Self-Regulatory Organizations; American Stock Exchange LLC; Notice of Filing of Proposed Rule Change, as Modified by Amendments No. 1 and 2, Relating to the Listing and Trading of Units of the United States Heating Oil Fund, LP and the United States Gasoline Fund, LP, 514-523 [E7-25487]

Download as PDF 514 Federal Register / Vol. 73, No. 2 / Thursday, January 3, 2008 / Notices Filing Dates: The application was filed on October 26, 2007, and amended on November 30, 2007. Applicant’s Address: 801 41st St., Suite 210, Miami, FL 33140. MetLife Investment Funds, Inc. [File No. 811–7450] Summary: Applicant seeks an order declaring that it has ceased to be an investment company. On August 16, 2007 the Board of Directors voted to liquidate the Applicant, and on November 9, 2007, the Applicant distributed all of its shares at net asset value to its shareholders. Expenses of $35,900 incurred in connection with the liquidation were paid for by the Applicant. Filing Date: The application was filed on December 11, 2007. Applicant’s Address: 400 Atrium Drive, Somerset, NJ 08873–4172. For the Commission, by the Division of Investment Management, pursuant to delegated authority. Nancy M. Morris, Secretary. [FR Doc. E7–25524 Filed 1–2–08; 8:45 am] SECURITIES AND EXCHANGE COMMISSION [Release No. 34–57042; File No. SR–Amex– 2007–70] Self-Regulatory Organizations; American Stock Exchange LLC; Notice of Filing of Proposed Rule Change, as Modified by Amendments No. 1 and 2, Relating to the Listing and Trading of Units of the United States Heating Oil Fund, LP and the United States Gasoline Fund, LP pwalker on PROD1PC71 with NOTICES December 26, 2007. Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 2 thereunder, notice is hereby given that on June 29, 2007, the American Stock Exchange LLC (‘‘Amex’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been substantially prepared by the Exchange. On August 16, 2007, the Exchange submitted Amendment No. 1 to the proposed rule change. On December 20, 2007, the Exchange submitted Amendment No. 2 to the proposed rule change. The Commission is publishing this notice to solicit comments on the 2 17 U.S.C. 78s(b)(1). CFR 240.19b–4. VerDate Aug<31>2005 20:29 Jan 02, 2008 Jkt 214001 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to list and trade units (a ‘‘Unit’’ or collectively, the ‘‘Units’’) of each of the United States Heating Oil Fund, LP (‘‘USHO’’) and the United States Gasoline Fund, LP (‘‘USG’’) (each, a ‘‘Partnership,’’ and collectively, the ‘‘Partnerships’’). II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Amex included statements concerning the purpose of, and basis for, the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Amex has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change BILLING CODE 8011–01–P 1 15 proposed rule change, as amended, from interested persons. 1.Purpose The Exchange proposes to list and trade the Units issued by USHO (under the symbol: ‘‘UHN’’) and USG (under symbol: ‘‘UGA’’) pursuant to Amex Rules 1500–AEMI and 1501 through 1505. 3 Each Partnership is a commodity pool that will issue Units that may be purchased and sold on the Exchange. The Exchange submits that the Units will conform to the initial and continued listing criteria under Rule 1502, 4 specialist prohibitions under Rule 1503, and the obligations of specialists under Rule 1504. Ownership of a Unit represents a fractional undivided beneficial interest in each of the net assets of USHO and USG. Each of the net assets of USHO and USG will consist of investments in futures contracts based on heating oil, gasoline, crude oil, and other 3 Amex Rule 1500–AEMI provides for the listing of Partnership Units, which are defined as securities, that are (a) issued by a partnership that invests in any combination of futures contracts, options on futures contracts, forward contracts, commodities, and/or securities; and (b) issued and redeemed daily in specified aggregate amounts at net asset value. See Exchange Act Release No. 53582 (March 31, 2006), 71 FR 17510 (April 6, 2006) (SR–Amex–2005–127) (approving Amex Rules 1500–AEMI and 1501 through 1505 in conjunction with the listing and trading of Units of the United States Oil Fund, LP). 4 See section entitled ‘‘Listing and Trading Rules,’’ infra. PO 00000 Frm 00071 Fmt 4703 Sfmt 4703 petroleum-based fuels, and natural gas that are traded on the New York Mercantile Exchange (‘‘NYMEX’’), Intercontinental Exchange (‘‘ICE Futures’’), or other U.S. and foreign exchanges (collectively, ‘‘Futures Contracts’’). In the case of USHO, the predominant investments are expected to be based on, or related to, heating oil. The predominant investments of USG are expected to be based on, or related to, gasoline. USHO may also invest in other heating-oil-related investments such as cash-settled options on Futures Contracts, forward contracts for heating oil, and over-the-counter (‘‘OTC’’) contracts that are based on the price of heating oil, oil and other petroleumbased fuels, Futures Contracts, and indices based on the foregoing (collectively, ‘‘Other Heating Oil Related Investments’’). Futures Contracts and Other Heating Oil Related Investments collectively are referred to as ‘‘Heating Oil Interests.’’ Similarly, USG may also invest in other gasoline-related investments such as cash-settled options on Futures Contracts, forward contracts for gasoline, and OTC transactions based on the price of gasoline, oil, and other petroleum-based fuels, Futures Contracts, and indices based on the foregoing (collectively, ‘‘Other GasolineRelated Investments’’). Futures Contracts and Other Gasoline-Related Investments collectively are referred to as ‘‘Gasoline Interests.’’ Each of USHO and USG will invest in Heating Oil Interests and Gasoline Interests, respectively, to the fullest extent possible without being leveraged or unable to satisfy its current or potential margin or collateral obligations. In pursuing this objective, the primary focus of USHO’s and USG’s investment manager, Victoria Bay Asset Management, LLC (‘‘Victoria Bay’’ or ‘‘General Partner’’), will be the investment in Futures Contracts and the management of its investments in shortterm obligations of the United States of two years or less (‘‘Treasuries’’), and cash and cash equivalents (collectively, ‘‘Cash’’) for margining purposes and as collateral. USHO Investment Objective and Policies The investment objective of USHO is for the changes in percentage terms of a Unit’s net asset value (‘‘NAV’’) to reflect the changes in percentage terms of the price of heating oil (also known as No. 2 fuel) delivered at the New York harbor, as measured by the changes in the price of the heating oil futures contract traded on the NYMEX (the E:\FR\FM\03JAN1.SGM 03JAN1 Federal Register / Vol. 73, No. 2 / Thursday, January 3, 2008 / Notices ‘‘Heating Oil Benchmark Futures Contract’’), less USHO’s expenses. The Heating Oil Benchmark Futures contract employed is the near month expiration contract, except when the near month contract is within two weeks of expiration, in which case it will invest in the next expiration month.5 The General Partner will attempt to place USHO’s trades in Heating Oil Interests and otherwise manage USHO’s investments so that ‘‘A’’ will be within plus/minus 10% of ‘‘B’’, where: • A is the average daily change in USHO’s NAV for any period of 30 successive valuation days, i.e., any day as of which USHO calculates its NAV, and • B is the average daily change in the price of the Benchmark Futures Contract over the same period. The Exchange states that an investment in the Units will allow both retail and institutional investors to easily gain exposure to the heating oil market in a cost-effective manner. The Units are also expected to provide additional means for diversifying an investor’s investments or hedging exposure to changes in heating oil prices. The General Partner believes that market arbitrage opportunities should cause USHO’s Unit price to closely track USHO’s per-Unit NAV, which is targeted at the current Heating Oil Benchmark Futures Contract.6 USHO will not be operated in a manner such that the per-Unit NAV will equal, in dollar terms, the dollar price of spot heating oil or any particular futures contract based on heating oil. pwalker on PROD1PC71 with NOTICES USG Investment Objective and Policies The investment objective of USG is for changes in percentage terms of a Unit’s NAV to reflect the changes in percentage terms of the price of unleaded gasoline (also known as reformulated gasoline blendstock for oxygen blending or ‘‘RBOB’’), for delivery to New York harbor, as measured by the changes in the price of the unleaded gasoline futures contract traded on the NYMEX (the ‘‘Gasoline Benchmark Futures Contract’’), less USG’s expenses. The Gasoline Benchmark Futures Contract employed is the near month expiration contract, except when the near month contract is within two weeks, in which case it will invest in the next expiration month.7 5 The Benchmark Futures Contracts will be changed or ‘‘rolled’’ over a four-day period by selling the near month contract that expires the following month. 6 See section entitled ‘‘Arbitrage,’’ infra. 7 The Benchmark Futures Contracts will be changed or ‘‘rolled’’ over a four-day period by VerDate Aug<31>2005 20:29 Jan 02, 2008 Jkt 214001 The General Partner will attempt to place USG’s trades in Gasoline Interests and otherwise manage USG’s investments so that ‘‘A’’ will be within plus/minus 10% of ‘‘B’’, where: • A is the average daily change in USG’s NAV for any period of 30 successive valuation days, i.e., any day as of which USG calculates its NAV, and • B is the average daily change in the price of the Benchmark Futures Contract over the same period. The Exchange states that an investment in the Units will allow both retail and institutional investors to easily gain exposure to the gasoline market in a cost-effective manner. The Units are also expected to provide additional means for diversifying an investor’s investments or hedging exposure to changes in gasoline prices. The General Partner believes that market arbitrage opportunities should cause USG’s Unit price to closely track USG’s per-Unit NAV which is targeted at the current Gasoline Benchmark Futures Contract. USG will not be operated in a manner such that the perUnit NAV will equal, in dollar terms, the dollar price of spot gasoline or any particular futures contract based on gasoline. Description of the Petroleum-Based Fuels Market With respect to each of the following petroleum-based fuel markets, the Exchange states as follows: Heating Oil. Heating oil, also known as No. 2 fuel oil, accounts for 25% of the yield of a barrel of crude oil, the second largest ‘‘cut’’ from oil after gasoline. The heating oil futures contract, listed and traded on NYMEX, trades in units of 42,000 gallons (1,000 barrels) and is based on delivery in New York harbor, the principal cash market center. The price of heating oil fluctuates on a seasonal basis. Cold weather increases demand and price follows. Crude Oil. Crude oil is the world’s most actively traded commodity. The NYMEX is the world’s most liquid forum for crude oil trading and has the most liquid futures contracts on a physical commodity. Due to the liquidity and price transparency of oil Futures Contracts, they are used as a principal international pricing benchmark. The oil futures contracts for WTI light, sweet crude oil trade on the NYMEX in units of 1,000 U.S. barrels (42,000 gallons) and, if not closed out before maturity, will result in delivery of oil to Cushing, Oklahoma, which is selling the near month contract that expires the following month. PO 00000 Frm 00072 Fmt 4703 Sfmt 4703 515 also accessible to the world market by two major interstate petroleum pipeline systems. The price of crude oil is established by the supply and demand conditions in the global market overall, and more particularly, in the main refining centers of Singapore, Northwest Europe, and the U.S. Gulf Coast. Demand for petroleum products by consumers, as well as agricultural, manufacturing, and transportation industries, determines demand for crude oil by refiners. Since the precursors of product demand are linked to economic activity, crude oil demand will tend to reflect economic conditions. However, other factors such as weather also influence product and crude oil demand. The price of WTI light, sweet crude oil has historically exhibited periods of significant volatility. Gasoline. Gasoline is by volume the largest single refined product sold in the United States and accounts for almost half of national oil consumption. The gasoline Futures Contract, listed and traded on the NYMEX, trades in units of 42,000 gallons (1,000 barrels) and is based on delivery at petroleum products terminals in the New York harbor, the major East Coast trading center for imports and domestic shipments from refineries in the New York harbor area or from the Gulf Coast refining centers. The price of gasoline is volatile. Natural Gas. Natural gas accounts for almost a quarter of U.S. energy consumption. The price of natural gas is established by the supply and demand conditions in the North American market, and more particularly, in the main refining center of the U.S. Gulf Coast. The natural gas market essentially constitutes an auction, where the highest bidder wins the supply. When markets are ‘‘strong’’ (i.e., when demand is high and/or supply is low), the bidder must be willing to pay a higher premium to capture the supply. When markets are ‘‘weak’’ (i.e., when demand is low and/or supply is high), a bidder may choose not to outbid competitors, waiting instead for later, possibly lower-priced, supplies. Demand for natural gas by consumers, and the agricultural, manufacturing, and transportation industries, determines overall demand for natural gas. Since the precursors of product demand are linked to economic activity, natural gas demand will tend to reflect economic conditions. However, other factors such as weather significantly influence natural gas demand. NYMEX is the world’s largest physical commodity futures exchange and the dominant market for the trading of energy and precious metals. The NYMEX’s natural E:\FR\FM\03JAN1.SGM 03JAN1 516 Federal Register / Vol. 73, No. 2 / Thursday, January 3, 2008 / Notices gas futures contracts trade in units of 10,000 million British thermal units (‘‘mmBtu’’) and are based on delivery at the Henry Hub in Louisiana. Because of the volatility of natural gas prices, a vigorous basis market has developed in the pricing relationships between the Henry Hub and other important natural gas market centers in the continental United States and Canada. pwalker on PROD1PC71 with NOTICES Structure and Regulation of USHO and USG Each of USHO and USG is a Delaware limited partnership formed in April 2007. USHO is a commodity pool that will invest in Heating Oil Interests, while USG is a commodity pool that will invest in Gasoline Interests. Neither USHO nor USG is an investment company as defined in section 3(a) of the Investment Company Act of 1940. Both are managed by Victoria Bay, a single-member Delaware limited liability company, which is wholly owned by Wainwright Holdings, Inc. The General Partner of the Partnerships is registered as a commodity pool operator (‘‘CPO’’) with the Commodity Futures Trading Commission (the ‘‘CFTC’’) and is a member of the National Futures Association. Information regarding the Partnerships and the General Partner, as well as detailed descriptions of the manner in which the Units will be offered and sold, and the investment strategy of USHO and USG, are included in their respective registration statements regarding the offering of the Units filed with the Commission under the Securities Act of 1933.8 Clearing Broker. UBS Securities, LLC (the ‘‘Clearing Broker’’), a CFTCregistered futures commission merchant (‘‘FCM’’), will execute and clear each Partnership’s futures contract transactions and hold the margin related to its Futures Contracts investments. The clearing arrangements between the Clearing Broker and each Partnership are terminable by the Clearing Broker, upon notice. In such an instance, the General Partner may be required to renegotiate with the current Clearing Broker, or make arrangements with other FCMs, if the Partnership(s) intend(s) to continue trading in Futures Contracts or Heating Oil Interests and Gasoline Interests, as appropriate, at the present level of capacity. Administrator and Custodian. Under separate agreements with each 8 See USHO’s Form S–1 filed with the Commission on April 19, 2007 (File No. 333– 142211); USG’s S–1 filed with the Commission on April 18, 2007 (File No. 333–142206). VerDate Aug<31>2005 20:29 Jan 02, 2008 Jkt 214001 Partnership, Brown Brothers Harriman & Co. will serve as each Partnership’s administrator, registrar, transfer agent, and custodian (the ‘‘Administrator’’ or ‘‘Custodian’’). The Administrator will perform or supervise the performance of services necessary for the operation and administration of each Partnership. These services include, but are not limited to, investment accounting, financial reporting, broker and trader reconciliation, calculation of the NAV, and valuation of Treasuries and cash equivalents used to purchase or redeem Units and other Partnership assets or liabilities. As Custodian, it will: (1) Receive payments from purchasers of Creation Baskets; (2) make payments to Sellers for Redemption Baskets, as described below; and (3) hold the cash, cash equivalents and Treasuries, as well as collateral posted by each Partnership’s derivatives counterparties, and will make transfers of margin and collateral with respect to each Partnership’s investments to and from its FCMs or counterparties. Marketing Agent. ALPS Distributors, Inc., a registered broker-dealer, will be the marketing agent for the Partnerships (‘‘Marketing Agent’’). The Marketing Agent will continuously offer and redeem Creation and Redemption Baskets, respectively, and will receive and process creation and redemption orders from Authorized Purchasers (as defined below) and coordinate the processing of orders for the creation or redemption of Units with the General Partner and the Depository Trust Company (‘‘DTC’’). Investment Strategy of USHO Investments. The General Partner of USHO believes that it will be able to use a combination of Futures Contracts and Other Heating Oil Related Investments to manage the portfolio to achieve its investment objective. The General Partner further anticipates that the exact mix of Futures Contracts and Other Heating Oil Related Investments held by the portfolio will vary over time depending on, among over things, the amount of invested assets in the portfolio, price movements of Heating Oil, the rules and regulations of the various futures and commodities exchanges and trading platforms that deal in Heating Oil Interests, and innovations in the Heating Oil Interests’ marketplace, including both the creation of new Heating Oil Interest investment vehicles and the creation of new trading venues that trade in Heating Oil Interests. Futures Contracts. The principal Heating Oil Interests to be invested in by USHO are Futures Contracts. USHO PO 00000 Frm 00073 Fmt 4703 Sfmt 4703 initially expects to purchase the Benchmark Futures Contract. USHO may also invest in Futures Contracts in Heating Oil, crude oil, gasoline, and other petroleum-based fuels that are traded on the NYMEX, ICE Futures, or other U.S. and foreign exchanges. The Heating Oil Benchmark Futures Contract has historically closely tracked the investment objective of USHO over the short term, medium term and the long term. For that reason, USHO anticipates making significant investments in the Heating Oil Benchmark Futures Contract. The General Partner submits that other Futures Contracts have also tended to track the investment objective of USHO, though not as closely as the Heating Oil Benchmark Futures Contract. Other Heating Oil Related Investments. USHO may also purchase Other Heating Oil Related Investments such as cash-settled options on Futures Contracts and forward contracts for Heating Oil, and participate in OTC transactions that are based on the price of Heating Oil, crude oil, natural gas, and other petroleum-based fuels, Futures Contracts, and indices based on the foregoing. Option contracts offer investors and hedgers another vehicle for managing exposure to the heating oil market. USHO may purchase options on Heating Oil Futures Contracts on the principal commodities and futures exchanges in pursuing its investment objective. In addition to these listed options, there also exists an active OTC market in derivatives linked to Heating Oil. These OTC derivative contracts are privately negotiated agreements between two parties. Unlike Futures Contracts or related options, each party to an OTC contract bears the credit risk that the counterparty may not be able to perform its obligations. Some OTC contracts contain fairly generic terms and conditions and are available from a wide range of participants, while other OTC contracts have highly customized terms and conditions and are not as widely available. Many OTC contracts are cash-settled forwards for the future delivery of Heating Oil or petroleumbased fuels that have terms similar to the Futures Contracts. Others take the form of ‘‘swaps’’ in which the two parties exchange cash flows based on pre-determined formulas tied to the price of Heating Oil as determined by the spot, forward, or futures markets. USHO may enter into OTC derivative contracts whose value may be tied to changes in the difference between the Heating Oil spot price, the price of Futures Contracts traded on NYMEX, and the prices of non-NYMEX Futures E:\FR\FM\03JAN1.SGM 03JAN1 Federal Register / Vol. 73, No. 2 / Thursday, January 3, 2008 / Notices pwalker on PROD1PC71 with NOTICES Contracts that may be invested in by USHO. Investment Strategy of USG Investments. USG believes that it will be able to use a combination of Futures Contracts and Other Gasoline Related Investments to manage the portfolio to achieve its investment objective. USG further anticipates that the exact mix of Futures Contracts and Other Gasoline Related Investments held by the portfolio will vary over time depending on, among other things, the amount of invested assets in the portfolio, price movements of Gasoline, the rules and regulations of the various futures and commodities exchanges and trading platforms that deal in Gasoline Interests, and innovations in the Gasoline Interests’ marketplace including both the creation of new Gasoline Interest investment vehicles and the creation of new trading venues that trade in Gasoline Interests. Futures Contracts. The principal Gasoline Interests to be invested in by USG are Futures Contracts. USG initially expects to purchase the Gasoline Benchmark Futures Contract. USG may also invest in Futures Contracts in crude oil, natural gas, heating oil, and other petroleum-based fuels that are traded on the NYMEX, ICE Futures, or other U.S. and foreign exchanges. The Gasoline Benchmark Futures Contract has historically closely tracked the investment objective of USG over the short term, medium term and the long term. For that reason, USG anticipates making significant investments in the Gasoline Benchmark Futures Contract. The General Partner submits that other Futures Contracts have also tended to track the investment objective of USG, though not as closely as the Gasoline Benchmark Futures Contract. Other Gasoline Related Investments. USG may also purchase Other Gasoline Related Investments such as cash-settled options on Futures Contracts, forward contracts for gasoline, and OTC contracts that are based on the price of gasoline, heating oil, crude oil, natural gas, and other petroleum-based fuels, as well as Futures Contracts and indices based on the foregoing. Option contracts offer investors and hedgers another vehicle for managing exposure to the gasoline market. USG may purchase options on gasoline Futures Contracts on the principal commodities and futures exchanges in pursuing its investment objective. In addition to these listed options, there also exists an active OTC market in derivatives linked to gasoline. These VerDate Aug<31>2005 20:29 Jan 02, 2008 Jkt 214001 OTC derivative transactions are privately negotiated agreements between two parties. Unlike Futures Contracts or related options, each party to an OTC contract bears the credit risk that the counterparty may not be able to perform its obligations. Some OTC contracts contain fairly generic terms and conditions and are available from a wide range of participants, while other OTC contracts have highly customized terms and conditions and are not as widely available. Many OTC contracts are cash-settled forwards for the future delivery of gasoline or petroleum-based fuels that have terms similar to the Futures Contracts. Others take the form of ‘‘swaps’’ in which the two parties exchange cash flows based on predetermined formulas tied to the price of gasoline as determined by the spot, forward, or futures markets. USG may enter into OTC derivative contracts whose value will be tied to changes in the difference between the gasoline spot price, the price of Futures Contracts traded on NYMEX, and the prices of non-NYMEX Futures Contracts that may be invested in by USG. Impact of Accountability Levels and Position Limits The CFTC and U.S. designated contract markets such as NYMEX have established accountability levels and position limits on the maximum net long or net short Futures Contracts in commodity interests that any person or group of persons under common trading control and that these limits are applicable to each of the Partnerships. Accountability levels and position limits are intended, among other things, to prevent a corner or squeeze on a market or undue influence on prices by any single trader or group of traders. The net position is the difference between an individual or firm’s open long contracts and open short contracts in any one commodity. Most U.S. futures exchanges, such as NYMEX, also limit the daily price fluctuation (i.e., daily price limits) for Futures Contracts. The daily price limits establish the maximum amount that the price of a futures contract or an option on a futures contract may vary either up or down from the previous day’s settlement price during a particular trading session. Once the daily limit has been reached in a particular futures contract or option on a futures contract, no trades may be made at a price beyond the limit. The accountability levels for the Heating Oil Benchmark Futures Contract, the Gasoline Benchmark Futures Contract, and other Futures Contracts traded on NYMEX are not a PO 00000 Frm 00074 Fmt 4703 Sfmt 4703 517 fixed ceiling, but rather a threshold above which the NYMEX may exercise greater scrutiny and control over an investor’s positions. The current accountability level for each of the Heating Oil Benchmark Futures Contract and Gasoline Benchmark Futures Contract is 7,000 contracts. If a Partnership exceeds this accountability level for its Benchmark Futures Contract, NYMEX will monitor the Partnership’s exposure and ask for further information on its activities, including the total size of all positions, the investment and trading strategy, and the extent of liquidity resources. If deemed necessary by NYMEX, it could also order the Partnership to reduce its position back to the accountability level. If NYMEX orders a Partnership to reduce its position back to the accountability level, or to an accountability level that NYMEX deems appropriate for the Partnership, such an accountability level may impact the mix of investments by such Partnership. To illustrate, assume that the Heating Oil Benchmark Futures Contract and the unit price of USHO are each $10, and that NYMEX has determined that USHO may not own more than 7,000 contracts. In such a case, USHO could invest up to $2.940 billion of its daily net assets in the Benchmark Futures Contract (i.e., $10 per unit multiplied by 42,000 (a Benchmark Futures Contract is a contract for 42,000 gallons (1,000 barrels)) multiplied by 7,000 contracts) before reaching the accountability level imposed by NYMEX. Once the daily net assets of the portfolio exceed $2.940 billion in the Heating Oil Benchmark Futures Contract, the portfolio may not be able to make any further investments in the Heating Oil Benchmark Futures Contract, depending on whether the NYMEX imposes limits. If NYMEX does impose limits at the $2.940 billion level (or another level), USHO anticipates that it will invest the majority of its assets above that level in a mix of other Futures Contracts or Other Heating Oil Related Investments. The above example applies equally to USG and the Gasoline Benchmark Futures Contract. In addition to accountability levels, NYMEX imposes position limits on contracts held in the last few days of trading in the near month contract. The Exchange states that it is unlikely that a Partnership will run up against such position limits because each Partnership’s investment strategy is to exit from the near month contract over a four day period beginning two weeks from expiration of the contract. E:\FR\FM\03JAN1.SGM 03JAN1 pwalker on PROD1PC71 with NOTICES 518 Federal Register / Vol. 73, No. 2 / Thursday, January 3, 2008 / Notices Investment Procedures The General Partner of each of USHO and USG anticipate that the use of Other Heating Oil Related Investments and Other Gasoline Related Investments, respectively, together with investments in Futures Contracts, will produce price and total return results that closely track each Partnership’s investment objective. Counterparty Procedures. To protect itself from the credit risk that arises in connection with OTC contracts, each Partnership will enter into agreements with each counterparty that provide for the netting of its overall exposure to its counterparty, and/or provide collateral or other credit support to address the Partnership’s exposure. The counterparties to an OTC contract will generally be major broker-dealers and banks or their affiliates, though certain institutions, such as large energy companies, or other institutions active in the gasoline commodities markets, may also be counterparties. The General Partner will assess or review, as appropriate, the creditworthiness of each potential or existing, as appropriate, counterparty to an OTC contract pursuant to guidelines approved by the General Partner’s board of directors. Furthermore, the General Partner, on behalf of each Partnership, will only enter into OTC contracts with (a) members of the Federal Reserve System or foreign banks with branches regulated by the Federal Reserve Board, (b) primary dealers in U.S. government securities, (c) broker-dealers, (d) commodities futures merchants, or (e) affiliates of the foregoing. Cash, Cash Equivalents, and Treasuries. USHO and USG will invest virtually all of their assets not invested in Heating Oil Interests or Gasoline Interests, respectively, in cash, cash equivalents, and Treasuries with a remaining maturity of two years or less. The cash, cash equivalents, and Treasuries will be available to be used to meet each Partnership’s current or potential margin and collateral requirements with respect to investments in Heating Oil Interests or Gasoline Interests, as appropriate. Neither Partnership will use cash, cash equivalents, or Treasuries as margin for new investments unless it has a sufficient amount of cash, cash equivalents or Treasuries to meet the margin or collateral requirements that may arise due to changes in the value of its currently held Heating Oil Interests or Gasoline Interests. Other than in connection with a redemption of Units, each Partnership does not intend to distribute cash or property to its Unit holders. Interest earned on cash, cash VerDate Aug<31>2005 20:29 Jan 02, 2008 Jkt 214001 equivalents, and Treasuries held by a Partnership will be retained by it to pay its expenses, to make investments to satisfy its investment objectives, or to satisfy its margin or collateral requirements. The Markets for Partnership Units There will be two markets for investors to purchase and sell Units. A new issuance of the Units will be made only in a ‘‘Basket’’ of 100,000 Units or multiples thereof. Each Partnership will issue and redeem Baskets on a continuous basis, by or through participants who have each entered into an authorized purchaser agreement (‘‘Authorized Purchaser Agreement’’ and each such participant, an ‘‘Authorized Purchaser’’) 9 with the General Partner, at the NAV per Unit next determined after an order to purchase the Units in a Basket is received in proper form. A Basket may be issued and redeemed on any ‘‘business day’’ (defined as any day other than a day on which the Amex, NYMEX, or the New York Stock Exchange is closed for regular trading) through the Marketing Agent in exchange for cash and/or Treasuries, which the Custodian receives from an Authorized Purchaser or transfers to an Authorized Purchaser, in each case on behalf of a Partnership. A Basket is then separable upon issuance into identical Units that will be listed and traded on the Exchange. The Exchange expects that the number of outstanding Units will increase and decrease as a result of creations and redemptions of Baskets. The Units will thereafter be traded on the Exchange similar to other equity securities. Units will be registered in book-entry form through DTC. Trading in the Units on the Exchange will be effected until 4:15 p.m. Eastern time (‘‘ET’’) each business day. The minimum trading increment for such Units will be $0.01. Each Authorized Purchaser, and each distributor offering and selling newly issued Units as part of the distribution of such Units, is required to comply with the prospectus delivery and disclosure requirements of the Securities Act of 1933, as well as the requirements of the Commodities Exchange Act, including the requirement that prospective investors provide an acknowledgement of receipt of such disclosure materials prior to the payment for any newly issued Units. 9 ‘‘An Authorized Purchaser’’ must be (1) a registered broker-dealer or other market participant, such as a bank or other financial institution, that is exempt from broker-dealer registration; and (2) a DTC Participant. PO 00000 Frm 00075 Fmt 4703 Sfmt 4703 Calculation of Partnership NAV. The Administrator will calculate NAV as follows: (1) Determine the current value of each Partnership’s assets; and (2) subtract the liabilities of each Partnership. The NAV will be calculated shortly after the close of trading on the Exchange using the settlement value 10 of Futures Contracts traded on the NYMEX as of the close of open-outcry trading on the NYMEX at 2:30 p.m. ET, and for the value of other Heating Oil Interests or Gasoline Interests, depending on the Partnership, and Treasuries and cash equivalents, the value of such investments as of the earlier of 4 p.m. ET or the close of trading on the New York Stock Exchange. The NAV is calculated by including any unrealized profit or loss on Futures Contracts and Other Heating Oil Related Investments and Other Gasoline Related Investments, as the case may be, and any other credit or debit accruing to a Partnership but unpaid or not received by such Partnership. The NAV is then used to compute all fees (including the management and administrative fees) that are calculated from the value of Partnership assets. The Administrator will calculate the NAV per Unit by dividing the NAV by the number of Units outstanding. When calculating NAV, the Administrator will value Futures Contracts based on the closing settlement prices quoted on the relevant commodities and futures exchange and obtained from various major market data vendors such as Bloomberg or Reuters. The value of the Other Heating Oil Related Investments or Other Gasoline Related Investments for purposes of determining the NAV will be based upon the determination of the Administrator as to the fair market value. Certain types of Other Heating Oil Related Investments and Other Gasoline Related Investments, such as listed options on Futures Contracts, have closing prices that are available from the exchange upon which they are traded or from various market data vendors. Other Heating Oil Related Investments and Other Gasoline Related Investments will be valued based on the last sale price on the exchange or market where traded. If a contract fails to trade, the value shall be the most recent bid quotation from the third-party source. Some types of Other Heating Oil Related Investments and Other Gasoline Related Investments, such as forward contracts, do not trade on established exchanges, but typically have prices that are widely 10 See Rules 6.52 and 6.52A of the NYMEX Rulebook. E:\FR\FM\03JAN1.SGM 03JAN1 pwalker on PROD1PC71 with NOTICES Federal Register / Vol. 73, No. 2 / Thursday, January 3, 2008 / Notices available from third-party sources. The Administrator may make use of such third-party sources in calculating a fair market value of these Other Heating Oil Related Investments and Other Gasoline Related Investments. Certain types of Other Heating Oil Related Investments and Other Gasoline Related Investments, such as OTC derivative ‘‘swaps,’’ also do not have established exchanges upon which they trade and may not have readily available price quotes from third parties. Swaps and other similar derivative or contractual-type instruments will be first valued at a price provided by a single broker or dealer, typically the counterparty. If no such price is available, the contract will be valued at a price at which the counterparty to such contract could repurchase the instrument or terminate the contract. In determining the fair market value of such derivative contracts, the Administrator may make use of quotes from other providers of similar derivatives. If these are not available, the Administrator may calculate a fair market value of the derivative contract based on the terms of the contract and the movement of the underlying price factors of the contract. Calculation of the Basket Amount. A Basket will be issued in exchange for Treasuries and/or cash in an amount equal to the NAV per Unit times 100,000 Units (the ‘‘Basket Amount’’). A Basket will be delivered by the Marketing Agent to an Authorized Purchaser only after execution of the Authorized Purchaser Agreement. Units in a Basket are issued and redeemed in accordance with the Authorized Purchaser Agreement. An Authorized Purchaser that wishes to purchase a Basket must transfer the Basket Amount, for each Basket purchased, to the Custodian (the ‘‘Deposit Amount’’). An Authorized Purchaser that wishes to redeem a Basket will receive an amount of Treasuries and/or cash in exchange for each Basket surrendered in an amount equal to the NAV per Basket (the ‘‘Redemption Amount’’). On each business day, the Administrator will make available, immediately prior to the opening of trading on the Exchange, the Basket Amount for the creation of a Basket based on the prior day’s NAV. At or about 4 p.m. ET on each business day, the Administrator will determine the Basket Amount for orders placed by Authorized Purchasers received before 12 p.m. ET that day. Because orders to purchase and/or redeem Baskets must be placed by 12 p.m. ET, but the Basket Amount will not be determined until VerDate Aug<31>2005 20:29 Jan 02, 2008 Jkt 214001 shortly after 4 p.m. ET on the date the order to purchase or redeem is received, an Authorized Purchaser will not know the total payment required to create or redeem a Basket at the time it submits such irrevocable purchase and/or redemption order. This is similar to exchange-traded funds and mutual funds. USHO’s and USG’s registration statements disclose that the NAV and the Basket Amount could rise and fall substantially between the time an irrevocable purchase order and/or redemption order is submitted and the time the Basket Amount is determined.11 Shortly after 4 p.m. ET on each business day, the Administrator, Amex, and the General Partner will disseminate the Basket Amount (for orders placed during the day) together with NAV for the Units. The Exchange will obtain a representation from each Partnership that its NAV and other relevant pricing information will be disclosed to all market participants at the same time. The Basket Amount and the NAV are communicated by the Administrator to all Authorized Purchasers via facsimile or e-mail. Concurrently, the Amex will also disclose the NAV and Basket Amount on its Web site at http://www.amex.com. The Basket Amount necessary for the creation of a Basket will change from day to day. On each day that the Amex is open for regular trading, the Administrator will adjust the Deposit Amount as appropriate to reflect the prior day’s Partnership NAV and accrued expenses. The Administrator will then determine the Deposit Amount for a given business day. Calculation and Payment of the Deposit Amount. The Deposit Amount of Treasuries and/or cash will be in the same proportion to the total net assets of each Partnership as the number of Units to be created is in proportion to the total number of Units outstanding as of the date the purchase order is accepted. The General Partner will determine the requirements for the Treasuries that may be included in the Deposit Amount and will disseminate these requirements at the start of each business day. The amount of cash that is required is the difference between the aggregate market value of the Treasuries required to be included in the Deposit 11 The General Partner states that the price of crude oil, heating oil, gasoline, and other petroleum-based fuels futures may fluctuate 5% or more between 12:00 noon, the cutoff for creation and redemption orders, and 2:30 p.m., the close of trading on NYMEX. As explained further below (see section entitled ‘‘Arbitrage,’’ infra), the Exchange does not anticipate such price movements to impact the arbitrage process. PO 00000 Frm 00076 Fmt 4703 Sfmt 4703 519 Amount as of 4 p.m. ET on the date of purchase and the total required deposit. All purchase orders must be received by the Marketing Agent by 12 p.m. ET for consideration on that business day. Delivery of the Deposit Amount, i.e., Treasuries and/or cash, to the Administrator must occur by the third business day following the purchase order date (T+3).12 Thus, the General Partner will disseminate shortly after 4 p.m. ET, on the date the purchase order was properly submitted, the amount of Treasuries and/or cash to be deposited with the Custodian for each Basket. Calculation and Payment of the Redemption Amount. The Units will not be individually redeemable but will only be redeemable in Baskets. To redeem, an Authorized Purchaser will be required to accumulate enough Units to constitute a Basket (i.e., 100,000 Units). An Authorized Purchaser redeeming a Basket will receive the Redemption Amount. Upon the surrender of the Units and payment of applicable redemption transaction fee,13 taxes, or charges, the Custodian will deliver to the redeeming Authorized Purchaser the Redemption Amount. The Redemption Amount of Treasuries and/ or cash will be in the same proportion to the total net assets of each Partnership as the number of Units to be redeemed is in proportion to the total number of Units outstanding as of the date the redemption order is accepted. The General Partner will determine the Treasuries to be included in the Redemption Amount. The amount of cash that is required is the difference between the aggregate market value of the Treasuries required to be included in the Redemption Amount as of 4 p.m. ET on the date of redemption and the total Redemption Amount. All redemption orders must be received by the Marketing Agent by 12 p.m. ET on the business day redemption is requested and are irrevocable. Delivery of the Basket to be redeemed to the Custodian and payment of Redemption Amount will occur by the third business day following the redemption order date (T+3). Arbitrage The Exchange believes that the Units will not trade at a material discount or premium to a Unit’s NAV based on potential arbitrage opportunities. Due to the fact that the Units can be created and redeemed only in Baskets at NAV, 12 Authorized Purchasers are required to pay a transaction fee of $1,000 for each order to create one or more Baskets. 13 Authorized Purchasers are required to pay a transaction fee of $1,000 for each order to redeem one or more Baskets. E:\FR\FM\03JAN1.SGM 03JAN1 520 Federal Register / Vol. 73, No. 2 / Thursday, January 3, 2008 / Notices arbitrage opportunities should provide a mechanism to mitigate the effect of any premiums or discounts that may exist from time to time.14 pwalker on PROD1PC71 with NOTICES Dissemination and Availability of Information Futures Contracts. The daily settlement prices for the NYMEX-traded Futures Contracts are publicly available on the NYMEX Web site at http:// www.nymex.com. The Exchange will also include on its Web site at http:// www.amex.com a hyperlink to the NYMEX Web site for the purpose of disclosing futures contract pricing. In addition, various market data vendors and news publications publish futures prices and related data. The Exchange represents that quote and last-sale information for the Futures Contracts are widely disseminated through a variety of market data vendors worldwide, including Bloomberg and Reuters. In addition, real-time futures data is available by subscription from Reuters and Bloomberg. The NYMEX also provides delayed futures information on current and past trading sessions and market news free of charge on its Web site. The specific contract specifications for the Futures Contracts are also available on the NYMEX Web site and the ICE Futures Web site at http://www.icefutures.com. Partnership Units. The Exchange’s Web site at http://www.amex.com, which is publicly accessible at no charge, will contain the following information: (1) The prior business day’s NAV and the reported closing price; (2) the mid-point of the bid-ask price 15 in relation to the NAV as of the time the NAV is calculated (the ‘‘BidAsk Price’’); (3) calculation of the premium or discount of such price against such NAV; (4) data in chart form displaying the frequency distribution of discounts and premiums of the Bid-Ask Price against the NAV, within appropriate ranges for each of the four previous calendar quarters; (5) the 14 Arbitrage opportunities may arise whenever the market price of a Partnership Unit is higher (or lower) than its expected fair market value, which is based on the price of the underlying commodity futures. An Authorized Purchaser may effectively lock-in an arbitrage spread by selling (or buying) the Units while, at the same time buying (or selling), the related commodity futures. This arbitrage activity may occur not only at the time of an irrevocable creation or redemption order, but throughout the day. Accordingly, arbitrage activity should not be affected by price movements in the underlying commodity assets between the cutoff for creation and redemption orders and the close of futures trading, following which the Basket Amount is determined. 15 The Bid-Ask Price of Units is determined using the highest bid and lowest offer as of the time of calculation of the NAV. VerDate Aug<31>2005 20:29 Jan 02, 2008 Jkt 214001 prospectus and the most recent periodic reports filed with the Commission or required by the CFTC; and (6) other applicable quantitative information. Portfolio Disclosure. USHO’s and USG’s total portfolio composition will be disclosed, each business day that the Amex is open for trading, on their respective Web sites at http:// www.unitedstatesheatingoilfund.com and http:// www.unitedstatesgasolinefund.com. USHO’s Web site disclosure of portfolio holdings will be made daily and will include, as applicable, the name and value of each Heating Oil Interest, the specific types of Heating Oil Interests and characteristics of such Heating Oil Interests, Treasuries, and amount of cash and cash equivalents held in the portfolio of USHO. USG’s Web site disclosure of portfolio holdings will be made daily and will include, as applicable, the name and value of each Gasoline Interest, the specific types of Gasoline Interests and characteristics of such Gasoline Interests, Treasuries, and amount of cash and cash equivalents held in the portfolio of USG. The public Web site disclosure of the portfolio composition of each of USHO and USG will coincide with the disclosure by the Administrator on each business day of the NAV for the Units and the Basket Amount (for orders placed during the day) for each Partnership. Therefore, the same portfolio information will be provided at the same time on the public Web site for each Partnership as well as in the facsimile or e-mail to Authorized Purchasers containing the NAV and Basket Amount (‘‘Daily Dissemination’’). The format of the public Web site disclosure and the Daily Dissemination will differ because the public Web site will list all portfolio holdings while the Daily Dissemination will provide the portfolio holdings in a format appropriate for Authorized Purchasers, i.e., the exact components of a Creation Unit. As described above, each Partnership’s NAV will be calculated and disseminated daily. The Amex also intends to disseminate for each Partnership on a daily basis by means of Consolidated Tape Association (‘‘CTA’’)/Consolidated Quote High Speed Lines information with respect to the Indicative Partnership Value (as discussed below), recent NAV, Units outstanding, the Basket Amount, and the Deposit Amount. The Exchange will also make available on its Web site daily trading volume, closing prices, and the NAV. The closing price and settlement prices of the Futures Contracts held by each Partnership are also readily available from the NYMEX, automated PO 00000 Frm 00077 Fmt 4703 Sfmt 4703 quotation systems, published or other public sources, or on-line information services such as Bloomberg or Reuters. In addition, the Exchange will provide a hyperlink on its Web site at http:// www.amex.com to each Partnership’s Web site. Indicative Partnership Value. In order to provide updated information relating to each Partnership for use by investors, professionals, and persons wishing to create or redeem the Units, the Exchange will disseminate through the facilities of the CTA an amount representing, on a per-Unit basis, the current indicative value of the Basket Amount (the ‘‘Indicative Partnership Value’’). Amex Rule 1500–AEMI(b) defines ‘‘Indicative Partnership Value’’ as an estimate, updated at least every 15 seconds, of the value of a Partnership Unit of each series. Consistent with Amex Rule 1502, the Indicative Partnership Value for each Partnership will be disseminated on a per-Unit basis at least every 15 seconds during regular Amex trading hours of 9:30 a.m. to 4:15 p.m. ET. The Indicative Partnership Value will be calculated based on the Treasuries and cash required for creations and redemptions (i.e., NAV per Unit x 100,000) adjusted to reflect the price changes of the relevant Benchmark Futures Contracts. The Indicative Partnership Value is based on open-outcry trading of the relevant Benchmark Futures Contracts on NYMEX. Open-outcry trading on the NYMEX closes daily at 2:30 p.m. ET while NYMEX’s energy futures contracts are traded on the Chicago Mercantile Exchange’s CME Globex electronic trading platform on a 24-hour basis.16 After the close of open outcry on NYMEX at 2:30 p.m., the Indicative Partnership Value will reflect changes to the relevant Benchmark Futures Contracts as provided for through CME Globex. The value of the relevant Benchmark Futures Contracts will be available on a 15-second delayed basis during the time that Units trade on the Exchange. While NYMEX is open for trading, the Indicative Partnership Value can be expected to closely approximate the value per Unit of the Basket Deposit. However, during Amex trading hours when the Futures Contracts have ceased trading in NYMEX’s open outcry, spreads and resulting premiums or discounts may widen and, therefore, 16 CME Globex (‘‘Globex’’) is an open-access marketplace that operates virtually 24 hours each trading day. Electronic trading on Globex is conducted from 6 p.m. ET Sunday through 5:15 p.m. ET Friday each week. There is a 45-minute break each day between 5:15 p.m. ET and 6 p.m. ET. E:\FR\FM\03JAN1.SGM 03JAN1 Federal Register / Vol. 73, No. 2 / Thursday, January 3, 2008 / Notices increase the difference between the price of the Units and the NAV of the Units. The Indicative Partnership Value disseminated during Amex trading hours, on a per-Unit basis, should not be viewed as a real-time update of the NAV, which is calculated only once daily. The Exchange believes that dissemination of the Indicative Partnership Value based on the Basket Deposit provides additional information that is not otherwise available to the public and is useful to professionals and investors in connection with the Units trading on the Exchange or the creation or redemption of the Units. Partnership Termination Events Each Partnership will 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 circumstances: (1) 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 limited partners within 90 days after such event elects to continue the Partnership and appoints a successor general partner; or (2) the affirmative vote to terminate the Partnership by a majority in interest of the limited partners to terminate the partnership, subject to certain conditions. Upon termination of the Partnership, holders of the Units will surrender their Units and the assets of the Partnership shall be distributed to the Unit holders pro rata in accordance with the value of the Units, in cash or in kind, as determined by the General Partner. Purchases and Redemptions in Baskets In the Information Circular, members and member organizations will be informed that procedures for purchases and redemptions of Units in Baskets are described in the Prospectus and that Units are not individually redeemable but are redeemable only in Baskets or multiples thereof. pwalker on PROD1PC71 with NOTICES Listing and Trading Rules Each Partnership will be subject to the criteria in Amex Rule 1502 for initial and continued listing of the Units. The Exchange will require a minimum of 100,000 Units to be outstanding at the start of trading. The Exchange expects that the initial price of a Unit will be $50.00.17 The Exchange believes that 17 Each Partnership expects that the initial Authorized Purchaser will purchase the initial Basket of 100,000 Units at the initial offering price per Unit of $50.00. On the date of the public offering and thereafter, each Partnership will VerDate Aug<31>2005 20:29 Jan 02, 2008 Jkt 214001 the anticipated minimum number of Units outstanding at the start of trading is sufficient to provide adequate market liquidity and to further each Partnership’s objective to seek to provide a simple and cost effective means of accessing the commodity futures markets. The Exchange represents that it prohibits the initial and/or continued listing of any security that is not in compliance with Rule 10A–3 under the Act.18 The Amex original listing fee applicable to the listing of Units for each Partnership is $5,000. In addition, the annual listing fee applicable under Section 141 of the Amex Company Guide will be based upon the year-end aggregate number of Units in all series of each Partnership outstanding at the end of each calendar year. Amex Rule 154–AEMI, ‘‘Orders in AEMI,’’ paragraph (c)(ii), provides that stop and stop limit orders to buy or sell a security the price of which is derivatively priced based upon another security or index of securities, may be elected by a quotation, as set forth in subparagraphs (c)(ii)(1)–(4) of Rule 154– AEMI. The Units will be deemed eligible for this treatment. The Exchange states that Amex Rule 126A–AEMI, which will apply to trading of the Units, complies with Rule 611 of Regulation NMS, which requires among other things, that the Exchange adopt and enforce written policies and procedures that are reasonably designed to prevent trade-throughs of protected quotations. Consistent with the treatment of trustissued receipts (‘‘TIRs’’),19 specialist transactions of the Units made in connection with the creation and redemption of Units will not be subject to the prohibitions of Amex Rule 190, ‘‘Specialist’s Transactions with Public Customers.’’ The Units will generally be subject to the Exchange’s stabilization rule, Rule 170–AEMI, ‘‘Registration and Functions of Specialists,’’ except that specialists may buy on ‘‘plus ticks’’ and sell on ‘‘minus ticks,’’ in order to bring the Units into parity with the underlying commodity or commodities and/or futures contract price. The Exchange notes that Commentary .01 to its Rule 1503, ‘‘Specialist Prohibitions,’’ continuously issue Units in Baskets consisting of 100,000 Units to Authorized Purchasers at NAV. 18 See 17 CFR 240.10A–3. 19 See The Commission notes that Commentary .05 to Rule 190 provides an exemption from the prohibitions stated in that rule for securities issued by a trust listed pursuant to Amex Rules 1200– AEMI and 1201–1202, 1200A–AEMI and 1201A– 1205A, or 1200B and 1201B–1205B. PO 00000 Frm 00078 Fmt 4703 Sfmt 4703 521 sets forth this limited exception to Rule 170–AEMI. The trading of the Units will be subject to certain conflict-of-interest provisions set forth in Amex Rules 1503 and 1504. Rule 1503 provides that the prohibitions in Rule 175(c) apply to a specialist in the Units so that the specialist or affiliated person may not act or function as a market-maker in an underlying asset, related futures contract or option, or any other related derivative. An exception to the general prohibition in Rule 1503 provides that an approved person of an equity specialist that has established and obtained Exchange approval for procedures restricting flow of material, non-public market information between itself and the specialist member organization, and any member, officer, or employee associated therewith, may act in a market-making capacity, other than as a specialist in the Units on another market center, in the underlying asset or commodity, related futures or options on futures, or any other related derivatives. Rule 1504 provides that a specialist handling Units must provide the Exchange with all necessary information relating to its trading in underlying physical assets or commodities, related futures or options on futures, or any other related derivatives. In addition, a member or member organization will be subject to Commentary .03 to Amex Rule 1500AEMI prohibiting it from acting as a market maker from off-floor through the use of multiple limit orders as agent (i.e., customer agency orders). Trading Halts If an Indicative Partnership Value is not being disseminated by one or more major market data vendors, the Exchange may halt trading during the day in which the interruption to the dissemination of such Indicative Partnership Value occurs. If the interruption to the dissemination of an Indicative Partnership Value persists past the trading day in which it occurred, the Exchange will halt trading no later than the beginning of the trading day following the interruption. Prior to the commencement of trading, the Exchange will issue an Information Circular to members informing them of, among other things, Exchange policies regarding trading halts in the Units. First, the Information Circular will advise that trading will be halted in the event the market volatility trading halt parameters set forth in Amex Rule 117 have been reached. Second, the Information Circular will advise that, in addition to the parameters set forth in Rule 117, the E:\FR\FM\03JAN1.SGM 03JAN1 522 Federal Register / Vol. 73, No. 2 / Thursday, January 3, 2008 / Notices Exchange will halt trading in the Units if trading in the underlying Benchmark Futures Contracts is halted or suspended. Third, with respect to a halt in trading that is not specified above, the Exchange may also consider other relevant factors and the existence of unusual conditions or circumstances that may be detrimental to the maintenance of a fair and orderly market. Additionally, the Exchange represents that it will cease trading in the Units if any of the condition in Amex Rule 1502(b)(ii) or (iii) exist (i.e., if there is a halt or disruption in the dissemination of the Indicative Partnership Value and/or underlying Heating Oil Benchmark Futures Contracts and/or Gasoline Benchmark Futures Contracts). pwalker on PROD1PC71 with NOTICES Suitability The Information Circular will inform members and member organizations of the characteristics of the Units and of applicable Exchange rules, as well as of the requirements of Amex Rule 411 (Duty to Know and Approve Customers). The Exchange notes that, pursuant to Amex Rule 411, a member or member organization is required in connection with recommending transactions in the Units to have a reasonable basis to believe that a customer is suitable for the particular investment given reasonable inquiry concerning the customer’s investment objectives, financial situation, needs, and any other information known by such member. Information Circular The Amex will distribute an Information Circular to its members in connection with the trading of each Partnership’s Units. The Information Circular will discuss the special characteristics and risks of trading in the Units. Specifically, the Information Circular, among other things, will discuss what the Units are; how a Basket is created and redeemed; the requirement that members and member firms deliver a prospectus to investors purchasing the Units prior to, or concurrently with, the confirmation of a transaction; applicable Amex rules; dissemination of information regarding the Indicative Partnership Value; trading information; and applicable suitability rules. The Information Circular will also explain that each Partnership is subject to various fees and expenses described in the relevant Registration Statements. The Information Circular will also reference the fact that there is no regulated source of last-sale information regarding physical commodities, and describe the VerDate Aug<31>2005 20:29 Jan 02, 2008 Jkt 214001 regulatory framework relating to the trading of crude oil- and natural gasbased futures contracts and related options. The Information Circular will also notify members and member organizations about the procedures for purchases and redemptions of Units in Baskets, and that Units are not individually redeemable but are redeemable only in Baskets or multiples thereof. The Information Circular will also discuss any relief, if granted, by the Commission or the staff from any rules under the Act. The Information Circular will disclose that the NAV for Units will be calculated shortly after 4 p.m. ET each trading day. section 6(b)(5) 22 in particular, in that it is designed to prevent fraudulent and manipulative acts and practices; to promote just and equitable principles of trade; to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities; to remove impediments to and perfect the mechanism of a free and open market and a national market system; and is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers, or to regulate by virtue of any authority conferred by the Act matters not related to the purpose of the Act or the administration of the Exchange. Surveillance The Exchange submits that its surveillance procedures are adequate to deter and detect violations of Exchange rules relating to the trading of the Units. The surveillance procedures for the Units will be similar to those used for units of the United States Oil Fund, LP and the United States Natural Gas Fund, LP 20 as well as other commodity-based trusts, TIRs, and exchange-traded funds. In addition, the surveillance procedures will incorporate and rely upon existing Amex surveillance procedures governing options and equities. The Exchange currently has in place a comprehensive surveillance sharing agreement with each of NYMEX and ICE Futures for the purpose of providing information in connection with trading in, or related to, futures contracts traded on NYMEX and ICE Futures, respectively. To the extent that a Partnership invests in Heating Oil Interests or Gasoline Interests traded on other exchanges, the Amex will enter into comprehensive surveillance sharing agreements with those particular exchanges. The Exchange represents that each of the Partnerships will only invest in futures contracts on markets where the Exchange has entered into the appropriate comprehensive surveillance sharing agreements. B. Self-Regulatory Organization’s Statement on Burden on Competition 2. Statutory Basis The Amex believes that the proposed rule change is consistent with the requirements of section 6(b) of the Act 21 in general, and furthers the objectives of 20 See Exchange Act Release Nos. 53582 (March 31, 2006), 71 FR 17510 (April 6, 2006) (SR–Amex– 2005–127) (approving Amex Rules 1500–AEMI and 1501 through 1505 in conjunction with the listing and trading of Units of the United States Oil Fund, LP) and 55632 (April 13, 2007), 72 FR 19987 (April 20, 2007) (SR–Amex–2006–112) (approving the listing and trading of Units of the United States Natural Gas Fund, LP). 21 15 U.S.C. 78f(b). PO 00000 Frm 00079 Fmt 4703 Sfmt 4703 The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others The Exchange has neither solicited nor received written comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 35 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve such proposed rule change or (B) Institute proceedings to determine whether the proposed rule change should be disapproved. The Amex has requested accelerated approval of this proposed rule change prior to the 30th day after the date of publication of the notice of the filing thereof. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. 22 15 E:\FR\FM\03JAN1.SGM U.S.C. 78f(b)(5). 03JAN1 Federal Register / Vol. 73, No. 2 / Thursday, January 3, 2008 / Notices Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–Amex–2007–70 on the subject line. SECURITIES AND EXCHANGE COMMISSION [Release No. 34–57052; File No. SR–Amex– 2007–140] Self-Regulatory Organizations; American Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Options Licensing Fee Changes December 27, 2007. Paper Comments Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on December 21, 2007, the American Stock Exchange LLC (‘‘Amex’’ or ‘‘Exchange’’) filed with the Securities and Exchange All submissions should refer to File Commission (‘‘Commission’’) the Number SR–Amex–2007–70. This file proposed rule change as described in number should be included on the subject line if e-mail is used. To help the Items I and II below, which Items have been substantially prepared by the Commission process and review your Exchange. The Exchange has designated comments more efficiently, please use only one method. The Commission will this proposal as one establishing or post all comments on the Commission’s changing a due, fee, or other charge applicable only to a member, pursuant Internet Web site (http://www.sec.gov/ to section 19(b)(3)(A)(ii) of the Act 3 and rules/sro.shtml). Copies of the Rule 19b–4(f)(2) thereunder,4 which submission, all subsequent renders the proposal effective upon amendments, all written statements filing with the Commission. The with respect to the proposed rule Commission is publishing this notice to change that are filed with the solicit comments on the proposed rule Commission, and all written change from interested persons. communications relating to the proposed rule change between the I. Self-Regulatory Organization’s Commission and any person, other than Statement of the Terms of Substance of those that may be withheld from the the Proposed Rule Change public in accordance with the Amex proposes to modify its Options provisions of 5 U.S.C. 552, will be Fee Schedule. available for inspection and copying in The text of the proposed rule change the Commission’s Public Reference is available at the Exchange, on the Room, 100 F Street, NE., Washington, Exchange’s Web site at http:// DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. www.amex.com, and at the Commission’s Public Reference Room. Copies of such filing also will be available for inspection and copying at II. Self-Regulatory Organization’s the principal office of the Exchange. All Statement of the Purpose of, and comments received will be posted Statutory Basis for, the Proposed Rule without change; the Commission does Change not edit personal identifying information from submissions. You In its filing with the Commission, the should submit only information that Exchange included statements you wish to make available publicly. All concerning the purpose of, and basis for submissions should refer to File the proposed rule change, and discussed Number SR–Amex–2007–70 and should any comments it received on the be submitted on or before January 18, proposed rule change. The text of these 2008. statements may be examined at the places specified in Item IV below. The For the Commission, by the Division of Exchange has prepared summaries, set Trading and Markets, pursuant to delegated forth in sections A, B, and C below, of authority.23 the most significant aspects of such Nancy M. Morris, statements. pwalker on PROD1PC71 with NOTICES • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. Secretary. [FR Doc. E7–25487 Filed 1–2–08; 8:45 am] BILLING CODE 8011–01–P 23 17 20:29 Jan 02, 2008 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(ii). 4 17 CFR 240.19b–4(f)(2). 2 17 CFR 200.30–3(a)(12). VerDate Aug<31>2005 1 15 Jkt 214001 PO 00000 Frm 00080 Fmt 4703 Sfmt 4703 523 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange has entered into numerous agreements with index providers for the purpose of trading index options. The requirement to pay an index license fee to such third parties is a condition to the listing and trading of these index options. In many cases, the Exchange is required to pay a significant licensing fee to issuers or index owners that may not be reimbursed. In an effort to recoup the costs associated with index licenses, the Exchange has previously established a per-contract licensing fee for firms, specialists, registered options traders (‘‘ROTs’’), remote registered options traders (‘‘RROTs’’), supplemental registered options traders (‘‘SROTs’’), non-member market makers, and brokerdealers that is collected on every transaction in designated products in which a firm, specialist, ROT, RROT, SROT, non-member market maker, or broker-dealer is a party. The licensing fees currently imposed are set forth in the Exchange’s Options Fee Schedule. The Exchange is proposing to amend its Options Fee Schedule to increase the licensing fees for options on the Nasdaq100 Index (NDX) and Mini-Nasdaq-100 Index (MNX). Currently, the licensing fees for these index options are $0.15 per contract side. As a result of a recent change to the licensing agreement for NDX and MNX, the Exchange is now being charged a higher license fee. Accordingly, the Exchange now proposes to charge $ 0.16 per contract side for NDX and MNX options, effective January 2, 2008. The Exchange submits that the proposed license fee will provide the Exchange with additional revenue and allow the Exchange to recoup its costs associated with the trading of NDX and MNX options. Furthermore, the Amex believes that this fee will help to allocate to those firms, specialists, ROTs, RROTs, SROTs, non-member market makers, and broker-dealers transacting in NDX and MNX options a fair share of the related costs of offering such options. Accordingly, the Exchange believes that the proposed fee is reasonable. The Exchange asserts that the proposal is equitable as required by section 6(b)(4) of the Act.5 5 Section 6(b)(4) requires that the rules of a national securities exchange provide for the equitable allocation of reasonable dues, fees, and Continued E:\FR\FM\03JAN1.SGM 03JAN1

Agencies

[Federal Register Volume 73, Number 2 (Thursday, January 3, 2008)]
[Notices]
[Pages 514-523]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-25487]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57042; File No. SR-Amex-2007-70]


Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change, as Modified by Amendments No. 
1 and 2, Relating to the Listing and Trading of Units of the United 
States Heating Oil Fund, LP and the United States Gasoline Fund, LP

December 26, 2007.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on June 29, 2007, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been substantially prepared by the 
Exchange. On August 16, 2007, the Exchange submitted Amendment No. 1 to 
the proposed rule change. On December 20, 2007, the Exchange submitted 
Amendment No. 2 to the proposed rule change. The Commission is 
publishing this notice to solicit comments on the proposed rule change, 
as amended, from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to list and trade units (a ``Unit'' or 
collectively, the ``Units'') of each of the United States Heating Oil 
Fund, LP (``USHO'') and the United States Gasoline Fund, LP (``USG'') 
(each, a ``Partnership,'' and collectively, the ``Partnerships'').

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Amex included statements 
concerning the purpose of, and basis for, the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Amex has prepared summaries, set forth in sections 
A, B, and C below, of the most significant aspects of such statements.

A Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1.Purpose
    The Exchange proposes to list and trade the Units issued by USHO 
(under the symbol: ``UHN'') and USG (under symbol: ``UGA'') pursuant to 
Amex Rules 1500-AEMI and 1501 through 1505. \3\ Each Partnership is a 
commodity pool that will issue Units that may be purchased and sold on 
the Exchange. The Exchange submits that the Units will conform to the 
initial and continued listing criteria under Rule 1502, \4\ specialist 
prohibitions under Rule 1503, and the obligations of specialists under 
Rule 1504.
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    \3\ Amex Rule 1500-AEMI provides for the listing of Partnership 
Units, which are defined as securities, that are (a) issued by a 
partnership that invests in any combination of futures contracts, 
options on futures contracts, forward contracts, commodities, and/or 
securities; and (b) issued and redeemed daily in specified aggregate 
amounts at net asset value. See Exchange Act Release No. 53582 
(March 31, 2006), 71 FR 17510 (April 6, 2006) (SR-Amex-2005-127) 
(approving Amex Rules 1500-AEMI and 1501 through 1505 in conjunction 
with the listing and trading of Units of the United States Oil Fund, 
LP).
    \4\ See section entitled ``Listing and Trading Rules,'' infra.
---------------------------------------------------------------------------

    Ownership of a Unit represents a fractional undivided beneficial 
interest in each of the net assets of USHO and USG. Each of the net 
assets of USHO and USG will consist of investments in futures contracts 
based on heating oil, gasoline, crude oil, and other petroleum-based 
fuels, and natural gas that are traded on the New York Mercantile 
Exchange (``NYMEX''), Intercontinental Exchange (``ICE Futures''), or 
other U.S. and foreign exchanges (collectively, ``Futures Contracts''). 
In the case of USHO, the predominant investments are expected to be 
based on, or related to, heating oil. The predominant investments of 
USG are expected to be based on, or related to, gasoline.
    USHO may also invest in other heating-oil-related investments such 
as cash-settled options on Futures Contracts, forward contracts for 
heating oil, and over-the-counter (``OTC'') contracts that are based on 
the price of heating oil, oil and other petroleum-based fuels, Futures 
Contracts, and indices based on the foregoing (collectively, ``Other 
Heating Oil Related Investments''). Futures Contracts and Other Heating 
Oil Related Investments collectively are referred to as ``Heating Oil 
Interests.''
    Similarly, USG may also invest in other gasoline-related 
investments such as cash-settled options on Futures Contracts, forward 
contracts for gasoline, and OTC transactions based on the price of 
gasoline, oil, and other petroleum-based fuels, Futures Contracts, and 
indices based on the foregoing (collectively, ``Other Gasoline-Related 
Investments''). Futures Contracts and Other Gasoline-Related 
Investments collectively are referred to as ``Gasoline Interests.''
    Each of USHO and USG will invest in Heating Oil Interests and 
Gasoline Interests, respectively, to the fullest extent possible 
without being leveraged or unable to satisfy its current or potential 
margin or collateral obligations. In pursuing this objective, the 
primary focus of USHO's and USG's investment manager, Victoria Bay 
Asset Management, LLC (``Victoria Bay'' or ``General Partner''), will 
be the investment in Futures Contracts and the management of its 
investments in short-term obligations of the United States of two years 
or less (``Treasuries''), and cash and cash equivalents (collectively, 
``Cash'') for margining purposes and as collateral.
USHO Investment Objective and Policies
    The investment objective of USHO is for the changes in percentage 
terms of a Unit's net asset value (``NAV'') to reflect the changes in 
percentage terms of the price of heating oil (also known as No. 2 fuel) 
delivered at the New York harbor, as measured by the changes in the 
price of the heating oil futures contract traded on the NYMEX (the

[[Page 515]]

``Heating Oil Benchmark Futures Contract''), less USHO's expenses. The 
Heating Oil Benchmark Futures contract employed is the near month 
expiration contract, except when the near month contract is within two 
weeks of expiration, in which case it will invest in the next 
expiration month.\5\
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    \5\ The Benchmark Futures Contracts will be changed or 
``rolled'' over a four-day period by selling the near month contract 
that expires the following month.
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    The General Partner will attempt to place USHO's trades in Heating 
Oil Interests and otherwise manage USHO's investments so that ``A'' 
will be within plus/minus 10% of ``B'', where:
     A is the average daily change in USHO's NAV for any period 
of 30 successive valuation days, i.e., any day as of which USHO 
calculates its NAV, and
     B is the average daily change in the price of the 
Benchmark Futures Contract over the same period.
    The Exchange states that an investment in the Units will allow both 
retail and institutional investors to easily gain exposure to the 
heating oil market in a cost-effective manner. The Units are also 
expected to provide additional means for diversifying an investor's 
investments or hedging exposure to changes in heating oil prices.
    The General Partner believes that market arbitrage opportunities 
should cause USHO's Unit price to closely track USHO's per-Unit NAV, 
which is targeted at the current Heating Oil Benchmark Futures 
Contract.\6\ USHO will not be operated in a manner such that the per-
Unit NAV will equal, in dollar terms, the dollar price of spot heating 
oil or any particular futures contract based on heating oil.
---------------------------------------------------------------------------

    \6\ See section entitled ``Arbitrage,'' infra.
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USG Investment Objective and Policies
    The investment objective of USG is for changes in percentage terms 
of a Unit's NAV to reflect the changes in percentage terms of the price 
of unleaded gasoline (also known as reformulated gasoline blendstock 
for oxygen blending or ``RBOB''), for delivery to New York harbor, as 
measured by the changes in the price of the unleaded gasoline futures 
contract traded on the NYMEX (the ``Gasoline Benchmark Futures 
Contract''), less USG's expenses. The Gasoline Benchmark Futures 
Contract employed is the near month expiration contract, except when 
the near month contract is within two weeks, in which case it will 
invest in the next expiration month.\7\
---------------------------------------------------------------------------

    \7\ The Benchmark Futures Contracts will be changed or 
``rolled'' over a four-day period by selling the near month contract 
that expires the following month.
---------------------------------------------------------------------------

    The General Partner will attempt to place USG's trades in Gasoline 
Interests and otherwise manage USG's investments so that ``A'' will be 
within plus/minus 10% of ``B'', where:
     A is the average daily change in USG's NAV for any period 
of 30 successive valuation days, i.e., any day as of which USG 
calculates its NAV, and
     B is the average daily change in the price of the 
Benchmark Futures Contract over the same period.
    The Exchange states that an investment in the Units will allow both 
retail and institutional investors to easily gain exposure to the 
gasoline market in a cost-effective manner. The Units are also expected 
to provide additional means for diversifying an investor's investments 
or hedging exposure to changes in gasoline prices.
    The General Partner believes that market arbitrage opportunities 
should cause USG's Unit price to closely track USG's per-Unit NAV which 
is targeted at the current Gasoline Benchmark Futures Contract. USG 
will not be operated in a manner such that the per-Unit NAV will equal, 
in dollar terms, the dollar price of spot gasoline or any particular 
futures contract based on gasoline.
Description of the Petroleum-Based Fuels Market
    With respect to each of the following petroleum-based fuel markets, 
the Exchange states as follows:
    Heating Oil. Heating oil, also known as No. 2 fuel oil, accounts 
for 25% of the yield of a barrel of crude oil, the second largest 
``cut'' from oil after gasoline. The heating oil futures contract, 
listed and traded on NYMEX, trades in units of 42,000 gallons (1,000 
barrels) and is based on delivery in New York harbor, the principal 
cash market center. The price of heating oil fluctuates on a seasonal 
basis. Cold weather increases demand and price follows.
    Crude Oil. Crude oil is the world's most actively traded commodity. 
The NYMEX is the world's most liquid forum for crude oil trading and 
has the most liquid futures contracts on a physical commodity. Due to 
the liquidity and price transparency of oil Futures Contracts, they are 
used as a principal international pricing benchmark. The oil futures 
contracts for WTI light, sweet crude oil trade on the NYMEX in units of 
1,000 U.S. barrels (42,000 gallons) and, if not closed out before 
maturity, will result in delivery of oil to Cushing, Oklahoma, which is 
also accessible to the world market by two major interstate petroleum 
pipeline systems.
    The price of crude oil is established by the supply and demand 
conditions in the global market overall, and more particularly, in the 
main refining centers of Singapore, Northwest Europe, and the U.S. Gulf 
Coast. Demand for petroleum products by consumers, as well as 
agricultural, manufacturing, and transportation industries, determines 
demand for crude oil by refiners. Since the precursors of product 
demand are linked to economic activity, crude oil demand will tend to 
reflect economic conditions. However, other factors such as weather 
also influence product and crude oil demand. The price of WTI light, 
sweet crude oil has historically exhibited periods of significant 
volatility.
    Gasoline. Gasoline is by volume the largest single refined product 
sold in the United States and accounts for almost half of national oil 
consumption. The gasoline Futures Contract, listed and traded on the 
NYMEX, trades in units of 42,000 gallons (1,000 barrels) and is based 
on delivery at petroleum products terminals in the New York harbor, the 
major East Coast trading center for imports and domestic shipments from 
refineries in the New York harbor area or from the Gulf Coast refining 
centers. The price of gasoline is volatile.
    Natural Gas. Natural gas accounts for almost a quarter of U.S. 
energy consumption. The price of natural gas is established by the 
supply and demand conditions in the North American market, and more 
particularly, in the main refining center of the U.S. Gulf Coast. The 
natural gas market essentially constitutes an auction, where the 
highest bidder wins the supply. When markets are ``strong'' (i.e., when 
demand is high and/or supply is low), the bidder must be willing to pay 
a higher premium to capture the supply. When markets are ``weak'' 
(i.e., when demand is low and/or supply is high), a bidder may choose 
not to outbid competitors, waiting instead for later, possibly lower-
priced, supplies. Demand for natural gas by consumers, and the 
agricultural, manufacturing, and transportation industries, determines 
overall demand for natural gas. Since the precursors of product demand 
are linked to economic activity, natural gas demand will tend to 
reflect economic conditions. However, other factors such as weather 
significantly influence natural gas demand. NYMEX is the world's 
largest physical commodity futures exchange and the dominant market for 
the trading of energy and precious metals. The NYMEX's natural

[[Page 516]]

gas futures contracts trade in units of 10,000 million British thermal 
units (``mmBtu'') and are based on delivery at the Henry Hub in 
Louisiana.
    Because of the volatility of natural gas prices, a vigorous basis 
market has developed in the pricing relationships between the Henry Hub 
and other important natural gas market centers in the continental 
United States and Canada.
Structure and Regulation of USHO and USG
    Each of USHO and USG is a Delaware limited partnership formed in 
April 2007. USHO is a commodity pool that will invest in Heating Oil 
Interests, while USG is a commodity pool that will invest in Gasoline 
Interests. Neither USHO nor USG is an investment company as defined in 
section 3(a) of the Investment Company Act of 1940. Both are managed by 
Victoria Bay, a single-member Delaware limited liability company, which 
is wholly owned by Wainwright Holdings, Inc. The General Partner of the 
Partnerships is registered as a commodity pool operator (``CPO'') with 
the Commodity Futures Trading Commission (the ``CFTC'') and is a member 
of the National Futures Association.
    Information regarding the Partnerships and the General Partner, as 
well as detailed descriptions of the manner in which the Units will be 
offered and sold, and the investment strategy of USHO and USG, are 
included in their respective registration statements regarding the 
offering of the Units filed with the Commission under the Securities 
Act of 1933.\8\
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    \8\ See USHO's Form S-1 filed with the Commission on April 19, 
2007 (File No. 333-142211); USG's S-1 filed with the Commission on 
April 18, 2007 (File No. 333-142206).
---------------------------------------------------------------------------

    Clearing Broker. UBS Securities, LLC (the ``Clearing Broker''), a 
CFTC-registered futures commission merchant (``FCM''), will execute and 
clear each Partnership's futures contract transactions and hold the 
margin related to its Futures Contracts investments. The clearing 
arrangements between the Clearing Broker and each Partnership are 
terminable by the Clearing Broker, upon notice. In such an instance, 
the General Partner may be required to renegotiate with the current 
Clearing Broker, or make arrangements with other FCMs, if the 
Partnership(s) intend(s) to continue trading in Futures Contracts or 
Heating Oil Interests and Gasoline Interests, as appropriate, at the 
present level of capacity.
    Administrator and Custodian. Under separate agreements with each 
Partnership, Brown Brothers Harriman & Co. will serve as each 
Partnership's administrator, registrar, transfer agent, and custodian 
(the ``Administrator'' or ``Custodian''). The Administrator will 
perform or supervise the performance of services necessary for the 
operation and administration of each Partnership. These services 
include, but are not limited to, investment accounting, financial 
reporting, broker and trader reconciliation, calculation of the NAV, 
and valuation of Treasuries and cash equivalents used to purchase or 
redeem Units and other Partnership assets or liabilities. As Custodian, 
it will: (1) Receive payments from purchasers of Creation Baskets; (2) 
make payments to Sellers for Redemption Baskets, as described below; 
and (3) hold the cash, cash equivalents and Treasuries, as well as 
collateral posted by each Partnership's derivatives counterparties, and 
will make transfers of margin and collateral with respect to each 
Partnership's investments to and from its FCMs or counterparties.
    Marketing Agent. ALPS Distributors, Inc., a registered broker-
dealer, will be the marketing agent for the Partnerships (``Marketing 
Agent''). The Marketing Agent will continuously offer and redeem 
Creation and Redemption Baskets, respectively, and will receive and 
process creation and redemption orders from Authorized Purchasers (as 
defined below) and coordinate the processing of orders for the creation 
or redemption of Units with the General Partner and the Depository 
Trust Company (``DTC'').

Investment Strategy of USHO

    Investments. The General Partner of USHO believes that it will be 
able to use a combination of Futures Contracts and Other Heating Oil 
Related Investments to manage the portfolio to achieve its investment 
objective. The General Partner further anticipates that the exact mix 
of Futures Contracts and Other Heating Oil Related Investments held by 
the portfolio will vary over time depending on, among over things, the 
amount of invested assets in the portfolio, price movements of Heating 
Oil, the rules and regulations of the various futures and commodities 
exchanges and trading platforms that deal in Heating Oil Interests, and 
innovations in the Heating Oil Interests' marketplace, including both 
the creation of new Heating Oil Interest investment vehicles and the 
creation of new trading venues that trade in Heating Oil Interests.
    Futures Contracts. The principal Heating Oil Interests to be 
invested in by USHO are Futures Contracts. USHO initially expects to 
purchase the Benchmark Futures Contract. USHO may also invest in 
Futures Contracts in Heating Oil, crude oil, gasoline, and other 
petroleum-based fuels that are traded on the NYMEX, ICE Futures, or 
other U.S. and foreign exchanges.
    The Heating Oil Benchmark Futures Contract has historically closely 
tracked the investment objective of USHO over the short term, medium 
term and the long term. For that reason, USHO anticipates making 
significant investments in the Heating Oil Benchmark Futures Contract. 
The General Partner submits that other Futures Contracts have also 
tended to track the investment objective of USHO, though not as closely 
as the Heating Oil Benchmark Futures Contract.
    Other Heating Oil Related Investments. USHO may also purchase Other 
Heating Oil Related Investments such as cash-settled options on Futures 
Contracts and forward contracts for Heating Oil, and participate in OTC 
transactions that are based on the price of Heating Oil, crude oil, 
natural gas, and other petroleum-based fuels, Futures Contracts, and 
indices based on the foregoing. Option contracts offer investors and 
hedgers another vehicle for managing exposure to the heating oil 
market. USHO may purchase options on Heating Oil Futures Contracts on 
the principal commodities and futures exchanges in pursuing its 
investment objective.
    In addition to these listed options, there also exists an active 
OTC market in derivatives linked to Heating Oil. These OTC derivative 
contracts are privately negotiated agreements between two parties. 
Unlike Futures Contracts or related options, each party to an OTC 
contract bears the credit risk that the counterparty may not be able to 
perform its obligations. Some OTC contracts contain fairly generic 
terms and conditions and are available from a wide range of 
participants, while other OTC contracts have highly customized terms 
and conditions and are not as widely available. Many OTC contracts are 
cash-settled forwards for the future delivery of Heating Oil or 
petroleum-based fuels that have terms similar to the Futures Contracts. 
Others take the form of ``swaps'' in which the two parties exchange 
cash flows based on pre-determined formulas tied to the price of 
Heating Oil as determined by the spot, forward, or futures markets. 
USHO may enter into OTC derivative contracts whose value may be tied to 
changes in the difference between the Heating Oil spot price, the price 
of Futures Contracts traded on NYMEX, and the prices of non-NYMEX 
Futures

[[Page 517]]

Contracts that may be invested in by USHO.
Investment Strategy of USG
    Investments. USG believes that it will be able to use a combination 
of Futures Contracts and Other Gasoline Related Investments to manage 
the portfolio to achieve its investment objective. USG further 
anticipates that the exact mix of Futures Contracts and Other Gasoline 
Related Investments held by the portfolio will vary over time depending 
on, among other things, the amount of invested assets in the portfolio, 
price movements of Gasoline, the rules and regulations of the various 
futures and commodities exchanges and trading platforms that deal in 
Gasoline Interests, and innovations in the Gasoline Interests' 
marketplace including both the creation of new Gasoline Interest 
investment vehicles and the creation of new trading venues that trade 
in Gasoline Interests.
    Futures Contracts. The principal Gasoline Interests to be invested 
in by USG are Futures Contracts. USG initially expects to purchase the 
Gasoline Benchmark Futures Contract. USG may also invest in Futures 
Contracts in crude oil, natural gas, heating oil, and other petroleum-
based fuels that are traded on the NYMEX, ICE Futures, or other U.S. 
and foreign exchanges.
    The Gasoline Benchmark Futures Contract has historically closely 
tracked the investment objective of USG over the short term, medium 
term and the long term. For that reason, USG anticipates making 
significant investments in the Gasoline Benchmark Futures Contract. The 
General Partner submits that other Futures Contracts have also tended 
to track the investment objective of USG, though not as closely as the 
Gasoline Benchmark Futures Contract.
    Other Gasoline Related Investments. USG may also purchase Other 
Gasoline Related Investments such as cash-settled options on Futures 
Contracts, forward contracts for gasoline, and OTC contracts that are 
based on the price of gasoline, heating oil, crude oil, natural gas, 
and other petroleum-based fuels, as well as Futures Contracts and 
indices based on the foregoing. Option contracts offer investors and 
hedgers another vehicle for managing exposure to the gasoline market. 
USG may purchase options on gasoline Futures Contracts on the principal 
commodities and futures exchanges in pursuing its investment objective.
    In addition to these listed options, there also exists an active 
OTC market in derivatives linked to gasoline. These OTC derivative 
transactions are privately negotiated agreements between two parties. 
Unlike Futures Contracts or related options, each party to an OTC 
contract bears the credit risk that the counterparty may not be able to 
perform its obligations. Some OTC contracts contain fairly generic 
terms and conditions and are available from a wide range of 
participants, while other OTC contracts have highly customized terms 
and conditions and are not as widely available. Many OTC contracts are 
cash-settled forwards for the future delivery of gasoline or petroleum-
based fuels that have terms similar to the Futures Contracts. Others 
take the form of ``swaps'' in which the two parties exchange cash flows 
based on pre-determined formulas tied to the price of gasoline as 
determined by the spot, forward, or futures markets. USG may enter into 
OTC derivative contracts whose value will be tied to changes in the 
difference between the gasoline spot price, the price of Futures 
Contracts traded on NYMEX, and the prices of non-NYMEX Futures 
Contracts that may be invested in by USG.
Impact of Accountability Levels and Position Limits
    The CFTC and U.S. designated contract markets such as NYMEX have 
established accountability levels and position limits on the maximum 
net long or net short Futures Contracts in commodity interests that any 
person or group of persons under common trading control and that these 
limits are applicable to each of the Partnerships. Accountability 
levels and position limits are intended, among other things, to prevent 
a corner or squeeze on a market or undue influence on prices by any 
single trader or group of traders. The net position is the difference 
between an individual or firm's open long contracts and open short 
contracts in any one commodity.
    Most U.S. futures exchanges, such as NYMEX, also limit the daily 
price fluctuation (i.e., daily price limits) for Futures Contracts. The 
daily price limits establish the maximum amount that the price of a 
futures contract or an option on a futures contract may vary either up 
or down from the previous day's settlement price during a particular 
trading session. Once the daily limit has been reached in a particular 
futures contract or option on a futures contract, no trades may be made 
at a price beyond the limit.
    The accountability levels for the Heating Oil Benchmark Futures 
Contract, the Gasoline Benchmark Futures Contract, and other Futures 
Contracts traded on NYMEX are not a fixed ceiling, but rather a 
threshold above which the NYMEX may exercise greater scrutiny and 
control over an investor's positions. The current accountability level 
for each of the Heating Oil Benchmark Futures Contract and Gasoline 
Benchmark Futures Contract is 7,000 contracts. If a Partnership exceeds 
this accountability level for its Benchmark Futures Contract, NYMEX 
will monitor the Partnership's exposure and ask for further information 
on its activities, including the total size of all positions, the 
investment and trading strategy, and the extent of liquidity resources. 
If deemed necessary by NYMEX, it could also order the Partnership to 
reduce its position back to the accountability level.
    If NYMEX orders a Partnership to reduce its position back to the 
accountability level, or to an accountability level that NYMEX deems 
appropriate for the Partnership, such an accountability level may 
impact the mix of investments by such Partnership. To illustrate, 
assume that the Heating Oil Benchmark Futures Contract and the unit 
price of USHO are each $10, and that NYMEX has determined that USHO may 
not own more than 7,000 contracts. In such a case, USHO could invest up 
to $2.940 billion of its daily net assets in the Benchmark Futures 
Contract (i.e., $10 per unit multiplied by 42,000 (a Benchmark Futures 
Contract is a contract for 42,000 gallons (1,000 barrels)) multiplied 
by 7,000 contracts) before reaching the accountability level imposed by 
NYMEX. Once the daily net assets of the portfolio exceed $2.940 billion 
in the Heating Oil Benchmark Futures Contract, the portfolio may not be 
able to make any further investments in the Heating Oil Benchmark 
Futures Contract, depending on whether the NYMEX imposes limits. If 
NYMEX does impose limits at the $2.940 billion level (or another 
level), USHO anticipates that it will invest the majority of its assets 
above that level in a mix of other Futures Contracts or Other Heating 
Oil Related Investments. The above example applies equally to USG and 
the Gasoline Benchmark Futures Contract.
    In addition to accountability levels, NYMEX imposes position limits 
on contracts held in the last few days of trading in the near month 
contract. The Exchange states that it is unlikely that a Partnership 
will run up against such position limits because each Partnership's 
investment strategy is to exit from the near month contract over a four 
day period beginning two weeks from expiration of the contract.

[[Page 518]]

Investment Procedures
    The General Partner of each of USHO and USG anticipate that the use 
of Other Heating Oil Related Investments and Other Gasoline Related 
Investments, respectively, together with investments in Futures 
Contracts, will produce price and total return results that closely 
track each Partnership's investment objective.
    Counterparty Procedures. To protect itself from the credit risk 
that arises in connection with OTC contracts, each Partnership will 
enter into agreements with each counterparty that provide for the 
netting of its overall exposure to its counterparty, and/or provide 
collateral or other credit support to address the Partnership's 
exposure. The counterparties to an OTC contract will generally be major 
broker-dealers and banks or their affiliates, though certain 
institutions, such as large energy companies, or other institutions 
active in the gasoline commodities markets, may also be counterparties. 
The General Partner will assess or review, as appropriate, the 
creditworthiness of each potential or existing, as appropriate, 
counterparty to an OTC contract pursuant to guidelines approved by the 
General Partner's board of directors. Furthermore, the General Partner, 
on behalf of each Partnership, will only enter into OTC contracts with 
(a) members of the Federal Reserve System or foreign banks with 
branches regulated by the Federal Reserve Board, (b) primary dealers in 
U.S. government securities, (c) broker-dealers, (d) commodities futures 
merchants, or (e) affiliates of the foregoing.
    Cash, Cash Equivalents, and Treasuries. USHO and USG will invest 
virtually all of their assets not invested in Heating Oil Interests or 
Gasoline Interests, respectively, in cash, cash equivalents, and 
Treasuries with a remaining maturity of two years or less. The cash, 
cash equivalents, and Treasuries will be available to be used to meet 
each Partnership's current or potential margin and collateral 
requirements with respect to investments in Heating Oil Interests or 
Gasoline Interests, as appropriate. Neither Partnership will use cash, 
cash equivalents, or Treasuries as margin for new investments unless it 
has a sufficient amount of cash, cash equivalents or Treasuries to meet 
the margin or collateral requirements that may arise due to changes in 
the value of its currently held Heating Oil Interests or Gasoline 
Interests. Other than in connection with a redemption of Units, each 
Partnership does not intend to distribute cash or property to its Unit 
holders. Interest earned on cash, cash equivalents, and Treasuries held 
by a Partnership will be retained by it to pay its expenses, to make 
investments to satisfy its investment objectives, or to satisfy its 
margin or collateral requirements.
The Markets for Partnership Units
    There will be two markets for investors to purchase and sell Units. 
A new issuance of the Units will be made only in a ``Basket'' of 
100,000 Units or multiples thereof. Each Partnership will issue and 
redeem Baskets on a continuous basis, by or through participants who 
have each entered into an authorized purchaser agreement (``Authorized 
Purchaser Agreement'' and each such participant, an ``Authorized 
Purchaser'') \9\ with the General Partner, at the NAV per Unit next 
determined after an order to purchase the Units in a Basket is received 
in proper form. A Basket may be issued and redeemed on any ``business 
day'' (defined as any day other than a day on which the Amex, NYMEX, or 
the New York Stock Exchange is closed for regular trading) through the 
Marketing Agent in exchange for cash and/or Treasuries, which the 
Custodian receives from an Authorized Purchaser or transfers to an 
Authorized Purchaser, in each case on behalf of a Partnership. A Basket 
is then separable upon issuance into identical Units that will be 
listed and traded on the Exchange. The Exchange expects that the number 
of outstanding Units will increase and decrease as a result of 
creations and redemptions of Baskets.
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    \9\ ``An Authorized Purchaser'' must be (1) a registered broker-
dealer or other market participant, such as a bank or other 
financial institution, that is exempt from broker-dealer 
registration; and (2) a DTC Participant.
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    The Units will thereafter be traded on the Exchange similar to 
other equity securities. Units will be registered in book-entry form 
through DTC. Trading in the Units on the Exchange will be effected 
until 4:15 p.m. Eastern time (``ET'') each business day. The minimum 
trading increment for such Units will be $0.01.
    Each Authorized Purchaser, and each distributor offering and 
selling newly issued Units as part of the distribution of such Units, 
is required to comply with the prospectus delivery and disclosure 
requirements of the Securities Act of 1933, as well as the requirements 
of the Commodities Exchange Act, including the requirement that 
prospective investors provide an acknowledgement of receipt of such 
disclosure materials prior to the payment for any newly issued Units.
    Calculation of Partnership NAV. The Administrator will calculate 
NAV as follows: (1) Determine the current value of each Partnership's 
assets; and (2) subtract the liabilities of each Partnership. The NAV 
will be calculated shortly after the close of trading on the Exchange 
using the settlement value \10\ of Futures Contracts traded on the 
NYMEX as of the close of open-outcry trading on the NYMEX at 2:30 p.m. 
ET, and for the value of other Heating Oil Interests or Gasoline 
Interests, depending on the Partnership, and Treasuries and cash 
equivalents, the value of such investments as of the earlier of 4 p.m. 
ET or the close of trading on the New York Stock Exchange. The NAV is 
calculated by including any unrealized profit or loss on Futures 
Contracts and Other Heating Oil Related Investments and Other Gasoline 
Related Investments, as the case may be, and any other credit or debit 
accruing to a Partnership but unpaid or not received by such 
Partnership. The NAV is then used to compute all fees (including the 
management and administrative fees) that are calculated from the value 
of Partnership assets. The Administrator will calculate the NAV per 
Unit by dividing the NAV by the number of Units outstanding.
---------------------------------------------------------------------------

    \10\ See Rules 6.52 and 6.52A of the NYMEX Rulebook.
---------------------------------------------------------------------------

    When calculating NAV, the Administrator will value Futures 
Contracts based on the closing settlement prices quoted on the relevant 
commodities and futures exchange and obtained from various major market 
data vendors such as Bloomberg or Reuters. The value of the Other 
Heating Oil Related Investments or Other Gasoline Related Investments 
for purposes of determining the NAV will be based upon the 
determination of the Administrator as to the fair market value. Certain 
types of Other Heating Oil Related Investments and Other Gasoline 
Related Investments, such as listed options on Futures Contracts, have 
closing prices that are available from the exchange upon which they are 
traded or from various market data vendors. Other Heating Oil Related 
Investments and Other Gasoline Related Investments will be valued based 
on the last sale price on the exchange or market where traded. If a 
contract fails to trade, the value shall be the most recent bid 
quotation from the third-party source. Some types of Other Heating Oil 
Related Investments and Other Gasoline Related Investments, such as 
forward contracts, do not trade on established exchanges, but typically 
have prices that are widely

[[Page 519]]

available from third-party sources. The Administrator may make use of 
such third-party sources in calculating a fair market value of these 
Other Heating Oil Related Investments and Other Gasoline Related 
Investments.
    Certain types of Other Heating Oil Related Investments and Other 
Gasoline Related Investments, such as OTC derivative ``swaps,'' also do 
not have established exchanges upon which they trade and may not have 
readily available price quotes from third parties. Swaps and other 
similar derivative or contractual-type instruments will be first valued 
at a price provided by a single broker or dealer, typically the 
counterparty. If no such price is available, the contract will be 
valued at a price at which the counterparty to such contract could 
repurchase the instrument or terminate the contract. In determining the 
fair market value of such derivative contracts, the Administrator may 
make use of quotes from other providers of similar derivatives. If 
these are not available, the Administrator may calculate a fair market 
value of the derivative contract based on the terms of the contract and 
the movement of the underlying price factors of the contract.
    Calculation of the Basket Amount. A Basket will be issued in 
exchange for Treasuries and/or cash in an amount equal to the NAV per 
Unit times 100,000 Units (the ``Basket Amount''). A Basket will be 
delivered by the Marketing Agent to an Authorized Purchaser only after 
execution of the Authorized Purchaser Agreement.
    Units in a Basket are issued and redeemed in accordance with the 
Authorized Purchaser Agreement. An Authorized Purchaser that wishes to 
purchase a Basket must transfer the Basket Amount, for each Basket 
purchased, to the Custodian (the ``Deposit Amount''). An Authorized 
Purchaser that wishes to redeem a Basket will receive an amount of 
Treasuries and/or cash in exchange for each Basket surrendered in an 
amount equal to the NAV per Basket (the ``Redemption Amount'').
    On each business day, the Administrator will make available, 
immediately prior to the opening of trading on the Exchange, the Basket 
Amount for the creation of a Basket based on the prior day's NAV. At or 
about 4 p.m. ET on each business day, the Administrator will determine 
the Basket Amount for orders placed by Authorized Purchasers received 
before 12 p.m. ET that day. Because orders to purchase and/or redeem 
Baskets must be placed by 12 p.m. ET, but the Basket Amount will not be 
determined until shortly after 4 p.m. ET on the date the order to 
purchase or redeem is received, an Authorized Purchaser will not know 
the total payment required to create or redeem a Basket at the time it 
submits such irrevocable purchase and/or redemption order. This is 
similar to exchange-traded funds and mutual funds. USHO's and USG's 
registration statements disclose that the NAV and the Basket Amount 
could rise and fall substantially between the time an irrevocable 
purchase order and/or redemption order is submitted and the time the 
Basket Amount is determined.\11\
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    \11\ The General Partner states that the price of crude oil, 
heating oil, gasoline, and other petroleum-based fuels futures may 
fluctuate 5% or more between 12:00 noon, the cutoff for creation and 
redemption orders, and 2:30 p.m., the close of trading on NYMEX. As 
explained further below (see section entitled ``Arbitrage,'' infra), 
the Exchange does not anticipate such price movements to impact the 
arbitrage process.
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    Shortly after 4 p.m. ET on each business day, the Administrator, 
Amex, and the General Partner will disseminate the Basket Amount (for 
orders placed during the day) together with NAV for the Units. The 
Exchange will obtain a representation from each Partnership that its 
NAV and other relevant pricing information will be disclosed to all 
market participants at the same time. The Basket Amount and the NAV are 
communicated by the Administrator to all Authorized Purchasers via 
facsimile or e-mail. Concurrently, the Amex will also disclose the NAV 
and Basket Amount on its Web site at http://www.amex.com. The Basket 
Amount necessary for the creation of a Basket will change from day to 
day. On each day that the Amex is open for regular trading, the 
Administrator will adjust the Deposit Amount as appropriate to reflect 
the prior day's Partnership NAV and accrued expenses. The Administrator 
will then determine the Deposit Amount for a given business day.
    Calculation and Payment of the Deposit Amount. The Deposit Amount 
of Treasuries and/or cash will be in the same proportion to the total 
net assets of each Partnership as the number of Units to be created is 
in proportion to the total number of Units outstanding as of the date 
the purchase order is accepted. The General Partner will determine the 
requirements for the Treasuries that may be included in the Deposit 
Amount and will disseminate these requirements at the start of each 
business day. The amount of cash that is required is the difference 
between the aggregate market value of the Treasuries required to be 
included in the Deposit Amount as of 4 p.m. ET on the date of purchase 
and the total required deposit.
    All purchase orders must be received by the Marketing Agent by 12 
p.m. ET for consideration on that business day. Delivery of the Deposit 
Amount, i.e., Treasuries and/or cash, to the Administrator must occur 
by the third business day following the purchase order date (T+3).\12\ 
Thus, the General Partner will disseminate shortly after 4 p.m. ET, on 
the date the purchase order was properly submitted, the amount of 
Treasuries and/or cash to be deposited with the Custodian for each 
Basket.
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    \12\ Authorized Purchasers are required to pay a transaction fee 
of $1,000 for each order to create one or more Baskets.
---------------------------------------------------------------------------

    Calculation and Payment of the Redemption Amount. The Units will 
not be individually redeemable but will only be redeemable in Baskets. 
To redeem, an Authorized Purchaser will be required to accumulate 
enough Units to constitute a Basket (i.e., 100,000 Units). An 
Authorized Purchaser redeeming a Basket will receive the Redemption 
Amount. Upon the surrender of the Units and payment of applicable 
redemption transaction fee,\13\ taxes, or charges, the Custodian will 
deliver to the redeeming Authorized Purchaser the Redemption Amount. 
The Redemption Amount of Treasuries and/or cash will be in the same 
proportion to the total net assets of each Partnership as the number of 
Units to be redeemed is in proportion to the total number of Units 
outstanding as of the date the redemption order is accepted. The 
General Partner will determine the Treasuries to be included in the 
Redemption Amount. The amount of cash that is required is the 
difference between the aggregate market value of the Treasuries 
required to be included in the Redemption Amount as of 4 p.m. ET on the 
date of redemption and the total Redemption Amount. All redemption 
orders must be received by the Marketing Agent by 12 p.m. ET on the 
business day redemption is requested and are irrevocable. Delivery of 
the Basket to be redeemed to the Custodian and payment of Redemption 
Amount will occur by the third business day following the redemption 
order date (T+3).
---------------------------------------------------------------------------

    \13\ Authorized Purchasers are required to pay a transaction fee 
of $1,000 for each order to redeem one or more Baskets.
---------------------------------------------------------------------------

Arbitrage
    The Exchange believes that the Units will not trade at a material 
discount or premium to a Unit's NAV based on potential arbitrage 
opportunities. Due to the fact that the Units can be created and 
redeemed only in Baskets at NAV,

[[Page 520]]

arbitrage opportunities should provide a mechanism to mitigate the 
effect of any premiums or discounts that may exist from time to 
time.\14\
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    \14\ Arbitrage opportunities may arise whenever the market price 
of a Partnership Unit is higher (or lower) than its expected fair 
market value, which is based on the price of the underlying 
commodity futures. An Authorized Purchaser may effectively lock-in 
an arbitrage spread by selling (or buying) the Units while, at the 
same time buying (or selling), the related commodity futures. This 
arbitrage activity may occur not only at the time of an irrevocable 
creation or redemption order, but throughout the day. Accordingly, 
arbitrage activity should not be affected by price movements in the 
underlying commodity assets between the cutoff for creation and 
redemption orders and the close of futures trading, following which 
the Basket Amount is determined.
---------------------------------------------------------------------------

Dissemination and Availability of Information
    Futures Contracts. The daily settlement prices for the NYMEX-traded 
Futures Contracts are publicly available on the NYMEX Web site at 
http://www.nymex.com. The Exchange will also include on its Web site at 
http://www.amex.com a hyperlink to the NYMEX Web site for the purpose 
of disclosing futures contract pricing. In addition, various market 
data vendors and news publications publish futures prices and related 
data. The Exchange represents that quote and last-sale information for 
the Futures Contracts are widely disseminated through a variety of 
market data vendors worldwide, including Bloomberg and Reuters. In 
addition, real-time futures data is available by subscription from 
Reuters and Bloomberg. The NYMEX also provides delayed futures 
information on current and past trading sessions and market news free 
of charge on its Web site. The specific contract specifications for the 
Futures Contracts are also available on the NYMEX Web site and the ICE 
Futures Web site at http://www.icefutures.com.
    Partnership Units. The Exchange's Web site at http://www.amex.com, 
which is publicly accessible at no charge, will contain the following 
information: (1) The prior business day's NAV and the reported closing 
price; (2) the mid-point of the bid-ask price \15\ in relation to the 
NAV as of the time the NAV is calculated (the ``Bid-Ask Price''); (3) 
calculation of the premium or discount of such price against such NAV; 
(4) data in chart form displaying the frequency distribution of 
discounts and premiums of the Bid-Ask Price against the NAV, within 
appropriate ranges for each of the four previous calendar quarters; (5) 
the prospectus and the most recent periodic reports filed with the 
Commission or required by the CFTC; and (6) other applicable 
quantitative information.
---------------------------------------------------------------------------

    \15\ The Bid-Ask Price of Units is determined using the highest 
bid and lowest offer as of the time of calculation of the NAV.
---------------------------------------------------------------------------

    Portfolio Disclosure. USHO's and USG's total portfolio composition 
will be disclosed, each business day that the Amex is open for trading, 
on their respective Web sites at http://
www.unitedstatesheatingoilfund.com and http://
www.unitedstatesgasolinefund.com. USHO's Web site disclosure of 
portfolio holdings will be made daily and will include, as applicable, 
the name and value of each Heating Oil Interest, the specific types of 
Heating Oil Interests and characteristics of such Heating Oil 
Interests, Treasuries, and amount of cash and cash equivalents held in 
the portfolio of USHO. USG's Web site disclosure of portfolio holdings 
will be made daily and will include, as applicable, the name and value 
of each Gasoline Interest, the specific types of Gasoline Interests and 
characteristics of such Gasoline Interests, Treasuries, and amount of 
cash and cash equivalents held in the portfolio of USG. The public Web 
site disclosure of the portfolio composition of each of USHO and USG 
will coincide with the disclosure by the Administrator on each business 
day of the NAV for the Units and the Basket Amount (for orders placed 
during the day) for each Partnership. Therefore, the same portfolio 
information will be provided at the same time on the public Web site 
for each Partnership as well as in the facsimile or e-mail to 
Authorized Purchasers containing the NAV and Basket Amount (``Daily 
Dissemination''). The format of the public Web site disclosure and the 
Daily Dissemination will differ because the public Web site will list 
all portfolio holdings while the Daily Dissemination will provide the 
portfolio holdings in a format appropriate for Authorized Purchasers, 
i.e., the exact components of a Creation Unit.
    As described above, each Partnership's NAV will be calculated and 
disseminated daily. The Amex also intends to disseminate for each 
Partnership on a daily basis by means of Consolidated Tape Association 
(``CTA'')/Consolidated Quote High Speed Lines information with respect 
to the Indicative Partnership Value (as discussed below), recent NAV, 
Units outstanding, the Basket Amount, and the Deposit Amount. The 
Exchange will also make available on its Web site daily trading volume, 
closing prices, and the NAV. The closing price and settlement prices of 
the Futures Contracts held by each Partnership are also readily 
available from the NYMEX, automated quotation systems, published or 
other public sources, or on-line information services such as Bloomberg 
or Reuters. In addition, the Exchange will provide a hyperlink on its 
Web site at http://www.amex.com to each Partnership's Web site.
    Indicative Partnership Value. In order to provide updated 
information relating to each Partnership for use by investors, 
professionals, and persons wishing to create or redeem the Units, the 
Exchange will disseminate through the facilities of the CTA an amount 
representing, on a per-Unit basis, the current indicative value of the 
Basket Amount (the ``Indicative Partnership Value''). Amex Rule 1500-
AEMI(b) defines ``Indicative Partnership Value'' as an estimate, 
updated at least every 15 seconds, of the value of a Partnership Unit 
of each series. Consistent with Amex Rule 1502, the Indicative 
Partnership Value for each Partnership will be disseminated on a per-
Unit basis at least every 15 seconds during regular Amex trading hours 
of 9:30 a.m. to 4:15 p.m. ET. The Indicative Partnership Value will be 
calculated based on the Treasuries and cash required for creations and 
redemptions (i.e., NAV per Unit x 100,000) adjusted to reflect the 
price changes of the relevant Benchmark Futures Contracts.
    The Indicative Partnership Value is based on open-outcry trading of 
the relevant Benchmark Futures Contracts on NYMEX. Open-outcry trading 
on the NYMEX closes daily at 2:30 p.m. ET while NYMEX's energy futures 
contracts are traded on the Chicago Mercantile Exchange's CME 
Globex[supreg] electronic trading platform on a 24-hour basis.\16\ 
After the close of open outcry on NYMEX at 2:30 p.m., the Indicative 
Partnership Value will reflect changes to the relevant Benchmark 
Futures Contracts as provided for through CME Globex[supreg]. The value 
of the relevant Benchmark Futures Contracts will be available on a 15-
second delayed basis during the time that Units trade on the Exchange.
---------------------------------------------------------------------------

    \16\ CME Globex[supreg] (``Globex'') is an open-access 
marketplace that operates virtually 24 hours each trading day. 
Electronic trading on Globex is conducted from 6 p.m. ET Sunday 
through 5:15 p.m. ET Friday each week. There is a 45-minute break 
each day between 5:15 p.m. ET and 6 p.m. ET.
---------------------------------------------------------------------------

    While NYMEX is open for trading, the Indicative Partnership Value 
can be expected to closely approximate the value per Unit of the Basket 
Deposit. However, during Amex trading hours when the Futures Contracts 
have ceased trading in NYMEX's open outcry, spreads and resulting 
premiums or discounts may widen and, therefore,

[[Page 521]]

increase the difference between the price of the Units and the NAV of 
the Units. The Indicative Partnership Value disseminated during Amex 
trading hours, on a per-Unit basis, should not be viewed as a real-time 
update of the NAV, which is calculated only once daily. The Exchange 
believes that dissemination of the Indicative Partnership Value based 
on the Basket Deposit provides additional information that is not 
otherwise available to the public and is useful to professionals and 
investors in connection with the Units trading on the Exchange or the 
creation or redemption of the Units.
Partnership Termination Events
    Each Partnership will 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 circumstances: (1) 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 limited partners within 90 days after 
such event elects to continue the Partnership and appoints a successor 
general partner; or (2) the affirmative vote to terminate the 
Partnership by a majority in interest of the limited partners to 
terminate the partnership, subject to certain conditions.
    Upon termination of the Partnership, holders of the Units will 
surrender their Units and the assets of the Partnership shall be 
distributed to the Unit holders pro rata in accordance with the value 
of the Units, in cash or in kind, as determined by the General Partner.
Purchases and Redemptions in Baskets
    In the Information Circular, members and member organizations will 
be informed that procedures for purchases and redemptions of Units in 
Baskets are described in the Prospectus and that Units are not 
individually redeemable but are redeemable only in Baskets or multiples 
thereof.
Listing and Trading Rules
    Each Partnership will be subject to the criteria in Amex Rule 1502 
for initial and continued listing of the Units. The Exchange will 
require a minimum of 100,000 Units to be outstanding at the start of 
trading. The Exchange expects that the initial price of a Unit will be 
$50.00.\17\ The Exchange believes that the anticipated minimum number 
of Units outstanding at the start of trading is sufficient to provide 
adequate market liquidity and to further each Partnership's objective 
to seek to provide a simple and cost effective means of accessing the 
commodity futures markets. The Exchange represents that it prohibits 
the initial and/or continued listing of any security that is not in 
compliance with Rule 10A-3 under the Act.\18\
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    \17\ Each Partnership expects that the initial Authorized 
Purchaser will purchase the initial Basket of 100,000 Units at the 
initial offering price per Unit of $50.00. On the date of the public 
offering and thereafter, each Partnership will continuously issue 
Units in Baskets consisting of 100,000 Units to Authorized 
Purchasers at NAV.
    \18\ See 17 CFR 240.10A-3.
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    The Amex original listing fee applicable to the listing of Units 
for each Partnership is $5,000. In addition, the annual listing fee 
applicable under Section 141 of the Amex Company Guide will be based 
upon the year-end aggregate number of Units in all series of each 
Partnership outstanding at the end of each calendar year.
    Amex Rule 154-AEMI, ``Orders in AEMI,'' paragraph (c)(ii), provides 
that stop and stop limit orders to buy or sell a security the price of 
which is derivatively priced based upon another security or index of 
securities, may be elected by a quotation, as set forth in 
subparagraphs (c)(ii)(1)-(4) of Rule 154-AEMI. The Units will be deemed 
eligible for this treatment.
    The Exchange states that Amex Rule 126A-AEMI, which will apply to 
trading of the Units, complies with Rule 611 of Regulation NMS, which 
requires among other things, that the Exchange adopt and enforce 
written policies and procedures that are reasonably designed to prevent 
trade-throughs of protected quotations.
    Consistent with the treatment of trust-issued receipts 
(``TIRs''),\19\ specialist transactions of the Units made in connection 
with the creation and redemption of Units will not be subject to the 
prohibitions of Amex Rule 190, ``Specialist's Transactions with Public 
Customers.'' The Units will generally be subject to the Exchange's 
stabilization rule, Rule 170-AEMI, ``Registration and Functions of 
Specialists,'' except that specialists may buy on ``plus ticks'' and 
sell on ``minus ticks,'' in order to bring the Units into parity with 
the underlying commodity or commodities and/or futures contract price. 
The Exchange notes that Commentary .01 to its Rule 1503, ``Specialist 
Prohibitions,'' sets forth this limited exception to Rule 170-AEMI.
---------------------------------------------------------------------------

    \19\ See The Commission notes that Commentary .05 to Rule 190 
provides an exemption from the prohibitions stated in that rule for 
securities issued by a trust listed pursuant to Amex Rules 1200-AEMI 
and 1201-1202, 1200A-AEMI and 1201A-1205A, or 1200B and 1201B-1205B.
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    The trading of the Units will be subject to certain conflict-of-
interest provisions set forth in Amex Rules 1503 and 1504. Rule 1503 
provides that the prohibitions in Rule 175(c) apply to a specialist in 
the Units so that the specialist or affiliated person may not act or 
function as a market-maker in an underlying asset, related futures 
contract or option, or any other related derivative. An exception to 
the general prohibition in Rule 1503 provides that an approved person 
of an equity specialist that has established and obtained Exchange 
approval for procedures restricting flow of material, non-public market 
information between itself and the specialist member organization, and 
any member, officer, or employee associated therewith, may act in a 
market-making capacity, other than as a specialist in the Units on 
another market center, in the underlying asset or commodity, related 
futures or options on futures, or any other related derivatives. Rule 
1504 provides that a specialist handling Units must provide the 
Exchange with all necessary information relating to its trading in 
underlying physical assets or commodities, related futures or options 
on futures, or any other related derivatives. In addition, a member or 
member organization will be subject to Commentary .03 to Amex Rule 
1500-AEMI prohibiting it from acting as a market maker from off-floor 
through the use of multiple limit orders as agent (i.e., customer 
agency orders).
Trading Halts
    If an Indicative Partnership Value is not being disseminated by one 
or more major market data vendors, the Exchange may halt trading during 
the day in which the interruption to the dissemination of such 
Indicative Partnership Value occurs. If the interruption to the 
dissemination of an Indicative Partnership Value persists past the 
trading day in which it occurred, the Exchange will halt trading no 
later than the beginning of the trading day following the interruption.
    Prior to the commencement of trading, the Exchange will issue an 
Information Circular to members informing them of, among other things, 
Exchange policies regarding trading halts in the Units. First, the 
Information Circular will advise that trading will be halted in the 
event the market volatility trading halt parameters set forth in Amex 
Rule 117 have been reached. Second, the Information Circular will 
advise that, in addition to the parameters set forth in Rule 117, the

[[Page 522]]

Exchange will halt trading in the Units if trading in the underlying 
Benchmark Futures Contracts is halted or suspended. Third, with respect 
to a halt in trading that is not specified above, the Exchange may also 
consider other relevant factors and the existence of unusual conditions 
or circumstances that may be detrimental to the maintenance of a fair 
and orderly market. Additionally, the Exchange represents that it will 
cease trading in the Units if any of the condition in Amex Rule 
1502(b)(ii) or (iii) exist (i.e., if there is a halt or disruption in 
the dissemination of the Indicative Partnership Value and/or underlying 
Heating Oil Benchmark Futures Contracts and/or Gasoline Benchmark 
Futures Contracts).
Suitability
    The Information Circular will inform members and member 
organizations of the characteristics of the Units and of applicable 
Exchange rules, as well as of the requirements of Amex Rule 411 (Duty 
to Know and Approve Customers).
    The Exchange notes that, pursuant to Amex Rule 411, a member or 
member organization is required in connection with recommending 
transactions in the Units to have a reasonable basis to believe that a 
customer is suitable for the particular investment given reasonable 
inquiry concerning the customer's investment objectives, financial 
situation, needs, and any other information known by such member.
Information Circular
    The Amex will distribute an Information Circular to its members in 
connection with the trading of each Partnership's Units. The 
Information Circular will discuss the special characteristics and risks 
of trading in the Units. Specifically, the Information Circular, among 
other things, will discuss what the Units are; how a Basket is created 
and redeemed; the requirement that members and member firms deliver a 
prospectus to investors purchasing the Units prior to, or concurrently 
with, the confirmation of a transaction; applicable Amex rules; 
dissemination of information regarding the Indicative Partnership 
Value; trading information; and applicable suitability rules. The 
Information Circular will also explain that each Partnership is subject 
to various fees and expenses described in the relevant Registration 
Statements. The Information Circular will also reference the fact that 
there is no regulated source of last-sale information regarding 
physical commodities, and describe the regulatory framework relating to 
the trading of crude oil- and natural gas-based futures contracts and 
related options.
    The Information Circular will also notify members and member 
organizations about the procedures for purchases and redemptions of 
Units in Baskets, and that Units are not individually redeemable but 
are redeemable