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: 001-33859
United
States 12 Month Oil Fund, LP
(Exact
name of registrant as specified in its charter)
Delaware
|
|
20-0431897
|
(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
¨
|
Accelerated
filer
¨
|
|
|
Non-accelerated
filer
x
|
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 12 MONTH OIL 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.
|
|
14
|
|
|
|
Item
3. Quantitative and Qualitative Disclosures About Market
Risk.
|
|
32
|
|
|
|
Item
4. Controls and Procedures.
|
|
33
|
|
|
|
Part
II. OTHER INFORMATION
|
|
|
Item
1. Legal Proceedings.
|
|
34
|
|
|
|
Item
1A. Risk Factors.
|
|
|
|
|
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds.
|
|
|
|
|
|
Item
3. Defaults Upon Senior Securities.
|
|
|
|
|
|
Item
4. Submission of Matters to a Vote of Security Holders.
|
|
|
|
|
|
Item
5. Other Information.
|
|
|
|
|
|
Item
6. Exhibits.
|
|
|
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
|
|
|
4
|
|
|
|
|
|
|
Condensed
Statement of Changes in Partners’ Capital (Unaudited) for the nine months
ended September 30, 2009
|
|
|
5
|
|
|
|
|
|
|
Condensed
Statements of Cash Flows (Unaudited) for the nine months ended September
30, 2009 and 2008
|
|
|
6
|
|
|
|
|
|
|
Notes
to Condensed Financial Statements for the period ended September 30,
2009 (Unaudited)
|
|
|
7
|
|
United
States 12 Month Oil 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
|
|
$
|
140,667,010
|
|
|
$
|
4,012,323
|
|
Equity
in UBS Securities LLC trading accounts:
|
|
|
|
|
|
|
|
|
Cash
|
|
|
—
|
|
|
|
4,993,212
|
|
Unrealized
gain (loss) on open commodity futures contracts
|
|
|
21,343,800
|
|
|
|
(2,754,630
|
)
|
Receivable
for units sold
|
|
|
7,355,790
|
|
|
|
—
|
|
Interest
receivable
|
|
|
13,127
|
|
|
|
2,343
|
|
Receivable
from general partner
|
|
|
—
|
|
|
|
97,019
|
|
Other
assets
|
|
|
157,260
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
169,536,987
|
|
|
$
|
6,350,267
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Partners' Capital
|
|
|
|
|
|
|
|
|
General
Partner management fees payable (Note 3)
|
|
$
|
79,019
|
|
|
$
|
2,151
|
|
Due
to broker
|
|
|
22,496
|
|
|
|
—
|
|
Brokerage
commissions payable
|
|
|
13,532
|
|
|
|
650
|
|
Other
liabilities
|
|
|
239,324
|
|
|
|
99,888
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
354,371
|
|
|
|
102,689
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
(Notes 3, 4 and 5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners'
Capital
|
|
|
|
|
|
|
|
|
General
Partner
|
|
|
—
|
|
|
|
—
|
|
Limited
Partners
|
|
|
169,182,616
|
|
|
|
6,247,578
|
|
Total
Partners' Capital
|
|
|
169,182,616
|
|
|
|
6,247,578
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and partners' capital
|
|
$
|
169,536,987
|
|
|
$
|
6,350,267
|
|
|
|
|
|
|
|
|
|
|
Limited
Partners' units outstanding
|
|
|
4,600,000
|
|
|
|
200,000
|
|
Net
asset value per unit
|
|
$
|
36.78
|
|
|
$
|
31.24
|
|
Market
value per unit
|
|
$
|
36.60
|
|
|
$
|
29.89
|
|
See
accompanying notes to condensed financial statements.
United
States 12 Month Oil Fund, LP
Condensed
Schedule of Investments (Unaudited)
At
September 30, 2009
|
|
|
|
|
Gain (Loss) on
|
|
|
% of
|
|
|
|
Number of
|
|
|
Open Commodity
|
|
|
Partners'
|
|
|
|
Contracts
|
|
|
Contracts
|
|
|
Capital
|
|
Open
Futures Contracts — Long
|
|
|
|
|
|
|
|
|
|
United
States Contracts
|
|
|
|
|
|
|
|
|
|
NYMEX
Crude Oil Futures CL contracts, expire November 2009
|
|
|
192
|
|
|
$
|
3,350,770
|
|
|
|
1.98
|
|
NYMEX
Crude Oil Futures CL contracts, expire December 2009
|
|
|
193
|
|
|
|
3,295,070
|
|
|
|
1.95
|
|
NYMEX
Crude Oil Futures CL contracts, expire January 2010
|
|
|
193
|
|
|
|
3,206,030
|
|
|
|
1.89
|
|
NYMEX
Crude Oil Futures CL contracts, expire February 2010
|
|
|
193
|
|
|
|
3,207,390
|
|
|
|
1.89
|
|
NYMEX
Crude Oil Futures CL contracts, expire March 2010
|
|
|
193
|
|
|
|
3,125,100
|
|
|
|
1.85
|
|
NYMEX
Crude Oil Futures CL contracts, expire April 2010
|
|
|
193
|
|
|
|
2,954,410
|
|
|
|
1.75
|
|
NYMEX
Crude Oil Futures CL contracts, expire May 2010
|
|
|
193
|
|
|
|
1,491,510
|
|
|
|
0.88
|
|
NYMEX
Crude Oil Futures CL contracts, expire June 2010
|
|
|
193
|
|
|
|
1,518,620
|
|
|
|
0.90
|
|
NYMEX
Crude Oil Futures CL contracts, expire July 2010
|
|
|
193
|
|
|
|
(419,340
|
)
|
|
|
(0.25
|
)
|
NYMEX
Crude Oil Futures CL contracts, expire August 2010
|
|
|
193
|
|
|
|
788,410
|
|
|
|
0.47
|
|
NYMEX
Crude Oil Futures CL contracts, expire September 2010
|
|
|
193
|
|
|
|
(1,068,590
|
)
|
|
|
(0.63
|
)
|
NYMEX
Crude Oil Futures CL contracts, expire October 2010
|
|
|
193
|
|
|
|
(105,580
|
)
|
|
|
(0.06
|
)
|
Total
Open Futures Contracts — Long
|
|
|
2,315
|
|
|
$
|
21,343,800
|
|
|
|
12.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
Amount
|
|
|
Market Value
|
|
|
|
|
|
Cash
Equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States - Money Market Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
Fidelity
Institutional Government Portfolio – Class I
|
|
$
|
65,087,986
|
|
|
$
|
65,087,986
|
|
|
|
38.47
|
|
Goldman
Sachs Financial Square Funds – Government Fund – Class SL
|
|
|
42,418,336
|
|
|
|
42,418,336
|
|
|
|
25.07
|
|
Total
Cash Equivalents
|
|
|
|
|
|
$
|
107,506,322
|
|
|
|
63.54
|
|
See
accompanying notes to condensed financial statements.
United
States 12 Month Oil 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 futures contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized
gain on closed positions
|
|
$
|
17,518,080
|
|
|
$
|
486,750
|
|
|
$
|
30,743,940
|
|
|
$
|
2,268,860
|
|
Change
in unrealized gain (loss) on open positions
|
|
|
(21,479,560
|
)
|
|
|
(2,845,610
|
)
|
|
|
24,098,430
|
|
|
|
(1,740,170
|
)
|
Interest
income
|
|
|
50,707
|
|
|
|
28,187
|
|
|
|
174,296
|
|
|
|
141,384
|
|
Other
income
|
|
|
4,000
|
|
|
|
—
|
|
|
|
27,000
|
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
income(loss)
|
|
|
(3,906,773
|
)
|
|
|
(2,330,673
|
)
|
|
|
55,043,666
|
|
|
|
673,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
Partner management fees (Note 3)
|
|
|
258,799
|
|
|
|
10,804
|
|
|
|
622,542
|
|
|
|
42,768
|
|
Brokerage
commissions
|
|
|
5,521
|
|
|
|
66
|
|
|
|
44,530
|
|
|
|
1,568
|
|
Other
expenses
|
|
|
222,384
|
|
|
|
48,808
|
|
|
|
412,791
|
|
|
|
149,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expenses
|
|
|
486,704
|
|
|
|
59,678
|
|
|
|
1,079,863
|
|
|
|
193,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense
waiver
|
|
|
—
|
|
|
|
(45,330
|
)
|
|
|
(11,227
|
)
|
|
|
(132,954
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
expenses
|
|
|
486,704
|
|
|
|
14,348
|
|
|
|
1,068,636
|
|
|
|
60,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(4,393,477
|
)
|
|
$
|
(2,345,021
|
)
|
|
$
|
53,975,030
|
|
|
$
|
612,290
|
|
Net
income (loss) per limited partnership unit
|
|
$
|
(0.97
|
)
|
|
$
|
(23.45
|
)
|
|
$
|
5.54
|
|
|
$
|
6.37
|
|
Net
income (loss) per weighted average limited partnership
unit
|
|
$
|
(0.95
|
)
|
|
$
|
(23.45
|
)
|
|
$
|
13.28
|
|
|
$
|
4.06
|
|
Weighted
average limited partnership units outstanding
|
|
|
4,632,609
|
|
|
|
100,000
|
|
|
|
4,063,736
|
|
|
|
150,730
|
|
See
accompanying notes to condensed financial statements.
United
States 12 Month Oil 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
|
|
$
|
—
|
|
|
$
|
6,247,578
|
|
|
$
|
6,247,578
|
|
Addition
of 6,600,000 partnership units
|
|
|
—
|
|
|
|
185,074,917
|
|
|
|
185,074,917
|
|
Redemption
of 2,200,000 partnership units
|
|
|
—
|
|
|
|
(76,114,909
|
)
|
|
|
(76,114,909
|
)
|
Net
income
|
|
|
—
|
|
|
|
53,975,030
|
|
|
|
53,975,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
at September 30, 2009
|
|
$
|
—
|
|
|
$
|
169,182,616
|
|
|
$
|
169,182,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Asset Value Per Unit
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2008
|
|
$
|
31.24
|
|
|
|
|
|
|
|
|
|
At
September 30, 2009
|
|
$
|
36.78
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to condensed financial statements.
United
States 12 Month Oil 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
income
|
|
$
|
53,975,030
|
|
|
$
|
612,290
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Decrease
in commodity futures trading account – cash
|
|
|
5,015,708
|
|
|
|
493,732
|
|
Unrealized
(gain) loss on futures contracts
|
|
|
(24,098,430
|
)
|
|
|
1,740,170
|
|
(Increase)
decrease in receivable from general partner
|
|
|
97,019
|
|
|
|
(132,953
|
)
|
Increase
in interest receivable and other assets
|
|
|
(168,044
|
)
|
|
|
(865
|
)
|
Increase
(decrease) in management fees payable
|
|
|
76,868
|
|
|
|
(5,696
|
)
|
Increase
in commission fees payable
|
|
|
12,882
|
|
|
|
300
|
|
Increase
in other liabilities
|
|
|
139,436
|
|
|
|
131,379
|
|
Net
cash provided by operating activities
|
|
|
35,050,469
|
|
|
|
2,838,357
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Subscription
of partnership units
|
|
|
177,719,127
|
|
|
|
—
|
|
Redemption
of partnership units
|
|
|
(76,114,909
|
)
|
|
|
(16,243,629
|
)
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) financing activities
|
|
|
101,604,218
|
|
|
|
(16,243,629
|
)
|
|
|
|
|
|
|
|
|
|
Net
Increase (Decrease) in Cash and Cash Equivalents
|
|
|
136,654,687
|
|
|
|
(13,405,272
|
)
|
|
|
|
|
|
|
|
|
|
Cash and Cash
Equivalents
, beginning of period
|
|
|
4,012,323
|
|
|
|
18,174,276
|
|
Cash and Cash
Equivalents
, end of period
|
|
$
|
140,667,010
|
|
|
$
|
4,769,004
|
|
See
accompanying notes to condensed financial statements.
United
States 12 Month Oil Fund, LP
Notes
to Condensed Financial Statements
For
the period ended September 30, 2009 (Unaudited)
NOTE 1 - ORGANIZATION AND
BUSINESS
The
United States 12 Month Oil Fund, LP (“US12OF”) was organized as a limited
partnership under the laws of the state of Delaware on June 27,
2007. US12OF 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, US12OF’s units traded on the American Stock
Exchange (the “AMEX”). US12OF will continue in perpetuity, unless terminated
sooner upon the occurrence of one or more events as described in
its Amended and Restated Agreement of Limited Partnership dated as of
December 4, 2007 (the “LP Agreement”). The investment objective of US12OF is for
the changes in percentage terms of its units’ net asset value to reflect the
changes in percentage terms of the spot price of light, sweet crude
oil delivered to Cushing, Oklahoma, as measured by the changes in the average of
the prices of the 12 futures contracts on light, sweet crude oil as
traded on the New York Mercantile Exchange (the “NYMEX”), consisting
of the near month contract to expire and the contracts for the following 11
months for a total of 12 consecutive months’ contracts, except when the near
month contract is within two weeks of expiration, in which case it will be
measured by the futures contracts that are the next month contract to expire and
the contracts for the following 11 consecutive months, less US12OF’s
expenses. US12OF accomplishes its objective through investments in futures
contracts for light, sweet crude oil, and other types of crude oil, heating oil,
gasoline, natural gas and other petroleum-based fuels that are traded on the
NYMEX, ICE Futures or other U.S. and foreign exchanges (collectively, “Oil
Futures Contracts”) and other oil-related investments such as cash-settled
options on Oil Futures Contracts, forward contracts for oil and over-the-counter
transactions that are based on the price of crude oil, heating oil, gasoline,
natural gas and other petroleum-based fuels, Oil Futures Contracts and indices
based on the foregoing (collectively, “Other Oil Interests”). As of
September 30, 2009, US12OF held 2,315 Oil Futures Contracts traded on the
NYMEX.
US12OF
commenced investment operations on December 6, 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 US12OF. The General Partner is a member of the National Futures
Association (the “NFA”) and became a commodity pool operator registered
with the Commodity Futures Trading Commission effective December 1, 2005. The
General Partner is also the general partner of the United States Oil Fund,
LP (“USOF”), the United States Natural Gas Fund, LP (“USNG”), the United States
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, “UNG” on April 18, 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, USNG’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.
US12OF 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 US12OF 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 US12OF
but rather at market prices quoted on such exchange.
In
November 2007, US12OF initially registered 11,000,000 units on Form S-1 with the
SEC. On December 6, 2007, US12OF listed its units on the AMEX under the ticker
symbol “USL”. On that day, US12OF established its initial net asset value by
setting the price at $50.00 per unit and issued 300,000 units in exchange
for $15,001,000. US12OF also commenced investment operations on
December 6, 2007 by purchasing Oil Futures Contracts traded on the NYMEX based
on light, sweet crude oil. As of September 30, 2009, US12OF had registered a
total of 111,000,000 units and had 4,600,000 units
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. US12OF earns interest
on its assets denominated in U.S. dollars on deposit with the futures commission
merchant at the 90-day Treasury bill rate. In addition, US12OF earns
interest on funds held at the custodian at prevailing market rates earned
on such investments.
Brokerage
Commissions
Brokerage
commissions on all open commodity futures contracts are accrued on a full-turn
basis.
Income
Taxes
US12OF 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.
US12OF
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 US12OF’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 US12OF 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
US12OF’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. US12OF
uses the closing price for the contracts on the relevant exchange on that day to
determine the value of contracts held on such exchange.
Net
Income (Loss) per Unit
Net
income (loss) per unit is the difference between the net asset value per
unit at the beginning of each period and at the end of each period. The
weighted average number of units outstanding was computed for purposes of
disclosing net income (loss) per weighted average unit. The weighted average
units are equal to the number of units outstanding at the end of the period,
adjusted proportionately for units redeemed based on the amount of time the
units were outstanding during such period. There were no units held by the
General Partner at 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 US12OF. 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 US12OF’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 US12OF in accordance with the objectives and policies of US12OF. 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 US12OF. For these services, US12OF 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.
Ongoing
Registration Fees and Other Offering Expenses
US12OF
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, US12OF incurred $96,250 and $0,
respectively, in registration fees and other offering expenses.
Directors’
Fees
US12OF 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. US12OF shares these fees with USOF, USNG, 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.
Licensing
Fees
As
discussed in Note 4, US12OF entered into a licensing agreement with the
NYMEX on January 16, 2008. Pursuant to the agreement, US12OF 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, US12OF incurred $24,679 and $2,527,
respectively, under this arrangement.
Investor
Tax Reporting Cost
The fees
and expenses associated with US12OF’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 US12OF.
Other
Expenses and Fees and Expense Waivers
In
addition to the fees described above, US12OF pays all brokerage fees, taxes
and other expenses in connection with the operation of US12OF, excluding costs
and expenses paid by the General Partner as outlined in Note 4.
The
General Partner, though under no obligation to do so, agreed to pay certain
expenses, to the extent that such expenses exceed 0.15% (15 basis points) of
US12OF’s NAV, on an annualized basis, through March 31, 2009 after which date
such payments were no longer necessary. The General Partner has no
obligation to make such payment into subsequent
periods.
NOTE
4 - CONTRACTS AND AGREEMENTS
US12OF is
party to a marketing agent agreement, dated as of November 13, 2007,
with the Marketing Agent and the General Partner, whereby the Marketing
Agent provides certain marketing services for US12OF as outlined in the
agreement. The fee of the Marketing Agent, which is borne by the General
Partner, is equal to 0.06% on US12OF’s assets up to $3 billion; and 0.04% on
US12OF’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.
US12OF is
also party to a custodian agreement, dated October 5, 2007, with Brown Brothers
Harriman & Co. (“BBH&Co.”) and the General Partner, whereby BBH&Co.
holds investments on behalf of US12OF. The General Partner pays the fees of
the custodian, which are determined by the parties from time to time. In
addition, US12OF is party to an administrative agency agreement, dated October
5, 2007, with the General Partner and BBH&Co., whereby BBH&Co. acts as
the administrative agent, transfer agent and registrar for US12OF. 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 US12OF 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
US12OF’s, USOF’s, USNG’s, UGA’s, USHO’s and USSO’s combined net assets, (b)
0.0465% for US12OF’s, USOF’s, USNG’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
US12OF’s, USOF’s, USNG’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.
US12OF
has entered into a brokerage agreement with UBS Securities LLC (“UBS
Securities”). The agreement requires UBS Securities to provide services to
US12OF in connection with the purchase and sale of Oil Futures Contracts
and Other Oil Interests that may be purchased and sold by or through UBS
Securities for US12OF’s account. The agreement provides that UBS Securities
charge US12OF commissions of approximately $7 per round-turn trade, plus
applicable exchange and NFA fees for Oil Futures Contracts and options on
Oil Futures Contracts.
On
January 16, 2008, US12OF and the NYMEX entered into a licensing agreement
whereby US12OF was granted a non-exclusive license to use certain of the NYMEX’s
settlement prices and service marks. The agreement has an effective date of
December 4, 2007. Under the licensing agreement, US12OF 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.
US12OF
expressly disclaims any association with the NYMEX or endorsement of US12OF 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
US12OF engages
in the trading of futures contracts and options on futures contracts
(collectively, “derivatives”). US12OF 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.
US12OF
may enter into futures contracts and options on futures contracts to gain
exposure to changes in the value of an underlying commodity. A futures contract
obligates the seller to deliver (and the purchaser to accept) the future
delivery of a specified quantity and type of a commodity at a specified time and
place. Some futures contracts may call for physical delivery of the
asset, while others are settled in cash. The contractual obligations of a
buyer or seller may generally be satisfied by taking or making physical delivery
of the underlying commodity or by making an offsetting sale or purchase of an
identical futures contract on the same or linked exchange before the designated
date of delivery.
The
purchase and sale of futures contracts and options on futures contracts require
margin deposits with a futures commission merchant. Additional deposits may be
necessary for any loss on contract value. The Commodity Exchange Act requires a
futures commission merchant to segregate all customer transactions and assets
from the futures commission merchant’s proprietary activities.
Futures
contracts involve, to varying degrees, elements of market risk (specifically
commodity price risk) and exposure to loss in excess of the amount of variation
margin. The face or contract amounts reflect the extent of the total exposure
US12OF has in the particular classes of instruments. Additional risks associated
with the use of futures contracts are an imperfect correlation between movements
in the price of the futures contracts and the market value of the underlying
securities and the possibility of an illiquid market for a futures
contract.
All of
the futures contracts currently traded by US12OF are exchange-traded. The risks
associated with exchange-traded contracts are generally perceived to be less
than those associated with over-the-counter transactions since, in
over-the-counter transactions, US12OF must rely solely on the credit of its
respective individual counterparties. However, in the future, if US12OF
were to enter into non-exchange traded contracts, it would be subject to the
credit risk associated with counterparty non-performance. The credit risk from
counterparty non-performance associated with such instruments is the net
unrealized gain, if any. US12OF also has credit risk since the sole counterparty
to all domestic and foreign futures contracts is the exchange on which the
relevant contracts are traded. In addition, US12OF bears the risk of financial
failure by the clearing broker.
US12OF’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 US12OF’s assets posted with that futures commission merchant;
however, the vast majority of US12OF’s assets are held in Treasuries, cash
and/or cash equivalents with US12OF’s custodian and would not be impacted by the
insolvency of a futures commission merchant. Also, the failure or insolvency of
US12OF’s custodian could result in a substantial loss of US12OF’s
assets.
US12OF
invests a portion of its cash in money market funds that seek to maintain a
stable net asset value. US12OF 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, US12OF had deposits in domestic and foreign financial institutions,
including cash investments in money market funds, in the amounts of $140,644,514
and $9,005,535, 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, US12OF 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, US12OF 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.
US12OF’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, US12OF 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 US12OF 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, US12OF 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 US12OF
(observable inputs) and (2) US12OF’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.
The
following table summarizes the valuation of US12OF’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
|
|
$
|
107,506,322
|
|
|
$
|
107,506,322
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Exchange-Traded
Futures Contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States Contracts
|
|
|
21,343,800
|
|
|
|
21,343,800
|
|
|
|
—
|
|
|
|
—
|
|
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
|
|
|
September 30, 2008
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Per Unit Operating
Performance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
asset value, beginning of period
|
|
$
|
31.24
|
|
|
$
|
54.23
|
|
Total
income
|
|
|
5.80
|
|
|
|
6.77
|
|
Net
expenses
|
|
|
(0.26
|
)
|
|
|
(0.40
|
)
|
Net
increase in net asset value
|
|
|
5.54
|
|
|
|
6.37
|
|
Net
asset value, end of period
|
|
$
|
36.78
|
|
|
$
|
60.60
|
|
|
|
|
|
|
|
|
|
|
Total
Return
|
|
|
17.73
|
%
|
|
|
11.75
|
%
|
|
|
|
|
|
|
|
|
|
Ratios
to Average Net Assets
|
|
|
|
|
|
|
|
|
Total
income
|
|
|
39.68
|
%
|
|
|
7.07
|
%
|
Management
fees*
|
|
|
0.60
|
%
|
|
|
0.60
|
%
|
Total
expenses excluding management fees*
|
|
|
0.44
|
%
|
|
|
2.12
|
%
|
Expense
waived*
|
|
|
(0.01
|
)
%
|
|
|
(1.87
|
)
%
|
Net
expenses excluding management fees*
|
|
|
0.43
|
%
|
|
|
0.25
|
%
|
Net
income
|
|
|
38.91
|
%
|
|
|
6.43
|
%
|
|
|
|
|
|
|
|
|
|
*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 US12OF.
NOTE
8 – RECENTLY ADOPTED ACCOUNTING STANDARDS
In March
2008, the Financial Accounting Standards Board released Accounting Standards
Codification 815 – Derivatives and Hedging, (“ASC 815”). ASC 815
requires qualitative disclosures about objectives and strategies for using
derivatives, quantitative disclosures about fair value amounts of, and gains and
losses on, derivative instruments, and disclosures about credit-risk-related
contingent features in derivative agreements. US12OF adopted ASC 815 on
January 1, 2009.
NOTE 9 – SUBSEQUENT
EVENTS
US12OF
has performed an evaluation of subsequent events through November 16, 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.
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 12 Month Oil Fund, LP
(“US12OF”) 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 US12OF’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 US12OF’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
US12OF cannot assure investors that the projections included in these
forward-looking statements will come to pass. US12OF’s actual results could
differ materially from those expressed or implied by the forward-looking
statements as a result of various factors.
US12OF
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 US12OF assumes no obligation to update any such
forward-looking statements. Although US12OF 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 US12OF may make directly to them or through
reports that US12OF 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
US12OF, 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 US12OF 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
light, sweet crude oil delivered to Cushing, Oklahoma, as measured by the
changes in the average of the prices of 12 Oil Futures Contracts on light, sweet
crude oil as traded on the New York Mercantile Exchange (the “NYMEX”) consisting
of the near month contract to expire and the contracts for the following 11
months for a total of 12 consecutive months’ contracts, except when the near
month contract is within two weeks of expiration, in which case it will be
measured by the futures contract that is the next month contract to expire and
the contracts for the following 11 consecutive months (the “Benchmark Futures
Contract”), less US12OF’s expenses.
US12OF
seeks to achieve its investment objective by investing in a combination of oil
futures contracts and other oil interests such that changes in its NAV, measured
in percentage terms, will closely track the changes in the Benchmark
Futures Contracts, also measured in percentage terms. US12OF’s general partner
believes the Benchmark Futures Contracts historically have exhibited a
close correlation with the spot price of light, sweet crude oil. It is not the
intent of US12OF to be operated in a fashion such that the NAV will equal, in
dollar terms, the spot price of light, sweet crude oil or any particular futures
contract based on light, sweet crude oil. Management believes that it is not
practical to manage the portfolio to achieve such an investment goal when
investing in listed crude oil futures contracts.
On any
valuation day, the Benchmark Futures Contracts are the near month futures
contract for light, sweet crude oil traded on the New York Mercantile
Exchange (the “NYMEX”) and the contracts for the following 11 months for a total
of 12 consecutive months’ contracts unless the near month contract will expire
within two weeks of the valuation day, in which case the Benchmark Futures
Contracts are the next month contract for light, sweet crude oil traded on the
NYMEX and the contracts for the following 11 consecutive months. “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.
US12OF
invests in futures contracts for light, sweet crude oil, other types of
crude oil, heating oil, gasoline, natural gas and other petroleum-based fuels
that are traded on the NYMEX, ICE Futures or other U.S. and foreign exchanges
(collectively, “Oil Futures Contracts”) and other oil interests such as
cash-settled options on Oil Futures Contracts, forward contracts for oil and
over-the-counter transactions that are based on the price of crude oil, other
petroleum-based fuels, Oil Futures Contracts and indices based on the foregoing
(collectively, “Other Oil Interests”). For convenience and unless otherwise
specified, Oil Futures Contracts and Other Oil Interests collectively are
referred to as “Crude Oil Interests” in this quarterly report on Form
10-Q.
The
regulation of Crude Oil 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 US12OF?” of US12OF’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 US12OF.
Currently,
a number of proposals to alter the regulation of Crude Oil Interests are being
considered by federal regulators and legislators. These proposals include the
imposition of hard position limits on energy-based commodity futures contracts,
the extension of position and accountability limits to futures contracts on
non-U.S. exchanges previously exempt from such limits, and the forced use of
clearinghouse mechanisms for all over-the-counter transactions. An
additional proposal would aggregate and limit all positions in energy futures
held by a single entity, whether such positions exist on U.S. futures exchanges,
non-U.S. futures exchanges, or in over-the-counter contracts. If any
of the aforementioned proposals is implemented, US12OF’s ability to meet
its investment objective may be negatively impacted.
The
general partner of US12OF, 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 Amended and Restated
Agreement of Limited Partnership of US12OF (the “LP Agreement”) to manage
US12OF. The General Partner is authorized by US12OF in its sole judgment to
employ and establish the terms of employment for, and termination of, commodity
trading advisors or futures commission merchants.
Average
crude oil futures prices were volatile during the nine months ended September
30, 2009 and exhibited wide daily swings along with an uneven upward trend from
late February to late March 2009. The average price of the Benchmark Futures
Contracts started the period at $54.01 per barrel. The low of the period was on
February 18, 2009 when prices reached $44.24 per barrel. Average prices rose
over the course of the period and hit a peak on August 5, 2009 of $75.58 per
barrel. The period ended with the average price of the Benchmark Futures
Contracts at $73.00 per barrel, up approximately 35.16% over the period.
Similarly, US12OF’s NAV rose during the period from a starting level of $31.24
per unit to a high on August 5, 2009 of $39.73 per unit. US12OF’s NAV reached
its low for the period on February 18, 2009 at $24.34 per unit. The NAV on
September 30, 2009 was $36.78, up approximately 17.73% over the
period.
For the
first half of 2008, the crude oil futures market remained in a state of
backwardation, meaning that the price of the near month crude oil futures
contract was typically higher than the price of the next month crude oil futures
contract, or contracts further away from expiration. For much of the third
quarter of 2008, the crude oil futures market moved back and forth between a
mild backwardation market and a mild contango market. A contango market is one
in which the price of the near month crude oil futures contract is less than the
price of the next month crude oil futures contract, or contracts further away
from expiration. From late November 2008 to the end of 2008, the market moved
into a much steeper contango market. During the first two quarters of 2009, the
crude oil market remained in contango. During parts of January 2009 and February
2009, the level of contango was unusually steep reflecting that the cost of oil
futures contracts further from expiration were significantly higher than the
near month oil futures contract. Crude oil inventories, which reached historic
levels in January 2009 and February 2009 and which appear to be the primary
cause of the steep level of contango, began to drop in March 2009 and for the
balance of the first half of 2009. The crude oil futures market remained in
contango through the quarter ended September 30, 2009. For a discussion of the
impact of backwardation and contango on total returns, see “Term Structure of
Crude Oil Prices and the Impact on Total Returns”.
Valuation
of Futures Contracts and the Computation of the NAV
The NAV
of US12OF 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. US12OF’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 US12OF investments, including ICE Futures contracts 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 Crude Oil Market
Results of
Operations.
On December 6, 2007, US12OF listed its units on the
American Stock Exchange (the “AMEX”) under the ticker symbol “USL.” On that day,
US12OF established its initial offering price at $50.00 per unit and issued
300,000 units to the initial authorized purchaser, Merrill Lynch Professional
Clearing Corp., in exchange for $15,001,000 in cash. As a result of the
acquisition of the AMEX by NYSE Euronext, US12OF’s units no longer trade on the
AMEX and commenced trading on the NYSE Arca on November 25, 2008.
Since its
initial offering of 11,000,000 units, US12OF has made one subsequent offering of
its units: 100,000,000 units which were registered with the SEC on March
31, 2009. As of September 30, 2009, US12OF had issued 6,900,000 units and had
4,600,000 units outstanding. As of September 30, 2009, there were 104,100,000
units registered but not yet issued.
More
units may have been issued by US12OF 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 US12OF cannot
be resold by US12OF. As a result, US12OF 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 Futures Contracts owned or
held on that day was $21,343,800 and US12OF established cash deposits,
including cash investments in money market funds, that were equal to
$140,644,514. US12OF held 100.02% of its cash assets in overnight deposits and
money market funds at its custodian bank, while -0.02% of the cash balance was
held with the futures commission merchant as margin deposits for the Futures
Contracts purchased. Margin requirements at this time were satisfied by
unrealized appreciation on investments held at the futures commission merchant,
including a forward funding excess of $8,690,704 in open equity over the
required margin deposit amount. The ending per unit NAV on September 30, 2009
was $36.78.
By
comparison, as of September 30, 2008, the total unrealized loss on Futures
Contracts owned or held on that day was $214,800 and US12OF established cash
deposits, including cash investments in money market funds, that were equal to
$6,274,380. US12OF held 76.01% of its cash assets in overnight deposits and
money market funds at its custodian bank, while 23.99% 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, 2008 was $60.60.
The decrease in the per unit NAV from September 30, 2008 to September 30, 2009
was primarily a result of sharply lower prices for crude oil and the related
decline in the value of the Oil Futures Contracts that US12OF had invested in
between the period ended September 30, 2008 and the period ended September 30,
2009.
Portfolio Expenses
. US12OF’s
expenses consist of investment management fees, brokerage
fees and commissions, certain offering costs, licensing fees and the fees
and expenses of the independent directors of the General Partner. The
management fee that US12OF pays to the General Partner is calculated as a
percentage of the total net assets of US12OF. US12OF pays the
General Partner a management fee of 0.60% of net assets. The fee is accrued
daily.
During
the nine months ended September 30, 2009, the daily average total net assets
of US12OF were $138,722,810. During the nine months ended September 30,
2009, the management fee paid by US12OF amounted to $622,542, and was accrued
daily. By comparison, during the nine months ended September 30, 2008, the daily
average total net assets of US12OF were $9,521,254. During the nine
months ended September 30, 2008, the management fee paid by US12OF amounted to
$42,768, and was accrued daily.
In
addition to the management fee, US12OF pays all brokerage fees, 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 $457,321, as compared to $150,970
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 US12OF and activity that resulted from
its increased size, including the registration and the offering of additional
units, increased brokerage fees, 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, US12OF incurred $96,250 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, US12OF did not incur any ongoing registration fees or other
expenses relating to the registration and offering of additional units. Expenses
incurred in connection with organizing US12OF and the costs of the initial
offering of units were borne by the General Partner, and are not
subject to reimbursement by US12OF.
US12OF 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. US12OF shares these fees with the United States Oil
Fund, LP (“USOF”), the United States Natural Gas Fund, LP (“USNG”), the
United States Gasoline Fund, LP (“UGA”), the United States Heating Oil Fund, LP
(“USHO”) and the United States Short Oil Fund, LP (“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 US12OF’s portion of such fees was $1,762.
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.
US12OF
also incurs commissions to brokers for the purchase and sale of Oil Futures
Contracts, Other Oil Interests 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 $44,530. By
comparison, during the nine months ended September 30, 2008, total commissions
paid to brokers amounted to $1,568. 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 the increase in US12OF’s
average total net assets and the increase in redemptions and creations of units
during the nine months ended September 30, 2009. The increase in assets required
US12OF to purchase a greater number of futures contracts and incur a larger
amount of commissions. As an annualized percentage of total net assets,
the figure for the nine months ended September 30, 2009 represents
approximately 0.04% of total net assets. By comparison, the figure for the nine
months ended September 30, 2008 represented approximately 0.02% 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.
Interest
Income
. US12OF seeks to invest its assets such that it
holds Oil Futures Contracts and Other Oil Interests in an amount equal to
the total net assets of its portfolio. Typically, such investments do not
require US12OF to pay the full amount of the contract value at the time of
purchase, but rather require US12OF to post an amount as a margin deposit
against the eventual settlement of the contract. As a result, US12OF retains an
amount that is approximately equal to its total net assets, which US12OF 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 US12OF’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, US12OF earned $174,296 in
interest income on such cash holdings. Based on US12OF’s average daily total net
assets, this is equivalent to an annualized yield of 0.17%. US12OF 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, US12OF earned
$141,384 in interest income on such cash holdings. Based on US12OF’s
average daily total net assets, this was equivalent to an annualized yield of
1.98%. US12OF 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 US12OF
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.
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
US12OF were $171,126,467. During the three months ended September 30, 2009, the
management fee paid by US12OF amounted to $258,799, and was accrued daily. By
comparison, during the three months ended September 30, 2008, the daily average
total net assets of US12OF were $7,163,236. During the three months
ended September 30, 2008, the management fee paid by US12OF amounted to $10,804,
and was accrued daily.
In
addition to the management fee, US12OF pays all brokerage fees, 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 $227,905, as compared to $48,874 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 US12OF and activity that resulted from its increased size,
including the registration and the offering of additional units, increased
brokerage fees, 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, US12OF incurred $29,750 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, US12OF did not incur any fees and other expenses relating to the
registration and offering of additional units. Expenses incurred in connection
with organizing US12OF and the costs of the initial offering of units
were borne by the General Partner, and are not subject to reimbursement by
US12OF.
US12OF 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. US12OF shares these fees with USOF, USNG, 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 US12OF’s portion of such fees was $2,204. By
comparison, for the three months ended September 30, 2008, these fees amounted
to a total of $72,126 for all funds, and US12OF’s portion of such fees was $248.
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.
US12OF
also incurs commissions to brokers for the purchase and sale of Oil Futures
Contracts, Other Oil Interests or Treasuries. During the three months ended
September 30, 2009, total commissions paid to brokers amounted to $5,521. By
comparison, during the three months ended September 30, 2008, total commissions
paid to brokers amounted to $66. 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 the increase in US12OF’s average
total net assets and the increase in redemptions and creations of units during
the three months ended September 30, 2009. The increase in assets required
US12OF to purchase a greater number of futures contracts and incur a larger
amount of commissions. As an annualized percentage of total net assets,
the figure for the three months ended September 30, 2009 represents
approximately 0.01% of total net assets. By comparison, the figure for the three
months ended September 30, 2008 represented approximately 0.00% 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.
Interest
Income
. US12OF seeks to invest its assets such that it
holds Oil Futures Contracts and Other Oil Interests in an amount equal to
the total net assets of its portfolio. Typically, such investments do not
require US12OF to pay the full amount of the contract value at the time of
purchase, but rather require US12OF to post an amount as a margin deposit
against the eventual settlement of the contract. As a result, US12OF retains an
amount that is approximately equal to its total net assets, which US12OF 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 US12OF’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, US12OF earned $50,707 in
interest income on such cash holdings. Based on US12OF’s average daily total net
assets, this is equivalent to an annualized yield of 0.12%. US12OF 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, US12OF earned
$28,187 in interest income on such cash holdings. Based on US12OF’s average
daily total net assets, this was equivalent to an annualized yield of 1.57%.
US12OF 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 US12OF 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
US12OF’s Benchmark
US12OF
seeks to manage its portfolio such that changes in its average daily NAV, on a
percentage basis, closely track the changes in the average of the daily prices
of the Benchmark Futures Contracts, also on a percentage basis. Specifically,
US12OF 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 Contracts. As an example, if the average daily movement
of the average of the prices of the Benchmark Futures Contracts for a
particular 30-day time period was 0.5% per day, US12OF 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). US12OF’s portfolio management goals do not include
trying to make the nominal price of US12OF’s NAV equal to the average of the
nominal prices of the current Benchmark Futures Contracts or the spot price
for light, sweet crude oil. Management believes that it is not practical to
manage the portfolio to achieve such an investment goal when investing in listed
Oil Futures Contracts.
For the
30 valuation days ended September 30, 2009, the simple average daily change in
the Benchmark Futures Contracts was -0.098%, while the simple average daily
change in the NAV of US12OF over the same time period was -0.101%. 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
Contracts, the average error in daily tracking by the NAV was -1.713%, meaning
that over this time period US12OF’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 US12OF’s NAV versus the daily movement of the
Benchmark Futures Contracts for the 30-day period ended September 30,
2009.
*PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS
*PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS
Since the offering of US12OF units to
the public on December 6, 2007 to September 30, 2009, the simple average
daily change in the Benchmark Futures Contracts was -0.027%, while the
simple average daily change in the NAV of US12OF over the same time period was
-0.025%. The average daily difference was -0.002% (or -0.2 basis points, where 1
basis point equals 1/100 of 1%). As a percentage of the daily movement of the
Benchmark Futures Contracts, the average error in daily tracking by the NAV
was -0.044%, meaning that over this time period US12OF’s tracking error was
within the plus or minus 10% range established as its benchmark tracking
goa
l.
An
alternative tracking measurement of the return performance of US12OF versus the
return of its Benchmark Futures Contracts can be calculated by comparing
the actual return of US12OF, measured by changes in its NAV, versus the
expected
changes in its
NAV under the assumption that US12OF’s returns had been exactly the same as the
daily changes in its Benchmark Futures Contracts.
For the
nine months ended September 30, 2009, the actual total return of US12OF as
measured by changes in its NAV was 17.73%. This is based on an initial
NAV of $31.24 on December 31, 2008 and an ending NAV as of September
30, 2009 of $36.78. During this time period, US12OF made no distributions to its
unitholders. However, if US12OF’s daily changes in its NAV had instead exactly
tracked the changes in the daily return of the Benchmark Futures Contracts,
US12OF would have ended the third quarter of 2009 with an estimated NAV of
$36.95, for a total return over the relevant time period of 18.28%. The
difference between the actual NAV total return of US12OF of 17.73% and the
expected total return based on the Benchmark Futures Contracts of 18.28% was an
error over the time period of 0.55%, which is to say that US12OF’s actual total
return trailed the benchmark result by that percentage. Management believes that
a portion of the difference between the actual return and the expected benchmark
return can be attributed to the net impact of the expenses and the interest that
US12OF collects on its cash and cash equivalent holdings. During the nine months
ended September 30, 2009, US12OF received interest income of $174,296, which is
equivalent to a weighted average interest rate of 0.17% for the nine months
ended September 30, 2009. In addition, during the nine months ended September
30, 2009, US12OF also collected $27,000 from its authorized purchasers
(“Authorized Purchasers”) creating or redeeming baskets of units. This income
also contributed to US12OF’s actual return. However, if the total assets of
US12OF 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,
US12OF incurred net expenses of $1,068,636. Income from interest and Authorized
Purchaser collections net of expenses was $(867,340), which is equivalent to a
weighted average net interest rate of -0.84% for the nine months ended September
30, 2009.
By
comparison, for the nine months ended September 30, 2008, the actual total
return of US12OF as measured by changes in its NAV was 11.75%. This was based on
an initial NAV of $54.23 on December 31, 2007 and an ending NAV as of
September 30, 2008 of $60.60. During this time period, US12OF made no
distributions to its unitholders. However, if US12OF’s daily changes in its NAV
had instead exactly tracked the changes in the daily return of the Benchmark
Futures Contracts, US12OF would have ended the third quarter of 2008 with
an estimated NAV of $60.04, for a total return over the relevant time period of
10.74%. The difference between the actual NAV total return of US12OF of 11.75%
and the expected total return based on the Benchmark Futures Contracts of 10.74%
was an error over the time period of 1.01%, which is to say that US12OF’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
US12OF collected on its cash and cash equivalent holdings. During the nine
months ended September 30, 2008, US12OF received interest income of $141,384,
which is equivalent to a weighted average interest rate of 1.98% for the nine
months ended September 30, 2008. In addition, during the nine months ended
September 30, 2008, US12OF also collected $3,000 from Authorized Purchasers
creating or redeeming baskets of units. During the nine months ended September
30, 2008, US12OF incurred net expenses of $60,784. Income from interest and
Authorized Purchaser collections net of expenses was $83,600, which is
equivalent to a weighted average net interest rate of 1.17% for the nine months
ended September 30, 2008. This income also contributed to US12OF’s actual return
exceeding the benchmark results.
There are
currently three factors that have impacted or are most likely to impact
US12OF’s ability to accurately track its Benchmark Futures
Contracts.
First,
US12OF may buy or sell its holdings in the then current Benchmark Futures
Contracts at a price other than the closing settlement price of that contract on
the day during which US12OF executes the trade. In that case, US12OF may pay a
price that is higher, or lower, than that of the Benchmark Futures
Contracts, which could cause the changes in the daily NAV of US12OF to
either be too high or too low relative to the changes in the Benchmark Futures
Contracts. 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 Contracts at, or as close as possible to,
the end of the day settlement price. However, it may not always be possible for
US12OF 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 US12OF’s attempt to track its Benchmark Futures Contracts over
time.
Second,
US12OF earns interest on its cash, cash equivalents and Treasury
holdings. US12OF 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 US12OF’s NAV. When this income
exceeds the level of US12OF’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), US12OF will realize a net yield that will tend to cause daily
changes in the NAV of US12OF to track slightly higher than daily changes in the
average of the prices of the Benchmark Futures Contract. During the nine
months ended September 30, 2009, US12OF earned, on an annualized basis,
approximately 0.17% on its cash holdings. It also incurred cash expenses on an
annualized basis of 0.60% for management fees and approximately 0.04% in
brokerage commission costs related to the purchase and sale of futures
contracts, and 0.39% for other expenses. The foregoing fees and expenses
resulted in a net yield on an annualized basis of approximately -0.86% and
affected US12OF’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 Contracts.
Third,
US12OF may hold Other Oil Interests in its portfolio that may fail to
closely track the Benchmark Futures Contracts’ total return movements. In
that case, the error in tracking the benchmark could result in daily changes in
the NAV of US12OF 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, US12OF did not hold any Other Oil Interests. However, there
can be no assurance that in the future US12OF will not invest in such Other Oil
Interests, which may have the effect of increasing transaction related expenses
and result in increased tracking error.
Term Structure of Crude Oil 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
crude oil 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 crude oil for immediate delivery (the “spot”
price), was $50 per barrel, and the value of a position in the near month
futures contract was also $50. Over time, the price of the barrel of crude oil
will fluctuate based on a number of market factors, including demand for
oil 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
oil, 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 crude oil 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 crude oil
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 $50 investment would tend
to rise faster than the spot price of crude oil, or fall slower. As a result, it
would be possible in this hypothetical example for the price of spot crude oil
to have risen to $60 after some period of time, while the value of the
investment in the futures contract would have risen to $65, assuming
backwardation is large enough or enough time has elapsed. Similarly, the spot
price of crude oil could have fallen to $40 while the value of an investment in
the futures contract could have fallen to only $45. Over time, if backwardation
remained constant, the difference would continue to increase.
If the
futures market is in contango, the investor would be buying a next month
contract for a higher price than the current near month contract.
Hypothetically, and assuming no other changes to either prevailing crude oil
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 $50 investment would tend to rise slower
than the spot price of crude oil, or fall faster. As a result, it would be
possible in this hypothetical example for the spot price of crude oil to
have risen to $60 after some period of time, while the value of the investment
in the futures contract will have risen to only $55, assuming contango is large
enough or enough time has elapsed. Similarly, the spot price of crude oil could
have fallen to $45 while the value of an investment in the futures contract
could have fallen to $40. Over time, if contango remained constant, the
difference would continue to increase.
The chart
below compares the price of the near month contract to the average price of the
near 12 months over the last 10 years (1999-2008) for light, sweet crude oil.
When the price of the near month contract is higher than the average price of
the near 12 month contracts, the market would be described as being in
backwardation. When the price of the near month contract is lower than the
average price of the near 12 month contracts, the market would be described as
being in contango. Although the prices of the near month contract and the
average price of the near 12 month contracts do tend to move up or down
together, it can be seen that at times the near month prices are clearly higher
than the average price of the near 12 month contracts (backwardation), and other
times they are below the average price of the near 12 month contracts
(contango).
Near Month Price
(
“NG1
”
)
vs Average Price of the Near 12 Months (
“12M
Strip
”
)
*
(10 years ending
12/31/08)
*PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS
An
alternative way to view the same data is to subtract the average dollar price of
the near 12 month contracts for light, sweet crude oil. from the dollar price of
the near month contract for light, sweet crude oil. If the resulting number is a
positive number, then the near month price is higher than the average price of
the near 12 months 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 average price of the near 12 months and the market could be described
as being in contango. The chart below shows the results from subtracting the
average dollar price of the near 12 month contracts from the near month price
for the 10 year period between 1999 and 2008.
Near Month Price
minus Average Price of the Near 12 Months *
(10 years ending
12/31/08)
*PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS
An
investment in a portfolio that involved owning only the near month contract
would likely produce a different result than an investment in a portfolio that
owned an equal number of each of the near 12 months’ worth of contracts.
Generally speaking, when the crude oil futures market is in backwardation, the
near month only portfolio would tend to have a higher total return than the 12
month portfolio. Conversely, if the crude oil futures market was in contango,
the portfolio containing 12 months’ worth of contracts would tend to outperform
the near month only portfolio. The chart below shows the annual results of
owning a portfolio consisting of the near month contract and a portfolio
containing the near 12 months’ worth of contracts for light, sweet crude oil. In
addition, the chart shows the annual change in the spot price of light, sweet
crude oil. In this example, each month, the near month only portfolio would sell
the near month contract at expiration and buy the next month contract. The
portfolio holding an equal number of the near 12 months’ worth of contracts
would sell the near month contract at expiration and replace it with the
contract that becomes the new twelfth month contract.
*PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
As seen
in the chart above, there have been periods of both positive and negative annual
total returns for both hypothetical portfolios over the last 10 years. In
addition, there have been periods during which the near month only approach had
higher returns, and periods where the 12 month approach had higher total
returns. The above chart does not represent the performance history of US12OF or
any affiliated funds.
Historically,
the crude oil futures markets have experienced periods of contango and
backwardation, with backwardation being in place more often than contango.
During 2006 and the first half of 2007, these markets have experienced contango.
However, starting early in the third quarter of 2007, the crude oil futures
market moved into backwardation. The crude oil markets remained in backwardation
until late in the second quarter of 2008 when they moved into contango. The
crude oil markets remained in contango until late in the third quarter of 2008,
when the markets moved into backwardation. Early in the fourth quarter of 2008,
the crude oil market moved back into contango and remained in contango for the
balance of 2008. Throughout the first nine months of 2009, the crude oil
market remained in contango. During parts of January and February
2009, the level of contango was unusually steep. Crude oil inventories, which
reached historic levels in January and February and which appear to be the
primary cause of the steep level of contango, began to drop in March and for the
balance of the first nine months of 2009. Crude oil remained in contango
through September 30, 2009.
The
General Partner believes that holding futures contracts whose expiration dates
are spread out over a 12 month period of time will cause the total return of
such a portfolio to vary compared to a portfolio that holds only a single
month’s contract (such as the near month contract). In particular,
the General Partner believes that the total return of a portfolio holding
contracts with a range of expiration months will be impacted differently by the
price relationship between different contract months of the same commodity
future compared to the total return of a portfolio consisting of the near month
contract. The General Partner believes that based on historical evidence a
portfolio that held futures contracts with a range of expiration dates spread
out over a 12 month period of time would typically be impacted less by the
positive effect of backwardation, and less by the negative effect of contango,
compared to a portfolio that held contracts of a single near month. As a result,
absent the impact of any other factors, a portfolio of 12 different monthly
contracts would tend to have a lower total return than a near month only
portfolio in a backwardation market and a higher total return in a contango
market. However there can be no assurance that such historical
relationships would provide the same or similar results in the
future.
Periods
of contango or backwardation do not materially impact US12OF’s investment
objective of having the percentage changes in its per unit NAV track the
percentage changes in the average of the prices of the Benchmark Futures
Contracts since the impact of backwardation and contango tended to equally
impact the percentage changes in price of both US12OF’s units and the
Benchmark Futures Contracts. 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.
Crude Oil Market.
During the
nine months ended September 30, 2009, crude oil prices were impacted by several
factors. On the consumption side, demand remained weak inside and outside the
United States as continued global economic growth, including emerging economies
such as China and India, remained weak to negative for the first quarter of the
year. On the supply side, efforts to reduce production by the Organization of
the Petroleum Exporting Countries to more closely match global consumption were
only partially successful. This divergence between production and consumption
has led to large build-ups in crude oil inventories and contributed to weak oil
prices. However, crude oil prices did finish the third quarter of 2009
approximately 58.32% higher than at the beginning of the nine month period.
Management
believes, however, that should the global economic situation remain weak, there
is a meaningful possibility that crude oil prices could retreat from their
current levels.
Crude Oil 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 crude oil prices versus the monthly movements of the prices of
several other energy commodities, such as natural gas, 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 crude oil 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 crude oil had a strong positive correlation to movements
in heating oil and unleaded gasoline. Finally, crude oil had a positive, but
weaker, correlation with natural gas.
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
|
|
|
Natural
Gas
|
|
|
Heating
Oil
|
|
|
Crude
Oil
|
|
Large
Cap U.S. Equities (S&P 500)
|
|
|
1.000
|
|
|
|
-0.223
|
|
|
|
0.936
|
|
|
|
0.266
|
|
|
|
0.045
|
|
|
|
0.003
|
|
|
|
0.063
|
|
U.S.
Govt. Bonds (EFFAS U.S. Government Bond Index)
|
|
|
|
|
|
|
1.000
|
|
|
|
-0.214
|
|
|
|
-0.134
|
|
|
|
0.054
|
|
|
|
0.037
|
|
|
|
-0.29
|
|
Global
Equities (FTSE World Index)
|
|
|
|
|
|
|
|
|
|
|
1.000
|
|
|
|
0.384
|
|
|
|
0.072
|
|
|
|
0.084
|
|
|
|
0.155
|
|
Unleaded
Gasoline
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.000
|
|
|
|
0.254
|
|
|
|
0.787
|
|
|
|
0.747
|
|
Natural
Gas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.000
|
|
|
|
0.394
|
|
|
|
0.292
|
|
Heating
Oil
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.000
|
|
|
|
0.738
|
|
Crude
Oil
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
source:
Bloomberg, NYMEX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS
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, crude oil continued to
have a strong positive correlation with heating oil and unleaded gasoline.
During this period, it also had a
slightly
weaker
correlation
with the movements of natural gas than it had displayed over the ten year period
ended December 31, 2008. Notably, the correlation between crude oil and both
large cap U.S. equities and global equities, which had been essentially
non-correlated over the ten year period ended December 31, 2008, displayed
results that indicated that they had a mildly positive correlation over this
shorter time period, particularly due to the recent downturn in the U.S.
economy. Finally, the results showed that crude oil and U.S. government bonds,
which had essentially been non-correlated for the ten year period ended December
31, 2008, were weakly negatively correlated over this more recent time
period.
Correlation Matrix
12
months ended September 30,
2009
|
|
Large
Cap
US
Equities
(S&P
500)
|
|
|
US Gov't
Bonds
(EFFAS
US
Govt
Bond Index)
|
|
|
Global
Equities
(FTSE
World
Index)
|
|
|
Unleaded
Gasoline
|
|
|
Heating
Oil
|
|
|
Natural
Gas
|
|
|
Crude
Oil
|
|
Large
Cap US Equities (S&P 500)
|
|
|
1.000
|
|
|
|
0.088
|
|
|
|
0.988
|
|
|
|
0.522
|
|
|
|
0.694
|
|
|
|
0.205
|
|
|
|
0.706
|
|
US
Gov't Bonds (EFFAS US Govt Bond Index)
|
|
|
|
|
|
|
1.000
|
|
|
|
0.102
|
|
|
|
-0.423
|
|
|
|
-0.303
|
|
|
|
0.082
|
|
|
|
-0.313
|
|
Global
Equities (FTSE World Index)
|
|
|
|
|
|
|
|
|
|
|
1.000
|
|
|
|
0.552
|
|
|
|
0.697
|
|
|
|
0.205
|
|
|
|
0.705
|
|
Unleaded
Gasoline
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.000
|
|
|
|
0.865
|
|
|
|
-0.089
|
|
|
|
0.768
|
|
Heating
Oil
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.000
|
|
|
|
0.252
|
|
|
|
0.810
|
|
Natural
Gas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.000
|
|
|
|
0.193
|
|
Crude
Oil
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Source:
Bloomberg, NYMEX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE
RESULTS
Investors
are cautioned that the historical price relationships between crude oil 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
crude oil 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 crude oil could have long term
correlation results that indicate prices of crude oil 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 crude oil 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 crude oil, natural gas, heating oil and gasoline are
relevant because the General Partner endeavors to invest US12OF’s assets in Oil
Futures Contracts and Crude Oil Interests so that daily changes in percentage
terms in US12OF’s NAV correlate as closely as possible with daily changes in
percentage terms in the price of the Benchmark Futures Contracts. If certain
other fuel-based commodity futures contracts do not closely correlate with
the crude oil Futures Contracts, then their use could lead to greater tracking
error. As noted, the General Partner also believes that the changes in
percentage terms in the price of the Benchmark Oil Futures Contracts will
closely correlate with changes in percentage terms in the spot price of light,
sweet crude oil.
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. US12OF’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 US12OF’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 US12OF 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, US12OF 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
US12OF
has not made, and does not anticipate making, use of borrowings or other lines
of credit to meet its obligations. US12OF has met, and it is anticipated that
US12OF 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.
US12OF’s liquidity needs include: redeeming units, providing margin deposits for
its existing Oil Futures Contracts or the purchase of additional Oil Futures
Contracts and posting collateral for its over-the-counter contracts and, except
as noted below, payment of its expenses, summarized below under “Contractual
Obligations.”
US12OF
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. US12OF has allocated substantially all of its net
assets to trading in Crude Oil Interests. US12OF invests in Crude Oil 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 Oil Futures Contracts and Other Oil Interests. A significant
portion of the NAV is held in cash and cash equivalents that are used as
margin and as collateral for US12OF’s trading in Crude Oil Interests. The
balance of the net assets is held in US12OF’s account at its custodian bank.
Interest earned on US12OF’s interest-bearing funds is paid to US12OF. In prior
periods, the amount of cash earned by US12OF from the sale of Creation Baskets
and from interest earned has exceeded the amount of cash required to pay US12OF
expenses. However, during the nine months ended September 30, 2009, expenses
exceeded the income US12OF earned and the cash earned by the sale of Creation
Baskets. To the extent expenses have exceeded interest income, US12OF's NAV will
be negatively impacted.
US12OF’s
investment in Crude Oil Interests may be subject to periods of illiquidity
because of market conditions, regulatory considerations and other reasons. For
example, most commodity exchanges limit the fluctuations in futures
contracts prices during a single day by regulations referred to as “daily
limits.” During a single day, no trades may be executed at prices beyond the
daily limit. Once the price of a futures contract has increased or decreased by
an amount equal to the daily limit, positions in the contracts can neither be
taken nor liquidated unless the traders are willing to effect trades at or
within the specified daily limit. Such market conditions could prevent US12OF
from promptly liquidating its positions in futures
contracts. During the nine months ended September 30, 2009, US12OF
was not forced to purchase or liquidate any of its positions while daily limits
were in effect; however, US12OF cannot predict whether such an event may occur
in the future.
Prior to
the initial offering of US12OF, all payments with respect to US12OF’s expenses
were paid by the General Partner. US12OF does not have an obligation
or intention to refund such payments by the General Partner. The
General Partner is under no obligation to pay US12OF’s current or future
expenses. Since the initial offering of units, US12OF has been
responsible for expenses relating to (i) management fees, (ii) brokerage
fees and commissions, (iii) licensing fees for the use of intellectual
property, (iv) ongoing registration expenses in connection with offers and
sales of its units subsequent to the initial offering, (v) 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 US12OF’s marketing agent,
administrator and custodian and registration expenses relating to the initial
offering of units. If the General Partner and US12OF are unsuccessful in
raising sufficient funds to cover these respective expenses or in locating any
other source of funding, US12OF will terminate and investors may lose all or
part of their investment.
Market
Risk
Trading
in Oil Futures Contracts and Other Oil Interests, such as
forwards, involves US12OF entering into contractual commitments to purchase
or sell oil at a specified date in the future. The aggregate market value of
the contracts will significantly exceed US12OF’s future cash requirements
since US12OF intends to close out its open positions prior to settlement. As a
result, US12OF is generally only subject to the risk of loss
arising from the change in value of the contracts. US12OF considers the “fair
value” of its derivative instruments to be the unrealized gain or loss on the
contracts. The market risk associated with US12OF’s commitments to purchase oil
is limited to the aggregate market value of the contracts held. However, should
US12OF enter into a contractual commitment to sell oil, it would be required to
make delivery of the oil at the contract price, repurchase the contract at
prevailing prices or settle in cash. Since there are no limits on the future
price of oil, the market risk to US12OF could be unlimited.
US12OF’s
exposure to market risk depends on a number of factors, including the
markets for oil, the volatility of interest rates and foreign exchange rates,
the liquidity of the Oil Futures Contracts and Other Oil Interests markets
and the relationships among the contracts held by US12OF. Drastic
market occurrences could ultimately lead to the loss of all or substantially all
of an investor’s capital.
Credit
Risk
When
US12OF enters into Oil Futures Contracts and Other Oil Interests, it is
exposed to the credit risk that the counterparty will not be able to meet its
obligations. The counterparty for the Oil Futures Contracts traded on the
NYMEX and on most other futures exchanges is the clearinghouse associated
with the particular exchange. In general, clearinghouses are backed by their
members who may be required to share in the financial burden resulting from the
nonperformance of one of their members and, therefore, this additional member
support should significantly reduce credit risk. Some foreign exchanges are not
backed by their clearinghouse members but may be backed by a consortium of banks
or other financial institutions. There can be no assurance that any
counterparty, clearinghouse, or their members or their financial backers will
satisfy their obligations to US12OF in such circumstances.
The
General Partner attempts to manage the credit risk of US12OF by following
various trading limitations and policies. In particular, US12OF generally posts
margin and/or holds liquid assets that are approximately equal to the market
value of its obligations to counterparties under the Oil Futures Contracts
and Other Oil Interests 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 US12OF to limit its credit exposure. UBS
Securities LLC, US12OF’s commodity broker, or any other broker that may be
retained by US12OF in the future, when acting as US12OF’s futures commission
merchant in accepting orders to purchase or sell Oil Futures Contracts on United
States exchanges, is required by CFTC regulations to separately
account for and segregate as belonging to US12OF, all assets of US12OF relating
to domestic Oil Futures Contracts trading. These futures commission merchants
are not allowed to commingle US12OF’s assets with its other assets. In addition,
the CFTC requires commodity brokers to hold in a secure account US12OF’s assets
related to foreign Oil Futures Contracts trading.
In the
future, US12OF may purchase over-the-counter contracts. 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.
As of
September 30, 2009, US12OF had deposits in domestic and foreign financial
institutions, including cash investments in money market funds, in the amount of
$140,644,514. This amount is subject to loss should these institutions cease
operations.
Off
Balance Sheet Financing
As of
September 30, 2009, US12OF 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 US12OF. While US12OF’s exposure
under these indemnification provisions cannot be estimated, they are not
expected to have a material impact on US12OF’s financial position.
Redemption
Basket Obligation
In order
to meet its investment objective and pay its contractual obligations described
below, US12OF requires liquidity to redeem units, which redemptions must be
in blocks of 100,000 units called “Redemption Baskets.” US12OF 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
US12OF’s
primary contractual obligations are with the General Partner. In return for its
services, the General Partner is entitled to a management fee calculated monthly
as a fixed percentage of US12OF’s NAV, currently 0.60% of US12OF’s NAV on its
average daily net assets.
The
General Partner agreed to pay the start-up costs associated with the
formation of US12OF, 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 US12OF and its units with the SEC, FINRA
and the AMEX, respectively. However, offering costs incurred in connection with
registering and listing additional units of US12OF have been directly borne on
an ongoing basis by US12OF, and not by the General Partner.
The
General Partner pays the fees of US12OF’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 US12OF’s condensed financial statements and its SEC and CFTC
reports. The General Partner and US12OF have also entered into a
licensing agreement with the NYMEX pursuant to which US12OF and the affiliated
funds managed by the General Partner pay a licensing fee to the NYMEX. US12OF
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.
In
addition to the General Partner’s management fee, US12OF pays its brokerage fees
(including fees to a futures commission merchant), over-the-counter dealer
spreads, any licensing fees for the use of intellectual property, and,
subsequent to the initial offering, registration and other fees paid to the SEC,
FINRA, or other regulatory agencies in connection with the offer and sale of
units, as well as legal, printing, accounting and other expenses associated
therewith, and extraordinary expenses. The latter are expenses not incurred in
the ordinary course of US12OF’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. US12OF 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 US12OF’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 US12OF’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
In the
future, US12OF may purchase over-the-counter contracts. Unlike most of the
exchange-traded Oil Futures Contracts or exchange-traded options on such
futures, each party to an over-the-counter contract bears the credit risk that
the other party may not be able to perform its obligations under its
contract.
Some
crude oil-based derivatives transactions contain fairly generic terms and
conditions and are available from a wide range of participants. Other crude
oil-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 crude oil- or petroleum-based fuels that
have terms similar to the Oil 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 crude oil, forward crude oil prices or crude oil
futures prices. For example, US12OF may enter into over-the-counter derivative
contracts whose value will be tied to changes in the difference between
the spot price of light, sweet crude oil, the price of Oil Futures
Contracts traded on the NYMEX and the prices of other Oil Futures Contracts
in which US12OF may invest.
To
protect itself from the credit risk that arises in connection with such
contracts, US12OF 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. US12OF also may require that the counterparty be highly rated and/or
provide collateral or other credit support to address US12OF’s exposure to the
counterparty. In addition, it is also possible for US12OF 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, US12OF
would no longer have credit risk of its original counterparty, as the
clearinghouse would now be US12OF’s counterparty. US12OF would still retain any
price risk associated with its transaction.
The
creditworthiness of each potential counterparty is assessed by the General
Partner. The General Partner assesses or reviews, as appropriate, the
creditworthiness of each potential or existing counterparty to an
over-the-counter contract pursuant to guidelines approved by the General
Partner's board of directors (the “Board”). Furthermore, the General Partner on
behalf of US12OF 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.
US12OF
anticipates that the use of Other Oil Interests together with its investments in
Oil Futures Contracts will produce price and total return results that closely
track the investment goals of US12OF.
US12OF
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 Contracts. US12OF 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 US12OF to changes in the
price relationship between futures contracts which will expire sooner and those
that will expire later. US12OF 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 US12OF, 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 oil prices. US12OF
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.
US12OF 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 US12OF or if it would lead to an overall lower cost of
trading to achieve a given level of economic exposure to movements in oil
prices.
During
the nine months ended September 30, 2009, US12OF did not employ any hedging
methods such as those described above since all of its investments were made
over an exchange. Therefore, during the nine months ended September 30, 2009,
US12OF was not exposed to counterparty risk.
Item 4
.
Controls and
Procedures.
Disclosure
Controls and Procedures
US12OF
maintains disclosure controls and procedures that are designed to ensure that
material information required to be disclosed in US12OF’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
US12OF if US12OF had any officers, have evaluated the effectiveness of US12OF’s
disclosure controls and procedures and have concluded that the disclosure
controls and procedures of US12OF 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 US12OF’s internal control over financial reporting during
US12OF’s last fiscal quarter that have materially affected, or are reasonably
likely to materially affect, US12OF’s internal control over financial
reporting.
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 US12OF'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 US12OF.
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 US12OF or the ability of
US12OF 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
US12OF 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 Oil 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 US12OF, if any of the aforementioned proposals are implemented, US12OF’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
US12OF 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 US12OF’s
website at www.unitedstates12monthoilfund.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*
|
|
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.
|
10.6*
|
|
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.
|
**
|
Incorporated
by reference to the Quarterly Report on Form 10-Q for the United States
Oil Fund, LP for the quarter ended September 30, 2009, filed on November
9, 2009.
|
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.
|
By:
United States Commodity Funds LLC, its general partner
|
|
|
By:
|
/s/
Nicholas
D. Gerber
|
Nicholas
D. Gerber
|
Chief
Executive Officer
|
|
|
Date: November
16, 2009
|
|
|
By:
|
/s/
Howard
Mah
|
Howard
Mah
|
Chief
Financial Officer
|
|
Date: November
16, 2009
|
Exhibit
3.1
UNITED
STATES 12
MONTH OIL
FUND, LP
AMENDED
AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
This
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 and the Organizational Limited Partner are parties to that
certain limited partnership agreement entered into on June 26, 2007 (the
“LP Agreement”
), regarding
the operation of the Partnership and their rights and obligations thereunder;
and
WHEREAS,
the Organizational Limited Partner and the General 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
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 October 1, 2007, as may be amended or supplemented from time to
time.
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 A.
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
the Organizational Limited Partner prior to its withdrawal from the Partnership
and any other 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 pursuant
to this Agreement.
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.
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 12 Month Oil Fund, LP prospectus, dated December 4, 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.
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 C.
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.
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 12 Month Oil 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 to have the changes in percentage
terms of the Units’ Net Asset Value reflect the changes in percentage terms of
the price of crude oil delivered to Cushing, Oklahoma, as measured by the
changes in the average of the prices of 12 futures contracts on crude oil traded
on the New York Mercantile Exchange (the “
Benchmark Futures Contracts
”)
consisting of the near month contract to expire and the contracts for the
following eleven months for a total of 12 consecutive months’ contracts, except
when the near month contract is within two weeks of expiration, in which case it
will be measured by the futures contracts that are the next month contract to
expire and the contracts for the following eleven consecutive months, less the
Partnership’s expenses. When calculating the daily movement of the average price
of the 12 contracts each contract month will be equally weighted.
The net
assets of the Partnership will consist primarily of investments in futures
contracts for crude oil, heating oil, gasoline, natural gas, and other
petroleum-based fuels that are traded on the New York Mercantile Exchange, ICE
Futures or other U.S. and foreign exchanges (collectively, “
Futures Contracts
”). This may
include contracts that are of the standard industry size as measured in physical
amounts of crude oil, as well as similar contracts that are financially settled
but are based on a percentage of the standard size contracts. The Partnership
may also invest in other crude oil-related investments such as cash-settled
options on Futures Contracts, forward contracts for crude oil, and
over-the-counter transactions that are based on the price of crude oil, natural
gas, and other petroleum-based fuels, 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.
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 monthly
services 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. The Management Fee shall be 0.60% of NAV. 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 the NAV on
that day). 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 hereof, the interest of the
Organizational Limited Partner shall be redeemed, the initial capital
contribution of the Organizational Limited Partner shall be refunded, and the
Organizational Limited Partner shall thereupon withdraw and cease 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.
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 $50 per Unit.
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.
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:
(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 of 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.
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.
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;
(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.
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.
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:
|
·
|
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 other 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.
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:
(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.
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 A
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.
(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.
(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.
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.
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.
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.
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.
(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.
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”
):
(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.
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.
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;
(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, a Participant agrees to (1) deposit Treasuries, cash, or a
combination of Treasuries and cash with the custodian of the Partnership, and
(2) enter into or arrange for a block trade, an exchange for physical or
exchange for swap, or any other over-the-counter energy transaction (through
itself or a designated acceptable broker) with the Partnership for the purchase
of a number and type of futures contracts at
the closing settlement price for such contracts
on the purchase order date, as specified in the purchase order form attached to
the Authorized Purchaser Agreement. Failure to consummate (1) and (2)
above shall result in the cancellation of the order. 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.
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.
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 (1) 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, and (2) enter into or arrange for a block trade, an
exchange for physical or exchange for swap, or any other over-the-counter energy
transaction (through itself or a designated acceptable broker) with the
Partnership for the sale of a number and type of futures contracts at
the closing settlement price for such contracts on the
redemption order date, as specified in the redemption order form attached to the
Authorized Purchaser Agreement. Failure to consummate (1) and (2)
above shall result in the cancellation of the 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.
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 B 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.
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 supercedes 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.
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
|
|
|
|
|
Organizational
Limited Partner
|
|
Wainwright
Holdings, Inc.
|
|
|
|
|
By:
|
/s/ Howard Mah
|
|
|
Name:
Howard Mah
|
|
|
Title:
Director
|
|
|
|
|
Initial
Limited Partner
|
|
Kellogg
Capital Group, LLC
|
|
|
|
|
By:
|
/s/ Steve O’Grady
|
|
|
Name:
Steve O’Grady
|
|
|
Title:
Senior Managing Director
|
EXHIBIT
A
FORM
OF GLOBAL CERTIFICATE
Evidencing
Units Representing Limited Partner Interests
in
United States 12 Month Oil 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 12 Month Oil Fund, LP (the
“Fund”
), a Delaware limited
partnership. Capitalized terms used not defined herein have the
meaning given to such terms in the 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.
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 12 MONTH
OIL 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 12 MONTH OIL FUND, LP UNDER THE LAWS OF THE STATE OF DELAWARE,
OR CAUSE UNITED STATES 12 MONTH OIL 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 12 MONTH OIL
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 12 MONTH OIL 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:
|
EXHIBIT
B
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
EXHIBIT
C
APPLICATION
FOR TRANSFER OF UNITS
Transferees
of Units must execute and deliver this application to
United States 12 Month Oil 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 12 Month Oil 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 12 Month Oil 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 Amended and Restated Agreement of
Limited Partnership of the Partnership, as amended, supplemented or restated to
the date hereof (the
“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 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 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 Partnership Agreement,
(d) gives the powers of attorney provided for in the Partnership Agreement, and
(e) makes the waivers and gives the consents and approvals contained in the
Partnership Agreement. Capitalized terms used but not defined herein have the
meanings given to such terms in the 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;
|
¨
|
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;
|
o
|
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
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.
Exhibit
10.2
UNITED
STATES 12 MONTH OIL FUND, LP
MARKETING
AGENT AGREEMENT
MARKETING
AGENT AGREEMENT (the “Agreement”) made as of November 8, 2007, by and among
United States 12 Month Oil 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 Agreement of Limited Partnership dated December 4,
2007, 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. 333-144348) 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 Merrill Lynch Professional Clearing Corp., dated
November 28, 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, Merrill Lynch Professional
Clearing Corp.
“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 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. 333-144348) 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.
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;
|
|
(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;
|
|
(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;
|
|
(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”);
|
|
(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;
|
|
(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 Financial Industry
Regulatory Authority” (“FINRA”), or (ii) exempt from being, or otherwise is not
required to be, licensed as a broker-dealer or a member of FINRA, 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 FINRA (if it is a FINRA 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;
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 FINRA 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 FINRA 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 12 Month Oil 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 (the
“Fee”):
|
§
|
.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 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;
|
|
(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;
|
|
(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;
|
|
(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.
|
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
crude oil 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.
|
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:
|
(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.
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.
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).
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.
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.
|
|
(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.
|
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:
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.
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.
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/
Howard Mah
|
|
Name:
Howard Mah
|
Title:
Managing Director
|
|
|
UNITED
STATES 12 MONTH OIL FUND, LP
|
By:
Victoria Bay Asset Management, LLC, as General Partner
|
|
|
By:
|
/s/
Howard Mah
|
|
Name:
Howard Mah
|
Title:
Managing Director
|
|
|
ALPS
DISTRIBUTORS, INC.
|
|
|
By:
|
/s/
Jeremy O. May
|
|
Name:
Jeremy O. May
|
Title:
Managing
Director
|
Exhibit
10.4
CUSTODIAN
AGREEMENT
THIS CUSTODIAN
AGREEMENT
(this “
Agreement
”), dated as of
October 5, 2007 is entered into among
UNITED STATES 12 MONTH OIL 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 13.15) 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.
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
Oil Interests and Oil 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.
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.
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.
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.
6.11
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.
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.
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.
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;
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.
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.
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.
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.
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
(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.
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.
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.
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 Oil Forward Contracts and Oil 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.
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.
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/ James R. Kent
|
Name:
James R. Kent
|
Title:
Managing Director
|
Date:
October 11, 2007
|
UNITED
STATES 12 MONTH OIL FUND, LP
By: Victoria
Bay Asset Management, LLC, as General Partner
By:
|
/s/ Howard Mah
|
|
Name:
Howard Mah
|
|
Title:
Management Director
|
|
Date:
October 5, 2007
|
VICTORIA
BAY ASSET MANAGEMENT, LLC
By:
|
/s/ Howard Mah
|
|
Name:
Howard Mah
|
|
Title:
Management Director
|
|
Date:
October 5, 2007
|
FUNDS
TRANSFER SERVICES SCHEDULE
1.
Execution of Payment
Orders
. Brown Brothers Harriman & Co. (the “Custodian”) is
hereby instructed by United States 12 Month Oil 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 October 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:
|
o
|
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.
|
|
o
|
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.
|
|
o
|
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.
|
|
o
|
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.
o
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.
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.
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: ____
The
undersigned acknowledges that (I/we) have received a copy of this
document.
BROWN
BROTHERS HARRIMAN & CO.
By:
|
/s/ James R. Kent
|
Name:
James R. Kent
|
Title:
Managing Director
|
Date:
October 11, 2007
|
UNITED
STATES 12 MONTH OIL FUND, LP
By: Victoria
Bay Asset Management, LLC, as General Partner
By:
|
/s/ Howard Mah
|
|
Name:
Howard Mah
|
|
Title:
Management Director
|
|
Date:
October 5, 2007
|
VICTORIA
BAY ASSET MANAGEMENT, LLC
By:
|
/s/ Howard Mah
|
|
Name:
Howard Mah
|
|
Title:
Management Director
|
|
Date:
October 5, 2007
|
ELECTRONIC
AND ON-LINE SERVICES SCHEDULE
This
Electronic and On-Line Services Schedule (this “
Schedule
”) to a Custodian
Agreement dated as of October 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 12 Month Oil 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 October 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
”).
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.
|
|
2.1.
|
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.
|
|
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.
|
|
3.1.
|
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.
|
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).
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.
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.
You may
be charged for services hereunder as set forth in a fee schedule from time to
time agreed by us.
|
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.
|
|
9.1.
|
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.
|
|
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.
|
The
undersigned acknowledges that (I/we) have received a copy of this
document.
BROWN
BROTHERS HARRIMAN & CO.
By:
|
/s/ James R. Kent
|
Name:
James R. Kent
|
Title:
Managing Director
|
Date:
October 11, 2007
|
UNITED
STATES 12 MONTH OIL FUND, LP
By: Victoria
Bay Asset Management, LLC, as General Partner
By:
|
/s/ Howard Mah
|
|
Name:
Howard Mah
|
|
Title:
Management Director
|
|
Date:
October 5, 2007
|
VICTORIA
BAY ASSET MANAGEMENT, LLC
By:
|
/s/ Howard Mah
|
|
Name:
Howard Mah
|
|
Title:
Management Director
|
|
Date:
October 5, 2007
|
Exhibit
10.6
ADMINISTRATIVE
AGENCY AGREEMENT
THIS ADMINISTRATIVE AGENCY AGREEMENT
(the “
Agreement
”)
is made as of October 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 12 MONTH OIL 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.
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.
5.1 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.
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:
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, the Fund’s
commodity broker, the Fund’s commodity trading advisor (if any), 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.
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, the Fund’s commodity broker, the Fund’s commodity trading
advisor (if any), 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, the Fund’s commodity broker, the Fund’s commodity trading advisor (if
any), any unitholder or former unitholder of the Fund 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.
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.
10.1 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).
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.
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.
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 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.
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.
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.
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.
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/ James R. Kent
|
|
Name:
James R. Kent
|
|
Title:
Managing Director
|
|
Date:
October 11, 2007
|
|
|
|
|
UNITED
STATES 12 MONTH OIL FUND, LP
|
|
By:
|
Victoria
Bay Asset Management, LLC, as General Partner
|
|
|
|
|
|
|
By:
|
/s/ Howard Mah
|
|
|
|
Name:
Howard Mah
|
|
|
|
Title:
Management Director
|
|
|
|
Date:
October 5, 2007
|
|
|
|
|
VICTORIA
BAY ASSET MANAGEMENT, LLC
|
|
|
|
|
|
|
By:
|
/s/ Howard Mah
|
|
|
|
Name:
Howard Mah
|
|
|
|
Title:
Management Director
|
|
|
|
Date:
October 5,
2007
|
Exhibit
10.8
AMENDMENT
AGREEMENT
DATED
AS OF MARCH 24, 2008
TO
THE MARKETING AGENT AGREEMENT
DATED
AS OF NOVEMBER 7, 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 12 MONTH OIL FUND, LP
(“US12OF”).
WITNESSETH
The
parties have previously entered into that certain Marketing Agent Agreement
dated as of November 7, 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 US12OF hereby acknowledge and
agree as follows:
1.
Amendment of the
Agreement.
Upon execution of this Amendment by ALPS, VBAM and
US12OF, the Agreement shall be hereby amended as follows:
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.
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.
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
|
|
Title:
Management Director
|
|
|
Date:
April 29, 2008
|
|
UNITED
STATES 12 MONTH OIL
|
|
FUND,
LP
|
|
|
|
|
By:
|
/s/ Howard Mah
|
|
Name:
Howard Mah
|
|
Title:
Management Director
|
|
Date:
April 29,
2008
|
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 12 Month Oil 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 16,
2009
|
By:
|
/s/ Nicholas D. Gerber
|
|
Name:
Title:
|
Nicholas
D. Gerber
Chief
Executive Officer
United
States Commodity Funds LLC,
General
Partner of United States 12 Month Oil 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 12 Month Oil 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
16, 2009
|
By:
|
/s/
Howard
Mah
|
|
Name:
Title:
|
Howard
Mah
Chief
Financial Officer
United
States Commodity Funds LLC,
General
Partner of United States 12 Month Oil 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 12 Month Oil 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 16,
2009
|
By:
|
/s/ Nicholas D. Gerber
|
|
Name:
Title:
|
Nicholas
D. Gerber
Chief
Executive Officer
United
States Commodity Funds LLC,
General
Partner of United States 12 Month Oil 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 12 Month Oil 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
16, 2009
|
By:
|
/s/
Howard
Mah
|
|
Name:
Title:
|
Howard
Mah
Chief
Financial Officer
United
States Commodity Funds LLC,
General
Partner of United States 12 Month Oil Fund,
LP
|