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EX-31.1 - United States Gasoline Fund, LPv214043_ex31-1.htm
EX-32.2 - United States Gasoline Fund, LPv214043_ex32-2.htm
EX-23.1 - United States Gasoline Fund, LPv214043_ex23-1.htm
EX-32.1 - United States Gasoline Fund, LPv214043_ex32-1.htm
EX-14.1 - United States Gasoline Fund, LPv214043_ex14-1.htm
EX-31.2 - United States Gasoline Fund, LPv214043_ex31-2.htm
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
 
x
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2010.
or

¨
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from                      to                     .

Commission file number: 001-33975
United States Gasoline Fund, LP
(Exact name of registrant as specified in its charter)
 
Delaware
 
20-8837263
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
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:

Units of United States Gasoline Fund, LP
 
NYSE Arca, Inc.
(Title of each class)
 
(Name of exchange on which registered)

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 Website, 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.   x

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.
 
Large accelerated filer ¨
Accelerated filer x
   
Non-accelerated filer  ¨
Smaller reporting company ¨
(Do not check if a smaller reporting company)       
 

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, 2010 was: $77,579,000.

The registrant had 2,900,000 outstanding units as of March 11, 2011.
 
DOCUMENTS INCORPORATED BY REFERENCE:
None.
 
 
 

 
 
UNITED STATES GASOLINE FUND, LP
 
Table of Contents
 
   
Page
Part I.
   
Item 1. Business.
  1
     
Item 1A. Risk Factors.
  56
     
Item 1B. Unresolved Staff Comments.
  74
     
Item 2. Properties.
  74
     
Item 3. Legal Proceedings.
  74
     
Item 4. Reserved.
  74
     
Part II.
   
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
  74
     
Item 6. Selected Financial Data.
  75
     
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
  75
     
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
  93
     
Item 8. Financial Statements and Supplementary Data.
  95
     
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
  113
     
Item 9A. Controls and Procedures.
  114
     
Item 9B. Other Information.
  114
     
Part III.
   
Item 10. Directors, Executive Officers and Corporate Governance.
  114
     
Item 11. Executive Compensation.
  120
     
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
  120
     
Item 13. Certain Relationships and Related Transactions, and Director Independence.
  120
     
Item 14. Principal Accountant Fees and Services.
  121
     
Part IV.
   
Item 15. Exhibits and Financial Statement Schedules.
  122
     
Exhibit Index.
  122
     
Signatures
  124

 
 

 
 
Part I
 
Item 1.  Business.
 
What is UGA?
 
The United States Gasoline Fund, LP (“UGA”) is a Delaware limited partnership organized on April 13, 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 (as amended from time to time, the “LP Agreement”), which grants full management control to its general partner, United States Commodity Funds LLC (“USCF”).
 
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.  USCF is the general partner of UGA and is responsible for the management of UGA.
 
Who is USCF?
 
USCF is a single member limited liability company that was formed in the state of Delaware on May 10, 2005.  Prior to June 13, 2008, USCF was known as Victoria Bay Asset Management, LLC. It maintains its main business office at 1320 Harbor Bay Parkway, Suite 145, Alameda, California 94502. USCF 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. USCF 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, USCF 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 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 USOF’s expenses. USOF’s units began trading on April 10, 2006.  USCF is the general partner of USOF and is responsible for the management of USOF.
  
On September 11, 2006, USCF 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 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 USNG’s expenses.  USNG’s units began trading on April 18, 2007.  USCF is the general partner of USNG and is responsible for the management of USNG.
  
 
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On June 27, 2007, USCF 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, except when the near month contract is within two weeks of expiration, in which case it will be measured by the futures contracts that are the next month contract to expire and the contracts for the following 11 consecutive months, less US12OF’s expenses.  When calculating the daily movement of the average price of the 12 contracts, each contract month will be equally weighted.  US12OF’s units began trading on December 6, 2007.  USCF is the general partner of US12OF and is responsible for the management of US12OF.
  
On April 13, 2007, USCF 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 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 USHO’s expenses. USHO’s units began trading on April 9, 2008. USCF is the general partner of USHO and is responsible for the management of USHO. 

On June 30, 2008, USCF 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 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 USSO’s expenses.  USSO’s units began trading on September 24, 2009.  USCF is the general partner of USSO and is responsible for the management of USSO. 

On June 27, 2007, USCF 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 except when the near month contract is within two weeks of expiration, in which case it will be measured by the futures contracts that are the next month contract to expire and the contracts for the following 11 consecutive months, less US12NG’s expenses.  When calculating the daily movement of the average price of the 12 contracts, each contract month will be equally weighted.  US12NG’s units began trading on November 18, 2009.  USCF is the general partner of US12NG and is responsible for the management of US12NG.
 
On September 2, 2009, USCF formed the United States Brent Oil Fund, LP (“USBO”), also a limited partnership that is a commodity pool and issues units traded on the NYSE Arca.  The investment objective of USBO is 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 Exchange (the “ICE Futures”) 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 USBO’s expenses.  USBO’s units began trading on June 2, 2010. USCF is the general partner of USBO and is responsible for the management of USBO.
 
On April 1, 2010, USCF, in its role as sponsor, formed the United States Commodity Index Fund (“USCI”), as a series of the United States Commodity Index Funds Trust, a Delaware statutory trust (the “Trust”).  USCI is a commodity pool and issues units traded on the NYSE Arca.  The investment objective of USCI is 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 Total Return (the “Commodity Index”), less USCI’s expenses.  USCI’s units began trading on August 10, 2010. USCF is the sponsor of USCI and is responsible for the management of USCI.

USOF, USNG, US12OF, USHO, USSO, US12NG, USBO and USCI 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.
 
 
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USCF has filed a registration statement for three other exchange-traded security funds, the United States Metals Index Fund (“USMI”), the United States Agriculture Index Fund (“USAI”) and the United States Copper Index Fund (“USCUI”), each of which is a series of the Trust.  The investment objective of USMI 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 Metals Index Total Return (the “Metals Index”), less USMI’s expenses.  The investment objective of USAI 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 Agriculture Index Total Return (the “Agriculture Index”), less USAI’s expenses.  The investment objective of USCUI will be for the daily changes in percentage terms of its units’ NAV to reflect the daily changes in percentage terms of the SummerHaven Copper Index Total Return (the “Copper Index”), less USCUI’s expenses.
 
USCF 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. USCF also pays the fees of ALPS Distributors, Inc., which serves as the marketing agent for UGA (the “Marketing Agent”), and Brown Brothers Harriman & Co. (“BBH&Co.”), which serves as the administrator (the “Administrator”) and the custodian (the “Custodian”) for UGA.
 
Limited partners have no right to elect USCF as the general partner on an annual or any other continuing basis.  If USCF voluntarily withdraws as general partner, however, the holders of a majority of UGA’s outstanding units (excluding for purposes of such determination units owned, if any, by the withdrawing USCF and its affiliates) may elect its successor.  USCF 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 USCF and its affiliates), subject to the satisfaction of certain conditions set forth in the LP Agreement.
 
The business and affairs of USCF 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 USCF pursuant to its limited liability company agreement, as amended from time to time.  Through its Management Directors, USCF 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 USCF 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.
  
 
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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, 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”).  USCF 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, USCF 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:

 
·
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
 
·
B is the average daily change in the price of the Benchmark Futures Contract over the same period.

USCF believes that market arbitrage opportunities cause daily changes in UGA’s unit price on the NYSE Arca to closely track daily changes in UGA’s NAV per unit.  USCF further believes that the daily changes in prices of the Benchmark Futures Contract have historically closely tracked the daily changes in the spot price of gasoline.  USCF believes that the net effect of these two relationships and the expected relationship described above between UGA’s NAV and the Benchmark Futures Contract will be that the daily changes in the price of UGA’s units on the NYSE Arca will continue to closely track the daily changes in the spot price of gasoline, less UGA’s expenses.
 
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.

 
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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:


USCF 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 is changed from the near month contract to expire to the next month contract to expire during one day each month. On that day, USCF closes or sells UGA’s Gasoline Interests and also reinvests or “rolls” 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 2011 are posted on UGA’s website at www.unitedstatesgasolinefund.com, and are subject to change without notice.
 
 
5

 
 
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 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 the 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, USCF does not use a technical trading system that issues buy and sell orders.  USCF instead employs a quantitative methodology whereby each time a Creation Basket is sold, USCF purchases Gasoline Interests, such as the Benchmark Futures Contract, 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 USCF 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 USCF from time to time based on factors such as potential calls for margin or anticipated redemptions.

The specific Futures Contracts purchased depends on various factors, including a judgment by USCF 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 USCF 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.

USCF does not anticipate letting UGA’s Futures Contracts expire and taking delivery of the underlying commodity. Instead, USCF 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.
 
 
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By remaining invested as fully as possible in Futures Contracts or Other Gasoline-Related Investments, USCF 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.  USCF 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, USCF believes that the changes in the price of UGA’s units 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 “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Tracking UGA’s Benchmark” in this annual report on Form 10-K.

What are Futures Contracts?

In a Futures Contract, one party agrees to buy a commodity such as 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 “Item 1A. Risk Factors” in this annual report on Form 10-K.
 
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.
 
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, 2010, UGA held a net of 660 NYMEX RBOB Gasoline Futures RB contracts and the Related Public Funds held 74 NYMEX RBOB Gasoline Futures XB contracts.  As of December 31, 2010, 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 was $2, the unit price of UGA is $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 $840 million of its daily net assets in the Benchmark Futures Contract (i.e., $2 per contract multiplied by 42,000 (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 $840 million 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 $840 million 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.
 
 
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See “Item 1A. 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 this annual report on Form 10-K.
 
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.
 
Currently, U.S. futures exchanges, including the NYMEX, 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, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) which was signed into law on July 21, 2010, requires the CFTC to establish aggregate position limits that apply to both cleared and uncleared commodity swaps in addition to exchange-traded futures contracts held by an entity and certain of its affiliates.  Such position limits could limit UGA’s ability to invest in accordance with its investment objective.  On January 13, 2011, the CFTC proposed new rules, which, if implemented in their proposed form, would establish position limits and limit formulas for certain commodity futures, including Futures Contracts and options on Futures Contracts, executed pursuant to the rules of designated contract markets (i.e., certain regulated exchanges) and commodity swaps that are economically equivalent to such futures and options contracts.  The CFTC has also proposed aggregate position limits that would apply across different trading venues to contracts based on the same underlying commodity.  At this time, it is unknown precisely when such position limits would take effect.  The CFTC’s position limits for futures contracts held during the last few days of trading in the near month contract to expire, which, under the CFTC’s proposed rule would be substantially similar to the position limits currently set by the exchanges, could take effect as early as March 2011.  Based on the CFTC’s current proposal, other position limits would not take effect until March 2012 or later.  The effect of this future regulatory change on UGA is impossible to predict, but it could be substantial and adverse.

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.

Examples of the position and price limits currently 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.
 
 
 
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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.
         
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.
  
 
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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.

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.
 
 
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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 Crude Oil Futures contract which trades in units of 1,000 barrels.  The WTI Crude Oil 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 approximately 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.

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.
  
 
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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 million (assuming a 10% margin).

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 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 income will increase the NAV and limited partners’ capital contribution accounts.  UGA reinvests the earned income, holds it in cash, or uses it to pay its expenses.  If UGA reinvests the earned income, it makes investments that are consistent with its investment objective.

What is the Flow of Units?
 
 
 
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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 USCF, ease of taking and liquidating positions in these financial interests.
 
Spot Commodities

While certain of 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.

Leverage

While UGA’s historical ratio of initial margin to total assets has generally ranged from approximately 10% to 15%, USCF 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 USCF 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.

Over-the-Counter Derivatives (Including Spreads and Straddles)

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.
 
 
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USCF assesses or reviews, as appropriate, the creditworthiness of each potential or existing counterparty to an over-the-counter contract pursuant to guidelines approved by USCF’s Board.  Furthermore, USCF, 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 USCF’s Board after consultation with its legal counsel. Existing counterparties are also reviewed periodically by USCF.

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 USCF 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 USCF 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 USCF, 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.  USCF 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. USCF pays the Marketing Agent an annual fee. In no event may the aggregate compensation paid to the Marketing Agent and any affiliate of USCF for distribution-related services in connection with the offering of units exceed ten percent (10%) of the gross proceeds of the offering.
 
 
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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’ 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 United States with FINRA as a broker- dealer and with the CFTC as a futures commission merchant.  UBS Securities is a member of various U.S. futures and securities exchanges.

Like most securities firms, UBS is and has been a defendant in numerous legal proceedings, including actions brought by regulatory organizations and government agencies, relating to its securities and commodities business that allege various violations of federal and state securities laws.  UBS AG, the ultimate parent company to UBS Securities, files annual reports and quarterly reports to the SEC in which it discloses material information about UBS matters, including information about any material litigation or regulatory investigations.  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/).
 
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, captioned In The Matter of UBS Securities, LLC, Docket No. E-2007-0049, which alleged that UBS Securities violated 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.  The matter is still pending.
 
In the summer of 2008, the Massachusetts Securities Division, Texas State Securities Board, and the New York Attorney General (the “NYAG”) all brought actions against UBS Securities and UBS Financial Services, Inc. (“UBS Financial”), alleging violations of various state law anti-fraud provisions in connection with the marketing and sale of auction rate securities.
 
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 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. UBS paid penalties of $75M to NYAG and an additional $75M to be apportioned among the participating NASAA states.  In March 2010, UBS and NASAA agreed on final settlement terms, pursuant to which, UBS agreed to provide client liquidity up to an additional $200 million.
 
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.  On April 14, 2010, UBS entered into a Consent Order resolving all of the Bureau’s claims.  UBS paid $750,000 to the Bureau for all costs associated with the Bureau’s investigation.  UBS entered a separate civil settlement with NHHELCO and provided a total financial benefit of $20M to NHHELCO.
 
 
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On April 29, 2010, the CFTC issued an order with respect to UBS Securities and levied a fine of $200,000.  The Order stated that on February 6, 2009, UBS Securities’ employee broker aided and abetted UBS Securities’ customer’s concealment of material facts from the NYMEX in violation of Section 9(a)(4) of the CEA, 7 U.S.C. § 13(a)(4) (2006).  Pursuant to NYMEX Rules, a block trade must be reported to the NYMEX “within five minutes of the time of execution” consistent with the requirements of NYMEX Rule 6.21C(A)(6).  Although the block trade in question was executed earlier in the day, UBS Securities’ employee broker aided and abetted its customer’s concealment of facts when, in response to the customer’s request to delay reporting the trade until after the close of trading, UBS Securities’ employee did not report the trade until after the close.  Because the employee broker undertook his actions within the scope of his employment, pursuant to Section 2(a)(1)(B) of the CEA, 7 U.S.C. § 2(a)(1)(B) (2006), and SEC Regulation 1.2, 17 C.F.R. § 1.2 (2009), UBS Securities is liable for the employee broker’s aiding and abetting of its customer’s violation of Section 9(a)(4) of the CEA.  The fine has been paid and the matter is now closed.

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 USCF nor participate in the management of USCF or UGA.

UBS Securities is not affiliated with UGA or USCF.  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, USCF does not employ commodity trading advisors for trading of UGA contracts.  USCF currently does, however, employ a trading advisor for USCI – SummerHaven Investment Management, LLC (“SummerHaven”). If, in the future, USCF does employ commodity trading advisors for UGA, 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 USCF and Non-Affiliated Service Providers

Service Provider
 
Compensation Paid by USCF*
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 and 0.04% on UGA’s assets in excess of $3 billion.

*
USCF pays this compensation.
**
The annual minimum amount will not apply if the asset-based charge for all accounts in the aggregate exceeds $75,000.  USCF also will pay transaction charge fees to BBH&Co., ranging from $7.00 to $15.00 per transaction for the funds.
 
 
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Compensation to USCF

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.

New York Mercantile Exchange Licensing Fee****

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, other than USBO and USCI.
 
Expenses Paid by UGA through December 31, 2010 in dollar terms:

Expenses:
    
Amount in Dollar Terms
 
Amount Paid or Accrued to USCF:
  $ 905,511  
Amount Paid or Accrued in Portfolio Brokerage Commissions:
  $ 158,051  
Other Amounts Paid or Accrued*****:
  $ 949,661  
Total Expenses Paid or Accrued:
  $ 2,013,223  
Expenses Waived******:
  $ (649,587 )
Total Expenses Paid or Accrued Including Expenses Waived******:
  $ 1,363,636  

*****
Includes expenses relating to the registration of additional units, legal fees, auditing fees, printing expenses, licensing fees, tax reporting fees, prepaid insurance expenses and miscellaneous expenses and fees and expenses paid to the independent directors of USCF.
******
USCF, 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 at least June 30, 2011. USCF has no obligation to pay such expenses in subsequent periods.

Expenses Paid by UGA through December 31, 2010 as a Percentage of Average Daily Net Assets:

Expenses:
 
Amount as a Percentage
 of Average Daily Net Assets
 
Amount Paid or Accrued to USCF:
 
0.60% annualized
 
Amount Paid or Accrued in Portfolio Brokerage Commissions:
 
0.10% annualized
 
Other Amounts Paid or Accrued:
 
0.63% annualized
 
Total Expenses Paid or Accrued:
 
1.33% annualized
 
Expenses Waived:
 
(0.43)% annualized
 
Total Expenses Paid or Accrued Including Expenses Waived:
 
0.90% annualized
 
  
 
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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 USCF.  These fees are estimated to be $280,000 for the fiscal year ended December 31, 2010.  In addition, UGA is responsible for the fees and expenses, which may include director and officers’ liability insurance, of the independent directors of USCF in connection with their activities with respect to UGA.  These director fees and expenses may be shared with USOF, USNG, US12OF, USHO, USSO, US12NG, and USBO.  These fees and expenses for 2010 were $1,107,140, and UGA’s portion of such fees and expenses was $15,803.
 
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”).  USCF 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 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.
 
 
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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, USCF may request each record holder to furnish certain information, including that record 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 USCF 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, USCF 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 USCF 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 USCF unless a completed transfer application is delivered to USCF 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 USCF 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 USCF as 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 USCF as general partner of UGA 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 USCF as general partner of UGA.
 
If consent of USCF 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, USCF 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.
 
 
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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 USCF gives at least fifteen (15) days’ written notice to a limited partner, then USCF 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 USCF 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 USCF 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, USCF 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 USCF.  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.

BBH&Co., the Administrator, calculates the NAV of UGA 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 traded on the NYMEX, but calculates or determines the value of all other UGA investments as of the earlier of the close of the NYSE Arca or 4:00 p.m. New York time in accordance with the current Administrative Agency Agreement among BBH&Co., UGA and USCF, which is incorporated by reference into this annual report on Form 10-K.
 
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 Futures Contracts 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.
 
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.
 
 
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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 the Benchmark Futures Contract.
 
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 USCF on behalf of UGA.  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 USCF, and no such person will have any obligation or responsibility to USCF or UGA to effect any sale or resale of units.  As of December 31, 2010, 10 Authorized Purchasers had entered into agreements with USCF on behalf of UGA.  During the year ended December 31, 2010, UGA issued 11 Creation Baskets and redeemed 14 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. USCF 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.
 
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.
 
 
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Under the Authorized Purchaser Agreement, USCF 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. USCF 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.
 
 
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Rejection of Purchase Orders

USCF 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 USCF, be unlawful; or

 
·
circumstances outside the control of USCF, Marketing Agent or Custodian make it, for all practical purposes, not feasible to process creations of baskets.

None of USCF, the Marketing Agent or the 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. USCF, 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.
 
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 USCF 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 USCF, 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 USCF may from time to time determine.
 
 
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Suspension or Rejection of Redemption Orders
 
USCF 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 USCF determines to be necessary for the protection of the limited partners.  For example, USCF 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 USCF 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 USCF, 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. USCF 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. USCF 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 USCF 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 USCF.  USCF 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 USCF 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.
  
 
24

 
 
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 USCF, and no such person has any obligation or responsibility to USCF 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, 2010, the total amount of money raised by UGA from Authorized Purchasers was $166,768,788; the total number of Authorized Purchasers was 10; the number of baskets purchased by Authorized Purchasers was 53; the number of baskets redeemed by Authorized Purchasers was 37; and the aggregate amount of units purchased was 5,300,000. For more information on the performance of UGA, see the Performance Tables below.
 
Since its initial offering of 30,000,000 units, UGA has registered one subsequent offering of its units: 50,000,000 units which were registered with the SEC on April 30, 2010.  As of December 31, 2010, UGA had issued 5,300,000  units, 1,600,000  of which were outstanding. As of December 31, 2010, there were 74,700,000 units registered but not yet issued.
 
Since the commencement of the offering of UGA units to the public on February 26, 2008 to December 31, 2010, the simple average daily change in its Benchmark Futures Contract was 0.019%, while the simple average daily change in the NAV of UGA over the same time period was 0.017%.  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 -0.472%, meaning that over this time period UGA’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

Experience in Raising and Investing in UGA through December 31, 2010

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

Dollar Amount Offered*:
  $ 3,431,000,000  
Dollar Amount Raised:
  $ 166,768,788  
Organizational and Offering Expenses**:
       
SEC registration fee:
  $ 184,224  
FINRA registration fee:
  $ 151,000  
Listing fee:
  $ 5,000  
Auditor’s fees and expenses:
  $ 2,500  
Legal fees and expenses:
  $ 192,407  
Printing expenses:
  $ 44,881  
         
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 USCF. Following September 1, 2009, UGA has recorded these expenses.
   
 
25

 
 
Compensation to USCF and Other Compensation UGA:

Expenses paid by UGA through December 31, 2010 in dollar terms:

Expenses:
 
Amount in Dollar Terms
 
Amount Paid or Accrued to USCF:
  $ 905,511  
Amount Paid or Accrued in Portfolio Brokerage Commissions:
  $ 158,051  
Other Amounts Paid or Accrued*:
  $ 949,661  
Total Expenses Paid or Accrued:
  $ 2,013,223  
Expenses Waived**:
  $ (649,587 )
Total Expenses Paid or Accrued Including Expenses Waived:
  $ 1,363,636  

*
Includes expenses relating to the registration of additional units, legal fees, auditing fees, printing expenses, licensing fees, tax reporting fees, prepaid insurance expenses and miscellaneous expenses and fees and expenses paid to the independent directors of USCF.
**
USCF, 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 at least June 30, 2011.  USCF has no obligation to continue such payments into subsequent periods.

Expenses paid by UGA through December 31, 2010 as a Percentage of Average Daily Net Assets:

 
Expenses:
 
Amount as a Percentage 
of Average Daily Net Assets
 
Amount Paid or Accrued to USCF:
 
0.60% annualized
 
Amount Paid or Accrued in Portfolio Brokerage Commissions:
 
0.10% annualized
 
Other Amounts Paid or Accrued:
 
0.63% annualized
 
Total Expenses Paid or Accrued:
 
1.33% annualized
 
Expenses Waived:
 
(0.43)% 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, 2010):
  $ 166,768,788  
Total Net Assets as of December 31, 2010:
  $ 67,294,584  
Initial NAV per Unit as of Inception:
  $ 50.00  
NAV per Unit as of December 31, 2010:
  $ 42.06  
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, 2010):
    23,115  
 
 
26

 

COMPOSITE PERFORMANCE DATA FOR UGA

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

   
Rates of return*
 
Month
 
2008
   
2009
   
2010
 
January
    -       16.23  %     (7.47 )%
February
    (0.56 )%**     0.26  %     7.33  %
March
    (2.39 )%     2.59  %     5.42  %
April
    10.94  %     2.07  %     3.15  %
May
    15.60  %     30.41  %     (15.54 )%
June
    4.80  %     1.65  %     1.93  %
July
    (12.79 )%     6.24  %     2.95  %
August
    (3.88 )%     (3.71 )%     (10.42 )%
September
    (9.36 )%     (3.38 )%     9.45  %
October
    (38.48 )%     10.96  %     2.19  %
November
    (21.35 )%     1.00  %     8.19  %
December
    (15.72 )%     0.55  %     11.33  %
Annual Rate of Return
    (59.58 )%**     80.16  %     15.52  %

*
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 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

USCF is also currently the general partner of USOF, USNG, US12OF, UGA, USHO, USSO, US12NG and USBO and the sponsor of USCI.  Each of USCF and the Related Public Funds is located in California.

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, 2010, the total amount of money raised by USOF from its authorized purchasers was $27,304,449,711; the total number of authorized purchasers of USOF was 21; the number of baskets purchased by authorized purchasers of USOF was 5,608; the number of baskets redeemed by authorized purchasers of USOF was 5,149; and the aggregate amount of units purchased was 560,800,000. 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.
 
 
27

 

Since the commencement of the offering of USOF units to the public on April 10, 2006 to December 31, 2010, the simple average daily change in its benchmark oil futures contract was -0.018%, while the simple average daily change in the NAV of USOF over the same time period was -0.014%.  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 oil futures contract, the average error in daily tracking by the NAV was 1.04%, 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, 2010, the total amount of money raised by USNG from its authorized purchasers was $12,418,966,355; the total number of authorized purchasers of USNG was 16; the number of baskets purchased by authorized purchasers of USNG was 8,894; the number of baskets redeemed by authorized purchasers of USNG was 4,448; and the aggregate amount of units purchased was 889,400,000. USNG 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 natural gas delivered at the Henry Hub, Louisiana.
   
Since the commencement of the offering of USNG units to the public on April 18, 2007 to December 31, 2010, the simple average daily change in its benchmark futures contract was -0.1771%, while the simple average daily change in the NAV of USNG over the same time period was -0.1766%. The average daily difference was 0.0005% (or 0.05 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 0.022%, 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 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, 2010, the total amount of money raised by US12OF from its authorized purchasers was $263,331,815; the total number of authorized purchasers of US12OF was 9; the number of baskets purchased by authorized purchasers of US12OF was 85; the number of baskets redeemed by authorized purchasers of US12OF was 43; and the aggregate amount of units purchased was 8,500,000. 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.
   
Since the commencement of the offering of US12OF units to the public on December 6, 2007 to December 31, 2010, the simple average daily change in the average price of its benchmark futures contracts was 0.0104%, while the simple average daily change in the NAV of US12OF over the same time period was 0.0101%.  The average daily difference was -0.0003% (or -0.03 basis points, where 1 basis point equals 1/100 of 1%).  As a percentage of the daily movement of the average price of the benchmark futures contracts, the average error in daily tracking by the NAV was -0.169%, meaning that over this time period US12OF’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.
 
 
28

 
 
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’s units began trading on April 9, 2008 and are offered on a continuous basis.  USHO may invest in a mixture of listed heating oil futures contracts, other non-listed heating oil-related investments, Treasuries, cash and cash equivalents.  As of December 31, 2010, the total amount of money raised by USHO from its authorized purchasers was $30,496,989; the total number of authorized purchasers of USHO was 10; the number of baskets purchased by authorized purchasers of USHO was 9; the number of baskets redeemed by authorized purchasers of USHO was 5; and the aggregate amount of units purchased was 900,000. 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 commencement of the offering of USHO units to the public on April 9, 2008 to December 31, 2010, the simple average daily change in its benchmark futures contract was -0.042%, while the simple average daily change in the NAV of USHO over the same time period was -0.043%.  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 -0.671%, 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 may invest in short positions in listed crude oil futures contracts, other non-listed oil related investments, Treasuries, cash and cash equivalents.  As of December 31, 2010, the total amount of money raised by USSO from its authorized purchasers was $36,929,471; the total number of authorized purchasers of USSO was 11; the number of baskets purchased by authorized purchasers of USSO was 8; the number of baskets redeemed by authorized purchasers of USSO was 6; and the aggregate amount of units purchased was 800,000.  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 commencement of the offering of USSO units to the public on September 24, 2009 to December 31, 2010, the inverse of the simple average daily change in its benchmark futures contract was 0.047%, while the simple average daily change in the NAV of USSO over the same time period was -0.051%.  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 inverse of the daily movement of the benchmark futures contract, the average error in daily tracking by the NAV was -1.562%, 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 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, 2010, the total amount of money raised by US12NG from its authorized purchasers was $71,441,409; the total number of authorized purchasers of US12NG was 6; the number of baskets purchased by authorized purchasers of US12NG was 15; the number of baskets redeemed by authorized purchasers of US12NG was 6; and the aggregate amount of units purchased was 1,600,000.  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.
 
 
29

 

Since the commencement of the offering of US12NG units to the public on November 18, 2009 to December 31, 2010, the simple average daily change in the average price of its benchmark futures contracts was -0.103%, while the simple average daily change in the NAV of US12NG over the same time period was -0.107%.  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 average price of the benchmark futures contracts, the average error in daily tracking by the NAV was -0.531%, meaning that over this time period US12NG’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.
  
USBO is a commodity pool and issues units traded on the NYSE Arca.  The investment objective of USBO is 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 for Brent crude oil traded on the ICE Futures, less USBO’s expenses. USBO’s units began trading on June 2, 2010 and are offered on a continuous basis. USBO may invest in a mixture of listed oil futures contracts, other non-listed oil related investments, Treasuries, cash and cash equivalents.  As of December 31, 2010, the total amount of money raised by USBO from its authorized purchasers was $10,000,000; the total number of authorized purchasers of USBO was 5; the number of baskets purchased by authorized purchasers of USBO was 2; the number of baskets redeemed by authorized purchasers of USBO was 0; and the aggregate amount of units purchased was 200,000.  USBO 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 Brent crude oil.
  
Since the commencement of the offering of USBO units to the public on June 2, 2010 to December 31, 2010, the simple average daily change in its benchmark futures contract was 0.172%, while the simple average daily change in the NAV of USBO over the same time period was 0.168%. 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 -1.526%, meaning that over this time period USBO’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.
  
USCI is a commodity pool and issues units traded on the NYSE Arca.  The investment objective of USCI is for the daily changes in percentage terms of its units’ NAV to reflect the daily changes in percentage terms of the Commodity Index, less USCI’s expenses.  USCI’s units began trading on August 10, 2010 and are offered on a continuous basis. USCI may invest in a mixture of listed futures contracts, other non-listed related investments, Treasuries, cash and cash equivalents.  As of December 31, 2010, the total amount of money raised by USCI from its authorized purchasers was $97,618,317; the total number of authorized purchasers of USCI was 5; the number of baskets purchased by authorized purchasers of USCI was 17; the number of baskets redeemed by authorized purchasers of USCI was 1; and the aggregate amount of units purchased was 1,700,020.
  
Since the commencement of the offering of USCI units to the public on August 10, 2010 to December 31, 2010, the simple average daily change in the Commodity Index was 0.259%, while the simple average daily change in the NAV of USCI over the same time period was 0.256%.  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 Commodity Index, the average error in daily tracking by the NAV was 1.420%, meaning that over this time period USCI’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.
  
USCF has filed a registration statement for three other exchange-traded security funds, USMI, USAI and USCUI, each of which is a series of the Trust.  The investment objective of USMI will be for the daily changes in percentage terms of its units’ NAV to reflect the daily changes in percentage terms of the Metals Index, less USMI’s expenses.  The investment objective of USAI will be for the daily changes in percentage terms of its units’ NAV to reflect the daily changes in percentage terms of the Agriculture Index, less USAI’s expenses.  The investment objective of USCUI will be for the daily changes in percentage terms of its units’ NAV to reflect the daily changes in percentage terms of the Copper Index, less USCUI’s expenses.
  
There are significant differences between investing in UGA and the Related Public Funds and investing directly in the futures market. USCF’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. 
 
 
30

 

USOF:

Experience in Raising and Investing in USOF through December 31, 2010

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

Dollar Amount Offered*:
  $ 71,257,630,000  
Dollar Amount Raised:
  $ 27,304,449,711  
Organizational and Offering Expenses**:
       
SEC registration fee:
  $ 2,480,174  
FINRA registration fee:
  $ 603,500  
Listing fee:
  $ 5,000  
Auditor’s fees and expenses:
  $ 10,350  
Legal fees and expenses:
  $ 140,107  
Printing expenses:
  $ 14,011  
         
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 USCF in connection with the initial public offering. Following December 31, 2006, USOF has recorded these expenses.

Compensation to USCF and Other Compensation USOF:

Expenses paid by USOF through December 31, 2010 in dollar terms:

Expenses:
 
Amount in Dollar Terms
 
Amount Paid or Accrued to USCF:
  $ 29,475,681  
Amount Paid or Accrued in Portfolio Brokerage Commissions:
  $ 9,088,209  
Other Amounts Paid or Accrued*:
  $ 10,827,341  
Total Expenses Paid or Accrued:
  $ 49,391,231  

*
Includes expenses relating to the registration of additional units, legal fees, auditing fees, printing expenses, licensing fees, tax reporting fees, prepaid insurance expenses and miscellaneous expenses and fees and expenses paid to the independent directors of USCF.

Expenses paid by USOF through December 31, 2010 as a Percentage of Average Daily Net Assets:

 
Expenses:
 
Amount as a Percentage 
of Average Daily Net Assets
 
Amount Paid or Accrued to USCF:
 
0.46% annualized
 
Amount Paid or Accrued in Portfolio Brokerage Commissions:
 
0.14% annualized
 
Other Amounts Paid or Accrued:
 
0.17% annualized
 
Total Expenses Paid or Accrued:
 
0.77% annualized
 
  
 
31

 

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, 2010):
  $ 27,304,449,711  
Total Net Assets as of December 31, 2010:
  $ 1,788,607,572  
Initial NAV per Unit as of Inception:
  $ 67.39  
NAV per Unit as of December 31, 2010:
  $ 38.97  
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, 2010):
    176,111  

COMPOSITE PERFORMANCE DATA FOR USOF

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

   
Rates of return*
 
Month
 
2006
   
2007
   
2008
   
2009
   
2010
 
January
          (6.55 )%     (4.00 )%     (14.60 )%     (8.78 )%
February
          5.63  %     11.03  %     (6.55 )%     8.62  %
March
          4.61  %     0.63  %     7.23  %     4.61  %
April
    3.47  %**     (4.26 )%     12.38  %     (2.38 )%     2.04  %
May
    (2.91 )%     (4.91 )%     12.80  %     26.69  %     (17.96 )%
June
    3.16  %     9.06  %     9.90  %     4.16  %     0.47  %
July
    (0.50 )%     10.57  %     (11.72 )%     (2.30 )%     3.57  %
August
    (6.97 )%     (4.95 )%     (6.75 )%     (1.98 )%     (9.47 )%
September
    (11.72 )%     12.11  %     (12.97 )%     0.25  %     8.97  %
October
    (8.45 )%     16.98  %     (31.57 )%     8.43  %     0.89  %
November
    4.73  %     (4.82 )%     (20.65 )%     (0.51 )%     2.53  %
December
    (5.21 )%     8.67  %     (22.16 )%     (0.03 )%     8.01  %
Annual Rate of Return
    (23.03 )%**     46.17  %     (54.75 )%     14.14  %     (0.49 )%

*
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.

For a definition of draw-down, please see text below “Composite Performance Data for UGA”.

USNG:

Experience in Raising and Investing in USNG through December 31, 2010

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

Dollar Amount Offered*:
  $ 24,056,500,000  
Dollar Amount Raised:
  $ 12,418,966,355  
Organizational and Offering Expenses**:
       
SEC registration fee:
  $ 1,361,084  
FINRA registration fee:
  $ 377,500  
Listing fee:
  $ 5,000  
Auditor’s fees and expenses:
  $ 10,350  
Legal fees and expenses:
  $ 95,965  
Printing expenses:
  $ 15,357  
         
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 USCF. Following April 18, 2007, USNG has recorded these expenses.
  
 
32

 
 
Compensation to USCF and Other Compensation USNG:

Expenses paid by USNG through December 31, 2010 in dollar terms:

Expenses:
 
Amount in Dollar Terms
 
Amount Paid or Accrued to USCF:
  $ 35,869,980  
Amount Paid or Accrued in Portfolio Brokerage Commissions:
  $ 18,860,213  
Other Amounts Paid or Accrued*:
  $ 11,590,888  
Total Expenses Paid or Accrued:
  $ 66,321,081  

*
Includes expenses relating to the registration of additional units, legal fees, auditing fees, printing expenses, licensing fees, tax reporting fees, prepaid insurance expenses and miscellaneous expenses and fees and expenses paid to the independent directors of USCF.

Expenses paid by USNG through December 31, 2010 as a Percentage of Average Daily Net Assets:

 
Expenses:
 
Amount as a Percentage 
of Average Daily Net Assets
 
Amount Paid or Accrued to USCF:
 
0.54% annualized
 
Amount Paid or Accrued in Portfolio Brokerage Commissions:
 
0.29% annualized
 
Other Amounts Paid or Accrued:
 
0.17% annualized
 
Total Expenses Paid or Accrued:
 
1.00% 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, 2010):
  $ 12,418,966,355  
Total Net Assets as of December 31, 2010:
  $ 2,667,356,837  
Initial NAV per Unit as of Inception:
  $ 50.00  
NAV per Unit as of December 31, 2010:
  $ 6.00  
Worst Monthly Percentage Draw-down:
 
July 2008 (32.13)%
 
Worst Peak-to-Valley Draw-down:
 
June 2008 - November 2010 (90.84)%
 
Number of Unitholders (as of December 31, 2010):
    393,887  

COMPOSITE PERFORMANCE DATA FOR USNG

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

   
Rates of return*
 
Month
 
2007
   
2008
   
2009
   
2010
 
January
          8.87 %     (21.49 )%     (7.65 )%
February
          15.87 %     (5.47 )%     (6.02 )%
March
          6.90 %     (11.81 )%     (21.05 )%
April
    4.30 %**     6.42 %     (13.92 )%     (0.87 )%
May
    (0.84 )%     6.53 %     10.37 %     8.19 %
June
    (15.90 )%     13.29 %     (4.63 )%     5.14 %
July
    (9.68 )%     (32.13 )%     (8.70 )%     6.43 %
August
    (13.37 )%     (13.92 )%     (27.14 )%     (22.95 )%
September
    12.28 %     (9.67 )%     26.03 %     (3.13 )%
October
    12.09 %     (12.34 )%     (13.31 )%     (5.83 )%
November
    (16.16 )%     (6.31 )%     (11.86 )%     (1.37 )%
December
    0.75 %     (14.32 )%     13.91 %     4.53 %
Annual Rate of Return
    (27.64 )%**     (35.68 )%     (56.73 )%     (40.42 )%
 
*
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”.

 
33

 
 
US12OF:

Experience in Raising and Investing in US12OF through December 31, 2010

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

Dollar Amount Offered*:
  $ 5,550,000,000  
Dollar Amount Raised:
  $ 263,331,815  
Organizational and Offering Expenses**:
       
SEC registration fee:
  $ 129,248  
FINRA registration fee:
  $ 151,000  
Listing fee:
  $ 5,000  
Auditor’s fees and expenses:
  $ 10,700  
Legal fees and expenses:
  $ 258,912  
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 USCF in connection with the initial public offering.  Following March 31, 2009, US12OF has recorded these expenses.

Compensation to USCF and Other Compensation US12OF:

Expenses paid by US12OF through December 31, 2010 in dollar terms:

Expenses:
 
Amount in Dollar Terms
 
Amount Paid or Accrued to USCF:
  $ 1,853,841  
Amount Paid or Accrued in Portfolio Brokerage Commissions:
  $ 66,104  
Other Amounts Paid or Accrued*:
  $ 1,153,940  
Total Expenses Paid or Accrued:
  $ 3,073,885  
Expenses Waived**:
  $ (108,246 )
Total Expenses Paid or Accrued Including Expenses Waived:
  $ 2,965,639  

*
Includes expenses relating to the registration of additional units, legal fees, auditing fees, printing expenses, licensing fees, tax reporting fees, prepaid insurance expenses and miscellaneous expenses and fees and expenses paid to the independent directors of USCF.
**
USCF, 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. USCF has no obligation to continue such payments into subsequent periods.
 
 
34

 
 
Expenses paid by US12OF through December 31, 2010 as a Percentage of Average Daily Net Assets:

 
Expenses:
 
Amount as a Percentage 
of Average Daily Net Assets
 
Amount Paid or Accrued to USCF:
 
0.60% annualized
 
Amount Paid or Accrued in Portfolio Brokerage Commissions:
 
0.02% annualized
 
Other Amounts Paid or Accrued:
 
0.38% annualized
 
Total Expenses Paid or Accrued:
 
1.00% annualized
 
Expenses Waived:
 
(0.04)% annualized
 
Total Expenses Paid or Accrued Including Expenses Waived:
 
0.96% annualized
 

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, 2010):
  $ 263,331,815  
Total Net Assets as of December 31, 2010:
  $ 180,203,262  
Initial NAV per Unit as of Inception:
  $ 50.00  
NAV per Unit as of December 31, 2010:
  $ 42.91  
Worst Monthly Percentage Draw-down:
 
October 2009 (29.59)%
 
Worst Peak-to-Valley Draw-down:
 
June 2008 - February 2009 (66.97)%
 
Number of Unitholders (as of December 31, 2010):
    13,837  

COMPOSITE PERFORMANCE DATA FOR US12OF

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

   
Rates of return*
 
Month
 
2007
   
2008
   
2009
   
2010
 
January
          (2.03 )%     (7.11 )%     (8.40 )%
February
          10.48  %     (4.34 )%     6.73  %
March
          (0.66 )%     9.22  %     4.16  %
April
          11.87  %     (1.06 )%     6.37  %
May
          15.47  %     20.40  %     (15.00 )%
June
          11.59  %     4.51  %     (1.00 )%
July
          (11.39 )%     1.22  %     4.16  %
August
          (6.35 )%     (2.85 )%     (5.92 )%
September
          (13.12 )%     (0.92 )%     7.02  %
October
          (29.59 )%     8.48  %     0.05  %
November
          (16.17 )%     2.31  %     1.86  %
December
    8.46 %**     (12.66 )%     (1.10 )%     9.10  %
Annual Rate of Return
    8.46 %**     (42.39 )%     29.23  %     6.29  %

*
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”.
    
 
35

 

USHO:

Experience in Raising and Investing in USHO through December 31, 2010

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

Dollar Amount Offered*:
  $ 1,940,500,000  
Dollar Amount Raised:
  $ 30,496,989  
Organizational and Offering Expenses**:
       
SEC registration fee:
  $ 142,234  
FINRA registration fee:
  $ 151,000  
Listing fee:
  $ 5,000  
Auditor’s fees and expenses:
  $ 2,500  
Legal fees and expenses:
  $ 127,303  
Printing expenses:
  $ 31,751  
         
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 USCF. Following August 31, 2009, USHO has recorded these expenses.

Compensation to USCF and Other Compensation USHO:

Expenses paid by USHO through December 31, 2010 in dollar terms:

Expenses:
 
Amount in Dollar Terms
 
Amount Paid or Accrued to USCF:
  $ 176,441  
Amount Paid or Accrued in Portfolio Brokerage Commissions:
  $ 28,368  
Other Amounts Paid or Accrued*:
  $ 540,646  
Total Expenses Paid or Accrued:
  $ 745,455  
Expenses Waived**:
  $ (482,193 )
Total Expenses Paid or Accrued Including Expenses Waived:
  $ 263,262  

*
Includes expenses relating to the registration of additional units, legal fees, auditing fees, printing expenses, licensing fees, tax reporting fees, prepaid insurance expenses and miscellaneous expenses and fees and expenses paid to the independent directors of USCF.
**
USCF, 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, through at least June 30, 2011. USCF has no obligation to continue such payments into subsequent periods.
 
 
36

 

Expenses paid by USHO through December 31, 2010 as a Percentage of Average Daily Net Assets:

 
Expenses:
 
Amount as a Percentage
of Average Daily Net Assets
 
Amount Paid or Accrued to USCF:
 
0.60% annualized
 
Amount Paid or Accrued in Portfolio Brokerage Commissions:
 
0.10% annualized
 
Other Amounts Paid or Accrued:
 
1.84% annualized
 
Total Expenses Paid or Accrued:
 
2.54% annualized
 
Expenses Waived:
 
(1.64)% annualized
 
Total Expenses Paid or Accrued Including Expenses Waived:
 
0.90% 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, 2010):
  $ 30,496,989  
Total Net Assets as of December 31, 2010:
  $ 11,928,209  
Initial NAV per Unit as of Inception:
  $ 50.00  
NAV per Unit as of December 31, 2010:
  $ 29.82  
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, 2010):
    2,539  
 
COMPOSITE PERFORMANCE DATA FOR USHO

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

   
Rates of return*
 
Month
 
2008
   
2009
   
2010
 
January
          0.05  %     (10.17 )%
February
          (11.34 )%     5.78  %
March
          6.73  %     6.42  %
April
    2.84  %**     (3.85 )%     5.13  %
May
    15.93  %     23.13  %     (14.14 )%
June
    5.91  %     4.55  %     (0.40 )%
July
    (12.18 )%     0.39  %     2.48  %
August
    (8.41 )%     (2.71 )%     (5.88 )%
September
    (9.77 )%     (0.48 )%     12.75  %
October
    (28.63 )%     7.60  %     (2.20 )%
November
    (18.38 )%     0.19  %     2.97  %
December
    (17.80 )%     2.23  %     8.75  %
Annual Rate of Return
    (56.12 )%**     25.52  %     8.28  %

*
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”.
 
 
37

 
 
USSO:

Experience in Raising and Investing in USSO through December 31, 2010

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

Dollar Amount Offered*:
  $ 1,250,000,000  
Dollar Amount Raised:
  $ 36,929,471  
Organizational and Offering Expenses**:
       
SEC registration fee:
  $ 49,125  
FINRA registration fee:
  $ 55,000  
Listing fee:
  $ 5,000  
Auditor’s fees and expenses:
  $ 0  
Legal fees and expenses:
  $ 408,335  
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 USCF.

Compensation to USCF and Other Compensation USSO:

Expenses paid by USSO through December 31, 2010 in dollar terms:

Expenses:
 
Amount in Dollar Terms
 
Amount Paid or Accrued to USCF:
  $ 117,825  
Amount Paid or Accrued in Portfolio Brokerage Commissions:
  $ 26,926  
Other Amounts Paid or Accrued*:
  $ 419,289  
Total Expenses Paid or Accrued:
  $ 564,040  
Expenses Waived**:
  $ (381,891 )
Total Expenses Paid or Accrued Including Expenses Waived:
  $ 182,149  

*
Includes expenses relating to legal fees, auditing fees, printing expenses, licensing fees, tax reporting fees, prepaid insurance expenses and miscellaneous expenses and fees and expenses paid to the independent directors of USCF.
**
USCF, 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, through at least June 30, 2011. USCF has no obligation to continue such payments into subsequent periods.

Expenses paid by USSO through December 31, 2010 as a Percentage of Average Daily Net Assets:

 
Expenses:
 
Amount as a Percentage 
of Average Daily Net Assets
 
Amount Paid or Accrued to USCF:
 
0.60% annualized
 
Amount Paid or Accrued in Portfolio Brokerage Commissions:
 
0.14% annualized
 
Other Amounts Paid or Accrued:
 
2.14% annualized
 
Total Expenses Paid or Accrued:
 
2.88% annualized
 
Expenses Waived:
 
(1.95)% annualized
 
Total Expenses Paid or Accrued Including Expenses Waived:
 
0.93% annualized
 
 
 
38

 

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, 2010):
  $ 36,929,471  
Total Net Assets as of December 31, 2010:
  $ 8,083,801  
Initial NAV per Unit as of Inception:
  $ 50.00  
NAV per Unit as of December 31, 2010:
  $ 40.42  
Worst Monthly Percentage Draw-down:
 
February 2010 (8.94)%
 
Worst Peak-to-Valley Draw-down:
 
August 2010 - December 2010 (19.79)%
 
Number of Unitholders (as of December 31, 2010):
    1,389  
 
COMPOSITE PERFORMANCE DATA FOR USSO

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

   
Rates of return*
 
Month
 
2009
   
2010
 
January
          9.05  %
February
          (8.94 )%
March
          (4.92 )%
April
          (2.50 )%
May
          20.18  %
June
          (1.42 )%
July
          (4.17 )%
August
          9.61  %
September
    (2.90 )%**     (8.75 )%
October
    (8.65 )%     (1.59 )%
November
    (0.25 )%     (3.18 )%
December
    (0.57 )%     (7.74 )%
Annual Rate of Return
    (12.02 )%**     (8.12 )%

*
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 US12NG through December 31, 2010

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

Dollar Amount Offered*:
  $ 1,500,000,000  
Dollar Amount Raised:
  $ 71,441,409  
Organizational and Offering Expenses**:
       
SEC registration fee:
  $ 80,910  
FINRA registration fee:
  $ 70,000  
Listing fee:
  $ 5,000  
Auditor’s fees and expenses:
  $ 2,500  
Legal fees and expenses:
  $ 202,011  
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 USCF.
 
 
39

 
 
Compensation to USCF and Other Compensation US12NG:

Expenses paid by US12NG through December 31, 2010 in dollar terms:

Expenses:
    
Amount in Dollar Terms
 
Amount Paid or Accrued to USCF:
  $ 265,512  
Amount Paid or Accrued in Portfolio Brokerage Commissions:
  $ 22,153  
Other Amounts Paid or Accrued*:
  $ 362,628  
Total Expenses Paid or Accrued:
  $ 650,293  
Expenses Waived**:
  $ (288,366 )
Total Expenses Paid or Accrued Including Expenses Waived:
  $ 361,927  

*
Includes expenses relating to legal fees, auditing fees, printing expenses, licensing fees, tax reporting fees, prepaid insurance expenses and miscellaneous expenses and fees and expenses paid to the independent directors of USCF.
**
USCF, 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, through at least June 30, 2011. USCF has no obligation to continue such payments into subsequent periods.

Expenses paid by US12NG through December 31, 2010 as a Percentage of Average Daily Net Assets:

 
Expenses:
 
Amount as a Percentage 
of Average Daily Net Assets
 
Amount Paid or Accrued to USCF:
 
0.69% annualized
 
Amount Paid or Accrued in Portfolio Brokerage Commissions:
 
0.06% annualized
 
Other Amounts Paid or Accrued:
 
0.95% annualized
 
Total Expenses Paid or Accrued:
 
1.70% annualized
 
Expenses Waived:
 
(0.75)% annualized
 
Total Expenses Paid or Accrued Including Expenses Waived:
 
0.95% 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, 2010):
  $ 71,441,409  
Total Net Assets as of December 31, 2010:
  $ 35,022,013  
Initial NAV per Unit as of Inception:
  $ 50.00  
NAV per Unit as of December 31, 2010:
  $ 35.02  
Worst Monthly Percentage Draw-down:
 
March 2010 (15.47)%
 
Worst Peak-to-Valley Draw-down:
 
December 2009 -November 2010 (37.86)%
 
Number of Unitholders (as of December 31, 2010):
    4,575  
 
 
40

 

COMPOSITE PERFORMANCE DATA FOR US12NG

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

   
Rates of return*
 
Month
 
2009
   
2010
 
January
          (5.93 )%
February
          (5.18 )%
March
          (15.47 )%
April
          0.07  %
May
          3.11  %
June
          1.27  %
July
          (0.05 )%
August
          (13.53 )%
September
          (6.23 )%
October
          (1.78 )%
November
    (0.02 )%**     (0.92 )%
December
    7.56  %     4.82  %
Annual Rate of Return
    7.54  %**     (34.87 )%

*
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.
  
For a definition of draw-down, please see text below “Composite Performance Data for UGA”.
  
USBO:
 
Experience in Raising and Investing in USBO through December 31, 2010

 
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

Dollar Amount Raised:
  $ 2,500,000,000  
Organizational and Offering Expenses**:
  $ 10,000,000  
SEC registration fee:
  $ 139,500  
FINRA registration fee:
  $ 75,500  
Listing fee:
  $ 5,000  
Auditor’s fees and expenses:
  $ 2,500  
Legal fees and expenses:
  $ 268,670  
Printing expenses:
  $ 39,072  
         
Length of USBO 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 USCF.
 
 
41

 

Compensation to USCF and Other Compensation USBO:

Expenses paid by USBO through December 31, 2010 in dollar terms:

 
Expenses:
 
Amount in Dollar Terms
 
Amount Paid or Accrued to USCF:
  $ 47,800  
Amount Paid or Accrued in Portfolio Brokerage Commissions:
  $ 5,718  
Other Amounts Paid or Accrued*:
  $ 123,325  
Total Expenses Paid or Accrued:
  $ 176,843  
Expenses Waived**:
  $ (113,715 )
Total Expenses Paid or Accrued Including Expenses Waived:
  $ 63,128  

*
Includes expenses relating to legal fees, auditing fees, printing expenses, tax reporting fees, prepaid insurance expenses and miscellaneous expenses and fees and expenses paid to the independent directors of USCF.
**
USCF, 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 USBO’s NAV, on an annualized basis, through at least June 30, 2011.  USCF has no obligation to continue such payments into subsequent periods.

Expenses paid by USBO through December 31, 2010 as a Percentage of Average Daily Net Assets:

 
Expenses:
 
Amount as a Percentage 
of Average Daily Net Assets
 
Amount Paid or Accrued to USCF:
 
0.75% annualized
 
Amount Paid or Accrued in Portfolio Brokerage Commissions:
 
0.09% annualized
 
Other Amounts Paid or Accrued:
 
1.93% annualized
 
Total Expenses Paid or Accrued:
 
2.77% annualized
 
Expenses Waived:
 
(1.78)% annualized
 
Total Expenses Paid or Accrued Including Expenses Waived:
 
0.99% annualized
 

USBO Performance:
       
Name of Commodity Pool:
 
USBO
 
Type of Commodity Pool:
 
Exchange traded security
 
Inception of Trading:
 
June 2, 2010
 
Aggregate Subscriptions (from inception through December 31, 2010):
  $ 10,000,000  
Total Net Assets as of December 31, 2010:
  $ 12,615,031  
Initial NAV per Unit as of Inception:
  $ 50.00  
NAV per Unit as of December 31, 2010:
  $ 63.08  
Worst Monthly Percentage Draw-down:
 
August 2010 (4.84)%
 
Worst Peak-to-Valley Draw-down:
 
July 2010 - August 2010 (4.84)%
 
Number of Unitholders (as of December 31, 2010):
    141  
 
COMPOSITE PERFORMANCE DATA FOR USBO

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

   
Rates of return*
 
Month
 
2010
 
January
    -  
February
    -  
March
    -  
April
    -  
May
    -  
June
    1.94  % **
July
    3.83  %
August
    (4.84 )%
September
    9.79  %
October
    0.61  %
November
    3.00  %
December
    10.09  %
Annual Rate of Return
    26.16  % **

*
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 June 2, 2010.
 
For a definition of draw-down, please see text below “Composite Performance Data for UGA”.
 
 
42

 

USCI:

Experience in Raising and Investing in USCI through December 31, 2010

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

Dollar Amount Offered*:
  $ 2,500,000,000  
Dollar Amount Raised:
  $ 97,618,317  
Organizational and Offering Expenses**:
       
SEC registration fee:
  $ 178,247  
FINRA registration fee:
  $ 75,500  
Listing fee:
  $ 5,000  
Auditor’s fees and expenses:
  $ 2,500  
Legal fees and expenses:
  $ 625,066  
Printing expenses:
  $ 50,395  
         
Length of USCI 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 USCF.

Compensation to USCF and Other Compensation USCI:

Expenses paid by USCI through December 31, 2010 in dollar terms:

Expenses:
 
Amount in Dollar Terms
 
Amount Paid or Accrued to USCF:
  $ 148,421  
Amount Paid or Accrued in Portfolio Brokerage Commissions:
  $ 23,632  
Other Amounts Paid or Accrued*:
  $ 74,831  
Total Expenses Paid or Accrued:
  $ 246,884  
Expenses Waived**:
  $ (51,397 )
Total Expenses Paid or Accrued Including Expenses Waived:
  $ 195,487  

*
Includes expenses relating to legal fees, auditing fees, printing expenses, tax reporting fees and miscellaneous expenses.
**
USCF, 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 USCI’s NAV, on an annualized basis, through at least March 31, 2011.  USCF has no obligation to continue such payments into subsequent periods.
  
 
43

 
 
Expenses paid by USCI through December 31, 2010 as a Percentage of Average Daily Net Assets:

 
Expenses:
 
Amount as a Percentage 
of Average Daily Net Assets
 
Amount Paid or Accrued to USCF:
 
0.95% annualized
 
Amount Paid or Accrued in Portfolio Brokerage Commissions:
 
0.15% annualized
 
Other Amounts Paid or Accrued:
 
0.48% annualized
 
Total Expenses Paid or Accrued:
 
1.58% annualized
 
Expenses Waived:
 
(0.33)% annualized
 
Total Expenses Paid or Accrued Including Expenses Waived:
 
1.25% annualized
 

USCI Performance:
       
Name of Commodity Pool:
 
USCI
 
Type of Commodity Pool:
 
Exchange traded security
 
Inception of Trading:
 
August 10, 2010
 
Aggregate Subscriptions (from inception through December 31, 2010):
  $ 97,618,317  
Total Net Assets as of December 31, 2010:
  $ 102,992,334  
Initial NAV per Unit as of Inception:
  $ 50.00  
NAV per Unit as of December 31, 2010:
  $ 64.37  
Worst Monthly Percentage Draw-down:
 
August 2010 (0.04)%
 
Worst Peak-to-Valley Draw-down:
 
Inception - August 2010 (0.04)%
 
Number of Unitholders (as of December 31, 2010):
    5,456  
  
COMPOSITE PERFORMANCE DATA FOR USCI

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

   
Rates of return*
 
Month
 
2010
 
January
    -  
February
    -  
March
    -  
April
    -  
May
    -  
June
    -  
July
    -  
August
    (0.02 )%**
September
    8.36  %
October
    6.31  %
November
    0.76  %
December
    10.93  %
Annual Rate of Return
    28.74  %**

*
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 August 10, 2010.
 
For a definition of draw-down, please see text below “Composite Performance Data for UGA”.
 
 
44

 
   
Other Related Commodity Trading and Investment Management Experience

Ameristock Corporation is an affiliate of USCF through common control.  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 $201,394,335  in assets as of December 31, 2010.  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 liquidated each of its investment portfolios as of June 20, 2008, and has wound up its affairs effective September 21, 2009.

Investments
 
USCF 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. USCF 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.
 
USCF deposits substantially all of UGA’s net assets with the Custodian or other custodian for trading.  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 or Other Gasoline-Related Investments in Treasuries, cash and/or cash equivalents.
 
UGA’s assets are held in segregated accounts pursuant to the CEA and CFTC regulations. USCF 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 Futures Contracts.  However, from time to time, the percentage of assets committed as margin may be substantially more, or less, than such range.  USCF 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 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.
 
 
45

 

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.
 
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 that are publicly distributed in the United States.  Under the Dodd-Frank Act and otherwise, there is a possibility of future regulatory changes within the United States 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 outside of the United States 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 it 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 the securities and commodities markets.  These efforts are anticipated to result in significant changes in the regulation of these markets.
 
The Dodd-Frank Act includes provisions altering the regulation of commodity interests.  Provisions in the new law include the requirement that position limits be established on a wide range of commodity interests including energy-based and other commodity futures contracts, certain cleared commodity swaps and certain over-the-counter commodity contracts; new registration, recordkeeping, capital and margin requirements for “swap dealers” and “major swap participants” as determined by the new law and applicable regulations; and the forced use of clearinghouse mechanisms for most swap transactions that are currently entered into in the over-the-counter market.  Additionally, the new law requires the aggregation, for purposes of position limits, of all positions in commodity futures and certain commodity swaps held by a single entity and its affiliates, whether such positions exist on U.S. futures exchanges, non-U.S. futures exchanges, or in over-the-counter swaps.  The CFTC, along with the SEC and other federal regulators, has been tasked with developing the rules and regulations enacting the provisions noted above.  The new law and the rules that are currently being and are expected to be promulgated thereunder may negatively impact UGA’s ability to meet its investment objective either through limits or requirements imposed on it or upon its counterparties.  In particular, new position limits imposed on UGA or its counterparties may impact UGA’s ability to invest in a manner that most efficiently meets its investment objective and new requirements, including capital and mandatory clearing, may increase the cost of UGA’s investments and doing business.  For a more detailed discussion of the position limits to be imposed by the CFTC and the potential impacts thereof on UGA, please see “Item 1. Business – What are Futures Contracts?” in this annual report on Form 10-K.
 
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.
 
 
46

 
 
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.
     
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.  To date, the forward markets have been largely unregulated, forward contracts have been executed bilaterally and, in general, forward contracts have not been cleared or guaranteed by a third party.  Commercial banks participating in trading foreign exchange forward contracts often have not required margin deposits, but have relied 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.
 
Forward contracts may be treated differently under the Dodd-Frank Act.  The Dodd-Frank Act requires that certain swap transactions be executed on organized exchanges or “swap execution facilities” and be cleared through regulated clearing organizations (which are referred to in the Dodd-Frank Act as “derivatives clearing organizations”).  However, not all forward contracts will be subject to regulation as “swaps” under the Dodd-Frank Act.  Those forward contracts that will not be regulated as “swaps,” which include physically-settled non-financial commodity forward contracts, will also not be subject to the Dodd-Frank Act’s execution and clearing requirements.  With respect to foreign exchange forward contracts, the Dodd-Frank Act contemplates that such contracts may be regulated as swaps but gives the Secretary of the United States Department of Treasury (“Treasury”) the authority to exempt them from certain regulation under the CEA, including mandatory clearing and margin requirements.  To date, the Secretary of Treasury has not made any final determinations on this issue.  Absent a clearing facility (whether because of regulatory requirements or otherwise), 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.
 
 
47

 
 
The organized exchanges and swap execution facilities on which swaps may be traded, the regulation and criteria for such trading and the regulation and criteria for clearing organizations are more fully described below under “Futures Exchanges and Clearing Organizations.”
 
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.
 
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 certain swap contracts are also being traded in electronic trading facilities and cleared through clearing organizations.
 
 
48

 
 
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 accepted by 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.
 
The Dodd-Frank Act contains many provisions, which, once rules and regulations are implemented, would impact swap transactions.  At this time, it is unclear exactly what types of transactions will be regulated as swaps because the CFTC has not implemented regulations with respect to the definition of “swap.”  The Dodd-Frank Act requires that certain transactions ultimately falling within the definition of “swap” be executed on organized exchanges or “swap execution facilities” and cleared through clearing organizations, but it is also currently unknown which swaps will be subject to such trading and clearing requirements.  If a swap is required to be cleared, the initial margin will be set by the clearing organization, subject to certain regulatory requirements and guidelines.  Initial and variation margin requirements for swap dealers and major swap participants who enter into uncleared swaps and capital requirements for swap dealers and major swap participants who enter into both cleared and uncleared trades will be set by the CFTC, the SEC or another regulator, as prescribed by the Dodd-Frank Act.  At this time, the CFTC has not promulgated final regulations to determine which entities will be regulated as “swap dealers” and “major swap participants” and thus have to comply with these capital and margin requirements (as well as a multitude of other requirements under the Dodd-Frank Act).  In general, increased regulation of, and the imposition of additional costs on, swap transactions could have an adverse effect on USCF by, for example, reducing the size of and therefore liquidity in the derivatives market, increasing transaction costs and decreasing the ability to customize derivative transactions.
 
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.
 
 
49

 
 
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.
     
As required under the Dodd-Frank Act, the CFTC has recently issued several proposed rules pertaining to clearing organizations (referred to in the Dodd-Frank Act as “derivatives clearing organizations”) to address the clearing organization application process, recordkeeping and reporting obligations for clearing organizations, and implement the following six core principles for clearing organizations:  participant and product eligibility, risk management, settlement procedures, treatment of funds, default rules and procedures and system safeguards.  The proposed rules require the clearing organizations to establish margin methodologies and require that margin be based on trades at the individual customer level as opposed to the clearing member level.  The proposed rules also require the clearing organization to report end-of-day positions at the customer level, as opposed to the clearing member level.  To date, the CFTC has not implemented any final rules or regulations pertaining to the application process, recordkeeping and reporting, core principles, margin or any other requirements for clearing organizations.
  
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 clearing organization.
 
 
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A derivatives transaction execution facility (a “DTEF”) is a 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 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.
   
An exempt board of trade is also a 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 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 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.
  
USCF intends to monitor the development of and opportunities and risks presented by the 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