UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x
|
Quarterly
report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended March 31, 2008.
|
OR
¨
|
Transition
report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period
from
to
.
|
|
|
Commission
file number: 001-33096
United
States Natural Gas Fund, LP
(Exact
name of registrant as specified in its charter)
Delaware
|
|
20-5576760
|
(State
or other jurisdiction of
incorporation
or organization)
|
|
(I.R.S.
Employer
Identification
No.)
|
1320
Harbor Bay Parkway, Suite 145
Alameda,
California 94502
(Address
of principal executive offices) (Zip code)
(510)
522-3336
(Registrant’s
telephone number, including area code)
N/A
(Former
name, former address and former fiscal year, if changed since last report)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
x
Yes ¨
No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company.
See
the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one.)
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
|
|
Non-accelerated
filer x
|
Smaller
reporting company ¨
|
(Do
not check if a smaller reporting
company)
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act.):
¨
Yes x
No
UNITED
STATES NATURAL GAS FUND, LP
Table
of Contents
Part
I. FINANCIAL INFORMATION
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Page
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Item
1. Condensed Financial Statements.
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1
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|
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Item
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations.
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14
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|
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Item
3. Quantitative and Qualitative Disclosures About Market
Risk.
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24
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Item
4. Controls and Procedures.
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25
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Part
II. OTHER INFORMATION
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Item
1. Legal Proceedings. |
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25
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Item
1A. Risk Factors. |
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25
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Item
2. Unregistered Sales of Equity Securities and Use of Proceeds. |
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25
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Item
3. Defaults Upon Senior Securities. |
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25
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Item
4. Submission of Matters to a Vote of Security Holders. |
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25
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Item
5. Other Information.
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25
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Item
6. Exhibits.
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25
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Item 1. Condensed
Financial Statements.
Index
to Condensed Financial Statements
Documents |
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|
Page
|
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Condensed
Statements of Financial Condition at March 31, 2008 (Unaudited) and
December 31, 2007
|
|
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2
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|
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Condensed
Schedule of Investments (Unaudited) at March 31, 2008
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3
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|
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Condensed
Statements of Operations (Unaudited) for the three months ended March
31,
2008 and 2007
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4
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|
|
|
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Condensed
Statement of Changes in Partners’ Capital (Unaudited) for the three months
ended March 31, 2008
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5
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|
|
|
|
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Condensed
Statements of Cash Flows (Unaudited) for the three months ended March
31,
2008 and 2007
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6
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|
|
|
|
|
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Notes
to Condensed Financial Statements for the period ended March 31,
2008 (Unaudited)
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7
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Condensed
Statements of Financial Condition
At March
31, 2008 (Unaudited) and December 31, 2007
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|
March
31, 2008
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|
December
31, 2007
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|
Assets
|
|
|
|
|
|
Cash
and cash equivalents
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$
|
353,048,409
|
|
$
|
488,067,199
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Equity
in UBS Securities LLC trading accounts:
|
|
|
|
|
|
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Cash
|
|
|
138,721,796
|
|
|
85,115,889
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Unrealized
gain on open commodity futures contracts
|
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20,727,650
|
|
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20,043,880
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Interest
receivable
|
|
|
524,131
|
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|
690,046
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Other
assets
|
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78,526
|
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92,955
|
|
|
|
|
|
|
|
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Total
assets
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$
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513,100,512
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$
|
594,009,969
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|
|
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|
|
|
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Liabilities
and Partners' Capital
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General
Partner management fees (Note 3)
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$
|
240,707
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$
|
264,556
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Brokerage
commissions payable
|
|
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19,200
|
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|
22,800
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Other
liabilities
|
|
|
587,555
|
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327,632
|
|
|
|
|
|
|
|
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Total
liabilities
|
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847,462
|
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614,988
|
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|
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|
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Commitments
and Contingencies (Notes
3, 4 and 5)
|
|
|
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Partners'
Capital
|
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General
Partner
|
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-
|
|
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-
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Limited
Partners
|
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512,253,050
|
|
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593,394,981
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|
Total
Partners' Capital
|
|
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512,253,050
|
|
|
593,394,981
|
|
|
|
|
|
|
|
|
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Total
liabilities and partners' capital
|
|
$
|
513,100,512
|
|
$
|
594,009,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Limited
Partners' units outstanding
|
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10,500,000
|
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16,400,000
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Net
asset value per unit
|
|
$
|
48.79
|
|
$
|
36.18
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|
Market
value per unit
|
|
$
|
48.50
|
|
$
|
36.24
|
|
See
accompanying notes to condensed financial
statements.
|
United
States Natural Gas Fund, LP
Condensed
Schedule of Investments (Unaudited)
At
March 31, 2008
Open
Futures Contracts
|
|
|
|
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Number
of
Contracts
|
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Gain
on Open
Commodity
Contracts
|
|
%
of Partners'
Capital
|
|
United
States Contracts
|
|
|
|
|
|
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Natural
Gas Futures contracts, expires May 2008
|
|
|
5,069
|
|
$
|
20,727,650
|
|
|
4.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Cash
equivalents
|
|
|
|
|
|
|
|
|
|
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Cost
|
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Market
Value
|
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United
States - Money Market Funds
|
|
|
|
|
|
|
|
|
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Goldman
Sachs Financial Square Funds - Government Fund
|
|
$
|
50,238,025
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$
|
50,238,025
|
|
|
9.81
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|
Goldman
Sachs Financial Square Funds - Treasury Instruments Fund
|
|
|
102,834,575
|
|
|
102,834,575
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|
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20.07
|
|
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$
|
153,072,600
|
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|
153,072,600
|
|
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29.88
|
|
|
|
|
|
|
|
|
|
|
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Cash
|
|
|
|
|
|
199,975,809
|
|
|
39.04
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|
Total
cash and cash equivalents
|
|
|
|
|
|
353,048,409
|
|
|
68.92
|
|
|
|
|
|
|
|
|
|
|
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Cash
on deposit with broker
|
|
|
|
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138,721,796
|
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27.08
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|
Liabilities,
less other assets and receivables
|
|
|
|
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(244,805
|
)
|
|
(0.05
|
)
|
Total
Partners' Capital
|
|
|
|
|
$
|
512,253,050
|
|
|
100.00
|
|
See
accompanying notes to condensed financial
statements.
|
United
States Natural Gas Fund, LP
Condensed
Statements of Operations (Unaudited)
For
the three months ended March 31, 2008 and March 31,
2007
|
|
Three
months ended
|
|
Three
months ended
|
|
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|
March
31, 2008
|
|
March
31, 2007
|
|
Income
|
|
|
|
|
|
Gains
(losses) on trading of commodity futures contracts:
|
|
|
|
|
|
Realized
gains on closed positions
|
|
$
|
153,024,710
|
|
$
|
-
|
|
Change
in unrealized gains on open positions
|
|
|
683,770
|
|
|
-
|
|
Interest
income
|
|
|
2,938,727
|
|
|
-
|
|
Other
income
|
|
|
42,000
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Total
income
|
|
|
156,689,207
|
|
|
-
|
|
|
|
|
|
|
|
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Expenses
|
|
|
|
|
|
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|
General
Partner management fees (Note 3)
|
|
|
758,397
|
|
|
-
|
|
Brokerage
commissions
|
|
|
144,671
|
|
|
-
|
|
Other
expenses
|
|
|
462,148
|
|
|
-
|
|
|
|
|
|
|
|
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|
Total
expenses
|
|
|
1,365,216
|
|
|
-
|
|
|
|
|
|
|
|
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Net
income
|
|
$
|
155,323,991
|
|
$
|
-
|
|
Net
income per limited partnership unit
|
|
$
|
12.61
|
|
$
|
-
|
|
Net
income per weighted average limited partnership
unit
|
|
$
|
12.89
|
|
$
|
-
|
|
Weighted
average limited partnership units outstanding
|
|
|
12,049,451
|
|
|
-
|
|
See
accompanying notes to condensed financial
statements.
|
United
States Natural Gas Fund, LP
Condensed
Statement of Changes in Partners’ Capital (Unaudited)
For
the three months ended March 31, 2008
|
|
General
Partner
|
|
Limited
Partners
|
|
Total
|
|
|
|
|
|
|
|
|
|
Balances,
at December 31, 2007
|
|
$
|
-
|
|
$
|
593,394,981
|
|
$
|
593,394,981
|
|
Addition
of 8,400,000 partnership units
|
|
|
-
|
|
|
350,713,442
|
|
|
350,713,442
|
|
Redemption
of 14,300,000 partnership units
|
|
|
-
|
|
|
(587,179,364
|
)
|
|
(587,179,364
|
)
|
Net
income
|
|
|
-
|
|
|
155,323,991
|
|
|
155,323,991
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
at March 31, 2008
|
|
$
|
-
|
|
$
|
512,253,050
|
|
$
|
512,253,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Asset Value Per Unit
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2007
|
|
$
|
36.18
|
|
|
|
|
|
|
|
At
March 31, 2008
|
|
$
|
48.79
|
|
|
|
|
|
|
|
See
accompanying notes to condensed financial
statements.
|
United
States Natural Gas Fund, LP
Condensed
Statements of Cash Flows (Unaudited)
For
the three months ended March 31, 2008 and March 31,
2007
|
|
Three
months ended
|
|
Three
months ended
|
|
|
|
March
31, 2008
|
|
March
31, 2007
|
|
Cash
Flows from Operating Activities:
|
|
|
|
|
|
Net
income
|
|
$
|
155,323,991
|
|
$
|
-
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
Increase
in commodity futures trading account - cash
|
|
|
(53,605,907
|
)
|
|
-
|
|
Unrealized
gains on futures contracts
|
|
|
(683,770
|
)
|
|
-
|
|
Decrease
in interest receivable and other assets
|
|
|
180,344
|
|
|
-
|
|
Decrease
in management fees payable
|
|
|
(23,849
|
)
|
|
-
|
|
Decrease
in commissions payable
|
|
|
(3,600
|
)
|
|
-
|
|
Increase
in other liabilities
|
|
|
259,923
|
|
|
-
|
|
Net
cash provided by operating activities
|
|
|
101,447,132
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities:
|
|
|
|
|
|
|
|
Subscription
of partnership units
|
|
|
350,713,442
|
|
|
-
|
|
Redemption
of partnership units
|
|
|
(587,179,364
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
cash used in financing activities
|
|
|
(236,465,922
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
Decrease in Cash and Cash Equivalents
|
|
|
(135,018,790
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents,
beginning of period
|
|
|
488,067,199
|
|
|
1,000
|
|
Cash
and Cash Equivalents,
end of period
|
|
$
|
353,048,409
|
|
$
|
1,000
|
|
See
accompanying notes to condensed financial
statements.
|
Notes
to Condensed Financial Statements
For
the period ended March 31, 2008 (Unaudited)
NOTE
1 - ORGANIZATION AND BUSINESS
United
States Natural Gas Fund, LP (“USNG”) was organized as a limited partnership
under the laws of the state of Delaware on September 11, 2006. USNG is a
commodity pool that issues units that may be purchased and sold on the
American Stock Exchange (the “AMEX”). USNG will continue in perpetuity, unless
terminated sooner upon the occurrence of one or more events as described in
its
Second Amended and Restated Agreement of Limited Partnership dated as of
December 4, 2007 (the “LP Agreement”). The investment objective of USNG is
for the changes in percentage terms of its net asset value to reflect the
changes in percentage terms of the price of natural gas delivered at the
Henry Hub, Louisiana as measured by the changes in the price of the futures
contract on natural gas as traded on the New York Mercantile Exchange (the
“NYMEX”) that is the near month contract to expire, except when the near month
contract is within two weeks of expiration, in which case the futures contract
will be the next month contract to expire, less USNG’s expenses. USNG will
accomplish its objective through investments in futures contracts for natural
gas, crude oil, heating oil, gasoline and other petroleum-based fuels that
are
traded on the NYMEX, ICE Futures or other U.S. and foreign exchanges
(collectively, “Futures Contracts”) and other natural gas-related investments
such as cash-settled options on Futures Contracts, forward contracts for
natural gas and over-the-counter transactions that are based on the price of
natural gas, oil and other petroleum-based fuels, Futures Contracts
and indices based on the foregoing (collectively, “Other Natural Gas Related
Investments”). As of March 31, 2008, USNG held 5,069 Futures Contracts traded on
the NYMEX.
USNG
commenced investment operations on April 18, 2007 and has a fiscal year ending
on December 31. Victoria Bay Asset Management, LLC (the “General Partner”) is
responsible for the management of USNG. The General Partner is a member of
the
National Futures Association (the “NFA”) and became a commodity pool operator
with the Commodity Futures Trading Commission effective December 1, 2005. The
General Partner is also the general partner of the United States Oil Fund,
LP
(“USOF”), the United States 12 Month Oil Fund, LP (“US12OF”), the United States
Gasoline Fund, LP (“USG”) and the United States Heating Oil Fund, LP (“USHO”),
which listed their units on the AMEX under the ticker symbols “USO” on April 10,
2006, “USL” on December 6, 2007, “UGA” on February 26, 2008 and “UHN” on April
9, 2008, respectively.
The
accompanying unaudited condensed financial statements have been prepared in
accordance with Rule 10-01 of Regulation S-X promulgated by the U.S. Securities
and Exchange Commission (the “SEC”) and, therefore, do not include all
information and footnote disclosure required under accounting principles
generally accepted in the United States of America. The financial
information included herein is unaudited, however, such information reflects
all
adjustments which are, in the opinion of management, necessary for the fair
presentation of the condensed financial statements for the interim
period.
USNG issues
limited partnership interests (“units”) to certain authorized purchasers
(“Authorized Purchasers”) by offering baskets consisting of 100,000 units
(“Creation Baskets”) through ALPS Distributors, Inc. (the “Marketing Agent”).
The purchase price for a Creation Basket is based upon the net asset value
of
a unit determined as of 4:00 p.m. New York time on the day the order to
create the basket is properly received. In addition, Authorized
Purchasers pay USNG a $1,000 fee for each order to create one or more
Creation Baskets. Units may be purchased or sold on a nationally recognized
securities exchange in smaller increments than a Creation Basket. Units
purchased or sold on a nationally recognized securities exchange are not made
at
the net asset value of USNG but rather at market prices quoted on such
exchange.
In
April
2007, USNG initially registered 30,000,000 units on Form S-1 with the SEC.
On
April 18, 2007, USNG listed its units on the AMEX under the ticker symbol “UNG”.
On that day, USNG established its initial net asset value by setting the price
at $50.00 per unit and issued 200,000 units in exchange for $10,001,000. USNG
also commenced investment operations on April 18, 2007 by purchasing Futures
Contracts traded on the NYMEX based on natural gas. As of March 31, 2008, USNG
had registered a total of 80,000,000 units.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue
Recognition
Commodity
futures contracts, forward contracts, physical commodities and related options
are recorded on the trade date. All such transactions are recorded on the
identified cost basis and marked to market daily. Unrealized gains or losses
on
open contracts are reflected in the condensed statement of financial condition
and in the difference between the original contract amount and the market value
(as determined by exchange settlement prices for futures contracts and related
options and cash dealer prices at a predetermined time for forward contracts,
physical commodities, and their related options) as of the last business day
of
the year or as of the last date of the condensed financial statements. Changes
in the unrealized gains or losses between periods are reflected in the condensed
statement of operations. USNG earns interest on its assets denominated
in U.S. dollars on deposit with the futures commission merchant at the
90-day Treasury bill rate. In addition, USNG earns interest on funds held at
the
custodian at prevailing market rates earned on such investments.
Brokerage
Commissions
Brokerage
commissions on all open commodity futures contracts are accrued on a full-turn
basis.
Income
Taxes
USNG
is
not subject to federal income taxes; each partner reports its allocable share
of
income, gain, loss deductions or credits on its own income tax
return.
Additions
and Redemptions
Authorized
Purchasers may purchase Creation Baskets from USNG as of the beginning of each
business day based upon the prior day’s net asset value. Authorized
Purchasers may redeem units from USNG only in blocks of 100,000 units called
“Redemption Baskets”. The amount of the redemption proceeds for a Redemption
Basket will be equal to the net asset value of the units in the Redemption
Basket determined as of 4:00 p.m. New York time on the day the order to redeem
the basket is properly received.
USNG
receives or pays the proceeds from units sold or redeemed one business day
after
the trade-date of the purchase or redemption. The amounts due from
Authorized Purchasers are reflected in USNG’s condensed statement of financial
condition as receivable for units sold, and amounts payable to Authorized
Purchasers upon redemption are reflected as payable for units
redeemed.
Partnership
Capital and Allocation of Partnership Income and Losses
Profit
or
loss is allocated among the partners of USNG in proportion to the number of
units each partner holds as of the close of each month. The General Partner
may
revise, alter or otherwise modify this method of allocation as described in
the
LP Agreement.
Calculation
of Net Asset Value
USNG calculates
its net asset value on each trading day by taking the current market value
of
its total assets, subtracting any liabilities and dividing the amount by the
total number of units issued and outstanding. USNG uses the closing price
for the contracts on the relevant exchange on that day to determine the value
of
contracts held on such exchange.
Net
Income (Loss) per Unit
Net
income (loss) per unit is the difference between the net asset value per
unit at the beginning of each period and at the end of each period. The weighted
average number of units outstanding was computed for purposes of disclosing
net
loss per weighted average unit. The weighted average units are equal to the
number of units outstanding at the end of the period, adjusted proportionately
for units redeemed based on the amount of time the units were outstanding during
such period. There were no units held by the General Partner at March 31,
2008.
Offering
Costs
Offering
costs incurred in connection with the registration of additional units after
the
initial registration of units are borne by USNG. These costs include
registration fees paid to regulatory agencies and all legal, accounting,
printing and other expenses associated therewith. These costs will be accounted
for as a deferred charge and thereafter amortized to expense over twelve months
on a straight-line basis or a shorter period if warranted.
Cash
Equivalents
Cash
and
cash equivalents include money market portfolios and overnight time
deposits with original maturity dates of three months or less.
Use
of Estimates
The
preparation of condensed financial statements in conformity with accounting
principles generally accepted in the United States of America requires USNG’s
management to make estimates and assumptions that affect the reported amount
of
assets and liabilities and disclosure of contingent assets and liabilities
at
the date of the condensed financial statements, and the reported amounts of
the
revenue and expenses during the reporting period. Actual results could differ
from those estimates and assumptions.
NOTE
3 - FEES PAID BY USNG AND RELATED PARTY TRANSACTIONS
General
Partner Management Fee
Under
the
LP Agreement, the General Partner is responsible for investing the assets of
USNG in accordance with the objectives and policies of USNG. In addition, the
General Partner has arranged for one or more third parties to provide
administrative, custody, accounting, transfer agency and other necessary
services to USNG. For these services, USNG is contractually obligated to
pay the General Partner a fee, which is paid monthly and based on average
daily net assets, that is equal to 0.60% per annum on average daily net assets
of $1,000,000,000 or less and 0.50% per annum on average daily net assets that
are greater than $1,000,000,000.
Ongoing
Registration Fees and Other Offering Expenses
USNG pays
all costs and expenses associated with the ongoing registration of units
subsequent to the initial offering. These costs include registration or
other fees paid to regulatory agencies in connection with the offer and sale
of
units, and all legal, accounting, printing and other expenses associated with
such offer and sale. For the three month period ended March 31, 2008,
USNG incurred $68,217 in registration fees and other offering
expenses.
Director’s
Fees
USNG
is
responsible for paying the fees and expenses, including directors’ and officers’
liability insurance, of the independent directors of the General Partner who
are
also audit committee members. USNG shares these fees with USOF,
US12OF,
USG and USHO
based on
the relative assets of each fund, computed on a daily basis. These fees for
the
calendar year 2008 are estimated to be a total of $286,000 for all five
funds.
Licensing
Fees
As
discussed in Note 4, USNG entered into a licensing agreement with the NYMEX
on
May 30, 2007. The agreement has an effective date of April 10, 2006. Pursuant
to
the agreement, USNG and the affiliated funds managed by the General
Partner pay a licensing fee that is equal to 0.04% for the first
$1,000,000,000 of combined assets of the funds and 0.02% for combined
assets above $1,000,000,000. During the three month period ended March 31,
2008,
USNG incurred $49,887 under this arrangement.
Investor
Tax Reporting Cost
The
fees
and expenses associated with USNG’s tax accounting and reporting requirements,
with the exception of certain initial implementation service fees and base
service fees which were borne by the General Partner, are paid by USNG. These
costs are estimated to be $429,073 for the year ending December 31,
2008.
Other
Expenses and Fees
In
addition to the fees described above, USNG pays all brokerage fees, taxes
and other expenses in connection with the operation of USNG, excluding costs
and
expenses paid by the General Partner as outlined in Note 4.
NOTE
4 - CONTRACTS AND AGREEMENTS
USNG
is
party to a marketing agent agreement, dated as of April 17, 2007, with the
Marketing Agent, whereby the Marketing Agent provides certain marketing services
for USNG as outlined in the agreement. The fee of the Marketing Agent, which
is
borne by the General Partner, is equal to 0.06%
on
USNG’s assets up to $3 billion; and 0.04% on USNG’s assets in excess of $3
billion.
The
above
fees do not include the following expenses, which are also borne by the General
Partner: the cost of placing advertisements in various periodicals; web
construction and development; or the printing and production of various
marketing materials.
USNG
is
also party to a custodian agreement, dated January 12, 2007, with Brown Brothers
Harriman & Co. (“BBH&Co.”), whereby BBH&Co. holds investments on
behalf of USNG. The General Partner pays the fees of the custodian, which
are determined by the parties from time to time. In addition, USNG is party
to
an administrative agency agreement, dated March 5, 2007, with the General
Partner and BBH&Co., whereby BBH&Co. acts as the administrative
agent, transfer agent and registrar for USNG. The General Partner also pays
the
fees of BBH&Co. for its services under this agreement and such fees are
determined by the parties from time to time.
Currently,
the General Partner pays BBH&Co. for its services, in the foregoing
capacities, the greater of a minimum of $125,000 annually or an asset-based
charge of (a) 0.06% for the first $500 million of USNG’s, USOF’s, US12OF’s,
USG’s and USHO’s combined net assets, (b) 0.0465% for USNG’s, USOF’s,
US12OF’s, USG’s and USHO’s combined net assets greater than $500 million but
less than $1 billion, and (c) 0.035% for USNG’s, USOF’s, US12OF’s, USG’s and
USHO’s combined net assets in excess of $1 billion. The General Partner
also pays a $25,000 annual fee for the transfer agency services and transaction
fees ranging from $7.00 to $15.00 per transaction.
USNG
has
entered into a brokerage agreement with UBS Securities LLC (“UBS
Securities”). The agreement requires UBS Securities to provide services to USNG
in connection with the purchase and sale of Futures Contracts and Other
Natural Gas Related Investments that may be purchased and sold by or through
UBS
Securities for USNG’s account. The agreement provides that UBS
Securities charge USNG commissions of approximately $7 per round-turn
trade, plus applicable exchange and NFA fees for Futures Contracts and options
on Futures Contracts.
USNG invests
primarily in Futures Contracts traded on the NYMEX. On May 30, 2007, USNG
and the NYMEX entered into a license agreement whereby USNG was granted a
non-exclusive license to use certain of the NYMEX’s settlement prices and
service marks. The agreement has an effective date of April 10, 2006. Under
the license agreement, USNG and the affiliated funds managed by the General
Partner pay the NYMEX an asset-based fee for the license, the
terms of which are described in Note 3.
USNG
expressly disclaims any association with the NYMEX or endorsement of USNG by
the
NYMEX and acknowledges that “NYMEX” and “New York Mercantile Exchange” are
registered trademarks of the NYMEX.
NOTE
5 - FINANCIAL INSTRUMENTS, OFF-BALANCE SHEET RISKS AND
CONTINGENCIES
USNG engages
in the speculative trading of U.S. futures contracts and options
on U.S. futures contracts (collectively, “derivatives”). USNG is
exposed to both market risk, which is the risk arising from changes in the
market value of the contracts, and credit risk, which is the risk of failure
by
another party to perform according to the terms of a contract.
All
of
the contracts currently traded by USNG are exchange-traded. The risks
associated with exchange-traded contracts are generally perceived to be less
than those associated with over-the-counter transactions since, in
over-the-counter transactions, USNG must rely solely on the credit of its
respective individual counterparties. However, in the future, if USNG were
to
enter into non-exchange traded contracts, it would be subject to the credit
risk
associated with counterparty non-performance. The credit risk from counterparty
non-performance associated with such instruments is the net unrealized gain,
if
any. USNG also has credit risk since the sole counterparty to all domestic
and
foreign futures contracts is the exchange on which the relevant contracts are
traded. In addition, USNG bears the risk of financial failure by the clearing
broker.
The
purchase and sale of futures and options on futures contracts require margin
deposits with a futures commission merchant. Additional deposits may be
necessary for any loss on contract value. The Commodity Exchange Act requires
a
futures commission merchant to segregate all customer transactions and assets
from the futures commission merchant’s proprietary activities.
USNG’s
cash and other property, such as U.S. Treasury Bills, deposited with a futures
commission merchant are considered commingled with all other customer funds
subject to the futures commission merchant’s segregation requirements. In the
event of a futures commission merchant’s insolvency, recovery may be limited to
a pro rata share of segregated funds available. It is possible that the
recovered amount could be less than the total of cash and other property
deposited. The insolvency of a futures commission merchant could result in
the
complete loss of USNG's assets posted with that futures commission merchant;
however, the vast majority of USNG's assets are held in Treasuries, cash or
equivalents with USNG's custodian and would not be impacted by the insolvency
of
a futures commission merchant.
USNG invests
its cash in money market funds that seek to maintain a stable net asset
value. USNG is exposed to any risk of loss associated with an investment
in these money market funds. As of March 31, 2008 and December 31, 2007, USNG
had deposits in domestic and foreign financial institutions, including cash
investments in money market funds, in
the
amount of $491,770,205 and $573,183,088, respectively. This amount is subject
to
loss should these institutions cease operations.
For
derivatives, risks arise from changes in the market value of the contracts.
Theoretically, USNG is exposed to a market risk equal to the value of
futures contracts purchased and unlimited liability on such contracts sold
short. As both a buyer and a seller of options, USNG pays or receives a premium
at the outset and then bears the risk of unfavorable changes in the price of
the
contract underlying the option.
USNG’s
policy is to continuously monitor its exposure to market and counterparty risk
through the use of a variety of financial, position and credit exposure
reporting controls and procedures. In addition, USNG has a policy of
requiring review of the credit standing of each broker or counterparty with
which it conducts business.
The
financial instruments held by USNG are reported in its condensed statement
of
financial condition at market or fair value, or at carrying amounts that
approximate fair value, because of their highly liquid nature and short-term
maturity.
Goldman,
Sachs & Co. (“Goldman Sachs”) sent USOF a letter on March 17, 2006,
providing USOF and the General Partner notice under 35 U.S.C. Section 154(d)
of
two pending United States patent applications, Publication Nos. 2004/0225593A1
and 2006/0036533A1. Both patent applications are generally directed to a method
and system for creating and administering a publicly traded interest in a
commodity pool. In particular, the abstract of each patent application defines
a
means for creating and administering a publicly traded interest in a commodity
pool that includes the steps of forming a commodity pool having a first position
in a futures contract and a corresponding second position in a margin
investment, and issuing equity interests of the commodity pool to third party
investors. Subsequently, two U.S. patents were issued; the first, patent number
US7,283,978B2, was issued on October 16, 2007, and the second, patent number
US7,319,984B2, was issued on January 15, 2008.
Preliminarily,
USOF’s management is of the view that the structure and operations of USOF
and its affiliated commodity pools do not infringe these patents. USOF is also
in the process of reviewing prior art (prior structures and operations of
similar investment vehicles) that may invalidate one or more of the claims
in
these patents. In addition, USOF has retained patent counsel to advise it on
these matters and is in the process of obtaining their opinions regarding the
non-infringement of each of these patents by USOF and/or the patents’ invalidity
based on prior art. If the patents were alleged to apply to USOF’s structure
and/or operations, and are found by a court to be valid and infringed, Goldman
Sachs may be awarded significant monetary damages and/or injunctive relief.
NOTE 6
- FINANCIAL HIGHLIGHTS
The
following table presents per unit performance data and other supplemental
financial data for the three months ended March 31, 2008 and March 31, 2007
for
the limited partners. This information has been derived from information
presented in the condensed financial statements.
|
|
For
the three months ended
|
|
For
the three months ended
|
|
|
|
March
31, 2008
(Unaudited)
|
|
March
31, 2007
(Unaudited)
|
|
|
|
|
|
|
|
Per
Unit Operating Performance:
|
|
|
|
|
|
|
|
|
|
|
|
Net
asset value, beginning of period
|
|
$
|
36.18
|
|
$
|
-
|
|
Total
income
|
|
|
12.72
|
|
|
-
|
|
Total
expenses
|
|
|
(0.11
|
)
|
|
-
|
|
Net
increase in net asset value
|
|
|
12.61
|
|
|
-
|
|
Net
asset value, end of period
|
|
$
|
48.79
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Total
Return
|
|
|
34.85
|
%
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
Ratios
to Average Net Assets
|
|
|
|
|
|
|
|
Total
income
|
|
|
30.82
|
%
|
|
0.00
|
%
|
Expenses
excluding management fees*
|
|
|
(0.48
|
)%
|
|
0.00
|
%
|
Management
fees*
|
|
|
(0.60
|
)%
|
|
0.00
|
%
|
Net
income
|
|
|
30.55
|
%
|
|
0.00
|
%
|
Total
returns are calculated based on the change in value during the period. An
individual limited partner’s total return and ratio may vary from the above
total returns and ratios based on the timing of contributions to and withdrawals
from USNG.
NOTE 7
- RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Fair
Value of Financial Instruments
Effective
January 1, 2008, USNG adopted FAS 157 - Fair Value Measurements (“FAS 157” or
the “Statement”). FAS 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles (“GAAP”), and
expands disclosures about fair value measurement. The changes to current
practice resulting from the application of the Statement relate to the
definition of fair value, the methods used to measure fair value, and the
expanded disclosures about fair value measurement. The Statement establishes
a
fair value hierarchy that distinguishes between (1) market participant
assumptions developed based on market data obtained from sources independent
of
USNG (observable inputs) and (2) USNG’s own assumptions about market participant
assumptions developed based on the best information available under the
circumstances (unobservable inputs). The three levels defined by the FAS 157
hierarchy are as follows:
Level
I -
Quoted prices (unadjusted) in active markets for identical
assets
or liabilities that the reporting entity has the ability to access at the
measurement date.
Level
II
- Inputs other than quoted prices included within Level 1 that are observable
for the asset or liability, either directly or indirectly. Level II assets
include the following: quoted prices for similar
assets
or liabilities in active markets, quoted prices for identical or similar assets
or liabilities in markets that are not active, inputs other than quoted prices
that are observable for the asset or liability, and inputs that are derived
principally from or corroborated by observable market data by correlation or
other means (market-corroborated inputs).
Level
III
- Unobservable pricing input at the measurement date for the asset or liability.
Unobservable inputs shall be used to measure fair value to the extent that
observable inputs are not available.
In
some
instances, the inputs used to measure fair value might fall in different levels
of the fair value hierarchy. The level in the fair value hierarchy within which
the fair value measurement in its entirety falls shall be determined based
on
the lowest input level that is significant to the fair value measurement in
its
entirety.
The
following table summarizes the valuation of USNG’s securities at March 31, 2008
using the fair value hierarchy:
At March
31, 2008
|
|
Total
|
|
Level I
|
|
Level II
|
|
Level III
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
$
|
153,072,600
|
|
$
|
153,072,600
|
|
$
|
-
|
|
$
|
-
|
|
Derivative
assets
|
|
|
20,727,650
|
|
|
20,727,650
|
|
|
-
|
|
|
-
|
|
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
The
following discussion should be read in conjunction with the condensed financial
statements and the notes thereto of the United States Natural Gas Fund, LP
(“USNG”) included elsewhere in this quarterly report on Form 10-Q.
Forward-Looking
Information
This
quarterly report on Form 10-Q, including this “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” contains
forward-looking statements regarding the plans and objectives of management
for
future operations. This information may involve known and unknown risks,
uncertainties and other factors that may cause USNG’s actual results,
performance or achievements to be materially different from future results,
performance or achievements expressed or implied by any forward-looking
statements. Forward-looking statements, which involve assumptions and describe
USNG’s future plans, strategies and expectations, are generally identifiable by
use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,”
“believe,” “intend” or “project,” the negative of these words, other
variations on these words or comparable terminology. These forward-looking
statements are based on assumptions that may be incorrect, and USNG cannot
assure investors that the projections included in these forward-looking
statements will come to pass. USNG’s actual results could differ materially from
those expressed or implied by the forward-looking statements as a result of
various factors.
USNG
has
based the forward-looking statements included in this quarterly report on Form
10-Q on information available to it on the date of this quarterly report on
Form
10-Q, and USNG assumes no obligation to update any such forward-looking
statements. Although USNG undertakes no obligation to revise or update any
forward-looking statements, whether as a result of new information, future
events or otherwise, investors are advised to consult any additional disclosures
that USNG may make directly to them or through reports that USNG in the
future files with the U.S. Securities and Exchange Commission (the “SEC”),
including annual reports on Form 10-K, quarterly reports on Form 10-Q and
current reports on Form 8-K.
Introduction
USNG,
a
Delaware limited partnership, is a commodity pool that issues units that may
be
purchased and sold on the American Stock Exchange (the “AMEX”). The investment
objective of USNG is for changes in percentage terms of its units’ net
asset value (“NAV”) on a daily basis to reflect the changes in percentage terms
in the spot price of natural gas delivered at the Henry Hub, Louisiana, also
on
a daily basis, as measured by the changes in the price of the futures contract
on natural gas as traded on the New York Mercantile Exchange (the “NYMEX”) that
is the near month contract to expire, except when the near month contract is
within two weeks of expiration, in which case the futures contract will be
the
next month contract to expire, less USNG’s expenses.
USNG
seeks to achieve its investment objective by investing in a combination of
natural gas futures contracts and other natural gas related investments such
that changes in USNG’s NAV, measured in percentage terms, will closely
track the changes in the price of a specified natural gas futures contract
(the
“Benchmark Futures Contract”), also measured in percentage terms. USNG’s
General Partner believes the Benchmark Futures Contract historically has
exhibited a close correlation with the spot price of natural gas. It is not
the
intent of USNG to be operated in a fashion such that the NAV will equal, in
dollar terms, the spot price of natural gas or any particular futures contract
based on natural gas. Management believes that it is not practical to manage
the
portfolio to achieve such an investment goal when investing in listed natural
gas futures contracts.
On
any
valuation day, the Benchmark Futures Contract is the near
month futures contract for natural gas traded on the NYMEX unless the
near month contract will expire within two weeks of the valuation day, in which
case the Benchmark Futures Contract is the next month contract for
natural gas traded on the NYMEX. “Near month contract” means the next contract
traded on the NYMEX due to expire. “Next month contract” means the first
contract traded on the NYMEX due to expire after the near month
contract.
USNG
may
also invest in futures contracts for crude oil, heating oil, gasoline and other
petroleum-based fuels that are traded on the NYMEX, ICE Futures or other U.S.
and foreign exchanges (collectively, “Futures Contracts”) and other natural
gas-related investments such as cash-settled options on Futures Contracts,
forward contracts for natural gas and over-the-counter transactions that are
based on the price of natural gas, oil and other petroleum-based fuels, Futures
Contracts and indices based on the foregoing (collectively, “Other Natural Gas
Related Investments”). For convenience and unless otherwise specified, Futures
Contracts and Other Natural Gas Related Investments collectively are referred
to
as “Natural Gas Interests” in this quarterly report on Form 10-Q.
The general
partner of USNG, Victoria Bay Asset Management, LLC (the “General Partner”),
which is registered as a commodity pool operator (“CPO”) with the U.S. Commodity
Futures Trading Commission (the “CFTC”), is authorized by the Second
Amended and Restated Agreement of Limited Partnership of USNG (the “LP
Agreement”) to manage USNG. The General Partner is authorized by USNG in its
sole judgment to employ and establish the terms of employment for, and
termination of, commodity trading advisors or futures commission merchants.
Valuation
of Futures Contracts and the Computation of the NAV
The
NAV
of USNG units is calculated once each trading day as of the earlier of the
close
of the New York Stock Exchange (the “NYSE”) or 4:00 p.m. New York time. The
NAV for a particular trading day is released after 4:15 p.m. New York time.
Trading on the AMEX typically closes at 4:15 p.m. New York time. USNG uses
the NYMEX closing price (determined at the earlier of the close of the NYMEX
or
2:30 p.m. New York time) for the contracts held on the NYMEX, but
calculates or determines the value of all other USNG investments, including
ICE
Futures or other futures contracts, as of the earlier of the close of the NYSE
or 4:00 p.m. New York time.
Management’s
Discussion of Results of Operations and the Natural Gas
Market
Results
of Operations. On
April 18, 2007, USNG listed its units on the AMEX under the ticker symbol “UNG.”
On that day, USNG established its initial offering price at $50.00 per unit
and
issued 200,000 units to the initial authorized purchaser, Merrill Lynch
Professional Clearing Corp., in exchange for $10,001,000 in cash.
Since
its
initial offering of 30,000,000 units, USNG has made one subsequent offering
of 50,000,000 units, which were registered with the SEC on November 21,
2007. Units offered by USNG in the subsequent offering were sold by it for
cash
at the units’ NAV as described in the applicable prospectus. As of March 31,
2008, USNG had issued 46,300,000 units, 10,500,000 of which were outstanding.
As
of March 31, 2008, there were 33,700,000 units registered but not yet
issued.
More
units may have been issued by USNG than are outstanding due to the redemption
of
units. Unlike funds that are registered under the Investment Company Act of
1940, as amended, units that have been redeemed by USNG cannot be resold by
USNG
without registration of the offering of such units with the SEC. As a result,
USNG contemplates that additional offerings of its units will be
registered with the SEC in the future in anticipation of additional
issuances and redemptions.
As
of
March 31, 2008, the total unrealized gain on natural gas Futures Contracts
owned
or held on that day was $20,727,650 and USNG established cash deposits,
including cash investments in money market funds,
that
were
equal to $491,770,205. The majority of those cash assets were held in
overnight deposits at USNG’s custodian bank, while 28.21% of the cash balance
was held as margin deposits with the futures commission merchant for
the Futures Contracts purchased. The ending per unit NAV on March 31, 2008
was $48.79.
Portfolio
Expenses.
USNG’s
expenses consist of investment management fees, brokerage
fees and commissions, certain offering costs, licensing fees and the fees
and expenses of the independent directors of the General Partner. The management
fee that USNG pays to the General Partner is calculated as a
percentage of the total net assets of USNG. For total net assets of up to $1
billion, the management fee is 0.60%. For total net assets over $1 billion,
the
management fee is 0.50% on the incremental amount of assets. The fee is accrued
daily.
During
the three month period ended March 31, 2008, the daily average total net assets
of USNG were $508,376,226. During the three month period ended March
31, 2008, the total net assets of USNG did not exceed $1 billion on any
day. The management fee paid by USNG during the period amounted to
$758,397, which was calculated at the 0.60% rate for total net assets up to
and
including $1 billion and at the rate of 0.50% on total net assets over $1
billion, and accrued daily. Management fees as a percentage of average net
assets averaged 0.60% over the course of this three month period.
USNG pays
for all brokerage fees, taxes and other expenses, including certain tax
reporting costs, licensing fees for the use of intellectual property, ongoing
registration or other fees paid to the SEC, the Financial Industry Regulatory
Authority (“FINRA”) and any other regulatory agency in connection with offers
and sales of its units subsequent to the initial offering and all legal,
accounting, printing and other expenses associated therewith. For the three
month period ended March 31, 2008, USNG incurred $68,217 in ongoing registration
fees and other offering expenses. USNG is responsible for paying the fees and
expenses, including directors’ and officers’ liability insurance, of the
independent directors of the General Partner who are also audit committee
members. USNG shares these fees with USOF, US12OF, USG and USHO based on the
relative assets of each fund computed on a daily basis. These fees for calendar
year 2008 are estimated to be a total of $286,000 for all five
funds.
USNG also
incurs commissions to brokers for the purchase and sale of Futures Contracts,
Other Natural Gas Related Investments or short-term obligations of the
United States of two years or less (“Treasuries”). During the three month period
ended March 31, 2008, total commissions paid to brokers amounted to
$144,671. Prior to the initial offering of its units, USNG had estimated that
its annual level of such commissions was expected to be 0.13% of total net
assets. As an annualized percentage of average net assets, the figure for the
three month period ended March 31, 2008 represented approximately 0.11% of
average net assets. However, there can be no assurance that commission costs
and
portfolio turnover will not cause commission expenses to rise in future
quarters.
Interest
Income.
USNG
seeks to invest its assets such that it holds Futures Contracts and Other
Natural Gas Related Investments in an amount equal to the total net assets
of
the portfolio. Typically, such investments do not require USNG to pay the full
amount of the contract value at the time of purchase, but rather require USNG
to
post an amount as a margin deposit against the eventual settlement of the
contract. As a result, USNG retains an amount that is approximately equal
to its total net assets, which USNG invests in Treasuries, cash and/or cash
equivalents. This includes both the amount on deposit with the futures
commission merchant as margin, as well as unrestricted cash held with USNG’s
custodian bank. The Treasuries, cash and/or cash equivalents earn interest
that accrues on a daily basis. For the three month period ended March 31, 2008,
USNG earned $2,938,727 in interest income on such cash holdings. Based on USNG’s
average daily total net assets during this time period, this is equivalent
to an
annualized yield of 2.32%. USNG did not purchase Treasuries during the
three month period ended March 31, 2008 and held all of its funds in cash and/or
cash equivalents during this time period.
Tracking
USNG’s Benchmark.
USNG
seeks to manage its portfolio such that changes in its average daily NAV, on
a
percentage basis, closely track changes in the average of the daily price of
the
Benchmark Futures Contract, also on a percentage basis. Specifically, USNG
seeks to manage the portfolio such that over any rolling period of 30
valuation days, the average daily change in the NAV is within a range of 90%
to
110% (0.9 to 1.1) of the average daily change of the Benchmark Futures
Contract. As an example, if the average daily movement of the
Benchmark Futures Contract for a particular 30-day time period was 0.5% per
day, USNG management would attempt to manage the portfolio such that the average
daily movement of the NAV during that same time period fell between 0.45% and
0.55% (i.e.,
between 0.9 and 1.1 of the benchmark’s results). USNG’s portfolio management
goals do not include trying to make the nominal price of USNG’s NAV equal to the
nominal price of the current Benchmark Futures Contract or the spot price
for natural gas. Management believes that it is not practical to manage the
portfolio to achieve such an investment goal when investing in listed natural
gas Futures Contracts.
For
the
30 valuation days ended March 31, 2008, the simple average daily change in
the
Benchmark Futures Contract was 0.471%, while the simple average daily
change in the NAV of USNG over the same time period was 0.473%. The average
daily difference was 0.009% (or 0.9 basis points, where 1 basis point equals
1/100 of 1%). As a percentage of the daily movement of the
Benchmark Futures Contract, the average error in daily tracking by the NAV
was 3.153%, meaning that over this time period USNG’s tracking error was within
the plus or minus 10% range established as its benchmark tracking
goal.
*
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE
RESULTS
*
PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS
Since
the
offering of USNG units to the public on April 18, 2007 to March 31, 2008,
the simple average daily change in the Benchmark Futures Contract was
0.016%, while the simple average daily change in the NAV of USNG over the same
time period was 0.025%. The average daily difference was 0.013% (or 1.3 basis
points, where 1 basis point equals 1/100 of 1%). As a percentage of the daily
movement of the Benchmark Futures Contract, the average error in daily
tracking by the NAV was 1.148%, meaning that over this time period USNG’s
tracking error was within the plus or minus 10% range established as its
benchmark tracking goal.
An
alternative tracking measurement of the return performance of USNG versus the
return of its Benchmark Futures Contract can be calculated by comparing the
actual return of USNG, measured by changes in its NAV, versus the
expected
changes
in its NAV under the assumption that USNG’s returns had been exactly the same as
the daily changes in its Benchmark Futures Contract.
For
the
three month period ended March 31, 2008, the actual total return of USNG as
measured by changes in its NAV was 34.85%. This is based on an initial
NAV of $36.18 on December 31, 2007 and an ending NAV as of March 31,
2008 of $48.79. During this time period, USNG made no distributions to its
unitholders. However, if USNG’s daily changes in its NAV had instead exactly
tracked the changes in the daily return of the Benchmark Futures Contract,
USNG would have ended the first quarter of 2008 with an estimated NAV of $48.66,
for a total return over the relevant time period of 34.50%. The difference
between the actual NAV total return of USNG of 34.85% and the expected total
return based on the Benchmark Futures Contract of 34.50% was an error over
the time period of 0.35, which is to say that USNG’s actual total return
exceeded the benchmark result by that percentage. Management believes that
a
portion of the difference between the actual return and the expected benchmark
return can be attributed to the impact of the interest that USNG collects on
its
cash and cash equivalent holdings. In addition, during the three month period
ended March 31, 2008, USNG also collected fees from brokerage firms creating
or
redeeming baskets of units. This income also contributed to USNG’s actual return
exceeding the benchmark results. However, if the total assets of USNG continue
to increase, management believes that the impact on total returns of these
fees
from creations and redemptions will diminish as a percentage of the total
return.
There
are
currently three factors that have impacted, during the latest period, or are
most likely to impact, USNG’s ability to accurately track its Benchmark Futures
Contract.
First,
USNG may buy or sell its holdings in the then current Benchmark Futures
Contract at a price other than the closing settlement price of that contract
on
the day in which USNG executes the trade. In that case, USNG may get a price
that is higher, or lower, than that of the Benchmark Futures Contract,
which could cause the changes in the daily NAV of USNG to either be too
high or too low relative to the changes in the daily benchmark. During the
three
month period ended March 31, 2008, management attempted to minimize the effect
of these transactions by seeking to execute its purchase or sales of the
Benchmark Futures Contracts at, or as close as possible to, the end of the
day settlement price. However, it may not always be possible for USNG to obtain
the closing settlement price and there is no assurance that failure to obtain
the closing settlement price in the future will not adversely impact USNG’s
attempt to track its benchmark over time.
Second,
USNG earns interest on its cash, cash equivalents and Treasury
holdings. USNG is not required to distribute any portion of its income to its
unitholders and did not make any distributions to unitholders during the three
month period ended March 31, 2008. Interest payments, and any other income,
were
retained within the portfolio and added to USNG’s NAV. When this income exceeds
the level of USNG’s expenses for its management fee, brokerage commissions
and other expenses (including ongoing registration fees, licensing fees and
the fees and expenses of the independent directors of the General Partner),
USNG
will realize a net yield that will tend to cause daily changes in the NAV of
USNG to track slightly higher than daily changes in the Benchmark Futures
Contract. During the three month period ended March 31, 2008, USNG earned,
on an
annualized basis, approximately 2.32% on its cash holdings. It also incurred
cash expenses on an annualized basis of 0.60% for management fees and
approximately 0.11% in brokerage commission costs related to the purchase and
sale of futures contracts, and 0.37% for other expenses. The foregoing fees
and
expenses resulted in a net yield on an annualized basis of approximately 1.24%
and affected USNG’s ability to track its benchmark. If short-term interest rates
rise above the current levels, the level of deviation created by the yield
would
increase. Conversely, if short-term interest rates were to decline, the amount
of error created by the yield would decrease. If short-term yields drop to
a
level lower than the combined expenses of the management fee and the brokerage
commissions, then the tracking error would become a negative number and would
tend to cause the daily returns of the NAV to underperform the daily returns
of
the Benchmark Futures Contract.
Third,
USNG may hold Other Natural Gas Related Investments in its portfolio that
may fail to closely track the Benchmark Futures Contract’s total return
movements. In that case, the error in tracking the benchmark could result in
daily changes in the NAV of USNG that are either too high, or too low, relative
to the daily changes in the benchmark. During the three month period ended
March
31, 2008, USNG did not hold any Other Natural Gas Related Investments. However,
there can be no assurance that in future quarters USNG will not make use of
such
Other Natural Gas Related Investments.
During
the three month period ended March 31, 2008, the prices of front month futures
contracts rose from $7.483 to $10.101. The prices of front month contracts
were
also lower than the prices of second month contracts during this time period,
a
condition in the futures markets referred to as “contango”. The relationship
between the prices of different months of the same futures contracts, the “term
structure of futures prices”, can have a major impact on the total return of
owning such futures contracts over time.
Term
Structure of Natural Gas Futures Prices and the Impact on Total Returns.
Several
factors determine the total return from investing in a futures contract
position. One factor that impacts the total return that will result from
investing in near month natural gas futures contracts and “rolling” those
contracts forward each month is the price relationship between the current
near
month contract and the later month contracts. For example, if the price of
the
near month contract is higher than the next month contract (a situation referred
to as “backwardation” in the futures market), then absent any other change there
is a tendency for the price of a next month contract to rise in value as it
becomes the near month contract and approaches expiration. Conversely, if the
price of a near month contract is lower than the next month contract (a
situation referred to as “contango” in the futures market), then absent any
other change there is a tendency for the price of a next month contract to
decline in value as it becomes the near month contract and approaches
expiration.
As
an
example, assume that the price of natural gas for immediate delivery (the “spot”
price), was $7 per 10,000 million British thermal units (“MMBtu”), and the value
of a position in the near month futures contract was also $7. Over time, the
price of 10,000 MMBtu of natural gas will fluctuate based on a number of
market factors, including demand for natural gas relative to its supply. The
value of the near month contract will likewise fluctuate in reaction to a
number of market factors. If investors seek to maintain their holding in a
near
month contract position and not take delivery of the natural gas, every month
they must sell their current near month contract as it approaches expiration
and
invest in the next month contract.
If
the
futures market is in backwardation, e.g., when the expected price of
natural gas in the future would be less, the investor would be buying a next
month contract for a lower price than the current near month contract.
Hypothetically, and assuming no other changes to either prevailing natural
gas
prices or the price relationship between the spot price, the near month contract
and the next month contract (and ignoring the impact of commission costs and
the
interest earned on Treasuries, cash and/or cash equivalents), the value of
the
next month contract would rise as it approaches expiration and becomes the
new
near month contract. In this example, the value of the $7 investment would
tend
to rise faster than the spot price of natural gas, or fall slower. As a result,
it would be possible in this hypothetical example for the price of spot natural
gas to have risen to $9 after some period of time, while the value of the
investment in the futures contract would have risen to $10, assuming
backwardation is large enough or enough time has elapsed. Similarly, the spot
price of natural gas could have fallen to $5 while the value of an investment
in
the futures contract could have fallen to only $6. Over time, if backwardation
remained constant, the difference would continue to increase.
If
the
futures market is in contango, the investor would be buying a next month
contract for a higher price than the current near month contract.
Hypothetically, and assuming no other changes to either prevailing natural
gas
prices or the price relationship between the spot price, the near month contract
and the next month contract (and ignoring the impact of commission costs and
the
interest earned on cash), the value of the next month contract would fall as
it
approaches expiration and becomes the new near month contract. In this example,
it would mean that the value of the $7 investment would tend to rise slower
than
the spot price of natural gas, or fall faster. As a result, it would be possible
in this hypothetical example for the spot price of natural gas to have
risen to $9 after some period of time, while the value of the investment in
the
futures contract will have risen to only $8, assuming contango is large enough
or enough time has elapsed. Similarly, the spot price of natural gas could
have
fallen to $6 while the value of an investment in the futures contract could
have
fallen to $7. Over time, if contango remained constant, the difference would
continue to increase.
Historically,
the natural gas futures markets have experienced periods of contango
and backwardation. Because natural gas demand is seasonal, it is possible for
the price of Futures Contracts for delivery within one or two months to
rapidly move from backwardation into contango and back again within a relatively
short period of time of less than one year. While the investment objective
of
USNG is not to have the market price of its units match, dollar for dollar,
changes in the spot price of natural gas, contango has impacted the total return
on an investment in USNG units during the past quarter relative to a
hypothetical direct investment in natural gas. For example, an investment made
in USNG units made on June 30, 2007 and held to September 30, 2007 decreased,
based upon the changes in the closing market prices for USNG units on those
days, by 12.14%, while the spot price of natural gas for immediate delivery
during the same period increased by 1.4% (note: this comparison ignores the
potential costs associated with physically owning and storing natural gas,
which
could be substantial). This period of contango did not meaningfully impact
USNG’s investment objective of having percentage changes in its per unit NAV
track percentage changes in the price of the Benchmark Futures Contract
since the impact of backwardation and contango tended to equally impact the
percentage changes in price of both USNG’s units and the Benchmark Futures
Contract. It is impossible to predict with any degree of certainty whether
backwardation or contango will occur in the future. It is likely that both
conditions will occur during different periods and, because of the seasonal
nature of natural gas demand, both may occur within a single year’s time.
Natural
Gas Market.
During
the three month period ended March 31, 2008, natural gas prices in the United
States were impacted by several factors. At the beginning of the quarter, the
amount of natural gas in storage was at higher than average levels versus the
previous five years. The winter weather in the United States was moderate
through much of the quarter. A major use of natural gas in winter months is
the
generation of heat for residential and commercial buildings. A major variable
in
the use of natural gas is weather, and the amount of natural gas burned for
heating purposes. The mild weather had the effect of reducing the rate at which
the storage levels of natural gas fell. During the entire quarter, the
seasonally adjusted inventory levels of stored natural gas remained above
five-year averages. As a result of all the factors mentioned above, the
natural gas market in the United States remained reasonably well supplied.
However, the price of natural gas was influenced by the rise in the price of
crude oil, which rose during the quarter. In addition, demand for natural gas
outside of the United States also influenced prices upward. As a result, the
price of natural gas rose fairly steadily during the quarter from the
$7.483 level to the $10.101 level.
Critical
Accounting Policies
Preparation
of the condensed financial statements and related disclosures in compliance
with
accounting principles generally accepted in the United States of America
requires the application of appropriate accounting rules and guidance, as well
as the use of estimates. USNG’s application of these policies involves judgments
and actual results may differ from the estimates used.
The
General Partner has evaluated the nature and types of estimates that
it makes in preparing USNG’s condensed financial statements and related
disclosures and has determined that the valuation of its investments which
are not traded on a United States or internationally recognized futures exchange
(such as forward contracts and over-the-counter contracts) involves a critical
accounting policy. The values which are used by USNG for its forward
contracts are provided by its commodity broker who uses market prices when
available, while over-the-counter contracts are valued based on the
present value of estimated future cash flows that would be received from or
paid
to a third party in settlement of these derivative contracts prior to their
delivery date and valued on a daily basis. In addition, USNG estimates
interest income on a daily basis using prevailing interest rates earned on
its
cash and cash equivalents. These estimates are adjusted to the actual amount
received on a monthly basis and the difference, if any, is not considered
material.
Liquidity
and Capital Resources
USNG
has
not made, and does not anticipate making, use of borrowings or other lines
of
credit to meet its obligations. USNG has met, and it is anticipated
that USNG will continue to meet, its liquidity needs in the normal
course of business from the proceeds of the sale of its investments, or from
the
Treasuries, cash and/or cash equivalents that it intends to hold at all times.
USNG’s liquidity needs include: redeeming units, providing margin deposits for
its existing Futures Contracts or the purchase of additional Futures Contracts
and posting collateral for its over-the-counter contracts and payment of its
expenses, summarized below under “Contractual Obligations.”
USNG
currently generates cash primarily from (i) the sale of Creation Baskets and
(ii) interest earned on Treasuries, cash and/or cash equivalents. USNG has
allocated substantially all of its net assets to trading in Natural
Gas Interests. USNG invests in Natural Gas Interests to the fullest extent
possible without being leveraged or unable to satisfy its current or potential
margin or collateral obligations with respect to its investments in Futures
Contracts and Other Natural Gas Related Investments. A significant portion
of the NAV is held in cash and cash equivalents that are used as margin and
as collateral for USNG’s trading in Natural Gas Interests. The percentage that
Treasuries will bear to the total net assets vary from period to period as
the
market values of the Natural Gas Interests change. The balance of the net assets
is held in USNG’s Futures Contracts and Other Natural Gas Related
Investments trading account. Interest earned on USNG’s interest-bearing funds is
paid to USNG.
USNG’s
investment in Natural Gas Interests may be subject to periods of illiquidity
because of market conditions, regulatory considerations and other reasons.
For
example, most commodity exchanges limit the fluctuations in Futures
Contracts prices during a single day by regulations referred to as “daily
limits.” During a single day, no trades may be executed at prices beyond the
daily limit. Once the price of a Futures Contract has increased or decreased
by
an amount equal to the daily limit, positions in the contracts can neither
be
taken nor liquidated unless the traders are willing to effect trades at or
within the specified daily limit. Such market conditions could prevent USNG
from promptly liquidating its positions in Futures Contracts. During the
three month period ended March 31, 2008, USNG was not forced to purchase or
liquidate any of its positions while daily limits were in effect; however,
USNG cannot predict whether such an event may occur in the future.
To
date,
all of USNG’s expenses, including its organizational and offering expenses
related to the initial offering of its units, have been paid by the General
Partner. Fees and expenses associated with the registration of units with the
SEC subsequent to the initial offering have been borne by USNG. In addition,
fees and expenses (including directors’ and officers’ liability insurance) of
the independent directors of the General Partner, the management fee paid to
the
General Partner, certain tax reporting fees, brokerage fees and licensing fees
will be paid directly by USNG. If the General Partner and USNG are unsuccessful
in raising sufficient funds to cover USNG’s expenses or in locating any other
source of funding, USNG will terminate and investors may lose all or part of
their investment.
Market
Risk
Trading
in Futures Contracts and Other Natural Gas Related Investments, such as
forwards, involves USNG entering into contractual commitments to purchase
or sell natural gas at a specified date in the future. The gross or face amount
of the contracts will significantly exceed USNG’s future cash requirements since
USNG intends to close out its open positions prior to settlement. As a result,
USNG is generally only subject to the risk of loss arising from the change
in value of the contracts. USNG considers the “fair value” of its derivative
instruments to be the unrealized gain or loss on the contracts. The market
risk
associated with USNG’s commitments to purchase natural gas is limited to the
gross face amount of the contracts held. However, should USNG enter into a
contractual commitment to sell natural gas, it would be required to make
delivery of the natural gas at the contract price, repurchase the contract
at
prevailing prices or settle in cash. Since there are no limits on the future
price of natural gas, the market risk to USNG could be unlimited.
USNG’s
exposure to market risk depends on a number of factors, including the
markets for natural gas, the volatility of interest rates and foreign exchange
rates, the liquidity of the Futures Contracts and Other Natural Gas Related
Investments markets and the relationships among the contracts held by USNG.
The
limited experience that USNG has had in utilizing its model to trade in Natural
Gas Interests in a manner intended to track the changes in the spot price of
natural gas, as well as drastic market occurrences, could ultimately lead to
the
loss of all or substantially all of an investor’s capital.
Credit
Risk
When
USNG
enters into Futures Contracts and Other Natural Gas Related Investments, it
is exposed to the credit risk that the counterparty will not be able to meet
its
obligations. The counterparty for the Futures Contracts traded on the NYMEX
and on most other foreign futures exchanges is the clearinghouse associated
with
the particular exchange. In general, clearinghouses are backed by their members
who may be required to share in the financial burden resulting from the
nonperformance of one of their members and, therefore, this additional member
support should significantly reduce credit risk. Some foreign exchanges are
not
backed by their clearinghouse members but may be backed by a consortium of
banks
or other financial institutions. There can be no assurance that any
counterparty, clearinghouse, or their members or their financial backers will
satisfy their obligations to USNG in such circumstances.
The
General Partner attempts to manage the credit risk of USNG by following
various trading limitations and policies. In particular, USNG generally posts
margin and/or holds liquid assets that are approximately equal to the face
amount of its obligations to counterparties under the Futures Contracts and
Other Natural Gas Related Investments it holds. The General Partner has
implemented procedures that include, but are not limited to, executing
and clearing trades only with creditworthy parties and/or requiring the posting
of collateral or margin by such parties for the benefit of USNG to limit its
credit exposure. UBS Securities LLC, USNG’s commodity broker, or any other
broker that may be retained by USNG in the future, when acting as USNG’s futures
commission merchant in accepting orders to purchase or sell Futures
Contracts on United States exchanges, is required by CFTC regulations
to separately account for and segregate as belonging to USNG, all assets of
USNG
relating to domestic Futures Contracts trading. These futures
commission merchants are not allowed to commingle USNG’s assets with its other
assets. In addition, the CFTC requires commodity brokers to hold in a secure
account the USNG assets related to foreign Futures Contracts trading.
During the three month period ended March 31, 2008, the only foreign exchange
on
which USNG made investments was the ICE Futures, which is a London
based futures exchange. Those natural gas contracts are denominated in U.S.
dollars.
As
of
March 31, 2008, USNG had deposits in domestic and foreign financial
institutions, including cash investments in money market funds, in the amount
of
491,770,205. This amount is subject to loss should these institutions cease
operations.
Off
Balance Sheet Financing
As
of
March 31, 2008, USNG has no loan guarantee, credit support or other off-balance
sheet arrangements of any kind other than agreements entered into in the normal
course of business, which may include indemnification provisions relating to
certain risks that service providers undertake in performing services which
are
in the best interests of USNG. While USNG’s exposure under these indemnification
provisions cannot be estimated, they are not expected to have a material impact
on USNG’s financial position.
Redemption
Basket Obligation
In
order
to meet its investment objective and pay its contractual obligations described
below, USNG requires liquidity to redeem units, which redemptions must be
in blocks of 100,000 units called Redemption Baskets. USNG has to
date satisfied this obligation by paying from the cash or cash equivalents
it holds or through the sale of its Treasuries in an amount
proportionate to the number of units being redeemed.
Contractual
Obligations
USNG’s
primary contractual obligations are with the General Partner. In return for
its
services, the General Partner is entitled to a management fee calculated as
a
fixed percentage of USNG’s NAV, currently 0.60% for a NAV of $1 billion or less,
and thereafter 0.50% for a NAV above $1 billion.
The
General Partner agreed to pay the start-up costs associated with the formation
of USNG, primarily its legal, accounting and other costs in connection with
the
General Partner’s registration with the CFTC as a CPO and the registration and
listing of USNG and its units with the SEC, FINRA and the AMEX,
respectively. However, the costs of registering and listing additional units
of
USNG with the SEC are directly borne on an ongoing basis by USNG, and not
by the General Partner.
The
General Partner pays the fees of USNG’s marketing agent, ALPS Distributors,
Inc., and the fees of the custodian and transfer agent, Brown Brothers Harriman
& Co. (“BBH&Co.”), as well as BBH&Co.’s fees for performing
administrative services, including in connection with the preparation of USNG’s
condensed financial statements and its SEC and CFTC reports. The General Partner
and USNG have also entered into a licensing agreement with the NYMEX pursuant
to
which USNG and the affiliated funds managed by the General Partner pay a
licensing fee to the NYMEX. The General Partner also pays any fees for
implementation of services and base service fees charged by the accounting
firm
responsible for preparing USNG’s tax reporting forms; however, USNG pays the
fees and expenses associated with its tax accounting and reporting requirements.
In
addition to the General Partner’s management fee, USNG pays its brokerage fees
(including fees to a futures commission merchant), over-the-counter dealer
spreads, any licensing fees for the use of intellectual property, registration
and, subsequent to the initial offering, the fees paid to the SEC, FINRA, or
other regulatory agencies in connection with the offer and sale of units, as
well as legal, printing, accounting and other expenses associated therewith,
and
extraordinary expenses. The latter are expenses not incurred in the ordinary
course of USNG’s business, including expenses relating to the indemnification of
any person against liabilities and obligations to the extent permitted by law
and under the LP Agreement, the bringing or defending of actions in law or
in
equity or otherwise conducting litigation and incurring legal expenses and
the
settlement of claims and litigation. Commission payments to a futures commission
merchant are on a contract-by-contract, or round turn, basis. USNG also pays
a
portion of the fees and expenses of the independent directors of the General
Partner. See Note 3 to the Notes to Condensed Financial Statements
(Unaudited).
The
parties cannot anticipate the amount of payments that will be required under
these arrangements for future periods, as USNG’s NAVs and trading levels to meet
its investment objectives will not be known until a future date. These
agreements are effective for a specific term agreed upon by the parties with
an
option to renew, or, in some cases, are in effect for the duration of USNG’s
existence. Either party may terminate these agreements earlier for certain
reasons described in the agreements.
Item 3.
Quantitative and Qualitative Disclosures About Market
Risk.
Over-the-Counter
Derivatives (Including Spreads and Straddles)
In
the
future, USNG may purchase over-the-counter contracts. Unlike most of the
exchange-traded natural gas Futures Contracts or exchange-traded options on
such
futures, each party to an over-the-counter contract bears the credit risk that
the other party may not be able to perform its obligations under its
contract.
Some
natural gas-based derivatives transactions contain fairly generic terms and
conditions and are available from a wide range of participants. Other natural
gas-based derivatives have highly customized terms and conditions and are not
as
widely available. Many of these over-the-counter contracts are cash-settled
forwards for the future delivery of natural gas- or petroleum-based fuels that
have terms similar to the Futures Contracts. Others take the form of
“swaps” in which the two parties exchange cash flows based on pre-determined
formulas tied to the spot price of natural gas, forward natural gas
prices or natural gas futures prices. For example, USNG may enter into
over-the-counter derivative contracts whose value will be tied to changes in
the
difference between the spot price of natural gas, the price of Futures
Contracts traded on the NYMEX and the prices of other Futures Contracts
that may be invested in by USNG.
To
protect itself from the credit risk that arises in connection with such
contracts, USNG may enter into agreements with each counterparty that provide
for the netting of its overall exposure to its counterparty, such as the
agreements published by the International Swaps and Derivatives Association,
Inc. USNG also may require that the counterparty be highly rated and/or
provide collateral or other credit support to address USNG’s exposure to the
counterparty. In addition, it is also possible for USNG and its counterparty
to
agree to clear their agreement through an established futures clearing house
such as those connected to the NYMEX or the ICE Futures. In that event, USNG
would no longer have credit risk of its original counterparty, as the
clearinghouse would now be USNG’s counterparty. USNG would still retain any
price risk associated with its transaction.
The
creditworthiness of each potential counterparty is assessed by the General
Partner. The General Partner assesses or reviews, as appropriate, the
creditworthiness of each potential or existing counterparty to an
over-the-counter contract pursuant to guidelines approved by the General
Partner’s board of directors. Furthermore, the General Partner on behalf of USNG
only enters into over-the-counter 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. Existing
counterparties are also reviewed periodically by the General Partner.
USNG
anticipates that the use of Other Natural Gas-Related Investments together
with
its investments in Futures Contracts will produce price and total return results
that closely track the investment goals of USNG.
USNG
may
employ spreads or straddles in its trading to mitigate the differences in its
investment portfolio and its goal of tracking the price of the
Benchmark Futures Contract. USNG would use a spread when it chooses to take
simultaneous long and short positions in futures written on the same underlying
asset, but with different delivery months. The effect of holding such combined
positions is to adjust the sensitivity of USNG to changes in the price
relationship between futures contracts which will expire sooner and those that
will expire later. USNG would use such a spread if the General Partner felt
that
taking such long and short positions, when combined with the rest of its
holdings, would more closely track the investment goals of USNG, or if the
General Partner felt it would lead to an overall lower cost of trading to
achieve a given level of economic exposure to movements in natural gas prices.
USNG would enter into a straddle when it chooses to take an option position
consisting of a long (or short) position in both a call option and put option.
The economic effect of holding certain combinations of put options and call
options can be very similar to that of owning the underlying futures contracts.
USNG would make use of such a straddle approach if, in the opinion of the
General Partner, the resulting combination would more closely track the
investment goals of USNG or if it would lead to an overall lower cost of trading
to achieve a given level of economic exposure to movements in natural gas
prices.
During
the three month period ended March 31, 2008, USNG did not employ any hedging
methods since all of its investments were made over an exchange. Therefore,
USNG
was not exposed to counterparty risk.
Item 4.
Controls and Procedures.
Disclosure
Controls and Procedures
USNG
maintains disclosure controls and procedures that are designed to ensure that
material information required to be disclosed in USNG’s periodic reports filed
or submitted under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time period specified in the
SEC’s
rules and forms.
The
duly
appointed officers of the General Partner, including its chief executive officer
and chief financial officer, who perform functions equivalent to those
of a principal executive officer and principal financial officer of
USNG if USNG had any officers, have evaluated the effectiveness of USNG’s
disclosure controls and procedures and have concluded that the
disclosure controls and procedures of USNG have been effective as of the end
of
the period covered by this quarterly report.
Change
in Internal Control Over Financial Reporting
There
were no changes in USNG’s internal control over financial reporting during
USNG’s last fiscal quarter that have materially affected, or are reasonably
likely to materially affect, USNG’s internal control over financial
reporting.
Item
1. Legal Proceedings.
Not
applicable.
Item
1A. Risk Factors.
There
has
not been a material change from the risk factors previously disclosed in
USNG's annual report on Form 10-K for the fiscal year ended December 31,
2007.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds.
Not
applicable.
Item
3. Defaults Upon Senior Securities.
Not
applicable.
Item
4. Submission of Matters to a Vote of Security Holders.
Not
applicable.
Monthly
Account Statements
Pursuant
to the requirement under part 4.22 of the Commodity Exchange Act, each month
USNG publishes an account statement for its unitholders, which includes a
Statement of Income (Loss) and a Statement of Changes in NAV. The account
statement is filed with the SEC on a current report on Form 8-K pursuant to
Section 13 or 15(d) of the Exchange Act and posted each month on USNG’s
website at www.unitedstatesnaturalgasfund.com.
Item 6.
Exhibits.
Listed
below are the exhibits which are filed or furnished as part of this quarterly
report on Form 10-Q (according to the number assigned to them in Item 601
of Regulation S-K):
Exhibit
|
|
Number
|
Description
of Document
|
31.1*
|
Certification
by Principal Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
31.2*
|
Certification
by Principal Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
32.1**
|
Certification
by Principal Executive Officer Pursuant to 18 U.S.C. Section 1350,
As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
32.2**
|
Certification
by Principal Financial Officer Pursuant to 18 U.S.C. Section 1350,
As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
*
Filed herewith
**
Furnished herewith
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
United
States Natural Gas Fund, LP (Registrant)
By:
Victoria Bay Asset Management, LLC, its general partner
By:
|
/s/
Nicholas
D. Gerber
|
|
Nicholas
D. Gerber
|
|
Chief
Executive Officer
|
|
|
|
|
Date: May
15, 2008
|
|
|
|
|
By:
|
/s/
Howard
Mah
|
|
Howard
Mah
|
|
Chief
Financial Officer
|
|
|
|
|
Date: May
15, 2008
|
|