UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
 
x
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2009.
   
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: 001-33096

United States Natural Gas Fund, LP
(Exact name of registrant as specified in its charter)
 
Delaware
 
20-5576760
(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)

N/A
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes     ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

¨ Yes     ¨ No

Indicate by check mark 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 x
Accelerated filer ¨
   
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
 
 


 

UNITED STATES NATURAL GAS FUND, LP

Table of Contents

   
Page
Part I. FINANCIAL INFORMATION
   
Item 1. Condensed Financial Statements.
 
1
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
16
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
 
34
     
Item 4. Controls and Procedures.
 
36
     
Part II. OTHER INFORMATION
   
Item 1. Legal Proceedings.
 
37
     
Item 1A. Risk Factors.
 
37
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 
37
     
Item 3. Defaults Upon Senior Securities.
 
37
     
Item 4. Submission of Matters to a Vote of Security Holders.
 
37
     
Item 5. Other Information.
 
37
     
Item 6. Exhibits.
 
37

 

 

Part I.   FINANCIAL INFORMATION

Item 1.   Condensed Financial Statements.

Index to Condensed Financial Statements
 
Documents
 
Page
 
Condensed Statements of Financial Condition at September 30, 2009 (Unaudited) and December 31, 2008
   
2
 
         
Condensed Schedule of Investments (Unaudited) at September 30, 2009
   
3
 
         
Condensed Statements of Operations (Unaudited) for the three and nine months ended September 30, 2009 and 2008
   
5
 
         
Condensed Statement of Changes in Partners’ Capital (Unaudited) for the nine months ended September 30, 2009
   
6
 
         
Condensed Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2009 and 2008
   
7
 
         
Notes to Condensed Financial Statements for the period ended September 30, 2009 (Unaudited)
   
8
 

 
1

 

United States Natural Gas Fund, LP
Condensed Statements of Financial Condition
At September 30, 2009 (Unaudited) and December 31, 2008

   
September 30, 2009
   
December 31, 2008
 
Assets
           
Cash and cash equivalents
  $ 2,955,693,030     $ 419,929,831  
Equity in UBS Securities LLC trading accounts:
               
Cash
    716,203,435       293,619,554  
Unrealized gain (loss) on open commodity futures and cleared swap contracts
    259,412,845       (7,704,870 )
Unrealized gain on open swap contracts
    45,339,121        
Investment receivable
    46,980,668        
Prepaid premium on open swap contracts
    187,471        
Interest receivable
    197,455       355,156  
Other assets
    328,409       137,786  
                 
Total assets
  $ 4,024,342,434     $ 706,337,457  
                 
Liabilities and Partners’ Capital
               
Payable for units redeemed
  $     $ 9,307,208  
General Partner management fees payable (Note 3)
    1,515,771       370,060  
Brokerage commission fees payable
    586,250       39,500  
Other liabilities
    2,211,184       906,179  
                 
Total liabilities
    4,313,205       10,622,947  
                 
Commitments and Contingencies (Notes 3, 4 and 5)
               
                 
Partners' Capital
               
General Partner
           
Limited Partners
    4,020,029,229       695,714,510  
Total Partners' Capital
    4,020,029,229       695,714,510  
                 
Total liabilities and partners' capital
  $ 4,024,342,434     $ 706,337,457  
                 
Limited Partners' units outstanding
    347,400,000       29,900,000  
Net asset value per unit
  $ 11.57     $ 23.27  
Market value per unit
  $ 11.74     $ 23.17  

See accompanying notes to condensed financial statements.

 
2

 

United States Natural Gas Fund, LP
Condensed Schedule of Investments (Unaudited)
At September 30, 2009

   
Number of
   
Gain on Open
Commodity
   
% of
Partners'
 
   
Contracts
   
Contracts
   
Capital
 
Open Cleared Swap Contracts
                 
Foreign Contracts
                 
ICE Natural Gas Cleared Swap ICE LOT contracts, expire November 2009
    100,610     $ 102,820,588       2.56  
                         
Open Futures Contracts
                       
United States Contracts
                       
NYMEX Natural Gas Futures NG contracts, expire November 2009
    28,604       109,993,050       2.73  
NYMEX Natural Gas Futures NN contracts, expire November 2009
    51,746       46,599,207       1.16  
      80,350       156,592,257       3.89  
Total Open Cleared Swap and Futures Contracts
    180,960     $ 259,412,845       6.45  
                         
   
Principal
Amount
   
Market Value
         
Cash Equivalents
                       
United States - Money Market Funds
                       
Fidelity Institutional Government Portfolio – Class I
  $ 875,782,868     $ 875,782,868       21.79  
Goldman Sachs Financial Square Funds – Government Fund – Class SL
    825,033,413       825,033,413       20.52  
Morgan Stanley Institutional Liquidity Fund – Government Portfolio
    150,055,060       150,055,060       3.73  
Total Cash Equivalents
          $ 1,850,871,341       46.04  

See accompanying notes to condensed financial statements.

 
3

 

United States Natural Gas Fund, LP
Condensed Schedule of Investments (Unaudited) (Continued)
At September 30, 2009

Open Over-the-Counter Total Return Swap Contracts

                         
Upfront
   
 
 
   
Maturity
 
Fixed
   
Notional
   
Market
   
Premium
   
Unrealized
 
   
Date
 
Rate
   
Amount
   
Value
   
Paid
   
Gain (Loss)
 
Swap agreement to receive return on the eXtra US1 Excess Return Index
 
10/30/2009
    0.375 %     226,638,773     $ (682,695 )   $ 624,903     $ (57,792 )
                                             
Swap agreement to receive return on NYMEX Henry Hub Natural Gas Futures Contract
 
2/26/2010
    0.97 %     124,134,036       14,788,597             14,788,597  
                                             
Swap agreement to receive return on NYMEX Henry Hub Natural Gas Futures Contract
 
2/26/2010
    0.97 %     125,000,000       15,643,504             15,643,504  
                                             
Swap agreement to receive return on NYMEX Henry Hub Natural Gas Futures Contract
 
2/26/2010
    0.97 %     141,566,265       3,729,705             3,729,705  
                                             
Swap agreement to receive return on NYMEX Henry Hub Natural Gas Futures Contract
 
2/26/2010
    0.97 %     130,195,783       11,235,107             11,235,107  
                                             
Total unrealized gain on open swap contracts                                       $ 45,339,121   
 
See accompanying notes to condensed financial statements.
 
 
4

 

United States Natural Gas Fund, LP
Condensed Statements of Operations (Unaudited)
For the three and nine months ended September 30, 2009 and 2008

   
Three months
ended
   
Three months
ended
   
Nine months
ended
   
Nine months
ended
 
   
September 30,
2009
   
September 30,
2008
   
September 30,
2009
   
September 30,
2008
 
Income
                       
Gain (loss) on trading of commodity contracts:
                       
Realized loss on closed futures contracts
  $ (1,373,165,816 )   $ (449,877,410 )   $ (1,423,740,733 )   $ (133,896,820 )
Realized loss on closed swaps contracts
    (3,330,675 )           (3,330,675 )      
Change in unrealized gain (loss) on open futures contracts
    665,582,415       (86,404,030 )     267,117,715       (75,345,020 )
Change in unrealized gain on open swaps contracts
    45,339,121             45,339,121        
Interest income
    968,387       4,484,691       2,241,532       10,380,019  
Other income
    11,000       76,000       185,000       147,000  
                                 
Total loss
    (664,595,568 )     (531,720,749 )     (1,112,188,040 )     (198,714,821 )
                                 
Expenses
                               
General Partner management fees (Note 3)
    5,158,662       1,390,316       8,923,338       3,177,614  
Brokerage commissions
    5,726,699       324,156       9,704,462       604,734  
Other expenses
    2,385,993       344,704       4,155,541       1,137,971  
                                 
Total expenses
    13,271,354       2,059,176       22,783,341       4,920,319  
                                 
Net loss
  $ (677,866,922 )   $ (533,779,925 )   $ (1,134,971,381 )   $ (203,635,140 )
Net loss per limited partnership unit
  $ (2.23 )   $ (29.59 )   $ (11.70 )   $ (3.11 )
Net loss per weighted average limited partnership unit
  $ (1.99 )   $ (22.71 )   $ (6.58 )   $ (12.67 )
Weighted average limited partnership units outstanding
    341,418,478       23,500,000       172,615,751       16,072,263  

See accompanying notes to condensed financial statements.

 
5

 

United States Natural Gas Fund, LP
Condensed Statement of Changes in Partners’ Capital (Unaudited)
For the nine months ended September 30, 2009

   
General Partner
   
Limited Partners
   
Total
 
                   
Balances, at December 31, 2008
  $     $ 695,714,510     $ 695,714,510  
Addition of 375,000,000 partnership units
          5,375,001,043       5,375,001,043  
Redemption of 57,500,000 partnership units
          (915,714,943 )     (915,714,943 )
Net loss
          (1,134,971,381 )     (1,134,971,381 )
                         
Balances, at September 30, 2009
  $     $ 4,020,029,229     $ 4,020,029,229  
                         
Net Asset Value Per Unit
                       
At December 31, 2008
  $ 23.27                  
At September 30, 2009
  $ 11.57                  

See accompanying notes to condensed financial statements.

 
6

 

United States Natural Gas Fund, LP
Condensed Statements of Cash Flows (Unaudited)
For the nine months ended September 30, 2009 and 2008

   
Nine months ended
   
Nine months ended
 
   
September 30, 2009
   
September 30, 2008
 
Cash Flows from Operating Activities:
           
Net loss
  $ (1,134,971,381 )   $ (203,635,140 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Increase in commodity futures trading account – cash
    (422,583,881 )     (316,061,296 )
Unrealized (gain) loss on open futures contracts
    (267,117,715 )     75,345,020  
Unrealized gain on open swap contracts
    (45,339,121 )      
Increase in investment receivable
    (46,980,668 )      
Increase in interest receivable and other assets
    (32,922 )     (2,179,619 )
Increase in management fees payable
    1,145,711       295,058  
Increase in prepaid premium on open swap contracts
    (187,471 )      
Increase in commission fees payable
    546,750       20,700  
Increase in other liabilities
    1,305,005       236,863  
Net cash used in operating activities
    (1,914,215,693 )     (445,978,414 )
                 
Cash Flows from Financing Activities:
               
Subscription of partnership units
    5,375,001,043       2,393,804,229  
Redemption of partnership units
    (925,022,151 )     (1,689,552,559 )
                 
Net cash provided by financing activities
    4,449,978,892       704,251,670  
                 
Net Increase in Cash and Cash Equivalents
    2,535,763,199        258,273,256  
                 
Cash and Cash Equivalents , beginning of period
    419,929,831        488,067,199  
Cash and Cash Equivalents , end of period
  $ 2,955,693,030     $ 746,340,455  

See accompanying notes to condensed financial statements.

 
7

 

United States Natural Gas Fund, LP
Notes to Condensed Financial Statements
For the period ended September 30, 2009 (Unaudited)

NOTE 1 - ORGANIZATION AND BUSINESS

The United States Natural Gas Fund, LP (“USNG”) was organized as a limited partnership under the laws of the state of Delaware on September 11, 2006. USNG is a commodity pool that issues limited partnership units (“units”) that may be purchased and sold on the NYSE Arca, Inc. (the “NYSE Arca”). Prior to November 25, 2008, USNG’s units traded on the American Stock Exchange (the “AMEX”). USNG will continue in perpetuity, unless terminated sooner upon the occurrence of one or more events as described in its Second Amended and Restated Agreement of Limited Partnership dated as of December 4, 2007 (the “LP Agreement”). The investment objective of USNG is to have the changes in percentage terms of its units’ net asset value 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 as 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 become the next month contract to expire, less USNG’s expenses. USNG accomplishes its objective through investments in futures contracts for natural gas, crude oil, heating oil, gasoline and other petroleum-based fuels that are traded on the NYMEX, ICE Futures or other U.S. and foreign exchanges (collectively, “Futures Contracts”) and other natural gas-related investments such as cash-settled options on Futures Contracts, forward contracts for natural gas, cleared swap contracts and over-the-counter transactions that are based on the price of natural gas, crude oil and other petroleum-based fuels, Futures Contracts and indices based on the foregoing (collectively, “Other Natural Gas-Related Investments”). As of September 30, 2009, USNG held 80,350 Futures Contracts traded on the NYMEX and 100,610 cleared swap contracts traded on the ICE Futures and over-the-counter swap transactions with two counterparties.

USNG commenced investment operations on April 18, 2007 and has a fiscal year ending on December 31. United States Commodity Funds LLC (formerly known as Victoria Bay Asset Management, LLC) (the “General Partner”) is responsible for the management of USNG. The General Partner is a member of the National Futures Association (the “NFA”) and became a commodity pool operator registered with the Commodity Futures Trading Commission effective December 1, 2005.  The General Partner is also the general partner of the United States Oil Fund, LP (“USOF”), the United States 12 Month Oil Fund, LP (“US12OF”), the United States Gasoline Fund, LP (“UGA”) and the United States Heating Oil Fund, LP (“USHO”), which listed their limited partnership units on the AMEX under the ticker symbols “USO” on April 10, 2006, “USL” on December 6, 2007, “UGA” on February 26, 2008 and “UHN” on April 9, 2008, respectively. As a result of the acquisition of the AMEX by NYSE Euronext, each of USOF’s, US12OF’s, UGA’s and USHO’s units commenced trading on the NYSE Arca on November 25, 2008. The General Partner is also the general partner of the United States Short Oil Fund, LP (“USSO”), which listed its limited partnership units on the NYSE Arca on September 24, 2009. The General Partner has also filed registration statements to register units of the United States 12 Month Natural Gas Fund, LP and the United States Brent Oil Fund, LP.

The accompanying unaudited condensed financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X promulgated by the U.S. Securities and Exchange Commission (the “SEC”) and, therefore, do not include all information and footnote disclosure required under accounting principles generally accepted in the United States of America. The financial information included herein is unaudited; however, such financial information reflects all adjustments which are, in the opinion of management, necessary for the fair presentation of the condensed financial statements for the interim period.

USNG issues units to certain authorized purchasers (“Authorized Purchasers”) by offering baskets consisting of 100,000 units (“Creation Baskets”) through ALPS Distributors, Inc. (the “Marketing Agent”). The purchase price for a Creation Basket is based upon the net asset value of a unit calculated shortly after the close of the core trading session on the NYSE Arca on the day the order to create the basket is properly received.

In addition, Authorized Purchasers pay USNG a $1,000 fee for each order to create one or more Creation Baskets or redeem one or more baskets consisting of 100,000 units (“Redemption Baskets”). Units may be purchased or sold on a nationally recognized securities exchange in smaller increments than a Creation Basket or Redemption Basket. Units purchased or sold on a nationally recognized securities exchange are not purchased or sold at the net asset value of USNG but rather at market prices quoted on such exchange.

 
8

 

In April 2007, USNG initially registered 30,000,000 units on Form S-1 with the SEC. On April 18, 2007, USNG listed its units on the AMEX under the ticker symbol “UNG”. On that day, USNG established its initial net asset value by setting the price at $50.00 per unit and issued 200,000 units in exchange for $10,001,000. USNG also commenced investment operations on April 18, 2007 by purchasing Futures Contracts traded on the NYMEX based on natural gas. As of September 30, 2009, USNG had registered a total of 1,480,000,000 units, 347,400,000 of which were outstanding.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

Commodity futures contracts, forward contracts, physical commodities and related options are recorded on the trade date. All such transactions are recorded on the identified cost basis and marked to market daily. Unrealized gains or losses on open contracts are reflected in the condensed statement of financial condition and in the difference between the original contract amount and the market value (as determined by exchange settlement prices for futures contracts and related options and cash dealer prices at a predetermined time for forward contracts, physical commodities, and their related options) as of the last business day of the year or as of the last date of the condensed financial statements. Changes in the unrealized gains or losses between periods are reflected in the condensed statement of operations. USNG earns interest on its assets denominated in U.S. dollars on deposit with the futures commission merchant at the overnight Federal Funds Rate less 32 basis points. In addition, USNG earns interest on funds held at the custodian at prevailing market rates earned on such investments.
 
Investments in over-the-counter swap contracts (see Note 5) are arrangements to exchange a periodic payment for a market-linked return, each based on a notional amount.  To the extent that the total return of the security or index underlying the transaction exceeds or falls short of the offsetting periodic payment obligation, USNG receives a payment from, or makes a payment to, the swap counterparty.  The over-the-counter swap contracts are valued daily based upon the appreciation or depreciation of the underlying securities subsequent to the effective date of the contract.  Changes in the value of the swaps are reported as unrealized gains and losses and periodic payments are recorded as realized gains or losses in the accompanying condensed statements of operations.
 
Brokerage Commissions

Brokerage commissions on all open commodity futures contracts are accrued on a full-turn basis.
 
Swap Premiums

Upfront fees paid by USNG for over-the-counter swap contracts are reflected on the condensed statements of financial condition and represent payments made upon entering into a swap agreement to compensate for differences between the stated terms of the agreement and prevailing market conditions.  The fees are amortized daily over the term of the swap agreement.
 
Income Taxes

USNG is not subject to federal income taxes; each partner reports his/her allocable share of income, gain, loss deductions or credits on his/her own income tax return.

Additions and Redemptions

Authorized Purchasers may purchase Creation Baskets or redeem Redemption Baskets only in blocks of 100,000 units equal to the net asset value of the units calculated shortly after the close of the core trading session on the NYSE Arca on the day the order is placed.

USNG receives or pays the proceeds from units sold or redeemed within three business days after the trade date of the purchase or redemption.  The amounts due from Authorized Purchasers are reflected in USNG’s condensed statement of financial condition as receivable for units sold, and amounts payable to Authorized Purchasers upon redemption are reflected as payable for units redeemed.

Partnership Capital and Allocation of Partnership Income and Losses

Profit or loss shall be allocated among the partners of USNG in proportion to the number of units each partner holds as of the close of each month. The General Partner may revise, alter or otherwise modify this method of allocation as described in the LP Agreement.

Calculation of Net Asset Value

USNG’s net asset value is calculated on each NYSE Arca trading day by taking the current market value of its total assets, subtracting any liabilities and dividing the amount by the total number of units issued and outstanding. USNG uses the closing price for the contracts on the relevant exchange on that day to determine the value of contracts held on such exchange.

 
9

 

Net Income (Loss) per Unit

Net income (loss) per unit is the difference between the net asset value per unit at the beginning of each period and at the end of each period. The weighted average number of units outstanding was computed for purposes of disclosing net income (loss) per weighted average unit. The weighted average units are equal to the number of units outstanding at the end of the period, adjusted proportionately for units redeemed based on the amount of time the units were outstanding during such period. There were no units held by the General Partner at September 30, 2009.

Offering Costs

Offering costs incurred in connection with the registration of additional units after the initial registration of units are borne by USNG. These costs include registration fees paid to regulatory agencies and all legal, accounting, printing and other expenses associated with such offerings. These costs will be accounted for as a deferred charge and thereafter amortized to expense over twelve months on a straight-line basis or a shorter period if warranted.

Cash Equivalents

Cash equivalents include money market funds and overnight deposits or time deposits with original maturity dates of three months or less.

Use of Estimates

The preparation of condensed financial statements in conformity with accounting principles generally accepted in the United States of America requires USNG’s management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed financial statements, and the reported amounts of the revenue and expenses during the reporting period. Actual results could differ from those estimates and assumptions.

NOTE 3 - FEES PAID BY THE FUND AND RELATED PARTY TRANSACTIONS

General Partner Management Fee

Under the LP Agreement, the General Partner is responsible for investing the assets of USNG in accordance with the objectives and policies of USNG. In addition, the General Partner has arranged for one or more third parties to provide administrative, custody, accounting, transfer agency and other necessary services to USNG. For these services, USNG is contractually obligated to pay the General Partner a fee, which is paid monthly and based on average daily net assets, that is equal to 0.60% per annum on average daily net assets of $1,000,000,000 or less and 0.50% per annum on average daily net assets that are greater than $1,000,000,000.

Ongoing Registration Fees and Other Offering Expenses

USNG pays all costs and expenses associated with the ongoing registration of its units subsequent to the initial offering. These costs include registration or other fees paid to regulatory agencies in connection with the offer and sale of units, and all legal, accounting, printing and other expenses associated with such offer and sale. For the nine months ended September 30, 2009 and 2008, USNG incurred $1,086,478 and $216,699, respectively, in registration fees and other offering expenses.

Directors’ Fees

USNG is responsible for paying its portion of the directors’ and officers’ liability insurance of the General Partner and the fees and expenses of the independent directors of the General Partner who are also the General Partner’s audit committee members. USNG shares these fees with USOF, US12OF, UGA, USHO and USSO based on the relative assets of each fund, computed on a daily basis. These fees for the calendar year 2009 are estimated to be a total of $477,000 for all funds.

 
10

 

Licensing Fees

As discussed in Note 4, USNG entered into a licensing agreement with the NYMEX on May 30, 2007. Pursuant to the agreement, USNG and the affiliated funds managed by the General Partner pay a licensing fee that is equal to 0.04% for the first $1,000,000,000 of combined assets of the funds and 0.02% for combined assets above $1,000,000,000.  During the nine months ended September 30, 2009 and 2008, USNG incurred $388,475 and $175,384, respectively, under this arrangement.

Investor Tax Reporting Cost

The fees and expenses associated with USNG’s audit expenses and tax accounting and reporting requirements, with the exception of certain initial implementation service fees and base service fees which are borne by the General Partner, are paid by USNG.

Other Expenses and Fees

In addition to the fees described above, USNG pays all brokerage fees, transaction costs for over-the-counter swaps, taxes and other expenses in connection with the operation of USNG, excluding costs and expenses paid by the General Partner as outlined in Note 4.

NOTE 4 - CONTRACTS AND AGREEMENTS

USNG is party to a marketing agent agreement, dated as of April 17, 2007, with the Marketing Agent and the General Partner, whereby the Marketing Agent provides certain marketing services for USNG as outlined in the agreement. The fee of the Marketing Agent, which is borne by the General Partner, is equal to 0.06% on USNG’s assets up to $3 billion; and 0.04% on USNG’s assets in excess of $3 billion.

The above fee does not include the following expenses, which are also borne by the General Partner: the cost of placing advertisements in various periodicals; web construction and development; or the printing and production of various marketing materials.

USNG is also party to a custodian agreement, dated January 12, 2007, with Brown Brothers Harriman & Co. (“BBH&Co.”) and the General Partner, whereby BBH&Co. holds investments on behalf of USNG. The General Partner pays the fees of the custodian, which are determined by the parties from time to time. In addition, USNG is party to an administrative agency agreement, dated March 5, 2007, with the General Partner and BBH&Co., whereby BBH&Co. acts as the administrative agent, transfer agent and registrar for USNG. The General Partner also pays the fees of BBH&Co. for its services under this agreement and such fees are determined by the parties from time to time.

Currently, the General Partner pays BBH&Co. for its services, in the foregoing capacities, a minimum amount of $75,000 annually for its custody, fund accounting and fund administration services rendered to USNG and each of the affiliated funds managed by the General Partner, as well as a $20,000 annual fee for its transfer agency services. In addition, the General Partner pays BBH&Co. an asset-based charge of (a) 0.06% for the first $500 million of USNG’s, USOF’s, US12OF’s, UGA’s, USHO’s and USSO’s combined net assets, (b) 0.0465% for USNG’s, USOF’s, US12OF’s, UGA’s, USHO’s and USSO’s combined net assets greater than $500 million but less than $1 billion, and (c) 0.035% once USNG’s, USOF’s, US12OF’s, UGA’s, USHO’s and USSO’s combined net assets exceed $1 billion. The annual minimum amount will not apply if the asset-based charge for all accounts in the aggregate exceeds $75,000. The General Partner also pays transaction fees ranging from $7.00 to $15.00 per transaction.

USNG has entered into a brokerage agreement with UBS Securities LLC (“UBS Securities”). The agreement requires UBS Securities to provide services to USNG in connection with the purchase and sale of Futures Contracts and Other Natural Gas-Related Investments that may be purchased and sold by or through UBS Securities for USNG’s account. The agreement provides that UBS Securities charge USNG commissions of approximately $7 per round-turn trade, plus applicable exchange and NFA fees for Futures Contracts and options on Futures Contracts.

On May 30, 2007, USNG and the NYMEX entered into a licensing agreement whereby USNG was granted a non-exclusive license to use certain of the NYMEX’s settlement prices and service marks. Under the licensing agreement, USNG and the affiliated funds managed by the General Partner pay the NYMEX an asset-based fee for the license, the terms of which are described in Note 3.

 
11

 

USNG expressly disclaims any association with the NYMEX or endorsement of USNG by the NYMEX and acknowledges that “NYMEX” and “New York Mercantile Exchange” are registered trademarks of the NYMEX.

NOTE 5 - FINANCIAL INSTRUMENTS, OFF-BALANCE SHEET RISKS AND CONTINGENCIES

USNG engages in the trading of futures contracts, options on futures contracts, cleared swaps and over-the-counter swaps (collectively, “derivatives”). USNG is exposed to both market risk, which is the risk arising from changes in the market value of the contracts, and credit risk, which is the risk of failure by another party to perform according to the terms of a contract.

USNG may enter into futures contracts, options on futures contracts, cleared swaps and over-the-counter swaps to gain exposure to changes in the value of an underlying commodity.  A futures contract obligates the seller to deliver (and the purchaser to accept) the future delivery of a specified quantity and type of a commodity at a specified time and place.   Some futures contracts may call for physical delivery of the asset, while others are settled in cash. The contractual obligations of a buyer or seller may generally be satisfied by taking or making physical delivery of the underlying commodity or by making an offsetting sale or purchase of an identical futures contract on the same or linked exchange before the designated date of delivery.  Cleared swaps are over-the-counter (“OTC”) agreements that are eligible to be cleared by a clearinghouse, e.g ., ICE Clear U.S., but which are not traded on an exchange.  A cleared swap is created when the parties to an off-exchange OTC transaction agree to extinguish their OTC contract and replace it with a cleared swap. Cleared swaps are intended to provide the efficiencies and benefits that centralized clearing on an exchange offers to traders of futures contracts, including credit risk intermediation and the ability to offset positions initiated with different counterparties.

The purchase and sale of futures contracts, options on futures contracts and cleared swaps require margin deposits with a futures commission merchant. Additional deposits may be necessary for any loss on contract value. The Commodity Exchange Act requires a futures commission merchant to segregate all customer transactions and assets from the futures commission merchant’s proprietary activities.

Futures contracts and cleared swaps involve, to varying degrees, elements of market risk (specifically commodity price risk) and exposure to loss in excess of the amount of variation margin. The face or contract amounts reflect the extent of the total exposure USNG has in the particular classes of instruments. Additional risks associated with the use of futures contracts are an imperfect correlation between movements in the price of the futures contracts and the market value of the underlying securities and the possibility of an illiquid market for a futures contract.

All of USNG’s investment contracts through September 30, 2009 have been exchange-traded futures contracts, cleared swaps or fully-collateralized over-the-counter swaps. The liquidity and credit risks associated with exchange-traded contracts and cleared swaps are generally perceived to be less than those associated with over-the-counter transactions since, in over-the-counter transactions, USNG must rely solely on the credit of its respective individual counterparties. As of September 30, 2009, USNG has entered into over-the-counter transactions with two counterparties.  Subsequent to September 30, 2009, USNG has entered into over-the-counter transactions with three additional counterparties.  Over-the counter transactions subject USNG to the credit risk associated with counterparty non-performance. The credit risk from counterparty non-performance associated with such instruments is the net unrealized gain, if any, on the transaction. USNG also has credit risk under its futures contracts since the sole counterparty to all domestic and foreign futures contracts is the exchange on which the relevant contracts are traded.  However, as compared to its over-the-counter transactions, it may more easily realize value by reselling its futures contracts. In addition, USNG bears the risk of financial failure by the clearing broker.
 
At September 30, 2009, USNG’s counterparties posted $96,070,000 in cash and $0 in securities as collateral with USNG’s custodian, as compared with the prior period for which no collateral was posted since USNG had not yet entered into any swaps. Under these agreements, USNG posted collateral with respect to its obligations of $134,910,105 at September 30, 2009, while no collateral was posted for the prior period.
 
USNG’s cash and other property, such as U.S. Treasuries, deposited with a futures commission merchant are considered commingled with all other customer funds subject to the futures commission merchant’s segregation requirements. In the event of a futures commission merchant’s insolvency, recovery may be limited to a pro rata share of segregated funds available. It is possible that the recovered amount could be less than the total of cash and other property deposited. The insolvency of a futures commission merchant could result in the complete loss of USNG’s assets posted with that futures commission merchant; however, the vast majority of USNG’s assets are held in Treasuries, cash and/or cash equivalents with USNG’s custodian and would not be impacted by the insolvency of a futures commission merchant. Also, the failure or insolvency of USNG’s custodian could result in a substantial loss of USNG’s assets.

 
12

 

USNG invests its cash in money market funds that seek to maintain a stable net asset value.  USNG is exposed to any risk of loss associated with an investment in these money market funds. As of September 30, 2009 and December 31, 2008, USNG had deposits in domestic and foreign financial institutions, including cash investments in money market funds, in the amounts of $3,671,896,465 and $713,549,385, respectively. This amount is subject to loss should these institutions cease operations.

For derivatives, risks arise from changes in the market value of the contracts. Theoretically, USNG is exposed to a market risk equal to the value of futures contracts purchased and unlimited liability on such contracts sold short. As both a buyer and a seller of options, USNG pays or receives a premium at the outset and then bears the risk of unfavorable changes in the price of the contract underlying the option.

USNG’s policy is to continuously monitor its exposure to market and counterparty risk through the use of a variety of financial, position and credit exposure reporting controls and procedures. In addition, USNG has a policy of requiring review of the credit standing of each broker or counterparty with which it conducts business.

The financial instruments held by USNG are reported in its condensed statement of financial condition at market or fair value, or at carrying amounts that approximate fair value, because of their highly liquid nature and short-term maturity.

NOTE 6 FAIR VALUE OF FINANCIAL INSTRUMENTS

Effective January 1, 2008, USNG adopted Accounting Standards Codification 820 – Fair Value Measurements and Disclosures (“ASC 820”).  ASC 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurement.  The changes to past practice resulting from the application of ASC 820 relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurement. ASC 820 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from sources independent of USNG (observable inputs) and (2) USNG’s own assumptions about market participant assumptions developed based on the best information available under the circumstances (unobservable inputs).  The three levels defined by the ASC 820 hierarchy are as follows:
 
Level I – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
 
Level II – Inputs other than quoted prices included within Level I that are observable for the asset or liability, either directly or indirectly. Level II assets include the following: quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs).
 
Level III – Unobservable pricing input at the measurement date for the asset or liability. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available.
 
In some instances, the inputs used to measure fair value might fall in different levels of the fair value hierarchy. The level in the fair value hierarchy within which the fair value measurement in its entirety falls shall be determined based on the lowest input level that is significant to the fair value measurement in its entirety.
 
 
13

 
 
The following table summarizes the valuation of USNG’s securities at September 30, 2009 using the fair value hierarchy:
 
At September 30, 2009
 
Total
   
Level I
   
Level II
   
Level III
 
                         
Short-Term Investments
  $ 1,850,871,341     $ 1,850,871,341     $     $  
Exchange-Traded Futures Contracts
    259,412,845       259,412,845              
Exchange-Traded Cleared Swap Contracts
    102,820,588       102,820,588              
Over-the-Counter Total Return Swap Contracts
    45,339,121                   45,339,121  

Following is a reconciliation of assets in which significant observable inputs (Level 3) were used in determining fair value:
 
                                 
Unrealized
 
   
Level 3
   
Net
               
Level 3
   
Gain of
 
   
Beginning
   
Transfers
   
Realized
         
Ending
   
Investments
 
   
Balance
   
In and
   
and
   
Net
   
Balance
   
Still Held at
 
   
January 1,
   
or (Out)
   
Unrealized
   
Purchases
   
September 30,
   
September 30,
 
   
2009
   
of Level 3
   
Gain (Loss)
   
(Sales)
   
2009
   
2009
 
Total Return Swap Contracts
  $ -     $ -     $ 42,008,446     $ 3,330,675     $ 45,339,121     $ 45,339,121  
 
Effective January 1, 2009, USNG adopted the provisions of Accounting Standards Codification 815 -  Derivatives and Hedging, which require presentation of qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts and gains and losses on derivatives.
 
Fair Value of Derivative Instruments
 
     
At
   
At
 
     
September 30,
   
December 31,
 
     
2009
   
2008
 
Derivatives not 
Statement of
           
Accounted for as
Financial
           
for as Hedging
Condition
           
Instruments
Location
 
Fair Value
   
Fair Value
 
Futures -   
             
 Commodity Contracts
Assets
  $ 259,412,845     $ (7,704,870 )
                   
Swaps -
                 
 Commodity Contracts
Assets -
  $ 45,396,913     $ -  
 
Unrealized
               
 
Appreciation
               
                   
 Equity Contracts
Assets -
  $ (57,792   $ -  
 
Unrealized
               
 
Appreciation
               
 
The Effect of Derivative Instruments on the Statement of Operations

     
For the three months ended
   
For the nine months ended
 
     
September 30,
   
September 30,
 
     
Realized
   
Change in
   
Realized
   
Change in
 
 
Location of 
 
Gain or (Loss)
   
Unrealized
   
Gain or (Loss)
   
Unrealized
 
Derivatives not 
Gain or (Loss)
 
on Derivatives
   
Gain or (Loss)
   
on Derivatives
   
Gain or (Loss)
 
Accounted for as
on Derivatives
 
Recognized
   
Recognized
   
Recognized
   
Recognized
 
for as Hedging
Recognized
 
in Income
   
in Income
   
in Income
   
in Income
 
Instruments 
in Income
 
2009
   
2008
   
2009
   
2008
 
                           
Futures -   
Realized gain (loss) on
  $ (1,373,165,816 )   $ (449,877,410 )   $ (1,423,740,733 )   $ (133,896,820 )
 Commodity Contracts
closed futures contracts
                               
                                   
 
Change in unrealized
  $ 665,582,415     $ (86,404,030 )   $ 267,117,715     $ (75,345,020 )
 
gain (loss) on open
                               
 
futures contracts
                               
                                   
Swaps -
Realized gain (loss) on
  $ (3,330,675 )   $ -     $ (3,330,675 )   $ -  
 Commodity Contracts/
closed swap contracts
                               
 Equity Contracts
                                 
 
Change in unrealized
  $ 45,339,121     $ -     $ 45,339,121     $ -  
 
gain (loss) on open
                               
 
swap contracts
                               
 
NOTE 7 - FINANCIAL HIGHLIGHTS

The following table presents per unit performance data and other supplemental financial data for the nine months ended September 30, 2009 and 2008 for the unitholders. This information has been derived from information presented in the condensed financial statements.  

   
For the nine months ended
   
For the nine months ended
 
   
September 30, 2009
(Unaudited)
   
September 30, 2008
(Unaudited)
 
             
Per Unit Operating Performance:
           
             
Net asset value, beginning of period
  $ 23.27     $ 36.18  
Total loss
    (11.57 )     (2.80 )
Total expenses
    (0.13 )     (0.31 )
Net decrease in net asset value
    (11.70 )     (3.11 )
Net asset value, end of period
  $ 11.57     $ 33.07  
                 
Total Return
    (50.28 ) %     (8.60 ) %
                 
Ratios to Average Net Assets
               
Total loss
    (50.37 ) %     (27.93 ) %
Expenses excluding management fees*
    0.84 %     0.33 %
Management fees*
    0.54 %     0.60 %
Net loss
    (51.40 ) %     (28.62 ) %

*Annualized

Total returns are calculated based on the change in value during the period. An individual unitholder’s total return and ratio may vary from the above total returns and ratios based on the timing of contributions to and withdrawals from USNG.

 
14

 
 
NOTE 8 – RECENTLY ADOPTED ACCOUNTING STANDARDS
 
In March 2008, the Financial Accounting Standards Board (the “FASB”) released Accounting Standards Codification 815 – Derivatives and Hedging (“ASC 815”). ASC 815 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of, and gains and losses on, derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements.  USNG adopted ASC 815 on January 1, 2009.
 
NOTE 9 – SUBSEQUENT EVENTS

USNG has performed an evaluation of subsequent events through November 9, 2009, which is the date the financial statements were issued. This evaluation did not result in any subsequent events that necessitated disclosures and/or adjustments.
 
15

 
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with the condensed financial statements and the notes thereto of the United States Natural Gas Fund, LP (“USNG”) included elsewhere in this quarterly report on Form 10-Q.

Forward-Looking Information

This quarterly report on Form 10-Q, including this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding the plans and objectives of management for future operations. This information may involve known and unknown risks, uncertainties and other factors that may cause USNG’s actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe USNG’s future plans, strategies and expectations, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project,” the negative of these words, other variations on these words or comparable terminology. These forward-looking statements are based on assumptions that may be incorrect, and USNG cannot assure investors that the projections included in these forward-looking statements will come to pass.  USNG’s actual results could differ materially from those expressed or implied by the forward-looking statements as a result of various factors.

USNG has based the forward-looking statements included in this quarterly report on Form 10-Q on information available to it on the date of this quarterly report on Form 10-Q, and USNG assumes no obligation to update any such forward-looking statements. Although USNG undertakes no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, investors are advised to consult any additional disclosures that USNG may make directly to them or through reports that USNG in the future files with the U.S. Securities and Exchange Commission (the “SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

Introduction

USNG, a Delaware limited partnership, is a commodity pool that issues units that may be purchased and sold on the NYSE Arca, Inc. (the “NYSE Arca”). The investment objective of USNG is to have the changes in percentage terms of its units’ net asset value (“NAV”) 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 as 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 it will become, the futures contract that is the next month contract to expire (the “Benchmark Futures Contract”), less USNG’s expenses.

 
16

 

USNG seeks to achieve its investment objective by investing in a combination of natural gas futures contracts and other natural gas-related investments such that changes in its NAV, measured in percentage terms, will closely track the changes in the price of the Benchmark Futures Contract, also measured in percentage terms. USNG’s general partner believes the Benchmark Futures Contract historically has exhibited a close correlation with the spot price of natural gas. It is not the intent of USNG to be operated in a fashion such that the NAV will equal, in dollar terms, the spot price of natural gas or any particular futures contract based on natural gas. Management believes that it is not practical to manage the portfolio to achieve such an investment goal when investing in listed natural gas futures contracts and other natural gas-related investments.

On any valuation day, the Benchmark Futures Contract is the near month futures contract for natural gas 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 becomes, over a 4-day period, the next month contract for natural gas traded on the NYMEX. “Near month contract” means the next contract traded on the NYMEX due to expire. “Next month contract” means the first contract traded on the NYMEX due to expire after the near month contract.

USNG may also invest in futures contracts for crude oil, heating oil, gasoline and other petroleum-based fuels that are traded on the NYMEX, ICE Futures or other U.S. and foreign exchanges (collectively, “Futures Contracts”) and other natural gas-related investments such as cash-settled options on Futures Contracts, forward contracts for natural gas cleared swap contracts and over-the-counter transactions that are based on the price of natural gas, crude oil and other petroleum-based fuels, Futures Contracts and indices based on the foregoing (collectively, “Other Natural Gas-Related Investments”).  For convenience and unless otherwise specified, Futures Contracts and Other Natural Gas-Related Investments collectively are referred to as “Natural Gas Interests” in this quarterly report on Form 10-Q. Due, in part, to the increased size of USNG over the last several quarters and its obligation to comply with regulatory limits, it is likely that it will invest in increased numbers of Other Natural Gas-Related Investments in order to fulfill its investment objective.

The regulation of Natural Gas Interests in the United States is a rapidly changing area of law and is subject to ongoing modification by governmental and judicial action.  As stated in the section “What are the Risk Factors Involved with an Investment in USNG?” of USNG’s prospectus as filed with the SEC, regulation of the commodity interests and energy markets is extensive and constantly changing; future regulatory developments in the commodity interests and energy markets are impossible to predict but may significantly and adversely affect USNG.

Currently, a number of proposals that would alter the regulation of Natural Gas Interests are being considered by federal regulators and Congress.  These proposals include the imposition of fixed position limits on energy-based commodity futures contracts, extension of position and accountability limits to futures contracts on non-U.S. exchanges previously exempt from such limits, and the forced use of clearinghouse mechanisms for all over-the-counter transactions.  Certain proposals would aggregate and limit all positions in energy futures held by a single entity, whether such positions exist on U.S. futures exchanges, non-U.S. futures exchanges, or in over-the-counter contracts.  While it cannot be predicted at this time what reforms will eventually be made or how they will impact USNG, if any of the aforementioned proposals is implemented, USNG’s ability to meet its investment objective may be negatively impacted and investors could be adversely affected.

In addition, due to potential regulatory limitations, USNG may determine to hold greater amounts of cash and cash equivalents and lesser amounts of Natural Gas Interests, or greater amounts of Other Natural Gas-Related Investments if it determines that will most appropriately satisfy USNG's investment objective.  Holding more cash and cash equivalents and less Natural Gas Interests, or more Other Natural Gas-Related Investments for some period of time may result in increased tracking error. Increasing USNG’s investments in Other Natural Gas-Related Investments, such as through increased investments in over-the-counter swaps, may result in increased tracking error due to the fact that transaction costs for over-the-counter swaps are significantly higher as compared to those for exchange-traded Natural Gas Interests, which to date are the principal investment of USNG.  In the event that USNG determines that suitable Other Natural Gas-Related Investments are not obtainable, USNG will need to consider other actions to protect its unitholders and to permit USNG to achieve its investment objectives.

The general partner of USNG, United States Commodity Funds LLC (formerly, Victoria Bay Asset Management, LLC) (the “General Partner”), which is registered as a commodity pool operator (“CPO”) with the U.S. Commodity Futures Trading Commission (the “CFTC”), is authorized by the Second Amended and Restated Agreement of Limited Partnership of USNG (the “LP Agreement”) to manage USNG. The General Partner is authorized by USNG in its sole judgment to employ and establish the terms of employment for, and termination of, commodity trading advisors or futures commission merchants.

 
17

 

Natural gas futures prices exhibited a general downtrend during the nine months ended September 30, 2009. The price of the Benchmark Futures Contract started the year at $5.971. It hit a peak on January 5 , 2009 of $6.072 and then fell over the course of the period. The low price of the period was on September 3 , 2009 when prices reached $2.058. The period ended with the Benchmark Futures Contract at $4.841, down approximately 13.89% over the period. Similarly, USNG’s NAV initially rose during the period from a starting level of $23.27   per unit to a high on January 5, 2009 of $25.30 per unit. USNG’s NAV reached its low for the period on September 3 , 2009 at $7.73 per unit. The NAV on September 30, 2009 was $11.57, down approximately 50.28% over the period.

For the first month of 2009, the natural gas futures market remained in a state of backwardation, meaning that the price of the near month natural gas futures contract was typically higher than the price of the next month natural gas futures contract, or contracts further away from expiration. For the rest of the first quarter and for the second and third quarters of 2009, the natural gas futures market moved into a contango market, with short periods of backwardation. A contango market is one in which the price of the near month natural gas futures contract is less than the price of the next month natural gas futures contract, or contracts further away from expiration. As a result of contango or backwardation, as the case may be, the return of approximately -13.89% on the Benchmark Futures Contract listed above is a hypothetical return only and could not actually be achieved by an investor holding futures contracts. For a discussion of the impact of backwardation and contango on total returns, see “Term Structure of Natural Gas Futures Prices and the Impact on Total Returns”.

Valuation of Futures Contracts and the Computation of the NAV

The NAV of USNG units is calculated once each NYSE Arca trading day.  The NAV for a particular trading day is released after 4:00 p.m. New York time. Trading during the core trading session on the NYSE Arca typically closes at 4:00 p.m. New York time. USNG’s administrator uses the NYMEX closing price (determined at the earlier of the close of the NYMEX or 2:30 p.m. New York time) for the contracts held on the NYMEX, but calculates or determines the value of all other USNG investments, including cleared swaps or other futures contracts, as of the earlier of the close of the New York Stock Exchange or 4:00 p.m. New York time.

Results of Operations and the Natural Gas Market

Results of Operations.   On April 18, 2007, USNG listed its units on the American Stock Exchange (the “AMEX”) under the ticker symbol “UNG.” On that day, USNG established its initial offering price at $50.00 per unit and issued 200,000 units to the initial authorized purchaser, Merrill Lynch Professional Clearing Corp., in exchange for $10,001,000 in cash. As a result of the acquisition of the AMEX by NYSE Euronext, USNG’s units no longer trade on the AMEX and commenced trading on the NYSE Arca on November 25, 2008.

Since its initial offering of 30,000,000 units, USNG has made four subsequent offerings of its units: 50,000,000 units which were registered with the SEC on November 21, 2007, 100,000,000 units which were registered with the SEC on August 28, 2008, 300,000,000 units which were registered with the SEC on May 6, 2009 and an additional 1,000,000,000 units which were registered with the SEC on August 12, 2009. As of September 30, 2009, USNG had issued 480,000,000 units, 347,400,000 of which were outstanding. As of September 30, 2009, there were 1,000,000,000 units registered but not yet issued.  On August 11, 2009, USNG’s management determined to suspend offerings of USNG’s units since it could not invest the proceeds from such offerings in investments that would permit it to meet its investment objective due to current and anticipated new regulatory restrictions and limitations on its investments in Futures Contracts. This suspension of creation activity may have led to an increase in USNG’s tracking error and, at times, a greater premium paid for transactions in its units on the NYSE Arca when compared to its per unit NAV on the same day.  On September 28, 2009, USNG resumed offerings of units subject to certain limitations including that (1) USNG may require authorized purchasers of its units (“Authorized Purchasers”) to sell USNG specified investments, including the arrangement of an over-the-counter swap contract between the Authorized Purchaser and USNG, (2) USNG may limit its issuance of creation baskets to an Authorized Purchaser to a specified minimum or maximum number of baskets, (3) USNG’s management may vary the terms and conditions of investments to be delivered or arranged by an Authorized Purchaser in order to purchase a creation basket and (4) USNG’s management may decide to offer creation baskets only on particular days. Units offered by USNG in the subsequent offerings were sold by it for cash at the units’ NAV as described in the applicable prospectus.

 
18

 

More units may have been issued by USNG than are outstanding due to the redemption of units. Unlike funds that are registered under the Investment Company Act of 1940, as amended, units that have been redeemed by USNG cannot be resold by USNG. As a result, USNG contemplates that additional offerings of its units will be registered with the SEC in the future in anticipation of additional issuances and redemptions.

For the Nine Months Ended September 30, 2009 Compared to the Nine Months Ended September 30, 2008

As of September 30, 2009, the total unrealized gain on natural gas Futures Contracts, cleared swap contracts and over-the-counter swap contracts owned or held on that day was $304,751,966 and USNG established cash deposits, including cash investments in money market funds, that were equal to $3,671,896,465. USNG held 80.49% of its cash assets in overnight deposits and money market funds at its custodian bank, while 19.51% of the cash balance was held with the futures commission merchant as margin deposits for the Futures Contracts purchased. The ending per unit NAV on September 30, 2009 was $11.57.

By comparison, as of September 30, 2008, the total unrealized loss on natural gas Futures Contracts owned or held on that day was $55,301,140 and USNG established cash deposits, including cash investments in money market funds , that were equal to $1,147,517,640. USNG held 65.04% of its cash assets in overnight deposits and money market funds at its custodian bank, while 34.96% of the cash balance was held with the futures commission merchant as margin deposits for the Futures Contracts purchased. The increase in cash assets in overnight deposits and money market funds from September 30, 2008 to September 30, 2009 was the result of a greater portion of USNG’s assets consisting of over-the-counter contracts and cleared swaps. The ending per unit NAV on September 30, 2008 was $33.07. The decrease in the per unit NAV from September 30, 2008 to September 30, 2009 was primarily a result of sharply lower prices for natural gas and the related decline in the value of the natural gas futures contracts that USNG had invested in between the period ended September 30, 2008 and the period ended September 30, 2009.

Portfolio Expenses . USNG’s expenses consist of investment management fees, brokerage fees and commissions, certain offering costs, licensing fees, the fees and expenses of the independent directors of the General Partner and other extraordinary expenses. The management fee that USNG pays to the General Partner is calculated as a percentage of the total net assets of USNG. For total net assets of up to $1 billion, the management fee is 0.60%. For total net assets over $1 billion, the management fee is 0.50% on the incremental amount of assets. The fee is accrued daily.

During the nine months ended September 30, 2009, the daily average total net assets of USNG were $2,207,965,179. The management fee paid by USNG during the period amounted to $8,923,338 , which was calculated at the 0.60% rate on total net assets up to and including $1 billion and at the rate of 0.50% on total net assets over $1 billion, and accrued daily. Management fees as a percentage of average net assets averaged 0.54% over the course of this nine month period.  By comparison, during the nine months ended September 30, 2008, the daily average total net assets of USNG were $711,569,945. The management fee paid by USNG during the period amounted to $3,177,614, which was calculated at the 0.60% rate for total net assets up to and including $1 billion and at the rate of 0.50% on total net assets over $1 billion, and accrued daily. Management fees as a percentage of average net assets averaged 0.60% over the course of this nine month period. Management fees as a percentage of average net assets were lower for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008 due to the period ended September 30, 2008 having a fewer number of days in which total net assets exceeded $1 billion and were therefore charged the lower rate of 0.50%.

In addition to the management fee, USNG pays all brokerage fees, transaction costs for over-the-counter swaps, taxes and other expenses, including certain tax reporting costs, licensing fees for the use of intellectual property, ongoing registration or other fees paid to the SEC, the Financial Industry Regulatory Authority (“FINRA”) and any other regulatory agency in connection with offers and sales of its units subsequent to the initial offering and all legal, accounting, printing and other expenses associated therewith. The total of these fees, taxes and expenses for the nine months ended September 30, 2009 was $13,860,003, as compared to $1,742,706 for the nine months ended September 30, 2008. The increase in expenses from the nine months ended September 30, 2008 to the nine months ended September 30, 2009 was primarily due to the relative size of USNG and activity that resulted from its increased size, including the registration and the offering of additional units, increased brokerage fees, increased transaction costs for over-the-counter swaps, increased licensing fees and increased tax reporting costs due to the greater number of unitholders during the period. For the nine months ended September 30, 2009, USNG incurred $1,806,478 in ongoing registration fees and other expenses relating to the registration and offering of additional units. By comparison, for the nine months ended September 30, 2008, USNG incurred $216,699 in ongoing registration fees and other expenses relating to the registration and offering of additional units.

 
19

 

USNG is responsible for paying its portion of the directors’ and officers’ liability insurance of the General Partner and the fees and expenses of the independent directors of the General Partner who are also the General Partner’s audit committee members. USNG shares these fees with the United States Oil Fund, LP (“USOF”), the United States 12 Month Oil Fund, LP (“US12OF”), the United States Gasoline Fund, LP (“UGA”) the United States Heating Oil Fund, LP (“USHO”) and the United States Short Oil Fund (“USSO”), based on the relative assets of each fund computed on a daily basis. These fees for calendar year 2009 are estimated to be a total of $477,000 for all funds. By comparison, for the year ended December 31, 2008, these fees amounted to a total of $282,000 for all funds, and USNG’s portion of such fees was $130,371. Directors’ expenses are expected to increase in 2009 due to payment for directors’ and officers’ liability insurance and an increase in the compensation awarded to the independent directors of the General Partner. Effective as of March 3, 2009, the General Partner has obtained directors’ and officers’ liability insurance covering all of the directors and officers of the General Partner. Previously, the General Partner did not have liability insurance for its directors and officers; instead, the independent directors received a payment in lieu of directors’ and officers’ liability insurance coverage.

USNG also incurs commissions to brokers for the purchase and sale of Futures Contracts, Other Natural Gas-Related Investments or short-term obligations of the United States of two years or less (“Treasuries”). During the nine months ended September 30, 2009, total commissions paid to brokers amounted to $9,704,462. By comparison, during the nine months ended September 30, 2008, total commissions paid to brokers amounted to $604,734. The increase in the total commissions paid to brokers from the nine months ended September 30, 2008 to the nine months ended September 30, 2009 was primarily a function of increased brokerage fees due to a higher number of Natural Gas Interests being held and traded as a result of the increase in USNG’s average total net assets, the decrease in the price of Natural Gas Interests and the increase in redemptions and creations of units during the nine months ended September 30, 2009.  The increase in assets required USNG to purchase a greater number of Natural Gas Interests and incur a larger amount of commissions. As an annualized percentage of total net assets, the figure for the nine months ended September 30, 2009 represents approximately 0.59% of total net assets. By comparison, the figure for the nine months ended September 30, 2008 represented approximately 0.11% of total net assets. However, there can be no assurance that commission costs and portfolio turnover will not cause commission expenses to rise in future quarters.

USNG’s transaction fees have also increased during the nine months ended September 30, 2009 due to the increased investment in Other Natural Gas-Related Investments, including over-the-counter swaps, including up front fees and spreads charged by counterparties,  during that period. In particular, the transaction costs for over-the-counter swaps are significantly higher as compared to those for exchange-traded Natural Gas Interests, which to date are the principal investment of USNG. USNG  incurred $1,286,544 in transaction costs during the nine months ended September 30, 2009 as compared to  no transaction costs during the nine months ended September 30, 2008.

Interest Income . USNG seeks to invest its assets such that it holds Futures Contracts and Other Natural Gas-Related Investments in an amount equal to the total net assets of its portfolio. Typically, such investments do not require USNG to pay the full amount of the contract value at the time of purchase, but rather require USNG to post an amount as a margin deposit against the eventual settlement of the contract. As a result, USNG retains an amount that is approximately equal to its total net assets, which USNG invests in Treasuries, cash and/or cash equivalents. This includes both the amount on deposit with the futures commission merchant as margin, as well as unrestricted cash and cash equivalents held with USNG’s custodian bank. The Treasuries, cash and/or cash equivalents earn interest that accrues on a daily basis. For the nine months ended September 30, 2009, USNG earned $2,241,532 in interest income on such cash holdings. Based on USNG’s average daily total net assets, this was equivalent to an annualized yield of 0.14%. USNG did not purchase Treasuries during the nine months ended September 30, 2009 and held all of its funds in cash and/or cash equivalents during this time period. By comparison, for the nine months ended September 30, 2008, USNG earned $10,380,019 in interest income on such cash holdings. Based on USNG’s average daily total net assets, this was equivalent to an annualized yield of 1.95%. USNG did not purchase Treasuries during the nine months ended September 30, 2008 and held all of its funds in cash and/or cash equivalents during this time period. Interest rates on short-term investments in the United States, including cash, cash equivalents, and short-term Treasuries, were sharply lower during the nine months ended September 30, 2009 compared to the same time period in 2008. As a result, the amount of interest earned by USNG as a percentage of total net assets was lower during the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008.

 
20

 

For the Three Months Ended September 30, 2009 Compared to the Three Months Ended September 30, 2008

During the three months ended September 30, 2009, the daily average total net assets of USNG were $3,893,286,748. The management fee paid by USNG during the period amounted to $5,158,662, which was calculated at the 0.60% rate on total net assets up to and including $1 billion and at the rate of 0.50% on total net assets over $1 billion, and accrued daily. Management fees as a percentage of average net assets averaged 0.53% over the course of this three month period.  By comparison, during the three months ended September 30, 2008, the daily average total net assets of USNG were $933,171,008. The management fee paid by USNG for the three months ended September 30, 2008 amounted to $1,390,316, which was calculated at the 0.60% rate for total net assets up to and including $1 billion and at the rate of 0.50% on total net assets over $1 billion, and accrued daily. Management fees as a percentage of average net assets averaged 0.60% over the course of the three months ended September 30, 2008. USNG’s management fees as a percentage of average net assets were lower for the three months ended September 30, 2009 compared to the three months ended September 30, 2008 due to the period ended September 30, 2008 having a fewer number of days in which total net assets exceeded $1 billion.

In addition to the management fee, USNG pays all brokerage fees,  transaction costs for over-the-counter swaps, taxes and other expenses, including certain tax reporting costs, licensing fees for the use of intellectual property, ongoing registration or other fees paid to the SEC, FINRA and any other regulatory agency in connection with offers and sales of its units subsequent to the initial offering and all legal, accounting, printing and other expenses associated therewith. The total of these fees, taxes and expenses for the three months ended September 30, 2009 was $8,112,692, as compared to $668,860 for the three months ended September 30, 2008. The increase in expenses from the three months ended September 30, 2008 to the three months ended September 30, 2009 was primarily due to the relative size of USNG and activity that resulted from its increased size, including the registration and the offering of additional units, increased brokerage fees,  increased transaction costs for over-the-counter swaps, increased licensing fees and increased tax reporting costs due to the greater number of unitholders during the period. For the three months ended September 30, 2009, USNG incurred $763,759 in ongoing registration fees and other expenses relating to the registration and offering of additional units. By comparison, for the three months ended September 30, 2008, USNG incurred $127,741 in ongoing registration fees and other expenses relating to the registration and offering of additional units.

USNG is responsible for paying its portion of the directors’ and officers’ liability insurance of the General Partner and the fees and expenses of the independent directors of the General Partner who are also the General Partner’s audit committee members. USNG shares these fees with USOF, US12OF, UGA, USHO and USSO based on the relative assets of each fund computed on a daily basis. These fees for the three months ended September 30, 2009 amounted to a total of $80,648 for all funds, and USNG’s portion of such fees was $49,631. By comparison, for the three months ended September 30, 2008, these fees amounted to a total of $72,126 for all funds, and USNG’s portion of such fees was $30,262. Directors’ expenses increased from the three months ended September 30, 2008 to the three months ended September 30, 2009 due to payment for directors’ and officers’ liability insurance and an increase in the compensation awarded to the independent directors of the General Partner. Effective as of March 3, 2009, the General Partner has obtained directors’ and officers’ liability insurance covering all of the directors and officers of the General Partner. Previously, the General Partner did not have liability insurance for its directors and officers; instead, the independent directors received a payment in lieu of directors’ and officers’ liability insurance coverage.

USNG also incurs commissions to brokers for the purchase and sale of Futures Contracts, Other Natural Gas-Related Investments or Treasuries. During the three months ended September 30, 2009, total commissions paid to brokers amounted to $5,726,699. By comparison, during the three months ended September 30, 2008, total commissions paid to brokers amounted to $324,156.  The increase in the total commissions paid to brokers from the three months ended September 30, 2008 to the three months ended September 30, 2009 was primarily a function of increased brokerage fees due to a higher number of Natural Gas Interests being held and traded as a result of the increase in USNG’s average total net assets and the decrease in the price of Natural Gas Interests during the three months ended September 30, 2009.  The increase in assets required USNG to purchase a greater number of Natural Gas Interests and incur a larger amount of commissions. As an annualized percentage of total net assets, the figure for the three months ended September 30, 2009 represents approximately 0.58% of total net assets. By comparison, the figure for the three months ended September 30, 2008 represented approximately 0.14% of total net assets. However, there can be no assurance that commission costs and portfolio turnover will not cause commission expenses to rise in future quarters.

 
21

 

USNG’s transaction fees have also increased during the three months ended September 30, 2009 due to the increased investment in Other Natural Gas-Related Investments, including over-the-counter swaps, during that period. In particular, the transaction costs for over-the-counter swaps , including up front fees and spreads charged by counterparties,  are significantly higher as compared to those for exchange-traded Natural Gas Interests, which to date are the principal investment of USNG. USNG incurred $1,286,544 in transaction costs during the three months ended September 30, 2009 as compared to no transaction costs during the three months ended September 30, 2008.

Interest Income . USNG seeks to invest its assets such that it holds Futures Contracts and Other Natural Gas-Related Investments in an amount equal to the total net assets of its portfolio. Typically, such investments do not require USNG to pay the full amount of the contract value at the time of purchase, but rather require USNG to post an amount as a margin deposit against the eventual settlement of the contract. As a result, USNG retains an amount that is approximately equal to its total net assets, which USNG invests in Treasuries, cash and/or cash equivalents. This includes both the amount on deposit with the futures commission merchant as margin, as well as unrestricted cash and cash equivalents held with USNG’s custodian bank. The Treasuries, cash and/or cash equivalents earn interest that accrues on a daily basis. For the three months ended September 30, 2009, USNG earned $968,387 in interest income on such cash holdings. Based on USNG’s average daily total net assets, this was equivalent to an annualized yield of 0.10%. USNG did not purchase Treasuries during the three months ended September 30, 2009 and held all of its funds in cash and/or cash equivalents during this time period. By comparison, for the three months ended September 30, 2008, USNG earned $4,484,691 in interest income on such cash holdings. Based on USNG’s average daily total net assets, this was equivalent to an annualized yield of 1.91%. USNG did not purchase Treasuries during the three months ended September 30, 2008 and held all of its funds in cash and/or cash equivalents during this time period. Interest rates on short-term investments in the United States, including cash, cash equivalents, and short-term Treasuries, were sharply lower during the three months ended September 30, 2009 compared to the same time period in 2008. As a result, the amount of interest earned by USNG as a percentage of total net assets was lower during the three months ended September 30, 2009 compared to the three months ended September 30, 2008.

Tracking USNG’s Benchmark

USNG seeks to manage its portfolio such that changes in its average daily NAV, on a percentage basis, closely track the changes in the average daily price of the Benchmark Futures Contract, also on a percentage basis. Specifically, USNG seeks to manage the portfolio such that over any rolling period of 30 valuation days, the average daily change in the NAV is within a range of 90% to 110% (0.9 to 1.1) of the average daily change in the price of the Benchmark Futures Contract. As an example, if the average daily movement of the price of the Benchmark Futures Contract for a particular 30-day time period was 0.5% per day, USNG’s management would attempt to manage the portfolio such that the average daily movement of the NAV during that same time period fell between 0.45% and 0.55% i.e ., between 0.9 and 1.1 of the benchmark’s results. USNG’s portfolio management goals do not include trying to make the nominal price of USNG’s NAV equal to the nominal price of the current Benchmark Futures Contract or the spot price for natural gas. Management believes that it is not practical to manage the portfolio to achieve such an investment goal when investing in listed natural gas Futures Contracts and Other Natural Gas-Related Investments.

For the 30 valuation days ended September 30, 2009, the simple average daily change in the Benchmark Futures Contract was 0.425%, while the simple average daily change in the NAV of USNG over the same time period was -0.420%. The average daily difference was -0.005% (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 0.0027%, meaning that over this time period USNG’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal. The first chart below shows the daily movement of USNG’s NAV versus the daily movement of the Benchmark Futures Contract for the 30-day period ended September 30, 2009.

 
22

 

*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 
23

 

*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

Since the offering of USNG’s units to the public on April 18, 2007 to September 30, 2009, the simple average daily change in the Benchmark Futures Contract was -0.185%, while the simple average daily change in the NAV of USNG over the same time period was -0.182%. The average daily difference was -0.003% (or -0.3 basis points, where 1 basis point equals 1/100 of 1%). As a percentage of the daily movement of the Benchmark Futures Contract, the average error in daily tracking by the NAV was 0.508%, meaning that over this time period USNG’s tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

An alternative tracking measurement of the return performance of USNG versus the return of its Benchmark Futures Contract can be calculated by comparing the actual return of USNG, measured by changes in its NAV, versus the expected changes in its NAV under the assumption that USNG’s returns had been exactly the same as the daily changes in its Benchmark Futures Contract.

For the nine months ended September 30, 2009, the actual total return of USNG as measured by changes in its NAV was -50.28%. This is based on an initial NAV of $23.27 on December 31, 2008 and an ending NAV as of September 30, 2009 of $11.57. During this time period, USNG made no distributions to its unitholders. However, if USNG’s daily changes in its NAV had instead exactly tracked the changes in the daily return of the Benchmark Futures Contract, USNG would have ended the third quarter of 2009 with an estimated NAV of $11.68, for a total return over the relevant time period of -49.81%. The difference between the actual NAV total return of USNG of -50.28% and the expected total return based on the Benchmark Futures Contract of -49.81% was an error over the time period of 0.47%, which is to say that USNG’s NAV trailed the benchmark result by that percentage. Management believes that a portion of the difference between the actual return and the expected benchmark return can be attributed to the net impact of the expenses and the interest that USNG collects on its cash and cash equivalent holdings. During the nine months ended September 30, 2009, USNG received interest income of $2,241,532, which is equivalent to a weighted average interest rate of 0.14% for the nine months ended September 30, 2009. In addition, during the nine months ended September 30, 2009, USNG also collected $185,000 from its Authorized Purchasers creating or redeeming baskets of units. This income contributed to USNG’s actual return. However, if the total assets of USNG continue to increase, management believes that the impact on total returns of these fees from creations and redemptions will diminish as a percentage of the total return. During the nine months ended September 30, 2009, USNG incurred total expenses of $22,783,341. Income from interest and Authorized Purchaser collections net of expenses was $(20,794,241), which is equivalent to a weighted average net interest rate of -1.26% for the nine months ended September 30, 2009.

 
24

 

By comparison, for the nine months ended September 30, 2008, the actual total return of USNG as measured by changes in its NAV was -8.60%. This was based on an initial NAV of $36.18 on December 31, 2007 and an ending NAV as of September 30, 2008 of $33.07. During this time period, USNG made no distributions to its unitholders. However, if USNG’s daily changes in its NAV had instead exactly tracked the changes in the daily return of the Benchmark Futures Contract, USNG would have ended the third quarter of 2008 with an estimated NAV of $32.85, for a total return over the relevant time period of -9.20%. The difference between the actual NAV total return of USNG of -8.60% and the expected total return based on the Benchmark Futures Contract of -9.20% was an error over the time period of 0.60%, which is to say that USNG’s actual total return exceeded the benchmark result by that percentage. Management believes that a portion of the difference between the actual return and the expected benchmark return can be attributed to the impact of the interest that USNG collected on its cash and cash equivalent holdings. During the nine months ended September 30, 2008, USNG received interest income of $10,380,019, which is equivalent to a weighted average interest rate of 1.95% for the nine months ended September 30, 2008. In addition, during the nine months ended September 30, 2008, USNG also collected $147,000 from Authorized Purchasers creating or redeeming baskets of units. During the nine months ended September 30, 2008, USNG incurred total expenses of $4,920,319. Income from interest and Authorized Purchaser collections net of expenses was $5,606,700, which is equivalent to a weighted average net interest rate of 1.05% for the nine months ended September 30, 2008. This income also contributed to USNG’s actual return exceeding the benchmark results.

There are currently three factors that have impacted or are most likely to impact USNG’s ability to accurately track its Benchmark Futures Contract.

First, USNG may buy or sell its holdings in the then current Benchmark Futures Contract at a price other than the closing settlement price of that contract on the day during which USNG executes the trade. In that case, USNG may pay a price that is higher, or lower, than that of the Benchmark Futures Contract, which could cause the changes in the daily NAV of USNG to either be too high or too low relative to the changes in the Benchmark Futures Contract. During the nine months ended September 30, 2009, management attempted to minimize the effect of these transactions by seeking to execute its purchase or sale of the Benchmark Futures Contract at, or as close as possible to, the end of the day settlement price. However, it may not always be possible for USNG to obtain the closing settlement price and there is no assurance that failure to obtain the closing settlement price in the future will not adversely impact USNG’s attempt to track the Benchmark Futures Contract over time.

Second, USNG earns interest on its cash, cash equivalents and Treasury holdings. USNG is not required to distribute any portion of its income to its unitholders and did not make any distributions to unitholders during the nine months ended September 30, 2009. Interest payments, and any other income, were retained within the portfolio and added to USNG’s NAV. When this income exceeds the level of USNG’s expenses for its management fee, brokerage commissions and other expenses (including ongoing registration fees, licensing fees and the fees and expenses of the independent directors of the General Partner), USNG will realize a net yield that will tend to cause daily changes in the NAV of USNG to track slightly higher than daily changes in the Benchmark Futures Contract. During the nine months ended September 30, 2009, USNG earned, on an annualized basis, approximately 0.14% on its cash holdings. It also incurred cash expenses on an annualized basis of 0.54% for management fees and approximately 0.59% in brokerage commission costs related to the purchase and sale of futures contracts, and 0.28% for other expenses. The foregoing fees and expenses resulted in a net yield on an annualized basis of approximately -1.27% and affected USNG’s ability to track its benchmark. If short-term interest rates rise above the current levels, the level of deviation created by the yield would decrease. Conversely, if short-term interest rates were to decline, the amount of error created by the yield would increase. When short-term yields drop to a level lower than the combined expenses of the management fee and the brokerage commissions, then the tracking error becomes a negative number and would tend to cause the daily returns of the NAV to underperform the daily returns of the Benchmark Futures Contract.

 
25

 

Third, USNG may hold Other Natural Gas-Related Investments in its portfolio that may fail to closely track the Benchmark Futures Contract’s total return movements. In that case, the error in tracking the Benchmark Futures Contract could result in daily changes in the NAV of USNG that are either too high, or too low, relative to the daily changes in the Benchmark Futures Contracts. During the nine months ended September 30, 2009, USNG held Other Natural Gas-Related Investments. These holdings included a financially settled natural gas futures contract traded on NYMEX whose settlement price tracks the settlement price of the Benchmark Futures Contract. USNG also held investments in cleared swaps traded on the ICE Futures whose settlement price also tracks the settlement price of the Benchmark Futures Contract and fully-collateralized over-the-counter swaps designed to track the settlement price of the Benchmark Futures Contract.  Due, in part, to the increased size of USNG over the last several quarters and its obligations to comply with regulatory limits, USNG has invested in Other Natural Gas-Related Investments, such as over-the-counter swaps, which have increased transaction-related expenses and may result in increased tracking error. Over-the-counter swaps increase transaction-related expenses due to the fact that USNG must pay to the swap counterparty certain fees that USNG does not have to pay for transactions executed on an exchange. Finally, due to potential regulatory limitations, USNG may determine to hold greater amounts of cash and cash equivalents and lesser amounts of Natural Gas Interests, if it determines that will most appropriately satisfy USNG’s investment objective. Holding more cash and cash equivalents and less Natural Gas Interests for some period of time may result in increased tracking error. There are additional Other Natural Gas-Related Investments that USNG is permitted to invest in whose price movements may not track the settlement price of the Benchmark Futures Contract.

On August 12, 2009, USNG’s management determined to suspend offerings of USNG’s units since it could not invest the proceeds from such offerings in investments that would permit it to meet its investment objective due to current and anticipated new regulatory restrictions and limitations. As a result of this suspension of creation activity, USNG’s shares may have been trading at a premium during a portion of the period from August 12, 2009 to September 28, 2009, when creation activity resumed subject to certain limitations. These limitations included the following: (1) USNG may require Authorized Purchasers of its units to sell USNG specified investments, including the arrangement of an over-the-counter swap contract between the Authorized Purchaser and USNG, (2) USNG may limit its issuance of creation baskets to an Authorized Purchaser to a specified minimum or maximum number of baskets, (3) USNG’s management may vary the terms and conditions of investments to be delivered or arranged by an Authorized Purchaser in order to purchase a creation basket and (4) USNG’s management may decide to offer creation baskets only on particular days. The trading of USNG’s units at a premium may have caused an increase in tracking error.

Term Structure of Natural Gas Futures Prices and the Impact on Total Returns. Several factors determine the total return from investing in a futures contract position. One factor that impacts the total return that will result from investing in near month natural gas futures contracts and “rolling” those contracts forward each month is the price relationship between the current near month contract and the next month contract.  For example, if the price of the near month contract is higher than the next month contract (a situation referred to as “backwardation” in the futures market), then absent any other change there is a tendency for the price of a next month contract to rise in value as it becomes the near month contract and approaches expiration. Conversely, if the price of a near month contract is lower than the next month contract (a situation referred to as “contango” in the futures market), then absent any other change there is a tendency for the price of a next month contract to decline in value as it becomes the near month contract and approaches expiration.

As an example, assume that the price of natural gas for immediate delivery (the “spot” price), was $7 per 10,000 million British thermal units (“MMBtu”), and the value of a position in the near month futures contract was also $7. Over time, the price of 10,000 MMBtu of natural gas will fluctuate based on a number of market factors, including demand for natural gas relative to its supply. The value of the near month contract will likewise fluctuate in reaction to a number of market factors. If investors seek to maintain their position in a near month contract and not take delivery of the natural gas, every month they must sell their current near month contract as it approaches expiration and invest in the next month contract.

If the futures market is in backwardation, e.g. , when the expected price of natural gas in the future would be less, the investor would be buying a next month contract for a lower price than the current near month contract. Hypothetically, and assuming no other changes to either prevailing natural gas prices or the price relationship between the spot price, the near month contract and the next month contract (and ignoring the impact of commission costs and the interest earned on Treasuries, cash and/or cash equivalents), the value of the next month contract would rise as it approaches expiration and becomes the new near month contract. In this example, the value of the $7 investment would tend to rise faster than the spot price of natural gas, or fall slower. As a result, it would be possible in this hypothetical example for the price of spot natural gas to have risen to $9 after some period of time, while the value of the investment in the futures contract would have risen to $10, assuming backwardation is large enough or enough time has elapsed. Similarly, the spot price of natural gas could have fallen to $5 while the value of an investment in the futures contract could have fallen to only $6. Over time, if backwardation remained constant, the difference would continue to increase.

 
26

 

If the futures market is in contango, the investor would be buying a next month contract for a higher price than the current near month contract. Hypothetically, and assuming no other changes to either prevailing natural gas prices or the price relationship between the spot price, the near month contract and the next month contract (and ignoring the impact of commission costs and the interest earned on cash), the value of the next month contract would fall as it approaches expiration and becomes the new near month contract. In this example, it would mean that the value of the $7 investment would tend to rise slower than the spot price of natural gas, or fall faster. As a result, it would be possible in this hypothetical example for the spot price of natural gas to have risen to $9 after some period of time, while the value of the investment in the futures contract will have risen to only $8, assuming contango is large enough or enough time has elapsed. Similarly, the spot price of natural gas could have fallen to $6 while the value of an investment in the futures contract could have fallen to $7. Over time, if contango remained constant, the difference would continue to increase.

The chart below compares the price of the near month contract to the price of the next month contract over the last 10 years (1999-2008) for natural gas. When the price of the near month contract is higher than the price of the next month contract, the market would be described as being in backwardation. When the price of the near month contract is lower than the price of the next month contract, the market would be described as being in contango. Although the prices of the near month contract and the price of the next month contract do tend to move up or down together, it can be seen that at times the near month prices are clearly higher than the price of the next month contract (backwardation), and other times they are below the price of the next month contract (contango). In addition, investors can observe that natural gas prices, both near month and next month, often display a seasonal pattern in which the price of natural gas tends to rise in the early winter months and decline in the summer months. This mirrors the physical demand for natural gas, which typically peaks in the winter.
 

*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 
27

 

Another way to view backwardation and contango data over time is to subtract the dollar price of the next month natural gas Futures Contract from the dollar price of the near month natural gas Futures Contract. If the resulting number is a positive number, then the near month price is higher than the price of the next month and the market could be described as being in backwardation. If the resulting number is a negative number, then the near month price is lower than the price of the next month and the market could be described as being in contango. The chart below shows the results from subtracting the next month price from the price of the near month contract for the 10 year period between 1999 and 2008. Investors will note that the natural gas market spent time in both backwardation and contango. Investors will further note that the markets display a seasonal pattern that corresponds to the seasonal demand patterns for natural gas described above. That is, in many, but not all, cases the price of the next month is higher than the near month as the winter months approach, as the price of natural gas for delivery in those winter months rises on expectations of demand. At the same time, the price of the near month, when that month is just before the onset of winter, does not rise as far or as fast as the price of a next month contract whose delivery falls during the winter season.
 
*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

Historically, the natural gas futures markets have experienced periods of contango and backwardation. Because natural gas demand is seasonal, it is possible for the price of Futures Contracts for delivery within one or two months to rapidly move from backwardation into contango and back again within a relatively short period of time of less than one year. While the investment objective of USNG is not to have the market price of its units match, dollar for dollar, changes in the spot price of natural gas, contango impacted the total return on an investment in USNG units during the nine months ended September 30, 2009 relative to a hypothetical direct investment in natural gas. For example, an investment in USNG units made on December 31, 2008 and held to September 30, 2009 decreased, based upon the changes in the NAV for USNG units on those days, by approximately 50.28%, while the spot price of natural gas for immediate delivery during the same period decreased by approximately 49.81% (note: this comparison ignores the potential costs associated with physically owning and storing natural gas, which could be substantial). By comparison, during the period from December 31, 2007 to September 30, 2008, contago impacted the total return on an investment in USNG units relative to a hypothetical direct investment in natural gas. For example, an investment in USNG units made on December 31, 2007 and held to September 30, 2008 decreased, based upon the changes in the NAV for USNG units on those days, by approximately 8.60%, while the spot price of natural gas for immediate delivery during the same period increased by approximately 9.20% (note: this comparison ignores the potential costs associated with physically owning and storing natural gas, which could be substantial).

 
28

 

Periods of contango or backwardation do not materially impact USNG’s investment objective of having the percentage changes in its per unit NAV track the percentage changes in the price of the Benchmark Futures Contract since the impact of backwardation and contango tended to equally impact the percentage changes in price of both USNG’s units and the Benchmark Futures Contract. It is impossible to predict with any degree of certainty whether backwardation or contango will occur in the future. It is likely that both conditions will occur during different periods and, because of the seasonal nature of natural gas demand, both may occur within a single year’s time.

Natural Gas Market. During the nine months ended September 30, 2009, natural gas prices in the United States were impacted by several factors. At the beginning of the first quarter of 2009, the amount of natural gas in storage was at higher than average levels versus the previous five years. During the entire first half of 2009, the seasonally adjusted inventory levels of stored natural gas remained well above five-year averages. In addition, a combination of slowing U.S. economic growth and increased natural gas production all contributed to a very significant decline in natural gas prices during the first half of 2009, with prices reaching a low of $2.508 on September 3, 2009 and ending the third quarter of 2009 with a price of $4.481.

Natural Gas Price Movements in Comparison to other Energy Commodities and Investment Categories. The General Partner believes that investors frequently measure the degree to which prices or total returns of one investment or asset class move up or down in value in concert with another investment or asset class. Statistically, such a measure is usually done by measuring the correlation of the price movements of the two different investments or asset classes over some period of time. The correlation is scaled between 1 and -1, where 1 indicates that the two investment options move up or down in price or value together, known as “positive correlation,” and -1 indicating that they move in completely opposite directions, known as “negative correlation.” A correlation of 0 would mean that the movements of the two are neither positively or negatively correlated, known as “non-correlation.” That is, the investment options sometimes move up and down together and other times move in opposite directions.

For the ten year time period between 1998 and 2008, the chart below compares the monthly movements of natural gas prices versus the monthly movements of the prices of several other energy commodities, such as crude oil, heating oil, and unleaded gasoline, as well as several major non-commodity investment asset classes, such as large cap U.S. equities, U.S. government bonds and global equities. It can be seen that over this particular time period, the movement of natural gas on a monthly basis was not strongly correlated, positively or negatively, with the movements of large cap U.S. equities, U.S. government bonds or global equities. However, movements in natural gas had a positive correlation to movements in heating oil. Finally, natural gas had a positive, but very weak, correlation with crude oil and unleaded gasoline.

10 Year Correlation Matrix
1998-2008
 
Large Cap
U.S.
Equities
(S&P 500)
   
U.S. Govt.
Bonds
(EFFAS
U.S.
Government
Bond Index)
   
Global
Equities
(FTSE
World
Index)
   
Unleaded
Gasoline
   
Crude
Oil
   
Heating
Oil
   
Natural
Gas
 
Large Cap U.S. Equities (S&P 500)
    1.000       -0.223       0.936       0.266       0.063       0.003       0.045  
U.S. Govt. Bonds (EFFAS U.S. Government Bond Index)
            1.000       -0.214       -0.134       -0.027       0.037       0.054  
Global Equities (FTSE World Index)
                    1.000       0.384       0.155       0.084       0.072  
Unleaded Gasoline
                            1.000       0.747       0.663       0.254  
Crude Oil
                                    1.000       0.738       0.292  
Heating Oil
                                            1.000       0.394  
Natural Gas
                                                    1.000  
source: Bloomberg, NYMEX
                                                       
 
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
 
 
29

 

The chart below covers a more recent, but much shorter, range of dates than the above chart. Over the one year period ended September 30, 2009, natural gas had a slightly weaker positive correlation with crude oil, heating oil and unleaded gasoline than it had displayed over the ten year period ended December 31, 2008. The correlation between natural gas and U.S. government bonds, which had been essentially non-correlated over the ten year period ended December 31, 2008, appeared to remain non-correlated over this shorter time period.   Correlations compared to global equities and U.S. large-cap equities appeared to be weakly correlated over this shorter time period. This may have been as a result of the drop in both industrial production in the U.S. as well as natural gas demand as a result of the slowing economy.
 
Correlation Matrix – 
12 months ended 
September 30, 2009
 
Large Cap
U.S.
Equities
(S&P 500)
   
U.S. Govt.
Bonds
(EFFAS
U.S.
Government
Bond Index)
   
Global
Equities
(FTSE
World
Index)
   
Crude Oil
   
Heating
Oil
   
Unleaded
Gasoline
   
Natural
Gas
 
Large Cap U.S. Equities (S&P 500)
    1.000       0.088       0.988       0.706       0.694       0.522       0.205  
U.S. Govt. Bonds (EFFAS U.S. Government Bond Index)
            1.000       0.102       -0.313       -0.303       -0.423       0.082  
Global Equities (FTSE World Index)
                    1.000       0.705       0.697       0.552       0.205  
Crude Oil
                            1.000       0.810       0.768       0.193  
Heating Oil
                                    1.000       0.865       0.252  
Unleaded Gasoline
                                            1.000       -0.089  
Natural Gas
                                                    1.000  
source: Bloomberg, NYMEX
 
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 
30

 

Investors are cautioned that the historical price relationships between natural gas and various other energy commodities, as well as other investment asset classes, as measured by correlation may not be reliable predictors of future price movements and correlation results. The results pictured above would have been different if a different range of dates had been selected. The General Partner believes that natural gas has historically not demonstrated a strong correlation with equities or bonds over long periods of time. However, the General Partner also believes that in the future it is possible that natural gas could have long term correlation results that indicate prices of natural gas more closely track the movements of equities or bonds. In addition, the General Partner believes that, when measured over time periods shorter than ten years, there will always be some periods where the correlation of natural gas to equities and bonds will be either more strongly positively correlated or more strongly negatively correlated than the long term historical results suggest.

The correlations between natural gas, crude oil, heating oil and gasoline are relevant because the General Partner endeavors to invest USNG’s assets in natural gas Futures Contracts and Other Natural Gas-Related Investments so that daily changes in percentage terms in USNG’s NAV correlate as closely as possible with daily changes in percentage terms in the price of the Benchmark Futures Contract. If certain other fuel-based commodity futures contracts do not closely correlate with the natural gas Futures Contract, then their use could lead to greater tracking error. As noted, the General Partner also believes that the changes in percentage terms in the price of the Benchmark Futures Contract will closely correlate with changes in percentage terms in the spot price of natural gas.

Critical Accounting Policies

Preparation of the condensed financial statements and related disclosures in compliance with accounting principles generally accepted in the United States of America requires the application of appropriate accounting rules and guidance, as well as the use of estimates. USNG’s application of these policies involves judgments and actual results may differ from the estimates used.

The General Partner has evaluated the nature and types of estimates that it makes in preparing USNG’s condensed financial statements and related disclosures and has determined that the valuation of its investments which are not traded on a United States or internationally recognized futures exchange (such as forward contracts and over-the-counter contracts) involves a critical accounting policy. The values which are used by USNG for its forward contracts are provided by its commodity broker who uses market prices when available, while over-the-counter contracts are valued based on the present value of estimated future cash flows that would be received from or paid to a third party in settlement of these derivative contracts prior to their delivery date and valued on a daily basis. In addition, USNG estimates interest income on a daily basis using prevailing interest rates earned on its cash and cash equivalents. These estimates are adjusted to the actual amount received on a monthly basis and the difference, if any, is not considered material.

Liquidity and Capital Resources

USNG has not made, and does not anticipate making, use of borrowings or other lines of credit to meet its obligations. USNG has met, and it is anticipated that USNG will continue to meet, its liquidity needs in the normal course of business from the proceeds of the sale of its investments, or from the Treasuries, cash and/or cash equivalents that it intends to hold at all times. USNG’s liquidity needs include: redeeming units, providing margin deposits for its existing Futures Contracts or the purchase of additional Futures Contracts and posting collateral for its over-the-counter contracts and payment of its expenses, summarized below under “Contractual Obligations.”

USNG currently generates cash primarily from (i) the sale of baskets consisting of 100,000 units (“Creation Baskets”) and (ii) interest earned on Treasuries, cash and/or cash equivalents. USNG has allocated substantially all of its net assets to trading in Natural Gas Interests. USNG invests in Natural Gas 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 Natural Gas-Related Investments. A significant portion of the NAV is held in cash and cash equivalents that are used as margin and as collateral for USNG’s trading in Natural Gas Interests. The balance of the net assets is held in USNG’s account at its custodian bank. Interest earned on USNG’s interest-bearing funds is paid to USNG. In prior periods, the amount of cash earned by USNG from the sale of Creation Baskets and from interest earned has exceeded the amount of cash required to pay USNG’s expenses. However, during the nine months ended September 30, 2009, USNG’s expenses exceeded the interest income USNG earned and the cash earned by the sale of Creation Baskets. To the extent exprnses have execeeded interest income, USNG’s NAV will be negatively impacted.

 
31

 
 
USNG’s investment in Natural Gas Interests may be subject to periods of illiquidity because of market conditions, regulatory considerations and other reasons. For example, most commodity exchanges limit the fluctuations in futures contracts prices during a single day by regulations referred to as “daily limits.” During a single day, no trades may be executed at prices beyond the daily limit. Once the price of a futures contract has increased or decreased by an amount equal to the daily limit, positions in the contracts can neither be taken nor liquidated unless the traders are willing to effect trades at or within the specified daily limit. In addition, USNG’s over-the-counter contracts have very limited liquidity since they are negotiated agreements that are not transferable by USNG except with the consent of its counterparty, and even if consent were granted, there may not be an available transferee. Such market conditions or contractual limits  could prevent USNG from promptly liquidating its positions in Natural Gas Interests. During the nine months ended September 30, 2009, USNG was not forced to purchase or liquidate any of its positions while daily limits were in effect; however, USNG cannot predict whether such an event may occur in the future.

Since the initial offering of units, USNG has been responsible for expenses relating to (i) management fees, (ii) brokerage fees and commissions and fees associated with its over-the-counter transactions , (iii) licensing fees for the use of intellectual property, (iv) ongoing registration expenses in connection with offers and sales of its units subsequent to the initial offering, (v) taxes and other expenses, including certain tax reporting costs, (vi) fees and expenses of the independent directors of the General Partner and (vii) other extraordinary expenses not in the ordinary course of business, while the General Partner has been responsible for expenses relating to the fees of USNG’s marketing agent, administrator and custodian and registration expenses relating to the initial offering of units . If the General Partner and USNG are unsuccessful in raising sufficient funds to cover these respective expenses or in locating any other source of funding, USNG will terminate and investors may lose all or part of their investment.

Market Risk

Trading in Futures Contracts and Other Natural Gas-Related Investments, such as forwards, involves USNG entering into contractual commitments to purchase or sell natural gas at a specified date in the future. The aggregate market value of the contracts will significantly exceed USNG’s future cash requirements since USNG intends to close out its open positions prior to settlement. As a result, USNG is generally only subject to the risk of loss arising from the change in value of the contracts. USNG considers the “fair value” of its derivative instruments to be the unrealized gain or loss on the contracts. The market risk associated with USNG’s commitments to purchase natural gas is limited to the aggregate market value of the contracts held. However, should USNG enter into a contractual commitment to sell natural gas, it would be required to make delivery of the natural gas at the contract price, repurchase the contract at prevailing prices or settle in cash. Since there are no limits on the future price of natural gas, the market risk to USNG could be unlimited.

USNG’s exposure to market risk depends on a number of factors, including the markets for natural gas, the volatility of interest rates and foreign exchange rates, the liquidity of the Futures Contracts and Other Natural Gas-Related Investments markets and the relationships among the contracts held by USNG. Drastic market occurrences could ultimately lead to the loss of all or substantially all of an investor’s capital.

Credit Risk

When USNG enters into Futures Contracts and Other Natural Gas-Related Investments, it is exposed to the credit risk that the counterparty will not be able to meet its obligations. The counterparty for the Futures Contracts traded on the NYMEX and on most other futures exchanges is the clearinghouse associated with the particular exchange. In general, in addition to margin required to be posted by the exchange or clearinghouse in connection with trades on the exchange or through the clearinghouse, clearinghouses are backed by their members who may be required to share in the financial burden resulting from the nonperformance of one of their members and, therefore, this additional member support should significantly reduce credit risk. Some foreign exchanges are not backed by their clearinghouse members but may be backed by a consortium of banks or other financial institutions. There can be no assurance that any counterparty, clearinghouse, or their members or their financial backers will satisfy their obligations to USNG in such circumstances.
 
USNG was a party to over-the-counter transactions on what it intends to be a fully-collateralized basis with two counterparties as of September 30, 2009. Subsequent to September 30, 2009, USNG has entered into fully-collateralized over-the-counter transactions with thre e additional counterparties . Unlike most of the exchange-traded Futures Contracts, cleared swaps or exchange-traded options on such futures, each party to an over-the-counter contract bears the credit risk that the other party may not be able to perform its obligations under its contract . See “ Item 3. Quantitative and Qualitative Disclosures About Market Risk” of this quarterly report on Form 10-Q for a discussion of over-the-counter contracts.

The General Partner attempts to manage the credit risk of USNG by following various trading limitations and policies. In particular, USNG generally posts margin and/or holds liquid assets that are approximately equal to the market value of its obligations to counterparties under the Futures Contracts and Other Natural Gas-Related Investments it holds. The General Partner has implemented procedures that include, but are not limited to, executing and clearing trades only with creditworthy parties and/or requiring the posting of collateral or margin by such parties for the benefit of USNG to limit its credit exposure. UBS Securities LLC, USNG’s commodity broker, or any other broker that may be retained by USNG in the future, when acting as USNG’s futures commission merchant in accepting orders to purchase or sell Futures Contracts on United States exchanges, is required by CFTC regulations to separately account for and segregate as belonging to USNG, all assets of USNG relating to domestic Futures Contracts trading. These futures commission merchants are not allowed to commingle USNG’s assets with its other assets. In addition, the CFTC requires commodity brokers to hold in a secure account USNG’s assets related to foreign Futures Contracts trading and, in some cases, to cleared swaps executed through the Futures Commission Merchant. Similarly, under its current over-the-counter agreements, USNG requires that collateral it posts or receives be posted with its custodian and, under agreements among the custodian, USNG and its counterparties, such collateral is segregated.

 
32

 

As of September 30, 2009, USNG had deposits in domestic and foreign financial institutions, including cash investments in money market funds, in the amount of $3,671,896,465. This amount is subject to loss should these institutions cease operations.

Off Balance Sheet Financing

As of September 30, 2009, USNG has no loan guarantee, credit support or other off-balance sheet arrangements of any kind other than agreements entered into in the normal course of business, which may include indemnification provisions relating to certain risks that service providers undertake in performing services which are in the best interests of USNG. While USNG’s exposure under these indemnification provisions cannot be estimated, they are not expected to have a material impact on USNG’s financial position.

Redemption Basket Obligation

In order to meet its investment objective and pay its contractual obligations described below, USNG requires liquidity to redeem units, which redemptions must be in blocks of 100,000 units called “Redemption Baskets”. USNG has to date satisfied this obligation by paying from the cash or cash equivalents it holds or through the sale of its Treasuries in an amount proportionate to the number of units being redeemed.

Contractual Obligations

USNG’s primary contractual obligations are with the General Partner. In return for its services, the General Partner is entitled to a management fee calculated as a fixed percentage of USNG’s NAV, currently 0.60% for a NAV of $1 billion or less, and thereafter 0.50% for a NAV above $1 billion.

The General Partner agreed to pay the start-up costs associated with the formation of USNG, primarily its legal, accounting and other costs in connection with the General Partner’s registration with the CFTC as a CPO and the registration and listing of USNG and its units with the SEC, FINRA and the AMEX, respectively. However, following USNG’s initial offering of units, offering costs incurred in connection with registering and listing additional units of USNG are directly borne on an ongoing basis by USNG, and not by the General Partner.

The General Partner pays the fees of USNG’s marketing agent, ALPS Distributors, Inc., and the fees of the custodian and transfer agent, Brown Brothers Harriman & Co. (“BBH&Co.”), as well as BBH&Co.’s fees for performing administrative services, including those in connection with the preparation of USNG’s condensed financial statements and its SEC and CFTC reports. The General Partner and USNG have also entered into a licensing agreement with the NYMEX pursuant to which USNG and the affiliated funds managed by the General Partner pay a licensing fee to the NYMEX. USNG also pays the fees and expenses associated with its tax accounting and reporting requirements with the exception of certain initial implementation service fees and base service fees which are paid by the General Partner.

 
33

 

In addition to the General Partner’s management fee, USNG pays its brokerage fees (including fees to a futures commission merchant), over-the-counter dealer spreads  and up-front fees, any licensing fees for the use of intellectual property, and, subsequent to the initial offering, registration and other fees paid to the SEC, FINRA, or other regulatory agencies in connection with the offer and sale of units, as well as legal, printing, accounting and other expenses associated therewith, and extraordinary expenses. The latter are expenses not incurred in the ordinary course of USNG’s business, including expenses relating to the indemnification of any person against liabilities and obligations to the extent permitted by law and under the LP Agreement, the bringing or defending of actions in law or in equity or otherwise conducting litigation and incurring legal expenses and the settlement of claims and litigation. Commission payments to a futures commission merchant are on a contract-by-contract, or round turn, basis. USNG also pays a portion of the fees and expenses of the independent directors of the General Partner. See Note 3 to the Notes to Condensed Financial Statements (Unaudited).

The parties cannot anticipate the amount of payments that will be required under these arrangements for future periods, as USNG’s NAVs and trading levels to meet its investment objectives will not be known until a future date. These agreements are effective for a specific term agreed upon by the parties with an option to renew, or, in some cases, are in effect for the duration of USNG’s existence. Either party may terminate these agreements earlier for certain reasons described in the agreements.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

Over-the-Counter Derivatives

USNG was a party to over-the-counter transactions on what it intends to be a fully-collateralized basis with two counterparties as of September 30, 2009. Subsequent to September 30, 2009, USNG has entered into fully-collateralized over-the-counter transactions with three additional counterparties and was in the process of negotiating agreements governing over-the-counter transactions with additional counterparties. Unlike most of the exchange-traded Futures Contracts, cleared swaps or exchange-traded options on such futures, each party to an over-the-counter contract bears the credit risk that the other party may not be able to perform its obligations under its contract.

Some natural gas-based derivatives transactions contain fairly generic terms and conditions and are available from a wide range of participants. Other natural gas-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 natural gas- or petroleum-based fuels that have terms similar to the Futures Contracts. Others take the form of “swaps” in which the two parties exchange cash flows based on pre-determined formulas tied to the spot price of natural gas, forward natural gas prices or natural gas futures prices. For example, USNG may enter into over-the-counter derivative contracts whose value will be tied to changes in the difference between the spot price of natural gas, the price of Futures Contracts traded on the NYMEX and the prices of other Futures Contracts in which USNG may invest.

To protect itself from the credit risk that arises in connection with such contracts, USNG may enter into agreements with each counterparty that provide for the netting of its overall exposure to such counterparty, such as the agreements published by the International Swaps and Derivatives Association, Inc. USNG also may require that the counterparty be highly rated and/or provide collateral or other credit support to address USNG’s exposure to the counterparty ( i.e. , the amount the counterparty would have to pay to USNG if the transaction with the counterparty were to terminate on that day).  USNG must, to the extent its counterparty has exposure to it under the transaction, also post collateral. In addition, it is also possible for USNG and its counterparty to agree to clear their agreement through an established futures clearinghouse such as those connected to the NYMEX or the ICE Futures. In that event, USNG would no longer have credit risk of its original counterparty, as the clearinghouse would now be USNG’s counterparty. USNG would still retain any price risk associated with its transaction and would be required to deposit margin to secure the clearinghouse’s exposure to USNG.
 
The creditworthiness of each potential counterparty is assessed by the General Partner. The General Partner assesses or reviews, as appropriate, the creditworthiness of each potential or existing counterparty to an over-the-counter contract pursuant to guidelines approved by the General Partner's board of directors (the “Board”). Furthermore, the General Partner on behalf of USNG only enters into over-the-counter contracts with counterparties who are, or are affiliates of, (a) banks regulated by a United States federal bank regulator, (b) broker-dealers regulated by the SEC, (c) insurance companies domiciled in the United States, and (d) producers, users or traders of energy, whether or not regulated by the CFTC. Any entity acting as a counterparty shall be regulated in either the United States or the United Kingdom unless otherwise approved by the Board after consultation with its legal counsel. Existing counterparties are also reviewed periodically by the General Partner.

 
34

 

USNG anticipates that the use of Other Natural Gas-Related Investments together with its investments in Futures Contracts will produce price and total return results that closely track the investment goals of USNG. However, there can be no assurance of this. Over-the-counter contracts may result in higher transaction-related expenses than the brokerage commissions paid in connection with the purchase of Futures Contracts, which may impact USNG’s ability to successfully track the Benchmark Futures Contract.

USNG 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. USNG 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 USNG to changes in the price relationship between futures contracts which will expire sooner and those that will expire later. USNG would use such a spread if the General Partner felt that taking such long and short positions, when combined with the rest of its holdings, would more closely track the investment goals of USNG, or if the General Partner felt it would lead to an overall lower cost of trading to achieve a given level of economic exposure to movements in natural gas prices. USNG 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. USNG would make use of such a straddle approach if, in the opinion of the General Partner, the resulting combination would more closely track the investment goals of USNG or if it would lead to an overall lower cost of trading to achieve a given level of economic exposure to movements in natural gas prices.

During the nine months ended September 30, 2009, USNG employed hedging methods such as those described above to the extent it invested in fully-collateralized over-the-counter swap transactions designed to track percentage changes in the price of  the Benchmark Futures Contract. During the nine months ended September 30, 2009, USNG was exposed to counterparty risk on its fully-collateralized over-the-counter swap transactions with two counterparties.

The counterparty credit ratings for the exposure on over-the-counter swap transactions to which USNG was a party that would be owed to USNG due to a default or early termination by USNG’s counterparties at September 30, 2009 and December 31, 2008 were:

   
December 31, 2008
 
Moody’s
Credit
Rating
 
Number of
Counterparties
   
Notional
Amount
   
Credit
Exposure
   
Collateral
Held
   
Exposure,
Net of
Collateral
 
Aa1
        $     $     $     $  
A2
                             
Unrated                              
Total
        $     $     $     $  
 
   
September 30, 2009
 
Moody’s
Credit
Rating
 
Number of
Counterparties
   
Notional
Amount
   
Credit
Exposure
   
Collateral
Held
   
Exposure,
Net of
Collateral*
 
Aa1
    1     $ 520,896,084    
$
46,980,693
   
$
46,470,000
   
510,693
 
A2
    1       226,638,773      
49,572,216
     
49,600,000
     
(27,784
Unrated                              
Total
    2     $ 747,534,857    
$
96,552,909
 
 
$
96,070,000
   
482,909
 
 
*  The difference reflects minimum transfer amounts for collateral and potentially one day's movement in the underlying total return, which would be collateralized the following business day.
 
 
35

 
 
The aggregate notional amount of USNG’s over-the-counter derivative transactions, most of which consisted of total return swaps, increased to $747,533,857 at September 30, 2009, as compared with no swaps for the prior period. The aggregate notional amount of these derivative transactions, which is not included in the Condensed Schedule of Investments (Unaudited), is indicative of USNG’s activities in derivative transactions, but is not an indicator of the level of credit risk associated with these transactions.
 
At September 30, 2009, USNG’s counterparties posted $96,070,000 in cash and no securities as collateral with USNG’s custodian, as compared with the prior period for which no collateral was posted since USNG had not yet entered into any swaps. Under these over-the-counter swap agreements, USNG posted collateral with respect to its obligations of $134,910,105 at September 30, 2009, while no collateral was posted for the prior period.  
 
Item 4.  Controls and Procedures.

Disclosure Controls and Procedures

USNG maintains disclosure controls and procedures that are designed to ensure that material information required to be disclosed in USNG’s periodic reports filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms.

The duly appointed officers of the General Partner, including its chief executive officer and chief financial officer, who perform functions equivalent to those of a principal executive officer and principal financial officer of USNG if USNG had any officers, have evaluated the effectiveness of USNG’s disclosure controls and procedures and have concluded that the disclosure controls and procedures of USNG have been effective as of the end of the period covered by this quarterly report on Form 10-Q.

Change in Internal Control Over Financial Reporting

There were no changes in USNG’s internal control over financial reporting during USNG’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, USNG’s internal control over financial reporting.

 
36

 

Part II. OTHER INFORMATION

Item 1.  Legal Proceedings.

Not applicable.

Item 1A.  Risk Factors.

Except as noted below, there  has not been a material change from the risk factors previously disclosed in USNG's Annual Report on Form 10-K for the fiscal year ended December 31, 2008.
 
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 USNG.
 
The futures markets are subject to comprehensive statutes, regulations, and margin requirements. In addition, the CFTC and the exchanges are authorized to take extraordinary actions in the event of a market emergency, including, for example, the retroactive implementation of speculative position limits or higher margin requirements, the establishment of daily price limits and the suspension of trading. The regulation of futures transactions in the United States is a rapidly changing area of law and is subject to modification by government and judicial action.
 
The regulation of commodity interest transactions in the United States is a rapidly changing area of law and is subject to ongoing modification by governmental and judicial action. Considerable regulatory attention has been focused on non-traditional investment pools which are publicly distributed in the United States. There is a possibility of future regulatory changes altering, perhaps to a material extent, the nature of an investment in USNG or the ability of USNG to continue to implement its investment strategy. In addition, various national governments have expressed concern regarding the disruptive effects of speculative trading in the energy markets and the need to regulate the derivatives markets in general. The effect of any future regulatory change on USNG is impossible to predict, but could be substantial and adverse.
 
In the wake of the economic crisis last year, the Administration, federal regulators and Congress are revisiting the regulation of the financial sector, including securities and commodities markets. These efforts are likely to result in significant changes in the regulation of these markets.
 
Currently, a number of proposals that would alter the regulation of Natural Gas Interests are being considered by federal regulators and Congress. These proposals include the imposition of fixed position limits on energy-based commodity futures contracts, extension of position and accountability limits to futures contracts on non-U.S. exchanges previously exempt from such limits, and the forced use of clearinghouse mechanisms for all over-the-counter transactions. Certain proposals would aggregate and limit all positions in energy futures held by a single entity, whether such positions exist on U.S. futures exchanges, non-U.S. futures exchanges, or in over-the-counter contracts. While it cannot be predicted at this time what reforms will eventually be made or how they will impact USNG, if any of the aforementioned proposals are implemented, USNG’s ability to meet its investment objective may be negatively impacted and investors could be adversely affected.
 
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

Not applicable.

Item 3.  Defaults Upon Senior Securities.

Not applicable.

Item 4.  Submission of Matters to a Vote of Security Holders.

Not applicable.

Item 5.  Other Information.

Monthly Account Statements

Pursuant to the requirement under Rule 4.22 under the Commodity Exchange Act, each month USNG publishes an account statement for its unitholders, which includes a Statement of Income (Loss) and a Statement of Changes in NAV. The account statement is furnished to the SEC on a current report on Form 8-K pursuant to Section 13 or 15(d) of the Exchange Act and posted each month on USNG’s website at www.unitedstatesnaturalgasfund.com.

Item 6.  Exhibits.

Listed below are the exhibits which are filed as part of this quarterly report on Form 10-Q (according to the number assigned to them in Item 601 of Regulation S-K):
 

Exhibit 
   
Number
 
Description of Document
3.1*
 
Second Amended and Restated Agreement of Limited Partnership.
3.3*
 
Fourth Amended and Restated Limited Liability Company Agreement of the General Partner.
10.2*
 
Marketing Agent Agreement.
10.4*
 
Custodian Agreement.
10.5*
 
Amendment Agreement to the Custodian Agreement.
10.6*
 
Administrative Agency Agreement.
10.7*
 
Amendment Agreement to the Administrative Agency Agreement.
10.8*
 
Amendment Agreement to the Marketing Agent Agreement.
31.1*
 
Certification by Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
 
Certification by Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*
 
Certification by Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*
 
Certification by Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1*
 
Customer Agreement for Futures Contracts.

*           Filed herewith

 
37

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

United States Natural Gas Fund, LP (Registrant)
By:  United States Commodity Funds LLC, its general partner

By:
/s/ Nicholas D. Gerber  
Nicholas D. Gerber
Chief Executive Officer
 
Date:  November 9, 2009
   
By:
/s/ Howard Mah
Howard Mah
Chief Financial Officer

Date:  November 9, 2009

 
38

 
 
Exhibit 3.1
 
UNITED STATES NATURAL GAS FUND, LP

SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP

This Second Amended and Restated Agreement of Limited Partnership (this “Agreement” ) executed on December 4, 2007, is entered into by and among Victoria Bay Asset Management, LLC, a Delaware limited liability company, as General Partner, Wainwright Holdings, Inc., a Delaware corporation, as the Organizational Limited Partner, and Kellogg Capital Group, LLC as a Limited Partner, together with any Persons who shall hereafter be admitted as Partners in accordance with this Agreement.

WHEREAS, the General Partner, Wainwright Holdings, Inc., a Delaware corporation, as the Organizational Limited Partner, and the Initial Limited Partner are parties to that certain amended and restated agreement of  limited partnership executed on April 17, 2007 (the “LP Agreement” ), regarding the operation of the Partnership and their rights and obligations thereunder and pursuant to which the Organizational Limited Partner withdrew from the Partnership;

WHEREAS, the General Partner and the Initial Limited Partner now desire to amend and restate the LP Agreement regarding the operation of the Partnership;

NOW THEREFORE, in consideration of the mutual promises and agreements herein made, the Partners, intending to be legally bound, hereby agree to amend and restate the LP Agreement in its entirety as follows:

ARTICLE 1

Definitions

As used in this Agreement, the following terms shall have the following meanings:

1.1   “Accounting Period” shall mean the following periods: the initial accounting period which shall commence upon the commencement of operations of the Partnership. Each subsequent Accounting Period shall commence immediately after the close of the preceding Accounting Period. Each Accounting Period hereunder shall close on the earliest of (i) the last Business Day of a month, (ii) the effective date of dissolution of the Partnership, and (iii) such other day or days in addition thereto or in substitution therefore as may from time to time be determined by the General Partner in its discretion either in any particular case or generally.

1.2   “Act” shall mean the Revised Uniform Limited Partnership Act of the State of Delaware, as amended from time to time.

1.3   “Additional Limited Partner” shall mean a Person admitted to the Partnership as a Limited Partner pursuant to this Agreement and who is shown as such on the books and records of the Partnership.

1.4   “Affiliate” shall mean, when used with reference to a specified Person, (i) any Person who directly or indirectly through one or more intermediaries controls or is controlled by or is under common control with the specified Person or (ii) any Person that is an officer of, partner in, or trustee of, or serves in a similar capacity with respect to, the specified Person or of which the specified Person is an officer, partner or trustee, or with respect to which the specified Person serves in a similar capacity.

 

 

1.5   “Assignee” shall mean a Record Holder that has not been admitted to the Partnership as a Substituted Limited Partner.

1.6   “Agreement” shall mean this Second Amended and Restated Agreement of Limited Partnership as may be  amended, modified, supplemented or restated from time to time.

1.7   “Authorized Purchaser Agreement” shall mean an agreement among the Partnership, the General Partner and a Participant, as may be amended or supplemented from time to time in accordance with its terms.

1.8   “Business Day” shall mean any day other than a day on which the American Stock Exchange, the New York Mercantile Exchange or the New York Stock Exchange is closed for regular trading.

1.9   “Beneficial Owner” shall mean the ultimate beneficial owner of Units held by a nominee which has furnished the identity of the Beneficial Owner in accordance with Section 6031(c) of the Code (or any other method acceptable to the General Partner in its sole discretion) and with Section 9.2.2 of this Agreement.

1.10   “Capital Account” shall have the meaning assigned to such term in Section 4.1.

1.11   “Capital Contribution” shall mean the total amount of money or agreed-upon value of property contributed to the Partnership by all the Partners or any class of Partners or any one Partner, as the case may be (or the predecessor holders of the interests of such Partner or Partners).

1.12   “Capital Transaction” shall mean a sale of all or substantially all of the assets of the Partnership not in the ordinary course of business.

1.13   “Certificate” shall mean a certificate issued by the Partnership evidencing ownership of one or more Units.

1.14   “Close of Business” shall mean 5:00 PM New York time.

1.15   “Creation Basket” shall mean 100,000 Units, or such other number of Units as may be determined by the General Partner from time to time, purchased by a Participant.

1.16   “Code” shall mean the Internal Revenue Code of 1986, as amended.

1.17   “Departing Partner” shall mean a former General Partner, from and after the effective date of any withdrawal or removal of such former General Partner.

1.18   “Depository” or “DTC” shall mean The Depository Trust Company, New York, New York, or such other depository of Units as may be selected by the General Partner as specified herein.

1.19   “Depository Agreement” shall mean the Letter of Representations from the General Partner to the Depository, dated as of April 17, 2007, as may be amended or supplemented from time to time.

 
2

 

1.20   “Distributable Cash” shall mean, with respect to any period, all cash revenues of the Partnership (not including (i) Capital Contributions, (ii) funds received by the Partnership in respect of indebtedness incurred by the Partnership, (iii) interest or other income earned on temporary investments of Partnership funds pending utilization, and (iv) proceeds from any Capital Transaction), less the sum of the following: (x) all amounts expended by the Partnership pursuant to this Agreement in such period and (y) such working capital or reserves or other amounts as the General Partner reasonably deems to be necessary or appropriate for the proper operation of the Partnership’s business or its winding up and liquidation. The General Partner in its sole discretion may from time to time declare other funds of the Partnership to be Distributable Cash.

1.21   “DTC Participants” shall have the meaning assigned to such term in Section 9.2.2.

1.22   “General Partner” shall mean Victoria Bay Asset Management, LLC, a Delaware limited liability company, or any Person who, at the time of reference thereto, serves as a general partner of the Partnership.

1.23   “Global Certificates” shall mean the global certificate or certificates issued to the Depository as provided in the Depository Agreement, each of which shall be in substantially the form attached hereto as Exhibit B.

1.24   “Indirect Participants” shall have the meaning assigned to such term in Section 9.2.2.

1.25   “Initial Limited Partner” shall have the meaning assigned to such term in Section 3.3.

1.26     “Initial Offering Period” shall mean the period commencing with the initial effective date of the Prospectus and terminating no later than the ninetieth (90th) day following such date unless extended for up to an additional 90 days at the sole discretion of the General Partner.

1.27   “Limited Partner” shall mean any Person who is a limited partner (whether the Initial Limited Partner, a Limited Partner admitted pursuant to this Agreement or an assignee who is admitted as a Limited Partner) at the time of reference thereto, in such Person’s capacity as a limited partner of the Partnership.

1.28   “Management Fee” shall mean the management fee paid to the General Partner pursuant to this Agreement.

1.29   “Net Asset Value” or “NAV” shall mean the current market value of the Partnership’s total assets, less any liabilities, as reasonably determined by the General Partner or its designee.

1.30   “Opinion of Counsel” shall mean a written opinion of counsel (who may be regular counsel to the Partnership or the General Partner) acceptable to the General Partner.

1.31   “Organizational Limited Partner” shall mean Wainwright Holdings, Inc., a Delaware corporation, in its capacity as the organizational limited partner of the Partnership.

1.32   “Outstanding” shall mean, with respect to the Units or other Partnership Securities, as the case may be, all Units or other Partnership Securities that are issued by the Partnership and reflected as outstanding on the Partnership’s books and records as of the date of determination.

 
3

 

1.33   “Participant” shall mean a Person that is a DTC Participant and has entered into an Authorized Purchaser Agreement which, at the relevant time, is in full force and effect.

1.34   “Partner” shall mean the General Partner or any Limited Partner. “Partners” shall mean the General Partner and all Limited Partners (unless otherwise indicated).

1.35   “Partnership” shall mean the limited partnership hereby formed, as such limited partnership may from time to time be constituted.

1.36   “Partnership Securities” shall mean any additional Units, options, rights, warrants or appreciation rights relating thereto, or any other type of equity security that the Partnership may lawfully issue, any unsecured or secured debt obligations of the Partnership or debt obligations of the Partnership convertible into any class or series of equity securities of the Partnership.

1.37   “Person” shall mean any natural person, partnership, limited partnership, limited liability company, trust, estate, corporation, association, custodian, nominee or any other individual or entity in its own or any representative capacity.

1.38   “Profit or Loss” with respect to any Accounting Period shall mean the excess (if any) of:

(a) the Net Asset Value as of the Valuation Time on the Valuation Date, less

(b) the Net Asset Value as of the Valuation Time on the Valuation Date immediately preceding the commencement of such Accounting Period,

adjusted as deemed appropriate by the General Partner to reflect any Capital Contributions, redemptions, withdrawals, distributions, or other events occurring or accounted for during such Accounting Period (including any allocation of Profit or Loss to a redeeming partner pursuant to Article 4.3.2 with respect to such Accounting Period).

If the amount determined pursuant to the preceding sentence is a positive number, such amount shall be the “Profit” for the Accounting Period and if such amount is a negative number, such amount shall be the “Loss” for the Accounting Period.

1.39   “Prospectus” shall mean the United States Natural Gas Fund, LP prospectus, dated  April 17, 2007, as the same may have been amended or supplemented, used in connection with the offer and sale of Units in the Partnership.

1.40   “Record Date” shall mean the date established by the General Partner for determining (a) the identity of Limited Partners (or Assignees if applicable) entitled to notice of, or to vote at any meeting of Limited Partners or entitled to vote by ballot or give approval of any Partnership action in writing without a meeting or entitled to exercise rights in respect of any action of Limited Partners or (b) the identity of Record Holders entitled to receive any report or distribution.

1.41   “Record Holder” shall mean the Person in whose name such Unit is registered on the books of the Transfer Agent as of the open of business on a particular Business Day.

 
4

 

1.42   “Redeemable Units” shall mean any Units for which a redemption notice has been given.

1.43   “Redemption Basket” shall mean 100,000 Units or such other number of Units as may be determined by the General Partner from time to time, redeemed by a Participant.

1.44   “Revolving Credit Facility” shall mean a revolving credit facility that the Partnership may enter into on behalf of the Partnership with one or more commercial banks or other lenders for liquidity or other purposes for the benefit of the Partnership.

1.45   “Substituted Limited Partner” shall mean a Person who is admitted as a Limited Partner to the Partnership pursuant to Article 11.2 in place of and with all the rights of a Limited Partner and who is shown as a Limited Partner on the books and records of the Partnership.

1.46   “Tax Certificate” shall mean an Internal Revenue Service Form W-9 (or the substantial equivalent thereof) in the case of a Limited Partner that is a U.S. person within the meaning of the Code, or an Internal Revenue Service Form W-8BEN or other applicable form in the case of a Limited Partner that is not a U.S. person.

1.47   “Transfer Agent” shall mean Brown Brothers Harriman & Co. or such bank, trust company or other Person (including, without limitation, the General Partner or one of its Affiliates) as shall be appointed from time to time by the Partnership to act as registrar and transfer agent for the Units or any applicable Partnership Securities.

1.48   “Transfer Application” shall mean an application and agreement for transfer of Units, which shall be substantially in the form attached hereto as Exhibit D.

1.49   “Unit” shall mean an interest of a Limited Partner or an assignee of the Partnership representing such fractional part of the interests of all Limited Partners and assignees as shall be determined by the General Partner pursuant to this Agreement.

1.50   “Unit Register” shall have the meaning assigned to such term in Article 9.2.1.

1.51        “Unitholders” shall mean the General Partner and all holders of Units, where no distinction is required by the context in which the term is used.

1.52   “Valuation Date” shall mean the last Business Day of any Accounting Period.

1.53   “Valuation Time” shall mean (i) Close of Business on a Valuation Date or (ii) such other time or day as the General Partner in its discretion may determine from time to time either in any particular case or generally.

5

 
ARTICLE 2

General Provisions

2.1  This Agreement shall become effective on the date set forth in the preamble of this Agreement.  The rights and liabilities of the Partners shall be as set forth in the Act, except as herein otherwise expressly provided.  The Partnership shall continue without interruption as a limited partnership pursuant to the provisions of the Act.

2.2  The name of the Partnership shall be United States Natural Gas Fund, LP; however, the business of the Partnership may be conducted, upon compliance with all applicable laws, under any other name designated in writing by the General Partner to the Limited Partners.

2.3  The Partnership’s principal place of business shall be located at 1320 Harbor Bay Parkway, Suite 145, Alameda, California 94502 or such other place as the General Partner may designate from time to time. The registered agent for the Partnership is Corporation Service Company and the registered office is located at 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808, County of New Castle. The Partnership may maintain such other offices at such other places as the General Partner deems advisable.

2.4  The investment objective of the Partnership is for changes in percentage terms of the Units’ NAV to reflect the changes in percentage terms of the spot price of natural gas delivered at the Henry Hub in Louisiana, as measured by the “Benchmark Futures Contract, less the Partnership’s expenses.  It is not the intent of the Partnership to be operated in such a fashion such that its NAV will equal, in dollar terms, the dollar price of spot natural gas or any particular futures contract based on natural gas. The Partnership will invest in futures contracts for natural gas, other types of natural gas, heating oil, gasoline, oil and other petroleum based fuels that are traded on the New York Mercantile Exchange, ICE Futures or other U.S. and foreign exchanges (collectively, “ Natural Gas Futures Contracts” ) and other natural gas interests such as cash-settled options on Natural Gas Futures Contracts, forward contracts for natural gas, oil, and over-the-counter transactions that are based on the price of natural gas, other petroleum-based fuels, Natural Gas Futures Contracts and indices based on the foregoing .

2.5  The term of the Partnership shall be from the date of its formation in perpetuity, unless earlier terminated in accordance with the terms of this Agreement.

2.6  The General Partner shall execute, file and publish all such certificates, notices, statements or other instruments required by law for the formation or operation of a limited partnership in all jurisdictions where the Partnership may elect to do business. The General Partner shall not be required to deliver or mail to the Limited Partners a copy of the certificate of limited partnership of the Partnership or any certificate of amendment thereto.

2.7  The Partnership shall be empowered to do any and all acts and things necessary, appropriate, proper, advisable, incidental to or convenient for the furtherance and accomplishment of the purposes, business, protection and benefit of the Partnership.

2.8  The business and affairs of the Partnership shall be managed by the General Partner in accordance with Article 7 hereof.  The General Partner has seven directors, a majority of whom may also be executive officers of the General Partner. The General Partner shall establish and maintain an audit committee of its board of directors for the Partnership (the “Audit Committee” ) in compliance with, and granted the requisite authority and funding pursuant to, any applicable (1) federal securities laws and regulations, including the Sarbanes-Oxley Act of 2002, and (2) rules, policies and procedures of any national securities exchange on which the securities issued by the Partnership are listed and traded.

 
6

 

ARTICLE 3

Partners and Capital Contributions

3.1   General Partner.

3.1.1  The name of the General Partner is Victoria Bay Asset Management, LLC, which maintains its principal business office at 1320 Harbor Bay Parkway, Suite 145, Alameda, California 94502.
 
 3.1.2   In consideration of management and administrative services rendered by the General Partner, the Partnership shall pay the Management Fee to the General Partner (or such other person or entity designated by the General Partner) including the payment of expenses in the ordinary course of business. Expenses in the “ordinary course of business”  shall not include the payment of (i) brokerage fees, (ii) licensing fees for the use of intellectual property used by the Partnership, or (iii) registration or other fees paid to the Securities and Exchange Commission (“SEC”), the Financial Industry Regulatory Authority (“FINRA”), or any other regulatory agency in connection with the offer and sale of the Units and all legal, accounting, printing and other expenses associated therewith; provided, however, that the fees and expenses incurred under (iii) in connection with the initial public offering of the Units shall be paid by the General Partner. The Partnership also pays (i) the fees and expenses, including directors and officers’ liability insurance, of the independent directors, and (ii) the fees and expenses associated with its tax accounting and reporting requirements with the exception of any fees for implementation of services and base service fees charged by the accounting firm responsible for preparing the Partnership’s tax reporting forms, as such fees will be paid by the General Partner.  Fees and expenses, including the Management Fee, are calculated on a daily basis and paid on a monthly basis (accrued at 1/365 of applicable percentage of NAV on that day). The initial Management Fee shall be set forth on Exhibit A attached hereto, as may be amended from time to time. The General Partner may, in its sole discretion, waive all or part of the Management Fee. The Partnership shall be responsible for all extraordinary expenses (i.e., expenses not in the ordinary course of business, including, without limitation, the items listed above in this Section 3.1.2, the indemnification of any Person against liabilities and obligations to the extent permitted by law and required under this Agreement and the bringing and defending of actions at law or in equity and otherwise engaging in the conduct of litigation and the incurring of legal expense and the settlement of claims and litigation).
 
3.1.3  In connection with the formation of the Partnership under the Act, the General Partner acquired a 2% interest in the profits and losses of the Partnership and made an initial capital contribution to the Partnership in the amount of $20.00, and the Organizational Limited Partner acquired a 98% interest in the profits and losses of the Partnership and made an initial capital contribution to the Partnership in the amount of $980.00. As of the date of the initial offering of Units to the public, the interest of the Organizational Limited Partner and the General Partner was redeemed, the initial capital contribution of the Organizational Limited Partner and the General Partner was refunded, and the Organizational Limited Partner thereupon withdrew and ceased to be a Limited Partner. Ninety-eight percent of any interest or other profit that may have resulted from the investment or other use of such initial capital contribution was allocated and distributed to the Organizational Limited Partner, and the balance thereof was allocated and distributed to the General Partner.    The General Partner may but shall not be required to make Capital Contributions to the Partnership on or after the date hereof. If the General Partner does make a Capital Contribution to the Partnership on or after the date hereof, it shall be issued Units based on the same terms and conditions applicable to the purchase of a Creation Basket under Article 16 hereof.

 
7

 

3.1.4  The General Partner may not, without written approval by all of the Limited Partners or by other written instrument executed and delivered by all of the Limited Partners subsequent to the date of this Agreement, take any action in contravention of this Agreement, including, without limitation, (i) any act that would make it impossible to carry on the ordinary business of the Partnership, except as otherwise provided in this Agreement; (ii) possess Partnership property, or assign any rights in specific Partnership property, for other than a Partnership purpose; (iii) admit a Person as a Partner, except as otherwise provided in this Agreement; (iv) amend this Agreement in any manner, except as otherwise provided in this Agreement or under applicable law; or (v) transfer its interest as general partner of the Partnership, except as otherwise provided in this Agreement.

3.1.5  Except as otherwise provided herein, the General Partner may not sell, exchange or otherwise dispose of all or substantially all of the Partnership’s assets in a single transaction or a series of related transactions (including by way of merger, consolidation or other combination with any other Person) or approve on behalf of the Partnership the sale, exchange or other disposition of all or substantially all of the assets of the Partnership, taken as a whole, without the approval of at least a majority of the Limited Partners; provided, however, that this provision shall not preclude or limit the General Partner’s ability to mortgage, pledge, hypothecate or grant a security interest in all or substantially all of the Partnership’s assets and shall not apply to any forced sale of any or all of the Partnership’s assets pursuant to the foreclosure of, or other realization upon, any such encumbrance.

3.1.6  Unless approved by a majority of the Limited Partners, the General Partner shall not take any action or refuse to take any reasonable action the effect of which, if taken or not taken, as the case may be, would be to cause the Partnership, to the extent it would materially and adversely affect the Limited Partners, to be taxable as a corporation for federal income tax purposes.

3.1.7  Notwithstanding any other provision of this Agreement, the General Partner is not authorized to institute or initiate on behalf of, or otherwise cause the Partnership to:

(a)           make a general assignment for the benefit of creditors;

(b)           file a voluntary bankruptcy petition; or

 (c)          file a petition seeking for the Partnership a reorganization, arrangement, composition, readjustment liquidation, dissolution or similar relief under any law.

3.2   Issuance of Units.   Units in the Partnership will only be issued in a Creation Basket or whole number multiples thereof.

3.3   Initial Limited Partner.   The name of the Initial Limited Partner is Kellogg Capital Group, LLC ( “Initial Limited Partner” ). The business address and Capital Contribution of the Initial Limited Partner are 55 Broadway New York, NY 10006. The Initial Limited Partner shall purchase the initial Creation Basket at an initial offering price per Unit equal to the closing price of near-month Natural Gas Futures Contracts as listed on the New York Mercantile Exchange on the last Business Day prior to the effective date of the registration statement relating to the Prospectus.

 
8

 

3.4   Capital Contribution.   Except as otherwise provided in this Agreement, no Partner shall have any right to demand or receive the return of its Capital Contribution to the Partnership. No Partner shall be entitled to interest on any Capital Contribution to the Partnership or on such Partner’s Capital Account.

ARTICLE 4

Capital Accounts of Partners and Operation Thereof

4.1   Capital Accounts.   There shall be established on the books and records of the Partnership for each Partner (or Beneficial Owner in the case of Units held by a nominee) a capital account (a “Capital Account” ). It is intended that each Partner’s Capital Account shall be maintained at all times in a manner consistent with Section 704 of the Code and applicable Treasury regulations thereunder, and that the provisions hereof relating to the Capital Accounts shall be interpreted in a manner consistent therewith. For each Accounting Period, the Capital Account of each Partner shall be:

(i) credited with the amount of any Capital Contributions made by such Partner during such Accounting Period;

(ii) credited with any allocation of Profit made to such Partner for such Accounting Period;

(iii) debited with any allocation of Loss made to such Partners for such Accounting Period; and

(iv) debited with the amount of cash paid to such Partner as an amount withdrawn or distributed to such Partner during such Accounting Period, or, in the case of any payment of a withdrawal or distribution in kind, the fair value of the property paid or distributed during such Accounting Period.

4.1.1  For any Accounting Period in which Units are issued or redeemed for cash or other property, the General Partner shall, in accordance with Treasury Regulation Section 1.704-1(b)(2)(iv)(f), adjust the Capital Accounts of all Partners and the carrying value of each Partnership asset upward or downward to reflect any unrealized gain or unrealized loss attributable to each such Partnership asset, as if such unrealized gain or unrealized loss had been recognized on an actual sale of the asset and had been allocated to the Partners at such time pursuant to Article 4.2 of this Agreement in the same manner as any item of gain or loss actually recognized during such period would have been allocated.

4.1.2  To the extent an adjustment to the adjusted tax basis of any Partnership asset pursuant to Section 734(b) or 743(b) of the Code is required, pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis), and such item of gain or loss shall be specially allocated to the Partners in a manner consistent with the manner in which their Capital Accounts are required to be adjusted pursuant to such Section of the Treasury regulations.

4.2   Allocation of Profit or Loss.   Profit or Loss for an Accounting Period shall be allocated among the Partners in proportion to the number of Units each Partner holds as of the Close of Business on the last Business Day of such Accounting Period. The General Partner may revise, alter or otherwise modify this method of allocation to the extent it deems necessary to comply with the requirements of Section 704 or Section 706 of the Code and Treasury regulations or administrative rulings thereunder.

 
9

 

4.3   Allocations for Tax Purposes

4.3.1  Except as otherwise provided in this Agreement, for each fiscal year of the Partnership, items of income, deduction, gain, loss, and credit recognized by the Partnership for federal income tax purposes shall be allocated among the Partners in a manner that equitably reflects the amounts credited or debited to each Partner’s Capital Account for each Accounting Period during such fiscal year. Allocations under this Article 4.3 shall be made by the General Partner in accordance with the principles of Sections 704(b) and 704(c) of the Code and in conformity with applicable Treasury regulations promulgated thereunder (including, without limitation, Treasury regulations Sections 1.704-1(b)(2)(iv)(f), 1.704-1(b)(4)(i), and 1.704-3(e)).

4.3.2  Notwithstanding anything else contained in this Article 4, if any Partner has a deficit Capital Account for any Accounting Period as a result of any adjustment of the type described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(5) or 1.704-1(b)(2)(ii)(d)(6), then the Partnership’s income and gain shall be specially allocated to such Partner in an amount and manner sufficient to eliminate such deficit as quickly as possible. Any special allocation of items of income or gain pursuant to this Article 4.3.2 shall be taken into account in computing subsequent allocations pursuant to this Article 4 so that the cumulative net amount of all items allocated to each Partner shall, to the extent possible, be equal to the amount that would have been allocated to such Partner if there had never been any allocation pursuant to the first sentence of this Article 4.3.2.

4.3.3  Allocations that would otherwise be made to a Limited Partner under the provisions of this Article 4 shall instead be made to the Beneficial Owner of Units held by a nominee.

4.4   Compliance.   In applying the provisions of this Article 4, the General Partner is authorized to utilize such reasonable accounting conventions, valuation methods and assumptions as the General Partner shall determine to be appropriate and in compliance with the Code and applicable Treasury regulations. The General Partner may amend the provisions of this Agreement to the extent it determines to be necessary to comply with the Code and Treasury regulations.

ARTICLE 5

Records and Accounting; Reports

5.1   Records and Accounting.   The Partnership will keep proper books of record and account of the Partnership at its office located in 1320 Harbor Bay Parkway, Suite 145, Alameda, California 94502 or such office, including that of an administrative agent, as it may subsequently designate upon notice to the Limited Partners. These books and records are open to inspection by any person who establishes to the Partnership’s satisfaction that such person is a Limited Partner upon reasonable advance notice at all reasonable times during the usual business hours of the Partnership.

5.2   Annual Reports.   Within 90 days after the end of each fiscal year, the General Partner shall cause to be delivered to each Person who was a Partner at any time during the fiscal year, an annual report containing the following:

 
10

 

(i) financial statements of the Partnership, including, without limitation, a balance sheet as of the end of the Partnership’s fiscal year and statements of income, Partners’ equity and changes in financial position, for such fiscal year, which shall be prepared in accordance with generally accepted accounting principles consistently applied and shall be audited by a firm of independent certified public accountants registered with the Public Company Accounting Oversight Board,

(ii) a general description of the activities of the Partnership during the period covered by the report, and

(iii) a report of any material transactions between the Partnership and the General Partner or any of its Affiliates, including fees or compensation paid by the Partnership and the services performed by the General Partner or any such Affiliate for such fees or compensation.

5.3   Quarterly Reports.   Within 45 days after the end of each quarter of each fiscal year, the General Partner shall cause to be delivered to each Person who was a Partner at any time during the quarter then ended, a quarterly report containing a balance sheet and statement of income for the period covered by the report, each of which may be unaudited but shall be certified by the General Partner as fairly presenting the financial position and results of operations of the Partnership during the period covered by the report. The report shall also contain a description of any material event regarding the business of the Partnership during the period covered by the report.

5.4   Monthly Reports.   Within 30 days after the end of each month, the General Partner shall cause to be delivered to each Person who was a Partner at any time during the month then ended, a monthly report containing an account statement, which will include a statement of income (or loss) and a statement of changes in NAV, for the prescribed period. In addition, the account statement will disclose any material business dealings between the Partnership, General Partner, commodity trading advisor (if any), futures commission merchant, or the principals thereof that previously have not been disclosed in the Partnership’s Prospectus or any amendment thereto, other account statements or annual reports.

5.5   Tax Information.   The General Partner shall use its best efforts to prepare and to transmit a U.S. federal income tax form K-1 for each Partner, Assignee, or Beneficial Owner or a report setting forth in sufficient detail such transactions effected by the Partnership during each fiscal year as shall enable each Partner, Assignee, or Beneficial Owner to prepare its U.S. federal income tax return, if any, within a reasonable period after the end of such fiscal year.

5.6   Tax Returns.   The General Partner shall cause income tax returns of the Partnership to be prepared and timely filed with the appropriate authorities.

5.7   Tax Matters Partner.   The General Partner is hereby designated as the Partnership’s “Tax Matters Partner,” as defined under Section 6231(a)(7) of the Code. The General Partner is specifically directed and authorized to take whatever steps the General Partner, in its discretion, deems necessary or desirable to perfect such designation, including filing any forms or documents with the U.S. Internal Revenue Service and taking such other action as may from time to time be required under U.S. Treasury regulations. Any Partner shall have the right to participate in any administrative proceedings relating to the determination of Partnership items at the Partnership level. Expenses of such administrative proceedings undertaken by the Tax Matters Partner shall be expenses of the Partnership. Each Partner who elects to participate in such proceedings shall be responsible for any expenses incurred by such Partner in connection with such participation. The cost of any resulting audits or adjustments of a Partner’s tax return shall be borne solely by the affected Partner. In the event of any audit, investigation, settlement or review, for which the General Partner is carrying out the responsibilities of Tax Matters Partner, the General Partner shall keep the Partners reasonably apprised of the status and course of such audit, investigation, settlement or review and shall forward copies of all written communications from or to any regulatory, investigative or judicial authority with regard thereto.

 
11

 

ARTICLE 6

Fiscal Affairs

6.1   Fiscal Year.   The fiscal year of the Partnership shall be the calendar year. The General Partner may select an alternate fiscal year.

6.2   Partnership Funds.   Pending application or distribution, the funds of the Partnership shall be deposited in such bank account or accounts, or invested in such interest-bearing or non-interest bearing investment, including, without limitation, checking and savings accounts, certificates of deposit and time or demand deposits in commercial banks, U.S. government securities and securities guaranteed by U.S. government agencies as shall be designed by the General Partner. Such funds shall not be commingled with funds of any other Person. Withdrawals therefrom shall be made upon such signatures as the General Partner may designate.

6.3   Accounting Decisions.   All decisions as to accounting principles, except as specifically provided to the contrary herein, shall be made by the General Partner.

6.4   Tax Elections.   The General Partner shall, from time to time, make such tax elections as it deems necessary or desirable in its sole discretion to carry out the business of the Partnership or the purposes of this Agreement. Notwithstanding the foregoing, the General Partner shall make a timely election under Section 754 of the Code.

6.5   Partnership Interests.   Title to the Partnership assets shall be deemed to be owned by the Partnership as an entity, and no Partner or Assignee, individually or collectively, shall have any ownership interest in such Partnership assets or any portion thereof. Title to any or all of the Partnership assets may be held in the name of the Partnership, the General Partner or one or more nominees, as the General Partner may determine. The General Partner hereby declares and warrants that any Partnership assets for which record title is held in the name of the General Partner shall be held by the General Partner for the exclusive use and benefit of the Partnership in accordance with the provisions of this Agreement; provided, however, that the General Partner shall use its reasonable efforts to cause record title to such assets (other than those assets in respect of which the General Partner determines that the expense and difficulty of conveyancing makes transfer of record title to the Partnership impracticable) to be vested in the Partnership as soon as reasonably practicable; provided, that prior to the withdrawal or removal of the General Partner or as soon thereafter as practicable, the General Partner will use reasonable efforts to effect the transfer of record title to the Partnership and, prior to any such transfer, will provide for the use of such assets in a manner satisfactory to the Partnership. All Partnership assets shall be recorded as the property of the Partnership in its books and records, irrespective of the name in which record title to such Partnership assets are held.

12

 
ARTICLE 7

Rights and Duties of the General Partner

7.1   Management Power.   The General Partner shall have exclusive management and control of the business and affairs of the Partnership, and all decisions regarding the management and affairs of the Partnership shall be made by the General Partner. The General Partner shall have all the rights and powers of general partner as provided in the Act and as otherwise provided by law. Except as otherwise expressly provided in this Agreement, the General Partner is hereby granted the right, power and authority to do on behalf of the Partnership all things which, in its sole judgment, are necessary, proper or desirable to carry out the aforementioned duties and responsibilities, including but not limited to, the right, power and authority from time to time to do the following:

(a) the making of any expenditures, the lending or borrowing of money, the assumption or guarantee of, or other contracting for, indebtedness and other liabilities, the issuance of evidences of indebtedness and the incurring of any other obligations and the securing of same by mortgage, deed of trust or other lien or encumbrance;

(b) the making of tax, regulatory and other filings, or rendering of periodic or other reports to governmental or other agencies having jurisdiction over the business or assets of the Partnership;

(c) the acquisition, disposition, mortgage, pledge, encumbrance, hypothecation or exchange of any or all of the assets of the Partnership, or the merger or other combination of the Partnership with or into another Person (the matters described in this clause (c) being subject, however, to any prior approval that may be required in accordance with this Agreement);

(d) the use of the assets of the Partnership (including, without limitation, cash on hand) for any purpose consistent with the terms of this Agreement including, without limitation, the financing of the conduct of the operations of the Partnership, the lending of funds to other Persons, and the repayment of obligations of the Partnership;

(e) the negotiation, execution and performance of any contracts, conveyances or other instruments (including, without limitation, instruments that limit the liability of the Partnership under contractual arrangements to all or particular assets of the Partnership with the other party to the contract to have no recourse against the General Partner or its assets other than its interest in the Partnership, even if same results in the terms of the transaction being less favorable to the Partnership than would otherwise be the case);

(f) the distribution of Distributable Cash;

(g) the selection and dismissal of employees (including, without limitation, employees having titles such as “president,” “vice president,” “secretary” and “treasurer” ), agents, outside attorneys, accountants, consultants and contractors and the determination of their compensation and other terms of employment or hiring;

(h) the maintenance of insurance for the benefit of the Partners and the Partnership (including, without limitation, the assets and operations of the Partnership);

(i) the formation of, or acquisition of an interest in, and the contribution of property to, any further limited or general partnerships, joint ventures or other relationships;

 
13

 
 
(j) the control of any matters affecting the rights and obligations of the Partnership, including, without limitation, the bringing and defending of actions at law or in equity and otherwise engaging in the conduct of litigation and the incurring of legal expense and the settlement of claims and litigation;

(k) the indemnification of any Person against liabilities and contingencies to the extent permitted by law;

(l) the entering into of listing agreements with the American Stock Exchange and any other securities exchange and the delisting of some or all of the Units from, or requesting that trading be suspended on, any such exchange; and

(m) the purchase, sale or other acquisition or disposition of Units.

7.2   Best Efforts.   The General Partner will use its best efforts to cause the Partnership to be formed, reformed, qualified or registered under assumed or fictitious name statutes or similar laws in any state in which the Partnership owns property or transacts business if such formation, reformation, qualification or registration is necessary in order to protect the limited liability of the Limited Partners or to permit the Partnership lawfully to own property or transact business.

7.3   Right of Public to Rely on Authority of a General Partner.   No person shall be required to determine the General Partner’s authority to make any undertaking on behalf of the Partnership.

7.4   Obligation of the General Partner.   The General Partner shall:

(a)           devote to the Partnership and apply to the accomplishment of the Partnership purposes so much of its time and attention as is necessary or advisable to manage properly the affairs of the Partnership;

(b)           maintain the Capital Account for each Partner; and

(c)           cause the Partnership to enter into and carry out the obligations of the Partnership contained in the agreements with Affiliates of the General Partner as described in the Prospectus and cause the Partnership not to take any action in violation of such agreements.

7.5   Good Faith.   The General Partner has a responsibility to the Limited Partners to exercise good faith and fairness in all dealings. In the event that a Limited Partner believes that the General Partner has violated its fiduciary duty to the Limited Partners, he may seek legal relief individually or on behalf of the Partnership under applicable laws, including under the Act and under securities and commodities laws, to recover damages from or require an accounting by the General Partner. Limited Partners should be aware that performance by the General Partner of its fiduciary duty is measured by the terms of this Agreement as well as applicable law. Limited Partners may also have the right, subject to applicable procedural and jurisdictional requirements, to bring class actions in federal court to enforce their rights under the federal securities laws and the rules and regulations promulgated thereunder by the SEC. Limited Partners who have suffered losses in connection with the purchase or sale of the Units may be able to recover such losses from the General Partner where the losses result from a violation by the General Partner of the federal securities laws. State securities laws may also provide certain remedies to limited partners. Limited Partners are afforded certain rights to institute reparations proceedings under the Commodity Exchange Act for violations of the Commodity Exchange Act or of any rule, regulation or order of the Commodities Futures Trading Commission (“CFTC”)   by the General Partner.

 
14

 

7.6   Indemnification

7.6.1  Notwithstanding any other provision of this Agreement, neither a General Partner nor any employee or other agent of the Partnership nor any officer, director, stockholder, partner, employee or agent of a General Partner (a “Protected Person” ) shall be liable to any Partner or the Partnership for any mistake of judgment or for any action or inaction taken, nor for any losses due to any mistake of judgment or to any action or inaction or to the negligence, dishonesty or bad faith of any officer, director, stockholder, partner, employee or agent of the Partnership or any officer, director, stockholder, partner, employee or agent of such General Partner, provided that such officer, director, stockholder, partner, employee or agent of the Partner or officer, director, stockholder, partner, employee or agent of such General Partner was selected, engaged or retained by such General Partner with reasonable care, except with respect to any matter as to which such General Partner shall have been finally adjudicated in any action, suit or other proceeding not to have acted in good faith in the reasonable belief that such Protected Person’s action was in the best interests of the Partnership and except that no Protected Person shall be relieved of any liability to which such Protected Person would otherwise be subject by reason of willful misfeasance, gross negligence or reckless disregard of the duties involved in the conduct of the Protected Person’s office. A General Partner and its officers, directors, employees or partners may consult with counsel and accountants (except for the Partnership’s independent auditors) in respect of Partnership affairs and be fully protected and justified in any action or inaction which is taken in accordance with the advice or opinion of such counsel or accountants (except for the Partnership’s independent auditors), provided that they shall have been selected with reasonable care.

Notwithstanding any of the foregoing to the contrary, the provisions of this Article 7.6.1 and of Article 7.6.2 hereof shall not be construed so as to relieve (or attempt to relieve) a General Partner (or any officer, director, stockholder, partner, employee or agent of such General Partner) of any liability to the extent (but only to the extent) that such liability may not be waived, modified or limited under applicable law, but shall be construed so as to effectuate the provisions of this Article 7.6.1 and of Article 7.6.2 hereof to the fullest extent permitted by law.

7.6.2  The Partnership shall, to the fullest extent permitted by law, but only out of Partnership assets, indemnify and hold harmless a General Partner and each officer, director, stockholder, partner, employee or agent thereof (including persons who serve at the Partnership’s request as directors, officers or trustees of another organization in which the Partnership has an interest as a Unitholder, creditor or otherwise) and their respective legal representatives and successors (hereinafter referred to as a “Covered Person” ) against all liabilities and expenses, including but not limited to amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and counsel fees reasonably incurred by any Covered Person in connection with the defense or disposition of any action, suit or other proceedings, whether civil or criminal, before any court or administrative or legislative body, in which such Covered Person may be or may have been involved as a party or otherwise or with which such Covered Person may be or may have been threatened, while in office or thereafter, by reason of an alleged act or omission as a General Partner or director or officer thereof, or by reason of its being or having been such a General Partner, director or officer, except with respect to any matter as to which such Covered Person shall have been finally adjudicated in any such action, suit or other proceeding not to have acted in good faith in the reasonable belief that such Covered Person’s action was in the best interest of the Partnership, and except that no Covered Person shall be indemnified against any liability to the Partnership or Limited Partners to which such Covered Person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Covered Person’s office. Expenses, including counsel fees so incurred by any such Covered Person, may be paid from time to time by the Partnership in advance of the final disposition of any such action, suit or proceeding on the condition that the amounts so paid shall be repaid to the Partnership if it is ultimately determined that the indemnification of such expenses is not authorized hereunder.

 
15

 
 
As to any matter disposed of by a compromise payment by any such Covered Person, pursuant to a consent decree or otherwise, no such indemnification either for said payment or for any other expenses shall be provided unless such compromise shall be approved as in the best interests of the Partnership, after notice that it involved such indemnification by any disinterested person or persons to whom the questions may be referred by the General Partner, provided that there has been obtained an opinion in writing of independent legal counsel to the effect that such Covered Person appears to have acted in good faith in the reasonable belief that his or her action was in the best interests of the Partnership and that such indemnification would not protect such persons against any liability to the Partnership or its Limited Partners to which such person would otherwise by subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of office. Approval by any disinterested person or persons shall not prevent the recovery from persons of indemnification if such Covered Person is subsequently adjudicated by a court of competent jurisdiction not to have acted in good faith in the reasonable belief that such Covered Person’s action was in the best interests of the Partnership or to have been liable to the Partnership or its Limited Partners by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Covered Person’s office.

The right of indemnification hereby provided shall not be exclusive of or affect any other rights to which any such Covered Person may be entitled. As used in this Article 7.6.2, an “interested Covered Person” is one against whom the action, suit or other proceeding on the same or similar grounds is then or has been pending and a “disinterested person” is a person against whom no actions, suits or other proceedings or another action, suit or other proceeding on the same or similar grounds is then or has been pending. Nothing contained in this Article 7.6.2 shall affect any rights to indemnification to which personnel of a General Partner, other than directors and officers, and other persons may be entitled by contract or otherwise under law, nor the power of the Partnership to purchase and maintain liability insurance on behalf of any such person.

Nothing in this Article 7.6.2 shall be construed to subject any Covered Person to any liability to which he or she is not already liable under this Agreement or applicable law.

7.6.3  Each Limited Partner agrees that it will not hold any Affiliate or any officer, director, stockholder, partner, employee or agent of any Affiliate of the General Partner liable for any actions of such General Partner or any obligations arising under or in connection with this Agreement or the transactions contemplated hereby.

7.7   Resolutions of Conflicts of Interest; Standard of Care.

7.7.1  Unless otherwise expressly provided in this Agreement or any other agreement contemplated hereby, whenever a conflict of interest exists or arises between the General Partner on the one hand, and the Partnership or any Limited Partner, on the other hand, any resolution or course of action by the General Partner in respect of such conflict of interest shall be permitted and deemed approved by all Partners and shall not constitute a breach of this Agreement or of any agreement contemplated hereby or of a duty stated or implied by law or equity, if the resolution or course of action is, or by operation of this Agreement is deemed to be, fair and reasonable to the Partnership. If a dispute arises, it will be resolved through negotiations with the General Partner or by a court located in the State of Delaware. Any resolution of a dispute is deemed to be fair and reasonable to the Partnership if the resolution is:

 
16

 

approved by the Audit Committee, although no party is obligated to seek such approval and the General Partner may adopt a resolution or course of action that has not received such approval;

on terms no less favorable to the Limited Partners than those generally being provided to or available from unrelated third parties; or

fair to the Limited Partners, taking into account the totality of the relationships of the parties involved including o ther transactions that may be particularly favorable or advantageous to the Limited Partners.

7.7.2  Whenever this Agreement or any other agreement contemplated hereby provides that the General Partner is permitted or required to make a decision (i) in its discretion or under a grant of similar authority or latitude, the General Partner shall be entitled to the extent permitted by applicable law, to consider only such interest and factors as it desires and shall have no duty or obligation to give any consideration to any interest of or factors affecting the partnership or the Limited Partners, or (ii) in its good faith or under another express standard, the General Partner shall act under such express standard and except as required by applicable law, shall not be subject to any other different standards imposed by this Agreement, any other agreement contemplated hereby or applicable law.

7.8   Other Matters Concerning the General Partner.

7.8.1  The General Partner (including the Audit Committee) may rely on and shall be protected in acting or refraining from acting upon any certificate, document or other instrument believed by it to be genuine and to have been signed or presented by the proper party or parties.

7.8.2  The General Partner (including the Audit Committee) may consult with legal counsel, accountants, appraisers, management consultants, investment bankers and other consultants and advisors selected by it and any opinion or advice of any such person as to matters which the General Partner (including the Audit Committee) believes to be within such person’s professional or expert competence shall be the basis for full and complete authorization of indemnification and provide legal protection with respect to any action taken or suffered or omitted by the General Partner (including the Audit Committee) hereunder in good faith and in accordance with such opinion or advice.

7.8.3  The General Partner (including the Audit Committee) may exercise any of the powers granted to it by this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through its agents, and the General Partner (including the Audit Committee) shall not be responsible for any misconduct or negligence on the part of any such agent appointed by the General Partner in good faith.

7.9   Other Business Ventures.   Any Partner, director, employee, Affiliate or other person holding a legal or beneficial interest in any entity which is a Partner, may engage in or possess an interest in other business ventures of every nature and description, independently or with others, whether such ventures are competitive with the Partnership or otherwise; and, neither the Partnership nor the Partners shall have any right by virtue of this Agreement in or to such independent ventures or to the income or profits derived there from.

 
17

 

7.10   Contracts with the General Partner or its Affiliates.   The General Partner may, on behalf of the Partnership, enter into contracts with any Affiliate. The validity of any transaction, agreement or payment involving the Partnership and any General Partner or any Affiliate of a General Partner otherwise permitted by the terms of this Agreement shall not be affected by reason of (i) the relationship between the Partnership and the Affiliate of the General Partner, or (ii) the approval of said transaction agreement or payment by officers or directors of the General Partner.

7.11   Additional General Partners.   Additional general partners may be admitted with the consent of the General Partner.

ARTICLE 8

Rights and Obligations of Limited Partners

8.1   No Participation in Management.   No Limited Partner (other than a General Partner if it has acquired an interest of a Limited Partner) shall take part in the management of the Partnership’s business, transact any business in the Partnership’s name or have the power to sign documents for or otherwise bind the Partnership.

8.2   Limitation of Liability.   Except as provided in the Act, the debts, obligations, and liabilities of the Partnership, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Partnership. A Limited Partner will not be liable for assessments in addition to its initial capital investment in any capital securities representing limited partnership interests. However, a Limited Partner may be required to repay to the Partnership any amounts wrongfully returned or distributed to it under some circumstances.

8.3   Indemnification and Terms of Admission.   Each Limited Partner shall indemnify and hold harmless the Partnership, the General Partner and every Limited Partner who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceedings, whether civil, criminal, administrative or investigative, by reason of or arising from any actual or alleged misrepresentation or misstatement of facts or omission to state facts made (or omitted to be made) by such Limited Partner in connection with any assignment, transfer, encumbrance or other disposition of all or any part of an interest, or the admission of a Limited Partner to the Partnership, against expenses for which the Partnership or such other Person has not otherwise been reimbursed (including attorneys’ fees, judgments, fines and amounts paid in settlement) actually and reasonably incurred by him in connection with such action, suit or proceeding.

8.4   Effective Date.   The effective date of admission of a Limited Partner shall be the date designated by the General Partner in writing to such assignee or transferee.

8.5   Death or Incapacity of Limited Partner.   The death or legal incapacity of a Limited Partner shall not cause dissolution of the Partnership.

8.6   Rights of Limited Partner Relating to the Partnership.

(a) In addition to other rights provided by this Agreement or by applicable law, and except as otherwise limited under this Agreement, each Limited Partner shall have the right, for a purpose reasonably related to such Limited Partner’s interest as a Limited Partner in the Partnership, upon reasonable demand and at such Limited Partner’s own expense:

 
18

 

(i) to obtain true and full information regarding the status of the business and financial condition of the Partnership;

(ii) promptly after becoming available, to obtain a copy of the Partnership’s federal, state and local tax returns for each year;

(iii) to have furnished to it, upon notification to the General Partner, a current list of the name and last known business, residence or mailing address of each Partner;

(iv) to have furnished to it, upon notification to the General Partner, a copy of this Agreement and the Certificate of Limited Partnership and all amendments thereto;

(v) to obtain true and full information regarding the amount of cash contributed by and a description and statement of the value of any other Capital Contribution by each Partner and which each Partner has agreed to contribute in the future, and the date on which each became a Partner; and

(vi) to obtain such other information regarding the affairs of the Partnership as is just and reasonable.

(b) Notwithstanding any other provision of this Agreement, the General Partner may keep confidential from the Limited Partners and Assignees for such period of time as the General Partner deems reasonable, any information that the General Partner reasonably believes to be in the nature of trade secrets or other information, the disclosure of which the General Partner in good faith believes is not in the best interests of the Partnership or could damage the Partnership or that the Partnership is required by law or by agreements with third parties to keep confidential (other than agreements with Affiliates the primary purpose of which is to circumvent the obligations set forth in this Article 8.6).

ARTICLE 9

Unit Certificates

9.1   Unit Certificates.   Certificates shall be executed on behalf of the Partnership by any officer either of the General Partner or, if any, of the Partnership.

9.2   Registration Form, Registration of Transfer and Exchange.

9.2.1  The General Partner shall cause to be kept on behalf of the Partnership a register (the “Unit Register” ) in which, subject to such reasonable regulations as it may prescribe, the General Partner will provide for the registration and the transfer of Units. The Transfer Agent has been appointed registrar and transfer agent for the purpose of registering and transferring Units as herein provided. The Partnership shall not recognize transfers of Certificates representing Units unless same are effected in the manner described in this Article 9.2. Upon surrender for registration of transfer of any Units evidenced by a Certificate, the General Partner on behalf of the Partnership will execute, and the Transfer Agent will countersign and deliver, in the name of the holder or the designated transferee or transferees, as required pursuant to the holder’s instructions, one or more new Certificates evidencing the same aggregate number of Units as was evidenced by the Certificate so surrendered.

 
19

 

9.2.2   Book-Entry-Only System.

(a) Global Certificate Only.   Unless otherwise authorized by the General Partner, Certificates for Units will not be issued, other than the one or more Global Certificates issued to the Depository. So long as the Depository Agreement is in effect, Creation Baskets will be issued and redeemed and Units will be transferable solely through the book-entry systems of the Depository and the DTC Participants and their Indirect Participants as more fully described below.

(1) Global Certificate.   The Partnership and the General Partner will enter into the Depository Agreement pursuant to which the Depository will act as securities depository for the Units. Units will be represented by the Global Certificate (which may consist of one or more certificates as required by the Depository), which will be registered, as the Depository shall direct, in the name of Cede & Co., as nominee for the Depository and deposited with, or on behalf of, the Depository. No other certificates evidencing Units will be issued. The Global Certificate shall be in the form attached hereto as Exhibit B and shall represent such Units as shall be specified therein, and may provide that it shall represent the aggregate amount of outstanding Units from time to time endorsed thereon and that the aggregate amount of outstanding Units represented thereby may from time to time be increased or decreased to reflect creations or redemptions of Baskets (as defined in Section 16.1). Any endorsement of a Global Certificate to reflect the amount, or any increase or decrease in the amount, of outstanding Units represented thereby shall be made in such manner and upon instructions given by the General Partner on behalf of the Partnership as specified in the Depository Agreement.

(2) Legend.   Any Global Certificate issued to the Depository or its nominee shall bear a legend substantially to the following effect:

“UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), TO THE FUND OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUIRED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.”

(3) The Depository.   The Depository has advised the Partnership and the General Partner as follows: the Depository is a limited-purpose trust company organized under the laws of the State of New York, a member of the U.S. 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 Securities Exchange Act of 1934, as amended. The Depository was created to hold securities of DTC Participants and to facilitate the clearance and settlement of securities transactions among the DTC Participants in such securities through electronic book-entry changes in accounts of the DTC Participants, thereby eliminating the need for physical movement of securities certificates. “DTC Participants” include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations, some of whom (and/or their representatives) own the Depository. Access to the Depository’s system is also available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly (“Indirect Participants”) . The Depository may determine to discontinue providing its service with respect to Creation Baskets and Units by giving notice to the General Partner pursuant to and in conformity with the provisions of the Depository Agreement and discharging its responsibilities with respect thereto under applicable law. Under such circumstances, the General Partner shall take action either to find a replacement for the Depository to perform its functions at a comparable cost and on terms acceptable to the General Partner or, if such a replacement is unavailable, to terminate the Partnership.

 
20

 

(4) Beneficial Owners.   As provided in the Depository Agreement, upon the settlement date of any creation, transfer or redemption of Units, the Depository will credit or debit, on its book-entry registration and transfer system, the number of Units so created, transferred or redeemed to the accounts of the appropriate DTC Participants. The accounts to be credited and charged shall be designated by the General Partner on behalf of the Partnership and each Participant, in the case of a creation or redemption of Baskets. Ownership of beneficial interest in Units will be limited to DTC Participants, Indirect Participants and persons holding interests through DTC Participants and Indirect Participants. Beneficial Owners will be shown on, and the transfer of beneficial ownership by Beneficial Owners will be effected only through, in the case of DTC Participants, records maintained by the Depository and, in the case of Indirect Participants and Beneficial Owners holding through a DTC Participant or an Indirect Participant, through those records or the records of the relevant DTC Participants. Beneficial Owners are expected to receive, from or through the broker or bank that maintains the account through which the Beneficial Owner has purchased Units, a written confirmation relating to their purchase of Units.

(5) Reliance on Procedures.   Except for those who have provided Transfer Applications to the General Partner, so long as Cede & Co., as nominee of the Depository, is the registered owner of Units, references herein to the registered or record owners of Units shall mean Cede & Co. and shall not mean the Beneficial Owners of Units. Beneficial Owners of Units will not be entitled to have Units registered in their names, will not receive or be entitled to receive physical delivery of certificates in definitive form and will not be considered the record or registered holder of Units under this Agreement. Accordingly, to exercise any rights of a holder of Units under the Agreement, a Beneficial Owner must rely on the procedures of the Depository and, if such Beneficial Owner is not a DTC Participant, on the procedures of each DTC Participant or Indirect Participant through which such Beneficial Owner holds its interests. The Partnership and the General Partner understand that under existing industry practice, if the Partnership requests any action of a Beneficial Owner, or a Beneficial Owner desires to take any action that the Depository, as the record owner of all outstanding Units, is entitled to take, the Depository will notify the DTC Participants regarding such request, such DTC Participants will in turn notify each Indirect Participant holding Units through it, with each successive Indirect Participant continuing to notify each person holding Units through it until the request has reached the Beneficial Owner, and in the case of a request or authorization to act that is being sought or given by a Beneficial Owner, such request or authorization is given by the Beneficial Owner and relayed back to the Partnership through each Indirect Participant and DTC Participant through which the Beneficial Owner’s interest in the Units is held.

(6) Communication between the Partnership and the Beneficial Owners.   As described above, the Partnership will recognize the Depository or its nominee as the owner of all Units for all purposes except as expressly set forth in this Agreement. Conveyance of all notices, statements and other communications to Beneficial Owners will be effected in accordance with this paragraph.  Pursuant to the Depository Agreement, the Depository is required to make available to the Partnership, upon request and for a fee to be charged to the Partnership, a listing of the Unit holdings of each DTC Participant. The Partnership shall inquire of each such DTC Participant as to the number of Beneficial Owners holding Units, directly or indirectly, through such DTC Participant. The Partnership shall provide each such DTC Participant with sufficient copies of such notice, statement or other communication, in such form, number and at such place as such DTC Participant may reasonably request, in order that such notice, statement or communication may be transmitted by such DTC Participant, directly or indirectly, to such Beneficial Owners. In addition, the Partnership shall pay to each such DTC Participant an amount as reimbursement for the expenses attendant to such transmittal, all subject to applicable statutory and regulatory requirements.

 
21

 

(7) Distributions.   Distributions on Units pursuant to this Agreement shall be made to the Depository or its nominee, Cede & Co., as the registered owner of all Units. The Partnership and the General Partner expect that the Depository or its nominee, upon receipt of any payment of distributions in respect of Units, shall credit immediately DTC Participants’ accounts with payments in amounts proportionate to their respective beneficial interests in Units as shown on the records of the Depository or its nominee. The Partnership and the General Partner also expect that payments by DTC Participants to Indirect Participants and Beneficial Owners held through such DTC Participants and Indirect Participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in a “street name,” and will be the responsibility of such DTC Participants and Indirect Participants. Neither the Partnership nor the General Partner will have any responsibility or liability for any aspects of the records relating to or notices to Beneficial Owners, or payments made on account of beneficial ownership interests in Units, or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests or for any other aspect of the relationship between the Depository and the DTC Participants or the relationship between such DTC Participants and the Indirect Participants and Beneficial Owners owning through such DTC Participants or Indirect Participants or between or among the Depository, any Beneficial Owner and any person by or through which such Beneficial Owner is considered to own Units.

(8) Limitation of Liability.   The Global Certificate to be issued hereunder is executed and delivered solely on behalf of the Partnership by the General Partner in its capacity as such and in the exercise of the powers and authority conferred and vested in it by this Agreement. The representations, undertakings and agreements made on the part of the Partnership in the Global Certificate are made and intended not as personal representations, undertakings and agreements by the General Partner, but are made and intended for the purpose of binding only the Partnership. Nothing in the Global Certificate shall be construed as creating any liability on the General Partner, individually or personally, to fulfill any representation, undertaking or agreement other than as provided in this Agreement.

(9) Successor Depository.   If a successor to the Depository shall be employed as Depository hereunder, the Partnership and the General Partner shall establish procedures acceptable to such successor with respect to the matters addressed in this Section 9.2.2.

(10) Transfer of Units.   Beneficial Owners that are not DTC Participants may transfer Units by instructing the DTC Participant or Indirect Participant holding the Units for such Beneficial Owner in accordance with standard securities industry practice. Beneficial Owners that are DTC Participants may transfer Units by instructing the Depository in accordance with the rules of the Depository and standard securities industry practice.

9.2.3  Except as otherwise provided in this Agreement, the Partnership shall not recognize any transfer of Units until the Certificates (if applicable) and a Transfer Application have been provided to the General Partner evidencing such Units are surrendered for registration of transfer.  Such Certificates must be accompanied by a Transfer Application duly executed by the transferee (or the transferee’s attorney-in-fact duly authorized in writing). No charge shall be imposed by the Partnership for such transfer, provided, that, as a condition to the issuance of any new Certificate under this Article 9.2, the General Partner may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed with respect thereto.

 
22

 

9.3   Mutilated, Destroyed, Lost or Stolen Certificates.

9.3.1 If any mutilated Certificate is surrendered to the Transfer Agent, the General Partner on behalf of the Partnership, shall execute, and upon its request, the Transfer Agent shall countersign and deliver in exchange therefore, a new Certificate evidencing the same number of Units as the Certificate so surrendered.

9.3.2 The General Partner, on behalf of the Partnership, shall execute, and upon its request, the Transfer Agent shall countersign and deliver a new Certificate in place of any Certificate previously issued if the Record Holder of the Certificate:

(a) makes proof by affidavit, in form and substance satisfactory to the General Partner, that a previously issued Certificate has been lost, destroyed or stolen;

(b) requests the issuance of a new Certificate before the Partnership has received notice that the Certificate has been acquired by a purchaser for value in good faith and without notice of an adverse claim;

(c) if requested by the General Partner, delivers to the Partnership a bond or such other form of security or indemnity as may be required by the General Partner, in form and substance satisfactory to the General Partner, with surety or sureties and with fixed or open penalty as the General Partner may direct, in its sole discretion, to indemnify the Partnership, the General Partner and the Transfer Agent against any claim that may be made on account of the alleged loss, destruction or theft of the Certificate; and

(d) satisfies any other reasonable requirements imposed by the General Partner.

If a Limited Partner or Assignee fails to notify the Partnership within a reasonable time after it has notice of the loss, destruction or theft of a Certificate, and a transfer of the Units represented by the Certificate is registered before the Partnership, the General Partner or the Transfer Agent receives such notification, the Limited Partner or Assignee shall be precluded from making any claim against the Partnership, the General Partner or the Transfer Agent for such transfer or for a new Certificate.

9.3.3  As a condition to the issuance of any new Certificate under this Article 9.3, the General Partner may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including, without limitation, the fees and expenses of the Transfer Agent) connected therewith.

9.4   Record Holder.   The Partnership shall be entitled to recognize the Record Holder as the Limited Partner or Assignee with respect to any Units and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such Units on the part of any other Person, whether or not the Partnership shall have actual or other notice thereof, except as otherwise provided by law or any applicable rule, regulation, guideline or requirement of any national securities exchange on which the Units are listed for trading. Without limiting the foregoing, when a Person (such as a broker, dealer, bank trust company or clearing corporation or an agent of any of the foregoing) is acting as nominee, agent or in some other representative capacity for another Person in acquiring and/or holding Units, as between the Partnership on the one hand and such other Persons on the other hand such representative Person (a) shall be the Limited Partner or Assignee (as the case may be) of record and beneficially, (b) must execute and deliver a Transfer Application and (c) shall be bound by this Agreement and shall have the rights and obligations of a Limited Partner or Assignee (as the case may be) hereunder and as provided for herein.

 
23

 

9.5   Partnership Securities.   The General Partner is hereby authorized to cause the Partnership to issue Partnership Securities, for any Partnership purpose, at any time or from time to time, to the Partners or to other Persons for such consideration and on such terms and conditions as shall be established by the General Partner in its sole discretion, all without the approval of any Limited Partners. The General Partner shall have sole discretion, subject to the requirements of the Act, in determining the consideration and terms and conditions with respect to any future issuance of Partnership Securities.

9.5.1  The General Partner shall do all things necessary to comply with the Act and is authorized and directed to do all things it deems to be necessary or advisable in connection with any future issuance of Partnership Securities, including, without limitation, compliance with any statute, rule, regulation or guideline of any federal, state or other governmental agency or any national securities exchange on which the Units or other Partnership Securities are listed for trading.

ARTICLE 10

Transfer of Interests

10.1   Transfer.

10.1.1  The term “transfer,” when used in this Article 10 with respect to an interest, shall be deemed to refer to an appropriate transaction by which the General Partner assigns its interest as General Partner to another Person or by which the holder of a Unit assigns such Unit to another Person who is or becomes an Assignee and includes a sale, assignment, gift, pledge, encumbrance, hypothecation, mortgage, exchange or any other disposition by law or otherwise.

10.1.2  No interest shall be transferred in whole or in part, except in accordance with the terms and conditions set forth in this Article 10. Any transfer or purported transfer of an interest not made in accordance with this Article 10 shall be null and void.

10.2   Transfer of General Partner’s Interest.

10.2.1  Except as set forth in this Article 10.2.1, the General Partner may transfer all, but not less than all, of its interest as the general partner to a single transferee if, but only if, (i) at least a majority of the Limited Partners approve of such transfer and of the admission of such transferee as general partner, (ii) the transferee agrees to assume the rights and duties of the General Partner and be bound by the provisions of this Agreement and other applicable agreements, and (iii) the Partnership receives an Opinion of Counsel that such transfer would not result in the loss of limited liability of any Limited Partner or of the Partnership or cause the Partnership to be taxable as a corporation or otherwise taxed as an entity for federal income tax purposes. The foregoing notwithstanding, the General Partner is expressly permitted to pledge its interest as General Partner to secure the obligations of the Partnership under a Revolving Credit Facility, as the same may be amended, supplemented, replaced, refinanced or restated from time to time, or any successor or subsequent loan agreement.

 
24

 

10.2.2  Neither Article 10.2.1 nor any other provision of this Agreement shall be construed to prevent (and all Partners do hereby consent to) (i) the transfer by the General Partner of all of its interest as a general partner to an Affiliate or (ii) the transfer by the General Partner of all its interest as a general partner upon its merger or consolidation with or other combination into any other Person or the transfer by it of all or substantially all of its assets to another Person if, in the case of a transfer described in either clause (i) or (ii) of this sentence, the rights and duties of the General Partner with respect to the interest so transferred are assumed by the transferee and the transferee agrees to be bound by the provisions of this Agreement; provided, that in either such case, such transferee furnishes to the Partnership an Opinion of Counsel that such merger, consolidation, combination, transfer or assumption will not result in a loss of limited liability of any Limited Partner or of the Partnership or cause the Partnership to be taxable as a corporation or otherwise taxed as an entity for federal income tax purpose. In the case of a transfer pursuant to this Article 10.2.2, the transferee or successor (as the case may be) shall be admitted to the Partnership as the General Partner immediately prior to the transfer of the interest, and the business of the Partnership shall continue without dissolution.

10.3   Transfer of Units.

10.3.1  Units may be transferred only in the manner described in Article 9.2. The transfer of any Units and the admission of any new Partner shall not constitute an amendment to this Agreement.

10.3.2  Until admitted as a Substituted Limited Partner pursuant to Article 11, the Record Holder of a Unit shall be an Assignee in respect of such Unit. Limited Partners may include custodians, nominees or any other individual or entity in its own or any representative capacity.

10.3.3  Each distribution in respect of Units shall be paid by the Partnership, directly or through the Transfer Agent or through any other Person or agent, only to the Record Holders thereof as of the Record Date set for the distribution. Such payment shall constitute full payment and satisfaction of the Partnership’s liability in respect of such payment, regardless of any claim of any Person who may have an interest in such payment by reason of an assignment or otherwise.

10.3.4  A transferee who has completed and delivered a Transfer Application provided by the seller of the Units (or if purchased on an exchange directly from the Partnership), shall be deemed to have (i) requested admission as a Substituted Limited Partner, (ii) agreed to comply with and be bound by and to have executed this Agreement, (iii) represented and warranted that such transferee has the capacity and authority to enter into this Agreement, (iv) made the powers of attorney set forth in this Agreement, and (v) given the consents and made the waivers contained in this Agreement.

10.4   Restrictions on Transfers.   Notwithstanding the other provisions of this Article 10, no transfer of any Unit or interest therein of any Limited Partner or Assignee shall be made if such transfer would (a) violate the then applicable federal or state securities laws or rules and regulations of the SEC, any state securities commission, the CFTC, or any other governmental authorities with jurisdiction over such transfer, (b) cause the Partnership to be taxable as a corporation or (c) affect the Partnership’s existence or qualification as a limited partnership under the Act. The General Partner may request each Record Holder to furnish certain information, including that holder’s nationality, citizenship or other related status. A transferee who is not a U.S. resident may not be eligible to become a Record Holder or a Limited Partner if such ownership would subject the Partnership to the risk of cancellation or forfeiture of any of its assets under any federal, state or local law or regulation. If the Record Holder fails to furnish the information or if the General Partner determines, on the basis of the information furnished by the holder in response to the request, that such holder is not qualified to become a Limited Partner, the General Partner may be substituted as a holder for the Record Holder, who will then be treated as a non-citizen assignee, and the Partnership will have the right to redeem those securities held by the Record Holder.

 
25

 

10.5   Tax Certificates.

10.5.1  All Limited Partners or Assignees (or, if the Limited Partner or Assignee is a nominee holding for the account of a Beneficial Owner, the Beneficial Owner) are required to provide the Partnership with a properly completed Tax Certificate.

10.5.2  If a Limited Partner or Assignee (or, if the Limited Partner or Assignee is a nominee holding for the account of a Beneficial Owner, the Beneficial Owner) fails to provide the Partnership with a properly completed Tax Certificate, the General Partner may request at any time and from time to time, that such Limited Partner or Assignee (or Beneficial Owner) shall, within 15 days after request (whether oral or written) therefore by the General Partner, furnish to the Partnership, a properly completed Tax Certificate. If a Limited Partner or Assignee fails to furnish to the General Partner within the aforementioned 15-day period such Tax Certificate, the Units owned by such Limited Partner or Assignee (or in the case of a Limited Partner or Assignee that holds Units on behalf of a Beneficial Owner, the Units held on behalf of the Beneficial Owner) shall be subject to redemption in accordance with the provisions of Article 10.6.

10.6   Redemption of Units for Failure to Provide Tax Certificate.

10.6.1  If at any time a Limited Partner or Assignee fails to furnish a properly completed Tax Certificate within the 15-day period specified in Article 10.5.2, the Partnership may redeem the Units of such Limited Partner or Assignee as follows:

(a) The General Partner shall not later than the tenth (10th) Business Day before the date fixed for redemption, give notice of redemption to the Limited Partner or Assignee, at its last address designated on the records of the Partnership or the Transfer Agent, by registered or certified mail, postage prepaid. The notice shall be deemed to have been given when so mailed (the “Notice Date” ). The notice shall specify the Redeemable Units, the date fixed for redemption, the place of payment, and that payment of the redemption price will be made upon surrender of the certification evidencing the Redeemable Units.

(b) The aggregate redemption price for Redeemable Units shall be an amount equal to the market price as of the Close of Business on the Business Day immediately prior to the date fixed for redemption of Units to be so redeemed multiplied by the number of Units included among the Redeemable Units. The redemption price shall be paid in the sole discretion of the General Partner, in cash or by delivery of a promissory note of the Partnership in the principal amount of the redemption price, bearing interest at the Prime Rate (as established by the Federal Reserve Board) and payable in three equal annual installments of principal together with accrued interest commencing one year after the redemption date.

 
26

 

(c) Upon surrender by or on behalf of the Limited Partner or Assignee, at the place specified in the notice of redemption, of the certification evidencing the Redeemable Units, duly endorsed in blank or accompanied by an assignment duly executed in blank, the Limited Partner or Assignee or its duly authorized representative shall be entitled to receive the payment therefore.

(d) In the event the Partnership is required to pay withholding tax or otherwise withhold any amount on behalf of, or with respect to, a Limited Partner or Assignee (or Beneficial Owner) who has failed to provide a properly completed Tax Certificate, such amounts paid or withheld by the Partnership shall be deemed to have been paid to such Limited Partner or Assignee (or Beneficial Owner) as part of the redemption price for the Redeemable Units and the Partnership shall reduce the amount of the payment made to such Limited Partner or Assignee (or Beneficial owner) in redemption of such Redeemable Units by any amounts so withheld.

10.6.2  After the Notice Date, Redeemable Units shall no longer constitute issued and Outstanding Units and no allocations or distributions shall be made with respect to such Redeemable Units. In addition, after the Notice Date, the Redeemable Units shall not be transferable.

10.6.3  The provisions of this Article 10.6 shall also be applicable to Units held by a Limited Partner or Assignee as nominee of a Beneficial Owner.

ARTICLE 11

Admission of Partners

11.1   Admission of Initial Limited Partners and Other Creation Basket Purchases.   Subject to the requirements of this Article 11, upon the issuance by the Partnership of Units to the Initial Limited Partner and any other purchasers of a Creation Basket, the General Partner shall admit the Initial Limited Partner and such other purchasers of the Creation Basket to the Partnership as Limited Partners in respect of the Units purchased.

11.2   Admission of Substituted Limited Partners.   By transfer of a Unit in accordance with Article 10, the transferor shall be deemed to have given the transferee the right to seek admission as a Substituted Limited Partner subject to the conditions of, and in the manner permitted under, this Agreement. A transferor of a Certificate shall, however, only have the authority to convey to a purchaser or other transferee who does not execute and deliver a Transfer Application (i) the right to negotiate such Certificate to a purchaser or other transferee, and (ii) the right to transfer the right to request admission as a Substituted Limited Partner to such purchaser or other transferee in respect of the transferred Units. Each transferee of a Unit (including, without limitation, any nominee holder or an agent acquiring such Unit for the account of another Person) who executes and delivers a Transfer Application shall, by virtue of such execution and delivery, be an Assignee and be deemed to have applied to become a Substituted Limited Partner with respect to the Units so transferred to such Person. Such Assignee shall become a Substituted Limited Partner (i) at such time as the General Partner consents thereto, which consent may be given or withheld in the General Partner’s sole discretion, and (ii) when any such admission is shown on the books and records of the Partnership, following the consent of the General Partner to such admission.  If such consent is withheld, such transferee shall be an Assignee. An Assignee shall have an interest in the Partnership equivalent to that of a Limited Partner with respect to allocations and distributions, including, without limitation, liquidating distributions, of the Partnership. With respect to voting rights attributable to Units that are held by Assignees, the General Partner shall be deemed to be the Limited Partner with respect thereto and shall, in exercising the voting rights in respect of such Units on any matter, vote such Units at the written direction of the Assignee who is the Record Holder of such Units. If no such written direction is received, such Units will not be voted. An Assignee shall have none of the other rights of a Limited Partner.

 
27

 

11.3   Admission of Successor General Partner.   A successor General Partner approved pursuant to this Article 11.3 or the transferee of or successor to all of the General Partner’s interest pursuant to Article 10.2 who is proposed to be admitted as a successor General Partner shall be admitted to the Partnership as the General Partner, effective immediately prior to the withdrawal or removal of the General Partner pursuant to Article 12 or the transfer of the General Partner’s interest pursuant to Article 10.2; provided, however, that no such successor shall be admitted to the Partnership until compliance with the terms of Article 10.2 has occurred. Any such successor shall carry on the business of the Partnership without dissolution. In each case, the admission shall be subject to the successor General Partner executing and delivering to the Partnership an acceptance of all of the terms and conditions of this Agreement and such other documents or instruments as may be required to effect the admission.

11.4   Admission of Additional Limited Partners.

11.4.1  A Person (other than the General Partner, an Initial Limited Partner or a Substituted Limited Partner) who makes a Capital Contribution to the Partnership in accordance with this Agreement shall be admitted to the Partnership as an Additional Limited Partner only upon furnishing to the General Partner (i) evidence of acceptance in form satisfactory to the General Partner of all of the terms and conditions of this Agreement, including, without limitation, the power of attorney granted in this Agreement, and (ii) such other documents or instruments as may be required in the discretion of the General Partner to effect such Person’s admission as an Additional Limited Partner.

11.4.2  Notwithstanding anything to the contrary in this Article 11.4, no Person shall be admitted as an Additional Limited Partner without the consent of the General Partner, which consent may be given or withheld in the General Partner’s sole discretion. The admission of any Person as an Additional Limited Partner shall become effective on the date upon which the name of such Person is recorded on the books and records of the Partnership, following the consent of the General Partner to such admission.

11.5   Amendment of Agreement and Certificate of Limited Partnership.   To effect the admission to the Partnership of any Partner, the General Partner shall take all steps necessary and appropriate under the Act to amend the records of the Partnership and if necessary, to prepare as soon as practical an amendment of this Agreement and if required by law, to prepare and file an amendment to the Certificate of Limited Partnership and may for this purpose, among others, exercise the power of attorney granted pursuant to Article 15.

ARTICLE 12

Withdrawal or Removal of Partners

12.1   Withdrawal of the General Partner.

12.1.1  The General Partner shall be deemed to have withdrawn from the Partnership upon the occurrence of any one of the following events (each such event herein referred to as an “Event of Withdrawal” ):

 
28

 

(a)           the General Partner voluntarily withdraws from the Partnership by giving written notice to the other Partners;

(b)           the General Partner transfers all of its rights as general partner pursuant to this Agreement;

(c)           the General Partner is removed;

(d)           the General Partner (1) makes a general assignment for the benefit of creditors; (2) files a voluntary bankruptcy petition; (3) files a petition or answer seeking for itself a reorganization, arrangement, composition, readjustment liquidation, dissolution or similar relief under any law; (4) files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against the General Partner in a proceeding of the type described in clauses (1) — (3) of this sentence; or (5) seeks, consents to or acquiesces in the appointment of a trustee, receiver or liquidator of the General Partner or of all or any substantial part of its properties;

(e)           a final and non-appealable judgment is entered by a court with appropriate jurisdiction ruling that the General Partner is bankrupt or insolvent or a final and non-appealable order for relief is entered by a court with appropriate jurisdiction against the General Partner, in each case under any federal or state bankruptcy or insolvency laws as now or hereafter in effect; or

(f)           a certificate of dissolution or its equivalent is filed for the General Partner, or 90 days expire after the date of notice to the General Partner of revocation of its charter without a reinstatement of its charter, under the laws of its state of incorporation.

If an Event of Withdrawal specified in this Article 12.1.1(d), (e) or (f) occurs, the withdrawing General Partner shall give written notice to the Limited Partners within 30 days after such occurrence. The Partners hereby agree that only the Events of Withdrawal described in this Article 12.1 shall result in the withdrawal of the General Partner from the Partnership.

12.1.2  Withdrawal of the General Partner from the Partnership upon the occurrence of an Event of Withdrawal will not constitute a breach of this Agreement under the following circumstances: (i) the General Partner voluntarily withdraws by giving at least 90 days’ advance notice to the Limited Partners, such withdrawal to take effect on the date specified in such notice; or (ii) at any time that the General Partner ceases to be a General Partner pursuant to Article 12.1.1(b) or is removed pursuant to Article 12.2.  If the General Partner gives a notice of withdrawal pursuant to Article 12.1.1(a), holders of at least a majority of such Outstanding Units (excluding for purposes of such determination any Units owned by the General Partner and its Affiliates) may, prior to the effective date of such withdrawal, elect a successor General Partner. If, prior to the effective date of the General Partner’s withdrawal, a successor is not selected by the Unitholders as provided herein, the Partnership shall be dissolved in accordance with Article 13. If a successor General Partner is elected, such successor shall be admitted immediately prior to the effective time of the withdrawal or removal of the Departing Partner and shall continue the business of the Partnership without dissolution.

12.2   Removal of the General Partner.   The General Partner may be removed only if such removal is approved by the Unitholders holding at least 66 2/3% of the Outstanding Units (excluding for this purpose any Units held by the General Partner and its Affiliates). Any such action by such holders for removal of the General Partner must also provide for the election of a successor General Partner by the Unitholders holding a majority of the Outstanding Units (excluding for this purpose any Units held by the General Partner and its Affiliates). Such removal shall be effective immediately following the admission of a successor General Partner.

 
29

 

12.3   Withdrawal of a Limited Partner other than the Organizational Limited Partner.   In addition to withdrawal of a Limited Partner due to its redemption of Units constituting a Redemption Basket under this Agreement, the General Partner may, at any time, in its sole discretion, require any Limited Partner to withdraw entirely from the Partnership or to withdraw a portion of its Partner Capital Account, by giving not less than 15 days’ advance written notice to the Limited Partner thus designated. In addition, the General Partner without notice may require at any time, or retroactively, withdrawal of all or any portion of the Capital Account of any Limited Partner: (i) that made a misrepresentation to the General Partner in connection with its purchase of Units; or (ii) whose ownership of Units would result in the violation of any law or regulations applicable to the Partnership or a Partner. The Limited Partner thus designated shall withdraw from the Partnership or withdraw that portion of its Partner Capital Account specified in such notice, as the case may be, as of the Close of Business on such date as determined by the General Partner. The Limited Partner thus designated shall be deemed to have withdrawn from the Partnership or to have made a partial withdrawal from its Partner Capital Account, as the case may be, without further action on the part of said Limited Partner and the provisions of Article 17.6 shall apply.

ARTICLE 13

Termination and Distribution

13.1   Termination.   The Partnership shall continue in effect from the date of its formation in perpetuity, unless sooner terminated upon the occurrence of any one or more of the following events:

(a)  The death, adjudication of incompetence, bankruptcy, dissolution, withdrawal, or removal of a General Partner who is the sole remaining General Partner, unless a majority in interest of the Limited Partners within 90 days after such event elects to continue the Partnership and appoints a successor General Partner; or

(b)  The affirmative vote of a majority in interest of the Limited Partners; provided, however, that any such termination shall be subject to the conditions set forth in this Agreement.

13.2   Assumption of Agreements.   No vote by the Limited Partners to terminate the Partnership pursuant to Section 13.1(b) shall be effective unless, prior to or concurrently with such vote, there shall have been established procedures for the assumption of the Partnership’s obligations arising under any agreement to which the Partnership is a party and which is still in force immediately prior to such vote regarding termination, and there shall have been an irrevocable appointment of an agent who shall be empowered to give and receive notices, reports and payments under such agreements, and hold and exercise such other powers as are necessary to permit all other parties to such agreements to deal with such agent as if the agent were the sole owner of the Partnership’s interest, which procedures are agreed to in writing by each of the other parties to such agreements.

30

 
13.3   Distribution

13.3.1  Upon termination of the Partnership, the affairs of the Partnership shall be wound up and all of its debts and liabilities discharged or otherwise provided for in the order of priority as provided by law. The fair market value of the remaining assets of the Partnership shall then be determined by the General Partner. Thereupon, the assets of the Partnership shall be distributed to the Partners pro rata in accordance with their Units. Each Partner shall receive its share of the assets in cash or in kind, and the proportion of such share that is received in cash may vary from Partner to Partner, all as the General Partner in its sole discretion may decide. If such distributions are insufficient to return to any Partner the full amount of its Capital Contributions, such Partner shall have no recourse against any other Partner.

13.3.2  The winding up of the affairs of the Partnership and the distribution of its assets shall be conducted exclusively by the General Partner or its successor, which is hereby authorized to do all acts authorized by law for these purposes. Without limiting the generality of the foregoing, the General Partner, in carrying out such winding up and distribution, shall have full power and authority to sell all or any of the Partnership’s assets or to distribute the same in kind to the Partners.

ARTICLE 14

Meetings

14.1   Meeting of Limited Partners.   Upon the written request of 20% or more in interest of the Limited Partners, the General Partner may, but is not required to, call a meeting of the Limited Partners. Notice of such meeting shall be given within 30 days after, and the meeting shall be held within 60 days after, receipt of such request. The General Partner may also call a meeting not less than 20 and not more than 60 days prior to the meeting. Any such notice shall state briefly the purpose of the meeting, which shall be held at a reasonable time and place.

ARTICLE 15

Power of Attorney

15.1   Appointment.   Each Limited Partner and each Assignee hereby constitutes and appoints each of the General Partner and, if a liquidator shall have been selected, the liquidator severally (and any successor to either thereof by merger, transfer, assignment, election or otherwise) and each of their respective authorized officers and attorneys-in-fact with full power of substitution, as its true and lawful agent and attorney-in-fact with full power and authority in its name, place and stead to:

(a) execute, swear to, acknowledge, deliver, file and record in the appropriate public offices (i) all certificates, documents and other instruments (including, without limitation, this Agreement and the Certificate of Limited Partnership and all amendments or restatements thereof) that the General Partner or the liquidator deems necessary or appropriate to form, qualify or continue the existence or qualification of the Partnership as a limited partnership (or a partnership in which the limited partners have limited liability) in the State of Delaware and in all other jurisdictions in which the Partnership may conduct business or own property, (ii) all certificates, documents and other instruments that the General Partner or the liquidator deems necessary or appropriate to reflect, in accordance with its terms, any amendment, change, modification or restatement of this Agreement, (iii) all certificates, documents and other instruments (including, without limitation, conveyances and a certificate of cancellation) that the General Partner or the liquidator deems necessary or appropriate to reflect the dissolution and liquidation of the Partnership pursuant to the terms of this Agreement, (iv) all certificates, documents and other instruments relating to the admission, withdrawal, removal or substitution of any Partner or the Capital Contribution of any Partner, (v) all certificates, documents and other instruments relating to the determination of the rights, preferences and privileges of Units issued, and (vi) all certificates documents and other instruments (including, without limitation, agreements and a certificate of merger) relating to a merger or consolidation of the Partnership;

 
31

 

(b) execute, swear to, acknowledge, deliver, file and record all ballots, consents, approval waivers, certificates and other instruments necessary or appropriate, in the sole discretion of the General Partner or the liquidator, to make, evidence, give, confirm or ratify any vote, consent, approval, agreement or other action that is made or given by the Partners hereunder or is consistent with the terms of this Agreement or is necessary or appropriate, in the sole discretion of the General Partner or the liquidator, to effectuate the terms or intent of this Agreement, provided, that when required by this Agreement that establishes a percentage of the Limited Partners or of the Limited Partners of any class or series required to take any action, the General Partner or the liquidator may exercise the power of attorney made in this Article 15 only after the necessary vote, consent or approval of the Limited Partners or of the Limited Partners of such class or series;

15.2   Survival.   The foregoing power of attorney is hereby declared to be irrevocable and a power coupled with an interest and it shall survive and not be affected by the subsequent death, incompetence, disability, incapacity, dissolution, bankruptcy or termination of any Limited Partner or Assignee and the transfer of all or any portion of such Limited Partner’s or Assignee’s Partnership interest and shall extend to such Limited Partners or Assignee’s heirs, successors, assigns and personal representatives. Each such Limited Partner or Assignee hereby agrees to be bound by any representation made by the General Partner or the liquidator acting in good faith pursuant to such power of attorney; and each such Limited Partner or Assignee hereby waives any and all defenses that may be available to contest, negate or disaffirm the action of the General Partner or the liquidator taken in good faith under such power of attorney. Each Limited Partner or Assignee shall execute and deliver to the General Partner or the liquidator, within 15 days after receipt of the General Partner’s or the liquidator’s request therefor, such further designations, powers of attorney and other instruments as the General Partner or the liquidator deems necessary to effectuate this Agreement and the purposes of the Partnership.

ARTICLE 16

Creation of Units

16.1   General.   The Partnership will create and redeem Units from time to time, but only in one or more Creation Baskets or Redemption Baskets (a block of 100,000 Units shall be referred to as a “Basket”). The creation and redemption of Baskets will only be made in exchange for delivery to the Partnership or the distribution by the Partnership of the amount of United States government securities with maturities of 2 years or less ( “Treasuries” ) and any cash represented by the Baskets being created or redeemed, the amount of which will be based on the combined 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.

16.2   Creation Procedures.   On any Business Day, a Participant, may place an order with the Partnership’s marketing agent to create one or more Baskets. Purchase orders must be placed by 12:00 PM New York time or the close of regular trading on the American Stock Exchange, whichever is earlier; except in the case of the Initial Limited Partner’s initial order to purchase one or more Creation Baskets on the first day the Baskets are to be offered and sold, when such orders shall be placed by 9:00 AM New York time on the day agreed to by the General Partner and the Initial Limited Partner. The day on which the marketing agent receives a valid purchase order is the purchase order date. By placing a purchase order, the Participant agrees to deposit Treasuries with the Partnership, or a combination of Treasuries and cash. Prior to the delivery of Baskets for a purchase order, the Participant must also have wired to the custodian the non-refundable creation transaction fee described in this Article 16.

 
32

 

16.3   Determination of Required Deposits.    The total deposit required to create each Basket (“Creation Basket Deposit”) is an amount of Treasuries and cash with a value that is in the same proportion to the total assets of the Partnership (net of estimated accrued but unpaid fees, expenses and other liabilities) on the date the order to purchase is properly received as the number of Units to be created under the purchase order is in proportion to the total number of Units outstanding on the date the order is received. The General Partner determines, in its sole discretion or in consultation with the administrator of the Partnership, the requirements for Treasuries that may be included in deposits to create Baskets and publishes, or its agent publishes on its behalf, such requirements at the beginning of each Business Day. The amount of cash deposit required is the difference between (i) the aggregate market value of the Treasuries included in a Creation Basket Deposit as of 4:00 PM on the date the order to purchase properly was made and (ii) the total required deposit.

16.4   Delivery of Required Deposits.   A Participant who places a purchase order is responsible for transferring to the Partnership’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 will direct DTC to credit the number of Baskets ordered to the Participant’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 the Partnership shall be borne solely by the Participant.

16.5   Rejection of Purchase Orders.   The General Partner, or its marketing agent on its behalf, may reject a purchase order or a Creation Basket Deposit if: (1) it determines that the purchase order or the Creation Basket Deposit is not in proper form; (2) the General Partner believes that the purchase order or the Creation Basket Deposit would have adverse tax consequences to the Partnership or Limited Partners; (3) the acceptance or receipt of the Creation Basket Deposit would, in the opinion of counsel to the General Partner, be unlawful; or (4) circumstances outside the control of the General Partner, marketing agent or custodian make it, for all practical purposes, not feasible to process creations of Baskets. None of the General Partner, marketing agent or custodian will be liable for the rejection of any purchase order or Creation Basket Deposit.

16.6   Creation Transaction Fee.   To compensate the Partnership for its expenses in connection with the creation of Baskets, a Participant is required to pay a transaction fee to the Partnership of $1,000 per order to create Baskets. An order may include multiple Baskets. The transaction fee may be reduced, increased or otherwise changed by the General Partner. The General Partner shall notify DTC in advance of any change in the transaction fee and will not implement any increase in the fee for the creation of Baskets until 30 days after the date of the notice.

33

 
ARTICLE 17

Redemption of Units

17.1   General.   The procedures by which a Participant can redeem one or more Baskets mirror the procedures for the creation of Baskets. On any Business Day, a Participant may place an order with the marketing agent to redeem one or more Baskets. Redemption orders must be placed by 12:00 PM New York time or the close of regular trading on the American Stock Exchange, whichever is earlier. A redemption order so received is effective on the date it is received in satisfactory form by the marketing agent. The day on which the marketing agent receives a valid redemption order is the redemption order date. By placing a redemption order, a Participant agrees to deliver the Baskets to be redeemed through DTC’s book-entry system to the Partnership not later than 3:00 PM 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 Participant must also have wired to the Partnership’s account with the custodian the non-refundable redemption transaction fee described in this Article 17.

17.2   Determination of Redemption Distribution.   The redemption distribution from the Partnership consists of a transfer to the redeeming Participant of an amount of Treasuries and/or cash with a value that is in the same proportion to the total assets of the Partnership (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 to redeem is received. The General Partner, directly or through its agent, will determine the requirements for Treasuries and the amount 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 PM New York time on the redemption order date.

17.3   Delivery of Redemption Distribution.   The redemption distribution due from the Partnership is delivered to the Participant by 3:00 PM New York time on the third Business Day following the redemption order date if, by 3:00 PM New York time on such third Business Day, the Partnership’s DTC account has been credited with the Baskets to be redeemed. If the Partnership’s DTC account has not been credited with all of the Baskets to be redeemed by such time, the redemption distribution is delivered to the extent of whole Baskets received. Any remainder of the redemption distribution is delivered on the next Business Day to the extent of remaining whole Baskets received if the Partnership (1) receives the fee applicable to the extension of the redemption distribution date which the General Partner may, from time to time, determine and (2) the remaining Baskets to be redeemed are credited to the Partnership’s DTC account by 3:00 PM New York time on such next Business Day. Any further remaining amount of the redemption order shall be cancelled and the Participant will indemnify the Partnership for any losses, if any, due to such cancellation, including but not limited to the difference in the price of investments sold as a result of the redemption order and investments made to reflect that such order has been cancelled. The custodian is also authorized to deliver the redemption distribution notwithstanding that the Baskets to be redeemed are not credited to the Partnership’s DTC account by 3:00 PM New York time on the third Business Day following the redemption order date if the Participant has collateralized its obligation to deliver the Baskets through DTC’s book entry system on such terms as the General Partner may from time to time determine.

17.4   Suspension or Rejection of Redemption orders.   The General Partner may, in its discretion, suspend the right of redemption, or postpone the redemption settlement date, (1) for any period during which any of the New York Mercantile Exchange, the American Stock Exchange or the New York Stock Exchange is closed other than customary weekend or holiday closings, or trading on the American Stock Exchange is suspended or restricted, (2) for any period during which an emergency exists as a result of which delivery, disposal or evaluation of Treasuries is not reasonably practicable, or (3) for such other period as the General Partner determines to be necessary for the protection of the Limited Partners. None of the General Partner, the marketing agent 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. The General Partner will reject a redemption order if the order is not in proper form or if the fulfillment of the order, in the opinion of its counsel, might be unlawful.

 
34

 

17.5   Redemption Transaction Fee.   To compensate the Partnership for its expenses in connection with the redemption of Baskets, a Participant is required to pay a transaction fee to the Partnership of $1,000 per order to redeem Baskets. An order may include multiple Baskets. The transaction fee may be reduced, increased or otherwise changed by the General Partner. The General Partner shall notify DTC in advance 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.

17.6   Required Redemption.   The General Partner may, at any time, in its sole discretion, require any Limited Partner to withdraw entirely from the Partnership or to withdraw a portion of its Partner Capital Account, by giving not less than 15 days advance written notice to the Limited Partner thus designated. In addition, the General Partner without notice may require at any time, or retroactively, withdrawal of all or any portion of the Capital Account of any Limited Partner: (i) that the General Partner determines is a benefit plan investor (within the meaning of the Department of Labor Regulation (s) 2510.3-101(f)(2)) in order for the assets of the Partnership not to be treated as plan assets under ERISA; (ii) that made a misrepresentation to the General Partner in connection with its purchase of Units; or (iii) whose ownership of Units would result in the violation of any law or regulations applicable to the Partnership or a Partner. The Limited Partner thus designated shall withdraw from the Partnership or withdraw that portion of its Partner Capital Account specified in such notice, as the case may be, as of the Close of Business on such date as determined by the General Partner. The Limited Partner thus designated shall be deemed to have withdrawn from the Partnership or to have made a partial withdrawal from its Partner Capital Account, as the case may be, without further action on the part of said Limited Partner.

ARTICLE 18

Miscellaneous

18.1   Notices.   Any notice, offer, consent or other communication required or permitted to be given or made hereunder shall be in writing and shall be deemed to have been sufficiently given or made when delivered personally to the party (or an officer of the party) to whom the same is directed, or (except in the event of a mail strike) 5 Business Days after being mailed by first-class mail, postage prepaid, if to the Partnership or to a General Partner, or if to a Limited Partner, to the address set forth on Exhibit C hereof. Any Partner may change its address for the purpose of this Article by giving notice of such change to the Partnership, such change to become effective on the 10th Business Day after such notice is given.

18.2   Waiver of Partition.   Each Partner hereby irrevocably waives during the term of the Partnership any right that it may have to maintain any action for partition with respect to any Partnership property.

18.3   Governing Law, Successors, Severability.   This Agreement shall be governed by the laws of the State of Delaware, as such laws are applied by Delaware courts to agreements entered into and to be performed in Delaware by and between residents of Delaware and shall, subject to the restrictions on transferability set forth herein, bind and inure to the benefit of the heirs, executors, personal representatives, successors and assigns of the parties hereto. If any provision of this Agreement shall be held to be invalid, the remainder of this Agreement shall not be affected thereby.

 
35

 

18.4   Consent to Jurisdiction.   The General Partner and the Limited Partners hereby (i) irrevocably submit to the non-exclusive jurisdiction of any Delaware state court or federal court sitting in Wilmington, Delaware in any action arising out of or relating to this Agreement, and (ii) consent to the service of process by mail. Nothing herein shall affect the right of any party to serve legal process in any manner permitted by law or affect its right to bring any action in any other court. Each party agrees that, in the event that any dispute arising from or relating to this Agreement becomes subject to any judicial proceeding, such party, to the fullest extent permitted by applicable law, waives any right it may otherwise have to (a) seek punitive or consequential damages, or (b) request a trial by jury.

18.5   Entire Agreement.   This Agreement constitutes the entire agreement among the parties; it supersedes any prior agreement or understanding among them, oral or written, all of which are hereby canceled. This Agreement may not be modified or amended other than pursuant to Articles 3 and 15.

18.6   Headings.   The headings in this Agreement are inserted for convenience of reference only and shall not affect interpretation of this Agreement. Wherever from the context it appears appropriate, each term stated in either the singular or the plural shall include the singular and the plural and pronouns stated in either the masculine or the neuter gender shall include the masculine, the feminine and the neuter.

18.7   No Waiver.   The failure of any Partner to seek redress for violation, or to insist on strict performance, of any covenant or condition of this Agreement shall not prevent a subsequent act which would have constituted a violation from having the effect of an original violation.

18.8   Legends.   If certificates for any interest or interests are issued evidencing a Limited Partner’s interest in the Partnerships, each such certificate shall bear such legends as may be required by applicable federal and state laws, or as may be deemed necessary or appropriate by the General Partner to reflect restrictions upon transfer contemplated herein.

18.9   Counterparts.   This Agreement may be executed in several counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument.

18.10   Relationship between the Agreement and the Act.   Regardless of whether any provisions of this Agreement specifically refer to particular Default Rules (as defined below), (a) if any provision of this Agreement conflicts with a Default Rule, the provision of this Agreement controls and the Default Rule is modified or negated accordingly, and (b) if it is necessary to construe a Default Rule as modified or negated in order to effectuate any provision of this Agreement, the Default Rule is modified or negated accordingly. For purposes of this Article 18.10, “Default Rule” shall mean a rule stated in the Act that applies except to the extent it is negated or modified through the provisions of the Partnership’s certificate of limited partnership or this Agreement.

 
36

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first appearing above.
 
General Partner
Victoria Bay Asset Management, LLC
   
By:
/s/ Howard Mah
 
Name: Howard Mah
 
Title: Management Director
   
Initial Limited Partner
Kellogg Capital Group, LLC
   
By:
/s/ Steve O’Grady
 
Name: Steve O’Grady
 
Title: Senior Managing Director

 
37

 

EXHIBIT A

Assets
 
Management Fee
First $1,000,000,000
 
0.60% of NAV
After the first $1,000,000,000
 
0.50% of NAV

Fees and Expenses are calculated on a daily basis and paid on a monthly basis (accrued at 1/365 of applicable percentage of the NAV on that day).

 
38

 

EXHIBIT B

FORM OF GLOBAL CERTIFICATE

Evidencing Units Representing Limited Partner Interests
in United States Natural Gas Fund, LP

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), TO THE FUND OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUIRED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

This is to certify that Cede & Co. is the owner and registered holder of this Certificate evidencing the ownership of issued and outstanding Limited Partner Units (“Units”) , each of which represents a fractional undivided unit of a beneficial interest in United States Natural Gas Fund, LP (the “Fund” ), a Delaware limited partnership.  Capitalized terms used not defined herein have the meaning given to such terms in the Second Amended and Restated Agreement of Limited Partnership, as amended, supplemented or restated to the date hereof (the “ Limited Partnership Agreement ”).

At any given time, this Certificate shall represent the limited units of beneficial interest in the Fund purchased by a particular authorized Participant on the date of this Certificate. The Limited Partnership Agreement of the Fund provides for the deposit of cash with the Fund from time to time and the issuance by the Fund of additional Creation Baskets representing the undivided units of beneficial interest in the assets of the Fund. At the request of the registered holder, this Certificate may be exchanged for one or more Certificates issued to the registered holder in such denominations as the registered holder may request; provided, however, that in the aggregate, the Certificates issued to the registered holder hereof shall represent all Units outstanding at any given time.

Each authorized Participant hereby grants and conveys all of its rights, title and interest in and to the Fund to the extent of the undivided interest represented hereby to the registered holder of this Certificate subject to and in pursuance of the Limited Partnership Agreement, all the terms, conditions and covenants of which are incorporated herein as if fully set forth at length.

The registered holder of this Certificate is entitled at any time upon tender of this Certificate to the Fund, endorsed in blank or accompanied by all necessary instruments of assignment and transfer in proper form, at its principal office in the State of California and, upon payment of any tax or other governmental charges, to receive at the time and in the manner provided in the Limited Partnership Agreement, such holder’s ratable portion of the assets of the Fund for each Redemption Basket tendered and evidenced by this Certificate.

 
39

 

The holder of this Certificate, by virtue of the purchase and acceptance hereof, assents to and shall be bound by the terms of the Limited Partnership Agreement, copies of which are on file and available for inspection at reasonable times during business hours at the principal business office of the General Partner.

The Fund may deem and treat the person in whose name this Certificate is registered upon the books of the Fund as the owner hereof for all purposes and the Fund shall not be affected by any notice to the contrary.

The Limited Partnership Agreement and this Certificate are executed and delivered by Victoria Bay Asset Management, LLC as General Partner of the Fund, in the exercise of the powers and authority conferred and vested in it by the Limited Partnership Agreement. The representations, undertakings and agreements made on the part of the Fund in the Limited Partnership Agreement or this Certificate are made and intended not as personal representations, undertakings and agreements by the General Partner, other than acting in its capacity as such, but are made and intended for the purpose of binding only the Fund. Nothing in the Limited Partnership Agreement or this Certificate shall be construed as imposing any liability on the General Partner, individually or personally, to fulfill any representation, undertaking or agreement other than as provided in the Limited Partnership Agreement or this Certificate.

THE HOLDER OF THIS SECURITY ACKNOWLEDGES FOR THE BENEFIT OF UNITED STATES NATURAL GAS FUND, LP THAT THIS SECURITY MAY NOT BE SOLD, OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED IF SUCH TRANSFER WOULD VIOLATE THE THEN APPLICABLE FEDERAL OR STATE SECURITIES LAWS OR RULES AND REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER GOVERNMENTAL AUTHORITY WITH JURISDICTION OVER SUCH TRANSFER, TERMINATE THE EXISTENCE OR QUALIFICATION OF UNITED STATES NATURAL GAS FUND, LP UNDER THE LAWS OF THE STATE OF DELAWARE, OR CAUSE UNITED STATES NATURAL GAS FUND, LP TO BE TREATED AS AN ASSOCIATION TAXABLE AS A CORPORATION OR OTHERWISE TO BE TAXED AS AN ENTITY FOR FEDERAL INCOME TAX PURPOSES (TO THE EXTENT NOT ALREADY SO TREATED OR TAXED). VICTORIA BAY ASSET MANAGEMENT, LLC, THE GENERAL PARTNER OF UNITED STATES NATURAL GAS FUND, LP, MAY IMPOSE ADDITIONAL RESTRICTIONS ON THE TRANSFER OF THIS SECURITY IF IT RECEIVES AN OPINION OF COUNSEL THAT SUCH RESTRICTIONS ARE NECESSARY TO AVOID A SIGNIFICANT RISK OF UNITED STATES NATURAL GAS FUND, LP BECOMING TAXABLE AS A CORPORATION OR OTHERWISE BECOMING TAXABLE AS AN ENTITY FOR FEDERAL INCOME TAX PURPOSES. THE RESTRICTIONS SET FORTH ABOVE SHALL NOT PRECLUDE THE SETTLEMENT OF ANY TRANSACTIONS INVOLVING THIS SECURITY ENTERED INTO THROUGH THE FACILITIES OF ANY NATIONAL SECURITIES EXCHANGE ON WHICH THIS SECURITY IS LISTED OR ADMITTED TO TRADING.

This Certificate shall not become valid or binding for any purpose until properly executed by the General Partner.

IN WITNESS WHEREOF, the General Partner of the Fund has caused this Certificate to be executed in its name by the manual or facsimile signature of one of its Authorized Persons.

Victoria Bay Asset Management, LLC, as General Partner
By:
 
Date:
  


 
40

 

EXHIBIT C

ADDRESSES FOR NOTICE

Victoria Bay Asset Management, LLC
1320 Harbor Bay Parkway, Suite 145
Alameda, California 9450

with a copy to

Brown Brothers Harriman & Co.
40 Water Street
Boston, MA  02109
Attention: Manager, Fund Administration Department

 
41

 

EXHIBIT D

APPLICATION FOR TRANSFER OF UNITS

Transferees of Units must execute and deliver this application to United States Natural Gas Fund, LP, c/o Victoria Bay Asset Management, LLC, 1320 Harbor Bay Parkway, Suite 145, Alameda, California 94502, to be admitted as limited partners to United States Natural Gas Fund, LP.

The undersigned ( “Assignee” ) hereby applies for transfer to the name of the Assignee of the Units evidenced hereby and hereby certifies to United States Natural Gas Fund, LP (the “Partnership” ) that the Assignee (including to the best of Assignee’ s knowledge, any person for whom the Assignee will hold the Units) is an Eligible Holder.*

The Assignee (a) requests admission as a Limited Partner and agrees to comply with and be bound by, and hereby executes, the Second Amended and Restated Agreement of Limited Partnership of the Partnership, as amended, supplemented or restated to the date hereof (the “Limited Partnership Agreement” ), (b) represents and warrants that the Assignee has all right, power and authority and, if an individual, the capacity necessary to enter into the Limited Partnership Agreement, (c) appoints the General Partner of the Partnership and, if a Liquidator shall be appointed, the Liquidator of the Partnership as the Assignee’s attorney-in-fact to execute, swear to, acknowledge and file any document, including, without limitation, the Limited Partnership Agreement and any amendment thereto and the Certificate of Limited Partnership of the Partnership and any amendment thereto, necessary or appropriate for the Assignee’s admission as a Substituted Limited Partner and as a party to the Limited Partnership Agreement, (d) gives the powers of attorney provided for in the Limited Partnership Agreement, and (e) makes the waivers and gives the consents and approvals contained in the Limited Partnership Agreement. Capitalized terms used but not defined herein have the meanings given to such terms in the Limited Partnership Agreement.

Date: _______________________

  
  
  
Social Security or other identifying
Signature of Assignee
number of Assignee

  
  
  
Purchase Price including commissions, if any
Name and Address of Assignee

Type of Entity (check one):

 Individual
 Partnership
 Corporation
 Trust
 Other (specify)
 

If not an Individual (check one):

 the entity is subject to United States federal income taxation on the income generated by the Partnership;

 
42

 

 the entity is not subject to United States federal income taxation, but it is a pass-through entity and all of its beneficial owners are subject to United States federal income taxation on the income generated by the Partnership;

 the entity is not subject to United States federal income taxation and it is (a) not a pass-through entity or (b) a pass-through entity, but not all of its beneficial owners are subject to United States federal income taxation on the income generated by the Partnership. Important Note — by checking this box, the Assignee is contradicting its certification that it is an Eligible Holder.

* The Term “Eligible Holder” means (a) an individual or entity subject to United States federal income taxation on the income generated by the Partnership; or (b) an entity not subject to United States federal income taxation on the income generated by the Partnership, so long as all of the entity’s owners are subject to United States federal income taxation on the income generated by the Partnership. Individuals or entities are subject to taxation, in the context of defining an Eligible Holder, to the extent they are taxable on the items of income and gain allocated by the Partnership. Schedule I hereto contains a list of various types of investors that are categorized and identified as either “Eligible Holders” or “Non-Eligible Holders.”

Nationality (check one):

 U.S. Citizen, Resident or Domestic Entity**                              Non-resident Alien**

 Foreign Corporation**

** As those terms are defined in the Code.

If the U.S. Citizen, Resident or Domestic Entity box is checked, the following certification must be completed.

Under Section 1445(e) of the Internal Revenue Code of 1986, as amended (the “Code” ), the Partnership must withhold tax with respect to certain transfers of property if a holder of an interest in the Partnership is a foreign person. To inform the Partnership that no withholding is required with respect to the undersigned interestholder’s interest in it, the undersigned hereby certifies the following (or, if applicable, certifies the following on behalf of the interestholder).

Complete Either A or B:

A.          Individual Interestholder

1.           I am not a non-resident alien for purposes of U.S. income taxation.

2.           My U.S. taxpayer identification number (Social Security Number) is ____________

3.           My home address is __________________

B.           Partnership, Corporation or Other Interestholder

 
43

 

1. The interestholder is not a foreign corporation, foreign partnership, foreign trust or foreign estate (as those terms are defined in the Code and Treasury regulations).

2. The interestholder’s U.S. employer identification number is __________________

3. The interestholder’s office address and place of incorporation (if applicable) is __________________

The interestholder agrees to notify the Partnership within sixty (60) days of the date the interestholder becomes a foreign person.

The interestholder understands that this certificate may be disclosed to the Internal Revenue Service by the Partnership and that any false statement contained herein could be punishable by fine, imprisonment or both.

Under penalties of perjury, I declare that I have examined this certification and, to the best of my knowledge and belief, it is true, correct and complete and, if applicable, I further declare that I have authority to sign this document on behalf of:

Name of Interestholder ________________________________________________________________________________________

Signature and Date ___________________________________________________________________________________________

Title (if applicable) ___________________________________________________________________________________________

Note: If the Assignee is a broker, dealer, bank, trust company, clearing corporation, other nominee holder or an agent of any of the foregoing, and is holding for the account of any other person, this application should be completed by an officer thereof or, in the case of a broker or dealer, by a registered representative who is a member of a registered national securities exchange or a member of FINRA, or, in the case of any other nominee holder, a person performing a similar function. If the Assignee is a broker, dealer, bank, trust company, clearing corporation, other nominee owner or an agent of any of the foregoing, the above certification as to any person for whom the Assignee will hold the Units shall be made to the best of the Assignee’s knowledge.

 
44

 

Exhibit 3.3
 
FOURTH AMENDED AND RESTATED
 
LIMITED LIABILITY COMPANY AGREEMENT
 
OF
 
UNITED STATES COMMODITY FUNDS LLC
 
Dated as of June 12, 2008

 
 

 

CONTENTS
 
     
Page
 
         
ARTICLE I DEFINITIONS
    2  
         
ARTICLE II ORGANIZATIONAL MATTERS
    3  
           
Section 2.1
Formation and Continuation.
    3  
Section 2.2
Name.
    3  
Section 2.3
Purposes.
    3  
Section 2.4
Powers.
    3  
Section 2.5
Offices: Statutory Agent.
    3  
         
ARTICLE III MEMBER
    4  
           
Section 3.1
Membership Interest.
    4  
Section 3.2
Capital Contribution
    4  
Section 3.3
Uncertificated Membership Interest.
    4  
Section 3.4
Rights of the Member.
    4  
         
ARTICLE IV DIRECTORS
    4  
           
Section 4.1
Number and Qualification.
    4  
Section 4.2
Election and Term of Office.
    4  
Section 4.3
Resignation.
    4  
Section 4.4
Removal.
    5  
Section 4.5
Vacancies.
    5  
Section 4.6
General Powers.
    5  
Section 4.7
Compensation.
    5  
         
ARTICLE V MEETINGS OF DIRECTORS
    5  
           
Section 5.1
Place of Meeting.
    5  
Section 5.2
Annual Meeting.
    5  
Section 5.3
Regular Meetings
    5  
Section 5.4
Special Meetings.
    5  
Section 5.5
Quorum and Action.
    6  
Section 5.6
Presumption of Assent to Action.
    6  
Section 5.7
Telephonic Meetings.
    6  
Section 5.8
Action Without Meeting
    6  
Section 5.9
Waiver of Notice.
    6  
         
ARTICLE VI COMMITTEES OF THE DIRECTORS
    7  
           
Section 6.1
Company and Authorities.
    7  
Section 6.2
Audit Committee.
    7  
Section 6.3
Minutes and Rules of Procedure.
    7  
Section 6.4
Vacancies.
    7  

 
 

 

Section 6.5
Telephonic Meetings.
    7  
Section 6.6
Action Without Meeting.
    8  
         
ARTICLE VII OFFICERS
    8  
           
Section 7.1
Positions and Powers.
    8  
Section 7.2
Election, Term of Office and Qualification.
    8  
Section 7.3
Resignation.
    8  
Section 7.4
Removal.
    8  
Section 7.5
Vacancies.
    8  
Section 7.6
The President.
    8  
Section 7.7
The Vice Presidents.
    9  
Section 7.8
The Secretary.
    9  
Section 7.9
Assistant Secretaries.
    9  
Section 7.10
The Treasurer.
    9  
Section 7.11
Assistant Treasurers.
    9  
Section 7.12
Treasurer’s Bond.
    9  
Section 7.13
Other Officers.
    10  
Section 7.14
Salaries.
    10  
         
ARTICLE VIII CAPITAL ACCOUNT
    10  
           
Section 8.1
Capital Account.
    10  
         
ARTICLE IX DISTRIBUTIONS
    10  
           
Section 9.1
Distributions During Term of Company.
    10  
Section 9.2
Distributions Upon Liquidation.
    10  
Section 9.3
Limitation on Distributions.
    10  
         
ARTICLE X INDEMNIFICATION
    10  
           
Section 10.1
Definitions.
    10  
Section 10.2
Indemnification.
    11  
Section 10.3
Successful Defense.
    11  
Section 10.4
Determinations.
    11  
Section 10.5
Advancement of Expenses.
    12  
Section 10.6
Other Indemnification and Insurance.
    12  
Section 10.7
Construction.
    12  
Section 10.8
Continuing Offer, Reliance, etc.
    12  
Section 10.9
Effect of Amendment.
    12  
         
ARTICLE XI DISSOLUTION AND FINAL LIQUIDATION
    13  
           
Section 11.1
Dissolution.
    13  
Section 11.2
Winding Up.
    13  
Section 11.3
Distribution of Assets.
    13  
Section 11.4
Revocation of Voluntary Dissolution Proceedings.
    13  

 
ii

 

ARTICLE XII AMENDMENT
    13  
           
Section 12.1
Amendment of Agreement.
    13  
         
ARTICLE XIII GENERAL PROVISIONS
    13  
           
Section 13.1
Liability to Third Parties.
    13  
Section 13.2
Waiver of Notice.
    14  
Section 13.3
Seal.
    14  
Section 13.4
Fiscal Year.
    14  
Section 13.5
Checks, Notes, Etc.
    14  
Section 13.6
Voting Upon Securities by the Company.
    14  
Section 13.7
Titles and Captions.
    14  
Section 13.8
Pronouns and Plurals.
    14  
Section 13.9
Subject to All Laws.
    14  
Section 13.10
Allocation of Profits and Losses; Tax Status.
    14  

 
iii

 

FOURTH AMENDED AND RESTATED
 
LIMITED LIABILITY COMPANY AGREEMENT
 
OF
 
UNITED STATES COMMODITY FUNDS LLC
 
THIS FOURTH AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT of UNITED STATES COMMODITY FUNDS LLC, is entered into as of the 12 th day of June, 2008, by Wainwright Holdings, Inc., as the sole member of the limited liability company.
 
Recitals :

A.           The Company was formed as a Delaware limited liability company under the name “Standard Asset Management, LLC” by filing a certificate of formation pursuant to the Delaware Limited Liability Company Act (as amended from time to time, and together with any successor statute, the “Act”) that was accepted for filing by the Secretary of State on May 10, 2005 and amended on June 10, 2005 to rename the Company “Victoria Bay Asset Management, LLC”; and

B.           The Member entered into a limited liability company agreement dated as of May 10, 2005 as amended and restated by the First Amended and Restated Limited Liability Company Agreement dated as of September 30, 2005, regarding the operation of the Company and its rights and obligations therein, as further amended and restated by the Second Amended and Restated Limited Liability Company Agreement dated as of September 8, 2006, and as further amended and restated by the Third Amended and Restated Limited Liability Company Agreement dated as of December 12, 2006 (the “LLC Agreement”);
 
C.           The Company has filed an amendment to the certificate of formation to rename the Company “United States Commodity Funds LLC”; and
 
D.           The Member desires to amend and restate the LLC Agreement to reflect the new name of the Company;
 
NOW, THEREFORE, the Member, intending to be legally bound hereby, agrees as follows:

 
 

 
 
ARTICLE I
DEFINITIONS
 
When used in this Fourth Amended and Restated Limited Liability Company Agreement, the following terms shall have the respective meanings assigned to them in this Article I or in the Sections referenced below:
 
Act ” shall have the meaning specified in the recitals to this Agreement.
 
Agreement ” means this Fourth Amended and Restated Limited Liability Company Agreement, as amended from time to time.
 
Board of Directors ” means the board of directors of the Company provided for in Article IV of this Agreement.
 
Certificate ” means the Certificate of Formation of the Company filed in the office of the Secretary of State on May 10, 2005, as amended from time to time.
 
Code ” means the Internal Revenue Code of 1986, as amended.
 
Company ” the Delaware limited liability company known as “United States Commodity Funds LLC”, as such limited liability company may be constituted from time to time.
 
Indemnitee ” shall have the meaning specified in Section 10.1(a).
 
Management Director ” shall mean a Person selected in accordance with Article IV of this Agreement who shall have the powers and duties to manage the business and affairs of the Company and exercise its powers to the extent set forth in this Agreement, the Certificate and the Act.  Each Management Director shall be a “manager” of the Company within the meaning of the Act.
 
Member ” means Wainwright Holding, Inc., a Delaware corporation, and its successors.
 
Non-Management Director ” shall mean any Person selected in accordance with Article IV of this Agreement who is not a Management Director.
 
Official Capacity ” shall have the meaning specified in Section 10.1(b).
 
Person ” means any individual, corporation, limited liability company, partnership, trust, estate or other entity.
 
Proceeding ” shall have the meaning specified in Section 10.1(c).
 
Property ” means any Company property, real or personal, tangible or intangible, including but not limited to any legal or equitable interest in such property, ownership interests in entities owning real or personal property, and money.

 
2

 
 
Regulations ” means, except where the context indicates otherwise, the final, temporary, or proposed regulations of the Department of the Treasury under the Code as such regulations may be lawfully changed from time to time.
 
Secretary of State ” means the Secretary of State of the State of Delaware.
 
U.S. ” means the United States of America.
 
ARTICLE II
ORGANIZATIONAL MATTERS
 
Section 2.1                 Formation and Continuation.
 
(a)           The Company was formed upon the issuance by the Secretary of State of the Certificate for the Company.  This Agreement shall be effective at the time of such filing.  Nicholas D. Gerber is hereby designated as an authorized person, within the meaning of the Act, to execute, deliver and file such certificate of formation, and any action taken prior to the execution of this Agreement in connection therewith by any such person is hereby ratified and confirmed.  In addition, Howard Mah is designated as an authorized person within the meaning of the Act.  The Management Directors may designate any person to be an authorized person, within the meaning of the Act.
 
(b)           The Company shall continue in existence from the date of its formation in perpetuity, unless earlier dissolved pursuant to Article XI of this Agreement.
 
(c)           The parties hereto intend that this Agreement shall constitute a “limited liability company agreement” within the meaning of Section 18-101(7) of the Act.
 
Section 2.2                 Name.   The name of the Company is “United States Commodity Funds LLC”.  The name of the Company may be changed from time to time by amendment of the Certificate.  The Company may transact business under an assumed name by filing an assumed name certificate in the manner prescribed by applicable law.
 
Section 2.3                 Purposes.   The Company may engage in any lawful business unless a more limited purpose is stated in the Certificate.
 
Section 2.4                 Powers.   The Company shall have the powers provided for a limited liability company under the Act and any powers otherwise allowed under any applicable law.
 
Section 2.5                 Offices: Statutory Agent.
 
(a)           The Company’s principal office and the address thereof may be established and changed from time to time by the Management Directors.
 
(b)           The registered office of the Company in Delaware shall be the office of the statutory agent of the Company in Delaware.  The statutory agent of the Company in Delaware is the Corporation Service Company and its address in the State of Delaware is 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808, County of New Castle.  The Company’s registered office, registered agent and the addresses thereof may be changed from time to time by the Management Directors in accordance with the Act.
 
3

 
(c)           The Company may also have offices at such other places, both within and without the State of Delaware, as the Management Directors   may from time to time determine or the business of the Company may require.
 
ARTICLE III
MEMBER
 
Section 3.1                 Membership Interest.   The Member is admitted as a member of the Company upon the execution and delivery of this Agreement, and is the only member of the Company.  The Member has a one hundred percent (100%) interest in the Company and in the profits and losses thereof.
 
Section 3.2                 Capital Contribution   The Member made an initial contribution to the capital of the Company, in cash, the amount of $1,000.00 at time the Company was formed.  The Member is not obligated to make any additional capital contributions to the Company.
 
Section 3.3                 Uncertificated Membership Interest.   No certificates shall be issued evidencing the membership interest in the Company.

Section 3.4                 Rights of the Member.   The Member, in its capacity as such, shall take no part in the management or control of the Company’s business and shall have no right to act for or bind the Company or to vote on matters other than the matters specified in this Agreement or required by any non-waivable provision of the Act.
 
ARTICLE IV
DIRECTORS
 
Section 4.1                 Number and Qualification.   There shall be seven Directors, four of which shall be Management Directors and three of which shall be Non-Management Directors.  The Management Directors may change the number of Management Directors and Non-Management Directors from time to time by written consent of the Management Directors.  Directors need not be residents of the State of Delaware.  The Member shall elect the Management Directors   and the Non-Management Directors.
 
Section 4.2                 Election and Term of Office.   The Directors shall be elected by written consent of the Member (except as provided in Section 4.8).  Each Director elected shall hold office until his successor shall be chosen by written consent of the Member and shall qualify, or until his death or his resignation or removal in the manner hereinafter provided.

Section 4.3                 Resignation.   Any Director may resign at any time by giving written notice to the President or Secretary of the Company.  Such resignation shall take effect at the time specified therein, and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
 
4

 
Section 4.4                 Removal.   By written consent of the Member, any Director or Directors, including all of the Directors, may be removed, either with or without cause.

Section 4.5                 Vacancies.   Any vacancy occurring in the Directors (including a vacancy resulting from an increase in the authorized number of Directors) may be filled by the written consent of the Member.  A Director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office.

Section 4.6                 General Powers.   The powers of the Company shall be exercised by or under the authority of, and the business and affairs of the Company shall be managed under the direction of, the Management Directors, subject to the terms of this Agreement.  The Non-Management Directors shall only have such authority as the Management Directors expressly confer upon them.  Notwithstanding the foregoing provisions of this Section 4.6, each of   Nicholas D. Gerber and Howard Mah, so long as he shall remain a Manager and in his capacity as such, shall have the right to act for and bind the Company, but no other individual Manager, in his capacity as such, shall have the right to act for or bind the Company.

Section 4.7                 Compensation.   Management Directors as such shall not receive any stated salary for their service, but expenses of attendance, if any, may be allowed for attendance at any regular or special meeting of the Directors or a committee thereof, provided that nothing herein contained shall be construed to preclude any Management Director from serving the Company in any other capacity and receiving compensation therefore.

Non-Management Directors may receive compensation for their services together with expenses of attendance, if any, for attendance at any regular or special meeting of the Directors or a committee thereof, as such compensation and expenses may be determined from time to time by the Management Directors.
 
ARTICLE V
MEETINGS OF DIRECTORS
 
Section 5.1                 Place of Meeting.   The Directors of the Company may hold their meetings, both regular and special, either within or without the State of Delaware.
 
Section 5.2                 Annual Meeting.   An annual meeting of the Directors shall be held at such time and place as shall be fixed by the consent in writing of a majority of the Directors, and no notice to the newly elected Directors of such meeting shall be necessary in order legally to constitute the meeting, provided a quorum shall be present.
 
Section 5.3                 Regular Meetings   Regular meetings of the Directors, in addition to the annual meetings referred to in Section 5.2, may be held without notice at such time and place as shall from time to time be determined by the Directors.

Section 5.4                 Special Meetings .  Special meetings of the Directors may be called by the Chairman, if one shall be elected, the Vice Chairman, if one shall be elected, or by the President, on one (1) day’s notice (oral or written) to each Director.  Special meetings shall be called by the President or the Secretary on like notice on the written request of any Director.  Neither the purpose of, nor the business to be transacted at, any special meeting of the Directors need be specified in the notice or waiver of notice of such meeting.
 
5

 
Section 5.5                 Quorum and Action.   At all meetings of the Directors, the presence of a majority of the number of Management Directors fixed by or in accordance with this Agreement shall be necessary and sufficient to constitute a quorum for the transaction of business.  Subject to the preceding sentence, the act of a majority of the Management Directors at any meeting at which a quorum is present shall be the act of the Directors unless the act of a greater number is required by law, the Certificate or this Agreement.  If a quorum shall not be present at any meeting of the Directors, the Directors present may adjourn the meeting from time to time without notice other than announcement at the meeting until a quorum shall be present.

Section 5.6                 Presumption of Assent to Action.   A Director who is present at a meeting of the Directors at which action on any matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary of the Company immediately after the adjournment of the meeting.  Such right to dissent shall not apply to a Director who votes in favor of such action.

Section 5.7                 Telephonic Meetings.   Directors may participate in and hold a meeting of the Directors by means of conference telephone or similar communications equipment by means of which all Directors participating in the meeting can hear each other.  Participation in a meeting pursuant to this Section shall constitute presence in person at such meeting, except where a Director participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened.

Section 5.8                 Action Without Meeting   Any action required or permitted to be taken at a meeting of the Directors may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all the Management Directors, or members of the committee, as the case may be, and such consent shall have the same force and effect as a unanimous vote at a meeting.

Section 5.9                 Waiver of Notice.   Attendance of a Director at a meeting shall constitute a waiver of notice of such meeting except where a Director attends a meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully called or convened.

 
6

 
 
ARTICLE VI
COMMITTEES OF THE DIRECTORS
 
Section 6.1                 Company and Authorities.   Subject to Section 6.2, the Management Directors, by written consent, may designate from among the Directors one or more committees, each of which shall be comprised of one or more Directors, and may designate one or more Directors as alternate members of any committee, who may, subject to any limitations imposed by the Management Directors, replace absent or disqualified Directors at any meeting of that committee.  Any such committee, to the extent provided in such resolution, shall have and may exercise all of the authority of the Directors in the business and affairs of the Company, subject to the limitations set forth in the Act or this Agreement and Section 6.2.  The members of each such committee shall serve at the pleasure of the Management Directors, subject to the limitations set forth in Section 6.2.

Section 6.2                 Audit Committee.

(a)           The audit committee shall consist of all of the Non-Management Directors.

(b)           Notwithstanding anything in this Agreement to the contrary, the Management Directors shall establish and maintain an audit committee in compliance with, and granted the requisite authority and funding pursuant to, any applicable (1) federal securities laws and regulations, including the Sarbanes-Oxley Act of 2002, and (2) rules, policies and procedures of any national securities exchange on which the securities issued by any of United States Oil Fund, LP, United States Natural Gas Fund, LP, United States 12 Month Oil Fund, LP, United States Gasoline Fund, LP, United States Heating Oil Fund, LP or any other fund for which the Company acts as general partner, are listed and traded.

Section 6.3                 Minutes and Rules of Procedure.   Each committee designated by the Management Directors shall keep regular minutes of its proceedings and report the same to the Management Directors when required.  Subject to the provisions of this Agreement, the members of any committee may fix such committee’s own rules of procedure.

Section 6.4                 Vacancies.   The Management Directors shall have the power at any time to fill vacancies in, to change the membership of, or to dissolve, any committee, provided that with respect to the audit committee, the Management Directors shall only have the power to fill vacancies and change the membership of such committee to the extent permitted by Section 6.2.

Section 6.5                 Telephonic Meetings.   Members of any committee designated by the Management Directors may participate in or hold a meeting by use of conference telephone or similar communications equipment by means of which all committee members participating in the meeting can hear each other.  Participation in a meeting pursuant to this Section shall constitute presence in person at such meeting, except where a committee member participates in the meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully called or convened.
 
7

 
Section 6.6                 Action Without Meeting.   Any action required or permitted to be taken at a meeting of any committee designated by the Management Directors may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all the members of the committee, and such consent shall have the same force and effect as a unanimous vote at a meeting.
 
ARTICLE VII
OFFICERS
 
Section 7.1                 Positions and Powers.
 
(a)           The Management Directors may, by written consent, appoint a President, one or more Vice Presidents, a Secretary, a Treasurer, one or more Assistant Secretaries, one or more Assistant Treasurers and other officers.  One individual may hold any two or more of these offices.
 
(b)           Every officer is an agent of the Company for the purpose of its business.  The act of an officer, including the execution in the name of the Company of any instrument for apparently carrying on in the usual way the business of the Company, binds the Company unless the officer so acting otherwise lacks authority to act for the Company and the Person with whom the officer is dealing has knowledge of the fact that the officer has no such authority.
 
Section 7.2                 Election, Term of Office and Qualification.   Any officer duly appointed by the Management Directors shall hold office until his successor shall have been duly appointed and qualified or until his death or his resignation or removal in the manner hereinafter provided.
 
Section 7.3                 Resignation.   Any officer may resign at any time by giving written notice thereof to the Management Directors or to the President or Secretary of the Company.  Any such resignation shall take effect at the time specified therein and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
 
Section 7.4                 Removal.   Any officer may be removed at any time with or without cause by written consent of the Management Directors.  The removal of any officer shall be without prejudice to the contract rights, if any, of the individual so removed.  Appointment of an officer or agent shall not of itself create any contract rights.
 
Section 7.5                 Vacancies.   A vacancy in any office may be filled for the unexpired portion of the term by the Management Directors by written consent.
 
Section 7.6                 The President.   The President shall be the chief executive officer of the Company.  He shall have general and active management of the business of the Company, shall have the general supervision and direction of all other officers of the Company with full power to see that their duties are properly performed and shall see that all orders and resolutions of the Management Directors are carried into effect.  Without limiting the authority of the Management Directors to sign deeds, bonds, mortgages, contracts and other documents on behalf of the Company, the President may sign, with any other proper officer, any deeds, bonds, mortgages, contracts and other documents which the Management Directors have authorized to be executed, except where required by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Management Directors or this Agreement to some other officer or agent of the Company.  In addition, the President shall perform whatever duties and shall exercise all the powers that are given to him by the Management Directors.
 
8

 
Section 7.7                 The Vice Presidents.   The Vice Presidents shall perform the duties as are given to them by this Agreement and as may from time to time be assigned to them by the Management Directors or by the President.  At the request of the President, or in his absence or disability, the Vice President designated by the President (or in the absence of such designation, the senior Vice President), shall perform the duties and exercise the powers of the President.
 
Section 7.8                 The Secretary.   The Secretary shall be custodian of the limited liability company records and shall perform such other duties as may be prescribed by the Management Directors or by the President, under whose supervision he shall be.  He shall keep in safe custody the seal of the Company and, when authorized by the Management Directors, affix the same to any instrument requiring it, and when so affixed, it may be attested by his signature or by the signature of the Treasurer or an Assistant Secretary.
 
Section 7.9                 Assistant Secretaries.   The Assistant Secretaries shall perform the duties as are given to them by this Agreement or as may from time to time be assigned to them by the Management Directors or by the Secretary.  At the request of the Secretary, or in his absence or disability, the Assistant Secretary designated by the Secretary (or in the absence of such designation the senior Assistant Secretary), shall perform the duties and exercise the powers of the Secretary.
 
Section 7.10               The Treasurer.   The Treasurer shall have custody of and be responsible for all funds and securities of the Company, shall keep full and accurate accounts of receipts and disbursements in books belonging to the Company and shall deposit all monies and other valuable effects in the name and to the credit of the Company in such depositories as may be designated by the Management Directors.  He shall disburse the funds of the Company as may be ordered by the Management Directors, taking proper vouchers for such disbursements, and shall render to the President and the Management Directors, whenever they may require it, an account of all his transactions as Treasurer and of the financial condition of the Company.
 
Section 7.11               Assistant Treasurers.   The Assistant Treasurers shall perform the duties as are given to them by this Agreement or as may from time to time be assigned to them by the Management Directors or by the Treasurer.  At the request of the Treasurer, or in his absence or disability, the Assistant Treasurer, designated by the Treasurer (or in the absence of such designation, the senior Assistant Treasurer), shall perform the duties and exercise the powers of the Treasurer.
 
Section 7.12               Treasurer’s Bond.   If required by the Management Directors, the Treasurer and any Assistant Treasurer shall give the Company a bond in such sum and with such surety or sureties as shall be satisfactory to the Management Directors for the faithful performance of the duties of his office and for the restoration to the Company, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Company.
 
9

 
Section 7.13               Other Officers.   The Management Directors may appoint by written consent such other officers and agents as the Management Directors shall deem necessary who shall hold their offices for such terms, have such authority and perform such duties as the Management Directors may from time to time determine.
 
Section 7.14               Salaries.   The salary or other compensation of officers may be fixed from time to time by the Management Directors.
 
ARTICLE VIII
CAPITAL ACCOUNT
 
Section 8.1                 Capital Account.   A capital account shall be maintained for the Member in accordance with § 704 (b) of the Code and the Regulations thereunder.
 
ARTICLE IX
DISTRIBUTIONS
 
Section 9.1                 Distributions During Term of Company.   The Management Directors in their sole discretion prior to dissolution of the Company may, but shall not be obligated to, distribute such Property of the Company, whether in cash or in kind, as the Management Directors may from time to time deem advisable, after the Management Directors have established such reserves as the Management Directors consider appropriate.
 
Section 9.2                 Distributions Upon Liquidation.   On the winding up of the Company pursuant to Section 11.2 hereof, all assets of the Company shall be distributed in accordance with Section 11.3.
 
Section 9.3                 Limitation on Distributions.   Notwithstanding anything in this Agreement to the contrary, no distribution shall be made if it would not be permitted by the Act.
 
ARTICLE X
INDEMNIFICATION
 
Section 10.1               Definitions.   In this Article:
 
(a)           “Indemnitee” means (i) any present or former director or officer of the Company, and (ii) any person who while serving in any of the capacities referred to in clause (i) of this sentence served at the Company’s request as a director or officer of any other entity.
 
(b)           “Official Capacity” means the elective or appointive office of the Company held by such Person or the employment or agency relationship undertaken by such Person on behalf of the Company, but in each case does not include service for any other foreign or domestic limited liability company, corporation or any partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise.
 
10

 
(c)           “Proceeding” means any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative, any appeal in such an action, suit or proceeding, and any inquiry or investigation that could lead to such an action, suit or proceeding.
 
Section 10.2               Indemnification.   The Company shall indemnify every Indemnitee against all judgments, penalties (including excise and similar taxes), fines, amounts paid in settlement and reasonable expenses actually incurred by the Indemnitee in connection with any Proceeding in which he was, or is threatened to be, named as a defendant or respondent, or in which he was or is a witness without being named as a defendant or respondent, by reason, in whole or in part, of his serving or having served, or having been nominated or designated to serve, in any of the capacities referred to in Section 10.1, if it is determined in accordance with Section 10.4 that the Indemnitee (a) conducted himself in good faith, (b) reasonably believed, in the case of conduct in his Official Capacity, that his conduct was in the Company’s best interests and, in all other cases, that his conduct was at least not opposed to the Company’s best interests, and (c) in the case of any criminal proceeding, had no reasonable cause to believe that his conduct was unlawful; provided, however, that in the event that an Indemnitee is found liable to the Company or is found liable on the basis that personal benefit was improperly received by the Indemnitee, the indemnification (i) is limited to reasonable expenses actually incurred by the Indemnitee in connection with the Proceeding and (ii) shall not be made in respect of any Proceeding in which the Indemnitee shall have been found liable for willful or intentional misconduct in the performance of his duty to the Company.  Except as provided in the proviso to the first sentence of this Section 10.2, no indemnification shall be made under this Section 10.2 in respect of any Proceeding in which such Indemnitee shall have been (x) found liable on the basis that personal benefit was improperly received by him, whether or not the benefit resulted from an action taken in the Indemnitee’s Official Capacity, or (y) found liable to the Company.  The termination of any Proceeding by judgment, order, settlement or conviction, or on a plea of nolo contendere or its equivalent, is not of itself determinative that the Indemnitee did not meet the requirements set forth in clauses (a), (b) or (c) in the first sentence of this Section 10.2.  An Indemnitee shall be deemed to have been found liable in respect of any claim, issue or matter only after the Indemnitee shall have been so adjudged by a court of competent jurisdiction after exhaustion of all appeals therefrom.  Reasonable expenses shall include, but not be limited to, all court costs and all fees and disbursements of attorneys for the Indemnitee.  The indemnification provided herein shall be applicable whether or not negligence or gross negligence of the Indemnitee is alleged or proven.
 
Section 10.3               Successful Defense.   Without limiting the generality of Section 10.2 and in addition to the indemnification provided for in Section 10.2, the Company shall indemnify every Indemnitee against reasonable expenses incurred by such Indemnitee in connection with any Proceeding in which he is a witness or a named defendant or respondent because he served in any of the capacities referred to in Section 10.1, if such Indemnitee has been wholly successful, on the merits or otherwise, in defense of the Proceeding.
 
Section 10.4               Determinations.   Any indemnification under Section 10.2 (unless ordered by a court of competent jurisdiction) shall be made by the Company only upon a determination that indemnification of the Indemnitee is proper in the circumstances because he has met the applicable standard of conduct.  Such determination shall be made by written consent of the Management Directors.  Determination as to reasonableness of expenses shall be made in the same manner as the determination that indemnification is permissible.  In the event a determination is made under this Section that the Indemnitee has met the applicable standard of conduct as to some matters but not as to others, amounts to be indemnified may be reasonably prorated.

 
11

 
 
Section 10.5               Advancement of Expenses.   Reasonable expenses (including court costs and attorneys’ fees) incurred by an Indemnitee who was or is threatened to be made a named defendant or respondent in a Proceeding shall be paid by the Company at reasonable intervals in advance of the final disposition of such Proceeding, and without making any of the determinations specified in Section 10.4, after receipt by the Company of (a) a written affirmation by such Indemnitee of his good faith belief that he has met the standard of conduct necessary for indemnification by the Company under this Article and (b) a written undertaking by or on behalf of such Indemnitee to repay the amount paid or reimbursed by the Company if it shall ultimately be determined that he is not entitled to be indemnified by the Company as authorized in this Article. Such written undertaking shall be an unlimited obligation of the Indemnitee but need not be secured, and it may be accepted without reference to financial ability to make repayment.  Notwithstanding any other provision of this Article, the Company may pay or reimburse expenses incurred by an Indemnitee in connection with his appearance as a witness or other participation in a Proceeding at a time when he has not been named as a defendant or respondent in the Proceeding.
 
Section 10.6               Other Indemnification and Insurance.   The indemnification provided by this Article shall (a) not be deemed exclusive of, or to preclude, any other right to which those seeking indemnification may at any time be entitled under the Certificate, any law, agreement or written consent of the Management Directors, or otherwise, or under any policy or policies of insurance purchased and maintained by the Company on behalf of any Indemnitee, both as to action in an Official Capacity and as to action in any other capacity, (b) continue as to a Person who has ceased to be in the capacity by reason of which he was an Indemnitee with respect to matters arising during the period he was in such capacity, (c) inure to the benefit of the heirs, executors and administrators of such a Person, and (d) not be required if and to the extent that the Person otherwise entitled to payment of such amounts hereunder has actually received payment herefore under any insurance policy, contract or otherwise.
 
Section 10.7               Construction.   The indemnification provided by this Article shall be subject to all valid and applicable laws, and in the event this Article or any of the provisions hereof or the indemnification contemplated hereby are found to be inconsistent with or contrary to any such valid laws, the latter shall be deemed to control and this Article shall be regarded as modified accordingly and, as so modified, to continue in full force and effect.
 
Section 10.8               Continuing Offer, Reliance, etc.   The provisions of this Article (a) are for the benefit of, and may be enforced by, each Indemnitee of the Company, as if set forth in their entirety in a written instrument duly executed and delivered by the Company and such Indemnitee and (b) constitute a continuing offer to all present and future Indemnitees.
 
Section 10.9               Effect of Amendment.   No amendment, modification or repeal of this Article or any provision hereof shall in any manner terminate, reduce or impair the right of any past, present or future Indemnitees to be indemnified by the Company, nor the obligation of the Company to indemnify any such Indemnitees, under and in accordance with the provisions of the Article as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted.
 
12

 
ARTICLE XI
DISSOLUTION AND FINAL LIQUIDATION
 
Section 11.1               Dissolution.   Notwithstanding the retirement, resignation, expulsion, bankruptcy or dissolution of the Member, or the occurrence of any other event that terminates the continued membership of the Member in the Company, the term of the Company shall continue from the date of its formation in perpetuity, unless earlier dissolved on the earliest to occur of:
 
(a)           An election to dissolve the Company made by written consent of the Member; or
 
(b)           The entry of a decree of judicial dissolution under the Act.
 
Section 11.2               Winding Up.   On the dissolution of the Company, the Company’s affairs shall be wound up as soon as reasonably practicable.  The winding up shall be accomplished by the Management Directors.
 
Section 11.3               Distribution of Assets.   On the winding up of the Company, its assets shall be applied in the manner, and in the order of priority, provided for in the Act.
 
Section 11.4               Revocation of Voluntary Dissolution Proceedings.   At any time before the filing of a certificate of cancellation with the Secretary of State, the Company may revoke voluntary dissolution proceedings by the written consent of the Member.
 
ARTICLE XII
AMENDMENT
 
Section 12.1               Amendment of Agreement.   This Agreement may not be amended, supplemented or repealed except by the Member in writing.
 
ARTICLE XIII
GENERAL PROVISIONS
 
Section 13.1               Liability to Third Parties.   Except as otherwise expressly provided by the Act, the debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be the debts, obligations and liabilities solely of the Company, and neither the Member or any Director shall be obligated personally for any such debt, obligation or liability of the Company by reason of being the Member or a Director of the Company.
 
13

 
Section 13.2               Waiver of Notice.
 
(a)           Whenever, under applicable law, the Certificate or this Agreement, any notice is required to be given to the Member or any Director, a waiver thereof in writing signed by the Person or Persons entitled to such notice, whether before or after the time stated therein, shall be equivalent to the giving of such notice.
 
Section 13.3               Seal.   If one be adopted, the Company seal shall have inscribed thereon the name of the Company and shall be in such form as may be approved by the Management Directors.  Such seal may be used by causing it or a facsimile of it to be impressed or affixed or in any manner reproduced.
 
Section 13.4               Fiscal Year.   The fiscal year of the Company shall be the calendar year, or as the Member may designate by resolution, subject to the provisions of Code § 706.
 
Section 13.5               Checks, Notes, Etc.   All checks or demands for money and notes of the Company shall be signed by such officer or officers or such other Person or Persons as the Management Directors may from time to time designate by written consent.  The Management Directors may authorize by written consent any officer or officers or such other Person or Persons to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Company, and such authority may be general or confined to specific instances.
 
Section 13.6               Voting Upon Securities by the Company.   Unless otherwise ordered by the Management Directors, the President, acting on behalf of the Company, shall have full power and authority to attend and to act and to vote at any meeting of security holders of any corporation, partnership, limited liability company or other entity in which the Company may hold interests and, at any such meeting, shall posses and may exercise any and all of the rights and powers incident to the ownership of such interests which, as the owner thereof, the Company might have possessed and exercised, if present.  The Management Directors by written consent from time to time may confer like powers upon any other individual or individuals.
 
Section 13.7               Titles and Captions.   All article or section titles or captions in this Agreement are for convenience only.  They shall not be deemed part of this Agreement and in no way define, limit, extend or describe the scope or intent of any provisions hereof.
 
Section 13.8               Pronouns and Plurals.   Whenever the context may require, any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa.
 
Section 13.9               Subject to All Laws.   The provisions of this Agreement shall be subject to all valid and applicable laws, including but not limited to the Act as now or hereafter amended, and in the event that any of the provisions of this Agreement are found to be inconsistent with or contrary to any such valid laws, the latter shall be deemed to control and this Agreement shall be deemed modified accordingly and, as so modified, to continue in full force and effect.
 
Section 13.10             Allocation of Profits and Losses; Tax Status.   The Company’s profits and losses shall be allocated to the Member.  At all times that the Company has only one member (who owns 100% of the membership interests in the Company), it is the intention of the Member that the Company be disregarded for federal income tax purposes.  No Person shall take any action that would be inconsistent with such treatment.
 
14

 
IN WITNESS WHEREOF , the Member has executed this Agreement as of the day and year first above written.

Wainwright Holdings, Inc.
   
By:
/s/ Nicholas Gerber
 
Nicholas D. Gerber
 
President

 
15

 
 
Exhibit 10.2
 
UNITED STATES NATURAL GAS FUND, LP
MARKETING AGENT AGREEMENT

MARKETING AGENT AGREEMENT (the “Agreement”) made as of April 17, 2007, by and among United States Natural Gas Fund, LP, a Delaware limited partnership (the “Fund”), Victoria Bay Asset Management, LLC, a Delaware limited liability company, as General Partner of the Fund (the “General Partner”) and ALPS Distributors, Inc., a Colorado corporation (the “Marketing Agent”).

WITNESSETH :

WHEREAS, the Fund is governed by the Limited Partnership Agreement dated September 8, 2006, to be amended as of the date on which the first Creation Basket (as defined below) is purchased (such agreement as it will be amended, the “Partnership Agreement”) between the General Partner and the limited partners of the Fund;

WHEREAS, the General Partner, on behalf of the Fund, has filed with the Securities and Exchange Commission (the “Commission” or “SEC”) a registration statement on Form S-1 (Registration No. 333-137871) and amendments thereto, including as part thereof a prospectus (the “Prospectus”), under the Securities Act of 1933, as amended (the “1933 Act”), the forms of which have heretofore been delivered to the Marketing Agent;

WHEREAS, as described in the Prospectus and the authorized purchaser agreements to be entered into by the General Partner and certain broker dealers from time to time including the agreement with Kellogg Capital Group, LLC, dated April 17, 2007, in the form attached hereto as Exhibit A (each such agreement, an “Authorized Purchaser Agreement”), units of fractional undivided beneficial interest in and ownership of the limited partnership (the “Units”) may be created or redeemed by an Authorized Purchaser in aggregations of one hundred thousand (100,000) Units (each aggregation, a “Creation Basket” or “Redemption Basket,” respectively; collectively, “Baskets”); and

WHEREAS, pursuant to the Partnership Agreement, the General Partner wishes to retain the Marketing Agent to provide certain assistance with respect to the marketing of the Units and in connection with the creation or redemption of the Baskets;

NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, the General Partner, the Fund and the Marketing Agent hereby agree as follows:

SECTION 1
DEFINITIONS

1.1       Definitions. In addition to the other terms that are defined in this Agreement, the following terms shall have the following meanings assigned to them. All other capitalized terms used herein, but not otherwise defined herein, shall have the meanings assigned to such terms in the Partnership Agreement.
 

 
“Authorized Purchaser” means the broker-dealer who enters into an Authorized Purchaser Agreement with the General Partner, including the initial Authorized Purchaser, KV Execution Services, LLC.

“Business Day” means any day other than a day on which the American Stock Exchange, the New York Mercantile Exchange or the New York Stock Exchange is closed for regular trading.

“Control” means, with respect to any Person, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

“Governmental Entity” means any supranational, national, state, local, foreign, political subdivision, court, administrative agency, commission or department or other governmental authority or instrumentality.

“Law” means any law, statute, treaty, rule, directive, regulation or guideline or Order of any Governmental Entity.

“Orders” means judgments, writs, decrees, compliance agreements, injunctions or orders of any Governmental Entity or arbitrator.

“Person” shall be construed broadly and shall include an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or another entity, including a Governmental Entity (or any department, agency or political subdivision thereof).

“Preliminary Prospectus” means the preliminary prospectus dated April 6, 2007 relating to the Units and any other prospectus dated prior to effectiveness of the Registration Statement relating to the Units.

“Prospectus” means, except when otherwise specified, the prospectus, in the form filed by the General Partner on behalf of the Fund with the Commission on or before the second business day after the date hereof (or such earlier time as may be required under the 1933 Act) or, if no such filing is required, the form of final prospectus included in the Registration Statement at the time it became effective.

“Representative” means officers, directors, employees, agents, attorneys, accountants and financial advisors of a Person, as the case may be.

“Registration Statement” means, except when otherwise specified, the Fund’s registration statement on Form S-1 (File No. 333-137871) filed by the General Partner with the Commission as amended when it becomes effective under the 1933 Act, including all documents filed as a part thereof.
 
2


SECTION 2
REPRESENTATIONS AND WARRANTIES
OF THE GENERAL PARTNER

2.1       Representations and Warranties of the General Partner. The General Partner, on its own behalf and in its capacity as General Partner of the Fund, represents and warrants to, and agrees with, the Marketing Agent that:

 
(a)
At the time of purchase of a Creation Basket by an Authorized Purchaser under the Authorized Purchaser Agreement, the Registration Statement shall have become effective and no stop order of the SEC with respect thereto has been issued and no proceedings for such purpose have been instituted or, to the General Partner’s knowledge after due inquiry, is contemplated by the SEC; any Preliminary Prospectus provided to prospective investors, at the time of filing thereof, complied in all material respects to the requirements of the 1933 Act; the Registration Statement complies and will comply when it becomes effective and at the time of purchase of a Creation Basket by an Authorized Purchaser, in all material respects with the requirements of the 1933 Act and the Prospectus will comply, as of its date and at the time of purchase of a Creation Basket by an Authorized Purchaser, in all material respects with the requirements of the 1933 Act and any statutes, regulations, contracts or other documents that are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement have been and will be so described or filed; the conditions to the use of Form S-1 have been satisfied; the Registration Statement does not and will not when it becomes effective and at the time of purchase of a Creation Basket by an Authorized Purchaser contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and the Prospectus will not, as of its date and at the time of purchase of the Creation Baskets by the Authorized Purchaser, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the General Partner makes no warranty or representation with respect to any statement contained in any Preliminary Prospectus, the Registration Statement or any Prospectus in reliance upon and in conformity with information concerning the Marketing Agent and furnished in writing by or on behalf of the Marketing Agent to the General Partner expressly for use in the Registration Statement or such Prospectus; and the General Partner has not distributed nor will distribute any offering material in connection with the offering or creation of the Baskets by the Authorized Purchaser other than any Preliminary Prospectus provided to prospective investors, the Registration Statement or the Prospectus;
 
3

 
 
(b)
as of the date of this Agreement, and as of the time of purchase of a Creation Basket by an Authorized Purchaser, respectively, the statement of financial position as set forth in the section of the Registration Statement and the Prospectus entitled “Financial Condition of USNG” accurately reflects the financial condition of the Fund as of the date specified in such statement of financial position;

 
(c)
at the time of purchase of a Creation Basket by an Authorized Purchaser, the Fund has been duly formed and is validly existing as a limited partnership under the laws of the State of Delaware, as described in the Registration Statement and the Prospectus;

 
(d)
the General Partner has been duly organized and is validly existing as a limited liability company in good standing under the laws of the State of Delaware, with full power and authority to conduct its business as described in the Registration Statement and the Prospectus, and has all requisite power and authority to execute and deliver this Agreement;

 
(e)
each of the Fund and the General Partner is duly qualified and is in good standing in each jurisdiction where the conduct of its business requires such qualification;

 
(f)
at the time of purchase of a Creation Basket by an Authorized Purchaser, the Units in a Creation Basket will have been duly and validly authorized and, when issued and delivered against payment therefor, will be duly and validly issued, fully paid and non-assessable and free of statutory and contractual preemptive rights, rights of first refusal and similar rights;

 
(g)
at the time of purchase of a Creation Basket by an Authorized Purchaser, the Units will conform in all material respects to the description thereof contained in the Registration Statement and the Prospectus and the holders of the Units will not be subject to Personal liability by reason of being such holders, except as set forth in the Partnership Agreement as in effect at that time;

 
(h)
this Agreement has been duly authorized, executed and delivered by the General Partner and constitutes the valid and binding obligations of the General Partner, enforceable against the General Partner in accordance with its terms;

 
(i)
the General Partner is not in breach or violation of or in default under (nor has any event occurred which with notice, lapse of time or both would result in any breach or violation of, constitute a default under or give the holder of any indebtedness (or a Person acting on such holder’s behalf) the right to require the repurchase, redemption or repayment of all or a part of such indebtedness) its respective constitutive documents, or any indenture, mortgage, deed of trust, bank loan or credit agreement or other evidence of indebtedness, or any license, lease, contract or other agreement or instrument to which the General Partner is a party or by which any of them or any of their properties may be bound or affected, and the execution, delivery and performance of this Agreement, the issuance and sale of Units in Creation Baskets to the Authorized Purchaser and the consummation of the transactions contemplated hereby will not conflict with, result in any breach or violation of or constitute a default under (nor constitute any event which with notice, lapse of time or both would result in any breach or violation of or constitute a default under), respectively, the amended and restated limited liability company agreement of the General Partner, or any indenture, mortgage, deed of trust, bank loan or credit agreement or other evidence of indebtedness, or any license, lease, contract or other agreement or instrument to which the General Partner is a party or by which, respectively, the General Partner or any of its properties may be bound or affected, or any federal, state, local or foreign law, regulation or rule or any decree, judgment or order applicable to the General Partner;
 
4

 
 
(j)
no approval, authorization, consent or order of or filing with any federal, state, local or foreign governmental or regulatory commission, board, body, authority or agency is required in connection with the issuance and sale of the Units other than registration of the Units under the 1933 Act and the registration of the General Partner as a Commodity Pool Operator with the National Futures Association (the “NFA”) under the Commodities Exchange Act (the “CEA”) and the filing of the Prospectus with the NFA, which has been or will be effected, and any necessary qualification under the securities or blue sky laws of the various jurisdictions in which the Units are being offered or any requirements for listing under the rules and regulations of the American Stock Exchange (“AMEX”);

 
(k)
except as set forth in the Registration Statement and the Prospectus (i) no Person has the right, contractual or otherwise, to cause the Fund to issue or sell to it any Units or other equity interests of the Fund, and (ii) no Person has the right to act as an underwriter or as a financial advisor to the Fund in connection with the offer and sale of the Units, in the case of each of the foregoing clauses (i), and (ii), whether as a result of the filing or effectiveness of the Registration Statement or the sale of the Units as contemplated thereby or otherwise; no Person has the right, contractual or otherwise, to cause the General Partner on behalf of the Fund or the Fund to register under the 1933 Act any other equity interests of the Fund, or to include any such units or interests in the Registration Statement or the offering contemplated thereby, whether as a result of the filing or effectiveness of the Registration Statement or the sale of the Units as contemplated thereby or otherwise;

 
(l)
the General Partner has all necessary licenses, authorizations, consents and approvals and has made all necessary filings required under any federal, state, local or foreign law, regulation or rule, and has obtained all necessary authorizations, consents and approvals from other Persons, in order to conduct its respective business; the General Partner is not in violation of, or in default under, or has received notice of any proceedings relating to revocation or modification of, any such license, authorization, consent or approval or any federal, state, local or foreign law, regulation or rule or any decree, order or judgment applicable to the General Partner;

(m)
all legal or governmental proceedings, affiliate transactions, off-balance sheet transactions, contracts, licenses, agreements, leases or documents of a character required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement have been so described or filed as required;
 
5

 
 
(n)
except as set forth in the Registration Statement and the Prospectus, there are no actions, suits, claims, investigations or proceedings pending or threatened or, to the General Partner’s knowledge after due inquiry, contemplated to which the General Partner, or (to the extent that is or could be material in the context of the offering and sale of the Baskets to the Authorized Purchaser) any of the General Partner’s directors or officers, is or would be a party or of which any of their respective properties are or would be subject at law or in equity, before or by any federal, state, local or foreign governmental or regulatory commission, board, body, authority or agency;

 
(o)
Spicer Jeffries LLP, whose report on the audited financial statements of the Fund is filed with the Commission as part of the Registration Statement and the Prospectus, are independent public accountants as required by the 1933 Act;

 
(p)
the audited financial statements included in the Prospectus, together with the related notes and schedules, present fairly the financial position of the Fund as of the date indicated and have been prepared in compliance with the requirements of the 1933 Act and in conformity with generally accepted accounting principles; there are no financial statements (historical or pro forma) that are required to be included in the Registration Statement and the Prospectus that are not included as required; and the Fund does not have any material liabilities or obligations, direct or contingent (including any off-balance sheet obligations), not disclosed in the Registration Statement and the Prospectus;

 
(q)
Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, and prior to the purchase by the Authorized Purchaser of the Baskets, there has not been (i) any material adverse change, (ii) any transaction which is material to the General Partner or the Fund taken as a whole, (iii) any obligation, direct or contingent (including any off-balance sheet obligations), incurred by the General Partner, which is material to the Fund, (iv) any change in the outstanding indebtedness of the General Partner or the Fund, or (v) any dividend or distribution of any kind declared, paid or made on the Units;

 
(r)
the Fund is not and, after giving effect to the offering and sale of the Baskets, will not be an “investment company” or an entity “controlled” by an “investment company,” as such terms are defined in the Investment Company Act of 1940, as amended (the “Investment Company Act”);
 
6

 
 
(s)
except as set forth in the Registration Statement and the Prospectus, the General Partner and the Fund own, or have obtained valid and enforceable licenses for, or other rights to use, the inventions, patent applications, patents, trademarks (both registered and unregistered), tradenames, copyrights, trade secrets and other proprietary information described in the Registration Statement and the Prospectus as being owned or licensed by them or which are necessary for the conduct of their respective businesses, (collectively, “Intellectual Property”); (i) except as set forth in the Registration Statement and the Prospectus, to the knowledge of the General Partner or the Fund, there are no third parties who have or will be able to establish rights to any Intellectual Property, except for the ownership rights of the owners of the Intellectual Property which is licensed to the General Partner or the Fund; (ii) to the knowledge of the General Partner or the Fund, there is no infringement by third parties of any Intellectual Property; (iii) there is no pending or, to the knowledge of the General Partner or the Fund, threatened action, suit, proceeding or claim by others challenging the General Partner’s or the Fund’s rights in or to any Intellectual Property, and the General Partner and the Fund are unaware of any facts which could form a reasonable basis for any such claim; (iv) there is no pending or, to the knowledge of the General Partner or the Fund, threatened action, suit, proceeding or claim by others challenging the validity or scope of any Intellectual Property; (v) there is no pending or, to the knowledge of the General Partner or the Fund, threatened action, suit, proceeding or claim by others that the General Partner or the Fund infringes or otherwise violates any patent, trademark, copyright, trade secret or other proprietary rights of others, and the General Partner and the Fund are unaware of any facts which could form a reasonable basis for any such claim; (vi) to the knowledge of the General Partner or the Fund, there is no patent or patent application that contains claims that interfere with the issued or pending claims of any of the Intellectual Property; and (vii) to the knowledge of the General Partner or the Fund, there is no prior art that may render any patent application licensed to the General Partner unpatentable;

 
(t)
all tax returns required to be filed by the General Partner have been filed, and all taxes and other assessments of a similar nature (whether imposed directly or through withholding) including any interest, additions to tax or penalties applicable thereto due or claimed to be due from such entities have been paid; and no tax returns or tax payments are due with respect to the Fund as of the date of this Agreement;

 
(u)
the General Partner has not sent or received any communication regarding termination of, or intent not to renew, any of the contracts or agreements referred to or described in, or filed as an exhibit to, the Registration Statement, and no such termination or non-renewal has been threatened by the General Partner or any other party to any such contract or agreement;

 
(v)
on behalf of the Fund, the General Partner has established and maintains disclosure controls and procedures (as such term is defined in Rule 13a-14 and 15d-14 under the Exchange Act of 1934, as amended (the “Exchange Act”), giving effect to the rules and regulations, and SEC staff interpretations thereunder)); such disclosure controls and procedures are designed to ensure that material information relating to the Fund, is made known to the General Partner, and such disclosure controls and procedures are effective to perform the functions for which they were established; on behalf of the Fund, the General Partner has been advised of: (i) any significant deficiencies in the design or operation of internal controls which could adversely affect the Fund’s ability to record, process, summarize, and report financial data; and (ii) any fraud, whether or not material, that involves management or other employees who have a role in the Fund’s internal controls; and any material weaknesses in internal controls have been identified for the Fund’s auditors;
 
7

 
(w)
any statistical and market-related data included in the Registration Statement and the Prospectus are based on or derived from sources that the General Partner believes to be reliable and accurate, and the General Partner has obtained the written consent to the use of such data from such sources to the extent required; and

 
(x)
neither the General Partner, nor any of the General Partner’s directors, members, officers, affiliates or controlling Persons has taken, directly or indirectly, any action designed, or which has constituted or might reasonably be expected to cause or result in, under the Exchange Act or otherwise, the stabilization or manipulation of the price of any security or asset of the Fund to facilitate the sale or resale of the Units; and to the General Partner’s knowledge after due inquiry, there are no affiliations or associations between any member of the AMEX and any of the General Partner’s officers, directors or 5% or greater securityholders, except as may be set forth in the Registration Statement and the Prospectus.

In addition, any certificate signed by any officer of the General Partner and delivered to the Marketing Agent or counsel for the Marketing Agent in connection with the offering of the Units shall be deemed to be a representation and warranty by the General Partner as to matters covered thereby, to the Marketing Agent.

SECTION 3
REPRESENTATIONS OF THE MARKETING AGENT

The Marketing Agent represents and warrants and covenants the following:

3.1.      The Marketing Agent (a) is either (i) registered as a broker-dealer under the Exchange Act, and is a member in good standing of the National Association of Securities Dealers, Inc. (the “NASD”), or (ii) exempt from being, or otherwise is not required to be, licensed as a broker-dealer or a member of the NASD, and in either case is qualified to act as a broker or dealer in the states or other jurisdictions where the nature of its business so requires; and (b) has all other necessary licenses, authorizations, consents and approvals and has made all necessary filings required under any federal, state, local or foreign law, regulation or rule, and has obtained all necessary authorizations, consents and approvals from other Persons, in order to conduct its activities as contemplated by this Agreement. The Marketing Agent will maintain any such registrations, qualifications and membership in good standing and in full force and effect throughout the term of this Agreement. The Marketing Agent will comply with all applicable federal laws, including but not limited to, federal securities and commodities laws, the laws of the states or other jurisdictions concerned, and the rules and regulations promulgated thereunder, and with the Constitution, By-Laws and Conduct Rules of the NASD (if it is a NASD member) and, to the extent applicable, the rules and regulations of the NFA, and is solely responsible for determining the application of any such laws or regulations in all cases at its own expense.  The Marketing Agent will not directly or indirectly offer, sell or deliver Baskets in or from any state or jurisdiction where they may not lawfully be offered, sold and/or delivered;
 
8

 
3.2.      If the Marketing Agent is offering or selling Units in jurisdictions outside the several states, territories and possessions of the United States and is not otherwise required to be registered, qualified or a member of the NASD as set forth in Section 3.1 above, the Marketing Agent will (i) observe the applicable laws of the jurisdiction in which such offer and/or sale is made, (ii) comply with the full disclosure requirements of the 1933 Act, and the rules and regulations promulgated thereunder, and (iii) conduct its business in accordance with the spirit of the NASD Conduct Rules;

3.3.      The Marketing Agent is in compliance with the money laundering and related provisions of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “PATRIOT Act”), and the regulations promulgated thereunder, if the Marketing Agent is subject to the requirements of the PATRIOT Act;

3.4.      The Marketing Agent agrees to comply with the prospectus delivery and disclosure requirements of the 1933 Act, as well as the disclosure delivery requirements under the CEA;

3.5.      The Marketing Agent (i) has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Colorado, with full power and authority to conduct its business and has all requisite power and authority to execute and deliver this Agreement and (ii) is duly qualified and is in good standing in each jurisdiction where the conduct of its business requires such qualification; and

3.6.      This Agreement has been duly authorized, executed and delivered by the Marketing Agent and constitutes the valid and binding obligations of the Marketing Agent, enforceable against the Marketing Agent in accordance with its terms.

SECTION 4
EXCLUSIVE MARKETING AGENT AND STRUCTURE OF THE FUND

4.1       Appointment. The General Partner hereby appoints the Marketing Agent as the exclusive marketing agent for Units on the terms and for the periods set forth in this Agreement, and as set forth in the Authorized Purchaser Agreements as may be entered into from time to time.  The Marketing Agent hereby accepts such appointment and agrees to act in such capacity hereunder.

4.2       Name of the Fund; License. For the term of this Agreement, the General Partner shall cause the name of the Fund to be “United States Natural Gas Fund, LP.”

4.3      Marketing Agent Fee. The Marketing Agent shall be paid by the General Partner for the services of the Marketing Agent as marketing agent to the Fund hereunder, a fee for its services hereunder, calculated daily and payable monthly, as follows:
 
9

 
 
§
.06% on the Fund’s assets up to $3,000,000,000
 
§
.04% on the Fund’s assets in excess of $3,000,000,000

The Marketing Agent will provide an annual marketing budget equal to 33% of the incentive fee for purposes of marketing the Fund’s Units.  The above fees do not include the following expenses, which will be billed back to the General Partner: cost of placing advertisements in various periodicals; web construction and development; or the printing and production of various marketing materials.

4.4       Expenses. Except as otherwise expressly provided in this Agreement or agreed to in writing by the parties, each party hereto shall bear its own fees and expenses incurred in connection with this Agreement and the transactions contemplated hereby and thereby (including, without limitation, the legal, accounting and due diligence fees, costs and expenses incurred by such party).
 
SECTION 5
COVENANTS OF THE GENERAL PARTNER

5.1       Certain Covenants of the General Partner. The General Partner, on its own behalf and in its capacity as General Partner of the Fund, covenants and agrees:

 
(a)
to furnish such information as may be required and otherwise to cooperate in qualifying the Units for offering and sale under the securities or blue sky laws of such states and foreign jurisdictions as the Marketing Agent may reasonably designate and to maintain such qualifications in effect so long as the Marketing Agent may request during the term of this Agreement; provided that the Fund shall not be required to qualify as a foreign corporation or to consent to the service of process under the laws of any such jurisdiction (except service of process with respect to the offering and sale of the Units); and to promptly advise the Marketing Agent of the receipt by the General Partner or the Fund of any notification with respect to the suspension of the qualification of the Units for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose;

 
(b)
to take all necessary action to register the Units under the 1933 Act in order to sell the initial Creation Basket and take, from time to time, such steps, including payment of the related filing fees, as may be necessary to register additional Units under the 1933 Act to the end that all Units sold in additional Creation Baskets will be properly registered under the 1933 Act and to keep the Registration Statement effective and current during the term of this Agreement;

 
 
(c)
to make available to the Marketing Agent, as soon as practicable after the Registration Statement becomes effective, and thereafter from time to time, furnish to the Marketing Agent, as many copies of the Prospectus (or of the Prospectus as amended or supplemented if any amendments or supplements have been made thereto after the effective date of the Registration Statement) as the Marketing Agent may request for the purposes contemplated by the 1933 Act;
 
10

 
 
(d)
to advise the Marketing Agent promptly and, if requested by the Marketing Agent, to confirm such advice in writing when the Registration Statement and any post-effective amendment thereto has become effective, and upon receipt of request from the Marketing Agent therefore, to file a post-effective amendment removing any reference to the Marketing Agent thereunder;
 
 
(e)
to prepare, at the expense of the Fund, such amendments or supplements to the Registration Statement or the Prospectus and to file such amendments or supplements with the Commission, when and as required, by the 1933 Act, the Exchange Act, and the rules and regulations of the Commission thereunder, including if requested by the Marketing Agent; to advise the Marketing Agent promptly of any proposal to amend or supplement the Registration Statement or the Prospectus and to provide the Marketing Agent and the Marketing Agent’s counsel with copies of any such documents for review and comment within a reasonable amount of time prior to any proposed filing and to file no such amendment or supplement to which the Marketing Agent or its counsel shall reasonably object in writing; and to advise the Marketing Agent promptly, confirming such advice in writing, of any request by the Commission for amendments or supplements to the Registration Statement or the Prospectus or for additional information with respect thereto, or of notice of institution of proceedings for, or the entry of a stop order suspending the effectiveness of the Registration Statement and, if the Commission should enter a stop order suspending the effectiveness of the Registration Statement, to use its best efforts to obtain the lifting or removal of such order as soon as possible;

 
(f)
to file promptly all reports and any information statement required to be filed by the Fund with the Commission in order to comply with the Exchange Act and the CEA subsequent to the date of the Prospectus and for so long as the term of this Agreement; and to provide the Marketing Agent and the Marketing Agent’s counsel with a copy of such reports and statements and other documents to be filed by the Fund pursuant to Section 13, 14 or 15(d) of the Exchange Act (excluding filings under Rule 12b-25) and under 17 C.F.R. §4.22 during such period for review and comment within a reasonable amount of time prior to any proposed filing and to file no such amendment or supplement to which the Marketing Agent or its counsel shall reasonably object in writing;

 
(g)
if necessary or appropriate, to file a registration statement pursuant to Rule 462(b) under the 1933 Act;

 
(h)
to advise the Marketing Agent promptly of the happening of any event during the term of this Agreement which could require the making of any change in the Prospectus then being used so that such Prospectus would not include an untrue statement of material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they are made, not misleading, and, during such time, to prepare and furnish, at the expense of the Fund, to the Marketing Agent promptly such amendments or supplements to such Prospectus as may be necessary to reflect any such change;
 
11

 
 
(i)
to furnish to the holders of the Fund’s Units as soon as practicable after the end of each fiscal year an annual report (including a balance sheet and statements of income and cash flow of the Fund for such fiscal year, accompanied by a copy of the certificate or report thereon of nationally recognized independent certified public accountants);

 
(j)
to furnish to the Marketing Agent a copy of the Registration Statement, as initially filed with the Commission, and of all amendments thereto (including all exhibits thereto);

 
(k)
to (1) furnish to the Marketing Agent promptly during the term of this Agreement (i) copies of any reports, proxy statements, or other communications which are sent to the holders of the Fund’s Units or shall from time to time publish or publicly disseminate, (ii) copies of all annual, quarterly and current reports filed with the Commission on Forms 10-K, 10-Q and 8-K, or such other similar forms as may be designated by the Commission, (iii) copies of documents or reports filed with the AMEX, (iv) copies of documents or reports filed with the NFA and with the Commodity Futures Trading Commission, and (v) such other information as the Marketing Agent may reasonably request regarding the Fund; and (2) make available for inspection by the Marketing Agent, its attorneys, accountants and other advisors or agents, all financial and other records, pertinent corporate documents and properties, and cause the officers, directors and employees of the General Partner and independent accountants to supply all information reasonably requested by the Marketing Agent, its attorneys, accountants and other advisors and agents;

 
(l)
to use its best efforts to cause the Units to be listed on the AMEX;

(m)
to furnish to the Marketing Agent (i) at the time of the purchase of the initial Creation Basket by the Initial Authorized Purchaser and (ii)  at such other times as the Marketing Agent reasonably requests, which may include when the Registration Statement or the Prospectus is amended or supplemented, and an opinion of Sutherland Asbill & Brennan LLP, counsel for the General Partner, addressed to the Marketing Agent and substantially in the form attached hereto as Exhibit B;

 
(n)
to cause Spicer Jeffries LLP to deliver to the Marketing Agent (i) at the time of the effectiveness of the purchase of the Baskets by the Authorized Purchaser and (ii) at each time (A) the Registration Statement or the Prospectus is amended or supplemented by the filing of a post-effective amendment, (B) a new Registration Statement is filed to register additional Units in reliance on Rule 429, and there is financial information incorporated by reference into the Registration Statement or the Prospectus, letters dated such dates and addressed to the Marketing Agent, containing statements and information of the type ordinarily included in accountants’ letters to underwriters with respect to the financial statements and other financial information contained in or incorporated by reference into the Registration Statement and the Prospectus;
 
12

 
 
(o)
to deliver to the Marketing Agent (i) at the time of the effectiveness of the purchase of a Creation Basket by an Authorized Purchaser, (ii) at each time the Registration Statement or the Prospectus is amended or supplemented, (iii) at each time the Registration Statement or the Prospectus files any report, statement or other document pursuant to Section 13, 14 or 15(d) of the Exchange Act (excluding filings required by Rule 12b-25), and (iv) at such other times as the Marketing Agent reasonably requests, an officer’s certificate in the form attached as Exhibit D hereto;

 
(p)
to furnish to the Marketing Agent (i) at the time of the effectiveness of the purchase of a Creation Basket by an Authorized Purchaser and (ii) at each time (A) the Registration Statement or the Prospectus is amended or supplemented, (iii) at each time the Fund files any report, statement or other document pursuant to Section 13, 14 or 15(d) of the Exchange Act (excluding filings required by Rule 12b-25), and (iv) at such other times as the Marketing Agent reasonably requests, such other documents and certificates as of such dates as the Marketing Agent may reasonably request; and

 
(q)
to cause the Fund to file a post-effective amendment to the Registration Statement no less frequently than once per calendar quarter on or about the same time that the Fund files a quarterly or annual report pursuant to Section 13 or 15(d) of the Exchange Act (including the information contained in such report), until such time as the Fund’s reports filed pursuant to Section 13 or 15(d) of the Exchange Act are incorporated by reference in the Registration Statement.

For the purposes of this Section 5.1, the term “Registration Statement” shall mean the Registration Statement as amended or supplemented from time to time to and including the date as of which the relevant representation is made, and the term “Prospectus” shall mean the Prospectus as amended or supplemented from time to time to and including the date as of which the relevant covenant is made.

SECTION 6
MARKETING PLAN DEVELOPMENT
AND MARKETING AGENT COVENANTS

6.1       Pre-Launch Development.

 
(a)
The General Partner and the Marketing Agent will develop the Fund and its marketing plan prior to the effective date of the Registration Statement in accordance with the provisions of this Section 6.1 and the marketing strategy as described in Exhibit C.

 
(b)
The General Partner and the Marketing Agent will use commercially reasonable efforts to commit sufficient resources to finalize the Registration Statement and the governing documents of the Fund and the Fund’s service providers, communicate with the Commission to obtain approval of the Registration Statement and communicate with the AMEX to obtain approval of the listing of the Units on the AMEX.
 
13

 
6.2       Post-Launch Activities.

 
(a)
The General Partner and the Marketing Agent will market the Fund and the Units on an ongoing basis after the Registration Statement is declared effective and the Units have been listed on the AMEX in accordance with the provisions of this Section 6.2.

 
(b)
Subject to necessary regulatory approvals and compliance with all applicable legal and regulatory requirements, the Marketing Agent shall:

 
(i)
in good faith, and subject to existing market conditions, use commercially-reasonable efforts to market the Fund; and

 
(ii)
include natural gas in strategic and tactical research of the Marketing Agent.

 
(c)
The Marketing Agent shall provide the General Partner with copies of all written marketing materials distributed by it connected with the Fund.

 
(d)
The Marketing Agent shall process orders for Baskets as set forth in the Authorized Purchaser Agreement.

6.3       Joint Reviews.

 
(a)
In order to oversee the pre-launch development and post-launch performance of the Fund on a regular basis, the parties shall:

 
(i)
conduct at least once each calendar quarter in which the annual review described in clause (ii) below is not conducted, a review of the performance of the Fund, with such review to include the senior management of the General Partner and the senior management of the Marketing Agent and to cover such topics as asset growth/decline, sales strategy, new business efforts, new product initiatives and stock exchange trading activity; and

 
(ii)
conduct at least once each calendar year, a review of the overall performance of the Fund, which will include a review of the most recent quarterly period, with such review to include the chief executive officer of the General Partner and senior management of the Marketing Agent and to cover such topics as strategic direction and new business initiatives.

 
(b)
Prior to each of the quarterly and annual reviews which will take place pursuant to this Section 6.3, the General Partner and the Marketing Agent will jointly prepare and circulate among the parties, a report covering the quarterly or annual period which is the subject of each review, with such report to cover such topics described above.
 
14

 
6.4       Information Provided to Marketing Agent. In performing its duties hereunder, the Marketing Agent shall be entitled to rely on and shall not be responsible in any way for information provided to it by the General Partner and its service providers and shall not be liable or responsible for the errors and omissions of such service providers, provided that the foregoing shall not be construed to protect the Marketing Agent against any liability to the General Partner or the Fund to which the Marketing Agent would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of its reckless disregard of its obligations and duties under this Agreement.

6.5       Conditions to Marketing Agent’s Obligations. The obligations of the Marketing Agent hereunder are subject in the Marketing Agent’s discretion, to the condition that (i) all representations and warranties and other statements of the General Partner herein or delivered pursuant hereto be true and correct (a) at and as of the date made, (b) at the time of the purchase of the Baskets by the Authorized Purchaser, (c) at each time the Registration Statement or the Prospectus is amended or supplemented, (d) at each time the Fund files any report, statement or other document pursuant to Section 13, 14 or 15(d) of the Exchange Act (excluding filings under Rule 12b-25), (e) at each time the Fund issues any Baskets and (f) at such other times the Marketing Agent reasonably requests, in each case as though made at and as of such dates, and the General Partner agrees that all such representations, warranties and other statements are expressly made on and as of such dates (except, in all cases, that such representations, warranties and statements relating to the Registration Statement and the Prospectus shall be deemed to relate to the Registration Statement and the Prospectus as amended and supplemented to such date) and (ii) the General Partner shall have performed all of its covenants, agreements and obligations hereunder theretofore to be performed in all respects. The respective indemnities, agreements, representations, warranties and other statements by the General Partner set forth in or made pursuant to this Agreement shall remain in full force and effect regardless of any investigation (or any statement as to the results thereof) made by or on behalf of the Marketing Agent or any controlling Person of the Marketing Agent, or the General Partner, or any officer or director or any controlling Person thereof, and shall survive the execution, delivery, performance and termination of this Agreement.

SECTION 7
INDEMNIFICATION

7.1       Indemnification of Marketing Agent. The General Partner agrees to indemnify, defend and hold harmless the Marketing Agent, its partners, stockholders, members, directors, officers and employees of the foregoing, and the successors and assigns of all of the foregoing Persons, from and against any loss, damage, expense, liability or claim (including the reasonable cost of investigation) which the Marketing Agent or any such Person may incur under the 1933 Act, the Exchange Act, the common law or otherwise, insofar as such loss, damage, expense, liability or claim arises out of or is based upon:
 
15

 
 
(a)
any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or in the Registration Statement as amended or supplement) or in a Prospectus (the term Prospectus for the purpose of this Section 7 being deemed to include the Prospectus and the Prospectus as amended or supplemented), or arises out of or is based upon any omission or alleged omission to state a material fact required to be stated in either such Registration Statement or such Prospectus or necessary to make the statements made therein not misleading, except insofar as any such loss, damage, expense, liability or claim arises out of or is based upon any untrue statement or alleged untrue statement of a material fact contained in and in conformity with information concerning the Marketing Agent furnished in writing by or on behalf of the Marketing Agent to the General Partner expressly for use in such Registration Statement or such Prospectus;

 
(b)
any untrue statement or alleged untrue statement of a material fact or breach by the General Partner of any representation or warranty contained in Section 2 hereof or in any certificate delivered by the General Partner pursuant to paragraph (o) of Section 5.1 hereof;

 
(c)
the failure by the General Partner to perform when and as required any agreement or covenant contained herein;

 
(d)
any untrue statement of any material fact contained in any audio or visual materials provided by the General Partner or based upon written information furnished by or on behalf of the General Partner including, without limitation, slides, videos, films or tape recordings used in connection with the marketing of the Units;

 
(e)
the Marketing Agent’s performance of its duties under this Agreement except in the case of this clause (e), for any loss, damage, expense, liability or claim resulting from the gross negligence or willful misconduct of the Marketing Agent; provided, however, that the indemnity agreement contained in clause (a) above with respect to any amended Preliminary Prospectus shall not inure to the benefit of the Marketing Agent (or to the benefit of any Person controlling the Marketing Agent) from whom the Person asserting any such loss, damage, expense, liability or claim purchased the Units which is the subject thereof if the Prospectus corrected any such alleged untrue statement or omission in any case where the Marketing Agent was required to send or give a copy of the Prospectus to such Person by the 1933 Act, the General Partner had notified the Marketing Agent of the amendment or supplement prior to the sending of the written confirmation of sale and the Marketing Agent failed to send or give a copy of the Prospectus to such Person, unless the failure is the result of noncompliance by the General Partner with paragraph (c) of Section 5.1 hereof.

In no case is the indemnity of the General Partner in favor of the Marketing Agent and such other Persons as are specified in this Section 7.1 to be deemed to protect the Marketing Agent and such Persons against any liability to the General Partner or the Fund to which the Marketing Agent would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of its reckless disregard of its obligations and duties under this Agreement.
 
16

 
If any action, suit or proceeding (each, a “Proceeding”) is brought against the Marketing Agent or any such Person in respect of which indemnity may be sought against the General Partner pursuant to the foregoing paragraph, the Marketing Agent or such Person shall promptly notify the General Partner in writing of the institution of such Proceeding and the General Partner shall assume the defense of such Proceeding, including the employment of counsel reasonably satisfactory to such indemnified party and payment of all fees and expenses; provided, however, that the omission to so notify the General Partner shall not relieve the General Partner from any liability which it may have to the Marketing Agent or any such Person except to the extent that it has been materially prejudiced by such failure and has not otherwise learned of such Proceeding. The Marketing Agent or such Person shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of the Marketing Agent or of such Person unless the employment of such counsel shall have been authorized in writing by the General Partner in connection with the defense of such Proceeding or the General Partner shall not have, within a reasonable period of time in light of the circumstances, employed counsel to have charge of the defense of such Proceeding or such indemnified party or parties shall have reasonably concluded that there may be defenses available to it or them which are different from, additional to or in conflict with those available to the General Partner (in which case the General Partner shall not have the right to direct the defense of such Proceeding on behalf of the indemnified party or parties), in any of which events such fees and expenses shall be borne by the General Partner and paid as incurred (it being understood, however, that the General Partner shall not be liable for the expenses of more than one separate counsel (in addition to any local counsel) in any one Proceeding or series of related Proceedings in the same jurisdiction representing the indemnified parties who are parties to such Proceeding).

The General Partner shall not be liable for any settlement of any Proceeding effected without the General Partner’s written consent but if settled with the General Partner’s written consent, the General Partner agrees to indemnify and hold harmless the Marketing Agent and any such Person from and against any loss or liability by reason of such settlement. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by the second sentence of this paragraph, then the indemnifying party agrees that it shall be liable for any settlement of any Proceeding effected without its written consent if (i) such settlement is entered into more than 60 Business Days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall not have fully reimbursed the indemnified party in accordance with such request prior to the date of such settlement and (iii) such indemnified party shall have given the indemnifying party at least 30 Business Days’ prior notice of its intention to settle. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened Proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such Proceeding and does not include an admission of fault, culpability or a failure to act, by or on behalf of such indemnified party.
 
17

 
6.2       The Marketing Agent agrees to indemnify, defend and hold harmless each of the Fund, the General Partner and its partners, holders of Units, members, directors, officers, employees and any Person who controls the General Partner within the meaning of Section 15 of the 1933 Act or Section 20 of the Exchange Act, and the successors and assigns of all of the foregoing Persons, from and against any loss, damage, expense, liability or claim (including the reasonable cost of investigation) which the General Partner any such Person may incur under the 1933 Act, the Exchange Act, the common law or otherwise, insofar as such loss, damage, expense, liability or claim arises out of or is based upon any untrue statement or alleged untrue statement of a material fact contained in and in conformity with information furnished in writing by or on behalf of the Marketing Agent to the General Partner expressly for use in the Registration Statement (or in the Registration Statement as amended or supplemented by any post-effective amendment thereof) or in a Prospectus, or arises out of or is based upon any omission or alleged omission to state a material fact in connection with such information required to be stated in such Registration Statement or such Prospectus or necessary to make such information not misleading.

The Marketing Agent will also indemnify the General Partner as stated above insofar as such loss, damage, expense, liability or claim arises out of or is based upon the Marketing Agent’s performance of its duties under this Agreement, except in the case of any loss, damage, expense, liability or claim resulting from the gross negligence or willful misconduct of the General Partner.  In no case is the indemnity of the Marketing Agent in favor of the General Partner to be deemed to protect the General Partner and such Persons against any liability to the Marketing Agent to which the General Partner would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of its reckless disregard of its obligations and duties under this Agreement.

If any Proceeding is brought against the General Partner or any Person referred to in the preceding paragraph in respect of which indemnity may be sought against the Marketing Agent pursuant to the foregoing paragraph, the General Partner or such Person shall promptly notify the Marketing Agent in writing of the institution of such Proceeding and the Marketing Agent shall assume the defense of such Proceeding, including the employment of counsel reasonably satisfactory to such indemnified party and payment of all fees and expenses; provided, however, that the omission to so notify the Marketing Agent shall not relieve the Marketing Agent from any liability which it may have to the General Partner or any such Person except to the extent that it has been materially prejudiced by such failure and has not otherwise learned of such Proceeding.  The General Partner or such Person shall have the right to employ their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of the General Partner or such Person unless the employment of such counsel shall have been authorized in writing by the Marketing Agent in connection with the defense of such Proceeding or the Marketing Agent shall not have, within a reasonable period of time in light of the circumstances, employed counsel to defend such Proceeding or such indemnified party or parties shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to or in conflict with those available to the Marketing Agent (in which case the Marketing Agent shall not have the right to direct the defense of such Proceeding on behalf of the indemnified party or parties, but the Marketing Agent may employ counsel and participate in the defense thereof but the fees and expenses of such counsel shall be at the expense of the Marketing Agent), in any of which events such fees and expenses shall be borne by the Marketing Agent and paid as incurred (it being understood, however, that the Marketing Agent shall not be liable for the expenses of more than one separate counsel (in addition to any local counsel) in any one Proceeding or series of related Proceedings in the same jurisdiction representing the indemnified parties who are parties to such Proceeding).
 
18

 
The Marketing Agent shall not be liable for any settlement of any such Proceeding effected without the written consent of the Marketing Agent but if settled with the written consent of the Marketing Agent, the Marketing Agent agrees to indemnify and hold harmless the General Partner and any such Person from and against any loss or liability by reason of such settlement. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by the second sentence of this paragraph, then the indemnifying party agrees that it shall be liable for any settlement of any Proceeding effected without its written consent if (i) such settlement is entered into more than 60 Business Days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement and (iii) such indemnified party shall have given the indemnifying party at least 30 Business Days’ prior notice of its intention to settle. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened Proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such Proceeding.

7.3       The indemnity agreements contained in this Section 7 and the covenants, warranties and representations of the General Partner contained in this Agreement shall remain in full force and effect regardless of any investigation made by or on behalf of the Marketing Agent, its partners, stockholders, members, directors, officers, employees and or any Person (including each partner, stockholder, member, director, officer or employee of such Person) who controls the Marketing Agent within the meaning of Section 15 of the 1933 Act or Section 20 of the Exchange Act, or by or on behalf of each of the General Partner, the Fund, their partners, stockholders, members, directors, officers, employees or any Person who controls the General Partner or the Fund within the meaning of Section 15 of the 1933 Act or Section 20 of the Exchange Act, and shall survive any termination of this Agreement or the initial issuance and delivery of the Units. The General Partner and the Marketing Agent agree promptly to notify each other of the commencement of any Proceeding against it and, in the case of the General Partner, against any of the General Partner’s officers or directors in connection with the issuance and sale of the Units, or in connection with the Registration Statement or the Prospectus.
 
19


SECTION 8
DURATION

This Agreement shall become effective on the date hereof and continue for an initial term of one (1) year from the date of this Agreement and will include any renewal term of this Agreement and will last until the expiration of this Agreement or the earlier termination of this Agreement in accordance with its terms (the “Term”). This Agreement will automatically be renewed for successive one (1) year periods unless, no later than thirty (30) calendar days prior to the end of the then-current Term, either the Marketing Agent, on the one hand, or the General Partner, on the other hand, elects to terminate this Agreement by delivering written notice thereof to the other party.  Notwithstanding the foregoing, this Agreement may be terminated by any party upon written notice to the other parties if (a) the Fund is terminated, (b) any other party becomes insolvent or bankrupt or files a voluntary petition, or is subject to an involuntary petition, in bankruptcy or attempts to or makes an assignment for the benefit of its creditors or consents to the appointment of a trustee or receiver, provided that the General Partner may not terminate this Agreement pursuant to this provision if the event relates to the General Partner or the Fund or (c) any other party willfully and materially breaches its obligations under this Agreement and such breach has not been cured to the reasonable satisfaction of the non-breaching party prior to the expiration of ninety (90) days after notice by the non-breaching party to the breaching party of such breach.

SECTION 9
CONFIDENTIALITY

9.1       Confidentiality.

 
(a)
The General Partner and the Marketing Agent shall during the Term and for one (1) year thereafter maintain in confidence, use only for the purposes provided for in this Agreement, and not disclose to any third party, without first obtaining the other party’s consent in writing, any and all Confidential Information (as defined below) such party receives from the other party; provided, however, that either party may disclose Confidential Information received from the other party to those of its Representatives as may be necessary for such party to carry out its obligations under this Agreement.

 
“Confidential Information” shall mean all information or data of a party that is disclosed to or received by the other party, whether orally, visually or in writing, in any form, including, without limitation, information or data which relates to such party’s business or operations, research and development, marketing plans or activities, or actual or potential products.
 
20

 
 
(b)
Notwithstanding the provisions of this Agreement to the contrary, a party shall have no liability to the other party for the disclosure or use of any Confidential Information of the other party if the Confidential Information:

 
(i)
is known to such party at the time of disclosure other than as the result of a breach of this Section 9 by such party;

 
(ii)
has been or becomes publicly known, other than as the result of a breach of this Section 9 by such party, or has been or is publicly disclosed by the other party;

 
(iii)
is received by such party after the date of this Agreement from a third party (unless such third party breaches an obligation of confidentiality to the other party); or

 
(iv)
is required to be disclosed by Law or similar compulsion or in connection with any legal proceeding, provided that such party shall promptly inform the other party in writing of such requirement and that such disclosure shall be limited to the extent so required and, except to the extent prohibited by Law, such party shall reasonably cooperate with the other party (at the expense of the other party) in seeking a protective order or other suitable confidentiality protections.

 
(c)
The parties recognize and acknowledge that a breach or threatened breach by a party of the provisions of this Section 9 may cause irreparable and material loss and damage to the other party which cannot be adequately remedied at law and that, accordingly, in addition to, and not in lieu of, any damages or other remedy to which the non-breaching party may be entitled, the issuance of an injunction or other equitable remedy (without the requirement that a bond or other security be posted) is an appropriate remedy for the non-breaching party for any breach or threatened breach of the obligations set forth in this Section 9.

 
(d)
Each party agrees that it will use the same degree of care, but no less than a reasonable degree of care, in safeguarding the Confidential Information of the other party as it uses for its own Confidential Information of a similar nature. Each party shall promptly notify the other party in writing of any misuse, misappropriation or unauthorized disclosure of the Confidential Information of the other party which may come to such party’s attention.

 
(e)
Upon the termination of this Agreement, if requested in writing by a party, the other party shall, at such party’s option, promptly destroy or return to the party all Confidential Information received from the other party, all copies and extracts of such Confidential Information and all documents or other media containing any such Confidential Information.
 
21


SECTION 10
MISCELLANEOUS

10.1      No Third Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any Person other than the parties hereto, the indemnities referred to in this Agreement and their respective successors and assigns.

10.2      Entire Agreement. This Agreement (including any schedules and exhibits attached hereto and thereto) contains all of the agreements among the parties hereto and thereto with respect to the transactions contemplated hereby and thereby and supersedes all prior agreements or understandings, whether written or oral, among the parties with respect thereto.

10.3      Amendment and Modification. This Agreement may be amended, modified or supplemented only by a written instrument executed by all the parties.

10.4      Successors and Assigns; Assignment. All the terms and provisions of this Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. This Agreement shall not be assigned by any party without the prior written consent of the other parties and any assignment without such consent shall be null and void.

10.5      Waiver of Compliance. Except as otherwise provided in this Agreement, any failure of any of the parties to comply with any obligation, covenant, agreement or condition herein may be waived by the party entitled to the benefits thereof only by a written instrument signed by the party granting such waiver, but any such waiver, or the failure to insist upon strict compliance with any obligation, covenant, agreement or condition herein, shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure or breach.

10.6      Severability. The parties hereto desire that the provisions of this Agreement be enforced to the fullest extent permissible under the Law and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, in the event that any provision of this Agreement would be held in any jurisdiction to be invalid, prohibited or unenforceable for any reason, such provision, as to such jurisdiction, shall be ineffective, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. Notwithstanding the foregoing, if such provision could be more narrowly drawn so as not to be invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.

10.7      Notices. All notices, waivers, or other communications pursuant to this Agreement shall be in writing and shall be deemed to be sufficient if delivered Personally, by facsimile (and, if sent by facsimile, followed by delivery by nationally-recognized express courier), sent by nationally-recognized express courier or mailed by registered or certified mail (return receipt requested), postage prepaid, to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):
 
(a)       if to General Partner, to:
 
22

 
Victoria Bay Asset Management, LLC
c/o Nicholas D. Gerber
P.O. Box 6919
Moraga, CA  94570

(b)       if to the Marketing Agent, to:

ALPS Distributors, Inc.
1625 Broadway, Suite 2200
Denver, CO 80202
Attention: General Counsel

All such notices and other communications shall be deemed to have been delivered and received (i) in the case of Personal delivery or delivery by facsimile or e-mail, on the date of such delivery if delivered during business hours on a Business Day or, if not delivered during business hours on a Business Day, the first Business Day thereafter, (ii) in the case of delivery by nationally-recognized express courier, on the first Business Day following dispatch, and (iii) in the case of mailing, on the third Business Day following such mailing.

10.8      Governing Law; Jurisdiction.

 
(a)
All questions concerning the construction, interpretation and validity of this Agreement shall be governed by, and construed and enforced in accordance with, the domestic laws of the State of New York, without giving effect to any choice or conflict of law provision or rule (whether in the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York. In furtherance of the foregoing, the internal law of the State of New York will control the interpretation and construction of this Agreement, even if under such jurisdiction’s choice of law or conflict of law analysis, the substantive law of some other jurisdiction would ordinarily or necessarily apply.

 
(b)
Each party irrevocably consents and agrees, for the benefit of the other parties, that any legal action, suit or proceeding against it with respect to its obligations, liabilities or any other matter arising out of or in connection with this Agreement may be brought in the courts of the State of New York and hereby irrevocably consents and submits to the non-exclusive jurisdiction of each such court in Personam, generally and unconditionally with respect to any action, suit or proceeding for itself and in respect of its properties, assets and revenues. Each party irrevocably waives any immunity to jurisdiction to which it may otherwise be entitled or become entitled (including sovereign immunity, immunity to pre-judgment attachment and execution) in any legal suit, action or proceeding against it arising out of or based on this Agreement or the transactions contemplated hereby or thereby which is instituted in any court of the State of New York.

The provisions of this Section 10.8 shall survive any termination of this Agreement, in whole or in part.
 
23

 
10.9      No Partnership. Nothing in this Agreement is intended to, or will be construed to constitute the General Partner or the Fund, on the one hand, and the Marketing Agent, on the other hand, as partners or joint venturers; it being intended that the relationship between them will at all times be that of independent contractors.

10.10    Force Majeure. Neither party will be liable to any other party for any delay or failure to perform its obligations under this Agreement (except for the payment of money) if such delay or failure arises from or is due to any cause or causes beyond the reasonable control of the party affected which impedes, delays or aggravates any obligation under this Agreement, including, without limitation, acts of God, acts of any Governmental Entity, labor disturbances, act of terrorism or act of public enemy due to war, the outbreak or escalation of hostilities, riot, fire, flood, civil commotion, insurrection, severe or adverse weather conditions, power failure or computer or communications line failure.

10.11    Interpretation. The article and section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not in any way affect the meaning or interpretation of this Agreement.

10.12    No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction will be applied against any party.

10.13    Counterparts; Facsimile Signatures. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.  Facsimile counterpart signatures to this Agreement shall be acceptable and binding.
 
24

 
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the day and year first written above.
 
VICTORIA BAY ASSET MANAGEMENT, LLC

By:
/s/ Nicholas Gerber
Name: Nicholas Gerber
Title: Director
 
UNITED STATES NATURAL GAS FUND, LP
By: Victoria Bay Asset Management, LLC, as General Partner

By: 
/s/ Nicholas Gerber
Name: Nicholas Gerber
Title: Director

ALPS DISTRIBUTORS, INC.

/s/ Thomas A. Carter
Name: Thomas A. Carter
          Business Development
 
25

 

Exhibit 10.4

EXECUTION COPY

CUSTODIAN AGREEMENT

THIS CUSTODIAN AGREEMENT (this “Agreement”), dated as of March 5, 2007, is entered into among UNITED STATES NATURAL GAS FUND, LP , a limited partnership organized under the laws of the State of Delaware (the Fund ), VICTORIA BAY ASSET MANAGEMENT, LLC , a Delaware limited liability company and General Partner of the Fund (the General Partner ), and BROWN BROTHERS HARRIMAN & CO. , a limited partnership formed under the laws of the State of New York ( BBH&Co. or the Custodian ),

WITNESSETH:

WHEREAS , the General Partner has exclusive responsibility for the management and control of the business and affairs of the Fund; and

WHEREAS , the General Partner wishes to employ BBH&Co. to act as custodian for the Fund’s Investments (as defined in Section 4) and to provide related services, all as provided herein, and BBH&Co. is willing to accept such employment, subject to the terms and conditions herein set forth;

NOW, THEREFORE , in consideration of the mutual covenants and agreements herein contained, the Fund and BBH&Co. hereby agree, as follows:

1.            Appointment of Custodian.    The Fund and the General Partner hereby appoint BBH&Co. as the Fund’s custodian for its Investments, and BBH&Co. hereby accepts such appointment.  All Investments of the Fund delivered to the Custodian or its agents or Subcustodians (as defined in Section 13) shall be dealt with as provided in this Agreement.  The duties of the Custodian with respect to the Fund’s Investments shall be only as set forth expressly in this Agreement, which duties are generally comprised of safekeeping and various administrative duties that will be performed in accordance with Instructions and as reasonably required to effect Instructions.

2.            Representations, Warranties and Covenants of the Fund.    The Fund and the General Partner each hereby represents, warrants and covenants each of the following:

2.1           This Agreement has been, and at the time of delivery of each Instruction (as defined in Section 4) such Instruction will have been, duly authorized, executed and delivered by the Fund and the General Partner.  This Agreement does not violate any Applicable Law (as defined in Section 13) or conflict with or constitute a default under the Fund’s prospectus or other organic document, agreement, judgment, order or decree to which the Fund or the General Partner is a party or by which it or its Investments is bound.

2.2           By providing an Instruction with respect to the first acquisition of an Investment in a jurisdiction other than the United States of America, the Fund and the General Partner shall be deemed to have confirmed to the Custodian that the Fund has (a) made all determinations required to be made by the Fund under Applicable Law, and (b) appropriately and adequately disclosed to its unitholders and all persons who have rights in or to such Investments, all material investment risks, including those relating to the custody and settlement infrastructure or the servicing of securities in such jurisdiction.

 
 

 

2.3           The Fund and the General Partner shall safeguard and shall be solely responsible for the safekeeping of any testkeys, identification codes, passwords, other security devices or statements of account with which the Custodian provides them.  In furtherance and not limitation of the foregoing, in the event the Fund and/or the General Partner utilizes any on-line service offered by the Custodian, the Fund, the General Partner and the Custodian shall be fully responsible for the security of each party’s respective connecting terminal, access thereto and the proper and authorized use thereof and the initiation and application of continuing effective safeguards in respect thereof.  Additionally, if the Fund and/or the General Partner uses any on-line or similar communications service made available by the Custodian, the Fund and the General Partner shall be solely responsible for ensuring the security of their access to the service and for the use of the service, and shall only attempt to access the service and the Custodian’s computer systems as directed by the Custodian.  If the Custodian provides any computer software to the Fund and/or the General Partner relating to the services described in this Agreement, the Fund and/or the General Partner will only use the software for the purposes for which the Custodian provided the software to the Fund and/or the General Partner, and will abide by the license agreement accompanying the software and any other security policies which the Custodian provides to the Fund and the General Partner.

3.            Representations and Warranties of BBH&Co.   BBH&Co. hereby represents and warrants that this Agreement has been duly authorized, executed and delivered by BBH&Co. and does not violate any Applicable Law or conflict with or constitute a default under BBH&Co.’s limited partnership agreement or any agreement, instrument, judgment, order or decree to which BBH&Co. is a party or by which it is bound.

4.            Instructions.   Unless otherwise explicitly indicated herein, the Custodian shall perform its duties pursuant to Instructions.  As used herein, the term Instruction shall mean a directive initiated by the Fund and/or the General Partner, acting directly or through its board of directors, officers or other Authorized Persons, which directive shall conform to the requirements of this Section 4.

4.1            Authorized Persons.   For purposes hereof, an Authorized Person shall be a person or entity authorized to give Instructions for or on behalf of the Fund and/or the General Partner by written notices to the Custodian or otherwise in  accordance with procedures delivered to and acknowledged by the Custodian, including without limitation the Fund’s Investment Advisor (as defined in Section 13).  The Custodian may treat any Authorized Person as having full authority of the Fund and/or the General Partner to issue Instructions hereunder unless the notice of authorization contains explicit limitations as to said authority.  The Custodian shall be entitled to rely upon the authority of Authorized Persons until it receives appropriate written notice from the Fund to the contrary.

 
 

 

The Fund hereby designates the Marketing Agent (as such term is defined under an Authorized Purchaser Agreement entered into by the General Partner on behalf of the Fund, as approved by the Custodian (the Authorized Purchaser Agreement )) as an Authorized Person from whom the Custodian is hereby authorized to receive Instructions to accept deposits of cash and securities in connection with the purchase of Units (as such term is defined under the Authorized Purchaser Agreement) and the distribution of cash and securities in connection with the redemption of Units.

4.2            Form of Instruction.   Each Instruction shall be transmitted by such secured or authenticated electro-mechanical means as the Custodian shall make available to the Fund from time to time unless the Fund and/or the General Partner shall elect to transmit such Instruction in accordance with Subsections 4.2.1 through 4.2.3 of this Section.

 4.2.1 Fund Designated Secured-Transmission Method. Instructions may be transmitted through a secured or tested electro-mechanical means identified by the Fund, the General Partner or by an Authorized Person entitled to give Instructions and acknowledged and accepted by the Custodian; it being understood that such acknowledgment shall authorize the Custodian to receive and process such means of delivery but shall not represent a judgment by the Custodian as to the reasonableness or security of the method determined by the Authorized Person.

 4.2.2 Written Instructions.   Instructions may be transmitted in a writing that bears the manual signature of Authorized Persons.

 4.2.3 Other Forms of Instruction.   Instructions may also be transmitted by another means determined by the Fund, the General Partner or Authorized Persons and acknowledged and accepted by the Custodian (subject to the same limits as to acknowledgements as is contained in Subsection 4.2.1, above) including Instructions given orally or by SWIFT, telex or telefax (whether tested or untested).

When an Instruction is given by means established under Subsections 4.2.1 through 4.2.3, it shall be the responsibility of the Custodian to use reasonable care to adhere to any security or other procedures established in writing between the Custodian and the Authorized Person with respect to such means of Instruction, but such Authorized Person shall be solely responsible for determining that the particular means chosen is reasonable under the circumstances. Oral Instructions shall be binding upon the Custodian only if and when the Custodian takes action with respect thereto.  With respect to telefax instructions, the parties agree and acknowledge that receipt of legible instructions cannot be assured, that the Custodian cannot verify that authorized signatures on telefax instructions are original or properly affixed, and that the Custodian shall not be liable for losses or expenses incurred through actions taken in reliance on inaccurately stated, illegible or unauthorized telefax instructions.  The provisions of Section 4A of the Uniform Commercial Code as currently in effect in the State of New York shall apply to the Fund’s transfers performed in accordance with Instructions.  The Funds Transfer Services Schedule (as defined in Section 13) and the Electronic and Online Services Schedule to this Agreement shall each comprise a designation of form of a means of delivering Instructions for purposes of this Section 4.2.

 
2

 

4.3            Completeness and Contents of Instructions. The Authorized Person shall be responsible for assuring the adequacy and accuracy of Instructions.  Particularly, upon any acquisition or disposition or other dealing in the Fund’s Investments and upon any delivery and transfer of any Investment or moneys, the person initiating such Instruction shall give the Custodian an Instruction with appropriate detail, including, without limitation:

 4.3.1  The transaction date and the date and location of settlement;

 4.3.2  The specification of the type of transaction;

 4.3.3  A description of the Investments or moneys in question, including, as appropriate, quantity, price per unit, amount of money to be received or delivered and currency information.  Where an Instruction is communicated by electronic means, or otherwise where an Instruction contains an identifying number such as a CUSIP, SEDOL or ISIN number, the Custodian shall be entitled to rely on such number as controlling notwithstanding any inconsistency contained in such Instruction, particularly with respect to the Investment description; and

 4.3.4 The name of the broker or similar entity concerned with execution of the transaction.

If the Custodian shall determine that an Instruction is either unclear or incomplete, the Custodian may give prompt notice of such determination to the Fund and/or the General Partner, and the Fund and/or the General Partner shall thereupon amend or otherwise reform such Instruction.  In such event, the Custodian shall have no obligation to take any action in response to the Instruction initially delivered until the redelivery of an amended or reformed Instruction.

4.4            Timeliness of Instructions.   In giving an Instruction, the Fund and/or the General Partner shall take into consideration delays which may occur due to the involvement of a Subcustodian or agent, differences in time zones, and other factors particular to a given market, exchange or issuer.  When the Custodian has established specific timing requirements or deadlines with respect to particular classes of Instruction, or when an Instruction is received by the Custodian at such a time that it could not reasonably be expected to have acted on such Instruction due to time zone differences or other factors beyond its reasonable control, the execution of any Instruction received by the Custodian after such deadline or at such time (including any modification or revocation of a previous Instruction) shall be at the risk of the Fund.

5.            Safekeeping of Fund Assets.   The Custodian shall hold Investments delivered to it or Subcustodians for the Fund in accordance with the provisions of this Section.   The Custodian shall not be responsible for (a) the safekeeping of Investments not delivered or that are not caused to be issued to it or its Subcustodians; (b) pre-existing faults or defects in Investments that are delivered to the Custodian or its Subcustodians; or (c) the safekeeping of Natural Gas Interests and Natural Gas Forward Contracts (each as defined in the Fund’s Prospectus).  The Custodian is hereby authorized to hold with itself or a Subcustodian, and to record in one or more accounts, all Investments delivered to and accepted by the Custodian, any Subcustodian or their respective agents pursuant to an Instruction or in consequence of any corporate action.  The Custodian shall hold Investments for the account of the Fund and shall segregate Investments from assets belonging to the Custodian and shall cause its Subcustodians to segregate Investments from assets belonging to the Subcustodian in an account held for the Fund or in an account maintained by the Subcustodian generally for non-proprietary assets of the Custodian.

 
3

 

5.1            Use of Securities Depositories. The Custodian may deposit and maintain Investments in any Securities Depository (as defined in Section 13), either directly or through one or more Subcustodians appointed by the Custodian.  Investments held in a Securities Depository shall be held (a) subject to the agreement, rules, statement of terms and conditions or other document or conditions effective between the Securities Depository and the Custodian or the Subcustodian, as the case may be, and (b) in an account for the Fund or in bulk segregation in an account maintained for the non-proprietary assets of the entity holding such Investments in the Securities Depository.  If market practice or the rules and regulations of the Securities Depository prevent the Custodian, the Subcustodian or any agent of either from holding its client assets in such a separate account, the Custodian, the Subcustodian or other agent shall as appropriate segregate such Investments for benefit of the Fund or for the benefit of clients of the Custodian generally on its own books.

5.2            Certificated Assets.   Investments which are certificated may be held in registered or bearer form: (a) in the Custodian’s vault; (b) in the vault of a Subcustodian or agent of the Custodian or a Subcustodian; or (c) in an account maintained by the Custodian, Subcustodian or agent at a Securities Depository; all in accordance with customary market practice in the jurisdiction in which any Investments are held.

5.3            Registered Assets .   Investments which are registered may be registered in the name of the Custodian, a Subcustodian, or in the name of the Fund or a nominee for any of the foregoing, and may be held in any manner set forth in Section 5.2 above with or without any identification of fiduciary capacity in such registration.

5.4            Book Entry Assets.   Investments which are represented by book-entry may be so held in an account maintained by the Book-entry Agent (as defined in Section 13) on behalf of the Custodian, a Subcustodian or another agent of the Custodian, or a Securities Depository.

5.5            Replacement of Lost Investments.   In the event of a loss of Investments for which the Custodian is responsible under the terms of this Agreement, the Custodian shall replace such Investment, or in the event that such replacement cannot be effected, the Custodian shall pay to the Fund the fair market value of such Investment based on the last available price as of the close of business in the relevant market on the date that a claim was first made to the Custodian with respect to such loss, or, if less, such other amount as shall be agreed by the parties as the date for settlement.

6.            Administrative Duties of the Custodian. The Custodian shall perform the following administrative duties with respect to Investments of the Fund.

 
4

 

6.1            Purchase of Investments. Pursuant to Instructions, Investments purchased for the account of the Fund shall be paid for (a) against delivery thereof to the Custodian or a Subcustodian, as the case may be, either directly or through a Clearing Corporation (as defined in Section 13) or a Securities Depository (in accordance with the rules of such Securities Depository or such Clearing Corporation), or (b) otherwise in accordance with an Instruction, Applicable Law, generally accepted trade practices, or the terms of the instrument representing such Investment.

6.2            Sale of Investments.   Pursuant to Instructions, Investments sold for the account of the Fund shall be delivered (a) against payment therefor in cash, by check or by bank wire transfer, (b) by credit to the account of the Custodian or the applicable Subcustodian, as the case may be, with a Clearing Corporation or a Securities Depository (in accordance with the rules of such Securities Depository or such Clearing Corporation), or (c) otherwise in accordance with an Instruction, Applicable Law, generally accepted trade practices, or the terms of the instrument representing such  Investment.

6.3            Delivery and Receipt in Connection with Borrowings of the Fund or other Collateral and Margin Requirements.   Pursuant to Instructions and subject to the last sentence in Section 6.4 below, the Custodian may deliver or receive Investments or cash of the Fund in connection with borrowings or loans by the Fund and other collateral and margin requirements.

6.4            Futures and Over-the-Counter (OTC) Contracts.   If, pursuant to an Instruction, the Custodian shall become a party to an agreement with the Fund and a futures commission merchant regarding margin or a counterparty to an OTC contract ( Tri-Party Agreement ), the Custodian shall (a) receive and retain, to the extent the same is provided to the Custodian, confirmations or other documents evidencing the purchase or sale by the Fund of exchange-traded futures contracts or the entering into of an option, forward or other derivatives transaction by the Fund; (b) when required by such Tri-Party Agreement, deposit and maintain in an account opened pursuant to such Agreement ( Margin Account ) segregated either physically or by book-entry in a Securities Depository for the benefit of any futures commission merchant, such Investments as the Fund shall have designated as initial, maintenance or variation “margin” deposits or other collateral intended to secure the Fund’s performance of its obligations under the terms of any exchange-traded futures contracts and commodity options; and (c) thereafter pay, release or transfer Investments into or out of the Margin Account in accordance with the provisions of such Tri-Party Agreement. Alternatively, the Custodian may deliver Investments, in accordance with an Instruction, to a futures commission merchant for margin purposes or to the counterparty or its custodian.  The Custodian shall in no event be responsible for the acts and omissions of any futures commission merchant or the counterparty or its custodian, to whom Investments are delivered pursuant to this Section; for the sufficiency of Investments held in any Margin Account; for funding margin deposits or otherwise providing Advances (as defined in Section 13) for the purpose of margin or other collateral in any Margin Account; or, for the performance of any terms of any exchange-traded futures contracts, commodity options, forward contracts and other derivative transactions.  In addition, the Custodian shall not be required to transfer margin or any other assets of the Fund to a Margin Account if at the time of such request, such transfer would reduce the aggregate market value of all unencumbered securities, cash, cash equivalents and other unencumbered liquid assets of the Fund in the custody of the Custodian to less than ten (10) percent of the then current net asset value of the Fund.

 
5

 

6.5            Contractual Obligations and Similar Investments.   From time to time, the Fund’s Investments may include Investments that are not ownership interests as may be represented by certificate (whether registered or bearer), by entry in a Securities Depository or by book entry agent, registrar or similar agent for recording ownership interests in the relevant Investment.  If the Fund shall at any time acquire such Investments, including without limitation deposit obligations, loan participations, repurchase agreements and derivative arrangements, the Custodian shall (a) receive and retain, to the extent the same are provided to the Custodian, confirmations or other documents evidencing the arrangement; and (b) perform on the Fund’s account in accordance with the terms of the applicable arrangement, but only to the extent directed to do so by an Instruction.   The Custodian shall have no responsibility for agreements running to the Fund as to which it is not a party other than to retain, to the extent the same are provided to the Custodian, documents or copies of documents evidencing the arrangement and, in accordance with an Instruction, to include such arrangements in reports made to the Fund.

6.6            Exchange of Securities.   Unless otherwise directed by an Instruction, the Custodian shall:  (a) exchange securities held for the account of the Fund for other securities in connection with any reorganization, recapitalization, conversion, split-up, change of par value of shares or similar event, and (b) deposit any such securities in accordance with the terms of any reorganization or protective plan.

6.7            Surrender of Securities.   Unless otherwise directed by an Instruction, the Custodian may surrender securities: (a) in temporary form for definitive securities; (b) for transfer into the name of an entity allowable under Section 5.3; and (c) for a different number of certificates or instruments representing the same number of shares or the same principal amount of indebtedness.

6.8            Rights, Warrants, Etc.   Pursuant to an Instruction, the Custodian shall (a) deliver warrants, puts, calls, rights or similar securities to the issuer or trustee thereof, or to any agent of such issuer or trustee, for purposes of exercising such rights or selling such securities, and (b) deposit securities in response to any invitation for the tender thereof.

6.9            Mandatory Corporate Actions.   Unless otherwise directed by an Instruction, the Custodian shall: (a) comply with the terms of all mandatory or compulsory exchanges, calls, tenders, redemptions or similar rights of securities ownership affecting securities held on the Fund’s account and promptly notify the Fund of such action, and (b) collect all stock dividends, rights and other items of like nature with respect to such securities.

6.10          Income Collection.   Unless otherwise directed by an Instruction, the Custodian shall collect any amount due and payable to the Fund with respect to Investments and promptly credit the amount collected to a Principal Account or an Agency Account (each defined in Section 13); provided, however, that the Custodian shall not be responsible for: (a) the collection of amounts due and payable with respect to Investments that are in default, or (b) the collection of cash or share entitlements with respect to Investments that are not  registered in the name of the Custodian or its Subcustodians.  The Custodian is hereby authorized to endorse and deliver any instrument required to be so endorsed and delivered to effect collection of any amount due and payable to the Fund with respect to Investments.

 
6

 

6.11          Ownership Certificates and Disclosure of the Fund’s Interest .   The Custodian is hereby authorized to execute on behalf of the Fund ownership certificates, affidavits or other disclosure required under Applicable Law or established market practice in connection with the receipt of income, capital gains or other payments by the Fund with respect to Investments, or in connection with the sale, purchase or ownership of Investments.

With respect to securities issued in the United States of America, the Custodian [   ] may [ X  ] may not release the identity of the Fund to an issuer which requests such information pursuant to the Shareholder Communications Act of 1985 for the specific purpose of direct communications between such issuer and the Fund.  IF NO BOX IS CHECKED, THE CUSTODIAN SHALL RELEASE SUCH INFORMATION UNTIL IT RECEIVES CONTRARY INSTRUCTIONS FROM THE FUND.  With respect to securities issued outside of the United States of America, information shall be released in accordance with law or custom of the particular country in which such security is located.

6.12          Proxy Materials. The Custodian shall deliver, or cause to be delivered, to the Fund proxy forms, notices of meeting, and any other notices or announcements materially affecting or relating to Investments received by the Custodian or any nominee.

6.13          Taxes. The Custodian shall, where applicable, assist the Fund in the reclamation of taxes withheld on dividends and interest payments received by the Fund.  In the performance of its duties with respect to tax withholding and reclamation, the Custodian shall be entitled to rely on the advice of counsel and upon information and advice regarding the Fund’s tax status that is received from or on behalf of the Fund without duty of separate inquiry.

6.14          Other Dealings.   The Custodian shall otherwise act as directed by Instructions, including without limitation effecting the free payments of moneys or the free delivery of securities, provided that such Instruction shall indicate the purpose of such payment or delivery and that the Custodian shall record the party to whom such payment or delivery is made.

The Custodian shall attend to all nondiscretionary details in connection with the sale or purchase or other administration of Investments, except as otherwise directed by an Instruction, and may make payments to itself or others for minor expenses of administering Investments under this Agreement; provided that the Fund shall have the right to request an accounting with respect to such expenses.

In fulfilling the duties set forth in Sections 6.6 through 6.10 above, the Custodian shall provide to the Fund all material information pertaining to a corporate action which the Custodian actually receives; provided that the Custodian shall not be responsible for the completeness or accuracy of such information. Information relative to any pending corporate action made available to the Fund via any of the services described in the Electronic and Online Services Schedule shall constitute the delivery of such information by the Custodian hereunder.  Any advance credit of cash or shares expected to be received as a result of any corporate action shall be subject to actual collection and may, when the Custodian deems collection unlikely, be reversed by the Custodian.

 
7

 

The Custodian may at any time or times in its discretion appoint (and may at any time remove) agents (other than Subcustodians) to carry out some or all of the administrative provisions of this Agreement ( Agents ), provided, however, that the appointment of such agent shall not relieve the Custodian of its administrative obligations under this Agreement.

7.            Cash Accounts, Deposits and Money Movements.   Subject to the terms and conditions set forth in this Section 7, the Fund and the General Partner each hereby authorizes the Custodian to open and maintain, with itself or with Subcustodians, cash accounts in United States Dollars, in such other currencies as are the currencies of the countries in which the Fund maintains Investments or in such other currencies as the Fund shall from time to time request by Instruction.

7.1            Types of Cash Accounts .   Cash accounts opened on the books of the Custodian ( Principal Accounts ) shall be opened in the name of the Fund.  Such accounts collectively shall be a deposit obligation of the Custodian and shall be subject to the terms of this Section 7 and the general liability provisions contained in Section 9.  Cash accounts opened on the books of a Subcustodian may be opened in the name of the Fund or the Custodian or in the name of the Custodian for its customers generally ( Agency Accounts ). Such deposits shall be obligations of the Subcustodian and shall be treated as an Investment of the Fund.  Accordingly, the Custodian shall be responsible for exercising reasonable care in the administration of such accounts but shall not be liable for their repayment in the event such Subcustodian, by reason of its bankruptcy, insolvency or otherwise, fails to make repayment.

7.2            Payments and Credits with Respect to the Cash Accounts .   The Custodian shall make payments from or deposits to any of said accounts in the course of carrying out its administrative duties, including but not limited to income collection with respect to the Fund’s Investments, and otherwise in accordance with Instructions.  The Custodian and its Subcustodians shall be required to credit amounts to the cash accounts only when moneys are actually received in cleared funds in accordance with banking practice in the country and currency of deposit.  Any credit made to any Principal or Agency Account before actual receipt of cleared funds shall be provisional and may be reversed by the Custodian in the event such payment is not actually collected. Unless otherwise specifically agreed in writing by the Custodian or any Subcustodian, all deposits shall be payable only at the branch of the Custodian or Subcustodian where the deposit is made or carried.

 
8

 

7.3            Currency and Related Risks.   The Fund and the General Partner each bears risks of holding or transacting in any currency, including any mark to market exposure associated with a foreign exchange transaction undertaken with the Custodian.   The Custodian shall not be liable for any loss or damage arising from the applicability of any law or regulation now or hereafter in effect, or from the occurrence of any event, which may delay or affect the transferability, convertibility or availability of any currency in the country (a) in which such Principal or Agency Accounts are maintained or (b) in which such currency is issued, and in no event shall the Custodian be obligated to make payment of a deposit denominated in a currency during the period during which its transferability, convertibility or availability has been affected by any such law, regulation or event.  Without limiting the generality of the foregoing, neither the Custodian nor any Subcustodian shall be required to repay any deposit made at a foreign branch of either the Custodian or Subcustodian if such branch cannot repay the deposit due to a cause for which the Custodian would not be responsible in accordance with the terms of Section 9 of this Agreement unless the Custodian or such Subcustodian expressly agrees in writing to repay the deposit under such circumstances.  All currency transactions in any account opened pursuant to this Agreement are subject to exchange control regulations of the United States and of the country where such currency is the lawful currency or where the account is maintained. Any taxes, costs, charges or fees imposed on the convertibility of a currency held by the Fund shall be for the account of the Fund.

7.4            Foreign Exchange Transactions . The Custodian shall, subject to the terms of this Section, settle foreign exchange transactions (including contracts, futures, options and options on futures) on behalf and for the account of the Fund with such currency brokers or banking institutions, including Subcustodians, as the Fund may direct pursuant to Instructions.  The Custodian may act as principal in  any foreign exchange transaction with the Fund in accordance with Section 7.4.2 of this Agreement.   The obligations of the Custodian in respect of all foreign exchange transactions (whether or not the Custodian shall act as principal in such transaction) shall be contingent on the free, unencumbered transferability of the currency transacted on the actual settlement date of the transaction.

 7.4.1   Third Party Foreign Exchange Transactions .   The Custodian shall process foreign exchange transactions (including without limitation contracts, futures, options, and options on futures), where any third party acts as principal counterparty to the Fund on the same basis it performs duties as agent for the Fund with respect to any other of the Fund’s Investments. Accordingly, the Custodian shall only be responsible for delivering or receiving currency on behalf of the Fund in respect of such contracts pursuant to Instructions. The Custodian shall not be responsible for the failure of any counterparty (including any Subcustodian) in such agency transaction to perform its obligations thereunder. The Custodian (a) shall transmit cash and Instructions to and from the currency broker or banking institution with which a foreign exchange contract or option has been executed pursuant hereto, (b) may make free outgoing payments of cash in the form of United States Dollars or foreign currency without receiving confirmation of a foreign exchange contract or option or confirmation that the countervalue currency completing the foreign exchange contract has been delivered or received or that the option has been delivered or received, and (c) shall hold all confirmations, certificates and other documents and agreements received by the Custodian and evidencing or relating to such foreign exchange transactions in safekeeping.  The Fund accepts full responsibility for its use of third-party foreign exchange dealers and for execution of said foreign exchange contracts and options and understands that the Fund shall be responsible for any and all costs and interest charges which may be incurred by the Fund or the Custodian as a result of the failure or delay of third parties to deliver foreign exchange.

 
9

 

 7.4.2   Foreign Exchange with the Custodian as Principal . The Custodian may as principal undertake foreign exchange transactions with the Fund as the Custodian and the Fund may agree from time to time.  In such event, the foreign exchange transaction will be performed in accordance with the particular agreement of the parties, or in the event a principal foreign exchange transaction is initiated by an Instruction in the absence of specific agreement, such transaction will be performed in accordance with the usual commercial terms of the Custodian.  In the event that the Fund defaults on the settlement of any such foreign exchange transaction with the Custodian, the Fund shall be liable for contracted currency of the transaction together with any mark to market exposure associated with the replacement purchase of the contracted currency undertaken with the Custodian.

7.5            Delays .   If no event of Force Majeure shall have occurred and be continuing and in the event that a delay shall have been caused by the negligence or willful misconduct of the Custodian in carrying out an Instruction to credit or transfer cash, the Custodian shall be liable to the Fund:  (a) with respect to Principal Accounts, for interest to be calculated at the rate customarily paid on such deposit and currency by the Custodian on overnight deposits at the time the delay occurs for the period from the day when the transfer should have been effected until the day it is in fact effected; and, (b) with respect to Agency Accounts, for interest to be calculated at the rate customarily paid on such deposit and currency by the Subcustodian on overnight deposits at the time the delay occurs for the period from the day when the transfer should have been effected until the day it is in fact effected. The Custodian shall not be liable for delays in carrying out such Instructions to transfer cash which are not due to the Custodian’s own negligence or willful misconduct.

7.6            Advances. If, for any reason in connection with this Agreement the Custodian or any Subcustodian makes an Advance to facilitate settlement or otherwise for the benefit of the Fund (whether or not any Principal or Agency Account shall be overdrawn either during, or at the end of, any Business Day (defined as any day other than a day on which the American Stock Exchange, the New York Mercantile Exchange or the New York Stock Exchange is closed for regular trading)), the Fund and the General Partner each hereby does:

 7.6.1  acknowledge that the Fund shall have no right, title or interest in or to any Investments purchased with such Advance or proceeds of such Investments, and that any credit to an account of Fund shall be provisional, until: (a) the debit of the Principal or Agency Account by Custodian for an amount equal to Advance Costs; and/or (b) if such debit produces an overdraft in such account, reimbursement to the Custodian or  Subcustodian for the amount of such overdraft;

 7.6.2  acknowledge that the Custodian has an automatically perfected statutory security interest in Investments purchased with any such Advance (as defined in Section 13) pursuant to Section 9-206 of the Uniform Commercial Code as in effect in the State of New York from time to time;

 
10

 

 7.6.3  in addition, in order to secure the obligations of the Fund to pay or perform any and all obligations of the Fund pursuant to this Agreement, including without limitation to repay any Advance made pursuant to this Agreement, grant to the Custodian a security interest in all Investments and proceeds thereof (as defined in the Uniform Commercial Code as currently in effect in the State of New York); and agree to take, and agree that the Custodian may take, in respect of the security interest referenced above, any further actions that the Custodian may reasonably require.

7.7            Custodian’s Rights   Neither the Custodian nor any Subcustodian shall be obligated to make any Advance or to allow an Advance to occur to the Fund, and in the event that the Custodian or any Subcustodian does make or allow an Advance, any such Advance and any transaction giving rise to such Advance shall be for the account and risk of the Fund and shall not be deemed to be a transaction undertaken by the Custodian for its own account and risk.  If such Advance shall have been made or allowed by a Subcustodian or any other person, the Custodian may assign all or part of its security interest referenced above and any other rights granted to the Custodian hereunder to such Subcustodian or other person.  If the Fund shall fail to repay the Advance Costs when due, the Custodian or its assignee, as the case may be, shall be entitled to a portion of the available cash balance in any Agency or Principal Account equal to such Advance Costs, and the Fund authorizes the Custodian, on behalf of the Fund, to pay an amount equal to such Advance Costs irrevocably to such Subcustodian or other person, and to dispose of any property in such Account to the extent necessary to make such payment.  Any Investments and funds credited to accounts subject to this Agreement created pursuant hereto shall be treated as financial assets credited to securities accounts under Articles 8 and 9 of the Uniform Commercial Code as in effect in the State of New York from time to time.  Accordingly, the Custodian and any Subcustodian shall have the rights and benefits of a secured creditor that is a securities intermediary under such Articles 8 and 9.

7.8            Integrated Account .   For purposes hereof, deposits maintained in all Principal Accounts (whether or not denominated in United States Dollars) shall collectively constitute a single and indivisible current account with respect to the Fund’s obligations to the Custodian or its assignee, and balances in the Principal Accounts shall be available for satisfaction of the Fund’s obligations under this Section 7.  The Custodian shall further have a right of offset against the balances in any Agency Account maintained hereunder to the extent that the aggregate of all Principal Accounts is overdrawn.

8.            Subcustodians and Securities Depositories.   Subject to the provisions hereinafter set forth in this Section 8, the Fund and the General Partner each hereby authorizes the Custodian to utilize Securities Depositories to act on behalf of the Fund and to appoint from time to time and to utilize Subcustodians. With respect to securities and funds held by a Subcustodian, either directly or indirectly (including by a Securities Depository or Clearing Corporation), notwithstanding any provisions of this Agreement to the contrary, payment for securities purchased and delivery of securities sold may be made prior to receipt of securities or payment, respectively, and securities or payment may be received in a form, in accordance with (a) governmental regulations, (b) rules of Securities Depositories and the Clearing Corporations, (c) generally accepted trade practice in the applicable local market, (d) the terms and characteristics of the particular Investment, or (e) the terms of the Instructions.

 
11

 

8.1            Domestic Subcustodians and Securities Depositories .   The Custodian may deposit and/or maintain, either directly or through one or more agents appointed by the Custodian, Investments of the Fund in any Securities Depository in the United States of America, including The Depository Trust Company, provided such Securities Depository meets applicable requirements of the Federal Reserve Bank or of the Securities and Exchange Commission. The Custodian may, at any time and from time to time, appoint any bank meeting the requirements of a custodian and the rules and regulations thereunder, to act on behalf of the Fund as a Subcustodian for purposes of holding Investments of the Fund in the United States.

8.2            Responsibility for Subcustodians .   The Custodian shall be liable to the Fund for any loss or damage to the Fund caused by or resulting from the acts or omissions of any domestic Subcustodian to the extent that such acts or omissions would be deemed to be negligence, gross negligence or willful misconduct in accordance with the terms of the relevant subcustodian agreement under the laws, circumstances and practices prevailing in the place where the act or omission occurred.

9.            Responsibility of the Custodian.   In performing its duties and obligations hereunder, the Custodian shall use reasonable care under the facts and circumstances prevailing in the market where performance is effected.  Subject to the specific provisions of this Section, the Custodian shall be liable for any direct damage incurred by the Fund in consequence of the Custodian’s negligence, bad faith or willful misconduct.  In no event shall the Custodian be liable hereunder for any special, indirect, punitive or consequential damages arising out of, pursuant to or in connection with this Agreement even if the Custodian has been advised of the possibility of such damages.  It is agreed that the Custodian shall have no duty to assess the risks inherent in the Fund’s Investments or to provide investment advice with respect to such Investments and that the Fund as principal shall bear any risks attendant to particular Investments such as failure of a counterparty or issuer.

9.1            Limitations of Performance .   The Custodian shall not be responsible under this Agreement for any failure to perform its duties, and shall not be liable hereunder for any loss or damage in association with such failure to perform, for or in consequence of the following causes:

 9.1.1 Force Majeure.   Force Majeure shall mean any circumstance or event which is beyond the reasonable control of the Custodian, a Subcustodian or any agent of the Custodian or a Subcustodian and which adversely affects the performance by the Custodian of its obligations hereunder, by the Subcustodian of its obligations under its Subcustody Agreement or by any other agent of the Custodian or the Subcustodian, including any event caused by, arising out of or involving (a) an act of God, (b) accident, fire, water damage or explosion, (c) any computer, system or other equipment failure or malfunction caused by any computer virus or the malfunction or failure of any communications medium, (d) any interruption of the power supply or other utility service, (e) any strike or other work stoppage, whether partial or total, (f) any delay or disruption resulting from or reflecting the occurrence of any Sovereign Risk, (g) any disruption of, or suspension of trading in, the securities, commodities or foreign exchange markets, whether or not resulting from or reflecting the occurrence of any Sovereign Risk, (h) any encumbrance on the transferability of a currency or a currency position on the actual settlement date of a foreign exchange transaction, whether or not resulting from or reflecting the occurrence of any Sovereign Risk, or (i) any other cause similarly beyond the reasonable control of the Custodian.

 
12

 

 9.1.2   Sovereign Risk.   Sovereign Risk shall mean, in respect of any jurisdiction, including the United States of America, where Investments are acquired or held hereunder or under a subcustody agreement, (a) any act of war, terrorism, riot, insurrection or civil commotion, (b) the imposition of any investment, repatriation or exchange control restrictions by any Governmental Authority, (c) the confiscation, expropriation or nationalization of any Investments by any Governmental Authority, whether de facto or de jure, (d) any devaluation or revaluation of the currency, (e) the imposition of taxes, levies or other charges affecting Investments, (f) any change in the Applicable Law, or (g) any other economic or political risk incurred or experienced.

9.2            Limitations on Liability.   The Custodian shall not be liable for any loss, claim, damage or other liability arising from the following causes:

 9.2.1 Failure of Third Parties.   The failure of any third party including:  (a) the General Partner; (b) any futures commission merchant(s); (c) any issuer of Investments or book-entry or other agent of and issuer; (d) any counterparty with respect to any Investment, including any issuer of exchange-traded or other futures, option, derivative or commodities contract; (e) failure of an Investment Advisor or other agent of the Fund; or (f) failure of other third parties similarly beyond the control or choice of the Custodian.

 9.2.2   Information Sources.   The Custodian may rely upon information received from issuers of Investments or agents of such issuers, information received from Subcustodians and from other commercially reasonable sources such as commercial data bases and the like, but shall not be responsible for specific inaccuracies in such  information, provided that the Custodian has relied upon such information in good faith, or for the failure of any commercially reasonable information provider.

 9.2.3  Reliance on Instruction .   Action by the Custodian or the Subcustodian in accordance with an Instruction, even when such action conflicts with, or is contrary to any provision of, the Fund’s or the General Partner’s limited partnership agreement, certificate of incorporation or by-laws, Applicable Law, or actions by the directors or unitholders of the Fund or the General Partner.

9.2.4   Restricted Securities.    The limitations inherent in the rights, transferability or similar investment characteristics of a given Investment of the Fund.

10.          Indemnification.

10.1         The Fund and the General Partner each hereby indemnifies the Custodian and each Subcustodian, and their respective agents, nominees and the partners, employees, officers and directors, and agrees to hold each of them harmless from and against all claims and liabilities, including counsel fees and taxes, reasonably incurred or assessed against any of them in connection with the performance of this Agreement and any Instruction.

 
13

 

10.2         The Custodian hereby indemnifies the Fund and the General Partner, and their respective agents, nominees and the partners, employees, officers and directors, and agrees to hold each of them harmless from and against all claims and liabilities, including counsel fees and taxes, reasonably incurred or assessed against any of them as a direct result of the Custodian’s negligence, willful misconduct or bad faith in its performance of this Agreement and any Instruction.

11.          Reports and Records.   The Custodian shall:

11.1         create and maintain records relating to the performance of its obligations under this Agreement;

11.2         make available to the Fund and/or the General Partner, its auditors, agents and employees, upon reasonable request and during normal business hours of the Custodian, all records maintained by the Custodian pursuant to Section 11.1 above, subject, however, to all reasonable security requirements of the Custodian then applicable to the records of its custody customers generally; and

11.3         make available to the Fund all Electronic Reports (as defined in Section 13); it being understood that the Custodian shall not be liable hereunder for the inaccuracy or incompleteness thereof or for errors in any information included therein.

The Fund and the General Partner shall examine all records, howsoever produced or transmitted, promptly upon receipt thereof and notify the Custodian promptly of any discrepancy or error therein.  Unless the Fund or the General Partner delivers written notice of any such discrepancy or error within a reasonable time after its receipt thereof, such records shall be deemed to be true and accurate.   It is understood that the Custodian now obtains and will in the future obtain information on the value of assets from outside sources which may be utilized in certain reports made available to the Fund and the General Partner. The Custodian deems such sources to be reliable but it is acknowledged and agreed that the Custodian does not verify nor represent nor warrant as to the accuracy or completeness of such information and accordingly shall be without liability in selecting and using such sources and furnishing such information.

12.          Miscellaneous.

12.1          Proxies, etc.   The Fund and/or the General Partner will promptly execute and deliver, upon request, such proxies, powers of attorney or other instruments as may be necessary or desirable for the Custodian to provide, or to cause any Subcustodian to provide, custody services.


 
14

 

12.2          Entire Agreement.  This Agreement (including any schedules and exhibits attached hereto and thereto) contains all of the agreements among the parties hereto and thereto with respect to the transactions contemplated hereby and thereby and supersedes all prior agreements or understandings, whether written or oral, among the parties with respect thereto.

12.3          Amendment and Modification . This Agreement may be amended, modified or supplemented only by a written instrument executed by all parties hereto.

12.4          Successors and Assigns; Assignment. All the terms and provisions of this Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. This Agreement shall not be assigned by any party without the prior written consent of the other parties and any assignment without such consent shall be null and void.

12.5          Waiver of Compliance. Except as otherwise provided in this Agreement, any failure of any of the parties to comply with any obligation, covenant, agreement or condition herein may be waived by the party entitled to the benefits thereof only by a written instrument signed by the party granting such waiver, but any such waiver, or the failure to insist upon strict compliance with any obligation, covenant, agreement or condition herein, shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure or breach.

12.6          Severability . The parties hereto desire that the provisions of this Agreement be enforced to the fullest extent permissible under the law and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, in the event that any provision of this Agreement would be held in any jurisdiction to be invalid, prohibited or unenforceable for any reason, such provision, as to such jurisdiction, shall be ineffective, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. Notwithstanding the foregoing, if such provision could be more narrowly drawn so as not to be invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.

12.7          Notices . All notices, waivers, or other communications pursuant to this Agreement shall be in writing and shall be deemed to be sufficient if delivered personally, by facsimile (and, if sent by facsimile, followed by delivery by nationally-recognized express courier), sent by nationally-recognized express courier or mailed by registered or certified mail (return receipt requested), postage prepaid, to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):

(1)
if to General Partner, to:
 
Victoria Bay Asset Management, LLC
 
c/o Nicholas D. Gerber
 
P.O. Box 6919
 
Moraga, CA  94570

 
15

 

(2)
if to the Custodian, to:
 
Brown Brothers Harriman & Co.
 
40 Water Street
 
Boston, Massachusetts 02109
 
Attn:  Manager, Securities Department
 
Telephone:      (617) 772-1818
 
Facsimile:       (617) 772-2263,

or such other address as the Fund or the Custodian may have designated in writing to the other.

All such notices and other communications shall be deemed to have been delivered and received (i) in the case of personal delivery or delivery by a nationally-recognized express courier, on the date of such delivery if delivered during business hours on a Business Day or, if not delivered during business hours on a Business Day, the first Business Day thereafter, and (ii) in the case of mailing or delivery by facsimile, upon receipt by the intended party.

12.8          Governing Law; Jurisdiction.

 12.8.1  All questions concerning the construction, interpretation and validity of this Agreement shall be governed by and construed and enforced in accordance with the domestic laws of the State of New York, without giving effect to any choice or conflict of law provision or rule (whether in the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York. In furtherance of the foregoing, the internal law of the State of New York will control the interpretation and construction of this Agreement, even if under such jurisdiction’s choice of law or conflict of law analysis, the substantive law of some other jurisdiction would ordinarily or necessarily apply.

 12.8.2  Each party irrevocably consents and agrees, for the benefit of the other parties, that any legal action, suit or proceeding against it with respect to its obligations, liabilities or any other matter arising out of or in connection with this Agreement or any related agreement may be brought in the courts of the State of New York and hereby irrevocably consents and submits to the non-exclusive jurisdiction of each such court in personam, generally and unconditionally with respect to any action, suit or proceeding for itself and in respect of its properties, assets and revenues. Each party irrevocably waives any immunity to jurisdiction to which it may otherwise be entitled or become entitled (including sovereign immunity, immunity to pre-judgment attachment and execution) in any legal suit, action or proceeding against it arising out of or based on this Agreement or any related agreement or the transactions contemplated hereby or thereby which is instituted in any court of the State of New York.

The provisions of this Section 12.8 shall survive any termination of this Agreement, in whole or in part.

12.9          No Partnership .  The Custodian acts as an independent contractor with respect to the services provided under this Agreement.  The terms and conditions of this Agreement do not create a partnership relationship between the Custodian and the General Partner or between the Custodian and the Fund.  Each of the General Partner and the Fund acknowledges that the Custodian may enter into similar agreements with others without the consent of the General Partner or the Fund.

 
16

 

12.10        Interpretation . The article and section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not in any way affect the meaning or interpretation of this Agreement.

12.11        No Strict Construction . The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction will be applied against any party.

12.12        Counterparts; Facsimile Signatures . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.  Facsimile counterpart signatures to this Agreement shall be acceptable and binding.

12.13        Other Usages . The following usages shall apply in interpreting this Agreement: (i) references to a governmental or quasi-governmental agency, authority or instrumentality shall also refer to a regulatory body that succeeds to the functions of such agency, authority or instrumentality; and (ii) “including” means “including, but not limited to.”

12.14        Confidentiality .  The parties hereto agree that each shall treat confidentially the terms and conditions of this Agreement and all information provided by each party to the other regarding its business and operations.  All confidential information provided by a party hereto shall be used by the other party hereto solely for the purpose of rendering or obtaining services pursuant to this Agreement and, except as may be required in carrying out this Agreement, shall not be disclosed to any third party without the prior consent of such providing party.  The foregoing shall not apply to any information that is publicly available when provided or thereafter becomes publicly available other than through a breach of this Agreement, or that is required to be disclosed by or to any bank examiner of the Custodian or any Subcustodian, any Regulatory Authority, any auditor of the parties hereto, or by judicial or administrative process or otherwise by Applicable Law.

12.15        Counsel .  In fulfilling its duties hereunder, the Custodian shall be entitled to receive and act upon the advice of (i) counsel regularly retained by the Custodian in respect of such matters, (ii) counsel for the Fund or (iii) such counsel as the Fund, the General Partner and the Custodian may agree upon, with respect to all matters.  The Custodian shall not be considered to have engaged in any misconduct or to have acted negligently when soliciting and following such advice.

12.16        Conflict .  Nothing contained in this Agreement shall prevent the Custodian and its associates from (i) dealing as a principal or an intermediary in the sale, purchase or loan of the Fund’s Investments to, or from the Custodian or its associates; (ii) acting as a custodian, a subcustodian, a trustee, an agent, securities dealer, an investment manager or in any other capacity for any other client; or (iii) buying, holding, lending, and dealing in any way in any assets for the benefit of its own account, for the account of any other client, or for the account of the Fund.

 
17

 

12.17        Privacy .  In the course of carrying out its obligations under this Agreement, each party shall maintain physical, procedural and/or electronic safeguards reasonably designed to protect information regarding the Fund and its investors that such party has obtained or to which such party has gained access.

13.          Definitions.   The following defined terms will have the respective meanings set forth below.

13.1         Advance(s) shall mean any extension of credit by or through the Custodian or by or through any Subcustodian and shall include, without limitation, amounts due to the Custodian as the principal counterparty to any foreign exchange transaction with the Fund as described in Section 7.4.2 hereof, or paid to third parties for account of the Fund or in discharge of any expense, tax or other item payable by the Fund.

13.2          Advance Costs shall mean any Advance, interest on the Advance and any related expenses, including without limitation any mark to market loss of the Custodian or Subcustodian on any Investment to which Section 7.6.1 applies.

13.3         Agency Account(s) shall mean any deposit account opened on the books of a Subcustodian or other banking institution in accordance with Section 7.1.

13.4          Agent(s) shall have the meaning set forth in the last sentence of Section 6.

13.5          Applicable Law shall mean with respect to each jurisdiction, all (a) laws, statutes, treaties, regulations, guidelines (or their equivalents); (b) orders, interpretations, licenses and permits; and (c) judgments, decrees, injunctions, writs, orders and similar actions by a court of competent jurisdiction; compliance with which is required or customarily observed in such jurisdiction.

13.6          Authorized Person(s) shall mean any person or entity authorized to give Instructions on behalf of the Fund and/or the General Partner in accordance with Section 4.1.

13.7          Book-entry Agent shall mean an entity acting as agent for the issuer of Investments for purposes of recording ownership or similar entitlement to Investments, including without limitation a transfer agent or registrar.

13.8           Business Day shall have the meaning set forth in Section 7.6 hereof.

13.9        Clearing Corporation shall mean any entity or system established for purposes of providing securities settlement and movement and associated  functions for a given market.

13.10      Electronic and Online Services Schedule shall mean any separate agreement entered into among the Custodian, the General Partner and the Fund or its authorized representative with respect to certain matters concerning certain electronic and online services as described therein and as may be made available from time to time by the Custodian to the Fund.

 
18

 

13.11        Electronic Reports shall mean any reports prepared by the Custodian and remitted to the Fund, the General Partner or its authorized representative via the internet or electronic mail.

13.12        Funds Transfer Services Schedule shall mean any separate agreement entered into among the Custodian, the General Partner and the Fund or its authorized representative with respect to certain matters concerning the processing of payment orders from Principal Accounts of the Fund.

13.13        Instruction(s) shall have the meaning assigned in Section 4.

13.14        Investment Advisor shall mean any person or entity who is an Authorized Person to give Instructions with respect to the investment and reinvestment of the Fund’s Investments.

13.15        Investment(s) shall mean any investment asset of the Fund issued in the United States of America, including without limitation: securities, bonds, notes, and debentures as well as receivables, derivatives, contractual rights or entitlements and other intangible assets, but excluding Natural Gas Forward Contracts and Natural Gas Interests (each as defined in the Fund’s prospectus).

13.16        Margin Account shall have the meaning set forth in Section 6.4 hereof.

13.17        Principal Account(s) shall mean deposit accounts of the Fund carried on the books of BBH&Co. as principal in accordance with Section 7.

13.18        Safekeeping Account shall mean an account established on the books of the Custodian or any Subcustodian for purposes of segregating the interests of the Fund (or clients of the Custodian or Subcustodian) from the assets of the Custodian or any Subcustodian.

13.19        Securities Depository shall mean a central or book entry system or agency established under Applicable Law for purposes of recording the ownership and/or entitlement to investment securities for a given market.

13.20        Subcustodian(s) shall mean each bank appointed by the Custodian pursuant to Section 8 hereof, but shall not include Securities Depositories.

13.21        Tri-Party Agreement shall have the meaning set forth in Section 6.4 hereof.

14.          Compensation.   The Fund and the General Partner agree to pay to the Custodian (a) a fee in an amount set forth in the fee letter among the Fund, the General Partner and the Custodian in effect on the date hereof or as amended from time to time, and (b) all reasonable out-of-pocket expenses incurred by the Custodian, including the fees and expenses of all Subcustodians, and payable from time to time.  Amounts payable by the Fund under and pursuant to this Section 14 shall be payable by wire transfer to the Custodian at BBH&Co. in New York, New York.

 
19

 

15.          Termination.   This Agreement may be terminated by either party in accordance with the provisions of this Section.  The provisions of this Agreement and any other rights or obligations incurred or accrued by any party hereto prior to termination of this Agreement shall survive any termination of this Agreement.

15.1          Term, Notice and Effect .  This Agreement shall have an initial term of two (2) years from the date hereof.  Thereafter, this Agreement shall automatically renew for successive one (1) year periods unless either party terminates this Agreement by written notice effective no sooner than seventy-five (75) days following the date that notice to such effect shall be delivered to the other party at its address set forth in Section 12.5 hereof.  Notwithstanding the foregoing provisions, either party may terminate this Agreement at any time upon thirty (30) calendar days’ written notice to the other party in the event that the either party is adjudged bankrupt or insolvent, or there shall be commenced against such party a case under any applicable bankruptcy, insolvency, or other similar law now or hereafter in effect.

15.2          Successor Custodian .   In the event of the appointment of a successor custodian, it is agreed that the Investments of the fund held by the Custodian or any Subcustodian shall be delivered to the successor Custodian in accordance with reasonable Instructions.  The Custodian agrees to cooperate with the Fund in the execution of documents and performance of other actions necessary or desirable in order to facilitate the succession of the new custodian.  If no successor custodian shall be appointed, the Custodian shall in like manner transfer the Fund’s Investments in accordance with Instructions.

15.3          Delayed Succession.   If no Instruction has been given as of the effective date of termination, the Custodian may at any time on or after such termination date and upon ten (10) consecutive calendar days written notice to the Fund and the General Partner either (a) deliver the Investments of the Fund held hereunder to the Fund at the address designated for receipt of notices hereunder; or (b) deliver any Investments held hereunder to a bank or trust company having a capitalization of $50,000,000 equivalent and operating under the Applicable Law of the jurisdiction where such Investments are located, such delivery to be at the risk of the Fund.  In the event that Investments or moneys of the Fund remain in the custody of the Custodian or its Subcustodians after the date of termination owing to the failure of the Fund to issue Instructions with respect to their disposition or owing to the fact that such disposition could not be accomplished in accordance with such Instructions despite diligent efforts of the Custodian, the Custodian shall be entitled to compensation for its services with respect to such Investments and moneys during such period as the Custodian or its Subcustodians retain possession of such items  and the provisions of this Agreement shall remain in full force and effect until disposition in accordance with this Section is accomplished.

 
20

 

The undersigned acknowledges that (I/we) have received a copy of this document.

IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed as of the date first above written.

BROWN BROTHERS HARRIMAN & CO.

By:
/s/ F. Meade Reynolds
Name:  F. Meade Reynolds
Title: Managing Director
Date: 2/27/07

UNITED STATES NATURAL GAS FUND, LP
 
By:  Victoria Bay Asset Management, LLC, as General Partner
   
By:
/s/ Nicholas Gerber
Name:  Nicholas Gerber
Title: Director
Date: March 5, 2007
   
VICTORIA BAY ASSET MANAGEMENT, LLC
   
By:
/s/ Nicholas Gerber
Name:  Nicholas Gerber
Title: Director
Date: March 5, 2007

 
21

 

FUNDS TRANSFER SERVICES SCHEDULE

1.            Execution of Payment Orders .  Brown Brothers Harriman & Co. (the Custodian) is hereby instructed by United States Natural Gas Fund, LP (the Fund) and Victoria Bay Asset Management, LLC (the General Partner) to execute each payment order, whether denominated in United States Dollars or other applicable currencies, received by the Custodian in the Fund’s name as sender and authorized and confirmed by an Authorized Person as defined in a Custodian Agreement dated as of March 5, 2007, by and among the Custodian, the General Partner and the Fund, as amended or restated from time thereafter (the Agreement), provided that the Fund has sufficient available funds on deposit in a Principal Account as defined in the Agreement and provided that the order (i) is received by the Custodian in the manner specified in this Funds Transfer Services Schedule or any amendment hereafter; (ii) complies with any written instructions and restrictions of the Fund as set forth in this Funds Transfer Services Schedule or any amendment hereafter; (iii) is authorized by the Fund or is verified by the Custodian in compliance with a security procedure set forth in Paragraph 2 below for verifying the authenticity of a funds transfer communication sent to the Custodian in the name of the Fund or for the detection of errors set forth in any such communication; and (iv) contains sufficient data to enable the Custodian to process such transfer.

2.            Security Procedure .  The Fund and the General Partner hereby elect to use the procedure selected below as its security procedure (the Security Procedure). The Security Procedure will be used by the Custodian to verify the authenticity of a payment order or a communication amending or canceling a payment order. The Custodian will act on instructions received provided the instruction is authenticated by the Security Procedure. The Fund and the General Partner agree and acknowledge in connection with (i) the size, type and frequency of payment orders normally issued or expected to be issued by the Fund to the Custodian, (ii) all of the security procedures offered to the Fund and the General Partner by the Custodian, and (iii) the usual security procedures used by customers and receiving banks similarly situated, that authentication through the Security Procedure shall be deemed commercially reasonable for the authentication of all payment orders submitted to the Custodian.   The Fund and the General Partner hereby elect (please choose one) the following Security Procedure as described below:

¨
BIDS and BIDS Worldview Payment Products .  BIDS and BIDS Worldview Payment Products, are on-line payment order authorization facilities with built-in authentication procedures. The Custodian, the General Partner and the Fund shall each be responsible for maintaining the confidentiality of passwords or other codes to be used by them in connection with BIDS. The Custodian will act on instructions received through BIDS without duty of further confirmation unless the Fund and/or the General Partner notifies the Custodian that its password is not secure.

x
SWIFT . The Custodian, the General Partner and the Fund shall comply with SWIFT’s authentication procedures. The Custodian will act on instructions received via SWIFT provided the instruction is authenticated by the SWIFT system.

 
22

 

¨
Tested Telex .  The Custodian will accept payment orders sent by tested telex, provided the test key matches the algorithmic key the Custodian, the General Partner and Fund have agreed to use.

 
¨
C omputer Transmission .  The Custodian is able to accept transmissions sent from the Fund’s and/or the General Partner’s computer facilities to the Custodian’s computer facilities provided such transmissions are encrypted and digitally certified or are otherwise authenticated in a reasonable manner based on available technology.  Such procedures shall be established in an operating protocol among the Custodian, the General Partner and the Fund.

 
¨
Telefax Instructions . A payment order transmitted to the Custodian by telefax transmission shall be transmitted by the Fund and/or the General Partner to a telephone number specified from time to time by the Custodian for such purposes.  If it detects no discrepancies, the Custodian will then either:

 
1.
if the telefax requests a repetitive payment order, the Custodian may call the Fund and/or the General Partner at its last known telephone number, request to speak to the Fund, the General Partner or Authorized Person, and confirm the authorization and details of the payment order (a Callback); or

 
2.
if the telefax requests a non-repetitive order, the Custodian will perform a Callback.

All faxes must be accompanied by a fax cover sheet which indicates the sender’s name, Fund name, telephone number, fax number, number of pages, and number of transactions or instructions attached.

¨   Telephonic . A telephonic payment order shall be called into the Custodian at the telephone number designated from time to time by the Custodian for that purpose. The caller shall identify herself/himself as an Authorized Person.  The Custodian shall obtain the payment order data from the caller.  The Custodian shall then:

 
1.
if a telephonic repetitive payment order, the Custodian may perform a Callback; or

 
2.
if a telephonic non-repetitive payment order, the Custodian will perform a Callback.

In the event the Fund and the General Partner choose a procedure which is not a Security Procedure as described above, the Fund and the General Partner agree to be bound by any payment order (whether or not authorized) issued in their name and accepted by the Custodian in compliance with the procedure selected by the Fund and the General Partner.

 
23

 

3.            Rejection of Payment Orders .  The Custodian shall give the Fund and the General Partner timely notice of the Custodian’s rejection of a payment order. Such notice may be given in writing or orally by telephone, each of which is hereby deemed commercially reasonable.  In the event the Custodian fails to execute a properly executable payment order and fails to give the Fund and/or the General Partner notice of the Custodian’s non-execution, the Custodian shall be liable only for the Fund’s actual damages and only to the extent that such damages are recoverable under UCC 4A (as defined in Paragraph 7 below).  Notwithstanding anything in this Funds Transfer Services Schedule and the Agreement to the contrary, the Custodian shall in no event be liable for any consequential or special damages under this Funds Transfer Services Schedule, whether or not such damages relate to services covered by UCC 4A, even if the Custodian has been advised of the possibility of such damages. Whenever compensation in the form of interest is payable by the Custodian to the Fund pursuant to this Funds Transfer Services Schedule, such compensation will be payable in accordance with UCC 4A.

4.            Cancellation of Payment Orders .  The Fund or the General Partner may cancel a payment order but the Custodian shall have no liability for the Custodian’s failure to act on a cancellation instruction unless the Custodian has received such cancellation instruction at a time and in a manner affording the Custodian reasonable opportunity to act prior to the Custodian’s execution of the order.  Any cancellation shall be sent and confirmed in the manner set forth in Paragraph 2 above.

5.            Responsibility for the Detection of Errors and Unauthorized Payment Orders .  Except as may be provided in the Agreement, the Custodian is not responsible for detecting any Fund or General Partner error contained in any payment order sent by the Fund or the General Partner to the Custodian. In the event that the Fund’s or the General Partner’s payment order to the Custodian either (i) identifies the beneficiary by both a name and an identifying or bank account number and the name and number identify different persons or entities, or (ii) identifies any bank by both a name and an identifying number and the number identifies a person or entity different from the bank identified by name, execution of the payment order, payment to the beneficiary, cancellation of the payment order or actions taken by any bank in respect of such payment order may be made solely on the basis of the number. The Custodian shall not be liable for interest on the amount of any payment order that was not authorized or was erroneously executed unless the Fund and/or the General Partner so notifies the Custodian within thirty (30) Business Days following the Fund’s and/or the General Partner’s receipt of notice that such payment order had been processed.  If a payment order in the name of the Fund and accepted by the Custodian was not authorized by the Fund or the General Partner, the liability of the parties will be governed by the applicable provisions of UCC 4A.

6.            Laws and Regulations .   The rights and obligations of the Custodian, the General Partner and the Fund with respect to any payment order executed pursuant to this Funds Transfer Services Schedule will be governed by any applicable laws, regulations, circulars and funds transfer system rules, the laws and regulations of the United States of America and of other relevant countries including exchange control regulations and limitations on dealings or other sanctions, and including without limitation those sanctions imposed under the law of the United States of America by the Office of Foreign Assets Control.  Any taxes, fines, costs, charges or fees imposed by relevant authorities on such transactions shall be for the account of the Fund.

 
24

 

7.            Miscellaneous .   All accounts opened by the Fund, the General Partner or its authorized agents at the Custodian subsequent to the date hereof shall be governed by this Funds Transfer Schedule.  All terms used in this Funds Transfer Services Schedule shall have the meaning set forth in Article 4A of the Uniform Commercial Code as currently in effect in the State of New York (UCC 4A) unless otherwise set forth herein. The terms and conditions of this Funds Transfer Services Schedule are in addition to, and do not modify or otherwise affect, the terms and conditions of the Agreement and any other agreement or arrangement between the parties hereto.

8.            Indemnification .  The Custodian does not recommend the sending of instructions by telefax or telephonic means as provided in Paragraph 2.   BY ELECTING TO SEND INSTRUCTIONS BY TELEFAX OR TELEPHONIC MEANS, THE FUND AND THE GENERAL PARTNER AGREE TO INDEMNIFY THE CUSTODIAN AND ITS PARTNERS, OFFICERS AND EMPLOYEES FOR LOSSES THEREFROM .
 


OPTIONAL :  The Custodian will perform a Callback if instructions are sent by telefax or telephonic means as provided in Paragraph 2. THE FUND AND/OR THE GENERAL PARTNER MAY, AT ITS OWN RISK AND BY HEREBY AGREEING TO INDEMNIFY THE CUSTODIAN AND ITS PARTNERS, OFFICERS AND EMPLOYEES FOR ALL LOSSES THEREFROM, ELECT TO WAIVE A CALLBACK BY THE CUSTODIAN BY INITIALING HERE:               
 


 
25

 

The undersigned acknowledges that (I/we) have received a copy of this document.

Accepted and agreed:

BROWN BROTHERS HARRIMAN & CO.
 
By:
/s/ F. Meade Reynolds
Name:  F. Meade Reynolds
Title: Managing Director
Date: 2/27/07
 
UNITED STATES NATURAL GAS FUND, LP
 
By:  Victoria Bay Asset Management, LLC, as General Partner
   
By:
/s/ Nicholas Gerber
Name:  Nicholas Gerber
Title: Director
Date: March 5, 2007
   
VICTORIA BAY ASSET MANAGEMENT, LLC
   
By:
/s/ Nicholas Gerber
Name:  Nicholas Gerber
Title: Director
Date: March 5, 2007
Date:

 
26

 

ELECTRONIC AND ON-LINE SERVICES SCHEDULE

This Electronic and On-Line Services Schedule (this Schedule ) to a Custodian Agreement dated as of March 5, 2007 (as amended from time to time hereafter, the Agreement ) by and among Brown Brothers Harriman & Co. ( we, us our ), Victoria Bay Asset Management, LLC (the General Partner )  and United States Natural Gas Fund, LP (the Fund ) (the General Partner and the Fund collectively, you, your ), provides general provisions governing your use of and access to the Services (as hereinafter defined) provided to you by us via the Internet (at www.bbhco.com or such other URL as we may instruct you to use to access our products ) and via a direct dial-up connection between your computer and our computers, as of March 5, 2007 (the Effective Date).   Use of the Services constitutes acceptance of the terms and conditions of this Schedule, any Appendices hereto, the Terms and Conditions posted on our web site, and any terms and conditions specifically governing a particular Service or our other products, which may be set forth in the Agreement or in a separate related agreement (collectively, the Related Agreements ).

1.
General Terms.
You will be granted access to our suite of online products, which may include, but shall not be limited to the following services via the Internet or dial-up connection (each separate service is a Service ; collectively referred to as the Services ):
1.1.
BIDS® and BIDS WorldView, a system for effectuating securities and fund trade instruction and execution, processing and handling instructions, and for the input and retrieval of other information;
1.2.
F/X WorldView, a system for executing foreign exchange trades;
1.3.
Fund WorldView, a system for receiving fund and prospectus information;
1.4.
BBHCOnnect, a system for placing securities trade instructions and following the status and detail of trades;
1.5.
ActionView SM , a system for receiving certain corporate action information;
1.6.
Risk View, an interactive portfolio risk analysis tool; and
1.7.
Such other services as we shall from time to time offer.

2.
Security / Passwords.
2.1.
A digital certificate and/or an encryption key may be required to access certain Services.  You may apply for a digital certificate and/or an encryption key by following the procedures set forth at http://www.bbh.com/certs/ .   You also will need an identification code ( ID ) and password(s) ( Password ) to access the Services.
2.2.
You agree to safeguard your digital certificate and/or encryption key, ID, and Password and not to give or make available, intentionally or otherwise, your digital certificate, ID, and/or Password to any unauthorized person.  You must immediately notify us in writing if you believe that your digital certificate and/or encryption key, Password, or ID has been compromised or if you suspect unauthorized access to your account by means of the Services or otherwise, or when a person to whom a digital certificate and/or an encryption key, Password, or ID has been assigned leaves or is no longer permitted to access the Services.

 
27

 

2.3.
We will not be responsible for any breach of security, or for any unauthorized trading or theft by any third party, caused by your failure (be it intentional, unintentional, or negligent) to maintain the confidentiality of your ID and/or Password and/or the security of your digital certificate and/or encryption key.

3.
Instructions.
3.1.
Proper instructions under this Schedule shall be provided as designated in the Related Agreements  ( Instructions ).
3.2.
The following additional provisions apply to Instructions provided via the Services:
 
a.
Instructions sent by electronic mail will not be accepted or acted upon.
 
b.
You authorize us to act upon Instructions received through the Services utilizing your digital certificate, ID, and/or Password as though they were duly authorized written instructions, without any duty of verification or inquiry on our part, and agree to hold us harmless for any losses you experience as a result.
 
c.
From time to time, the temporary unavailability of third party telecommunications or computer systems required by the Services may result in a delay in processing Instructions.  In such an event, we shall not be liable to you or any third party for any liabilities, losses, claims, costs, damages, penalties, fines, obligations, or expenses of any kind (including without limitation, reasonable attorneys’, accountants’, consultants’, or experts’ fees and disbursements) that you experience due to such a delay.

4.
Electronic Documents.
We may make periodic statements, disclosures, notices, and other documents available to you electronically, and, subject to any delivery and receipt verification procedures required by law, you agree to receive such documents electronically and to check the statements for accuracy.  If you believe any such statement contains incorrect information, you must follow the procedures set forth in the Related Agreement(s).

5.
Malicious Code.
You understand and agree that you will be responsible for the introduction (by you, your employees, agents, or representatives) into the Services, whether intentional or unintentional, of (i) any virus or other code, program, or sub-program that damages or interferes with the operation of the computer system containing the code, program or sub-program, or halts, disables, or interferes with the operation of the Services themselves; or (ii) any device, method, or token whose knowing or intended purpose is to permit any person to circumvent the normal security of the Services or the system containing the software code for the Services ( Malicious Code ).  You agree to take all necessary actions and precautions to prevent the introduction and proliferation of any Malicious Code into those systems that interact with the Services.

6.
Indemnification.
For avoidance of doubt, you hereby agree that the provisions in the Related Agreement(s) related to your indemnification of us and any limitations on our liability and responsibilities to you shall be applicable to this Agreement, and are hereby expressly incorporated herein. You agree that the Services are comprised of telecommunications and computer systems, and that it is possible that Instructions, information, transactions, or account reports might be added to, changed, or omitted by electronic or programming malfunction, unauthorized access, or other failure of the systems which comprise the Services, despite the security features that have been designed into the Services. You agree that we will not be liable for any action taken or not taken in complying with the terms of this Schedule, except for our willful misconduct or gross negligence.  The provisions of this paragraph shall survive the termination of this Schedule and the Related Agreements.

 
28

 

7.
Payment.
You may be charged for services hereunder as set forth in a fee schedule from time to time agreed by us.

8.
Term/Termination.
8.1.
This Schedule is effective as of the date you sign it or first use the Services, whichever is first, and continues in effect until such time as either you or we terminate the Schedule in accordance with this Section 8 and/or until your off-line use of the Services is terminated.
8.2.
We may terminate your access to the Services at any time, for any reason, with five (5) Business Days’ (as defined in the Agreement) prior notice; provided that we may terminate your access to the Services with no prior notice if (i) your account with us is closed, (ii) you fail to comply with any of the terms of this Agreement, (iii) we believe that your continued access to the Services poses a security risk, or (iv) we believe that you are violating or have violated Applicable Laws (as defined in the Agreement), and we will not be liable for any loss you may experience as a result of such termination.  You may terminate your access to the Services at any time by giving us ten (10) Business Days notice.  Upon termination, we will cancel all your Passwords and IDs and any in-process or pending Instructions will be carried out or cancelled, at our sole discretion.

9.
Miscellaneous.
9.1.
Notices.   All notices, requests, and demands (other than routine operational communications, such as Instructions) shall be in such form and effect as provided in the Related Agreement(s).
9.2.
Inconsistent Provisions.   Each Service may be governed by separate terms and conditions in addition to this Schedule and the Related Agreement(s).  Except where specifically provided to the contrary in this Schedule, in the event that such separate terms and conditions conflict with this Schedule and the Related Agreement(s), the provisions of this Schedule shall prevail to the extent this Schedule applies to the transaction in question.
9.3.
Binding Effect; Assignment; Severability.   This Schedule shall be binding on you, your employees, officers and agents.  We may assign or delegate our rights and duties under this Schedule at any time without notice to you.  Your rights under this Schedule may not be assigned without our prior written consent. In the event that any provision of this Schedule conflicts with the law under which this Schedule is to be construed or if any such provision is held invalid or unenforceable by a court with jurisdiction over you and us, such provision shall be deemed to be restated to effectuate as nearly as possible the purposes of the Schedule in accordance with applicable law.  The remaining provisions of this Schedule and the application of the challenged provision to persons or circumstances other than those as to which it is invalid or unenforceable shall not be affected thereby, and each such provision shall be valid and enforceable to the full extent permitted by law.

 
29

 

9.4.
Choice of Law; Jury Trial. This Schedule shall be governed by and construed, and the legal relations between the parties shall be determined, in accordance with the laws of the State of New York, without giving effect to the principles of conflicts of laws. Each party agrees to waive its right to trial by jury in any action or proceeding based upon or related to this Schedule.  The parties agree that all actions and proceedings based upon or relating to this Schedule shall be litigated exclusively in the federal and state courts located within New York City, New York.
9.5.
Confidentiality . The parties hereto agree that each shall treat confidentially the terms and conditions of this Schedule and all information provided by each party to the other regarding its business and operations.  All confidential information provided by a party hereto shall be used by any other party hereto solely for the purpose of rendering or obtaining services pursuant to this Schedule and, except as may be required in carrying out this Schedule, shall not be disclosed to any third party without the prior consent of such providing party.  The foregoing shall not be applicable to any information that is publicly available when provided or thereafter becomes publicly available other than through a breach of this Schedule, or that is required to be disclosed by or to any bank examiner of the Custodian or any Subcustodian, any Regulatory Authority, any auditor of the parties hereto, or by judicial or administrative process or otherwise by Applicable Law.

 
30

 

The undersigned acknowledges that (I/we) have received a copy of this document.

BROWN BROTHERS HARRIMAN & CO.
   
By:
/s/ F. Meade Reynolds
Name:  F. Meade Reynolds
Title: Managing Director
Date: 2/27/07
   
UNITED STATES NATURAL GAS FUND, LP
 
By:  Victoria Bay Asset Management, LLC, as General Partner
   
By:
/s/ Nicholas Gerber
Name:  Nicholas Gerber
Title: Director
Date: March 5, 2007
   
VICTORIA BAY ASSET MANAGEMENT, LLC
   
By:
/s/ Nicholas Gerber
Name:  Nicholas Gerber
Title: Director
Date: March 5, 2007

 
31

 

Exhibit 10.5
AMENDMENT AGREEMENT
DATED AS OF OCTOBER 27, 2008
TO THE CUSTODIAN AGREEMENT
DATED AS OF MARCH 5, 2007

AMENDMENT AGREEMENT (the “Amendment”) dated as of October 27, 2008 among BROWN BROTHERS HARRIMAN & CO.   (“BBH”) , UNITED STATES COMMODITY FUNDS LLC (“USCF”), formerly known as Victoria Bay Asset Management, LLC, and UNITED STATES NATURAL GAS FUND, LP (“USNG”).

WITNESSETH
 
The parties have previously entered into that certain Custodian Agreement dated as of March 5, 2007 (the “Agreement”).  The parties have agreed to amend the Agreement in accordance with the terms of this Amendment.
 
 
NOW, THEREFORE, in consideration of the mutual agreements herein contained, BBH, USCF and USNG hereby acknowledge and agree as follows:
 

1.            Amendment of the Agreement.   Upon execution of this Amendment by BBH, USCF and USNG, the Agreement shall be hereby amended as follows:

Section 15.1 of the Agreement shall be deleted in its entirety and replaced with the following:

15.1            Term, Notice and Effect.   This Agreement shall have an initial term of two (2) years from the date hereof. Thereafter, this Agreement shall automatically renew for successive one (1) year periods unless any party terminates this Agreement by providing written notice no later than seventy-five (75) days prior to the expiration of the applicable term to the other parties at their address set forth herein.  Upon the completion of the initial term, either the Custodian, on the one hand, or the General Partner, on the other hand, may elect to terminate this Agreement at any time by delivering ninety (90) days notice thereof to the other party.  

2.             Representations.   Each party represents to the other party that:-

(a)            Status.   It is duly organized and validly existing under the laws of the jurisdiction of its organization or incorporation and, if relevant under such laws, in good standing;

(b)            Powers. It has the power to execute and deliver this Amendment and has taken all necessary action to authorize such execution, delivery and performance;

(c)            No Violation or Conflict. Such execution, delivery and performance do not violate or conflict with any law applicable to it, any provision of its constitutional documents, any order or judgment of any court or other agency of government applicable to it or any of its assets or any contractual restriction binding on or affecting it or any of its assets;

(d)            Consents.   All governmental and other consents that are required to have been obtained by it with respect to this Amendment have been obtained and are in full force and effect and all conditions of any such consents have been complied with; and

 
 

 

(e)            Obligations Binding.   Its obligations under this Amendment constitute its legal, valid and binding obligations, enforceable in accordance with its respective terms (subject to applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors’ rights generally and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)).

3.           Miscellaneous.

(a)            Entire Agreement.   The Amendment and the Agreement constitute the entire agreement and understanding of the parties with respect to its subject matter and supersedes all oral communication and prior writings (except as other wise provided herein) with respect thereto.

(b)            Counterparts.   This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if signatures thereto and hereto were upon the same instrument.

(c)            Headings.   The headings used in this Amendment are for convenience of reference only and are not to affect the construction of or to be taken into consideration in interpreting this Amendment.

(d)            Governing Law.   This Amendment shall be governed by and construed in accordance with the laws of the State of New York (without reference to choice of law doctrine).

(e)            Terms .   Terms used in this Amendment, unless otherwise defined herein, shall have the meanings ascribed to them in the Agreement.

 
2

 

IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by their respective officers or authorized representatives as of the day and year first above written.

BROWN BROTHERS HARRIMAN & CO.
UNITED STATES COMMODITY FUNDS
LLC
       
By:
/s/ James R. Kent
 
By:
/s/ Howard Mah
 
Name: James R. Kent
 
Name: Howard Mah
 
Title: Managing Director
 
Title: Management Director
 
Date: October 29, 2008
 
Date: October 31, 2008
 

 
UNITED STATES NATURAL GAS FUND,
 
LP
 
By: United States Commodity Funds
 
LLC, as General Partner

 
By:
/s/ Howard Mah
 
 
Name: Howard Mah
 
 
Title:    Management Director
 
 
Date:   October 31, 2008
 

 
3

 
 
Exhibit 10.6

EXECUTION COPY

ADMINISTRATIVE AGENCY AGREEMENT

THIS ADMINISTRATIVE AGENCY AGREEMENT (the “ Agreement ”) is made as of March 5, 2007 by and among BROWN BROTHERS HARRIMAN & CO ., a limited partnership organized under the laws of the State of New York (the “ Administrator ”), VICTORIA BAY ASSET MANAGEMENT, LLC , a Delaware limited liability company (the “ General Partner ”) and UNITED STATES NATURAL GAS FUND, LP , a limited partnership organized under the laws of the State of Delaware (the “ Fund ”).

WITNESSETH:

WHEREAS , the Fund is a limited partnership that is registered as a commodity pool;
WHEREAS , the General Partner has exclusive responsibility for the management and control of the business and affairs of the Fund; and
WHEREAS , the Fund and the General Partner desire to retain the Administrator to render certain services to the Fund and/or the General Partner, as the case may be, and the Administrator is willing to render such services.
NOW, THEREFORE , in consideration of the premises and mutual covenants herein contained, the parties hereto agree as follows:

1.             Appointment of Administrator .  The Fund and the General Partner hereby employ and appoint the Administrator to act as administrative agent on the terms set forth in this Agreement, and the Administrator accepts such appointment.

2.             Delivery of Documents .  The Fund and the General Partner will on a continuing basis provide the Administrator with:
2.1           properly certified or authenticated copies of resolutions of the General Partner’s Board of Directors (including Mr. Nicholas D. Gerber) authorizing the appointment of the Administrator as administrative agent of the Fund and approving this Agreement;
2.2           a copy of the Fund’s most recent registration statement under the Securities Act of 1933, as amended;
2.3           copies of all agreements between the Fund and its service providers, including without limitation, advisory, distribution and administration agreements and distribution and/or unitholder;
2.4           a copy of the Fund’s valuation procedures;
2.5           a copy of the Fund’s Limited Partnership Agreement, as may be amended from time to time;
 

 
2.6           a copy of the General Partner’s First Amended and Restated Limited Liability Company Agreement, as may be amended from time to time;
2.7           any other documents or resolutions (including, but not limited to directions or resolutions of the General Partner’s Board of Directors, Management Directors, and/or Audit Committee) which relate to or affect the Administrator’s performance of its duties hereunder or which the Administrator may at any time reasonably request; and
2.8           copies of any and all amendments or supplements to the foregoing.

3.            Duties as Administrator.   Subject to the supervision and direction of the General Partner’s Board of Directors, Management Directors and Audit Committee, the Administrator will perform the administrative services described in Appendix A hereto.  Additional services may be provided by the Administrator upon the request of the Fund as mutually agreed from time to time.  In performing its duties and obligations hereunder, the Administrator will act in accordance with the General Partner’s instructions as defined in Section 5 (“Instructions”).  It is agreed and understood that the Administrator shall not be responsible for the Fund’s or the General Partner’s compliance with any applicable documents, laws or regulations, or for losses, costs or expenses arising out of the Fund’s or the General Partner’s failure to comply with said documents, laws or regulations or the Fund’s or the General Partner’s failure or inability to correct any non-compliance therewith.  The Administrator shall in no event be required to take any action, which is in contravention of any applicable law, rule or regulation or any order or judgment of any court of competent jurisdiction.

3.1            Records.   The Administrator will maintain and retain such records as required by the Securities Exchange Act of 1934, as amended, the Rules of the American Stock Exchange, 17 C.F.R 4.23, and other applicable federal securities laws and created pursuant to the performance of the Administrator’s obligations under this Agreement.  The Administrator will maintain such other records as requested by the Fund or the General Partner and received by the Administrator.  The Administrator shall not be responsible for the accuracy and completeness of any records not created by the Administrator.  The Administrator acknowledges that the records maintained and preserved by the Administrator pursuant to this Agreement are the property of the Fund and will be, at the Fund’s expense, surrendered promptly upon reasonable request.  In performing its obligations under this Section, the Administrator may utilize micrographic and electronic storage media as well as independent third party storage facilities.
 
2

 
4.             Duties of the Fund and the General Partner .  The Fund and the General Partner shall notify the Administrator promptly of any matter affecting the performance by the Administrator of its services under this Agreement.  Where the Administrator is providing fund accounting services pursuant to this Agreement, the Fund and the General Partner shall promptly notify the Administrator as to the accrual of liabilities of the Fund and of liabilities of the Fund not appearing on the books of account kept by the Administrator, as well as to the existence, status and proper treatment of reserves, if any, authorized by the Fund or the General Partner.  The Fund and the General Partner agree to provide such information to the Administrator as may be requested under the banking and securities laws of the United States or other jurisdictions relating to “Know Your Customer” and money laundering prevention rules and regulations (collectively, the “KYC Requirements”).  For purposes of this subsection, and in connection with all applicable KYC Requirements, the Fund is the “client” or “customer” of the Administrator.   The Fund and the General Partner further represent that each will perform all obligations required under applicable KYC Requirements with respect to the Fund’s “customers” (as defined in the KYC Requirements) and that, because these customers do not constitute “customers” or “clients” of the Administrator under such applicable rules and regulations, the Administrator is under no such similar obligations.

5.
Instructions.

5.1           The Administrator shall not be liable for, and shall be indemnified by the Fund against any and all losses, costs, damages or expenses arising from or as a result of, any action taken or omitted in reliance upon Instructions or upon any other written notice, request, direction, instruction, certificate or other instrument believed by it to be genuine and signed or authorized by the proper party or parties.  A list of persons so authorized by the General Partner (“Authorized Persons”) is attached hereto as Appendix B and upon which the Administrator may rely until its receipt of notification to the contrary by the General Partner.
5.2           Instructions shall include a written request, direction, instruction or certification signed or initialed on behalf of the Fund by one or more Authorized Persons.
5.3           Telephonic or other oral instructions or instructions given by telefax transmission may be given by any one of the above Authorized Persons and will also be considered Instructions if the Administrator believes them to have been given by a person authorized to give such Instructions with respect to the transaction involved.
5.4           With respect to telefax transmissions, the Fund and the General Partner hereby acknowledge that (i) receipt of legible instructions cannot be assured, (ii) the Administrator cannot verify that authorized signatures on telefax instructions are original, and (iii) the Administrator shall not be responsible for losses or expenses incurred through actions taken in reliance on such telefax instructions.  The Fund and the General Partner agree that such telefax instructions shall be conclusive evidence of the Fund’s/General Partner’s Instruction to the Administrator to act or to omit to act.
 
3

 
5.5           Instructions given orally will not be confirmed in writing and the lack of such confirmation shall in no way affect any action taken by the Administrator in reliance upon such oral Instructions.  The Fund and the General Partner authorize the Administrator to tape record any and all telephonic or other oral Instructions given to the Administrator by or on behalf of the Fund (including any of the Fund’s or the General Partner’s officers, directors, trustees, employees or agents or any investment manager or adviser or person or entity with similar responsibilities which is authorized to give Instructions on behalf of the Fund to the Administrator.)

6.             Expenses and Compensation .  For the services to be rendered and the facilities to be furnished by the Administrator as provided for in this Agreement, the Fund shall pay the Administrator rendered pursuant to this Agreement a fee based on such fee schedule as may from time to time be agreed upon in writing among the General Partner, Fund and the Administrator.  Additional services performed by the Administrator as requested by the Fund shall be subject to additional fees as mutually agreed from time to time.  In addition to any such fees, the Administrator shall bill the Fund separately for any out-of-pocket disbursements of the Administrator based on an out-of-pocket disbursement schedule as may from time to time be agreed upon in writing among the General Partner, the Fund and the Administrator.  The initial fee schedule and out of pocket disbursement schedule are attached as Appendix D to this Agreement.  The foregoing fees and disbursements shall be billed to the Fund by the Administrator and shall be paid promptly by wire transfer or other appropriate means to the Administrator.
 
7.             Standard of Care .   The Administrator shall be held to the exercise of reasonable care and diligence in carrying out the provisions of this Agreement, provided that the Administrator shall not thereby be required to take any action which is in contravention of any applicable law, rule or regulation or any order or judgment of any court of competent jurisdiction.

8.             General Limitations on Liability .  The Administrator shall incur no liability with respect to any telecommunications, equipment or power failures, or any failures to perform or delays in performance by postal or courier services or third-party information providers (including, without limitation those listed on Appendix C).

8.1         The Administrator shall also incur no liability under this Agreement if the Administrator or any agent or entity utilized by the Administrator shall be prevented, forbidden or delayed from performing, or omits to perform, any act or thing which this Agreement provides shall be performed or omitted to be performed, by reason of causes or events beyond its control, including but not limited to:
 
4

 
8.1.1 any Sovereign Event.  A “Sovereign Event” shall mean any nationalization; expropriation; devaluation; revaluation; confiscation; seizure; cancellation; destruction; strike; act of war, terrorism, insurrection or revolution; or any other act or event beyond the Administrator’s control;
8.1.2 any provision of any present or future law, regulation or order of the United States or any state thereof, or of any foreign country or political subdivision thereof, or of any securities depository or clearing agency; and
8.1.3 any provision of any order or judgment of any court of competent jurisdiction.

8.2          The Administrator shall not be held accountable or liable for any losses, damages or expenses the General Partner, the Fund or any unitholder or former unitholder of the Fund or any other person may suffer or incur arising from acts, omissions, errors or delays of the Administrator in the performance of its obligations and duties as provided in Section 3 hereof, including without limitation any error of judgment or mistake of law, except a loss, damage or expense directly resulting from the Administrator’s willful malfeasance, bad faith or negligence in the performance of such Administrator’s obligations and duties.

9.
Specific Limitations on Liability.   In addition to, and without limiting the application of the general limitations on liability contained in Section 8, above, the following specific limitations on the Administrator’s liability shall apply to the particular administrative services set forth on Appendix A hereto.

9.1            Liability for Fund Accounting Services.   Without limiting the provisions in Section 8 hereof, the Administrator’s liability for acts, omissions, errors or delays relating to its fund accounting obligations and duties shall be limited to the amount of any expenses associated with a required recalculation of net asset value per unit (“NAV”) or any direct damages suffered by unitholders in connection with such recalculation.  The Administrator’s liability or accountability for such acts, omissions, errors or delays shall be further subject to clauses 9.1.1 through 9.1.4 below.
 
5

 
9.1.1 The parties hereto acknowledge that the Administrator’s causing an error or delay in the determination of NAV may, but does not in and of itself, constitute negligence or reckless or willful misconduct.  The parties further acknowledge that in accordance with industry practice the liability of the Administrator for fund accounting services shall accrue and the recalculation of NAV shall be performed in accordance with this Section 9.1 only with regard to errors in the calculation of the NAV that are (i) greater than or equal to $.01 per unit of the Fund and (ii) greater than or equal to ½% of the total net assets of the Fund.
9.1.2 In no event shall the Administrator be liable or responsible to the General Partner, the Fund, any present or former unitholder of the Fund, or any other person for any error or delay that continued or was undetected after the date of an audit performed by the certified public accountants employed by or on behalf of the Fund if, in the exercise of reasonable care in accordance with generally accepted accounting standards, such accountants should have become aware of such error or delay in the course of performing such audit.
9.1.3 The Administrator shall not be held accountable or liable to the General Partner, the Fund, any unitholder or former unitholder thereof or any other person for any delays or losses, damages or expenses any of them may suffer or incur resulting from (i) the Administrator’s usage of a third party service provider for the purpose of storing records delivered to the Administrator by or on behalf of the Fund and which the Administrator did not create in the performance of its obligations hereunder; (ii) the Administrator’s failure to receive timely and suitable notification concerning quotations or corporate actions relating to or affecting portfolio securities of the Fund; or (iii) any errors in the computation of NAV based upon or arising out of quotations or information as to corporate actions if received by the Administrator either (a) from a source which the Administrator was authorized to rely upon (including those sources listed on Appendix C), or (b) from a source which in the Administrator’s reasonable judgment was as reliable a source for such quotations or information as such authorized sources; or (iv) any errors in the computation of NAV as a result of relevant information known to the General Partner, the Fund, a futures commission merchant, securities brokers or dealers, or any of the Fund’s other service providers including futures commission merchants in contract with the Fund, which would impact the calculation of NAV, but was not communicated to the Administrator.  To the extent that Fund assets are not in the custody of the Administrator, the Administrator may conclusively rely on any reporting in connection with such assets provided to the Administrator by a third party on behalf of the Fund, including, without limitation any futures commission merchant.
 
6

 
9.1.4 In the event of any error or delay in the determination of such NAV for which the Administrator may be liable, the General Partner, the Fund and the Administrator will consult and make good faith efforts to reach agreement on what actions should be taken in order to mitigate any loss suffered by the Fund or its present or former unitholders, in order that the Administrator’s exposure to liability shall be reduced to the extent possible after taking into account all relevant factors and alternatives.  It is understood that in attempting to reach agreement on the actions to be taken or the amount of the loss which should appropriately be borne by the Administrator, the General Partner, the Fund and the Administrator will consider such relevant factors as the amount of the loss involved, the Fund’s/General Partner’s desire to avoid loss of unitholder goodwill,   the fact that other persons or entities could have been reasonably expected to have detected the error sooner than the time it was actually discovered, the appropriateness of limiting or eliminating the benefit which unitholders or former unitholders might have obtained by reason of the error, and the possibility that other parties providing services to the Fund might be induced to absorb a portion of the loss incurred.

10.
Indemnification.
10.1             The General Partner and the Fund hereby agree to indemnify and hold harmless the Administrator, its partners, stockholders, members, directors, officers and employees and any subsidiary or affiliate of the foregoing (“Affiliate”), and the successors and assigns of all of the foregoing persons, against any and all losses, claims, damages, liabilities or expenses (including reasonable counsel fees and expenses) resulting from any act, omission, error or delay or any claim, demand, action or suit, in connection with or arising out of performance of its obligations and duties under this Agreement, not resulting from the willful malfeasance, bad faith or negligence of the Administrator in the performance of such obligations and duties.  The provisions of this Section 10 shall survive the termination of this Agreement.

10.1.1     If any action, suit or proceeding (each, a “Proceeding”) is brought against the Administrator or any such person in respect of which indemnity may be sought against the General Partner pursuant to the foregoing subsection, the Administrator or such person shall promptly notify the General Partner in writing of the institution of such Proceeding and the General Partner shall assume the defense of such Proceeding, including the employment of counsel reasonably satisfactory to such indemnified party and payment of all fees and expenses; provided, however, that the omission to so notify the General Partner shall not release the General Partner from any liability which it may have to the Administrator or any such person except to the extent that it has been materially prejudiced by such failure and has not otherwise learned of such Proceeding. The Administrator or such person shall have the right to employ its own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of the Administrator or of such person unless the employment of such counsel shall have been authorized in writing by the General Partner in connection with the defense of such Proceeding or the General Partner shall not have, within a reasonable period of time in light of the circumstances, employed counsel to have charge of the defense of such Proceeding or such indemnified party or parties shall have reasonably concluded that there may be defenses available to it or them which are different from, additional to or in conflict with those available to the General Partner (in which case the General Partner shall not have the right to direct the defense of such Proceeding on behalf of the indemnified party or parties), in any of which events such fees and expenses shall be borne by the General Partner and paid as incurred (it being understood, however, that the General Partner shall not be liable for the expenses of more than one separate counsel (in addition to any local counsel) in any one Proceeding or series of related Proceedings in the same jurisdiction representing the indemnified parties who are parties to such Proceeding).
 
7

 
10.1.2     The General Partner shall not be liable for any settlement of any Proceeding effected without the General Partner’s written consent but if settled with the General Partner’s written consent, the General Partner agrees to indemnify and hold harmless the Administrator and any such person from and against any loss or liability by reason of such settlement.  Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by the second sentence of this subsection, then the indemnifying party agrees that it shall be liable for any settlement of any Proceeding effected without its written consent if (i) such settlement is entered into more than 60 Business Days (defined as any day other than a day on which the American Stock Exchange (“AMEX”), the New York Mercantile Exchange (“NYMEX”) or the New York Stock Exchange (“NYSE”) is closed for regular trading (each a “Business Day”)), after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall not have fully reimbursed the indemnified party in accordance with such request prior to the date of such settlement and (iii) such indemnified party shall have given the indemnifying party at least 30 Business Days’ prior notice of its intention to settle. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened Proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such Proceeding and does not include an admission of fault, culpability or a failure to act, by or on behalf of such indemnified party.
10.2             Subject to Sections 7, 8 and 9 of this Agreement, the Administrator agrees to indemnify and hold harmless the General Partner and the Fund, its partners, stockholders, members, directors, officers and employees and any Affiliate of the foregoing, and the successors and assigns of all of the foregoing persons, against any and all losses, claims, damages, liabilities or expenses (including reasonable counsel fees and expenses) resulting from any act, omission, error or delay or any claim, demand, action or suit, in connection with or arising out of performance of its obligations and duties under this Agreement, resulting from the willful malfeasance, bad faith or negligence of the Administrator in the performance of such obligations and duties.  The provisions of this Section 10 shall survive the termination of this Agreement.
 
8

 
10.2.1     If any Proceeding is brought against the General Partner or any such person in respect of which indemnity may be sought against the Administrator pursuant to the foregoing subsection, the General Partner or such person shall promptly notify the Administrator in writing of the institution of such Proceeding and the Administrator shall assume the defense of such Proceeding, including the employment of counsel reasonably satisfactory to such indemnified party and payment of all fees and expenses; provided, however, that the omission to so notify the Administrator shall not relieve the Administrator from any liability which it may have to the General Partner or any such person except to the extent that it has been materially prejudiced by such failure and has not otherwise learned of such Proceeding. The General Partner or such person shall have the right to employ its own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of the General Partner or of such person unless the employment of such counsel shall have been authorized in writing by the Administrator in connection with the defense of such Proceeding or the Administrator shall not have, within a reasonable period of time in light of the circumstances, employed counsel to have charge of the defense of such Proceeding or such indemnified party or parties shall have reasonably concluded that there may be defenses available to it or them which are different from, additional to or in conflict with those available to the Administrator (in which case the General Partner shall not have the right to direct the defense of such Proceeding on behalf of the indemnified party or parties), in any of which events such fees and expenses shall be borne by the Administrator and paid as incurred (it being understood, however, that the Administrator shall not be liable for the expenses of more than one separate counsel (in addition to any local counsel) in any one Proceeding or series of related Proceedings in the same jurisdiction representing the indemnified parties who are parties to such Proceeding).
10.2.2     The Administrator shall not be liable for any settlement of any Proceeding effected without the Administrator’s written consent but if settled with the Administrator’s written consent, the Administrator agrees to indemnify and hold harmless the General Partner and any such person from and against any loss or liability by reason of such settlement.  Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by the second sentence of this subsection, then the indemnifying party agrees that it shall be liable for any settlement of any Proceeding effected without its written consent if (i) such settlement is entered into more than 60 Business Days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall not have fully reimbursed the indemnified party in accordance with such request prior to the date of such settlement and (iii) such indemnified party shall have given the indemnifying party at least 30 Business Days’ prior notice of its intention to settle. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened Proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such Proceeding and does not include an admission of fault, culpability or a failure to act, by or on behalf of such indemnified party.
 
9

 
11.           Reliance by the Administrator on Opinions of Counsel and Opinions of Certified Public Accountants .
The Administrator may consult with its counsel or the Fund/General Partner’s counsel in any case where so doing appears to the Administrator to be necessary or desirable.  The Administrator shall not be considered to have engaged in any misconduct or to have acted negligently and shall be without liability in acting upon the advice of its counsel or of the Fund’s/General Partner’s counsel.
The Administrator may consult with a certified public accountant or the Fund’s Treasurer (or persons performing such function) in any case where so doing appears to the Administrator to be necessary or desirable.  The Administrator shall not be considered to have engaged in any misconduct or to have acted negligently and shall be without liability in acting upon the advice of such certified public accountant or of the Fund’s Treasurer or persons performing such function.

12.           Termination of Agreement .  This Agreement may be terminated by any of the parties in accordance with the provisions of this Section 12.

12.1         This Agreement shall have an initial term of two (2) years from the date hereof.  Thereafter, this Agreement shall automatically renew for successive one (1) year periods unless any party terminates this Agreement by written notice effective no sooner than seventy-five (75) days following the date that notice to such effect shall be delivered to the other parties at their address set forth herein.  Notwithstanding the foregoing provisions, any party may terminate this Agreement at any time (a) for cause, which is a material breach of the Agreement not cured within sixty (60) days, in which case termination shall be effective upon written receipt of notice by the non-terminating parties, or (b) upon thirty (30) days’ written notice to the other parties in the event that a party is adjudged bankrupt or insolvent, or there shall be commenced against such party a case under any applicable bankruptcy, insolvency, or other similar law now or hereafter in effect. In the event a termination notice is given by a party hereto, all expenses associated with the movement of records and materials and the conversion thereof shall be paid by the Fund for which services shall cease to be performed hereunder.  The Administrator shall be responsible for completing all actions in progress when such termination notice is given unless otherwise agreed.
 
10

 
12.2.        Upon termination of this Agreement in accordance with this Section 12, the Fund may request the Administrator to promptly deliver to the Fund or to any designated third party all records created and maintained by the Administrator pursuant to Section 3.1 of this Agreement, as well as any Fund records maintained but not created by the Administrator.  If such request is provided in writing by the Fund to the Administrator within seventy-five (75) days of the date of termination of the Agreement, the Administrator shall provide to the Fund a certification that all records created by the Administrator pursuant to its obligations under Section 3.1 of this Agreement are accurate and complete.  After seventy-five (75) days of the date of termination of this Agreement, no such certification will be provided to the Fund by the Administrator and the Administrator is under no further obligation to ensure that records created by the Administrator pursuant to Section 3.1 of this Agreement are maintained in a form that is accurate or complete.

13.           Confidentiality and Privacy.
 
13.1         The parties hereto agree that each shall treat confidentially the terms and conditions of this Agreement and all information provided by each party to the other regarding its business and operations.  All confidential information provided by a party hereto shall be used by any other party hereto solely for the purpose of rendering or obtaining services pursuant to this Agreement and, except as may be required in carrying out this Agreement, shall not be disclosed to any third party without the prior consent of such providing party.  The foregoing shall not be applicable to any information that is publicly available when provided or thereafter becomes publicly available other than through a breach of this Agreement, or that is required to be disclosed by or to any regulatory authority, any auditor of the parties hereto, or by judicial or administrative process or otherwise by applicable law.
13.2         In the course of carrying out its obligations under this Agreement, Administrator shall maintain physical, procedural and electronic safeguards to protect information regarding the Fund and its investors that Administrator has obtained or to which the Administrator has gained access.

14.           Tape-recording .    The parties consent to recording of any and all telephonic or other oral instructions.  This authorization will remain in effect until and unless revoked by the Fund, the General Partner or the Administrator in writing.  Each party further agrees to solicit valid written or other consent from any of its employees, officers, directors or agents with respect to telephone communications to the extent such consent is required by applicable law.
 
11

 
15.           Procedures.  Procedures applicable to the Administrator’s services to be performed hereunder may be established from time to time by agreement among the Fund, the General Partner and the Administrator.  The Administrator shall have the right to utilize any unitholder accounting and recordkeeping systems that, in its opinion, enables it to perform any services to be performed hereunder.

16.           Entire Agreement;   Amendment.   This Agreement constitutes the entire understanding and agreement of the parties hereto and supersedes any other oral or written agreements heretofore in effect between the parties with respect to the subject matter hereof.  No provision of this Agreement may be amended or terminated except by a statement in writing signed by the party against which enforcement of the amendment or termination is sought.

17.           Severability.   In the event any provision of this Agreement is determined to be void or unenforceable, such determination shall not affect the remainder of this Agreement, which shall continue to be in force.

18.           Headings.   The section headings in this Agreement are for the convenience of reference only and shall not modify, define, expand or limit any of the terms or provisions thereof.

19.           Governing Law .   This Agreement shall be governed by and construed according to the laws of the State of New York without giving effect to conflicts of law provisions thereof and each of the parties hereto irrevocably consents to the exclusive jurisdiction of the United States District Court for the Southern District of New York or if that court lacks or declines to exercise subject matter jurisdiction, the Supreme Court of the State of New York, New York County.  The General Partner and the Fund irrevocably waive any objection each may now or hereafter have to the laying of venue of any action or proceeding in any of the aforesaid courts and any claim that any such action or proceeding has been brought in an inconvenient forum.  Furthermore, each party hereto irrevocably waives any right that it may have to trial by jury in any action, proceeding or counterclaim arising out of or related to this Agreement or the services contemplated hereby.

20.           Notices.   Notices and other writings delivered or mailed postage prepaid to the General Partner and Fund shall be addressed to the Fund/General Partner at Victoria Bay Asset Management, LLC, c/o Nicholas D. Gerber, P.O. Box 6919, Moraga, CA  94570, or such other address as the General Partner or the Fund may have designated to the Administrator in writing, or to the Administrator at 40 Water Street, Boston, MA  02109, Attention: Manager, Fund Administration Department, or to such other address as the Administrator may have designated to the General Partner and the Fund in writing, shall be deemed to have been properly delivered or given hereunder to the respective addressee.
 
12

 
21.           Binding Effect; Assignment.   This Agreement shall be binding upon and inure to the benefit of the General Partner, the Fund and the Administrator and their respective successors and assigns, provided that no party hereto may assign this Agreement or any of its rights or obligations hereunder without the written consent of the other parties.  Each party agrees that only the parties to this Agreement and/or their successors in interest shall have a right to enforce the terms of this Agreement.  Accordingly, no client of the General Partner, unitholder of the Fund or other third party shall have any rights under this Agreement and such rights are explicitly disclaimed by the parties.

22.           Counterparts .   This Agreement may be executed in any number of counterparts each of which shall be deemed to be an original. This Agreement shall become effective when one or more counterparts have been signed and delivered by each of the parties.  A photocopy or telefax of this Agreement shall be acceptable evidence of the existence of this Agreement and the Administrator shall be protected in relying on the photocopy or telefax until the Administrator has received the original of this Agreement.

23.           Exclusivity .   The services furnished by the Administrator hereunder are not to be deemed exclusive, and the Administrator shall be free to furnish similar services to others.

24.           Authorization.   The General Partner hereby represents and warrants that the Management Directors of its Board of Directors including Mr. Nicholas D. Gerber have authorized the execution and delivery of this Agreement and that Authorized Persons of the General Partner and the Fund have signed this Agreement, Appendices A, B and C and the fee schedule hereto.
 
13

 
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their duly authorized officers as of the date first written above.
 
The undersigned acknowledges that (I/we) have received a copy of this document.
 
BROWN BROTHERS HARRIMAN & CO.

By:
/s/ F. Meade Reynolds
 
Name: F. Meade Reynolds
 
Title: Managing Director
 
Date: 2-27-07

UNITED STATES NATURAL GAS FUND, LP
     By:  Victoria Bay Asset Management, LLC, as General Partner

 
By:
/s/ Nicholas Gerber
   
Name: Nicholas Gerber
   
Title: Director
   
Date: March 5, 2007

VICTORIA BAY ASSET MANAGEMENT, LLC

 
/s/ Nicholas Gerber
   
Name: Nicholas Gerber
   
   
Date: March 5, 2007
 
14

 

Exhibit 10.7
 
AMENDMENT AGREEMENT
DATED AS OF OCTOBER 27, 2008
TO THE ADMINISTRATIVE AGENCY AGREEMENT
DATED AS OF MARCH 5, 2007

AMENDMENT AGREEMENT (the “Amendment”) dated as of October 27, 2008 among BROWN BROTHERS HARRIMAN & CO.   (“BBH”) , UNITED STATES COMMODITY FUNDS LLC (“USCF”), formerly known as Victoria Bay Asset Management, LLC, and UNITED STATES NATURAL GAS FUND, LP (“USNG”).

WITNESSETH
 
The parties have previously entered into that certain Administrative Agency Agreement dated as of March 5, 2007 (the “Agreement”).  The parties have agreed to amend the Agreement in accordance with the terms of this Amendment.
 
NOW, THEREFORE, in consideration of the mutual agreements herein contained, BBH, USCF and USNG hereby acknowledge and agree as follows:

1.            Amendment of the Agreement.   Upon execution of this Amendment by BBH, USCF and USNG, the Agreement shall be hereby amended as follows:

Section 12.1 of the Agreement shall be deleted in its entirety and replaced with the following:

12.1           This Agreement shall have an initial term of two (2) years from the date hereof. Thereafter, this Agreement shall automatically renew for successive one (1) year periods unless any party terminates this Agreement by providing written notice no later than seventy-five (75) days prior to the expiration of the applicable term to the other parties at their address set forth herein.  Upon the completion of the initial term, either the Administrator, on the one hand, or the General Partner, on the other hand, may elect to terminate this Agreement at any time by delivering ninety (90) days notice thereof to the other party.  Notwithstanding the foregoing provisions, any party may terminate this Agreement at any time (a) for cause, which is a material breach of the Agreement not cured within sixty (60) days of written notice of such breach, in which case termination shall be effective upon receipt of written notice by the non-terminating parties, or (b) upon thirty (30) days’ written notice to the other parties in the event that a party is adjudged bankrupt or insolvent, or there shall be commenced against such party a case under any applicable bankruptcy, insolvency, or other similar law now or hereafter in effect. In the event a termination notice is given by a party hereto, all expenses associated with the movement of records and materials and the conversion thereof shall be paid by the Fund for which services shall cease to be performed hereunder.  The Administrator shall be responsible for completing all actions in progress when such termination notice is given unless otherwise agreed.

2.             Representations.   Each party represents to the other party that:-

(a)            Status.   It is duly organized and validly existing under the laws of the jurisdiction of its organization or incorporation and, if relevant under such laws, in good standing;

(b)            Powers. It has the power to execute and deliver this Amendment and has taken all necessary action to authorize such execution, delivery and performance;

(c)            No Violation or Conflict. Such execution, delivery and performance do not violate or conflict with any law applicable to it, any provision of its constitutional documents, any order or judgment of any court or other agency of government applicable to it or any of its assets or any contractual restriction binding on or affecting it or any of its assets;

 
1

 

(d)            Consents.   All governmental and other consents that are required to have been obtained by it with respect to this Amendment have been obtained and are in full force and effect and all conditions of any such consents have been complied with; and

(e)            Obligations Binding.   Its obligations under this Amendment constitute its legal, valid and binding obligations, enforceable in accordance with its respective terms (subject to applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors’ rights generally and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)).

3.           Miscellaneous.

(a)            Entire Agreement.   The Amendment and Agreement constitute the entire agreement and understanding of the parties with respect to its subject matter and supersedes all oral communication and prior writings (except as other wise provided herein) with respect thereto.

(b)            Counterparts.   This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if signatures thereto and hereto were upon the same instrument.

(c)            Headings.   The headings used in this Amendment are for convenience of reference only and are not to affect the construction of or to be taken into consideration in interpreting this Amendment.

(d)            Governing Law.   This Amendment shall be governed by and construed in accordance with the laws of the State of New York (without reference to choice of law doctrine).

(e)            Terms .   Terms used in this Amendment, unless otherwise defined herein, shall have the meanings ascribed to them in the Agreement.

 
2

 

IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by their respective officers or authorized representatives as of the day and year first above written.

BROWN BROTHERS HARRIMAN & CO.
UNITED STATES COMMODITY FUNDS
LLC
       
By:
/s/ James R. Kent
 
By:
/s/ Howard Mah
 
Name: James R. Kent
 
Name: Howard Mah
 
Title: Managing Director
 
Title: Management Director
 
Date: October 29, 2008
 
Date: October 31, 2008
 

 
UNITED STATES NATURAL GAS FUND,
 
LP
 
By: United States Commodity Funds
 
LLC, as General Partner
   
 
By:
/s/ Howard Mah
 
 
Name: Howard Mah
 
Title:    Management Director
 
Date: October 31, 2008

 
3

 

Exhibit 10.8

AMENDMENT AGREEMENT
DATED AS OF MARCH 24, 2008
TO THE MARKETING AGENT AGREEMENT
DATED AS OF APRIL 17, 2007

AMENDMENT AGREEMENT (the “Amendment”) dated as of March 24, 2008 between ALPS DISTRIBUTORS, INC. (“ALPS”) , VICTORIA BAY ASSET MANAGEMENT, LLC (“VBAM”), and UNITED STATES NATURAL GAS FUND, LP (“USNG”).

WITNESSETH
 
The parties have previously entered into that certain Marketing Agent Agreement dated as of April 17, 2007 (the “Agreement”).  The parties have agreed to amend the Agreement in accordance with the terms of this Amendment.
 
NOW, THEREFORE, in consideration of the mutual agreements herein contained, ALPS, VBAM and USNG hereby acknowledge and agree as follows:

1.            Amendment of the Agreement.   Upon execution of this Amendment by ALPS, VBAM and USNG, the Agreement shall be hereby amended as follows:

 
(a)
Section 8 of the Agreement, “Duration,” shall be deleted in its entirety and replaced with the following:

Duration.  This Agreement shall become effective on the date hereof and continue for an initial term of one (1) year from the date of this Agreement and will include any renewal term of this Agreement and will last until the expiration of this Agreement or the earlier termination of this Agreement in accordance with its terms (the “Term”). This Agreement will automatically be renewed for successive one (1) year periods unless, no later than thirty (30) calendar days prior to the end of the then-current Term, either the Marketing Agent, on the one hand, or the General Partner, on the other hand, elects to terminate this Agreement by delivering written notice thereof to the other party.  Upon the completion of the initial term, either the Marketing Agent, on the one hand, or the General Partner, on the other hand, may elect to terminate this Agreement by delivering 90 days notice thereof to the other party.  Notwithstanding the foregoing, this Agreement may be terminated by any party upon written notice to the other parties if (a) the Fund is terminated, (b) any other party becomes insolvent or bankrupt or files a voluntary petition, or is subject to an involuntary petition, in bankruptcy or attempts to or makes an assignment for the benefit of its creditors or consents to the appointment of a trustee or receiver, provided that the General Partner may not terminate this Agreement pursuant to this provision if the event relates to the General Partner or the Fund or (c) any other party willfully and materially breaches its obligations under this Agreement and such breach has not been cured to the reasonable satisfaction of the non-breaching party prior to the expiration of ninety (90) days after notice by the non-breaching party to the breaching party of such breach.

(b)           All references in the Agreement to the “National Association of Securities Dealers, Inc.” shall be replaced with the “Financial Industry Regulatory Authority” and all references to the “NASD” shall be replaced with “FINRA.”

 
 

 

2.             Representations.   Each party represents to the other party that:-

(a)             Status.   It is duly organized and validly existing under the laws of the jurisdiction of its organization or incorporation and, if relevant under such laws, in good standing;

(b)             Powers. It has the power to execute and deliver this Amendment and has taken all necessary action to authorize such execution, delivery and performance;

(c)             No Violation or Conflict. Such execution, delivery and performance do not violate or conflict with any law applicable to it, any provision of its constitutional documents, any order or judgment of any court or other agency of government applicable to it or any of its assets or any contractual restriction binding on or affecting it or any of its assets;

(d)             Consents.   All governmental and other consents that are required to
have been obtained by it with respect to this Amendment have been obtained and are in full force and effect and all conditions of any such consents have been complied with; and

(e)             Obligations Binding.   Its obligations under this Amendment constitute
its legal, valid and binding obligations, enforceable in accordance with its respective terms (subject to applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors’ rights generally and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)).

3.           Miscellaneous.

(a)             Entire Agreement.   The Amendment constitutes the entire agreement and understanding of the parties with respect to its subject matter and supersedes all oral communication and prior writings (except as other wise provided herein) with respect thereto.

(b)             Counterparts.   This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if signatures thereto and hereto were upon the same instrument.

(c)             Headings.   The headings used in this Amendment are for convenience of reference only and are not to affect the construction of or to be taken into consideration in interpreting this Amendment.

(d)             Governing Law.   This Amendment shall be governed by and construed in accordance with the laws of the State of New York (without reference to choice of law doctrine).

(e)             Terms .   Terms used in this Amendment, unless otherwise defined herein, shall have the meanings ascribed to them in the Agreement.

 
2

 

IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by their respective officers or authorized representatives as of the day and year first above written.

ALPS DISTRIBUTORS, INC.
VICTORIA BAY ASSET
MANAGEMENT, LLC
       
By:
/s/ Thomas A. Carter
 
By:
/s/ Howard Mah
 
Name: Thomas A. Carter
 
Name: Howard Mah
 
Title: Managing Director
  Business Development
 
Title: Management Director
 
   
Date: April 29, 2008
 

 
UNITED STATES NATURAL GAS
 
FUND, LP
 
     
 
By:
/s/ Howard Mah
 
 
Name:   Howard Mah
 
 
Title:     Management Director
 
 
Date: April 29, 2008
 

 
3

 
Exhibit 31.1
 
Certification of Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Nicholas D. Gerber, certify that:

1. I have reviewed this quarterly report on Form 10-Q of United States Natural Gas Fund, LP;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
       
Date:  November 9, 2009
By:
/s/ Nicholas D. Gerber
 
    Name: Nicholas D. Gerber  
    Title:  Chief Executive Officer
          United States Commodity Funds LLC,
          General Partner of United States Natural Gas Fund, LP
 
 

 
Exhibit 31.2
 
Certification of Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Howard Mah, certify that:

1. I have reviewed this quarterly report on Form 10-Q of United States Natural Gas Fund, LP;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
       
Date: November 9, 2009
By:
/s/ Howard Mah
 
    Name:  Howard Mah  
    Title:  Chief Financial Officer
          United States Commodity Funds LLC,
          General Partner of United States Natural Gas Fund, LP
 
 
 
 

 
 
Exhibit 32.1
 
Certification of Principal Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 (the “Report”) of United States Natural Gas Fund, LP (the “Registrant”), as filed with the Securities and Exchange Commission on the date hereof, I, Nicholas D. Gerber, the Chief Executive Officer of United States Commodity Funds LLC, General Partner of the Registrant, hereby certify, to the best of my knowledge, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
 
       
Date: November 9, 2009
By:
/s/ Nicholas D. Gerber
 
    Name: Nicholas D. Gerber  
   
Title: Chief Executive Officer
          United States Commodity Funds LLC,
          General Partner of United States Natural Gas Fund, LP
 
 
 
 

 
 
Exhibit 32.2
 
Certification of Principal Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 (the “Report”) of United States Natural Gas Fund, LP (the “Registrant”), as filed with the Securities and Exchange Commission on the date hereof, I, Howard Mah, the Chief Financial Officer of United States Commodity Funds LLC, General Partner of the Registrant, hereby certify, to the best of my knowledge, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

       
Date: November 9, 2009
By:
/s/ Howard Mah
 
    Name: Howard Mah  
   
Title: Chief Financial Officer
          United States Commodity Funds LLC,
          General Partner of United States Natural Gas Fund, LP