturity.
NOTE
6 – FINANCIAL HIGHLIGHTS
The
following table presents per unit performance data and other supplemental
financial data for the years ended December 31, 2009 and 2008 and the period
from April 12, 2007 (inception) to December 31, 2007. This information has been
derived from information presented in the financial statements.
|
Year Ended
December 31, 2009
|
Year Ended
December 31, 2008
|
Period from
April 12, 2007 to
December 31, 2007
|
||||||||||
|
Per Unit Operating
Performance:
|
||||||||||||
|
Net
asset value, beginning of period
|
$
|
20.21
|
$
|
50.00
|
$
|
-
|
||||||
|
Total income
(loss)
|
16.47
|
(29.44)
|
-
|
|||||||||
|
Net
expenses
|
(0.27)
|
(0.35)
|
-
|
|||||||||
|
Net
increase (decrease) in net asset value
|
16.20
|
(29.79)
|
-
|
|||||||||
|
Net
asset value, end of period
|
$
|
36.41
|
$
|
20.21
|
$
|
-
|
||||||
|
Total
Return
|
80.16
|
%
|
(59.58)
|
%
|
-
|
%
|
||||||
|
Ratios
to Average Net Assets
|
||||||||||||
|
Total income
(loss)
|
52.81
|
%
|
(50.09)
|
%
|
-
|
%
|
||||||
|
Management
fees
|
0.60
|
%
|
0.60
|
%*
|
-
|
%
|
||||||
|
Total
expenses excluding management fees
|
0.71
|
%
|
1.07
|
%*
|
-
|
%
|
||||||
|
Expenses
waived
|
(0.41)
|
%
|
(0.77)
|
%*
|
-
|
%
|
||||||
|
Net
expenses excluding management fees
|
0.30
|
%
|
0.30
|
%*
|
-
|
%
|
||||||
|
Net income
(loss)
|
51.90
|
%
|
(50.85)
|
%
|
-
|
%
|
||||||
*Annualized
Total
returns are calculated based on the change in value during the period. An
individual limited partner’s total return and ratio may vary from the above
total returns and ratios based on the timing of contributions to and withdrawals
from UGA.
104
NOTE 7
– QUARTERLY FINANCIAL DATA (Unaudited)
The
following summarized (unaudited) quarterly financial information presents the
results of operations and other data for three-month periods ended March 31,
June 30, September 30 and December 31, 2009 and 2008.
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
|||||||||||||
|
2009
|
2009
|
2009
|
2009
|
|||||||||||||
|
Tot Total
Income (Loss)
|
$ | 4,773,146 | $ | 23,017,320 | $ | (775,648 | ) | $ | 6,131,091 | |||||||
|
Total
Expenses
|
103,436 | 190,960 | 165,421 | 362,444 | ||||||||||||
|
Expense
Waivers
|
(24,899 | ) | (6,934 | ) | (11,370 | ) | (213,152 | ) | ||||||||
|
Net
Expenses
|
78,537 | 184,026 | 154,051 | 149,292 | ||||||||||||
|
Net
Income (Loss)
|
$ | 4,694,609 | $ | 22,833,294 | $ | (929,699 | ) | $ | 5,981,799 | |||||||
|
Net
Income (Loss) per Unit
|
$ | 3.95 | $ | 8.53 | $ | (0.38 | ) | $ | 4.10 | |||||||
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
|||||||||||||
|
2008
|
2008
|
2008
|
2008
|
|||||||||||||
|
Total
Income (Loss)
|
$ | (626,337 | ) | $ | 6,213,819 | $ | (7,086,745 | ) | $ | (8,152,797 | ) | |||||
|
Total
Expenses
|
12,513 | 169,233 | 137,198 | (46,066 | ) | |||||||||||
|
Expense
Waivers
|
- | (115,094 | ) | (81,054 | ) | 69,800 | ||||||||||
|
Net
Expenses
|
12,513 | 54,139 | 56,144 | 23,734 | ||||||||||||
|
Net
Income (Loss)
|
$ | (638,850 | ) | $ | 6,159,680 | $ | (7,142,889 | ) | $ | (8,176,531 | ) | |||||
|
Net
Income (Loss) per Unit
|
$ | (1.47 | ) | $ | 16.70 | $ | (15.67 | ) | $ | (29.35 | ) | |||||
NOTE 8
- FAIR VALUE OF FINANCIAL INSTRUMENTS
Effective
January 1, 2008, UGA adopted Accounting Standards Codification 820 – Fair Value
Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value measurement. The
changes to past practice resulting from the application of ASC 820 relate to the
definition of fair value, the methods used to measure fair value, and the
expanded disclosures about fair value measurement. ASC 820 establishes a fair
value hierarchy that distinguishes between (1) market participant assumptions
developed based on market data obtained from sources independent of UGA
(observable inputs) and (2) UGA’s own assumptions about market participant
assumptions developed based on the best information available under the
circumstances (unobservable inputs). The three levels defined by the ASC 820
hierarchy are as follows:
Level I –
Quoted prices (unadjusted) in active markets for identical assets or
liabilities that the reporting entity has the ability to access at the
measurement date.
Level II
– Inputs other than quoted prices included within Level I that are observable
for the asset or liability, either directly or indirectly. Level II
assets include the following: quoted prices for similar assets or liabilities
in active markets, quoted prices for identical or similar assets or liabilities
in markets that are not active, inputs other than quoted prices that are
observable for the asset or liability, and inputs that are derived principally
from or corroborated by observable market data by correlation or other means
(market-corroborated inputs).
Level III
– Unobservable pricing input at the measurement date for the asset or liability.
Unobservable inputs shall be used to measure fair value to the extent that
observable inputs are not available.
In some
instances, the inputs used to measure fair value might fall in different levels
of the fair value hierarchy. The level in the fair value hierarchy
within which the fair value measurement in its entirety falls shall be
determined based on the lowest input level that is significant to the fair value
measurement in its entirety.
105
The
following tables summarize the valuation of UGA’s securities at December 31,
2009 and 2008 using the fair value hierarchy:
|
At December 31, 2009
|
Total
|
Level I
|
Level II
|
Level III
|
||||||||||||
|
Short-Term
Investments
|
$ | 53,435,830 | $ | 53,435,830 | $ | - | $ | - | ||||||||
|
Exchange-Traded
Futures Contracts
|
||||||||||||||||
|
United
States Contracts
|
5,883,944 | 5,883,944 | - | - | ||||||||||||
|
At December 31, 2008
|
Total
|
Level I
|
Level II
|
Level III
|
||||||||||||
|
Short-Term
Investments
|
$ | 4,844,572 | $ | 4,844,572 | $ | - | $ | - | ||||||||
|
Exchange-Traded
Futures Contracts
|
||||||||||||||||
|
United
States Contracts
|
1,431,721 | 1,431,721 | - | - | ||||||||||||
Effective
January 1, 2009, UGA adopted the provisions of Accounting Standards Codification
815 – Derivatives and Hedging (“ASC 815”), which require presentation of
qualitative disclosures about objectives and strategies for using derivatives,
quantitative disclosures about fair value amounts and gains and losses on
derivatives.
Fair
Value of Derivative Instruments
|
At December 31, 2009
|
At December 31, 2008
|
|||||||||
|
Derivatives not
Accounted for as
Hedging Instruments
|
Statement of Financial
Condition Location
|
Fair Value
|
Fair Value
|
|||||||
|
Futures
-
|
||||||||||
|
Commodity
Contracts
|
Assets
|
$ | 5,883,944 | $ | 1,431,721 | |||||
The
Effect of Derivative Instruments on the Statements of Operations
|
For the year ended December 31, 2009
|
For the year ended December 31, 2008
|
|||||||||||||||||
|
Derivatives not
Accounted for as
Hedging Instruments
|
Location of Gain
or (Loss) on
Derivatives
Recognized in
Income
|
Realized Gain or
(Loss) on
Derivatives
Recognized in
Income
|
Change in
Unrealized Gain
or (Loss)
Recognized in
Income
|
Realized Gain or
(Loss) on
Derivatives
Recognized in
Income
|
Change in
Unrealized Gain
or (Loss)
Recognized in
Income
|
|||||||||||||
|
Futures
-
|
Realized
gain
|
|||||||||||||||||
|
Commodity Contracts
|
(loss)
on closed
|
|||||||||||||||||
|
futures
contracts
|
$ | 28,570,005 | $ | - | $ | (11,364,767 | ) | $ | - | |||||||||
|
Change
in unrealized gain (loss) on open futures contracts
|
$ | - | $ | 4,452,223 | $ | - | $ | 1,431,721 | ||||||||||
NOTE
9 – RECENT ACCOUNTING PRONOUNCEMENTS
In March
2008, the Financial Accounting Standards Board released Accounting Standards
Codification 815 – Derivatives and Hedging (“ASC 815”). ASC 815 requires
qualitative disclosures about objectives and strategies for using derivatives,
quantitative disclosures about fair value amounts of, and gains and losses on,
derivative instruments, and disclosures about credit-risk-related contingent
features in derivative agreements. UGA adopted ASC 815 on January 1,
2009.
106
In January 2010, the Financial
Accounting Standards Board issued Accounting Standards Update
(“ASU”) No. 2010-06 “Improving Disclosures about
Fair Value Measurements.” ASU No. 2010-06 clarifies existing disclosure
and requires additional disclosures
regarding fair value measurements. Effective for interim and annual reporting
periods beginning after December 15, 2009,
entities will be required to disclose significant transfers into and out of
Level 1 and 2 measurements in the fair value
hierarchy and the reasons for those transfers. Effective for fiscal years
beginning after December 15, 2010, and for interim
periods within those fiscal years, entities will need to disclose
information about purchases, sales, issuances and
settlements of Level 3 securities on a gross basis, rather than as a net number
as currently required. The General Partner
is currently evaluating the
impact ASU No. 2010-06 will have on the financial statement disclosures.
NOTE
10 – SUBSEQUENT EVENTS
UGA has
performed an evaluation of subsequent events through March 16,
2010, which is the date the financial statements were available to be issued.
This evaluation did not result in any subsequent events that necessitated
disclosures and/or adjustments.
107
Item
9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not
applicable.
Item
9A. Controls and Procedures.
Disclosure
Controls and Procedures
UGA
maintains disclosure controls and procedures that are designed to ensure that
material information required to be disclosed in UGA’s periodic reports
filed or submitted under the Exchange Act is recorded, processed, summarized and
reported within the time period specified in the SEC’s rules and
forms.
The duly
appointed officers of the General Partner, including its chief executive
officer and chief financial officer, who perform functions equivalent to
those of a principal executive officer and principal financial officer of UGA if
UGA had any officers, have evaluated the effectiveness of UGA’s disclosure
controls and procedures and have concluded that the disclosure controls and
procedures of UGA have been effective as of the end of the period covered by
this annual report on Form
10-K.
Management’s
Annual Report on Internal Control Over Financial Reporting
UGA is
responsible for establishing and maintaining adequate internal control over
financial reporting. UGA’s internal control system is designed to provide
reasonable assurance to its management and the board of directors of the General
Partner regarding the preparation and fair presentation of published financial
statements. All internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement
preparation and presentation. Management’s report on internal control over
financial reporting is set forth above under the heading, “Management’s Annual
Report on Internal Control Over Financial Reporting” in Item 8 of this annual
report on Form 10-K.
Change
in Internal Control Over Financial Reporting
There
were no changes in UGA’s internal control over financial reporting during UGA’s
last fiscal quarter that have materially affected, or are reasonably likely to
materially affect, UGA’s internal control over financial reporting.
Item
9B. Other Information.
Monthly
Account Statements
Pursuant
to the requirement under Rule 4.22 under the CEA, each month UGA publishes an
account statement for its unitholders, which includes a Statement of Income
(Loss) and a Statement of Changes in NAV. The account statement is furnished to
the SEC on a current report on Form 8-K pursuant to Section 13 or 15(d) of the
Exchange Act and posted each month on UGA’s website at
www.unitedstatesgasolinefund.com.
Part
III
Item
10. Directors, Executive Officers and Corporate
Governance.
108
Nicholas
Gerber has been the President and CEO of the General Partner since June
9, 2005 and a Management Director of the General Partner since May 10, 2005. He
maintains his main business office at 1320 Harbor Bay Parkway, Suite 145,
Alameda, California 94502. Mr. Gerber has also acted as a portfolio manager for
UGA and the Related Public Funds. He has been listed with the CFTC as a
Principal of the General Partner since November 29, 2005, as Branch Manager of
the General Partner since May 15, 2009 and registered with the CFTC as an
Associated Person of the General Partner on December 1, 2005. Currently, Mr.
Gerber manages UGA and the Related Public Funds. He will also manage USBO and
USCI. 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 December 31, 2009, had
$219,616,809 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 47 years old.
In
concluding that Mr. Gerber should serve as Management Director of the General
Partner, the General Partner 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 General Partner since May 10, 2005,
Secretary of the General Partner since June 9, 2005, and Chief Financial Officer
of the General Partner since May 23, 2006. He has been listed with the CFTC as a
Principal of the General Partner since November 29, 2005. In these roles, Mr.
Mah is currently involved in the management of UGA and the Related Public Funds
and will be involved in the management of USBO and USCI. Mr. Mah also serves as
the General Partner’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 45 years
old.
In
concluding that Mr. Mah should serve as Management Director of the General
Partner, the General Partner considered his background in accounting and
finance, as well as his experience as Chief Compliance Officer for the General
Partner and Ameristock Corporation.
Andrew F.
Ngim has been a Management Director of the General Partner since May 10,
2005 and Treasurer of the General Partner since June 9, 2005. He has been listed
with the CFTC as a Principal of the General Partner since November 29, 2005. As
Treasurer of the General Partner, Mr. Ngim is currently involved in the
management of UGA and the Related Public Funds and will be involved in the
management of USBO and USCI. 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 49 years old.
In
concluding that Mr. Ngim should serve as Management Director of the General
Partner, the General Partner considered his broad career in the financial
services industry as well as experience as co-Portfolio Manager of the
Ameristock Mutual Fund.
109
Robert L.
Nguyen has been a Management Director of the General Partner since May
10, 2005. He has been listed with the CFTC as a Principal of the General Partner
since November 29, 2005 and registered with the CFTC as an Associated Person on
November 9, 2007. As a Management Director of the General Partner, Mr. Nguyen is
currently involved in the management of UGA and the Related Public Funds and
will be involved in the management of USBO and USCI. 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 50 years old.
In
concluding that Mr. Nguyen should serve as Management Director of the General
Partner, the General Partner 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 UGA and are employed by
the General Partner.
John P.
Love has acted as
the Portfolio Operations Manager for UGA since it commenced operations in February 2008 and the Related Public Funds since January 2006 and,
effective March 1, 2010, is the Senior Portfolio Manager for UGA and the Related
Public Funds. He is expected to be Senior Portfolio
Manager for USBO and USCI. Mr. Love is also employed by the General Partner. He has been listed with the CFTC as a
Principal of the General Partner 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 General Partner from December 1, 2005 through April 16, 2009. Mr.
Love has passed the Level 1 Chartered Financial Analyst examination and is
currently a Level II candidate in the CFA Program. He holds a BFA in
cinema-television from the University of Southern California. Mr.
Love is 38 years old.
John T. Hyland,
CFA acts as a Portfolio Manager and as the Chief Investment Officer for
the General Partner. Mr. Hyland is employed by the General Partner. He
registered with the CFTC as an Associated Person of the General Partner on
December 1, 2005, and has been listed as a Principal of the General Partner
since January 17, 2006. Mr. Hyland became the Portfolio Manager for UGA, USOF,
USNG, US12OF, USHO, USSO and US12NG in February 2008, April 2006, April 2007,
December 2007, April 2008, September, 2009 and November, 2009 respectively, and
as Chief Investment Officer of the General Partner since January 2008, acts in
such capacity on behalf of UGA and the Related Public Funds. He is also expected
to become the Portfolio Manager for USBO and USCI. As part of his
responsibilities for UGA and the Related Public Funds, Mr. Hyland handles
day-to-day trading, helps set investment policies, and oversees UGA’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 provides portfolio management and new fund
development expertise to non-U.S. institutional investors. Mr. Hyland has been,
and remains, a Principal and Portfolio Manager for Towerhouse. Mr. Hyland
received his Chartered Financial Analyst (“CFA”) designation in 1994. Mr. Hyland
is a member of the CFA Institute (formerly AIMR). 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 serves
as an arbitrator for FINRA, as part of their dispute resolution program. He is a
graduate of the University of California, Berkeley. Mr. Hyland is 50 years
old.
Ray W.
Allen acts as a Portfolio Operations Manager for UGA, USHO, USSO and
US12NG and is expected to be the Portfolio Operations Manager for
USBO. He was hired by the General Partner in October 2007 and has
been employed by the General Partner since January 14, 2008. He holds
a Series 3 license and registered with the CFTC as an Associated Person of the
General Partner on March 25, 2008. He has been listed with the CFTC
as a Principal of the General Partner since March 18, 2009. Mr. Allen’s
responsibilities include daily trading and operations for UGA, USHO, USSO and
US12NG. In addition, from February 2002 to October 2007, Mr. Allen was
responsible for analyzing and evaluating the creditworthiness of client
companies at Marble Bridge Funding Group Inc., in Walnut Creek, CA. Marble
Bridge Funding Group Inc. is a commercial finance company providing capital to
entrepreneurial companies. Mr. Allen received a BA in Economics from the
University of California at Berkeley in 1980. Mr. Allen is 53 years
old.
110
The
following individuals serve as independent directors of the General
Partner.
Peter M.
Robinson has been an Independent Director of the General Partner since
September 30, 2005 and, as such, serves on the board of directors of the General
Partner, which acts on behalf of UGA, and the Related Public Funds and will
serve on behalf of USBO and USCI, if such funds commence operations. He has been
listed with the CFTC as a Principal of the General Partner 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 52 years old.
In
concluding that Mr. Robinson should serve as Independent Director of the General
Partner, the General Partner 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 General Partner since
September 30, 2005 and, as such, serves on the board of directors of the General
Partner, which acts on behalf of UGA, and the Related Public Funds and will
serve on behalf of USBO and USCI, if such funds commence operations. He has been
listed with the CFTC as a Principal of the General Partner 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 63 years old.
In
concluding that Mr. Ellis should serve as Independent Director of the General
Partner, the General Partner 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 General Partner since
September 30, 2005 and, as such, serves on the board of directors of the General
Partner, which acts on behalf of UGA and the Related Public Funds and will serve
on behalf of USBO and USCI, if such funds commence operations. He has been
listed with the CFTC as a Principal of the General Partner 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 45 years old.
111
In
concluding that Mr. Fobes should serve as Independent Director of the General
Partner, the General Partner 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 General Partner: 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 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 UGA. Nicholas Gerber and John Hyland make trading
and investment decisions for UGA. John Love and John Hyland execute trades on
behalf of UGA. In addition, Nicholas Gerber, John Hyland, Robert Nguyen and Ray
Allen are registered with the CFTC as Associated Persons of the General Partner
and are NFA Associate Members.
Audit
Committee
The Board
of the General Partner has an audit committee which is made up of the three
independent directors (Peter M. Robinson, Gordon L. Ellis, and Malcolm R. Fobes
III). The audit committee is governed by an audit committee charter that is
posted on UGA’s website at www.unitedstatesgasolinefund.com. Any unitholder of
UGA may also obtain a printed copy of the audit committee charter, free of
charge, by calling 1-800-920-0259. The Board has determined that each member of
the audit committee meets the financial literacy requirements of the NYSE Arca
and the audit committee charter. The Board has further determined that each of
Messrs. Ellis and Fobes have accounting or related financial management
expertise, as required by the NYSE Arca, such that each of them is considered an
“Audit Committee Financial Expert” as such term is defined in Item 407(d)(5) of
Regulation S-K.
Other
Committees
Since the
individuals who perform work on behalf of UGA are not compensated by UGA, but
instead by the General Partner, UGA does not have a compensation committee.
Similarly, since the Directors noted above serve on the board of directors of
the General Partner, there is no nominating committee of the board of directors
that acts on behalf of UGA. The General Partner believes that it is necessary
for each member of the Board of Directors to possess many qualities and skills.
The General Partner further believes that all directors should possess a
considerable amount of business management and educational
experience. There have not been any vacancies on the General
Partner’s Board of Directors since the commencement of operations of USOF in
April 2006; however, if such a vacancy were to occur, the members of the Board
of Directors would consider a candidate’s management experience as well as
his/her background, stature, conflicts of interest, integrity and
ethics. In connection with this, the Board of Directors would also
consider issues of diversity, such as diversity of gender, race and national
origin, education, professional experience and differences in viewpoints and
skills. The Board of Directors does not have a formal policy with respect to
diversity; however, the Board of Directors believes that it is essential that
the Board members represent diverse viewpoints.
Corporate
Governance Policy
The Board
of the General Partner has adopted a Corporate Governance Policy that applies to
UGA, USOF, US12OF, USNG, USHO, USSO, US12NG, USBO, and USCI. UGA has posted the
text of the Corporate Governance Policy on its website at
www.unitedstatesgasolinefund.com. Any unitholder of UGA may also obtain a
printed copy of the Corporate Governance Policy, free of charge, by calling
1-800-920-0259.
Code
of Ethics
The
General Partner of UGA has adopted a Code of Business Conduct and Ethics (the
“Code of Ethics”) that applies to its principal executive officer, principal
financial officer, principal accounting officer or controller, or persons
performing similar functions, and also to UGA. UGA has posted the text of
the Code of Ethics on its website at www.unitedstatesgasolinefund.com. Any
unitholder of UGA may also obtain a printed copy of the Code of Ethics, free of
charge, by calling 1-800-920-0259. UGA intends to disclose any amendments or
waivers to the Code of Ethics applicable to the General Partner’s principal
executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions, on its
website.
112
Executive
Sessions of the Non-Management Directors
In
accordance with the Corporate Governance Policy of the General Partner, the
non-management directors of the Board (who are the same as the independent
directors of the Board) meet separately from the other directors in regularly
scheduled executive sessions, without the presence of Management Directors or
executive officers of the General Partner. The non-management directors have
designated Malcolm R. Fobes III to preside over each such executive session.
Interested parties who wish to make their concerns known to the non-management
directors may communicate directly with Mr. Fobes by writing to 475 Milan Drive,
No. 103, San Jose, CA 95134-2453 or by e-mail at
uscf.director@gmail.com.
Board
Leadership Structure and Role in Risk Oversight
The Board
of the General Partner is led by a Chairman, Nicholas Gerber, who is also the
President and CEO of the General Partner. The Board’s
responsibilities include (i) the selection, evaluation, retention and succession
of the Chief Executive Officer and the oversight of the selection and
performance of other executive officers, (ii) understanding, reviewing and
monitoring the implementation of strategic plans, annual operating plans and
budgets, (iii) the selection and oversight of UGA’s independent auditors and the
oversight of UGA’s financial statements, (iv) advising management on significant
issues, (v) the review and approval of significant company actions and certain
other matters, (vi) nominating directors and committee members and overseeing
effective corporate governance and (vii) the consideration of other
constituencies, such as the General Partner’s and UGA’s customers, employees,
suppliers and the communities impacted by UGA. The non-management directors have
designated Malcolm R. Fobes III as the presiding independent director. Mr.
Fobes’s role as the presiding independent director includes presiding over each
executive session of the non-management directors, facilitating communications
by shareholders and employees with the non-management directors and may also
include representing the non-management directors with respect to certain
matters as to which the views of the non-management directors are sought
pursuant to UGA’s Corporate Governance Policy.
The Board
believes that Mr. Gerber is best situated to serve as Chairman of the General
Partner because he is the director most familiar with the business of the
General Partner, including investing in the futures contracts and other
commodity interests in order to track the benchmark futures contracts of UGA and
the Related Public Funds. Because of his background, he is most
capable of effectively leading the discussion and execution of new strategic
objectives. The independent directors of the General Partner are
actively involved in the oversight of the General Partner and, because of their
varied backgrounds, provide different perspectives in connection with the
oversight of the General Partner, UGA and the Related Public Funds. The General
Partner’s independent directors bring expertise from outside the General Partner
and the commodities industry, while Mr. Gerber brings company-specific and
industry-specific experience and expertise. The Board of Directors believes that
the combined role of Chairman and Chief Executive Officer facilitates
information flow between management and the Board of Directors, including the
independent directors, which is essential to effective governance.
Risk
Management
The full
Board of Directors is actively involved in overseeing the management and
operation of the General Partner, including oversight of the risks that face UGA
and the Related Public Funds. For example, the Board of Directors has
adopted an Investment Policy and a Policy for Use of Derivatives. The
policies are intended to ensure that the General Partner take prudent and
careful action while entering into and managing investments taken by UGA
including Futures Contracts or Other Gasoline-Related Investments such as
over-the-counter swap contracts. Additionally, the policies are
intended to provide assurance that there is sufficient flexibility in
controlling risks and returns associated with the use of investments by
UGA. The policies, among other things, limit UGA’s ability to have
too high of a concentration of its assets in non-exchange traded futures
contracts or cleared swap contracts or concentrating its investments in too few
counterparties, absent prior approval from the Board of
Directors. Existing counterparties are reviewed periodically by the
Board of Directors to ensure that they continue to meet the criteria outlined in
the policies. The Board of Directors tasks management with assessing
risks, including market risk, credit risk, liquidity risk, cash flow risk, basis
risk, legal and tax risk, settlement risk, and operational risk.
113
The Board
of Directors also determines compensation payable to employees of the General
Partner, including the portfolio managers of each of UGA and the Related Public
Funds. The compensation of certain employees of the General Partner
is, in part, based on the amount of assets under management by UGA and the
Related Public Funds. The Board of Directors feels that compensating
certain employees, in part, based on the amount of assets under management is
appropriate since having more assets in a fund generally reflects that investors
perceive the fund’s investment objective is being met. There are
certain risks that may arise as a result of a growth in assets under
management. For example, if position limits are imposed on UGA and
the assets under management continue to increase, then UGA may not be able to
invest solely in the Benchmark Futures Contract and may have to invest in
over-the-counter swap contracts or Other Gasoline-Related Investments as it
seeks to track its benchmark. Other Futures Contracts in which UGA
may invest may not track changes in the price of the Benchmark Futures
Contract. Other Gasoline-Related Investments, including
over-the-counter swap contracts, may also expose UGA to increased counterparty
credit risk and may be less liquid and more difficult to value than Futures
Contracts. UGA and the Related Public Funds ameliorate the potential
credit, liquidity and valuation risks by fully collateralizing any
over-the-counter swap contracts or other investments. The Board of
Directors, in making compensation decisions, considers whether a compensation
arrangement would expose UGA or the Related Public Funds to additional risks and
whether the risks posed by such arrangement are consistent with the best
interests of UGA’s investors.
Other
Information
In
addition to the certifications of the Chief Executive Officer and Chief
Financial Officer of the General Partner filed or furnished with this annual
report on Form 10-K regarding the quality of UGA’s public disclosure, UGA will
submit, within 30 days after filing this annual report on Form 10-K, to the NYSE
Arca a certification of the Chief Executive Officer of the General Partner
certifying that he is not aware of any violation by UGA of NYSE Arca corporate
governance listing standards.
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a)
of the Exchange Act requires directors and executive officers of the General
Partner and persons who are beneficial owners of at least 10% of UGA’s units to
file with the SEC an Initial Statement of Beneficial Ownership of Securities on
Form 3 within 10 calendar days of first becoming a director, executive officer
or beneficial owner of at least 10% of UGA’s units and a Statement of Changes of
Beneficial Ownership of Securities on Form 4 within 2 business days of a
subsequent acquisition or disposition of units of UGA. To UGA’s
knowledge, based upon a review of copies of reports furnished to UGA with
respect to the fiscal year ended December 31, 2009 and upon the written
representations of the directors and executive officers of the General Partner,
all of such persons have filed all required reports. However, Mr. John Hyland
did not timely file an Initial Statement of Beneficial Ownership of Securities
on Form 3 upon becoming an executive officer of the General Partner in
compliance with the applicable reporting deadline. Mr. Hyland has since filed an Initial Statement of Beneficial
Ownership of Securities on Form 3. As of the date of this annual
report on Form 10-K, Mr. Hyland does not own any units of
UGA.
Item
11. Executive Compensation.
Compensation
to the General Partner and Other Compensation
UGA does
not directly compensate any of the executive officers noted above. The
executive officers noted above are compensated by the General Partner for
the work they perform on behalf of UGA and other entities controlled by the
General Partner. UGA does not reimburse the General Partner for, nor does it set
the amount or form of any portion of, the compensation paid to the executive
officers by the General Partner. UGA pays fees to the General Partner pursuant
to the LP Agreement under which it is obligated to pay the General Partner
an annualized fee of 0.60% of NAV on all of its average daily net assets. For
2009, UGA paid the General Partner aggregate management fees of
$376,611.
114
Director
Compensation
The
following table sets forth compensation earned during the year ended December
31, 2009, by the Directors of the General Partner. UGA’s portion of the
aggregate fees paid to the Directors for the calendar year 2009 was
$3,734.
|
Change in
|
|||||||||||||||||||||
|
Pension
|
|||||||||||||||||||||
|
Value and
|
|||||||||||||||||||||
|
Fees
|
Nonqualified
|
||||||||||||||||||||
|
Earned or
|
Non-Equity
|
Deferred
|
|||||||||||||||||||
|
Paid in
|
Stock
|
Option
|
Incentive Plan
|
Compensation
|
All Other
|
||||||||||||||||
|
Name
|
Cash
|
Awards
|
Awards
|
Compensation
|
Plan
|
Compensation
|
Total
|
||||||||||||||
|
Management
Directors
|
|||||||||||||||||||||
|
Nicholas
Gerber
|
$ | 0 |
NA
|
NA
|
NA
|
$ | 0 | $ | 0 | $ | 0 | ||||||||||
|
Andrew
F. Ngim
|
$ | 0 |
NA
|
NA
|
NA
|
$ | 0 | $ | 0 | $ | 0 | ||||||||||
|
Howard
Mah
|
$ | 0 |
NA
|
NA
|
NA
|
$ | 0 | $ | 0 | $ | 0 | ||||||||||
|
Robert
L. Nguyen
|
$ | 0 |
NA
|
NA
|
NA
|
$ | 0 | $ | 0 | $ | 0 | ||||||||||
|
Independent
Directors
|
|||||||||||||||||||||
|
Peter
M. Robinson
|
$ | 100,000 |
NA
|
NA
|
NA
|
$ | 0 | $ | 0 | $ | 100,000 | ||||||||||
|
Gordon
L. Ellis
|
$ | 101,000 |
NA
|
NA
|
NA
|
$ | 0 | $ | 0 | $ | 101,000 | ||||||||||
|
Malcolm
R. Fobes III
(1)
|
$ | 121,000 |
NA
|
NA
|
NA
|
$ | 0 | $ | 0 | $ | 121,000 | ||||||||||
|
(1)
|
Mr.
Fobes serves as chairman of the audit committee of the General Partner and
receives additional compensation in recognition of the additional
responsibilities he has undertaken in this
role.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
|
None of
the directors or executive officers of the General Partner, nor the employees of
UGA own any units of UGA. In addition, UGA is not aware of any 5% holder of
its units.
Item
13. Certain Relationships and Related Transactions, and
Director Independence.
Certain
Relationships and Related Transactions
UGA has
and will continue to have certain relationships with the General Partner and its
affiliates. However, there have been no direct financial transactions
between UGA and the directors or officers of the General Partner that have not
been disclosed herein. See “Item 11. Executive Compensation” and “Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.” Any transaction with a related person that must be
disclosed in accordance with SEC Regulation S-K item 404(a), including financial
transactions by UGA with directors or executive officers of the General Partner
or holders of beneficial interests in the General Partner or UGA of more than
5%, will be subject to the provisions regarding “Resolutions of Conflicts of
Interest; Standard of Care” as set forth in Section 7.7 of the LP Agreement and
will be reviewed and approved by the audit committee of the Board of the General
Partner.
In
February 2010, the Board undertook a review of the independence of the directors
of the General Partner and considered whether any director has a material
relationship or other arrangement with the General Partner, UGA or the Related
Public Funds that could compromise his ability to exercise independent judgment
in carrying out his responsibilities. As a result of this review, the Board
determined that each of Messrs. Fobes, Ellis and Robinson is an “independent
director,” as defined under the rules of NYSE Arca.
115
Item
14. Principal Accountant Fees and Services.
The fees
for services billed to UGA by its independent auditors for the last two fiscal
years are as follows:
|
2009
|
2008
|
|||||||
|
Audit
fees
|
$ | 60,000 | * | $ | 25,000 | |||
|
Audit-related
fees
|
- | - | ||||||
|
Tax
fees
|
- | - | ||||||
|
All
other fees
|
- | - | ||||||
| $ | 60,000 | * | $ | 25,000 | ||||
* Amount expected to be billed for 2009
services.
Audit
fees consist of fees paid to Spicer Jeffries LLP for (i) the audit of UGA’s
annual financial statements included in the annual report on Form 10-K, and
review of financial statements included in the quarterly reports on Form 10-Q
and certain of UGA’s current reports on Form 8-K; (ii) the audit of UGA’s
internal control over financial reporting included in the annual report on Form
10-K; and (iii) services that are normally provided by the Independent
Registered Public Accountants in connection with statutory and regulatory
filings of registration statements.
Tax fees
consist of fees paid to Spicer Jeffries LLP for professional services rendered
in connection with tax compliance and partnership income tax return
filings.
The audit
committee has established policies and procedures which are intended to control
the services provided by UGA’s independent auditors and to monitor their
continuing independence. Under these policies and procedures, no
audit or permitted non-audit services (including fees and terms thereof), except
for the de minimis
exceptions for non-audit services described in Section 10A(i)(1)(B) of the
Exchange Act, may be undertaken by UGA’s independent auditors unless the
engagement is specifically pre-approved by the audit committee. The
audit committee may form and delegate authority to subcommittees consisting of
one or more members when appropriate, including the authority to grant
pre-approvals of audit and permitted non-audit services, provided that decisions
of such subcommittee to grant pre-approvals must be presented to the full audit
committee at its next scheduled meeting.
116
Item
15. Exhibits and Financial Statement
Schedules.
|
1.
|
See
Index to Financial Statements on page 89.
|
|
2.
|
No
financial statement schedules are filed herewith because (i) such
schedules are not required or (ii) the information required has been
presented in the aforementioned financial statements.
|
|
3.
|
Exhibits
required to be filed by Item 601 of Regulation
S-K.
|
Listed
below are the exhibits which are filed or furnished as part of this annual
report on Form 10-K (according to the number assigned to them in Item 601 of
Regulation S-K):
|
Exhibit Number
|
Description of Document
|
|
|
3.1*
|
Certificate
of Limited Partnership of the Registrant.
|
|
|
3.2**
|
Amended
and Restated Agreement of Limited Partnership.
|
|
|
3.3***
|
Fourth Amended and Restated
Limited Liability Company Agreement of the General
Partner.
|
|
|
10.1****
|
Form
of Initial Authorized Purchaser Agreement.
|
|
|
10.2*****
|
License
Agreement.
|
|
|
10.3**
|
Custodian
Agreement.
|
|
|
10.4******
|
Amendment
Agreement to the Custodian Agreement.
|
|
|
10.5**
|
Administrative
Agency Agreement.
|
|
|
10.6******
|
Amendment
Agreement to the Administrative Agency Agreement.
|
|
|
10.7*******
|
Marketing
Agent Agreement.
|
|
|
10.8**
|
Amendment
Agreement to the Marketing Agent Agreement.
|
|
|
14.1******
|
Code
of Ethics.
|
|
31.1********
|
|
Certification
of Principal Executive Officer Pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934.
|
|
31.2********
|
|
Certification
of Principal Financial Officer Pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934.
|
|
32.1********
|
|
Certification
of Principal Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U. S. C. 1350).
|
|
32.2********
|
|
Certification
of Principal Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U. S. C. 1350).
|
|
99.1**
|
Customer Agreement for Futures
Contracts.
|
|
| * | Incorporated by reference to Registrant’s Registration Statement on Form S-1 (File No. 333-142206) filed on April 18, 2007. |
|
**
|
Incorporated
by reference to Registrant’s Quarterly Report on Form 10-Q for the Quarter
ended September 30, 2009, filed on November 16,
2009.
|
117
|
***
|
Incorporated
by reference to United States Oil Fund, LP’s Quarterly Report on Form 10-Q
for the Quarter ended September 30, 2009, filed on November 9,
2009.
|
|
****
|
Incorporated
by reference to Registrant’s Pre-Effective Amendment No. 1 to the
Registration Statement on Form S-1 (File No. 333-142206) filed on January
11, 2008.
|
|
*****
|
Incorporated
by reference to United States Natural Gas Fund, LP’s Quarterly Report on
Form 10-Q for the Quarter ended March 31, 2007, filed on June 1,
2007.
|
|
******
|
Incorporated
by reference to Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2008, filed on March 31, 2009.
|
|
*******
|
Incorporated
by reference to Registrant’s Registration Statement on Form S-1 (File No.
333-162717) filed on October 28, 2009.
|
|
********
|
Filed
herewith.
|
118
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
United
States Gasoline Fund, LP (Registrant)
By: United
States Commodity Funds LLC, its general partner
(formerly
known as Victoria Bay Asset Management, LLC)
|
By:
|
/s/ Nicholas D. Gerber |
Nicholas
D. Gerber
President
and Chief Executive Officer
(Principal
executive officer)
Date: March
16, 2010
|
By:
|
/s/ Howard Mah |
Howard
Mah
Chief
Financial Officer
(Principal
financial and accounting officer)
Date: March
16, 2010
119
Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has been
signed below by the following persons on behalf of the Registrant in the
capacities and on the dates indicated.
|
Signature
|
Title (Capacity)
|
Date
|
||
| /s/ Nicholas D. Gerber |
Management
Director
|
March
16, 2010
|
||
|
Nicholas
D. Gerber
|
||||
| /s/ Howard Mah |
Management
Director
|
March
16, 2010
|
||
|
Howard
Mah
|
||||
| /s/ Andrew Ngim |
Management
Director
|
March
16, 2010
|
||
|
Andrew
Ngim
|
||||
| /s/ Robert Nguyen |
Management
Director
|
March
16, 2010
|
||
|
Robert
Nguyen
|
||||
| /s/ Peter M. Robinson |
Independent
Director
|
March
16, 2010
|
||
|
Peter
M. Robinson
|
||||
| /s/ Gordon L. Ellis |
Independent
Director
|
March
16, 2010
|
||
|
Gordon
L. Ellis
|
||||
| /s/ Malcolm R. Fobes III |
Independent
Director
|
March
16, 2010
|
||
|
Malcolm
R. Fobes III
|
120