UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549


FORM
10-K




x
            Annual
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act
      of 1934 for the fiscal year ended December 31,
  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: 001-32834




United
States Oil Fund, LP


(Exact
name of registrant as specified in its charter)




Delaware
              
              20-2830691(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)




Securities
registered pursuant to Section 12(b) of the Act:





Units
              NYSE
      Arca, Inc.(Title
      of each class)
              (Name
      of exchange on which
registered)




Securities
registered pursuant to Section 12(g) of the Act: None




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.    ̈ Yes    x No




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.    ̈ Yes    x No




Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. x
Yes     ̈ No





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.   x





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.




Large
      accelerated filer   x
                Accelerated
      filer   oNon-accelerated filer  o
                  (Do
      not check if a smaller reporting company)
                Smaller
      reporting company o




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  ̈
Yes    x No





The
aggregate market value of the registrant’s units held by non-affiliates of the
registrant as of June 30, 2008 was: $806,986,000.




The
registrant had 143,200,000
outstanding units as of February 27,2009.




DOCUMENTS
INCORPORATED BY REFERENCE:


None.







UNITED
STATES OIL FUND, LP





Table
of Contents


PagePart
      I.Item
      1. Business.
                                                                  
                                                                  1Item
      1A. Risk Factors.
                                                                  
                                                                  41Item
      1B. Unresolved Staff Comments.
                                                                  
                                                                  57Item
      2. Properties.
                                                                  
                                                                  57Item
      3. Legal Proceedings.
                                                                  
                                                                  57Item
      4. Submission of Matters to a Vote of Security Holders.
                                                                  
                                                                  57Part
      II.Item
      5. Market for Registrant’s Common Equity, Related Stockholder Matters and
      Issuer Purchases of Equity Securities.
                                                                  
                                                                  57Item
      6. Selected Financial Data.
                                                                  
                                                                  58Item
      7. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations.
                                                                  
                                                                  58Item
      7A. Quantitative and Qualitative Disclosures About Market
      Risk.
                                                                  
                                                                  74Item
      8. Financial Statements and Supplementary Data.
                                                                  
                                                                  76Item
      9. Changes in and Disagreements With Accountants on Accounting and
      Financial Disclosure.
                                                                  
                                                                  93Item
      9A. Controls and Procedures.
                                                                  
                                                                  93Item
      9B. Other Information.
                                                                  
                                                                  93Part
      III.Item
      10. Directors, Executive Officers and Corporate
      Governance.
                                                                  
                                                                  93Item
      11. Executive Compensation.
                                                                  
                                                                  97Item
      12. Security Ownership of Certain Beneficial Owners and Management and
      Related Stockholder Matters.
                                                                  
                                                                  98Item
      13. Certain Relationships and Related Transactions, and Director
      Independence.
                                                                  
                                                                  98Item
      14. Principal Accountant Fees and Services.
                                                                  
                                                                  98Part
      IV.Item
      15. Exhibits and Financial Statement Schedules.
                                                                  
                                                                  99Exhibit
      Index.
                                                                  
                                                                  99Signatures
                                                                  
                                                                  101




Part
I





Item 1.
Business.




What
is USOF?




The
United States Oil Fund, LP (“USOF”) is a Delaware limited partnership
organized on May 12, 2005. USOF maintains its main business office at 1320
Harbor Bay Parkway, Suite 145, Alameda, California 94502. USOF is a commodity
pool that issues limited partnership interests (“units”) traded on the NYSE
Arca, Inc. (the “NYSE Arca”). It operates pursuant to the terms of the Fifth
Amended and Restated Agreement of Limited Partnership dated as of October
13, 2008 (the “LP Agreement”), which grants full management control to United
States Commodity Funds LLC (the “General Partner”).





The
investment objective of USOF is for the changes in percentage terms of its
units’ net asset value (“NAV”) to reflect the changes in percentage terms of the
spot price of light, sweet crude oil delivered to Cushing, Oklahoma, as measured
by the changes in the price of the futures contract for light, sweet crude oil
traded on the New York Mercantile Exchange (the “NYMEX”), less USOF’s
expenses. USOF began trading on April 10, 2006. The General Partner is
the general partner of USOF and is responsible for the management of
USOF.




Who
is the General Partner?




The
General Partner is a single member limited liability company that was formed in
the state of Delaware on May 10, 2005. Prior to June 13, 2008, the General
Partner was known as Victoria Bay Asset Management, LLC. It maintains its main
business office at 1320 Harbor Bay Parkway, Suite 145, Alameda, California
94502. The General Partner is a wholly-owned subsidiary of Wainwright Holdings,
Inc., a Delaware corporation (“Wainwright”). Mr. Nicholas Gerber (discussed
below) controls Wainwright by virtue of his ownership of Wainwright’s shares.
Wainwright is a holding company that also owns an insurance company organized
under Bermuda law (currently being liquidated) and a registered investment
adviser firm named Ameristock Corporation. The General Partner is a member of
the National Futures Association (the “NFA”) and registered with the Commodity
Futures Trading Commission (the “CFTC”) on December 1, 2005. The General
Partner’s registration as a Commodity Pool Operator (“CPO”) was approved on
December 1, 2005.




On
September 11, 2006, the General Partner formed the United States Natural Gas
Fund, LP (“USNG”), another limited partnership that is a commodity pool
and issues units traded on the NYSE Arca. The investment
objective of USNG is for the changes in percentage terms of its units’ NAV to
reflect the changes in percentage terms of the price of natural gas delivered at
the Henry Hub, Louisiana, as measured by the changes in the price of the futures
contract on natural gas traded on the NYMEX, less USNG’s expenses. USNG began
trading on April 18, 2007. The General Partner is the general partner of USNG
and is responsible for the management of USNG.




On June
27, 2007, the General Partner formed the United States 12 Month Oil Fund, LP
(“US12OF”), also a limited partnership that is a commodity pool and issues units
traded on the NYSE Arca. The investment objective of US12OF is for the changes
in percentage terms of its units’ NAV to reflect the changes in percentage terms
of the price of light, sweet crude oil delivered to Cushing, Oklahoma, as
measured by the changes in the average of the prices of 12 futures contracts on
light, sweet crude oil traded on the NYMEX, consisting of the near month
contract to expire and the contracts for the following 11 months, for a total of
12 consecutive months’ contracts, less US12OF’s expenses. US12OF began trading
on December 6, 2007. The General Partner is the general partner of US12OF and is
responsible for the management of US12OF.




On April
12, 2007, the General Partner formed the United States Gasoline Fund, LP
(“UGA”), also a limited partnership that is a commodity pool and issues units
traded on the NYSE Arca. The investment objective of UGA is for the changes
in percentage terms of its units’ NAV to reflect the changes in percentage terms
of the price of unleaded gasoline delivered to the New York harbor, as measured
by the changes in the price of the futures contract on gasoline traded on the
NYMEX, less UGA’s expenses. UGA began trading on February 26, 2008. The General
Partner is the general partner of UGA and is responsible for the management of
UGA.




1




On April
13, 2007, the General Partner formed the United States Heating Oil Fund, LP
(“USHO”), also a limited partnership that is a commodity pool and issues units
traded on the NYSE Arca. The investment objective of USHO is for the
changes in percentage terms of its units’ NAV to reflect the changes in
percentage terms of the price of heating oil (also known as No. 2 fuel oil)
delivered to the New York harbor, as measured by the changes in the price of the
futures contract on heating oil traded on the NYMEX, less USHO’s expenses.
USHO began trading on April 9, 2008. The General Partner is the general
partner of USHO and is responsible for the management of USHO.





USNG,
US12OF, UGA and USHO are collectively referred to herein as the “Related Public
Funds”.  For more information about each of the Related Public Funds,
investors in USOF may call 1-800-920-0259 or go online to
www.unitedstatescommodityfunds.com.





The
General Partner has filed a registration statement for two other exchange traded
security funds, the United States Short Oil Fund, LP (“USSO”) and the United
States 12 Month Natural Gas Fund, LP (“US12NG”). The investment objective of
USSO would be to have the changes in percentage terms of its units’ NAV
inversely reflect the changes in percentage terms of the spot price of
light, sweet crude oil delivered to Cushing, Oklahoma, as measured by the
changes in the price of the futures contract on light, sweet crude oil as
traded on the NYMEX, less USSO’s expenses. The investment objective of US12NG
would be to have the changes in percentage terms of its units’ NAV 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 average of the prices of 12
futures contracts on natural gas traded on the NYMEX, consisting of the near
month contract to expire and the contracts for the following 11 months, for a
total of 12 consecutive months’ contracts, less US12NG’s expenses.





The
General Partner is required to evaluate the credit risk of USOF to the futures
commission merchant, oversee the purchase and sale of USOF’s units by certain
authorized purchasers (“Authorized Purchasers”), review daily positions and
margin requirements of USOF and manage USOF’s investments. The General Partner
also pays the fees of ALPS Distributors, Inc. (the “Marketing Agent”) and Brown
Brothers Harriman & Co. (“BBH&Co.”), which acts as the administrator
(the “Administrator”) and the custodian (the “Custodian”) for
USOF.




Limited
partners have no right to elect the General Partner on an annual or any other
continuing basis. If the General Partner voluntarily withdraws, however, the
holders of a majority of USOF’s outstanding units (excluding for purposes of
such determination units owned, if any, by the withdrawing General Partner
and its affiliates) may elect its successor. The General Partner may not be
removed as general partner except upon approval by the affirmative vote of the
holders of at least 66 and 2/3 percent of USOF’s outstanding units (excluding
units owned, if any, by the General Partner and its affiliates), subject to
the satisfaction of certain conditions set forth in the LP
Agreement.




The
business and affairs of the General Partner are managed by a board of directors
(the “Board”), which is comprised of four management directors, some of whom are
also its executive officers (the “Management Directors”), and three independent
directors who meet the independent director requirements established by the NYSE
Arca and the Sarbanes-Oxley Act of 2002. Notwithstanding the foregoing, the
Management Directors have the authority to manage the General Partner pursuant
to its limited liability company agreement. Through its Management Directors,
the General Partner manages the day-to-day operations of USOF. The Board has an
audit committee which is made up of the three independent directors (Peter M.
Robinson, Gordon L. Ellis and Malcolm R. Fobes III). For additional information
relating to the audit committee, please see “Item 10. Directors, Executive
Officers and Corporate Governance – Audit Committee” in this annual report on
Form 10-K.





How
Does USOF Operate?





The net
assets of USOF consist primarily of investments in futures contracts
for light, sweet crude oil, but may also consist of other types of crude
oil, heating oil, gasoline, natural gas and other petroleum-based fuels that are
traded on the NYMEX, ICE Futures or other U.S. and foreign exchanges
(collectively, “Oil Futures Contracts”). USOF may also invest in other crude
oil-related investments such as cash-settled options on Oil Futures Contracts,
forward contracts for oil, and over-the-counter transactions that are based on
the price of crude oil, other petroleum-based fuels, Oil Futures Contracts and
indices based on the foregoing (collectively, “Other Oil Interests”). For
convenience and unless otherwise specified, Oil Futures Contracts and Other Oil
Interests collectively are referred to as “oil interests” in this annual report
on Form 10-K.




2




USOF
invests in oil interests to the fullest extent possible without being leveraged
or unable to satisfy its current or potential margin or collateral obligations
with respect to its investments in Oil Futures Contracts and Other Oil
Interests. In pursuing this objective, the primary focus of the General Partner
is the investment in Oil Futures Contracts and the management of USOF’s
investments in short-term obligations of the United States of two years or less
(“Treasuries”), cash and/or cash equivalents for margining purposes and as
collateral.




The
investment objective of USOF is to have the changes in percentage terms of its
units’ NAV reflect the changes in percentage terms of the spot price
of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by
the changes in the price of the futures contract on light, sweet crude oil as
traded on the NYMEX that is the near month contract to expire, except when the
near month contract is within two weeks of expiration, in which case it will be
measured by the futures contract that is the next month contract
to expire, less USOF’s expenses. It is not the intent of USOF to be operated in
a fashion such that its NAV will equal, in dollar terms, the spot price of
light, sweet crude oil or any particular futures contract based on light, sweet
crude oil.





USOF
seeks to achieve its investment objective by investing in a mix of Oil Futures
Contracts and Other Oil Interests such that the changes in its NAV will closely
track the changes in the price of the NYMEX futures contract for light, sweet
crude oil delivered to Cushing, Oklahoma (the “Benchmark Oil Futures Contract”).
The General Partner believes changes in the price of the Benchmark Oil Futures
Contract have historically exhibited a close correlation with the changes in the
spot price of light, sweet crude oil. On any valuation day (a valuation day
is any trading day as of which USOF calculates its NAV as described herein), the
Benchmark Oil Futures Contract is the near month contract for light, sweet
crude oil traded on the NYMEX unless the near month contract will expire within
two weeks of the valuation day, in which case the Benchmark Oil Futures Contract
is the next month contract for light, sweet crude oil traded on the
NYMEX.





As a
specific benchmark, the General Partner endeavors to place USOF’s trades in Oil
Futures Contracts and Other Oil Interests and otherwise manage USOF’s
investments so that A will be within plus/minus 10 percent of B,
where:





·
            A
      is the average daily change in USOF’s NAV for any period of 30 successive
      valuation days; i.e., any trading day
      as of which USOF calculates its NAV,
and


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





The
General Partner believes that market arbitrage opportunities cause daily changes
in USOF’s unit price on the NYSE Arca to closely track daily changes in USOF’s
NAV per unit. The General Partner further believes that the daily changes in
prices of the Benchmark Oil Futures Contract have historically closely tracked
the daily changes in the spot price of light, sweet crude oil. The General
Partner believes that the net effect of these two relationships and the expected
relationship described above between USOF’s NAV and the Benchmark Oil Futures
Contract will be that the daily changes in the price of USOF’s units on the NYSE
Arca will continue to closely track the daily changes in the spot price of a
barrel of light, sweet crude oil, less USOF’s expenses. The following two
graphs demonstrate the correlation between the daily changes in the NAV of USOF
and the daily changes in the Benchmark Oil Futures Contract both since the
initial public offering of USOF’s units on April 10, 2006 through December 31,
2008 and during the last thirty valuation days ended December 31,
2008.





3










*PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS











*PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS




4




An
investment in the units provides a means for diversifying an investor’s
portfolio or hedging exposure to changes in oil prices.  An investment
in the units allows both retail and institutional investors to easily gain this
exposure to the crude oil market in a transparent, cost-effective
manner.





The expected correlation of the price
of USOF’s units, USOF’s NAV and the price of the Benchmark Oil Futures Contract
and the spot price of light, sweet crude oil is illustrated in the following
diagram:









The
General Partner employs a “neutral” investment strategy in order to track
changes in the price of the Benchmark Oil Futures Contract regardless of whether
the price goes up or goes down. USOF’s “neutral” investment strategy is designed
to permit investors generally to purchase and sell USOF’s units for the purpose
of investing indirectly in crude oil in a cost-effective manner, and/or to
permit participants in the oil or other industries to hedge the risk of losses
in their crude oil-related transactions. Accordingly, depending on the
investment objective of an individual investor, the risks generally associated
with investing in crude oil and/or the risks involved in hedging may exist. In
addition, an investment in USOF involves the risk that the changes in the price
of USOF’s units will not accurately track the changes in the Benchmark Oil
Futures Contract.




Since
inception, the Benchmark Oil Futures Contract of USOF has changed from the near
month contract to expire to the next month contract to expire, starting on the
date two weeks prior to the expiration of the near month contract. The change in
the Benchmark Oil Futures Contract occurred in its entirety from one day until
the next day.




5




Effective
for contract months commencing after March 2009, the Benchmark Oil Futures
Contract will be changed from the near month contract to the next month contract
over a four-day period. Each month, the Benchmark Oil Futures Contract will
change starting at the end of the day on the date two weeks prior to expiration
of the near month contract for that month. During the first three days of the
period, the applicable value of the Benchmark Oil Futures Contract will be based
on a combination of the near month contract and the next month contract as
follows:  (1) day 1 will consist of 75% of the then near month
contract’s total return for the day, plus 25% of the total return for the day of
the next month contract,  (2) day 2 will consist of 50% of the then
near month contract’s total return for the day, plus 50% of the total return for
the day of the next month contract, and  (3) day 3 will consist of 25%
of the then near month contract’s total return for the day, plus 75% of the
total return for the day of the next month contract. On day 4, the Benchmark Oil
Futures Contract will be the next month contract to expire at that time and that
contract will remain the Benchmark Oil Futures Contract until the beginning of
following month’s change in the Benchmark Oil Futures Contract over a four-day
period.





On each
day during the four-day period, the General Partner of USOF anticipates it will
“roll” USOF’s positions in oil investments by closing, or selling, a
percentageof
USOF’s positions in oil interests and reinvesting the proceeds from closing
those positions in new oil interests that reflect the change in the Benchmark
Oil Futures Contract.





The
anticipated dates that the monthly four-day roll period will commence for 2009
will be posted on USOF’s website at www.unitedstatesoilfund.com, and are subject
to change without notice.





USOF’s
total portfolio composition is disclosed on its website each business day that
the NYSE Arca is open for trading. The website disclosure of portfolio holdings
is made daily and includes, as applicable, the name and value of each oil
interest, the specific types of Other Oil Interests and characteristics of such
Other Oil Interests, Treasuries, and amount of the cash and/or cash equivalents
held in USOF’s portfolio. USOF’s website is publicly accessible at no charge.
USOF’s assets are held in segregated accounts pursuant to the Commodity
Exchange Act (the “CEA”) and CFTC regulations.




The
units issued by USOF may only be purchased by Authorized Purchasers
and only in blocks of 100,000 units called Creation Baskets. The amount of the
purchase payment for a Creation Basket is equal to the aggregate NAV of units in
the Creation Basket. Similarly, only Authorized Purchasers may redeem units and
only in blocks of 100,000 units called Redemption Baskets. The amount of the
redemption proceeds for a Redemption Basket is equal to the aggregate NAV of
units in the Redemption Basket. The purchase price for Creation Baskets and the
redemption price for Redemption Baskets are the actual NAV calculated at the end
of the business day when notice for a purchase or redemption is received by
USOF. The NYSE Arca publishes an approximate intra-day NAV based on the
prior day’s NAV and the current price of the Benchmark Oil Futures
Contract, but the basket price is determined based on the actual NAV at the end
of the day.





While
USOF issues units only in Creation Baskets, units may also be
purchased and sold in much smaller increments on the NYSE Arca. These
transactions, however, are effected at the bid and ask prices established
by specialist firm(s). Like any listed security, units can be purchased and sold
at any time a secondary market is open.





What
is USOF’s Investment Strategy?





In
managing USOF’s assets, the General Partner does not use a technical trading
system that issues buy and sell orders. The General Partner instead employs a
quantitative methodology whereby each time a Creation Basket is sold, the
General Partner purchases oil interests, such as the Benchmark Oil Futures
Contract, that have an aggregate market value that approximates the amount of
Treasuries and/or cash received upon the issuance of the Creation
Basket.




As an
example, assume that a Creation Basket is sold by USOF, and that USOF’s closing
NAV per unit is $50.00. In that case, USOF would receive $5,000,000 in proceeds
from the sale of the Creation Basket ($50.00 NAV per unit multiplied by 100,000
units, and excluding the Creation Basket fee of $1,000). If one were to assume
further that the General Partner wants to invest the entire proceeds from the
Creation Basket in the Benchmark Oil Futures Contract and that the market value
of the Benchmark Oil Futures Contract is $59,950, USOF would be unable to buy
the exact number of Benchmark Oil Futures Contracts with an aggregate market
value equal to $5,000,000. Instead, USOF would be able to purchase 83 Benchmark
Oil Futures Contracts with an aggregate market value of $4,975,850. Assuming a
margin requirement equal to 10% of the value of the Benchmark Oil Futures
Contract, USOF would be required to deposit $497,585 in Treasuries and cash with
the futures commission merchant through which the Benchmark Oil Futures
Contracts were purchased. The remainder of the proceeds from the sale of the
Creation Basket, $4,502,415, would remain invested in cash, cash equivalents,
and Treasuries as determined by the General Partner from time to time based on
factors such as potential calls for margin or anticipated
redemptions.




6




The
specific Oil Futures Contracts purchased depend on various factors, including a
judgment by the General Partner as to the appropriate diversification of USOF’s
investments in futures contracts with respect to the month of expiration, and
the prevailing price volatility of particular contracts. While the General
Partner has made significant investments in NYMEX Oil Futures Contracts, as USOF
reaches certain accountability levels or position limits on the NYMEX, or
for other reasons, it has also and may continue to invest in Oil Futures
Contracts traded on other exchanges or invest in Other Oil Interests such as
contracts in the “over-the-counter” market.




The
General Partner does not anticipate letting its Oil Futures Contracts expire and
taking delivery of the underlying commodity. Instead, the General Partner will
close existing positions, e.g., when it changes the
Benchmark Oil Futures Contract or it otherwise determines it would be
appropriate to do so and reinvest the proceeds in new Oil Futures Contracts.
Positions may also be closed out to meet orders for Redemption Baskets and in
such case proceeds for such baskets will not be reinvested.





By
remaining invested as fully as possible in Oil Futures Contracts or Other Oil
Interests, the General Partner believes that the changes in percentage terms in
USOF’s NAV will continue to closely track the changes in percentage terms
in the prices of the Oil Futures Contracts in which USOF invests. The General
Partner believes that certain arbitrage opportunities result in the price of the
units traded on the NYSE Arca closely tracking the NAV of USOF. Additionally,
oil futures contracts traded on the NYMEX have closely tracked the spot price of
light, sweet crude oil. Based on these interrelationships, the General Partner
believes that the changes in the price of USOF’s units as traded on the NYSE
Arca will continue to closely track the changes in the spot price of light,
sweet crude oil.  For performance data relating to USOF’s ability to
track its benchmark, see “Management’s Discussion and Analysis of Financial
Condition and Results of Operations – Tracking USOF’s Benchmark”.





What
are Oil Futures Contracts?





Oil
Futures Contracts are agreements between two parties. One party agrees to buy
crude oil from the other party at a later date at a price and quantity agreed
upon when the contract is made. Oil Futures Contracts are traded on futures
exchanges, including the NYMEX. For example, the Benchmark Oil Futures Contract
is traded on the NYMEX in units of 1,000 barrels. Oil Futures Contracts traded
on the NYMEX are priced by floor brokers and other exchange members both through
an “open outcry” of offers to purchase or sell the contracts and through an
electronic, screen-based system that determines the price by matching
electronically offers to purchase and sell.




Certain
typical and significant characteristics of Oil Futures Contracts are discussed
below. Additional risks of investing in Oil Futures Contracts are included in
“What are the Risk Factors Involved with an Investment in USOF?”




Impact of Accountability Levels,
Position Limits and Price Fluctuation Limits. Oil Futures Contracts
include typical and significant characteristics. Most significantly, the CFTC
and U.S. designated contract markets such as the NYMEX have established
accountability levels and position limits on the maximum net long or net
short futures contracts in commodity interests that any person or group of
persons under common trading control (other than as a hedge, which an investment
by USOF is not) may hold, own or control. The net position is the difference
between an individual or firm’s open long contracts and open short contracts in
any one commodity. In addition, most U.S. futures exchanges, such as the NYMEX,
limit the daily price fluctuation for Oil Futures Contracts. Currently, the ICE
Futures imposes position and accountability limits that are similar to
those imposed by NYMEX but does not limit the maximum daily price
fluctuation.





The
accountability levels for the Benchmark Oil Futures Contract and other Oil
Futures Contracts traded on the NYMEX are not a fixed ceiling, but rather a
threshold above which the NYMEX may exercise greater scrutiny and control over
an investor’s positions. The current accountability level for any one month in
the Benchmark Oil Futures Contract is 10,000 contracts. In addition, the
NYMEX imposes an accountability level for all months of 20,000 net futures
contracts in light, sweet crude oil. If USOF and the Related Public Funds exceed
these accountability levels for investments in futures contracts for light,
sweet crude oil, the NYMEX will monitor USOF’s and the Related Public Funds’
exposure and ask for further information on their activities, including the
total size of all positions, investment and trading strategy, and the extent of
liquidity resources of USOF and the Related Public Funds. If deemed necessary by
the NYMEX, it could also order USOF to reduce its position back to the
accountability level. In addition, the ICE Futures maintains the same
accountability levels, position limits and monitoring authority for its light,
sweet crude oil contract as the NYMEX. As of December 31, 2008, USOF and the
Related Public Funds held 57,735 Benchmark Oil Futures Contracts and 51,888
futures contracts for light, sweet crude oil traded on the NYMEX.  As
of December 31, 2008, USOF held 5,847 Oil Futures Contracts traded on the ICE
Futures.




7





If the
NYMEX or ICE Futures orders USOF to reduce its position back to the
accountability level, or to an accountability level that the NYMEX or ICE
Futures deems appropriate for USOF, such an accountability level may impact the
mix of investments in oil interests made by USOF. To illustrate, assume that the
price of the Benchmark Oil Futures Contract and the unit price of USOF are each
$10, and that the NYMEX has determined that USOF may not own more than
10,000 Benchmark Oil Futures Contracts. In such case, USOF could invest up
to $1 billion of its daily net assets in the Benchmark Oil Futures Contract
(i.e., $10 per contract
multiplied by 1,000 (a Benchmark Oil Futures Contract is a contract for 1,000
barrels of oil multiplied by 10,000 contracts)) before reaching the
accountability level imposed by the NYMEX. Once the daily net assets of the
portfolio exceed $1 billion in the Benchmark Oil Futures Contract, the portfolio
may not be able to make any further investments in the Benchmark Oil Futures
Contract, depending on whether the NYMEX imposes limits. If the NYMEX does
impose limits at the $1 billion level (or another level), USOF anticipates that
it will invest the majority of its assets above that level in a mix of other Oil
Futures Contracts or Other Oil Interests.




In
addition to accountability levels, the NYMEX and ICE Futures impose position
limits on contracts held in the last few days of trading in the near month
contract to expire. It is unlikely that USOF will run up against such position
limits because USOF’s investment strategy is to close out its positions and
“roll” from the near month contract to expire to the next month contract during
a four-day period beginning two weeks from expiration of the
contract.




U.S.
futures exchanges, including the NYMEX, also limit the amount of price
fluctuation for Oil Futures Contracts. For example, the NYMEX imposes a $10.00
per barrel ($10,000 per contract) price fluctuation limit for Benchmark Oil
Futures Contracts. This limit is initially based off the previous trading day’s
settlement price. If any Benchmark Oil Futures Contract is traded, bid, or
offered at the limit for five minutes, trading is halted for five minutes. When
trading resumes, it begins at the point where the limit was imposed and the
limit is reset to be $10.00 per barrel in either direction of that point. If
another halt were triggered, the market would continue to be expanded by $10.00
per barrel in either direction after each successive five-minute trading halt.
There is no maximum price fluctuation limit during any one trading
session.




USOF
anticipates that to the extent it invests in Oil Futures Contracts other
than light, sweet crude oil contracts (such as futures contracts for Brent
crude oil, natural gas, heating oil, and gasoline) and Other Oil Interests, it
will enter into various non-exchange-traded derivative contracts to hedge the
short-term price movements of such Oil Futures Contracts and Other Oil Interests
against the current Benchmark Oil Futures Contract.





Examples
of the position and price limits imposed are as follows:




Futures
      Contract
                      
                      Position
      Accountability
                        Levels
      and Limits
                      
                      Maximum
      Daily
                        Price
      FluctuationNYMEX
      Light, Sweet Crude Oil
                        (physically
      settled)
                      
                      Any
      one month: 10,000 net futures / all months: 20,000 net futures, but not to
      exceed 3,000 contracts in the last three days of trading in the spot
      month.
                      
                      $10.00
      per barrel ($10,000 per contract) for all months. If any contract is
      traded, bid, or offered at the limit for five minutes, trading is halted
      for five minutes. When trading resumes, the limit is expanded by $10.00
      per barrel in either direction. If another halt were triggered, the market
      would continue to be expanded by $10.00 per barrel in either direction
      after each successive five-minute trading halt. There will be no maximum
      price fluctuation limits during any one trading
  session.  8
  NYMEX
      Light, Sweet Crude Oil
                                          (financially
      settled)
                                        
                                        Any
      one month: 20,000 net futures / all months: 20,000 net futures, but not to
      exceed 2,000 contracts in the last three days of trading in the spot
      month.
                                        
                                        There
      is no maximum daily price fluctuation limit.ICE
      West Texas Intermediate (“WTI”) Crude Futures
                                          (financially
      settled)
                                        
                                        Any
      one month: 10,000 net futures / all months: 20,000 net futures, but not to
      exceed 3,000 contracts in the last three days of trading in the spot
      month.
                                        
                                        There
      is no maximum daily price fluctuation.ICE
      Brent Crude Futures
                                          (physically
      settled)
                                        
                                        There
      are no position limits.
                                        
                                        There
      is no maximum daily price fluctuation limit.NYMEX
      Heating Oil
                                          (physically
      settled)
                                        
                                        Any
      one month: 5,000 net futures / all months: 7,000 net futures, but not to
      exceed 1,000 contracts in the last three days of trading in the spot
      month.
                                        
                                        $0.25
      per gallon ($10,500 per contract) for all months. If any contract is
      traded, bid, or offered at the limit for five minutes, trading is halted
      for five minutes. When trading resumes, the limit is expanded by $0.25 per
      gallon in either direction. If another halt were triggered, the market
      would continue to be expanded by $0.25 per gallon in either direction
      after each successive five-minute trading halt. There will be no maximum
      price fluctuation limits during any one trading
session.NYMEX
      Gasoline
                                          (physically
      settled)
                                        
                                        Any
      one month: 5,000 net futures / all months: 7,000 net futures, but not to
      exceed 1,000 contracts in the last three days of trading in the spot
      month.
                                        
                                        $0.25
      per gallon ($10,500 per contract) for all months. If any contract is
      traded, bid, or offered at the limit for five minutes, trading is halted
      for five minutes. When trading resumes, the limit is expanded by $0.25 per
      gallon in either direction. If another halt were triggered, the market
      would continue to be expanded by $0.25 per gallon in either direction
      after each successive five-minute trading halt. There will be no maximum
      price fluctuation limits during any one trading
session.NYMEX
      Natural Gas
                                          (physically
      settled)
                                        
                                        Any
      one month: 6,000 net futures / all months: 12,000 net futures, but not to
      exceed 1,000 contracts in the last three days of trading in the spot
      month.
                                        
                                        $3.00
      per million British thermal units (“mmBtu”) ($30,000 per contract) for all
      months. If any contract is traded, bid, or offered at the limit for five
      minutes, trading is halted for five minutes. When trading resumes, the
      limit is expanded by $3.00 per mmBtu in either direction. If another halt
      were triggered, the market would continue to be expanded by $3.00 per
      mmBtu in either direction after each successive five-minute trading halt.
      There will be no maximum price fluctuation limits during any one trading
      session.




9




Price Volatility. Despite
daily price limits, the price volatility of Oil Futures Contracts generally has
been historically greater than that for traditional securities such as stocks
and bonds. Price volatility often is greater day-to-day as opposed to intra-day.
Oil Futures Contracts tend to be more volatile than stocks and bonds because
price movements for crude oil are more currently and directly influenced by
economic factors for which current data is available and are traded by oil
futures traders throughout the day. These economic factors include changes in
interest rates; actions by oil producing countries, such as the Organization of
Petroleum Exporting Countries ("OPEC") countries; governmental,
agricultural, trade, fiscal, monetary and exchange control programs and
policies; weather and climate conditions; changing supply and demand
relationships; changes in balances of payments and trade; U.S. and international
rates of inflation; currency devaluations and revaluations; U.S. and
international political and economic events; and changes in philosophies and
emotions of market participants. Because USOF invests a significant portion of
its assets in Oil Futures Contracts, the assets of USOF, and therefore the
prices of USOF units, may be subject to greater volatility than traditional
securities.





Marking-to-Market Futures
Positions. Oil Futures Contracts are marked to market at the end of each
trading day and the margin required with respect to such contracts is adjusted
accordingly. This process of marking-to-market is designed to prevent losses
from accumulating in any futures account. Therefore, if USOF’s futures positions
have declined in value, USOF may be required to post variation margin to
cover this decline. Alternatively, if USOF futures positions have increased in
value, this increase will be credited to USOF’s account.




What
is the Crude Oil Market and the Petroleum-Based Fuel Market?




USOF may
purchase Oil Futures Contracts traded on the NYMEX that are based on light,
sweet crude oil. The ICE Futures also offers a WTI Crude Futures Contract
which trades in units of 1,000 barrels.  The WTI Crude Futures
Contract is cash settled against the prevailing market price for U.S. light
sweet crude oil. USOF may also purchase contracts on other exchanges,
including the ICE Futures and the Singapore Exchange. The contracts provide for
delivery of several grades of domestic and internationally traded foreign
crudes, and, among other things, serves the diverse needs of the physical
market. In Europe, Brent crude oil is the standard for futures contracts and is
primarily traded on the ICE Futures, an electronic marketplace for energy
trading and price discovery. Brent crude oil is the price reference for
two-thirds of the world’s traded oil. The ICE Brent Futures is a deliverable
contract with an option to cash settle which trades in units of 1,000 barrels
(42,000 U.S. gallons).





Light, Sweet Crude Oil.Light, sweet crudes are preferred by refiners because of their low sulfur
content and relatively high yields of high-value products such as gasoline,
diesel fuel, heating oil, and jet fuel. The price of light, sweet crude oil
has historically exhibited periods of significant volatility.




Demand
for petroleum products by consumers, as well as agricultural, manufacturing and
transportation industries, determines demand for crude oil by refiners. Since
the precursors of product demand are linked to economic activity, crude oil
demand will tend to reflect economic conditions. However, other factors such as
weather also influence product and crude oil demand.




Crude oil
supply is determined by both economic and political factors. Oil prices (along
with drilling costs, availability of attractive prospects for drilling, taxes
and technology, among other factors) determine exploration and development
spending, which influence output capacity with a lag. In the short run,
production decisions by OPEC also affect supply and prices. Oil export embargoes
and the current conflict in Iraq represent other routes through which political
developments move the market. It is not possible to predict the aggregate effect
of all or any combination of these factors.




Heating Oil.Heating oil,
also known as No. 2 fuel oil, accounts for 25% of the yield of a barrel of crude
oil, the second largest “cut” from oil after gasoline. The heating oil futures
contract listed and traded on the NYMEX trades in units of 42,000 gallons
(1,000 barrels) and is based on delivery in the New York harbor, the principal
cash market center. The price of heating oil has historically been
volatile.




10




Gasoline.Gasoline is the
largest single volume refined product sold in the U.S. and accounts for almost
half of national oil consumption. The gasoline futures contract listed and
traded on the NYMEX trades in units of 42,000 gallons (1,000 barrels) and is
based on delivery at petroleum products terminals in the New York harbor, the
major East Coast trading center for imports and domestic shipments from
refineries in the New York harbor area or from the Gulf Coast refining centers.
The price of gasoline has historically been volatile.




Natural Gas.Natural gas
accounts for almost a quarter of U.S. energy consumption. The natural gas
futures contract listed and traded on the NYMEX trades in units of 10,000
mmBtu and is based on delivery at the Henry Hub in Louisiana, the nexus of
16 intra- and interstate natural gas pipeline systems that draw supplies from
the region’s prolific gas deposits. The pipelines serve markets throughout the
U.S. East Coast, the Gulf Coast, the Midwest, and up to the Canadian border. The
price of natural gas has historically been volatile.




Why
Does USOF Purchase and Sell Oil Futures Contracts?




USOF’s
investment objective is to have the changes in percentage terms of the units’
NAV reflect the changes in percentage terms of the Benchmark Oil Futures
Contract, less USOF’s expenses. USOF invests primarily in Oil Futures Contracts.
USOF seeks to have its aggregate NAV approximate at all times the aggregate
market value of the Oil Futures Contracts (or Other Oil Interests) USOF
holds.




Other
than investing in Oil Futures Contracts and Other Oil Interests, USOF only
invests in assets to support these investments in oil interests. At any given
time, most of USOF’s investments are in Treasuries, cash and/or cash
equivalents that serve as segregated assets supporting USOF’s positions in
Oil Futures Contracts and Other Oil Interests. For example, the purchase of an
Oil Futures Contract with a stated value of $10 million would not require USOF
to pay $10 million upon entering into the contract; rather, only a margin
deposit, generally of 5% to 10% of the stated value of the Oil Futures Contract,
would be required. To secure its Oil Futures Contract obligations, USOF
would deposit the required margin with the futures commission merchant and
hold, through its Custodian, Treasuries, cash and/or cash
equivalents in an amount equal to the balance of the current market value
of the contract, which at the contract’s inception would be $10 million minus
the amount of the margin deposit, or $9.5 million (assuming a 5%
margin).




As a
result of the foregoing, typically only 10% to 45% of USOF’s assets are held as
margin in segregated accounts with the futures commission merchant. In
addition to the Treasuries or cash it posts with the futures commission
merchant for the Oil Futures Contracts it owns, USOF holds, through the
Custodian, Treasuries, cash and/or cash equivalents that can be posted as
additional margin or as collateral to support its over-the-counter contracts.
USOF earns interest income from the Treasuries and/or cash equivalents that
it purchases, and on the cash it holds through the Custodian. USOF anticipates
that the earned interest income will increase the NAV and limited partners’
capital contribution accounts. USOF reinvests the earned interest income, holds
it in cash, or uses it to pay its expenses. If USOF reinvests the earned
interest income, it will make investments that are consistent with its
investment objectives.





11




What
is the Flow of Units?









What
are the Trading Policies of USOF?




Liquidity




USOF
invests only in Oil Futures Contracts and Other Oil Interests that are traded in
sufficient volume to permit, in the opinion of the General Partner, ease of
taking and liquidating positions in these financial interests.




Spot
Commodities




While the
Oil Futures Contracts traded on the NYMEX can be physically settled, USOF does
not intend to take or make physical delivery. USOF may from time to time trade
in Other Oil Interests, including contracts based on the spot price of
crude oil.





Leverage




The
General Partner endeavors to have the value of USOF’s Treasuries, cash and/or
cash equivalents, whether held by USOF or posted as margin or collateral, to at
all times approximate the aggregate market value of USOF’s obligations under its
Oil Futures Contracts and Other Oil Interests.





Borrowings





Borrowings
are not used by USOF, unless USOF is required to borrow money in the event of
physical delivery, if USOF trades in cash commodities, or for short-term needs
created by unexpected redemptions. USOF expects to have the value of its
Treasuries, cash and/or cash equivalents whether held by USOF or posted as
margin or collateral, at all times approximate the aggregate market value of its
obligations under its Oil Futures Contracts and Other Oil Interests. USOF has
not established and does not plan to establish credit lines.




12




Pyramiding




USOF has
not and will not employ the technique, commonly known as pyramiding, in which
the speculator uses unrealized profits on existing positions as variation margin
for the purchase or sale of additional positions in the same or another
commodity interest.




Who
are the Service Providers?




BBH&Co.
is the registrar and transfer agent for the units. BBH&Co. is also the
Custodian for USOF. In this capacity, BBH&Co. holds USOF’s Treasuries,
cash and/or cash equivalents pursuant to a custodial agreement. In
addition, in its capacity as Administrator for USOF, BBH&Co. performs
certain administrative and accounting services for USOF and prepares certain
U.S. Securities and Exchange Commission (the “SEC”) and CFTC reports on behalf
of USOF. The General Partner pays BBH&Co. a fee for these
services.





BBH&Co.’s
principal business address is 50 Milk Street, Boston, MA
02109-3661. BBH&Co., a private bank founded in 1818, is not a publicly
held company nor is it insured by the Federal Deposit Insurance Corporation.
BBH&Co. is authorized to conduct a commercial banking business in accordance
with the provisions of Article IV of the New York State Banking Law, New York
Banking Law §§160–181, and is subject to regulation, supervision, and
examination by the New York State Banking Department. BBH&Co. is also
licensed to conduct a commercial banking business by the Commonwealths of
Massachusetts and Pennsylvania and is subject to supervision and examination by
the banking supervisors of those states.





USOF also
employs ALPS Distributors, Inc. as a Marketing Agent. The General Partner
pays the Marketing Agent an annual fee plus an incentive fee. In no event
may the aggregate compensation paid to the Marketing Agent and any affiliate of
the General Partner for distribution-related services in connection with the
offering of units exceed ten percent (10%) of the gross proceeds of the
offering.





ALPS’s
principal business address is 1290 Broadway, Suite 1100, Denver, CO 
80203.  ALPS is the marketing agent for USOF. ALPS is a broker-dealer
registered with the Financial Industry Regulatory Authority (“FINRA”)
and a member of the Securities Investor Protection Corporation.





USOF and
the futures commission merchant, UBS Securities LLC (“UBS Securities”) have
entered into an Institutional Futures Client Account Agreement. This Agreement
requires UBS Securities to provide services to USOF in connection with the
purchase and sale of oil interests that may be purchased or sold by or through
UBS Securities for USOF’s account. USOF pays UBS Securities commissions for
executing and clearing trades on behalf of USOF.





UBS
Securities is not affiliated with USOF or the General Partner. Therefore, USOF
does not believe that USOF has any conflicts of interest with UBS
Securities or their trading principals arising from their acting as USOF’s
futures commission merchant.





UBS
Securities’s principal business address is 677 Washington Blvd, Stamford, CT
06901. UBS Securities is a futures clearing broker for USOF. UBS Securities is
registered in the U.S. with FINRA as a broker-dealer and with the CFTC as a
futures commission merchant. UBS Securities is a member of the NFA and of
various U.S. futures and securities exchanges.





UBS
Securities will act only as clearing broker for USOF and as such will be paid
commissions for executing and clearing trades on behalf of USOF. UBS Securities
has not passed upon the adequacy or accuracy of this annual report on Form 10-K.
UBS Securities neither will act in any supervisory capacity with respect to the
General Partner nor participate in the management of USOF.





Currently,
the General Partner does not employ commodity trading advisors. If, in the
future, the General Partner does employ commodity trading advisors, it will
choose each advisor based on arm’s-length negotiations and will consider the
advisor’s experience, fees and reputation.


13




Fees
of USOF





Fees
and Compensation Arrangements with the General Partner and Non-Affiliated
Service Providers*




Service Provider
                    
                    Compensation Paid by the General
                      PartnerBrown
      Brothers Harriman & Co., Custodian and Administrator
                    
                    Minimum
      amount of $75,000 annually* for its custody, fund accounting and fund
      administration services rendered to all funds, as well as a $20,000 annual
      fee for its transfer agency services. In addition, an asset-based charge
      of (a) 0.06% for the first $500 million of USOF’s and the Related Public
      Funds’ combined net assets, (b) 0.0465% for USOF’s and the Related Public
      Funds’ combined net assets greater than $500 million but less than $1
      billion, and (c) 0.035% once USOF’s and the Related Public Funds’ combined
      net assets exceed $1 billion.**ALPS
      Distributors, Inc., Marketing Agent
                    
                    $425,000
      per annum plus an incentive fee as follows: 0.0% on USOF’s assets from
      $0-500 million; 0.04% on USOF’s assets from $500 million-$4 billion; 0.03%
      on USOF’s assets in excess of $4 billion.




*
            The
      General Partner pays this
compensation.


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





Compensation
to the General Partner




Prior to January 1,
2009Assets
                          
                          Management FeeFirst
      $1,000,000,000
                          
                          0.50%
      of NAVAfter
      the first $1,000,000,000
                          
                          0.20%
      of NAV




Beginning January 1,
    2009Assets
                        
                        Management FeeAll
      assets
                        
                        0.45%
      of NAV





Fees are
calculated on a daily basis (accrued at 1/365 of the applicable percentage of
NAV on that day) and paid on a monthly basis. NAV is calculated by taking the
current market value of USOF’s total assets and subtracting any
liabilities.





Fees
and Compensation Arrangements between USOF and Non-Affiliated Service
Providers***





Service Provider
                  
                  Compensation Paid by USOFUBS
      Securities LLC, Futures Commission Merchant
                  
                  Approximately
      $3.50 per buy or sell; charges may varyNon-Affiliated
      Brokers
                  
                  Approximately
      0.18% of assets




***
            USOF
      pays this compensation.




14





New
York Mercantile Exchange Licensing Fee****





Assets
                  
                  Licensing FeeFirst
      $1,000,000,000
                  
                  0.04%
      of NAVAfter
      the first $1,000,000,000
                  
                  0.02%
      of NAV







****
            Fees
      are calculated on a daily basis (accrued at 1/365 of the applicable
      percentage of NAV on that day) and paid on a monthly basis. USOF is
      responsible for its pro rata share of the assets held by USOF and the
      Related Public Funds as well as other funds managed by the General
      Partner, including USSO and US12NG, when and if such funds commence
      operations.





Expenses
Paid by USOF through December 31, 2008 in dollar terms:





Expenses:
                        
                        Amount in Dollar TermsAmount
      Paid to General Partner:
                        
                        $
                        9,141,311Amount
      Paid in Portfolio Brokerage Commissions:
                        
                        $
                        3,271,301Other
      Amounts Paid or Accrued:
                        
                        $
                        4,002,391Total
      Expenses Paid or Accrued:
                        
                        $
                        16,415,003





Expenses
Paid by USOF through December 31, 2008 as a Percentage of Average Daily Net
Assets:





Expenses:
                              
                              Amount as a Percentage of AverageDaily Net AssetsGeneral
      Partner
                              
                              0.48%
      annualizedPortfolio
      Brokerage Commissions
                              
                              0.17%
      annualizedOther
      Amounts Paid or Accrued
                              
                              0.21%
      annualizedTotal
      Expense Ratio
                              
                              0.86%
      annualized




Form
of Units




Registered
Form. Units are issued in registered form in accordance with the LP
Agreement. The Administrator has been appointed registrar and transfer agent for
the purpose of transferring units in certificated form. The Administrator keeps
a record of all limited partners and holders of the units in certificated form
in the registry (the “Register”). The General Partner recognizes transfers of
units in certificated form only if done in accordance with the LP Agreement. The
beneficial interests in such units are held in book-entry form through
participants and/or accountholders in the Depository Trust Company
(“DTC”).




Book
Entry. Individual certificates are not issued for the units. Instead,
units are represented by one or more global certificates, which are deposited by
the Administrator with DTC and registered in the name of Cede & Co., as
nominee for DTC. The global certificates evidence all of the units outstanding
at any time. Unitholders are limited to (1) participants in DTC such as
banks, brokers, dealers and trust companies (“DTC Participants”), (2) those
who maintain, either directly or indirectly, a custodial relationship with a DTC
Participant (“Indirect Participants”), and (3) those banks, brokers,
dealers, trust companies and others who hold interests in the units through DTC
Participants or Indirect Participants, in each case who satisfy the requirements
for transfers of units. DTC Participants acting on behalf of investors holding
units through such participants’ accounts in DTC will follow the delivery
practice applicable to securities eligible for DTC’s Same-Day Funds Settlement
System. Units are credited to DTC Participants’ securities accounts following
confirmation of receipt of payment.




DTC. DTC
is a limited purpose trust company organized under the laws of the State of New
York and is a member of the Federal Reserve System, a “clearing corporation”
within the meaning of the New York Uniform Commercial Code and a “clearing
agency” registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”).  DTC holds
securities for DTC Participants and facilitates the clearance and settlement of
transactions between DTC Participants through electronic book-entry changes in
accounts of DTC Participants.




15




Transfer
of Units




Transfers of
Units Only Through DTC. The units are only transferable through the
book-entry system of DTC. Limited partners who are not DTC Participants may
transfer their units through DTC by instructing the DTC Participant holding
their units (or by instructing the Indirect Participant or other entity through
which their units are held) to transfer the units. Transfers are made in
accordance with standard securities industry practice.




Transfers
of interests in units with DTC are made in accordance with the usual rules and
operating procedures of DTC and the nature of the transfer. DTC has established
procedures to facilitate transfers among the participants and/or accountholders
of DTC. Because DTC can only act on behalf of DTC Participants, who in turn act
on behalf of Indirect Participants, the ability of a person or entity having an
interest in a global certificate to pledge such interest to persons or entities
that do not participate in DTC, or otherwise take actions in respect of such
interest, may be affected by the lack of a definitive security in respect of
such interest.




DTC has
advised USOF that it takes any action permitted to be taken by a unitholder
(including, without limitation, the presentation of a global certificate for
exchange) only at the direction of one or more DTC Participants in whose account
with DTC interests in global certificates are credited and only in respect of
such portion of the aggregate principal amount of the global certificate as to
which such DTC Participant or Participants has or have given such
direction.




Transfer/Application
Requirements. All purchasers of USOF’s units, and potentially any
purchasers of units in the future, who wish to become limited partners or other
record holders and receive cash distributions, if any, or have certain other
rights, must deliver an executed transfer application in which the purchaser or
transferee must certify that, among other things, he, she or it agrees to be
bound by USOF’s LP Agreement and is eligible to purchase USOF’s securities. Each
purchaser of units must execute a transfer application and certification. The
obligation to provide the form of transfer application is imposed on the seller
of units or, if a purchase of units is made through an exchange, the form may be
obtained directly through USOF. Further, the General Partner may request each
record holder to furnish certain information, including that record holder’s
nationality, citizenship or other related status. A record holder is a
unitholder that is, or has applied to be, a limited partner. An investor who is
not a U.S. resident may not be eligible to become a record holder or one of
USOF’s limited partners if that investor’s ownership would subject USOF to the
risk of cancellation or forfeiture of any of USOF’s assets under any federal,
state or local law or regulation. If the record holder fails to furnish the
information or if the General Partner determines, on the basis of the
information furnished by the holder in response to the request, that such holder
is not qualified to become one of USOF’s limited partners, the General Partner
may be substituted as a holder for the record holder, who will then be treated
as a non-citizen assignee, and USOF will have the right to redeem those
securities held by the record holder.




A
transferee’s broker, agent or nominee may complete, execute and deliver a
transfer application and certification. USOF may, at its discretion, treat the
nominee holder of a unit as the absolute owner. In that case, the beneficial
holder’s rights are limited solely to those that it has against the nominee
holder as a result of any agreement between the beneficial owner and the nominee
holder.




A person
purchasing USOF’s existing units, who does not execute a transfer application
and certify that the purchaser is eligible to purchase those securities acquires
no rights in those securities other than the right to resell those securities.
Whether or not a transfer application is received or the consent of the General
Partner obtained, USOF’s units are securities and are transferable according to
the laws governing transfers of securities.





Any
transfer of units will not be recorded by the transfer agent or recognized by
the General Partner unless a completed transfer application is delivered to the
General Partner or the Administrator. When acquiring units, the transferee of
such units that completes a transfer application will:




·
            be
      an assignee until admitted as a substituted limited partner upon the
      consent and sole discretion of the General Partner and the recording of
      the assignment on the books and records of the
  partnership;





·
            automatically
      request admission as a substituted limited
  partner;





·
            agree
      to be bound by the terms and conditions of, and execute, USOF’s LP
      Agreement;




16




·
            represent
      that such transferee has the capacity and authority to enter into USOF’s
      LP Agreement;





·
            grant
      powers of attorney to USOF’s General Partner and any liquidator of us;
      and





·
            make
      the consents and waivers contained in USOF’s LP
  Agreement.







An
assignee will become a limited partner in respect of the transferred units upon
the consent of USOF’s General Partner and the recordation of the name of the
assignee on USOF’s books and records. Such consent may be withheld in the sole
discretion of USOF’s General Partner.




If
consent of the General Partner is withheld, such transferee shall be an
assignee. An assignee shall have an interest in the partnership equivalent to
that of a limited partner with respect to allocations and distributions,
including, without limitation, liquidating distributions, of the partnership.
With respect to voting rights attributable to units that are held by assignees,
the General Partner shall be deemed to be the limited partner with respect
thereto and shall, in exercising the voting rights in respect of such units on
any matter, vote such units at the written direction of the assignee who is the
record holder of such units. If no such written direction is received, such
units will not be voted. An assignee shall have no other rights of a limited
partner.




Until a
unit has been transferred on USOF’s books, USOF and the transfer agent may treat
the record holder of the unit as the absolute owner for all purposes, except as
otherwise required by law or stock exchange regulations.




Withdrawal
of Limited Partners




As
discussed in the LP Agreement, if the General Partner gives at least fifteen
(15) days’ written notice to a limited partner, then the General Partner may for
any reason, in its sole discretion, require any such limited partner to withdraw
entirely from the partnership or to withdraw a portion of its partner capital
account. If the General Partner does not give at least fifteen (15) days’
written notice to a limited partner, then it may only require withdrawal of all
or any portion of the capital account of any limited partner in the following
circumstances: (i) the unitholder made a misrepresentation to the General
Partner in connection with its purchase of units; or (ii) the limited
partner’s ownership of units would result in the violation of any law or
regulations applicable to the partnership or a partner. In these circumstances,
the General Partner without notice may require the withdrawal at any time, or
retroactively. The limited partner thus designated shall withdraw from the
partnership or withdraw that portion of its partner capital account specified,
as the case may be, as of the close of business on such date as determined by
the General Partner. The limited partner thus designated shall be deemed to have
withdrawn from the partnership or to have made a partial withdrawal from its
partner capital account, as the case may be, without further action on the part
of the limited partner and the provisions of the LP Agreement shall apply.





Calculating
NAV




USOF’s
NAV is calculated by:





·
            Taking
      the current market value of its total assets;
  and





·
            Subtracting
      any liabilities





BBH&Co.,
the Administrator, calculates the NAV of USOF once each trading day. The NAV for
a particular trading day is released after 4:15 p.m. New York time. It
calculates the NAV as of the earlier of the close of the NYSE or 4:00 p.m. New
York time. Trading on the NYSE Arca typically closes at 4:15 p.m. New York time.
The Administrator uses the NYMEX closing price (determined at the earlier of the
close of the NYMEX or 2:30 p.m. New York time) for the contracts traded on the
NYMEX, but determines the value of all other USOF investments as of the earlier
of the close of the NYSE or 4:00 p.m. New York time in accordance with the
current Administrative Agency Agreement among BBH&Co.,
USOF and the General Partner which is incorporated by reference into this annual
report on Form 10-K.




17




In
addition, in order to provide updated information relating to USOF for use by
investors and market professionals, the NYSE Arca calculates and disseminates
throughout the trading day an updated indicative fund value. The indicative fund
value is calculated by using the prior day’s closing NAV per unit of USOF as a
base and updating that value throughout the trading day to reflect changes in
the most recently reported trade price for the Benchmark Oil Futures Contract on
the NYMEX. The prices reported for the active Benchmark Oil Futures Contract
month are adjusted based on the prior day’s spread differential between
settlement values for that contract and the spot month contract. In the event
that the spot month contract is also the active contract, the last sale price
for the active contract is not adjusted. The indicative fund value unit basis
disseminated during NYSE Arca trading hours should not be viewed as an actual
real time update of the NAV, because the NAV is calculated only once at the end
of each trading day.




The
indicative fund value is disseminated on a per unit basis every 15 seconds
during regular NYSE Arca trading hours of 9:30 a.m. New York time to 4:15 p.m.
New York time. The normal trading hours of the NYMEX are 10:00 a.m. New York
time to 2:30 p.m. New York time. This means that there is a gap in time at the
beginning and the end of each day during which USOF’s units are traded on the
NYSE Arca, but real-time NYMEX trading prices for oil futures contracts traded
on the NYMEX are not available. As a result, during those gaps there will be no
update to the indicative fund value.




The NYSE
Arca disseminates the indicative fund value through the facilities of CTA/CQ
High Speed Lines. In addition, the indicative fund value is published on the
NYSE Arca’s website and is available through on-line information services such
as Bloomberg and Reuters.




Dissemination
of the indicative fund value provides additional information that is not
otherwise available to the public and is useful to investors and market
professionals in connection with the trading of USOF units on the NYSE Arca.
Investors and market professionals are able throughout the trading day to
compare the market price of USOF and the indicative fund value. If the market
price of USOF units diverges significantly from the indicative fund value,
market professionals will have an incentive to execute arbitrage trades. For
example, if USOF appears to be trading at a discount compared to the indicative
fund value, a market professional could buy USOF units on the NYSE Arca and sell
short oil futures contracts. Such arbitrage trades can tighten the tracking
between the market price of USOF and the indicative fund value and thus can be
beneficial to all market participants.




In
addition, other Oil Futures Contracts, Other Oil Interests and Treasuries held
by USOF are valued by the Administrator, using rates and points received from
client approved third party vendors (such as Reuters and WM Company) and advisor
quotes. These investments are not included in the indicative value. The
indicative fund value is based on the prior day’s NAV and moves up and down
according solely to changes in the price of the Benchmark Oil Futures
Contract.





Creation
and Redemption of Units




USOF
creates and redeems units from time to time, but only in one or more Creation
Baskets or Redemption Baskets. The creation and redemption of baskets are only
made in exchange for delivery to USOF or the distribution by USOF of the amount
of Treasuries and any cash represented by the baskets being created or redeemed,
the amount of which is based on the combined NAV of the number of units included
in the baskets being created or redeemed determined as of 4:00 p.m. New York
time on the day the order to create or redeem baskets is properly
received.




Authorized
Purchasers are the only persons that may place orders to create and redeem
baskets. Authorized Purchasers must be (1) registered broker-dealers or other
securities market participants, such as banks and other financial institutions,
that are not required to register as broker-dealers to engage in securities
transactions as described below, and (2) DTC Participants. To become an
Authorized Purchaser, a person must enter into an Authorized Purchaser Agreement
with the General Partner. The Authorized Purchaser Agreement provides the
procedures for the creation and redemption of baskets and for the delivery of
the Treasuries and any cash required for such creations and redemptions. The
Authorized Purchaser Agreement and the related procedures attached thereto may
be amended by USOF, without the consent of any limited partner or unitholder or
Authorized Purchaser. Authorized Purchasers pay a transaction fee of $1,000 to
USOF for each order they place to create or redeem one or more baskets.
Authorized Purchasers who make deposits with USOF in exchange for baskets receive no fees, commissions or other form of compensation or
inducement of any kind from either USOF or the General Partner, and no such
person will have any obligation or responsibility to the General Partner or USOF
to effect any sale or resale of units. As of December 31, 2008, 14 Authorized
Purchasers had entered into agreements with USOF to purchase Creation
Baskets.




18




Certain
Authorized Purchasers are expected to have the facility to participate directly
in the physical crude oil market and the crude oil futures market. In some
cases, an Authorized Purchaser or its affiliates may from time to time acquire
crude oil or sell crude oil and may profit in these instances. The General
Partner believes that the size and operation of the crude oil market make it
unlikely that an Authorized Purchaser’s direct activities in the crude oil or
securities markets will impact the price of crude oil, Oil Futures Contracts, or
the price of the units.




Each
Authorized Purchaser is required to be registered as a broker-dealer under the
Exchange Act and is a member in good standing with FINRA, or exempt from being
or otherwise not required to be licensed as a broker-dealer or a member of
FINRA, and qualified to act as a broker or dealer in the states or other
jurisdictions where the nature of its business so requires. Certain Authorized
Purchasers may also be regulated under federal and state banking laws and
regulations. Each Authorized Purchaser has its own set of rules and procedures,
internal controls and information barriers as it determines is appropriate in
light of its own regulatory regime.




Under the
Authorized Purchaser Agreement, the General Partner has agreed to indemnify the
Authorized Purchasers against certain liabilities, including liabilities under
the Securities Act of 1933, as amended, and to contribute to the payments the
Authorized Purchasers may be required to make in respect of those
liabilities.




The
following description of the procedures for the creation and redemption of
baskets is only a summary and an investor should refer to the relevant
provisions of the LP Agreement and the form of Authorized Purchaser Agreement
for more detail, each of which is incorporated by reference into this annual
report on Form 10-K.




Creation
Procedures




On any
business day, an Authorized Purchaser may place an order with the Marketing
Agent to create one or more baskets. For purposes of processing purchase and
redemption orders, a “business day” means any day other than a day when any of
the NYSE Arca, the NYMEX or the NYSE is closed for regular trading. Purchase
orders must be placed by 12:00 p.m. New York time or the close of regular
trading on the NYSE Arca, whichever is earlier. The day on which the Marketing
Agent receives a valid purchase order is the purchase order date.





By
placing a purchase order, an Authorized Purchaser agrees to deposit Treasuries,
cash, or a combination of Treasuries and cash with USOF, as described below.
Prior to the delivery of baskets for a purchase order, the Authorized Purchaser
must also have wired to the Custodian the non-refundable transaction fee due for
the purchase order. Authorized Purchasers may not withdraw a creation
request.




Determination
of Required Deposits





The total
deposit required to create each basket (“Creation Basket Deposit”) is the amount
of Treasuries and/or cash that is in the same proportion to the total assets of
USOF (net of estimated accrued but unpaid fees, expenses and other liabilities)
on the date the order to purchase is accepted as the number of units to be
created under the purchase order is in proportion to the total number of units
outstanding on the date the order is received. The General Partner determines,
directly in its sole discretion or in consultation with the Administrator, the
requirements for Treasuries and the amount of cash, including the maximum
permitted remaining maturity of a Treasury and proportions of Treasury and cash
that may be included in deposits to create baskets. The amount of cash deposit
required is the difference between the aggregate market value of the Treasuries
required to be included in a Creation Basket Deposit as of 4:00 p.m. New York
time on the date the order to purchase is properly received and the total
required deposit.





Delivery
of Required Deposits





An
Authorized Purchaser who places a purchase order is responsible for transferring
to USOF’s account with the Custodian the required amount of Treasuries and cash
by the end of the third business day following the purchase order date. Upon
receipt of the deposit amount, the Administrator directs DTC to credit the
number of baskets ordered to the Authorized Purchaser’s DTC account on the third
business day following the purchase order date. The expense and risk of delivery
and ownership of Treasuries until such Treasuries have been received by the
Custodian on behalf of USOF shall be borne solely by the Authorized
Purchaser.




19




Because
orders to purchase baskets must be placed by 12:00 p.m., New York time, but the
total payment required to create a basket during the continuous offering period
will not be determined until 4:00 p.m. New York time on the date the purchase
order is received, Authorized Purchasers will not know the total amount of the
payment required to create a basket at the time they submit an irrevocable
purchase order for the basket. USOF’s NAV and the total amount of the payment
required to create a basket could rise or fall substantially between the time an
irrevocable purchase order is submitted and the time the amount of the purchase
price in respect thereof is determined.





Rejection
of Purchase Orders





The
General Partner acting by itself or through the Marketing Agent may reject a
purchase order or a Creation Basket Deposit if:





·
            it
      determines that the investment alternative available to USOF at that time
      will not enable it to meet its investment
  objective;





·
            it
      determines that the purchase order or the Creation Basket Deposit is not
      in proper form;





·
            it
      believes that the purchase order or the Creation Basket Deposit would have
      adverse tax consequences to USOF or its
  unitholders;





·
            the
      acceptance or receipt of the Creation Basket Deposit would, in the opinion
      of counsel to the General Partner, be unlawful;
  or





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





None of
the General Partner, Marketing Agent or Custodian will be liable for the
rejection of any purchase order or Creation Basket Deposit.




Redemption
Procedures




The
procedures by which an Authorized Purchaser can redeem one or more baskets
mirror the procedures for the creation of baskets. On any business day, an
Authorized Purchaser may place an order with the Marketing Agent to redeem one
or more baskets. Redemption orders must be placed by 12:00 p.m. New York time or
the close of regular trading on the NYSE, whichever is earlier. A redemption
order so received will be effective on the date it is received in satisfactory
form by the Marketing Agent. The redemption procedures allow Authorized
Purchasers to redeem baskets and do not entitle an individual unitholder to
redeem any units in an amount less than a Redemption Basket, or to redeem
baskets other than through an Authorized Purchaser. By placing a redemption
order, an Authorized Purchaser agrees to deliver the baskets to be redeemed
through DTC’s book-entry system to USOF not later than 3:00 p.m. New York time
on the third business day following the effective date of the redemption order.
Prior to the delivery of the redemption distribution for a redemption order, the
Authorized Purchaser must also have wired to USOF’s account at the Custodian the
non-refundable transaction fee due for the redemption order. Authorized
Purchasers may not withdraw a redemption request.





Determination
of Redemption Distribution





The
redemption distribution from USOF consists of a transfer to the redeeming
Authorized Purchaser of an amount of Treasuries and/or cash that is in the same
proportion to the total assets of USOF (net of estimated accrued but unpaid
fees, expenses and other liabilities) on the date the order to redeem is
properly received as the number of units to be redeemed under the redemption
order is in proportion to the total number of units outstanding on the date the
order is received. The General Partner, directly or in consultation with the
Administrator, determines the requirements for Treasuries and the amounts of
cash, including the maximum permitted remaining maturity of a Treasury, and the
proportions of Treasuries and cash that may be included in distributions to
redeem baskets.





20





Delivery
of Redemption Distribution





The
redemption distribution due from USOF will be delivered to the Authorized
Purchaser by 3:00 p.m. New York time on the third business day following the
redemption order date if, by 3:00 p.m. New York time on such third business day,
USOF’s DTC account has been credited with the baskets to be redeemed. If USOF’s
DTC account has not been credited with all of the baskets to be redeemed by such
time, the redemption distribution will be delivered to the extent of whole
baskets received. Any remainder of the redemption distribution will be delivered
on the next business day to the extent of remaining whole baskets received if
USOF receives the fee applicable to the extension of the redemption distribution
date which the General Partner may, from time to time, determine and the
remaining baskets to be redeemed are credited to USOF’s DTC account by 3:00 p.m.
New York time on such next business day. Any further outstanding amount of the
redemption order shall be cancelled. Pursuant to information from the General
Partner, the Custodian will also be authorized to deliver the redemption
distribution notwithstanding that the baskets to be redeemed are not credited to
USOF’s DTC account by 3:00 p.m. New York time on the third business day
following the redemption order date if the Authorized Purchaser has
collateralized its obligation to deliver the baskets through DTC’s book
entry-system on such terms as the General Partner may from time to time
determine.





Suspension
or Rejection of Redemption Orders





The
General Partner may, in its discretion, suspend the right of redemption, or
postpone the redemption settlement date, (1) for any period during which the
NYSE Arca or the NYMEX is closed other than customary weekend or holiday
closings, or trading on the NYSE Arca or the NYMEX is suspended or restricted,
(2) for any period during which an emergency exists as a result of which
delivery, disposal or evaluation of Treasuries is not reasonably practicable, or
(3) for such other period as the General Partner determines to be necessary for
the protection of the limited partners. For example, the General Partner may
determine that it is necessary to suspend redemptions to allow for the orderly
liquidation of USOF’s assets at an appropriate value to fund a redemption. If
the General Partner has difficulty liquidating its positions, e.g., because of a market
disruption event in the futures markets, a suspension of trading by the exchange
where the futures contracts are listed or an unanticipated delay in the
liquidation of a position in an over the counter contract, it may be appropriate
to suspend redemptions until such time as such circumstances are rectified. None
of the General Partner, the Marketing Agent, the Administrator, or the Custodian
will be liable to any person or in any way for any loss or damages that may
result from any such suspension or postponement.





Redemption
orders must be made in whole baskets. The General Partner will reject a
redemption order if the order is not in proper form as described in the
Authorized Purchaser Agreement or if the fulfillment of the order, in the
opinion of its counsel, might be unlawful. The General Partner may also reject a
redemption order if the number of units being redeemed would reduce the
remaining outstanding units to 100,000 units (i.e., one basket) or less,
unless the General Partner has reason to believe that the placer of the
redemption order does in fact possess all the outstanding units and can deliver
them.




Creation
and Redemption Transaction Fee




To
compensate USOF for its expenses in connection with the creation and redemption
of baskets, an Authorized Purchaser is required to pay a transaction fee to USOF
of $1,000 per order to create or redeem baskets. An order may include multiple
baskets. The transaction fee may be reduced, increased or otherwise changed by
the General Partner. The General Partner shall notify DTC of any change in the
transaction fee and will not implement any increase in the fee for the
redemption of baskets until 30 days after the date of the
notice.





Tax
Responsibility




Authorized
Purchasers are responsible for any transfer tax, sales or use tax, stamp tax,
recording tax, value added tax or similar tax or governmental charge applicable
to the creation or redemption of baskets, regardless of whether or not such tax
or charge is imposed directly on the Authorized Purchaser, and agree to
indemnify the General Partner and USOF if they are required by law to pay any
such tax, together with any applicable penalties, additions to tax or interest
thereon.




21


Secondary
Market Transactions




As noted,
USOF will create and redeem units from time to time, but only in one or more
Creation Baskets or Redemption Baskets. The creation and redemption of baskets
will only be made in exchange for delivery to USOF or the
distribution by USOF of the amount of Treasuries and cash represented by the
baskets being created or redeemed, the amount of which will be based on the
aggregate NAV of the number of units included in the baskets being created or
redeemed determined on the day the order to create or redeem baskets is properly
received.





As
discussed above, Authorized Purchasers are the only persons that may place
orders to create and redeem baskets. Authorized Purchasers must be registered
broker-dealers or other securities market participants, such as banks and other
financial institutions that are not required to register as broker-dealers to
engage in securities transactions. An Authorized Purchaser is under no
obligation to create or redeem baskets, and an Authorized Purchaser is under no
obligation to offer to the public units of any baskets it does create.
Authorized Purchasers that do offer to the public units from the baskets they
create will do so at per-unit offering prices that are expected to reflect,
among other factors, the trading price of the units on the NYSE Arca, the NAV of
USOF at the time the Authorized Purchaser purchased the Creation Baskets and the
NAV of the units at the time of the offer of the units to the public, the supply
of and demand for units at the time of sale, and the liquidity of the Oil
Futures Contract market and the market for Other Oil Interests. The prices of
units offered by Authorized Purchasers are expected to fall between USOF’s NAV
and the trading price of the units on the NYSE Arca at the time of sale. Units
initially comprising the same basket but offered by Authorized Purchasers to the
public at different times may have different offering prices. An order for one
or more baskets may be placed by an Authorized Purchaser on behalf of multiple
clients. Authorized Purchasers who make deposits with USOF in exchange for
baskets receive no fees, commissions or other form of compensation or inducement
of any kind from either USOF or the General Partner, and no such person has any
obligation or responsibility to the General Partner or USOF to effect any sale
or resale of units. Units are expected to trade in the secondary market on the
NYSE Arca. Units may trade in the secondary market at prices that are lower or
higher relative to their NAV per unit. The amount of the discount or premium in
the trading price relative to the NAV per unit may be influenced by various
factors, including the number of investors who seek to purchase or sell units in
the secondary market and the liquidity of the Oil Futures Contracts market and
the market for Other Oil Interests. While the units trade on the NYSE Arca until
4:15 p.m. New York time, liquidity in the market for Oil Futures Contracts and
Other Oil Interests may be reduced after the close of the NYMEX at 2:30 p.m. New
York time. As a result, during this time, trading spreads, and the resulting
premium or discount, on the units may widen.




Prior
Performance of USOF




USOF’s
units began trading on the American Stock Exchange (the “AMEX”) on April 10,
2006 and are offered on a continuous basis. As a result of the acquisition of
the AMEX by NYSE Euronext, USOF’s units commenced trading on the NYSE Arca on
November 25, 2008. As of December 31, 2008, the total amount of money raised by
USOF from Authorized Purchasers was $18,578,175,328; the total number of
Authorized Purchasers was 14; the number of baskets purchased by Authorized
Purchasers was 2,923; and the aggregate amount of units purchased was
292,300,000. For more information on the performance of USOF, see the
Performance Tables below.




Since its
initial offering of 17,000,000 units, USOF has made six subsequent offerings of
its units: 30,000,000 units which were registered with the SEC on October 18,
2006, 50,000,000 units which were registered with the SEC on January 30, 2007,
30,000,000 units which were registered with the SEC on December 4, 2007,
100,000,000 units which were registered with the SEC on February 7, 2008,
100,000,000 units which were registered with the SEC on September 29, 2008 and
300,000,000 units which were registered with the SEC on January 16, 2009. Units
offered by USOF in subsequent offerings were sold by it for cash at the units’
NAV as described in the applicable prospectus. As of December 31, 2008, USOF had
issued 292,300,000 units, 74,900,000 of which were outstanding.  As of
December 31, 2008, there were 34,700,000 units registered but not yet
issued.
  Since the
offering of USOF units to the public on April 10, 2006 to December 31, 2008, the
simple average daily change in its benchmark oil futures contract was -0.074%,
while the simple average daily change in the NAV of USOF over the same time
period was -0.066%. The average daily difference was 0.008% (or 0.8 basis
points, where 1 basis point equals 1/100 of 1%). As a percentage of the daily
movement of the benchmark oil futures contract, the average error in daily
tracking by the NAV was 2.345%, meaning that over this time period USOF’s
tracking error was within the plus or minus 10% range established as its
benchmark tracking goal.




Experience
in Raising and Investing in Funds through December 31, 2008




PAST PERFORMANCE
IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS





Dollar
      Amount Offered*:
                        
                        $
                        23,384,630,000Dollar
      Amount Raised:
                        
                        $
                        18,578,175,328Organizational
      and Offering Expenses**:SEC registration
    fee:
                        
                        $
                        1,522,485FINRA
      registration fee:
                        
                        $
                        528,000Listing fee:
                        
                        $
                        5,000Auditor’s fees and
      expenses:
                        
                        $
                        193,350Legal fees and
      expenses:
                        
                        $
                        1,506,565Printing
expenses:
                        
                        $
                        292,126Length
      of offering:
                        
                        Continuous





*
              Reflects
      the offering price per unit set forth on the cover page of the
      registration statement registering such units filed with the
      SEC.
 **
              Amounts
      are for organizational and offering expenses incurred in connection with
      the offerings from April 10, 2006 through December 31, 2008. Through
      December 31, 2006, these expenses were paid for by an affiliate of the
      General Partner in connection with the initial public offering. Following
      December 31, 2006, USOF has borne the expenses related to the offering of
      its units.




22




Compensation
to the General Partner and Other Compensation





Expenses
paid by USOF through December 31, 2008 in dollar terms:





Expenses:
                    
                    Amount in Dollar TermsAmount
      Paid to General Partner in USOF Offering:
                    
                    $
                    9,141,311Amount
      Paid in Portfolio Brokerage Commissions in USOF Offering:
                    
                    $
                    3,271,301Other
      Amounts Paid in USOF Offering:
                    
                    $
                    4,002,391Total
      Expenses Paid in USOF Offering:
                    
                    $
                    16,415,003





Expenses
paid by USOF through December 31, 2008 as a Percentage of Average Daily Net
Assets:





Expenses in USOF Offering:
                      
                      Amount As a Percentage
                        of Average Daily Net AssetsAmount
      Paid to General Partner in USOF Offering:
                      
                      0.48%
      annualizedAmount
      Paid in Portfolio Brokerage Commissions in USOF Offering:
                      
                      0.17%
      annualizedOther
      Amounts Paid in USOF Offering:
                      
                      0.21%
      annualizedTotal
      Expenses Paid in USOF Offering:
                      
                      0.86%
      annualized





USOF Performance:Name
      of Commodity Pool:
                            
                            USOFType
      of Commodity Pool:
                            
                            Exchange
      traded securityInception
      of Trading:
                            
                            April
      10, 2006Aggregate
      Subscriptions (from inception through
      December 31, 2008):
                            
                            $18,578,175,328Total
      Net Assets as of December 31, 2008:
                            
                            $2,569,623,931*Initial
      NAV Per Unit as of Inception:
                            
                            $67.39NAV
      per Unit as of December 31, 2008:
                            
                            $34.31Worst
      Monthly Percentage Draw-down:
                            
                            October
      2008 (31.57)%Worst
      Peak-to-Valley Draw-down:
                            
                            June
      2008 – December 2008 (69.72)%





* Inclusive
of transactions recorded on a trade date + 1 basis.




23




COMPOSITE
PERFORMANCE DATA FOR USOF




PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF
FUTURE RESULTS





Rates of returnMonth
                                      
                                      2006
                                      
                                      
                                      2007
                                      
                                      
                                      2008January
                                      
                                      
                                      –
                                      
                                      
                                      
                                      (6.55
                                      )%
                                      
                                      
                                      (4.00
                                      )%February
                                      
                                      
                                      –
                                      
                                      
                                      
                                      5.63
                                      %
                                      
                                      
                                      11.03
                                      %March
                                      
                                      
                                      –
                                      
                                      
                                      
                                      4.61
                                      %
                                      
                                      
                                      0.63
                                      %April
                                      
                                      
                                      3.47
                                      %*
                                      
                                      
                                      (4.26
                                      )%
                                      
                                      
                                      12.38
                                      %May
                                      
                                      
                                      (2.91
                                      )%
                                      
                                      
                                      (4.91
                                      )%
                                      
                                      
                                      12.80
                                      %June
                                      
                                      
                                      3.16
                                      %
                                      
                                      
                                      9.06
                                      %
                                      
                                      
                                      9.90
                                      %July
                                      
                                      
                                      (0.50
                                      )%
                                      
                                      
                                      10.57
                                      %
                                      
                                      
                                      (11.72
                                      )%August
                                      
                                      
                                      (6.97
                                      )%
                                      
                                      
                                      (4.95
                                      )%
                                      
                                      
                                      (6.75
                                      )%September
                                      
                                      
                                      (11.72
                                      )%
                                      
                                      
                                      12.11
                                      %
                                      
                                      
                                      (12.97
                                      )%October
                                      
                                      
                                      (8.45
                                      )%
                                      
                                      
                                      16.98
                                      %
                                      
                                      
                                      (31.57
                                      )%November
                                      
                                      
                                      4.73
                                      %
                                      
                                      
                                      (4.82
                                      )%
                                      
                                      
                                      (20.65
                                      )%December
                                      
                                      
                                      (5.21
                                      )%
                                      
                                      
                                      8.67
                                      %
                                      
                                      
                                      (22.16
                                      )%Annual
      Rate of Return
                                      
                                      
                                      (23.03
                                      )%
                                      
                                      
                                      46.17
                                      %
                                      
                                      
                                      (54.75
                                      )%





*
            Partial
      from April 10, 2006





Terms
      Used in Performance Tables





Draw-down: Losses experienced
over a specified period. Draw-down is measured on the basis of monthly returns
only and does not reflect intra-month figures.





Worst Monthly Percentage
Draw-down: The largest single month loss sustained since inception of
trading.





Worst Peak-to-Valley
Draw-down: The largest percentage decline in the NAV per unit over the
history of the fund. This need not be a continuous decline, but can be a series
of positive and negative returns where the negative returns are larger than the
positive returns.  Worst Peak-to-Valley Draw-down represents the
greatest percentage decline from any month-end NAV per unit that occurs without
such month-end NAV per unit being equaled or exceeded as of a subsequent
month-end. For example, if the NAV per unit declined by $1 in each of January
and February, increased by $1 in March and declined again by $2 in April, a
“peak-to-trough drawdown” analysis conducted as of the end of April would
consider that “drawdown” to be still continuing and to be $3 in amount, whereas
if the NAV per unit had increased by $2 in March, the January-February drawdown
would have ended as of the end of February at the $2 level.




Prior Performance of the Related Public
Funds


The
General Partner is also currently the general partner of the Related Public
Funds. Each of the General Partner and the Related Public Funds is located in
California.





USNG is a
commodity pool and issues units traded on the NYSE Arca. The investment
objective of USNG is to have the changes in percentage terms of its units’ NAV
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 for natural gas traded on the NYMEX, less USNG’s expenses. USNG’s units
began trading on April 18, 2007 and are offered on a continuous basis. USNG may
invest in a mixture of listed natural gas futures contracts, other non-listed
natural gas related investments, Treasuries, cash and cash equivalents. As of
December 31, 2008, the total amount of money raised by USNG from its authorized
purchasers was $4,150,671,803; the total number of authorized purchasers of USNG
was 7; the number of baskets purchased by authorized purchasers of USNG was
1,077; and the aggregate amount of units purchased was 107,700,000. USNG employs
an investment strategy in its operations that is similar to the investment
strategy of USOF, except its benchmark is the near month contract for natural
gas delivered at the Henry Hub, Louisiana.




24




Since the
offering of USNG units to the public on April 17, 2007 to December 31, 2008, the
simple average daily change in its benchmark futures contract was -0.507%, while
the simple average daily change in the NAV of USNG over the same time period was
-0.505%. The average daily difference was -0.002% (or -0.2 basis points, where 1
basis point equals 1/100 of 1%). As a percentage of the daily movement of the
benchmark futures contract, the average error in daily tracking by the NAV was
0.346%, meaning that over this time period USNG’s tracking error was within the
plus or minus 10% range established as its benchmark tracking goal.





US12OF is
a commodity pool and issues units traded on the NYSE Arca. The investment
objective of US12OF is to have the changes in percentage terms of its units’ NAV
reflect the changes in percentage terms of the price of light, sweet crude oil
delivered to Cushing, Oklahoma, as measured by the changes in the average of the
prices of 12 futures contracts on light, sweet crude oil traded on the NYMEX,
consisting of the near month contract to expire and the contracts for the
following 11 months, for a total of 12 consecutive months’ contracts, less
US12OF’s expenses. US12OF’s units began trading on December 6, 2007 and are
offered on a continuous basis. US12OF invests in a mixture of listed crude oil
futures contracts, other non-listed oil related investments, Treasuries, cash
and cash equivalents. As of December 31, 2008, the total amount of money raised
by US12OF from its authorized purchasers was $23,231,434; the total number of
authorized purchasers of US12OF was 2; the number of baskets purchased by
authorized purchasers of US12OF was 5; and the aggregate amount of units
purchased was 500,000. US12OF employs an investment strategy in its operations
that is similar to the investment strategy of USOF, except that its benchmark is
the average of the prices of the near month contract to expire and the following
eleven months contracts for light, sweet crude oil delivered to Cushing,
Oklahoma.





Since the
offering of US12OF units to the public on December 6, 2007 to December 31, 2008,
the simple average daily change in its benchmark oil futures contract was
-0.315%, while the simple average daily change in the NAV of US12OF over the
same time period was -0.323%. The average daily difference was 0.007% (or 0.7
basis points, where 1 basis point equals 1/100 of 1%). As a percentage of the
daily movement of the benchmark oil futures contract, the average error in daily
tracking by the NAV was 0.024%, meaning that over this time period US12OF’s
tracking error was within the plus or minus 10% range established as its
benchmark tracking goal.





UGA is a
commodity pool and issues units traded on the NYSE Arca. The investment
objective of UGA is to have the changes in percentage terms of its units’ NAV
reflect the changes in percentage terms in the price of unleaded gasoline for
delivery to the New York harbor, as measured by the changes in the price of the
futures contract on gasoline traded on the NYMEX, less UGA’s expenses. UGA may
invest in a mixture of listed gasoline futures contracts, other non-listed
gasoline related investments, Treasuries, cash and cash equivalents. UGA’s units
began trading on February 26, 2008 and are offered on a continuous
basis. As of December 31, 2008, the total amount of money raised by UGA
from its authorized purchasers was $46,114,901; the total number of authorized
purchasers of UGA was 4; the number of baskets purchased by authorized
purchasers of UGA was 13; and the aggregate amount of units purchased was
1,300,000. UGA employs an investment strategy in its operations that is similar
to the investment strategy of USOF, except that its benchmark is the near month
contract for unleaded gasoline delivered to the New York harbor.





Since the
offering of UGA units to the public on February 26, 2008 to December 31, 2008,
the simple average daily change in its benchmark futures contract was -0.386%,
while the simple average daily change in the NAV of UGA over the same time
period was -0.383%. The average daily difference was -0.003% (or -0.3 basis
points, where 1 basis point equals 1/100 of 1%). As a percentage of the daily
movement of the benchmark futures contract, the average error in daily tracking
by the NAV was -0.605%, meaning that over this time period UGA’s tracking error
was within the plus or minus 10% range established as its benchmark tracking
goal.





USHO is a
commodity pool and issues units traded on the NYSE Arca. The investment
objective of USHO is to have the changes in percentage terms of its units’ NAV
reflect the changes in percentage terms of the price of heating oil for delivery
to the New York harbor, as measured by the changes in the price of the futures
contract on heating oil traded on the NYMEX, less USHO’s expenses. USHO may
invest in a mixture of listed heating oil futures contracts, other non-listed
heating oil-related investments, Treasuries, cash and cash equivalents. USHO’s
units began trading on April 9, 2008 and are offered on a continuous basis. As
of December 31, 2008, the total amount of money raised by USHO from its
authorized purchasers was $17,556,271; the total number of authorized purchasers
of USHO was 4; the number of baskets purchased by authorized purchasers of USHO
was 4; and the aggregate amount of units purchased was 400,000. USHO employs an
investment strategy in its operations that is similar to the investment strategy
of USOF, except that its benchmark is the near month contract for heating oil
delivered to the New York harbor.




25




Since the
offering of USHO units to the public on April 9, 2008 to December 31, 2008, the
simple average daily change in its benchmark futures contract was -0.720%, while
the simple average daily change in the NAV of USHO over the same time period was
-0.715%. The average daily difference was -0.005% (or -0.5 basis points, where 1
basis point equals 1/100 of 1%). As a percentage of the daily movement of the
benchmark futures contract, the average error in daily tracking by the NAV was
-0.681%, meaning that over this time period USHO’s tracking error was within the
plus or minus 10% range established as its benchmark tracking goal.





The
General Partner has filed a registration statement for two other exchange traded
security funds, USSO and US12NG. The investment objective of USSO would be to
have the changes in percentage terms of its units’ NAV to inversely reflect the
changes in the spot price of light, sweet crude oil delivered to Cushing,
Oklahoma, as measured by the changes in percentage terms of the price of the
futures contract on light, sweet crude oil as traded on the NYMEX. The
investment objective of US12NG would be to have the changes in percentage terms
of its units’ NAV 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 average of the prices of 12 futures contracts on natural gas traded on the
NYMEX, consisting of the near month contract to expire and the contracts for the
following 11 months, for a total of 12 consecutive months’
contracts.





There are
significant differences between investing in USOF and the Related Public Funds
and investing directly in the futures market. The General Partner’s results with
USOF and the Related Public Funds may not be representative of results that may
be experienced with a fund directly investing in futures contracts or other
managed funds investing in futures contracts. Moreover, given the different
investment objectives of USOF and the Related Public Funds, the performance of
USOF may not be representative of results that may be experienced by the other
Related Public Funds. For more information on the performance of the Related
Public Funds, see the Performance Tables below.





USNG:





Experience
in Raising and Investing in Funds through December 31, 2008




PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS





Dollar
      Amount Offered in USNG Offering*:
                  
                  $
                  7,631,500,000Dollar
      Amount Raised in USNG Offering:
                  
                  $
                  4,150,671,803Organizational
      and Offering Expenses**:SEC registration
    fee:
                  
                  $
                  340,557FINRA registration
      fee:
                  
                  $
                  226,500Listing fee:
                  
                  $
                  5,000Auditor’s fees and
      expenses:
                  
                  $
                  206,850Legal fees and
      expenses:
                  
                  $
                  686,695Printing
expenses:
                  
                  $
                  56,130Length
      of USNG Offering:
                  
                  Continuous





*
            Reflects
      the offering price per unit set forth on the cover page of the
      registration statement registering such units filed with the
      SEC.


**
                Amounts
      are for organizational and offering expenses incurred in connection with
      offerings from April 18, 2007 through December 31, 2008. Through April 18,
      2007, these expenses were paid for by the General Partner. Following April
      18, 2007, USNG has borne the expenses related to the offering of its
      units.




26




Compensation
to the General Partner and Other Compensation





Expenses
paid by USNG through December 31, 2008 in dollar terms:





Expenses:
                  
                  Amount in Dollar TermsAmount
      Paid to General Partner in USNG Offering:
                  
                  $
                  5,613,585Amount
      Paid in Portfolio Brokerage Commissions in USNG Offering:
                  
                  $
                  1,218,485Other
      Amounts Paid in USNG Offering:
                  
                  $
                  2,242,063Total
      Expenses Paid in USNG Offering:
                  
                  $
                  9,074,133





Expenses
paid by USNG through December 31, 2008 as a Percentage of Average Daily Net
Assets:





Expenses in USNG Offering:
                    
                    Amount As a Percentage
                      of Average Daily Net AssetsAmount
      Paid to General Partner in USNG Offering:
                    
                    0.60%
      annualizedAmount
      Paid in Portfolio Brokerage Commissions in USNG Offering:
                    
                    0.13%
      annualizedOther
      Amounts Paid in USNG Offering:
                    
                    0.24%
      annualizedTotal
      Expenses Paid in USNG Offering:
                    
                    0.97%
      annualized





USNGPerformance:Name
      of Commodity Pool:
                    
                    USNGType
      of Commodity Pool:
                    
                    Exchange
      traded securityInception
      of Trading:
                    
                    April
      18, 2007Aggregate
      Subscriptions (from inception through December 31, 2008):
                    
                    $4,150,671,803Total
      Net Assets as of December 31, 2008:
                    
                    $695,714,510Initial
      NAV per Unit as of Inception:
                    
                    $50.00NAV
      per Unit as of December 31, 2008:
                    
                    $23.27Worst
      Monthly Percentage Draw-down:
                    
                    July
      2008 (32.13)%Worst
      Peak-to-Valley Draw-down:
                    
                    June
      2008 – December 2008 (62.86)%





COMPOSITE
PERFORMANCE DATA FOR USNG




PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS





Rates of returnMonth
                                            
                                            2007
                                            
                                            
                                            2008January
                                            
                                            
                                            –
                                            
                                            
                                            
                                            8.87
                                            %February
                                            
                                            
                                            –
                                            
                                            
                                            
                                            15.87
                                            %March
                                            
                                            
                                            –
                                            
                                            
                                            
                                            6.90
                                            %April
                                            
                                            
                                            4.30
                                            %*
                                            
                                            
                                            6.42
                                            %May
                                            
                                            
                                            (0.84
                                            )%
                                            
                                            
                                            6.53
                                            %June
                                            
                                            
                                            (15.90
                                            )%
                                            
                                            
                                            13.29
                                            %July
                                            
                                            
                                            (9.68
                                            )%
                                            
                                            
                                            (32.13
                                            )%August
                                            
                                            
                                            (13.37
                                            )%
                                            
                                            
                                            (13.92
                                            )%September
                                            
                                            
                                            12.28
                                            %
                                            
                                            
                                            (9.67
                                            )%October
                                            
                                            
                                            12.09
                                            %
                                            
                                            
                                            (12.34
                                            )%November
                                            
                                            
                                            (16.16
                                            )%
                                            
                                            
                                            (6.31
                                            )%December
                                            
                                            
                                            0.75
                                            %
                                            
                                            
                                            (14.32
                                            )%Annual
      Rate of Return
                                            
                                            
                                            (27.64
                                            )%
                                            
                                            
                                            (35.68
                                            )%


*
            Partial
      from April 17, 2007




27




US12OF:





Experience
in Raising and Investing in Funds through December 31, 2008




PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS





Dollar
      Amount Offered in US12OF Offering*:
                    
                    $
                    550,000,000Dollar
      Amount Raised in US12OF Offering:
                    
                    $
                    23,232,434Organizational
      and Offering Expenses**:SEC registration
    fee:
                    
                    $
                    16,885FINRA registration
      fee:
                    
                    $
                    75,500Listing fee:
                    
                    $
                    5,000Auditor’s fees and
      expenses:
                    
                    $
                    35,700Legal fees and
      expenses:
                    
                    $
                    213,235Printing
expenses:
                    
                    $
                    23,755Length
      of US12OF Offering:
                    
                    Continuous





*
            Reflects
      the offering price per unit set forth on the cover page of the
      registration statement registering such units filed with the
      SEC.


**
            These
      expenses were paid for by the General
Partner.





Compensation
to the General Partner and Other Compensation





Expenses paid byUS12OF through December 31, 2008 in dollar
terms:





Expenses:
                  
                  Amount in Dollar TermsAmount
      Paid to General Partner in US12OF Offering:
                  
                  $
                  57,977Amount
      Paid in Portfolio Brokerage Commissions in US12OF
Offering:
                  
                  $
                  3,217Other
      Amounts Paid in US12OF Offering:
                  
                  $
                  119,032Total
      Expenses Paid in US12OF Offering:
                  
                  $
                  180,226Expenses
      Waived in US12OF Offering*:
                  
                  $
                  (97,019
                  )Net
      Expenses Paid or Accrued in US12OF Offering*:
                  
                  $
                  83,207




*
              The
      General Partner, though under no obligation to do so, agreed to pay
      certain expenses, to the extent that such expenses exceeded 0.15% (15
      basis points) of US12OF’s NAV, on an annualized basis, through December
      31, 2008. The General Partner has no obligation to continue such
      payment into subsequent
years.




Expenses paid byUS12OF through December 31, 2008 as a
Percentage of Average Daily Net Assets:





Expenses in US12OF Offering:
                    
                    Amount As a Percentage
                      of Average Daily Net AssetsAmount
      Paid to General Partner in US12OF Offering:
                    
                    0.60%
      annualizedAmount
      Paid in Portfolio Brokerage Commissions in US12OF
Offering:
                    
                    0.03%
      annualizedOther
      Amounts Paid in US12OF Offering:
                    
                    1.23%
      annualizedTotal
      Expenses Paid in US12OF Offering:
                    
                    1.86%
      annualizedExpenses
      Waived in US12OF Offering:
                    
                    (1.00)%
      annualizedNet
      Expenses Paid in US12OF Offering:
                    
                    0.86%
      annualized




28






US12OF Performance:Name
      of Commodity Pool:
                  
                  US12OFType
      of Commodity Pool:
                  
                  Exchange
      traded securityInception
      of Trading:
                  
                  December
      6, 2007Aggregate
      Subscriptions (from inception through December 31, 2008):
                  
                  $23,231,434Total
      Net Assets as of December 31, 2008:
                  
                  $6,247,578Initial
      NAV per Unit as of Inception:
                  
                  $50.00NAV
      per Unit as of December 31, 2008:
                  
                  $31.24Worst
      Monthly Percentage Draw-down:
                  
                  October
      2008 (29.59)%Worst
      Peak-to-Valley Draw-down:
                  
                  June
      2008 –December 2008 (62.83)%




COMPOSITE
PERFORMANCE DATA FOR US12OF


PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS





Rates of returnMonth
                                    
                                    2007
                                    
                                    
                                    2008January
                                    
                                    
                                    –
                                    
                                    
                                    
                                    (2.03
                                    )%February
                                    
                                    
                                    –
                                    
                                    
                                    
                                    10.48
                                    %March
                                    
                                    
                                    –
                                    
                                    
                                    
                                    (0.66
                                    )%April
                                    
                                    
                                    –
                                    
                                    
                                    
                                    11.87
                                    %May
                                    
                                    
                                    –
                                    
                                    
                                    
                                    15.47
                                    %June
                                    
                                    
                                    –
                                    
                                    
                                    
                                    11.59
                                    %July
                                    
                                    
                                    –
                                    
                                    
                                    
                                    (11.39
                                    )%August
                                    
                                    
                                    –
                                    
                                    
                                    
                                    (6.35
                                    )%September
                                    
                                    
                                    –
                                    
                                    
                                    
                                    (13.12
                                    )%October
                                    
                                    
                                    –
                                    
                                    
                                    
                                    (29.59
                                    )%November
                                    
                                    
                                    –
                                    
                                    
                                    
                                    (16.17
                                    )%December
                                    
                                    
                                    8.46
                                    %*
                                    
                                    
                                    (12.66
                                    )%Annual
      Rate of Return
                                    
                                    
                                    8.46
                                    %
                                    
                                    
                                    (42.39
                                    )%


*
            Partial
      from December 6, 2007





UGA:





Experience
in Raising and Investing in Funds through December 31, 2008


PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS





Dollar
      Amount Offered in UGA Offering*:
                  
                  $
                  1,500,000Dollar
      Amount Raised in UGA Offering:
                  
                  $
                  46,115,901Organizational
      andOffering Expenses**:SEC registration
    fee:
                  
                  $
                  58,520FINRA registration
      fee:
                  
                  $
                  75,500Listing fee:
                  
                  $
                  5,000Auditor’s fees and
      expenses:
                  
                  $
                  2,500Legal fees and
      expenses:
                  
                  $
                  117,891Printing
expenses:
                  
                  $
                  31,867Length
      of UGA Offering:
                  
                  Continuous





*
                Reflects
      the offering price per unit set forth on the cover page of the
      registration statement registering such units filed with the
      SEC.**
                These
      expenses were paid for by the General
  Partner.





29




Compensation
to the General Partner and Other Compensation




Expenses paid by UGA through December 31, 2008 in dollar
terms:





Expenses:
                  
                  Amount in Dollar TermsAmount
      Paid to General Partner in UGA Offering:
                  
                  $
                  97,932Amount
      Paid in Portfolio Brokerage Commissions in UGA Offering:
                  
                  $
                  16,173Other
      Amounts Paid in UGA Offering:
                  
                  $
                  158,773Total
      Expenses Paid in UGA Offering:
                  
                  $
                  272,878Expenses
      Waived in UGA Offering*:
                  
                  $
                  (126,348
                  )Net
      Expenses Paid or Accrued*:
                  
                  $
                  146,530


*
                The
      General Partner, though under no obligation to do so, agreed to pay
      certain expenses, to the extent that such expenses exceeded 0.15% (15
      basis points) of UGA’s NAV, on an annualized basis, through December 31,
      2008. The General Partner has no obligation to continue such payment
      into subsequent years.




Expenses paid by UGA through December 31, 2008 as a
Percentage of Average Daily Net Assets:





Expenses in UGA Offering:
                    
                    Amount As a Percentage
                      of Average Daily Net AssetsAmount
      Paid to General Partner in UGA Offering:
                    
                    0.60%
      annualizedAmount
      Paid in Portfolio Brokerage Commissions in UGA Offering:
                    
                    0.10%
      annualizedOther
      Amounts Paid in UGA Offering:
                    
                    0.97%
      annualizedTotal
      Expenses Paid in UGA Offering:
                    
                    1.67%
      annualizedExpenses
      Waived in UGA Offering:
                    
                    (0.77)%
      annualizedNet
      Expenses Paid or Accrued in UGA Offering:
                    
                    0.90%
      annualized




UGA Performance:Name
      of Commodity Pool:
                    
                    UGAType
      of Commodity Pool:
                    
                    Exchange
      traded securityInception
      of Trading:
                    
                    February
      26, 2008Aggregate
      Subscriptions (from inception through December 31, 2008):
                    
                    $46,114,901Total
      Net Assets as of December 31, 2008:
                    
                    $20,209,419Initial
      NAV per Unit as of Inception:
                    
                    $50.00NAV
      per Unit as of December 31, 2008:
                    
                    $20.21Worst
      Monthly Percentage Draw-down:
                    
                    October
      2008 (38.48%)Worst
      Peak-to-Valley Draw-down:
                    
                    June
      2008 – December 2008 (69.02%)





COMPOSITE
PERFORMANCE DATA FOR UGA


PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS





Rates of returnMonth
                                
                                2008January
                                
                                
                                –February
                                
                                
                                (0.56
                                )%*March
                                
                                
                                (2.39
                                )%April
                                
                                
                                10.94
                                %May
                                
                                
                                15.60
                                %June
                                
                                
                                4.80
                                %July
                                
                                
                                (12.79
                                )%August
                                
                                
                                (3.88
                                )%September
                                
                                
                                (9.36
                                )%October
                                
                                
                                (38.48
                                )%November
                                
                                
                                (21.35
                                )%December
                                
                                
                                (15.72
                                )%Annual
      Rate of Return
                                
                                
                                (59.58
                                )%


*
            Partial
      from February 26, 2008




30




USHO:





Experience
in Raising and Investing in Funds through December 31, 2008


PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS





Dollar
      Amount Offered in USHO Offering*:
                    
                    $
                    500,000Dollar
      Amount Raised in USHO Offering:
                    
                    $
                    17,556,271Organizational
      andOffering Expenses**:SEC registration
    fee:
                    
                    $
                    19,220FINRA registration
      fee:
                    
                    $
                    50,500Listing fee:
                    
                    $
                    5,000Auditor’s fees and
      expenses:
                    
                    $
                    2,500Legal fees and
      expenses:
                    
                    $
                    126,859Printing
expenses:
                    
                    $
                    21,255Length
      of USHO Offering:
                    
                    Continuous





*
            Reflects
      the offering price per unit set forth on the cover page of the
      registration statement registering such units filed with the
      SEC.


**
            These
      expenses were paid for by the General
Partner.





Compensation
to the General Partner and Other Compensation





Expenses
paid by USHO through December 31, 2008 in dollar terms:





Expense
                    
                    Amount in Dollar TermsAmount
      Paid to General Partner in USHO Offering:
                    
                    $
                    52,791Amount
      Paid in Portfolio Brokerage Commissions in USHO Offering:
                    
                    $
                    7,700Other
      Amounts Paid in USHO Offering:
                    
                    $
                    104,989Total
      Expenses Paid in USHO Offering:
                    
                    $
                    165,480Expenses
      Waived in USHO Offering*:
                    
                    $
                    (87,698
                    )Net
      Expenses Paid or Accrued in USHO Offering*:
                    
                    $
                    77,782




*
                The
      General Partner, though under no obligation to do so, agreed to pay
      certain expenses, to the extent that such expenses exceeded 0.15% (15
      basis points) of USHO’s NAV, on an annualized basis, through December 31,
      2008. The General Partner has no obligation to continue such payment
      into subsequent years.


Expenses
Paid by USHO through December 31, 2008 as a Percentage of Average Daily Net
Assets:





Expenses in USHO Offering:
                    
                    Amount
      As a Percentage
                      of Average Daily Net AssetsAmount
      Paid to General Partner in USHO Offering:
                    
                    0.60%
      annualizedAmount
      Paid in Portfolio Brokerage Commissions in USHO Offering:
                    
                    0.09%
      annualizedOther
      Amounts Paid in USHO Offering:
                    
                    1.19%
      annualizedTotal
      Expenses Paid in USHO Offering:
                    
                    1.88%
      annualizedExpenses
      Waived in USHO Offering:
                    
                    (1.00)%
      annualizedNet
      Expenses Paid in USHO Offering:
                    
                    0.88%
      annualized




31




USHO Performance:Name
      of Commodity Pool:
                    
                    USHOType
      of Commodity Pool:
                    
                    Exchange
      traded securityInception
      of Trading:
                    
                    April
      8, 2008Aggregate
      Subscriptions (from inception through December 31, 2008):
                    
                    $17,556,271Total
      Net Assets as of December 31, 2008:
                    
                    $4,387,898Initial
      NAV per Unit as of Inception:
                    
                    $50.00NAV
      per Unit as of December 31, 2008:
                    
                    $21.94Worst
      Monthly Percentage Draw-down:
                    
                    October
      2008 (28.63)%Worst
      Peak-to-Valley Draw-down:
                    
                    June
      2008 – December 2008 (65.25)%





COMPOSITE
PERFORMANCE DATA FOR USHO


PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS





Rates of returnMonth
                          
                          2008January
                          
                          
                          –February
                          
                          
                          –March
                          
                          
                          –April
                          
                          
                          2.84
                          %*May
                          
                          
                          15.93
                          %June
                          
                          
                          5.91
                          %July
                          
                          
                          (12.18)
                          %August
                          
                          
                          (8.41)
                          %September
                          
                          
                          (9.77)
                          %October
                          
                          
                          (28.63)
                          %November
                          
                          
                          (18.38)
                          %December
                          
                          
                          (17.80)
                          %Annual
      Rate of Return
                          
                          
                          (56.12)
                          %


*
            Partial
      from April 8, 2008





Other
Related Commodity Trading and Investment Management Experience





Ameristock
Corporation is an affiliate of the General Partner and it is a California-based
registered investment advisor registered under the Investment Advisers Act of
1940, as amended, that has been sponsoring and providing portfolio management
services to mutual funds since 1995. Ameristock Corporation is the investment
adviser to the Ameristock Mutual Fund, Inc., a mutual fund registered under the
Investment Company Act of 1940, as amended (the “1940 Act”) that focuses on
large cap U.S. equities that has approximately $188,835,336 in assets as of
December 31, 2008. Ameristock Corporation was also the investment advisor
to the Ameristock ETF Trust, an open-end management investment company
registered under the 1940 Act that consists of five separate investment
portfolios, each of which seeks investment results, before fees and expenses,
that correspond generally to the price and yield performance of a particular
U.S. Treasury securities index owned and compiled by Ryan Holdings LLC and Ryan
ALM, Inc. The Ameristock ETF Trust has liquidated each of its investment
portfolios and is in the process of winding up its affairs.




32




Investments





The
General Partner applies substantially all of USOF’s assets toward trading in Oil
Futures Contracts and Other Oil Interests, Treasuries, cash and/or cash
equivalents. The General Partner has sole authority to determine the percentage
of assets that are:





·         held
on deposit with the futures commission merchant or other custodian,





·         used
for other investments, and





·         held
in bank accounts to pay current obligations and as reserves.





The
General Partner deposits substantially all of USOF’s net assets with the futures
commission merchant or other custodian for trading. When USOF purchases an Oil
Futures Contract and certain exchange traded Other Oil Interests, USOF is
required to deposit with the selling futures commission merchant on behalf of
the exchange a portion of the value of the contract or other interest as
security to ensure payment for the obligation under oil interests at maturity.
This deposit is known as “margin.” USOF invests the remainder of its assets
equal to the difference between the margin deposited and the market value
of the futures contract in Treasuries, cash and/or cash
equivalents.




USOF’s
assets are held in segregated accounts pursuant to the CEA and CFTC regulations.
The General Partner believes that all entities that hold or trade USOF’s assets
are based in the United States and are subject to United States
regulations.




Approximately
10% to 45% of USOF’s assets have normally been committed as margin for commodity
Oil Futures Contracts. However, from time to time, the percentage of assets
committed as margin may be substantially more, or less, than such range. The
General Partner invests the balance of USOF’s assets not invested in oil
interests or held in margin as reserves to be available for changes in margin.
All interest income is used for USOF’s benefit.




The
futures commission merchant, a government agency or a commodity exchange could
increase margins applicable to USOF to hold trading positions at any time.
Moreover, margin is merely a security deposit and has no bearing on the profit
or loss potential for any positions taken.




The
Commodity Interest Markets




General




The CEA
governs the regulation of commodity interest transactions, markets and
intermediaries. In December 2000, the CEA was amended by the Commodity Futures
Modernization Act of 2000 (the “CFMA”), which substantially revised the
regulatory framework governing certain commodity interest transactions and the
markets on which they trade. The CEA, as amended by the CFMA, now provides for
varying degrees of regulation of commodity interest transactions depending upon
the variables of the transaction. In general, these variables include (1) the
type of instrument being traded (e.g., contracts for future
delivery, options, swaps or spot contracts), (2) the type of commodity
underlying the instrument (distinctions are made between instruments based on
agricultural commodities, energy and metals commodities and financial
commodities), (3) the nature of the parties to the transaction (retail, eligible
contract participant, or eligible commercial entity), (4) whether the
transaction is entered into on a principal-to-principal or intermediated basis,
(5) the type of market on which the transaction occurs, and (6) whether the
transaction is subject to clearing through a clearing organization. Information
regarding commodity interest transactions, markets and intermediaries, and their
associated regulatory environment, is provided below.




Futures
Contracts




A futures
contract such as an Oil Futures Contract is a standardized contract traded on,
or subject to the rules of, an exchange that calls for the future delivery of a
specified quantity and type of a commodity at a specified time and place.
Futures contracts are traded on a wide variety of commodities, including
agricultural products, bonds, stock indices, interest rates, currencies, energy
and metals. The size and terms of futures contracts on a particular commodity
are identical and are not subject to any negotiation, other than with respect to
price and the number of contracts traded between the buyer and
seller.




33




The
contractual obligations of a buyer or seller may generally be satisfied by
taking or making physical delivery of the underlying of commodity or by making
an offsetting sale or purchase of an identical futures contract on the same or
linked exchange before the designated date of delivery. The difference between
the price at which the futures contract is purchased or sold and the price paid
for the offsetting sale or purchase, after allowance for brokerage commissions,
constitutes the profit or loss to the trader. Some futures contracts, such as
stock index contracts, settle in cash (reflecting the difference between the
contract purchase/sale price and the contract settlement price) rather than by
delivery of the underlying commodity.




In market
terminology, a trader who purchases a futures contract is long in the market and
a trader who sells a futures contract is short in the market. Before a trader
closes out his long or short position by an offsetting sale or purchase, his
outstanding contracts are known as open trades or open positions. The aggregate
amount of open positions held by traders in a particular contract is referred to
as the open interest in such contract.




Forward
Contracts




A forward
contract is a contractual obligation to purchase or sell a specified quantity of
a commodity at or before a specified date in the future at a specified price
and, therefore, is economically similar to a futures contract. Unlike futures
contracts, however, forward contracts are typically traded in the
over-the-counter markets and are not standardized contracts. Forward contracts
for a given commodity are generally available for various amounts and maturities
and are subject to individual negotiation between the parties involved.
Moreover, generally there is no direct means of offsetting or closing out a
forward contract by taking an offsetting position as one would a futures
contract on a U.S. exchange. If a trader desires to close out a forward contract
position, he generally will establish an opposite position in the contract but
will settle and recognize the profit or loss on both positions simultaneously on
the delivery date. Thus, unlike in the futures contract market where a trader
who has offset positions will recognize profit or loss immediately, in the
forward market a trader with a position that has been offset at a profit will
generally not receive such profit until the delivery date, and likewise a trader
with a position that has been offset at a loss will generally not have to pay
money until the delivery date. In recent years, however, the terms of forward
contracts have become more standardized, and in some instances such contracts
now provide a right of offset or cash settlement as an alternative to making or
taking delivery of the underlying commodity.





The
forward markets provide what has typically been a highly liquid market for
foreign exchange trading, and in certain cases the prices quoted for foreign
exchange forward contracts may be more favorable than the prices for foreign
exchange futures contracts traded on U.S. exchanges. The forward markets are
largely unregulated. Forward contracts are, in general, not cleared or
guaranteed by a third party. Commercial banks participating in trading foreign
exchange forward contracts often do not require margin deposits, but rely upon
internal credit limitations and their judgments regarding the creditworthiness
of their counterparties. In recent years, however, many over-the-counter market
participants in foreign exchange trading have begun to require that their
counterparties post margin.




Further,
as the result of the CFMA, over-the-counter derivative instruments such as
forward contracts and swap agreements (and options on forwards and physical
commodities) may begin to be traded on lightly-regulated exchanges or electronic
trading platforms that may, but are not required to, provide for clearing
facilities. Exchanges and electronic trading platforms on which over-the-counter
instruments may be traded and the regulation and criteria for that trading are
more fully described below under “Futures Exchanges and Clearing Organizations.”
Nonetheless, absent a clearing facility, USOF’s trading in foreign exchange and
other forward contracts is exposed to the creditworthiness of the counterparties
on the other side of the trade.





Options
on Futures Contracts




Options
on futures contracts are standardized contracts traded on an exchange. An option
on a futures contract gives the buyer of the option the right, but not the
obligation, to take a position at a specified price (the striking, strike, or
exercise price) in the underlying futures contract or underlying interest. The
buyer of a call option acquires the right, but not the obligation, to purchase
or take a long position in the underlying interest, and the buyer of a put
option acquires the right, but not the obligation, to sell or take a short
position in the underlying interest.




34




The
seller, or writer, of an option is obligated to take a position in the
underlying interest at a specified price opposite to the option buyer if the
option is exercised. Thus, the seller of a call option must stand ready to take
a short position in the underlying interest at the strike price if the buyer
should exercise the option. The seller of a put option, on the other hand, must
stand ready to take a long position in the underlying interest at the strike
price.




A call
option is said to be in-the-money if the strike price is below current market
levels and out-of-the-money if the strike price is above current market levels.
Conversely, a put option is said to be in-the-money if the strike price is above
the current market levels and out-of-the-money if the strike price is below
current market levels.




Options
have limited life spans, usually tied to the delivery or settlement date of the
underlying interest. Some options, however, expire significantly in advance of
such date. The purchase price of an option is referred to as its premium, which
consists of its intrinsic value (which is related to the underlying market
value) plus its time value. As an option nears its expiration date, the time
value shrinks and the market and intrinsic values move into parity. An option
that is out-of-the-money and not offset by the time it expires becomes
worthless. On certain exchanges, in-the-money options are automatically
exercised on their expiration date, but on others unexercised options simply
become worthless after their expiration date.




Regardless
of how much the market swings, the most an option buyer can lose is the option
premium. The option buyer deposits his premium with his broker, and the money
goes to the option seller. Option sellers, on the other hand, face risks similar
to participants in the futures markets. For example, since the seller of a call
option is assigned a short futures position if the option is exercised, his risk
is the same as someone who initially sold a futures contract. Because no one can
predict exactly how the market will move, the option seller posts margin to
demonstrate his ability to meet any potential contractual
obligations.




Options
on Forward Contracts or Commodities




Options
on forward contracts or commodities operate in a manner similar to options on
futures contracts. An option on a forward contract or commodity gives the buyer
of the option the right, but not the obligation, to take a position at a
specified price in the underlying forward contract or commodity. However,
similar to forward contracts, options on forward contracts or on commodities are
individually negotiated contracts between counterparties and are typically
traded in the over-the-counter market. Therefore, options on forward contracts
and physical commodities possess many of the same characteristics of forward
contracts with respect to offsetting positions and credit risk that are
described above.





Swap
Contracts




Swap
transactions generally involve contracts between two parties to exchange a
stream of payments computed by reference to a notional amount and the price of
the asset that is the subject of the swap. Swap contracts are principally traded
off-exchange, although recently, as a result of regulatory changes enacted as
part of the CFMA, certain swap contracts are now being traded in electronic
trading facilities and cleared through clearing organizations.




Swaps are
usually entered into on a net basis, that is, the two payment streams are netted
out in a cash settlement on the payment date or dates specified in the
agreement, with the parties receiving or paying, as the case may be, only the
net amount of the two payments. Swaps do not generally involve the delivery of
underlying assets or principal. Accordingly, the risk of loss with respect to
swaps is generally limited to the net amount of payments that the party is
contractually obligated to make. In some swap transactions one or both parties
may require collateral deposits from the counterparty to support that
counterparty’s obligation under the swap agreement. If the counterparty to such
a swap defaults, the risk of loss consists of the net amount of payments that
the party is contractually entitled to receive less any collateral deposits
it is holding.




35




Participants




The two
broad classes of persons who trade commodities are hedgors and speculators.
Hedgors include financial institutions that manage or deal in interest
rate-sensitive instruments, foreign currencies or stock portfolios, and
commercial market participants, such as farmers and manufacturers, that market
or process commodities. Hedging is a protective procedure designed to
effectively lock in prices that would otherwise change due to an adverse
movement in the price of the underlying commodity, for example, the adverse
price movement between the time a merchandiser or processor enters into a
contract to buy or sell a raw or processed commodity at a certain price and the
time he must perform the contract. In such a case, at the time the hedgor
contracts to physically sell the commodity at a future date he will
simultaneously buy a futures or forward contract for the necessary equivalent
quantity of the commodity. At the time for performance of the contract, the
hedgor may accept delivery under his futures contract and sell the commodity
quantity as required by his physical contract or he may buy the actual
commodity, sell if under the physical contract and close out his position by
making an offsetting sale of a futures contract.





The
commodity interest markets enable the hedgor to shift the risk of price
fluctuations. The usual objective of the hedgor is to protect the profit that he
expects to earn from farming, merchandising, or processing operations rather
than to profit from his trading. However, at times the impetus for a hedge
transaction may result in part from speculative objectives, and hedgors can end
up paying higher prices than they would have, for example, if current market
prices are lower than the locked in price.




Unlike
the hedgor, the speculator generally expects neither to make nor take delivery
of the underlying commodity. Instead, the speculator risks his capital with the
hope of making profits from price fluctuations in the commodities. The
speculator is, in effect, the risk bearer who assumes the risks that the hedgor
seeks to avoid. Speculators rarely make or take delivery of the underlying
commodity; rather they attempt to close out their positions prior to the
delivery date. Because the speculator may take either a long or short position
in commodities, it is possible for him to make profits or incur losses
regardless of whether prices go up or down.




Futures
Exchanges and Clearing Organizations




Futures
exchanges provide centralized market facilities in which multiple persons have
the ability to execute or trade contracts by accepting bids and offers from
multiple participants. Futures exchanges may provide for execution of trades at
a physical location utilizing trading pits and/or may provide for trading to be
done electronically through computerized matching of bids and offers pursuant to
various algorithms. Members of a particular exchange and the trades executed on
such exchanges are subject to the rules of that exchange. Futures exchanges and
clearing organizations are given reasonable latitude in promulgating rules and
regulations to control and regulate their members. Examples of regulations by
exchanges and clearing organizations include the establishment of initial margin
levels, rules regarding trading practices, contract specifications, speculative
position limits, daily price fluctuation limits, and execution and clearing
fees.




Clearing
organizations provide services designed to mutualize or transfer the credit risk
arising from the trading of contracts on an exchange or other electronic trading
facility. Once trades made between members of an exchange or electronic trading
facility have been confirmed, the clearing organization becomes substituted for
the clearing member acting on behalf of each buyer and each seller of contracts
traded on the exchange or trading platform and in effect becomes the other party
to the trade. Thereafter, each clearing member party to the trade looks only to
the clearing organization for performance. The clearing organization generally
establishes some sort of security or guarantee fund to which all clearing
members of the exchange must contribute; this fund acts as an emergency buffer
that is intended to enable the clearing organization to meet its obligations
with regard to the other side of an insolvent clearing member’s contracts.
Furthermore, the clearing organization requires margin deposits and continuously
marks positions to market to provide some assurance that its members will be
able to fulfill their contractual obligations. Thus, a central function of the
clearing organization is to ensure the integrity of trades, and members
effecting transactions on an exchange need not concern themselves with the
solvency of the party on the opposite side of the trade; their only remaining
concerns are the respective solvencies of their own customers, their clearing
broker and the clearing organization. The clearing organizations do not deal
with customers, but only with their member firms and the guarantee of
performance for open positions provided by the clearing organization does not
run to customers.




U.S.
Futures Exchanges




Futures
exchanges in the United States are subject to varying degrees of regulation by
the CFTC based on their designation as one of the following: a designated
contract market, a derivatives transaction execution facility, an exempt board
of trade or an electronic trading facility.




36




A
designated contract market is the most highly regulated level of futures
exchange. Designated contract markets may offer products to retail customers on
an unrestricted basis. To be designated as a contract market, the exchange must
demonstrate that it satisfies specified general criteria for designation, such
as having the ability to prevent market manipulation, rules and procedures to
ensure fair and equitable trading, position limits, dispute resolution
procedures, minimization of conflicts of interest and protection of market
participants. Among the principal designated contract markets in the United
States are the Chicago Board of Trade, the Chicago Mercantile Exchange and the
NYMEX. Each of the designated contract markets in the United States must provide
for the clearance and settlement of transactions with a CFTC-registered
derivatives clearing organization.





A
derivatives transaction execution facility (a “DTEF”), is a new type of exchange
that is subject to fewer regulatory requirements than a designated contract
market but is subject to both commodity interest and participant limitations.
DTEFs limit access to eligible traders that qualify as either eligible contract
participants or eligible commercial entities for futures and option contracts on
commodities that have a nearly inexhaustible deliverable supply, are highly
unlikely to be susceptible to the threat of manipulation, or have no cash
market, security futures products, and futures and option contracts on
commodities that the CFTC may determine, on a case-by-case basis, are highly
unlikely to be susceptible to the threat of manipulation. In addition, certain
commodity interests excluded or exempt from the CEA, such as swaps, etc. may be
traded on a DTEF. There is no requirement that a DTEF use a clearing
organization, except with respect to trading in security futures contracts, in
which case the clearing organization must be a securities clearing agency.
However, if futures contracts and options on futures contracts on a DTEF are
cleared, then it must be through a CFTC-registered derivatives clearing
organization, except that some excluded or exempt commodities traded on a DTEF
may be cleared through a clearing organization other than one registered with
the CFTC.




An exempt
board of trade is also a newly designated form of exchange. An exempt board of
trade is substantially unregulated, subject only to CFTC anti-fraud and
anti-manipulation authority. An exempt board of trade is permitted to trade
futures contracts and options on futures contracts provided that the underlying
commodity is not a security or securities index and has an inexhaustible
deliverable supply or no cash market. All traders on an exempt board of trade
must qualify as eligible contract participants. Contracts deemed eligible to be
traded on an exempt board of trade include contracts on interest rates, exchange
rates, currencies, credit risks or measures, debt instruments, measures of
inflation, or other macroeconomic indices or measures. There is no requirement
that an exempt board of trade use a clearing organization. However, if contracts
on an exempt board of trade are cleared, then it must be through a
CFTC-registered derivatives clearing organization. A board of trade electing to
operate as an exempt board of trade must file a written notification with the
CFTC.





An
electronic trading facility is a new form of trading platform that operates by
means of an electronic or telecommunications network and maintains an automated
audit trail of bids, offers, and the matching of orders or the execution of
transactions on the electronic trading facility. The CEA does not apply to, and
the CFTC has no jurisdiction over, transactions on an electronic trading
facility in certain excluded commodities that are entered into between
principals that qualify as eligible contract participants, subject only to CFTC
anti-fraud and anti-manipulation authority. In general, excluded commodities
include interest rates, currencies, securities, securities indices or other
financial, economic or commercial indices or measures.




The
General Partner intends to monitor the development of and opportunities and
risks presented by the new less-regulated exchanges and exempt boards as well as
other trading platforms currently in place or that are being considered by
regulators and may, in the future, allocate a percentage of USOF’s assets to
trading in products on these exchanges. Provided USOF maintains assets exceeding
$5 million, USOF would qualify as an eligible contract participant and thus
would be able to trade on such exchanges.




Non-U.S.
Futures Exchanges




Non-U.S.
futures exchanges differ in certain respects from their U.S. counterparts.
Importantly, non-U.S. futures exchanges are not subject to regulation by the
CFTC, but rather are regulated by their home country regulator. In contrast to
U.S. designated contract markets, some non-U.S. exchanges are principals’
markets, where trades remain the liability of the traders involved, and the
exchange or an affiliated clearing organization, if any, does not become
substituted for any party. Due to the absence of a clearing system, such
exchanges are significantly more susceptible to disruptions. Further,
participants in such markets must often satisfy themselves as to the individual
creditworthiness of each entity with which they enter into a trade. Trading on
non-U.S. exchanges is often in the currency of the exchange’s home jurisdiction.
Consequently, USOF is subject to the additional risk of fluctuations in the
exchange rate between such currencies and U.S. dollars and the possibility that
exchange controls could be imposed in the future. Trading on non-U.S. exchanges
may differ from trading on U.S. exchanges in a variety of ways and, accordingly,
may subject USOF to additional risks.




37




Accountability
Levels and Position Limits




The CFTC
and U.S. designated contract markets have established accountability levels and
position limits on the maximum net long or net short futures contracts in
commodity interests that any person or group of persons under common
trading control (other than a hedgor, which USOF is not) may hold, own or
control. Among the purposes of accountability levels and position limits is to
prevent a corner or squeeze on a market or undue influence on prices by any
single trader or group of traders. The position limits currently established by
the CFTC apply to certain agricultural commodity interests, such as grains
(oats, barley, and flaxseed), soybeans, corn, wheat, cotton, eggs, rye, and
potatoes, but not to interests in energy products. In addition, U.S. exchanges
may set accountability levels and position limits for all commodity interests
traded on that exchange. For example, the current accountability level for
investments at any one time in Oil Futures Contracts for light, sweet crude oil
(including investments in the Benchmark Oil Futures Contract) on the NYMEX is
10,000 contracts for one month and 20,000 contracts for all months. The NYMEX
also imposes position limits on contracts held in the last few days of trading
in the near month contract to expire. The ICE Futures has recently adopted
similar accountability levels and position limits for certain of its Oil Futures
Contracts that are traded on the ICE Futures and settled against the price of a
contract listed for trading on a U.S. designated contract market such as NYMEX.
Certain exchanges or clearing organizations also set limits on the total net
positions that may be held by a clearing broker. In general, no position limits
are in effect in forward or other over-the-counter contract trading or in
trading on non-U.S. futures exchanges, although the principals with which USOF
and the clearing brokers may trade in such markets may impose such limits as a
matter of credit policy. For purposes of determining accountability levels and
position limits, USOF’s commodity interest positions will not be attributable to
investors in their own commodity interest trading.




Daily
Price Limits




Most U.S.
futures exchanges (but generally not non-U.S. exchanges) may limit the amount of
fluctuation in some futures contract or options on a futures contract prices
during a single trading day by regulations. These regulations specify what are
referred to as daily price fluctuation limits or, more commonly, daily limits.
The daily limits establish the maximum amount that the price of a futures or
options on futures contract may vary either up or down from the previous day’s
settlement price. Once the daily limit has been reached in a particular futures
or options on futures contract, no trades may be made at a price beyond the
limit. Positions in the futures or options contract may then be taken or
liquidated, if at all, only at inordinate expense or if traders are willing to
effect trades at or within the limit during the period for trading on such day.
Because the daily limit rule governs price movement only for a particular
trading day, it does not limit losses and may in fact substantially increase
losses because it may prevent the liquidation of unfavorable positions. Futures
contract prices have occasionally moved to the daily limit for several
consecutive trading days, thus preventing prompt liquidation of positions and
subjecting the trader to substantial losses for those days. The concept of daily
price limits is not relevant to over-the-counter contracts, including forwards
and swaps, and thus such limits are not imposed by banks and others who deal in
those markets.




In
contrast, the NYMEX does not impose daily limits but rather limits the amount of
price fluctuation for Oil Futures Contracts. For example, the NYMEX imposes a
$10.00 per barrel ($10,000 per contract) price fluctuation limit for the
Benchmark Oil Futures Contract. This limit is initially based off the
previous trading day’s settlement price. If any Benchmark Oil Futures Contract
is traded, bid, or offered at the limit for five minutes, trading is halted for
five minutes. When trading resumes it begins at the point where the limit was
imposed and the limit is reset to be $10.00 per barrel in either direction of
that point. If another halt were triggered, the market would continue to be
expanded by $10.00 per barrel in either direction after each successive
five-minute trading halt. There is no maximum price fluctuation limit during any
one trading session.




Commodity
Prices




Commodity
prices are volatile and, although ultimately determined by the interaction of
supply and demand, are subject to many other influences, including the
psychology of the marketplace and speculative assessments of future world and
economic events. Political climate, interest rates, treaties, balance of
payments, exchange controls and other governmental interventions as well as
numerous other variables affect the commodity markets, and even with
comparatively complete information it is impossible for any trader to predict
reliably commodity prices.




38




Regulation




Futures
exchanges in the United States are subject to varying degrees of regulation
under the CEA depending on whether such exchange is a designated contract
market, DTEF, exempt board of trade or electronic trading facility. Derivatives
clearing organizations are also subject to the CEA and CFTC regulation. The CFTC
is the governmental agency charged with responsibility for regulation of futures
exchanges and commodity interest trading conducted on those exchanges. The
CFTC’s function is to implement the CEA’s objectives of preventing price
manipulation and excessive speculation and promoting orderly and efficient
commodity interest markets. In addition, the various exchanges and clearing
organizations themselves exercise regulatory and supervisory authority over
their member firms.




The CFTC
possesses exclusive jurisdiction to regulate the activities of CPOs and
commodity trading advisors and has adopted regulations with respect to the
activities of those persons and/or entities. Under the CEA, a registered CPO,
such as the General Partner, is required to make annual filings with the CFTC
describing its organization, capital structure, management and controlling
persons. In addition, the CEA authorizes the CFTC to require and review books
and records of, and documents prepared by, registered CPOs. Pursuant to this
authority, the CFTC requires CPOs to keep accurate, current and orderly records
for each pool that they operate. The CFTC may suspend the registration of a CPO
(1) if the CFTC finds that the operator’s trading practices tend to disrupt
orderly market conditions, (2) if any controlling person of the operator is
subject to an order of the CFTC denying such person trading privileges on any
exchange, and (3) in certain other circumstances. Suspension, restriction or
termination of the General Partner’s registration as a CPO would prevent it,
until that registration were to be reinstated, from managing USOF, and might
result in the termination of USOF. USOF itself is not required to be registered
with the CFTC in any capacity.




The CEA
gives the CFTC similar authority with respect to the activities of commodity
trading advisors. If a trading advisor’s commodity trading advisor registration
were to be terminated, restricted or suspended, the trading advisor would be
unable, until the registration were to be reinstated, to render trading advice
to USOF.




The CEA
requires all futures commission merchants, such as USOF’s clearing brokers, to
meet and maintain specified fitness and financial requirements, to segregate
customer funds from proprietary funds and account separately for all customers’
funds and positions, and to maintain specified books and records open to
inspection by the staff of the CFTC. The CFTC has similar authority over
introducing brokers, or persons who solicit or accept orders for commodity
interest trades but who do not accept margin deposits for the execution of
trades. The CEA authorizes the CFTC to regulate trading by futures commission
merchants and by their officers and directors, permits the CFTC to require
action by exchanges in the event of market emergencies, and establishes an
administrative procedure under which customers may institute complaints for
damages arising from alleged violations of the CEA. The CEA also gives the
states powers to enforce its provisions and the regulations of the
CFTC.





USOF’s
investors are afforded prescribed rights for reparations under the CEA.
Investors may also be able to maintain a private right of action for violations
of the CEA. The CFTC has adopted rules implementing the reparation provisions of
the CEA, which provide that any person may file a complaint for a reparations
award with the CFTC for violation of the CEA against a floor broker or a futures
commission merchant, introducing broker, commodity trading advisor, CPO, and
their respective associated persons.




Pursuant
to authority in the CEA, the NFA has been formed and registered with the CFTC as
a registered futures association. At the present time, the NFA is the only
self-regulatory organization for commodity interest professionals, other than
futures exchanges. The CFTC has delegated to the NFA responsibility for the
registration of commodity trading advisors, CPOs, futures commission merchants,
introducing brokers, and their respective associated persons and floor brokers.
The General Partner, each trading advisor, the selling agents and the clearing
brokers are members of the NFA. As such, they are subject to NFA standards
relating to fair trade practices, financial condition and consumer protection.
USOF itself is not required to become a member of the NFA. As the
self-regulatory body of the commodity interest industry, the NFA promulgates
rules governing the conduct of professionals and disciplines those professionals
that do not comply with these rules. The NFA also arbitrates disputes between
members and their customers and conducts registration and fitness screening of
applicants for membership and audits of its existing members.




39




The
regulations of the CFTC and the NFA prohibit any representation by a person
registered with the CFTC or by any member of the NFA, that registration with the
CFTC, or membership in the NFA, in any respect indicates that the CFTC or the
NFA, as the case may be, has approved or endorsed that person or that person’s
trading program or objectives. The registrations and memberships of the parties
described in this summary must not be considered as constituting any such
approval or endorsement. Likewise, no futures exchange has given or will give
any similar approval or endorsement.




The
regulation of commodity interest trading in the United States and other
countries is an evolving area of the law. The various statements made in this
summary are subject to modification by legislative action and changes in the
rules and regulations of the CFTC, the NFA, the futures exchanges, clearing
organizations and other regulatory bodies.




The
function of the CFTC is to implement the objectives of the CEA of preventing
price manipulation and other disruptions to market integrity, avoiding systemic
risk, preventing fraud and promoting innovation, competition and financial
integrity of transactions. As mentioned above, this regulation, among other
things, provides that the trading of commodity interest contracts generally must
be upon exchanges designated as contract markets or DTEFs and that all trading
on those exchanges must be done by or through exchange members. Under the CFMA,
commodity interest trading in some commodities between sophisticated persons may
be traded on a trading facility not regulated by the CFTC. As a general matter,
trading in spot contracts, forward contracts, options on forward contracts or
commodities, or swap contracts between eligible contract participants is not
within the jurisdiction of the CFTC and may therefore be effectively
unregulated. The trading advisors may engage in those transactions on behalf of
USOF in reliance on this exclusion from regulation.




In
general, the CFTC does not regulate the interbank and forward foreign currency
markets with respect to transactions in contracts between certain sophisticated
counterparties such as USOF or between certain regulated institutions and retail
investors. Although U.S. banks are regulated in various ways by the Federal
Reserve Board, the Comptroller of the Currency and other U.S. federal and state
banking officials, banking authorities do not regulate the forward
markets.




While the
U.S. government does not currently impose any restrictions on the movements of
currencies, it could choose to do so. The imposition or relaxation of exchange
controls in various jurisdictions could significantly affect the market for that
and other jurisdictions’ currencies. Trading in the interbank market also
exposes USOF to a risk of default since failure of a bank with which USOF had
entered into a forward contract would likely result in a default and thus
possibly substantial losses to USOF.




The CFTC
is prohibited by statute from regulating trading on non-U.S. futures exchanges
and markets. The CFTC, however, has adopted regulations relating to the
marketing of non-U.S. futures contracts in the United States. These regulations
permit certain contracts traded on non-U.S. exchanges to be offered and sold in
the United States.




Commodity
Margin




Original
or initial margin is the minimum amount of funds that must be deposited by a
commodity interest trader with the trader’s broker to initiate and maintain an
open position in futures contracts. Maintenance margin is the amount (generally
less than the original margin) to which a trader’s account may decline before he
must deliver additional margin. A margin deposit is like a cash performance
bond. It helps assure the trader’s performance of the futures contracts that he
or she purchases or sells. Futures contracts are customarily bought and sold on
initial margin that represents a very small percentage (ranging upward from less
than 2%) of the aggregate purchase or sales price of the contract. Because of
such low margin requirements, price fluctuations occurring in the futures
markets may create profits and losses that, in relation to the amount invested,
are greater than are customary in other forms of investment or speculation. As
discussed below, adverse price changes in the futures contract may result in
margin requirements that greatly exceed the initial margin. In addition, the
amount of margin required in connection with a particular futures contract is
set from time to time by the exchange on which the contract is traded and may be
modified from time to time by the exchange during the term of the
contract.




40




Brokerage
firms, such as USOF’s clearing brokers, carrying accounts for traders in
commodity interest contracts may not accept lower, and generally require higher,
amounts of margin as a matter of policy to further protect themselves. The
clearing brokers require USOF to make margin deposits equal to exchange minimum
levels for all commodity interest contracts. This requirement may be altered
from time to time in the clearing brokers’ discretion.




Trading
in the over-the-counter markets where no clearing facility is provided generally
does not require margin but generally does require the extension of credit
between counterparties.




When a
trader purchases an option, there is no margin requirement; however, the option
premium must be paid in full. When a trader sells an option, on the other hand,
he or she is required to deposit margin in an amount determined by the margin
requirements established for the underlying interest and, in addition, an amount
substantially equal to the current premium for the option. The margin
requirements imposed on the selling of options, although adjusted to reflect the
probability that out-of-the-money options will not be exercised, can in fact be
higher than those imposed in dealing in the futures markets directly.
Complicated margin requirements apply to spreads and conversions, which are
complex trading strategies in which a trader acquires a mixture of options
positions and positions in the underlying interest.




Margin
requirements are computed each day by a trader’s clearing broker. When the
market value of a particular open commodity interest position changes to a point
where the margin on deposit does not satisfy maintenance margin requirements, a
margin call is made by the broker. If the margin call is not met within a
reasonable time, the broker may close out the trader’s position. With respect to
USOF’s trading, USOF (and not its investors personally) is subject to margin
calls.




Finally,
many major U.S. exchanges have passed certain cross margining arrangements
involving procedures pursuant to which the futures and options positions held in
an account would, in the case of some accounts, be aggregated and margin
requirements would be assessed on a portfolio basis, measuring the total risk of
the combined positions.




SEC
Reports




USOF makes available, free of charge,
on its website, its annual reports on Form 10-K, its quarterly reports on Form
10-Q, its current reports on Form 8-K and amendments to these reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as
reasonably practicable after these forms are filed with, or furnished to, the
SEC. These reports are also available from the SEC though its website
at:www.sec.gov.





CFTC
Reports





USOF also
makes available its monthly reports and its annual reports required to be
prepared and filed with the NFA under the CFTC regulations.





Item 1A.    
Risk Factors.





The
risk factors should be read in connection with the other information included in
this annual report on Form 10-K, including Management’s Discussion and Analysis
of Financial Condition and Results of Operations and USOF’s financial statements
and the related notes.




Risks
Associated With Investing Directly or Indirectly in Crude Oil





Investing
in oil interests subjects USOF to the risks of the crude oil industry and this
could result in large fluctuations in the price of USOF’s units.




USOF is
subject to the risks and hazards of the crude oil industry because it invests in
oil interests. The risks and hazards that are inherent in the oil industry may
cause the price of oil to widely fluctuate. If the changes in percentage terms
of USOF’s units accurately track the percentage changes in the Benchmark Oil
Futures Contract or the spot price of light, sweet crude oil, then the
price of its units may also fluctuate.




The risks
of crude oil drilling and production activities include the
following:




41




·         no
commercially productive crude oil or natural gas reservoirs may be
found;





·         crude
oil and natural gas drilling and production activities may be shortened, delayed
or canceled;





·         the
ability of an oil producer to develop, produce and market reserves may be
limited by:


·         title
problems,


·         political
conflicts, including war,


·         weather
conditions,


·         compliance
with governmental requirements,


·         refinery
capacity, and


·         mechanical
difficulties or shortages or delays in the delivery of drilling rigs and other
equipment;





·         decisions
of the cartel of oil producing countries (e.g., OPEC), to produce more
or less oil;





·
            increases
      in oil production due to price rises may make it more economical to
      extract oil from additional sources and may later temper further oil price
      increases; and





·
            economic
      activity of users, as certain economies expand, oil consumption increases
      (e.g., China,
      India) and as economies contract (in a recession or depression), oil
      demand and prices fall.





The crude
oil industry experiences numerous operating risks. These operating risks include
the risk of fire, explosions, blow-outs, pipe failure, abnormally pressured
formations and environmental hazards. Environmental hazards include oil spills,
natural gas leaks, ruptures and discharges of toxic gases.





Crude oil
operations also are subject to various U.S. federal, state and local regulations
that materially affect operations. Matters regulated include discharge permits
for drilling operations, drilling and abandonment bonds, reports concerning
operations, the spacing of wells and pooling of properties and taxation. At
various times, regulatory agencies have imposed price controls and limitations
on production. In order to conserve supplies of crude oil and natural gas, these
agencies have restricted the rates of flow of crude oil and natural gas wells
below actual production capacity. Federal, state, and local laws regulate
production, handling, storage, transportation and disposal of crude oil and
natural gas, by-products from crude oil and natural gas and other substances and
materials produced or used in connection with crude oil and natural gas
operations.




The
impact of environmental and other governmental laws and regulations may affect
the price of crude oil.





Environmental
and other governmental laws and regulations have increased the costs to plan,
design, drill, install, operate and abandon oil wells. Other laws have prevented
exploration and drilling of oil in certain environmentally sensitive federal
lands and waters. Several environmental laws that have a direct or an indirect
impact on the price of crude oil include, but are not limited to, the Clean Air
Act, Clean Water Act, Resource Conservation and Recovery Act, and the
Comprehensive Environmental Response, Compensation and Liability Act of
1980.





The
price of USOF’s units may be influenced by factors such as the short-term supply
and demand for crude oil and the short-term supply and demand for USOF’s units.
This may cause the units to trade at a price that is above or below USOF’s NAV
per unit. Accordingly, changes in the price of units may substantially vary from
the changes in the spot price of light, sweet crude oil. If this variation
occurs, then investors may not be able to effectively use USOF as a way to hedge
against crude oil-related losses or as a way to indirectly invest in crude
oil.




While it
is expected that the trading prices of the units will fluctuate in accordance
with changes in USOF’s NAV, the prices of units may also be influenced by other
factors, including the short-term supply and demand for crude oil and the units.
There is no guarantee that the units will not trade at appreciable discounts
from, and/or premiums to, USOF’s NAV. This could cause changes in the price of
the units to substantially vary from changes in the spot price of light,
sweet crude oil. This may be harmful to investors because if changes in the
price of units vary substantially from changes in the spot price of light,
sweet crude oil, then investors may not be able to effectively use USOF as a way
to hedge the risk of losses in their crude oil-related transactions or as a way
to indirectly invest in crude oil.




42




Changes
in USOF’s NAV may not correlate with changes in the price of the Benchmark Oil
Futures Contract. If this were to occur, investors may not be able to
effectively use USOF as a way to hedge against crude oil-related losses or as a
way to indirectly invest in crude oil.




The
General Partner endeavors to invest USOF’s assets as fully as possible in
short-term Oil Futures Contracts and Other Oil Interests so that the changes in
percentage terms of the NAV closely correlate with the changes in percentage
terms in the price of the Benchmark Oil Futures Contract. However, changes in
USOF’s NAV may not correlate with the changes in the price of the Benchmark Oil
Futures Contract for several reasons as set forth below:





·
            USOF
      (i) may not be able to buy/sell the exact amount of Oil Futures Contracts
      and Other Oil Interests to have a perfect correlation with NAV; (ii) may
      not always be able to buy and sell Oil Futures Contracts or Other Oil
      Interests at the market price; (iii) may not experience a perfect
      correlation between the spot price of light, sweet crude oil and the
      underlying investments in Oil Futures Contracts, Other Oil Interests and
      Treasuries, cash and/or cash equivalents; and (iv) is required to pay
      fees, including brokerage fees and  the management fee, which will
      have an effect on the correlation.





·
            Short-term
      supply and demand for light, sweet crude oil may cause the changes in
      the market price of the Benchmark Oil Futures Contract to vary from the
      changes in USOF’s NAV if USOF has fully invested in Oil Futures Contracts
      that do not reflect such supply and demand and it is unable to replace
      such contracts with Oil Futures Contracts that do reflect such supply and
      demand. In addition, there are also technical differences between the two
      markets, e.g.,
      one is a physical market while the other is a futures market traded on
      exchanges, that may cause variations between the spot price of crude oil
      and the prices of related futures
contracts.





·
            USOF
      plans to buy only as many Oil Futures Contracts and Other Oil Interests
      that it can to get the changes in percentage terms of the NAV as close as
      possible to the changes in percentage terms in the price of the Benchmark
      Oil Futures Contract. The remainder of its assets will be invested in
      Treasuries, cash and/or cash equivalents and will be used to satisfy
      initial margin and additional margin requirements, if any, and to
      otherwise support its investments in oil interests. Investments in
      Treasuries, cash and/or cash equivalents, both directly and as margin,
      will provide rates of return that will vary from changes in the value of
      the spot price of light, sweet crude oil and the price of the
      Benchmark Oil Futures Contract.





·
            In
      addition, because USOF incurs certain expenses in connection with its
      investment activities, and holds most of its assets in more liquid
      short-term securities for margin and other liquidity purposes and for
      redemptions that may be necessary on an ongoing basis, the General Partner
      is generally not able to fully invest USOF’s assets in Oil Futures
      Contracts or Other Oil Interests and there cannot be perfect correlation
      between changes in USOF’s NAV and changes in the price of the Benchmark
      Oil Futures Contract.





·
            As
      USOF grows, there may be more or less correlation. For example, if USOF
      only has enough money to buy three Benchmark Oil Futures Contracts and it
      needs to buy four contracts to track the price of oil then the correlation
      will be lower, but if it buys 20,000 Benchmark Oil Futures Contracts and
      it needs to buy 20,001 contracts then the correlation will be higher. At
      certain asset levels, USOF may be limited in its ability to purchase the
      Benchmark Oil Futures Contract or other Oil Futures Contracts due to
      accountability levels imposed by the relevant exchanges. To the extent
      that USOF invests in these other Oil Futures Contracts or Other Oil
      Interests, the correlation with the Benchmark Oil Futures Contracts may be
      lower. If USOF is required to invest in other Oil Futures Contracts and
      Other Oil Interests that are less correlated with the Benchmark Oil
      Futures Contract, USOF would likely invest in over-the-counter contracts
      to increase the level of correlation of USOF’s assets. Over-the-counter
      contracts entail certain risks described below under “Over-the-Counter
      Contract Risk.”





·
            USOF
      may not be able to buy the exact number of Oil Futures Contracts and Other
      Oil Interests to have a perfect correlation with the Benchmark Oil Futures
      Contract if the purchase price of Oil Futures Contracts required to be
      fully invested in such contracts is higher than the proceeds received for
      the sale of a Creation Basket on the day the basket was sold. In such
      case, USOF could not invest the entire proceeds from the purchase of the
      Creation Basket in such futures contracts (for example, assume USOF
      receives $4,679,000 for the sale of a Creation Basket and assume that the
      price of an Oil Futures Contract for light, sweet crude oil is
      $46,800, then USOF could only invest in 99 Oil Futures Contracts with an
      aggregate value of $4,633,200). USOF would be required to invest a
      percentage of the proceeds in cash, Treasuries or other liquid securities
      to be deposited as margin with the futures commission merchant through
      which the contract was purchased. The remainder of the purchase price for
      the Creation Basket would remain invested in cash and/or cash equivalents
      and Treasuries or other liquid securities as determined by the General
      Partner from time to time based on factors such as potential calls for
      margin or anticipated redemptions. If the trading market for Oil Futures
      Contracts is suspended or closed, USOF may not be able to purchase these
      investments at the last reported price for such
    investments.




43




If
changes in USOF’s NAV do not correlate with changes in the price of the
Benchmark Oil Futures Contract, then investing in USOF may not be an effective
way to hedge against oil-related losses or indirectly invest in
oil.




The
Benchmark Oil Futures Contract may not correlate with the spot price
of light, sweet crude oil and this could cause changes in the price of the
units to substantially vary from the changes in the spot price of light, sweet
crude oil. If this were to occur, then investors may not be able to effectively
use USOF as a way to hedge against crude oil-related losses or as a way to
indirectly invest in crude oil.




When
using the Benchmark Oil Futures Contract as a strategy to track the spot price
of light, sweet crude oil, at best the correlation between changes in
prices of such oil interests and the spot price of crude oil can be only
approximate. The degree of imperfection of correlation depends upon
circumstances such as variations in the speculative oil market, supply of and
demand for such oil interests and technical influences in oil futures trading.
If there is a weak correlation between the oil interests and the spot price
of light, sweet crude oil, then the price of units may not accurately track
the spot price of light, sweet crude oil and investors may not be able to
effectively use USOF as a way to hedge the risk of losses in their oil-related
transactions or as a way to indirectly invest in oil.




USOF
may experience a loss if it is required to sell Treasuries at a price lower than
the price at which they were acquired.




The value
of Treasuries generally moves inversely with movements in interest rates. If
USOF is required to sell Treasuries at a price lower than the price at which
they were acquired, USOF will experience a loss. This loss may adversely impact
the price of the units and may decrease the correlation between the price of the
units, the price of the Benchmark Oil Futures Contracts and Other Oil Interests,
and the spot price of light, sweet crude oil.





Certain
of USOF’s investments could be illiquid which could cause large losses to
investors at any time or from time to time.




USOF may
not always be able to liquidate its positions in its investments at the desired
price. It is difficult to execute a trade at a specific price when there is a
relatively small volume of buy and sell orders in a market. A market disruption,
such as a foreign government taking political actions that disrupt the market in
its currency, its crude oil production or exports, or in another major export,
can also make it difficult to liquidate a position. Alternatively, limits
imposed by futures exchanges or other regulatory organizations, such as
accountability levels, position limits and daily price fluctuation limits, may
contribute to a lack of liquidity with respect to some commodity
interests.




Unexpected
market illiquidity may cause major losses to investors at any time or from time
to time. In addition, USOF has not and does not intend at this time to establish
a credit facility, which would provide an additional source of liquidity and
instead will rely only on the Treasuries, cash and/or cash equivalents that it
holds. The anticipated large value of the positions in Oil Futures
Contracts that the General Partner will acquire or enter into for USOF increases
the risk of illiquidity. The Other Oil Interests that USOF invests in, such as
negotiated over-the-counter contracts, may have a greater likelihood of
being illiquid since they are contracts between two parties that take into
account not only market risk, but also the relative credit, tax, and settlement
risks under such contracts. Such contracts also have limited transferability
that results from such risks and the contract’s express
limitations.




Because
both Oil Futures Contracts and Other Oil Interests may be illiquid, USOF’s oil
interests may be more difficult to liquidate at favorable prices in periods of
illiquid markets and losses may be incurred during the period in which positions
are being liquidated.




44




If
the nature of hedgors and speculators in futures markets has shifted such that
crude oil purchasers are the predominant hedgors in the market, USOF might have
to reinvest at higher futures prices or choose Other Oil Interests.




The
changing nature of the hedgors and speculators in the crude oil market
influences whether futures prices are above or below the expected future spot
price. In order to induce speculators to take the corresponding long side of the
same futures contract, crude oil producers must generally be willing to sell
futures contracts at prices that are below expected future spot prices.
Conversely, if the predominant hedgors in the futures market are the purchasers
of the crude oil who purchase futures contracts to hedge against a rise in
prices, then speculators will only take the short side of the futures contract
if the futures price is greater than the expected future spot price of crude
oil. This can have significant implications for USOF when it is time to reinvest
the proceeds from a maturing Oil Futures Contract into a new Oil Futures
Contract.




While
USOF does not intend to take physical delivery of oil under its Oil Futures
Contracts, physical delivery under such contracts impacts the value of the
contracts.




While it
is not the current intention of USOF to take physical delivery of crude oil
under its Oil Futures Contracts, futures contracts are not required to be
cash-settled and it is possible to take delivery under some of these contracts.
Storage costs associated with purchasing crude oil could result in costs and
other liabilities that could impact the value of Oil Futures Contracts or Other
Oil Interests. Storage costs include the time value of money invested in crude
oil as a physical commodity plus the actual costs of storing the crude oil less
any benefits from ownership of crude oil that are not obtained by the holder of
a futures contract. In general, Oil Futures Contracts have a one-month delay for
contract delivery and the back month (the back month is any future delivery
month other than the spot month) includes storage costs. To the extent that
these storage costs change for crude oil while USOF holds Oil Futures Contracts
or Other Oil Interests, the value of the Oil Futures Contracts or Other Oil
Interests, and therefore USOF’s NAV, may change as well.





The
price relationship between the near month contract and the next month contract
that compose the Benchmark Oil Futures Contract will vary and may impact both
the total return over time of USOF’s NAV, as well as the degree to which its
total return tracks other crude oil price indices’ total returns.




The
design of USOF’s Benchmark Oil Futures Contract is such that every month it
begins by using the near month contract to expire until the near month
contract is within two weeks of expiration, when, over a four day period, it
transitions to the next month contract to expire as its benchmark contract and
keeps that contract as its benchmark until it becomes the near month
contract and close to expiration. In the event of a crude oil futures market
where near month contracts trade at a higher price than next month to expire
contracts, a situation described as “backwardation” in the futures market, then
absent the impact of the overall movement in crude oil prices the value of the
benchmark contract would tend to rise as it approaches expiration. As a result,
the total return of the Benchmark Oil Futures Contract would tend to track
higher. Conversely, in the event of a crude oil futures market where near month
contracts trade at a lower price than next month contracts, a situation
described as “contango” in the futures market, then absent the impact of the
overall movement in crude oil prices the value of the benchmark contract would
tend to decline as it approaches expiration. As a result the total return of the
Benchmark Oil Futures Contract would tend to track lower. When compared to total
return of other price indices, such as the spot price of crude oil, the impact
of backwardation and contango may lead the total return of USOF’s NAV to vary
significantly. In the event of a prolonged period of contango, and absent the
impact of rising or falling oil prices, this could have a significant negative
impact on USOF’s NAV and total return.




Regulation
of the commodity interests and energy markets is extensive and constantly
changing; future regulatory developments are impossible to predict but may
significantly and adversely affect USOF.





The
futures markets are subject to comprehensive statutes, regulations, and margin
requirements. In addition, the CFTC and the exchanges are authorized to take
extraordinary actions in the event of a market emergency, including, for
example, the retroactive implementation of speculative position limits or higher
margin requirements, the establishment of daily price limits and the suspension
of trading. The regulation of futures transactions in the United States is a
rapidly changing area of law and is subject to modification by government and
judicial action.




45




The
regulation of commodity interest transactions in the United States is a rapidly
changing area of law and is subject to ongoing modification by governmental and
judicial action. Considerable regulatory attention has been focused on
non-traditional investment pools which are publicly distributed in the United
States. There is a possibility of future regulatory changes altering, perhaps to
a material extent, the nature of an investment in USOF or the ability of USOF to
continue to implement its investment strategy. In addition, various national
governments have expressed concern regarding the disruptive effects of
speculative trading in the energy markets and the need to regulate the
derivatives markets in general. The effect of any future regulatory change on
USOF is impossible to predict, but could be substantial and
adverse.





Investing
in USOF for purposes of hedging may be subject to several risks including the
possibility of losing the benefit of favorable market movement.




Participants
in the crude oil or in other industries may use USOF as a vehicle to hedge the
risk of losses in their crude oil-related transactions. There are several risks
in connection with using USOF as a hedging device. While hedging can provide
protection against an adverse movement in market prices, it can also preclude a
hedgor’s opportunity to benefit from a favorable market movement. In a hedging
transaction, the hedgor may be concerned that the hedged item will increase in
price, but must recognize the risk that the price may instead decline and if
this happens he will have lost his opportunity to profit from the change in
price because the hedging transaction will result in a loss rather than a gain.
Thus, the hedgor foregoes the opportunity to profit from favorable price
movements.




In
addition, if the hedge is not a perfect one, the hedgor can lose on the hedging
transaction and not realize an offsetting gain in the value of the underlying
item being hedged.




When
using futures contracts as a hedging technique, at best, the correlation between
changes in prices of futures contracts and of the items being hedged can be only
approximate. The degree of imperfection of correlation depends upon
circumstances such as: variations in speculative markets, demand for futures and
for crude oil products, technical influences in futures trading, and differences
between anticipated energy costs being hedged and the instruments underlying the
standard futures contracts available for trading. Even a well-conceived hedge
may be unsuccessful to some degree because of unexpected market behavior as well
as the expenses associated with creating the hedge.




In
addition, using an investment in USOF as a hedge for changes in energy costs
(e.g., investing in
crude oil, heating oil, gasoline, natural gas or other fuels, or electricity)
may not correlate because changes in the spot price of crude oil may vary from
changes in energy costs because the spot price may not be at the same rate as
changes in the price of other energy products, and, in any case, the price of
crude oil does not reflect the refining, transportation, and other costs that
may impact the hedgor’s energy costs.





An
investment in USOF may provide little or no diversification benefits. Thus, in a
declining market, USOF may have no gains to offset losses from other
investments, and an investor may suffer losses on an investment in USOF while
incurring losses with respect to other asset classes.




Historically,
Oil Futures Contracts and Other Oil Interests have generally been non-correlated
to the performance of other asset classes such as stocks and bonds.
Non-correlation means that there is a low statistically valid relationship
between the performance of futures and other commodity interest transactions, on
the one hand, and stocks or bonds, on the other hand. However, there can be no
assurance that such non-correlation will continue during future periods. If,
contrary to historic patterns, USOF’s performance were to move in the same
general direction as the financial markets, investors will obtain little or no
diversification benefits from an investment in the units. In such a case, USOF
may have no gains to offset losses from other investments, and investors
may suffer losses on their investment in USOF at the same time they incur losses
with respect to other investments.




Variables
such as drought, floods, weather, embargoes, tariffs and other political events
may have a larger impact on crude oil prices and crude oil-linked
instruments, including Oil Futures Contracts and Other Oil Interests, than on
traditional securities. These additional variables may create additional
investment risks that subject USOF’s investments to greater volatility than
investments in traditional securities.




46




Non-correlation
should not be confused with negative correlation, where the performance of two
asset classes would be opposite of each other. There is no historic evidence
that the spot price of crude oil and prices of other financial assets, such
as stocks and bonds, are negatively correlated. In the absence of negative
correlation, USOF cannot be expected to be automatically profitable during
unfavorable periods for the stock market, or vice versa.




USOF’s
Operating Risks




USOF
is not a registered investment company so unitholders do not have the
protections of the 1940 Act.




USOF is
not an investment company subject to the 1940 Act. Accordingly, investors
do not have the protections afforded by that statute which, for example,
requires investment companies to have a majority of disinterested directors and
regulates the relationship between the investment company and its investment
manager.




The
General Partner is leanly staffed and relies heavily on key personnel to manage
trading activities.




In
managing and directing the day-to-day activities and affairs of USOF, the
General Partner relies heavily on Messrs. Nicholas Gerber, John Love
and John Hyland. If Messrs. Gerber, Love or Hyland were to leave
or be unable to carry out their present responsibilities, it may have an adverse
effect on the management of USOF. Furthermore, Messrs. Gerber, Love
and Hyland are currently involved in the management of the Related Public
Funds, and the General Partner has filed a registration statement for two other
exchange traded security funds, USSO and US12NG. Mr. Gerber is also employed by
Ameristock Corporation, a registered investment adviser that manages a public
mutual fund. It is estimated that Mr. Gerber will spend approximately 50% of his
time on USOF and Related Public Fund matters. Mr. Love will spend
approximately 100% of his time on USOF and Related Public Fund matters and Mr.
Hyland will spend approximately 85% of his time on USOF and Related Public Fund
matters. To the extent that the General Partner establishes additional funds,
even greater demands will be placed on Messrs. Gerber, Love
and Hyland, as well as the other officers of the General Partner, including
Mr. Howard Mah, the Chief Financial Officer, and its Board of
Directors.





Accountability
levels, position limits, and daily price fluctuation limits set by the exchanges
have the potential to cause a tracking error, which could cause the price of
units to substantially vary from the price of the Benchmark Oil Futures Contract
and prevent investors from being able to effectively use USOF as a way to hedge
against crude oil-related losses or as a way to indirectly invest in crude
oil.




U.S.
designated contract markets such as the NYMEX have established accountability
levels and position limits on the maximum net long or net short futures
contracts in commodity interests that any person or group of persons under
common trading control (other than as a hedge, which an investment by USOF is
not) may hold, own or control. For example, the current accountability level for
investments at any one time in the Benchmark Oil Futures Contract is
20,000. While this is not a fixed ceiling, it is a threshold above which the
NYMEX may exercise greater scrutiny and control over an investor, including
limiting an investor to holding no more than 20,000 Benchmark Oil Futures
Contracts. With regard to position limits, the NYMEX limits an investor from
holding more than 3,000 net futures in the last 3 days of trading in the near
month contract to expire.




In
addition to accountability levels and position limits, the NYMEX also sets daily
price fluctuation limits on futures contracts. The daily price fluctuation limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day’s settlement price. Once the daily price
fluctuation limit has been reached in a particular futures contract, no trades
may be made at a price beyond that limit.




For
example, the NYMEX imposes a $10.00 per barrel ($10,000 per contract) price
fluctuation limit for the Benchmark Oil Futures Contract. This limit is
initially based off of the previous trading day’s settlement price. If any
Benchmark Oil Futures Contract is traded, bid, or offered at the limit for five
minutes, trading is halted for five minutes. When trading resumes it begins at
the point where the limit was imposed and the limit is reset to be $10.00 per
barrel in either direction of that point. If another halt were triggered, the
market would continue to be expanded by $10.00 per barrel in either direction
after each successive five-minute trading halt. There is no maximum price
fluctuation limit during any one trading session.




47




All of
these limits may potentially cause a tracking error between the price of the
units and the price of the Benchmark Oil Futures Contract. This may in turn
prevent investors from being able to effectively use USOF as a way to hedge
against crude oil-related losses or as a way to indirectly invest in crude
oil.




USOF has
not limited the size of its offering and is committed to utilizing substantially
all of its proceeds to purchase Oil Futures Contracts and Other Oil Interests.
If USOF encounters accountability levels, position limits, or price fluctuation
limits for Oil Futures Contracts on the NYMEX, it may then, if permitted under
applicable regulatory requirements, purchase Oil Futures Contracts on the ICE
Futures (formerly, the International Petroleum Exchange) or other exchanges that
trade listed crude oil futures. The Oil Futures Contracts available on the ICE
Futures are generally comparable to the contracts on the NYMEX, but they may
have different underlying commodities, sizes, deliveries, and prices. In
addition, the futures contracts available on the ICE Futures may be subject to
accountability levels and position limits.




There
are technical and fundamental risks inherent in the trading system the General
Partner intends to employ.




The
General Partner’s trading system is quantitative in nature and it is possible
that the General Partner might make a mathematical error. In addition, it is
also possible that a computer or software program may malfunction and cause an
error in computation.




To
the extent that the General Partner uses spreads and straddles as part of its
trading strategy, there is the risk that the NAV may not closely track the
changes in the Benchmark Oil Futures Contract.





Spreads
combine simultaneous long and short positions in related futures contracts that
differ by commodity (e.g., long crude oil and
short gasoline), by market (e.g., long WTI crude futures,
short Brent crude futures), or by delivery month (e.g., long December, short
November). Spreads gain or lose value as a result of relative changes in price
between the long and short positions. Spreads often reduce risk to investors,
because the contracts tend to move up or down together. However, both legs of
the spread could move against an investor simultaneously, in which case the
spread would lose value. Certain types of spreads may face unlimited risk, e.g., because the price of a
futures contract underlying a short position can increase by an unlimited amount
and the investor would have to take delivery or offset at that
price.





A
commodity straddle takes both long and short option positions in the same
commodity in the same market and delivery month simultaneously. The buyer of a
straddle profits if either the long or the short leg of the straddle moves
further than the combined cost of both options. The seller of a straddle profits
if both the long and short positions do not trade beyond a range equal to the
combined premium for selling both options.





If the
General Partner were to utilize a spread or straddle position and the spread
performed differently than expected, the results could impact USOF’s tracking
error. This could affect USOF’s investment objective of having its NAV closely
track the changes in the Benchmark Oil Futures Contract. Additionally, a loss on
a spread position would negatively impact USOF’s absolute return.





USOF
and the General Partner may have conflicts of interest, which may permit them to
favor their own interests to the detriment of unitholders.




USOF and
the General Partner may have inherent conflicts to the extent the General
Partner attempts to maintain USOF’s asset size in order to preserve its fee
income and this may not always be consistent with USOF’s objective of having the
value of its units’ NAV track changes in the Benchmark Oil Futures Contract. The
General Partner’s officers, directors and employees do not devote their time
exclusively to USOF. These persons are directors, officers or employees of other
entities that may compete with USOF for their services. They could have a
conflict between their responsibilities to USOF and to those other
entities.





In
addition, the General Partner’s principals, officers, directors or employees may
trade futures and related contracts for their own account. A conflict of
interest may exist if their trades are in the same markets and at the same time
as USOF trades using the clearing broker to be used by USOF. A potential
conflict also may occur if the General Partner’s principals, officers, directors
or employees trade their accounts more aggressively or take positions in their
accounts which are opposite, or ahead of, the positions taken by
USOF.




48




The
General Partner has sole current authority to manage the investments and
operations of USOF, and this may allow it to act in a way that furthers its own
interests which may create a conflict with the best interests of investors.
Limited partners have limited voting control, which will limit the ability to
influence matters such as amendment of the LP Agreement, change in USOF’s basic
investment policy, dissolution of this fund, or the sale or distribution of
USOF’s assets.




The
General Partner serves as the general partner to each of USOF and the Related
Public Funds and will serve as the general partner for USSO and US12NG, if such
funds offer their securities to the public or begin operations. The General
Partner may have a conflict to the extent that its trading decisions for USOF
may be influenced by the effect they would have on the other funds it manages.
These trading decisions may be influenced since the General Partner also serves
as the general partner for all of the funds and is required to meet all of the
funds’ investment objectives as well as USOF’s. If the General Partner believes
that a trading decision it made on behalf of USOF might (i) impede its other
funds from reaching their investment objectives, or (ii) improve the likelihood
of meeting its other funds’ objectives, then the General Partner may choose to
change its trading decision for USOF, which could either impede or improve the
opportunity for USOF to meet its investment objective. In addition, the General
Partner is required to indemnify the officers and directors of its other funds
if the need for indemnification arises. This potential indemnification will
cause the General Partner’s assets to decrease. If the General Partner’s other
sources of income are not sufficient to compensate for the indemnification, then
the General Partner may terminate and investors could lose their
investment.




Unitholders
may only vote on the removal of the General Partner and limited partners have
only limited voting rights. Unitholders and limited partners will not
participate in the management of USOF and do not control the General Partner so
they will not have influence over basic matters that affect USOF.




Unitholders
that have not applied to become limited partners have no voting rights, other
than to remove the General Partner. Limited partners will have limited voting
rights with respect to USOF’s affairs. Unitholders may remove the General
Partner only if 66 2/3% of the unitholders elect to do so. Unitholders and
limited partners will not be permitted to participate in the management or
control of USOF or the conduct of its business. Unitholders and limited partners
must therefore rely upon the duties and judgment of the General Partner to
manage USOF’s affairs.





The
General Partner may manage a large amount of assets and this could affect USOF’s
ability to trade profitably.




Increases
in assets under management may affect trading decisions. In general, the General
Partner does not intend to limit the amount of assets of USOF that it may
manage. The more assets the General Partner manages, the more difficult it may
be for it to trade profitably because of the difficulty of trading larger
positions without adversely affecting prices and performance and of managing
risk associated with larger positions.




USOF
could terminate at any time and cause the liquidation and potential loss of an
investor’s investment and could upset the overall maturity and timing of an
investor’s investment portfolio.




USOF may
terminate at any time, regardless of whether USOF has incurred losses, subject
to the terms of the LP Agreement. In particular, unforeseen circumstances,
including the death, adjudication of incompetence, bankruptcy, dissolution, or
removal of the General Partner could cause USOF to terminate unless a majority
interest of the limited partners within 90 days of the event elects to continue
the partnership and appoints a successor general partner, or the affirmative
vote of a majority in interest of the limited partners subject to certain
conditions. However, no level of losses will require the General Partner to
terminate USOF. USOF’s termination would cause the liquidation and potential
loss of an investor’s investment. Termination could also negatively affect the
overall maturity and timing of an investor’s investment
portfolio.





Limited
partners may not have limited liability in certain circumstances, including
potentially having liability for the return of wrongful
distributions.




Under
Delaware law, a limited partner might be held liable for USOF’s obligations as
if it were a General Partner if the limited partner participates in the control
of the partnership’s business and the persons who transact business with the
partnership think the limited partner is the General Partner.




49




A limited
partner will not be liable for assessments in addition to its initial capital
investment in any of USOF’s capital securities representing units. However, a
limited partner may be required to repay to USOF any amounts wrongfully returned
or distributed to it under some circumstances. Under Delaware law, USOF may not
make a distribution to limited partners if the distribution causes USOF’s
liabilities (other than liabilities to partners on account of their partnership
interests and nonrecourse liabilities) to exceed the fair value of USOF’s
assets. Delaware law provides that a limited partner who receives such a
distribution and knew at the time of the distribution that the distribution
violated the law will be liable to the limited partnership for the amount of the
distribution for three years from the date of the distribution.





With
adequate notice, a limited partner may be required to withdraw from the
partnership for any reason.




If the
General Partner gives at least fifteen (15) days’ written notice to a limited
partner, then the General Partner may for any reason, in its sole discretion,
require any such limited partner to withdraw entirely from the partnership or to
withdraw a portion of its partner capital account. The General Partner may
require withdrawal even in situations where the limited partner has complied
completely with the provisions of the LP Agreement.




USOF’s
existing units are, and any units USOF issues in the future will be, subject to
restrictions on transfer. Failure to satisfy these requirements will preclude a
transferee from being able to have all the rights of a limited
partner.




No
transfer of any unit or interest therein may be made if such transfer would (a)
violate the then applicable federal or state securities laws or rules and
regulations of the SEC, any state securities commission, the CFTC or any other
governmental authority with jurisdiction over such transfer, or (b) cause USOF
to be taxable as a corporation or affect USOF’s existence or qualification as a
limited partnership. In addition, investors may only become limited partners if
they transfer their units to purchasers that meet certain conditions outlined in
the LP Agreement, which provides that each record holder or limited partner or
unitholder applying to become a limited partner (each a record holder) may be
required by the General Partner to furnish certain information, including that
holder’s nationality, citizenship or other related status. A transferee who is
not a U.S. resident may not be eligible to become a record holder or a limited
partner if its ownership would subject USOF to the risk of cancellation or
forfeiture of any of its assets under any federal, state or local law or
regulation. All purchasers of USOF’s units, who wish to become limited partners
or record holders, and receive cash distributions, if any, or have certain other
rights, must deliver an executed transfer application in which the purchaser or
transferee must certify that, among other things, he, she or it agrees to be
bound by USOF’s LP Agreement and is eligible to purchase USOF’s securities. Any
transfer of units will not be recorded by the transfer agent or recognized by
USOF unless a completed transfer application is delivered to the General Partner
or the Administrator. A person purchasing USOF’s existing units, who does not
execute a transfer application and certify that the purchaser is eligible to
purchase those securities acquires no rights in those securities other than the
right to resell those securities. Whether or not a transfer application is
received or the consent of the General Partner obtained, USOF’s units will be
securities and will be transferable according to the laws governing transfers of
securities. See “Transfer of Units.”




USOF
does not expect to make cash distributions.




The
General Partner has not previously made any cash distributions and intends to
re-invest any realized gains in additional oil interests rather than
distributing cash to limited partners. Therefore, unlike mutual funds, commodity
pools or other investment pools that actively manage their investments in an
attempt to realize income and gains from their investing activities and
distribute such income and gains to their investors, USOF generally does not
expect to distribute cash to limited partners. An investor should not invest in
USOF if it will need cash distributions from USOF to pay taxes on its share of
income and gains of USOF, if any, or for any other reason. Although USOF does
not intend to make cash distributions, the income earned from its investments
held directly or posted as margin may reach levels that merit distribution,
e.g., at levels where
such income is not necessary to support its underlying investments in oil
interests and investors adversely react to being taxed on such income without
receiving distributions that could be used to pay such tax. If this income
becomes significant then cash distributions may be made.




50




There
is a risk that USOF will not earn trading gains sufficient to compensate for the
fees and expenses that it must pay and as such USOF may not earn any
profit.




USOF pays
brokerage charges of approximately 0.18%, based on futures commission merchant
fees of $3.50 per buy or sell, management fees of 0.45% (beginning January 1,
2009) of NAV on its average net assets, and over-the-counter spreads and
extraordinary expenses (e.g., subsequent offering
expenses, other expenses not in the ordinary course of business, including the
indemnification of any person against liabilities and obligations to the extent
permitted by law and required under the LP Agreement and under agreements
entered into by the General Partner on USOF’s behalf and the bringing and
defending of actions at law or in equity and otherwise engaging in the conduct
of litigation and the incurring of legal expenses and the settlement of claims
and litigation) that can not be quantified. These fees and expenses must be paid
in all cases regardless of whether USOF’s activities are profitable.
Accordingly, USOF must earn trading gains sufficient to compensate for these
fees and expenses before it can earn any profit.




USOF
has historically depended upon its affiliates to pay all its expenses. If this
offering of units does not raise sufficient funds to pay USOF’s future expenses
and no other source of funding of expenses is found, USOF may be forced to
terminate and investors may lose all or part of their investment.





Prior to
the offering of units that commenced on January 30, 2007, all of USOF’s expenses
were funded by the General Partner and its affiliates. These payments by the
General Partner and its affiliates were designed to allow USOF the ability
to commence the public offering of its units. USOF now directly pays certain of
these fees and expenses. The General Partner will continue to pay other
fees and expenses, as set forth in the LP Agreement. If the General Partner and
USOF are unable to raise sufficient funds to cover their expenses or locate any
other source of funding, USOF may be forced to terminate and investors may lose
all or part of their investment.




USOF
may incur higher fees and expenses upon renewing existing or entering into new
contractual relationships.




The
clearing arrangements between the clearing brokers and USOF generally are
terminable by the clearing brokers once the clearing broker has given USOF
notice. Upon termination, the General Partner may be required to renegotiate or
make other arrangements for obtaining similar services if USOF intends to
continue trading in Oil Futures Contracts or Other Oil Interest contracts at its
present level of capacity. The services of any clearing broker may not be
available, or even if available, these services may not be available on the
terms as favorable as those of the expired or terminated clearing
arrangements.




USOF
may miss certain trading opportunities because it will not receive the benefit
of the expertise of independent trading advisors.




The
General Partner does not employ trading advisors for USOF; however, it reserves
the right to employ them in the future. The only advisor to USOF is the General
Partner. A lack of independent trading advisors may be disadvantageous to USOF
because it will not receive the benefit of a trading advisor’s
expertise.




An
unanticipated number of redemption requests during a short period of time could
have an adverse effect on the NAV of USOF.




If a
substantial number of requests for redemption of Redemption Baskets are received
by USOF during a relatively short period of time, USOF may not be able to
satisfy the requests from USOF’s assets not committed to trading. As a
consequence, it could be necessary to liquidate positions in USOF’s trading
positions before the time that the trading strategies would otherwise dictate
liquidation.




The
financial markets are currently in a period of disruption and recession and USOF
does not expect these conditions to improve in the near
future.





Currently
and throughout 2008, the financial markets have experienced very difficult
conditions and volatility as well as significant adverse trends. The
deteriorating conditions in these markets have resulted in a decrease in
availability of corporate credit and liquidity and have led indirectly to the
insolvency, closure or acquisition of a number of major financial institutions
and have contributed to further consolidation within the financial services
industry. A continued recession or a depression could adversely affect the
financial condition and results of operations of USOF’s service providers and
Authorized Purchasers which would impact the ability of the General Partner to
achieve USOF’s investment objective.




51






The
failure or bankruptcy of a clearing broker could result in a substantial loss of
USOF’s assets; the clearing broker could be subject to proceedings that impair
its ability to execute USOF’s trades.




Under
CFTC regulations, a clearing broker maintains customers’ assets in a bulk
segregated account. If a clearing broker fails to do so, or is unable to satisfy
a substantial deficit in a customer account, its other customers may be subject
to risk of a substantial loss of their funds in the event of that clearing
broker’s bankruptcy. In that event, the clearing broker’s customers, such as
USOF, are entitled to recover, even in respect of property specifically
traceable to them, only a proportional share of all property available for
distribution to all of that clearing broker’s customers. The bankruptcy of a
clearing broker could result in the complete loss of USOF’s assets posted with
the clearing broker; though the vast majority of USOF’s assets are held in
Treasuries, cash and/or cash equivalents with USOF’s custodian and would not be
impacted by the bankruptcy of a clearing broker. USOF also may be subject to the
risk of the failure of, or delay in performance by, any exchanges and markets
and their clearing organizations, if any, on which commodity interest contracts
are traded.





From time
to time, the clearing brokers may be subject to legal or regulatory proceedings
in the ordinary course of their business. A clearing broker’s involvement in
costly or time-consuming legal proceedings may divert financial resources or
personnel away from the clearing broker’s trading operations, which could impair
the clearing broker’s ability to successfully execute and clear USOF’s
trades.




The
failure or insolvency of USOF’s custodian could result in a substantial loss of
USOF’s assets.




As noted
above, the vast majority of USOF’s assets are held in Treasuries, cash and/or
cash equivalents with USOF’s custodian. The insolvency of the custodian could
result in a complete loss of USOF’s assets held by that custodian, which, at any
given time, would likely comprise a substantial portion of USOF’s total
assets.





Third
parties may infringe upon or otherwise violate intellectual property rights or
assert that the General Partner has infringed or otherwise violated their
intellectual property rights, which may result in significant costs and diverted
attention.




Third
parties may utilize USOF’s intellectual property or technology, including the
use of its business methods, trademarks and trading program software, without
permission. The General Partner has a patent pending for USOF’s business method
and it is registering its trademarks. USOF does not currently have any
proprietary software. However, if it obtains proprietary software in the future,
then any unauthorized use of USOF’s proprietary software and other technology
could also adversely affect its competitive advantage. USOF may have difficulty
monitoring unauthorized uses of its patents, trademarks, proprietary software
and other technology. Also, third parties may independently develop business
methods, trademarks or proprietary software and other technology similar to that
of the General Partner or claim that the General Partner has violated their
intellectual property rights, including their copyrights, trademark rights,
trade names, trade secrets and patent rights. As a result, the General Partner
may have to litigate in the future to protect its trade secrets, determine the
validity and scope of other parties’ proprietary rights, defend itself against
claims that it has infringed or otherwise violated other parties’ rights, or
defend itself against claims that its rights are invalid. Any litigation of this
type, even if the General Partner is successful and regardless of the merits,
may result in significant costs, divert its resources from USOF, or require it
to change its proprietary software and other technology or enter into royalty or
licensing agreements.




The
success of USOF depends on the ability of the General Partner to accurately
implement trading systems, and any failure to do so could subject USOF to losses
on such transactions.




The
General Partner uses mathematical formulas built into a generally available
spreadsheet program to decide whether it should buy or sell oil interests each
day. Specifically, the General Partner uses the spreadsheet to make mathematical
calculations and to monitor positions in oil interests and Treasuries and
correlations to the Benchmark Oil Futures Contract. The General Partner must
accurately process the spreadsheets’ outputs and execute the transactions called
for by the formulas. In addition, USOF relies on the General Partner to properly
operate and maintain its computer and communications systems. Execution of the
formulas and operation of the systems are subject to human error. Any failure,
inaccuracy or delay in implementing any of the formulas or systems and executing
USOF’s transactions could impair its ability to achieve USOF’s investment
objective. It could also result in decisions to undertake transactions based on
inaccurate or incomplete information. This could cause substantial losses on
transactions.




52




USOF
may experience substantial losses on transactions if the computer or
communications system fails.





USOF’s
trading activities, including its risk management, depend on the integrity and
performance of the computer and communications systems supporting them.
Extraordinary transaction volume, hardware or software failure, power or
telecommunications failure, a natural disaster or other catastrophe could cause
the computer systems to operate at an unacceptably slow speed or even fail. Any
significant degradation or failure of the systems that the General Partner uses
to gather and analyze information, enter orders, process data, monitor risk
levels and otherwise engage in trading activities may result in substantial
losses on transactions, liability to other parties, lost profit opportunities,
damages to the General Partner’s and USOF’s reputations, increased operational
expenses and diversion of technical resources.





If
the computer and communications systems are not upgraded, as needed, USOF’s
financial condition could be harmed.





The
development of complex computer and communications systems and new technologies
may render the existing computer and communications systems supporting USOF’s
trading activities obsolete. In addition, these computer and communications
systems must be compatible with those of third parties, such as the systems of
exchanges, clearing brokers and the executing brokers. As a result, if these
third parties upgrade their systems, the General Partner will need to make
corresponding upgrades to continue effectively its trading activities. USOF’s
future success will depend on USOF’s ability to respond to changing technologies
on a timely and cost-effective basis.





USOF
depends on the reliable performance of the computer and communications systems
of third parties, such as brokers and futures exchanges, and may experience
substantial losses on transactions if they fail.





USOF
depends on the proper and timely function of complex computer and communications
systems maintained and operated by the futures exchanges, brokers and other data
providers that the General Partner uses to conduct trading activities. Failure
or inadequate performance of any of these systems could adversely affect the
General Partner’s ability to complete transactions, including its ability to
close out positions, and result in lost profit opportunities and significant
losses on commodity interest transactions. This could have a material adverse
effect on revenues and materially reduce USOF’s available capital. For example,
unavailability of price quotations from third parties may make it difficult or
impossible for the General Partner to use its proprietary software that it
relies upon to conduct its trading activities. Unavailability of records from
brokerage firms may make it difficult or impossible for the General Partner to
accurately determine which transactions have been executed or the details,
including price and time, of any transaction executed. This unavailability of
information also may make it difficult or impossible for the General Partner to
reconcile its records of transactions with those of another party or to
accomplish settlement of executed transactions.





The
occurrence of a terrorist attack, or the outbreak, continuation or expansion of
war or other hostilities could disrupt USOF’s trading activity and materially
affect USOF’s profitability.





The
operations of USOF, the exchanges, brokers and counterparties with which USOF
does business, and the markets in which USOF does business could be severely
disrupted in the event of a major terrorist attack or the outbreak, continuation
or expansion of war or other hostilities. The terrorist attacks of September 11,
2001 and the war in Iraq, global anti-terrorism initiatives and political unrest
in the Middle East and Southeast Asia continue to fuel this
concern.





Risk
of Leverage and Volatility





If
the General Partner permits USOF to become leveraged, investors could lose all
or substantially all of their investment if USOF’s trading positions suddenly
turn unprofitable.





Commodity
pools’ trading positions in futures contracts or other commodity interests are
typically required to be secured by the deposit of margin funds that represent
only a small percentage of a futures contract’s (or other commodity interests’)
entire market value. This feature permits commodity pools to “leverage” their
assets by purchasing or selling futures contracts (or other commodity interests)
with an aggregate value in excess of the commodity pool’s assets. While this
leverage can increase the pool’s profits, relatively small adverse movements in
the price of the pool’s futures contracts can cause significant losses to the
pool. While the General Partner has not and does not currently intend to
leverage USOF’s assets, it is not prohibited from doing so under the LP
Agreement or otherwise.





53





The
price of crude oil is volatile which could cause large fluctuations in the price
of units.





Movements
in the price of crude oil may be the result of factors outside of the General
Partner’s control and may not be anticipated by the General Partner. For
example, price movements for barrels of oil are influenced by, among other
things:





·         changes
in interest rates;





·         actions
by oil producing countries such as the OPEC countries;





·         governmental,
agricultural, trade, fiscal, monetary and exchange control programs and
policies;





·         weather
and climate conditions;





·
              changing
      supply and demand relationships, including but not limited to levels of
      demand domestically or by other countries
      such as China;





·         changes
in balances of payments and trade;





·         U.S.
and international rates of inflation;





·         currency
devaluations and revaluations;





·         U.S.
and international political and economic events; and





·         changes
in philosophies and emotions of market participants.





Since
USOF’s commencement of operations on April 10, 2006, there has been tremendous
volatility in the price of the Benchmark Oil Futures Contract. For
example, the price of the NYMEX futures contract for light, sweet crude oil
rose to an all-time high of $145.29 on July 3, 2008 and dropped to a 2008 low of
$33.87 on December 19, 2008. The General Partner anticipates that there will be
continued volatility in the price of the NYMEX futures contract for light, sweet
crude oil and futures contracts for other petroleum-based commodities.
Consequently, investors should know that this volatility can lead to a loss of
all or substantially all of their investment in USOF.





Over-the-Counter
Contract Risk





Over-the-counter
transactions are subject to little, if any, regulation.





A portion
of USOF’s assets may be used to trade over-the-counter crude oil interest
contracts, such as forward contracts or swap or spot contracts. Over-the-counter
contracts are typically traded on a principal-to-principal basis through dealer
markets that are dominated by major money center and investment banks and other
institutions and are essentially unregulated by the CFTC. Investors therefore do
not receive the protection of CFTC regulation or the statutory scheme of the CEA
in connection with this trading activity by USOF. The markets for
over-the-counter contracts rely upon the integrity of market participants in
lieu of the additional regulation imposed by the CFTC on participants in the
futures markets. The lack of regulation in these markets could expose USOF in
certain circumstances to significant losses in the event of trading abuses or
financial failure by participants.




54





USOF
will be subject to credit risk with respect to counterparties to
over-the-counter contracts entered into by USOF or held by special purpose or
structured vehicles.





USOF
faces the risk of non-performance by the counterparties to the over-the-counter
contracts. Unlike in futures contracts, the counterparty to these contracts is
generally a single bank or other financial institution, rather than a clearing
organization backed by a group of financial institutions. As a result, there
will be greater counterparty credit risk in these transactions. A counterparty
may not be able to meet its obligations to USOF, in which case USOF could suffer
significant losses on these contracts.





If a
counterparty becomes bankrupt or otherwise fails to perform its obligations due
to financial difficulties, USOF may experience significant delays in obtaining
any recovery in a bankruptcy or other reorganization proceeding. USOF may obtain
only limited recovery or may obtain no recovery in such
circumstances.





USOF
may be subject to liquidity risk with respect to its over-the-counter
contracts.





Over-the-counter
contracts may have terms that make them less marketable than Oil Futures
Contracts. Over-the-counter contracts are less marketable because they are not
traded on an exchange, do not have uniform terms and conditions, and are entered
into based upon the creditworthiness of the parties and the availability of
credit support, such as collateral, and in general, they are not transferable
without the consent of the counterparty. These conditions diminish the ability
to realize the full value of such contracts.





Risk
of Trading in International Markets





Trading
in international markets would expose USOF to credit and regulatory
risk.





The
General Partner invests primarily in Oil Futures Contracts, a significant
portion of which are traded on United States exchanges, including the NYMEX.
However, a portion of USOF’s trades may take place on markets and exchanges
outside the United States. Some non-U.S. markets present risks because they are
not subject to the same degree of regulation as their U.S. counterparts. None of
the CFTC, NFA, or any domestic exchange regulates activities of any foreign
boards of trade or exchanges, including the execution, delivery and clearing of
transactions, nor has the power to compel enforcement of the rules of a foreign
board of trade or exchange or of any applicable non-U.S. laws. Similarly, the
rights of market participants, such as USOF, in the event of the insolvency or
bankruptcy of a non-U.S. market or broker are also likely to be more limited
than in the case of U.S. markets or brokers. As a result, in these markets, USOF
has less legal and regulatory protection than it does when it trades
domestically.





In some
of these non-U.S. markets, the performance on a contract is the responsibility
of the counterparty and is not backed by an exchange or clearing corporation and
therefore exposes USOF to credit risk. Trading in non-U.S. markets also leaves
USOF susceptible to swings in the value of the local currency against the U.S.
dollar. Additionally, trading on non-U.S. exchanges is subject to the risks
presented by exchange controls, expropriation, increased tax burdens and
exposure to local economic declines and political instability. An adverse
development with respect to any of these variables could reduce the profit or
increase the loss earned on trades in the affected international
markets.





International
trading activities subject USOF to foreign exchange risk.





The price
of any non-U.S. Oil Futures Contract, option on any non-U.S. Oil Futures
Contract, or other non-U.S. Other Oil Interest and, therefore, the potential
profit and loss on such contract, may be affected by any variance in the foreign
exchange rate between the time the order is placed and the time it is
liquidated, offset or exercised. As a result, changes in the value of the local
currency relative to the U.S. dollar may cause losses to USOF even if the
contract traded is profitable.




55





USOF’s
international trading could expose it to losses resulting from non-U.S.
exchanges that are less developed or less reliable than United States
exchanges.





Some
non-U.S. exchanges may be in a more developmental stage so that prior price
histories may not be indicative of current price dynamics. In addition, USOF may
not have the same access to certain positions on foreign trading exchanges as do
local traders, and the historical market data on which the General Partner bases
its strategies may not be as reliable or accessible as it is for U.S.
exchanges.





Tax
Risk





An
investor’s tax liability may exceed the amount of distributions, if any, on its
units.





Cash or
property will be distributed at the sole discretion of the General Partner. The
General Partner has not and does not currently intend to make cash or other
distributions with respect to units. Investors will be required to pay U.S.
federal income tax and, in some cases, state, local, or foreign income tax, on
their allocable share of USOF’s taxable income, without regard to whether they
receive distributions or the amount of any distributions. Therefore, the tax
liability of an investor with respect to its units may exceed the amount of cash
or value of property (if any) distributed.





An
investor’s allocable share of taxable income or loss may differ from its
economic income or loss on its units.





Due to
the application of the assumptions and conventions applied by USOF in making
allocations for tax purposes and other factors, an investor’s allocable share of
USOF’s income, gain, deduction or loss may be different than its economic profit
or loss from its units for a taxable year. This difference could be temporary or
permanent and, if permanent, could result in it being taxed on amounts in excess
of its economic income.





Items
of income, gain, deduction, loss and credit with respect to units could be
reallocated if the IRS does not accept the assumptions and conventions applied
by USOF in allocating those items, with potential adverse consequences for an
investor.





The U.S.
tax rules pertaining to partnerships are complex and their application to large,
publicly traded partnerships such as USOF is in many respects uncertain. USOF
applies certain assumptions and conventions in an attempt to comply with the
intent of the applicable rules and to report taxable income, gains, deductions,
losses and credits in a manner that properly reflects unitholders’ economic
gains and losses. These assumptions and conventions may not fully comply with
all aspects of the Internal Revenue Code (the “Code”) and applicable Treasury
Regulations, however, and it is possible that the U.S. Internal Revenue Service
will successfully challenge USOF’s allocation methods and require USOF to
reallocate items of income, gain, deduction, loss or credit in a manner that
adversely affects investors. If this occurs, investors may be required to file
an amended tax return and to pay additional taxes plus deficiency
interest.





USOF
could be treated as a corporation for federal income tax purposes, which may
substantially reduce the value of the units.





USOF has
received an opinion of counsel that, under current U.S. federal income tax laws,
USOF will be treated as a partnership that is not taxable as a corporation for
U.S. federal income tax purposes, provided that (i) at least 90 percent of
USOF’s annual gross income consists of “qualifying income” as defined in the
Code, (ii) USOF is organized and operated in accordance with its governing
agreements and applicable law and (iii) USOF does not elect to be taxed as a
corporation for federal income tax purposes. Although the General Partner
anticipates that USOF has satisfied and will continue to satisfy the “qualifying
income” requirement for all of its taxable years, that result cannot be assured.
USOF has not requested and will not request any ruling from the IRS with respect
to its classification as a partnership not taxable as a corporation for federal
income tax purposes. If the IRS were to successfully assert that USOF is taxable
as a corporation for federal income tax purposes in any taxable year, rather
than passing through its income, gains, losses and deductions proportionately to
unitholders, USOF would be subject to tax on its net income for the year at
corporate tax rates. In addition, although the General Partner does not
currently intend to make distributions with respect to units, any distributions
would be taxable to unitholders as dividend income. Taxation of USOF as a
corporation could materially reduce the after-tax return on an investment in
units and could substantially reduce the value of the units.





56





Item
      1B.
            Unresolved
      Staff Comments.





Not
applicable.





Item
      2.
            Properties.





Not
applicable.





Item
      3.
            Legal
      Proceedings.





Although
USOF may, from time to time, be involved in litigation arising out of its
operations in the normal course of business or otherwise, USOF is currently not
a party to any pending material legal proceedings.




Notwithstanding
the foregoing, we have been informed that enforcement staff of the CFTC is
investigating the trading activity of multiple market participants, including
USOF, in the crude oil markets concerning the February 6, 2009 “roll” of the
futures contracts held by USOF. (For a discussion of the monthly “roll” of
USOF’s investments in futures contracts, see pages 5-6 of this annual report on
Form 10-K.) As a regulated entity, USOF regularly responds to inquiries from the
CFTC and its other regulators. As they have with past inquiries, USOF and the
General Partner intend to cooperate with the CFTC’s enforcement staff regarding
its investigation.


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





Not
applicable.





Part
II





Item
      5.
            Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities.





Price
Range of Units





USOF’s
units have traded on the NYSE Arca under the symbol “USO” since November 25,
2008.  Prior to trading on the NYSE Arca, USOF’s units previously
traded on the AMEX under the symbol “USO” since its initial public offering on
April 10, 2006. The following table sets forth the range of reported high and
low sales prices of the units as reported on AMEX and NYSE Arca, as applicable,
for the periods indicated below.





High
                            
                            
                            LowFiscal year 2008First
      quarter
                            
                            $
                            87.79
                            
                            
                            $
                            68.57Second
      quarter
                            
                            $
                            115.77
                            
                            
                            $
                            79.77Third
      quarter
                            
                            $
                            119.17
                            
                            
                            $
                            72.95Fourth
      quarter
                            
                            $
                            81.44
                            
                            
                            $
                            27.73High
                            
                            
                            LowFiscal year 2007First
      quarter
                            
                            $
                            54.20
                            
                            
                            $
                            42.56Second
      quarter
                            
                            $
                            54.22
                            
                            
                            $
                            47.39Third
      quarter
                            
                            $
                            63.72
                            
                            
                            $
                            51.76Fourth
      quarter
                            
                            $
                            77.59
                            
                            
                            $
                            60.19





As of
December 31, 2008, USOF had 79,597 holders of units.





Dividends





USOF has
not made and does not currently intend to make cash distributions to its
unitholders.





Issuer
Purchases of Equity Securities





USOF does
not purchase units directly from its unitholders; however, in connection with
its redemption of baskets held by Authorized Purchasers, USOF redeemed 1,164
baskets (comprising 116,400,000 units) during the year ended December 31,
2008.





57





Item
      6.
            Selected
      Financial Data.





Financial
Highlights (for the years ended December 31, 2008 and 2007 and the period ended
December 31, 2006)


(Dollar
amounts in 000’s except for per unit information)





Year ended
                        December 31,
                        2008
                      
                      
                      Year ended
                        December 31,
                        2007
                      
                      
                      For the period
                        from April 10,
                        2006 to
                        December 31,
                        2006Total
      assets
                      
                      $
                      2,571,491
                      
                      
                      $
                      485,817
                      
                      
                      $
                      804,349Net
      realized and unrealized gain (loss) on futures transactions, inclusive of
      commissions
                      
                      $
                      (863,389
                      )
                      
                      $
                      254,426
                      
                      
                      $
                      (138,926
                      )Net
      income (loss)
                      
                      $
                      (855,496
                      )
                      
                      $
                      284,416
                      
                      
                      $
                      (126,349
                      )Weighted-average
      limited partnership units
                      
                      
                      13,549,727
                      
                      
                      
                      13,730,137
                      
                      
                      
                      7,018,797Net
      income (loss) per unit
                      
                      $
                      (41.51
                      )
                      
                      $
                      23.95
                      
                      
                      $
                      (15.52
                      )Net
      income (loss) per weighted average unit
                      
                      $
                      (63.14
                      )
                      
                      $
                      20.71
                      
                      
                      $
                      (18.00
                      )Cash
      and cash equivalents at end of year/period
                      
                      $
                      1,025,376
                      
                      
                      $
                      354,816
                      
                      
                      $
                      712,884





Item
      7.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.





The
following discussion should be read in conjunction with the financial statements
and the notes thereto of USOF included elsewhere in this annual report on Form
10-K.





Forward-Looking
Information





This
annual report on Form 10-K, 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 USOF’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 USOF’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 USOF cannot assure investors that these
projections included in these forward-looking statements will come to pass.
USOF’s actual results could differ materially from those expressed or implied by
the forward-looking statements as a result of various factors.





USOF has
based the forward-looking statements included in this annual report on Form 10-K
on information available to it on the date of this annual report on Form 10-K,
and USOF assumes no obligation to update any such forward-looking statements.
Although USOF 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 USOF may make
directly to them or through reports that USOF in the future files with the SEC,
including annual reports on Form 10-K, quarterly reports on Form 10-Q and
current reports on Form 8-K.





Introduction





USOF, a
Delaware limited partnership, is a commodity pool that issues units that may be
purchased and sold on the NYSE Arca. The investment objective of USOF is to have
the changes in percentage terms of the units’ NAV  reflect the changes
in percentage terms of the spot price of light, sweet crude oil delivered to
Cushing, Oklahoma, as measured by the changes in the price of the futures
contract on light, sweet crude oil as traded on the NYMEX that is the near month
contract to expire, except when the near month contract is within two weeks of
expiration, in which case it will be measured by the futures contract that is
the next month contract to expire, less USOF’s expenses.





58





USOF
seeks to achieve its investment objective by investing in a combination of Oil
Futures Contracts and Other Oil Interests such that changes in its NAV, measured
in percentage terms, will closely track the changes in the price of the
Benchmark Oil Futures Contract, also measured in percentage terms. USOF’s
General Partner believes the Benchmark Oil Futures Contract historically has
exhibited a close correlation with the spot price of light, sweet crude oil. It
is not the intent of USOF to be operated in a fashion such that the NAV will
equal, in dollar terms, the spot price of light, sweet crude oil or any
particular futures contract based on light, sweet crude oil. Management believes
that it is not practical to manage the portfolio to achieve such an investment
goal when investing in listed Oil Futures Contracts.





On any
valuation day, the Benchmark Oil Futures Contract is the near month futures
contract for light, sweet crude oil traded on the NYMEX unless the near month
contract will expire within two weeks of the valuation day, in which case the
Benchmark Oil Futures Contract is the next month contract for light, sweet crude
oil 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.





USOF may
also invest in other Oil Futures Contracts and Other Oil Interests. The General
Partner of USOF, which is registered as a CPO with the CFTC, is authorized by
the LP Agreement to manage USOF. The General Partner is authorized by USOF in
its sole judgment to employ and establish the terms of employment for, and
termination of, commodity trading advisors or futures commission
merchants.




Crude oil
futures prices were very volatile during all of 2008 and exhibited wide swings.
The price of the Benchmark Oil Futures Contract started the year near the $96
per barrel level. It rose sharply over the course of the year and hit a peak in
early July 2008 of approximately $146 per barrel. After that, the price steadily
declined, with the decline becoming more pronounced with the onset of the global
financial crisis in mid-to-late September 2008. The low of the year was in late
December 2008 when prices reached the $35 per barrel level. The year ended with
the Benchmark Oil Futures Contract near $44 per barrel, down approximately 54%
over the year. Similarly, USOF’s NAV also rose during the year from a starting
level of $75.81 per unit to a high in early July 2008 of $117 per unit. USOF’s
NAV reached its low for the year in late December 2008 at approximately $27 per
unit. The NAV on December 31, 2008 was $34.31, down 55% over the
year.
 
 For the
first half of 2008, the crude oil futures market remained in a state of
backwardation, meaning that the price of the front month crude oil futures
contract was typically higher than the price of the second month crude oil
futures contract, or contracts further away from expiration. For much of the
third quarter, the crude oil futures market moved back and forth between a mild
backwardation market and a mild contango market. A contango market is one in
which the price of the front month crude oil futures contract is less than the
price of the second month crude oil futures contract, or contracts further away
from expiration. From late November 2008 to the end of the year, the market
moved into a much steeper contango market. For a discussion of the impact of
backwardation and contango on total returns, see “Term Structure of Crude Oil
Prices and the Impact on Total Returns”.


Valuation
of Crude Oil Futures Contracts and the Computation of the NAV





The NAV
of USOF units is calculated once each trading day as of the earlier of the close
of 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 NYSE
typically closes at 4:00 p.m. New York time. USOF 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 USOF 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.





Results
of Operations and the Crude Oil Market





Results of Operations.On
April 10, 2006, USOF listed its units on the AMEX under the ticker symbol “USO.”
On that day USOF established its initial offering price at $67.39 per unit and
issued 200,000 units to the initial Authorized Purchaser, KV Execution Services
LLC, in exchange for $13,478,000 in cash. As a result of the acquisition of the
AMEX by NYSE Euronext, USOF’s units no longer trade on the AMEX and commenced
trading on the NYSE Arca on November 25, 2008.





Since its
initial offering of 17,000,000 units, USOF has made six subsequent offerings of
its units: 30,000,000 units which were registered with the SEC on October 18,
2006, 50,000,000 units which were registered with the SEC on January 30, 2007,
30,000,000 units which were registered with the SEC on December 4, 2007,
100,000,000 units which were registered with the SEC on February 7, 2008,
100,000,000 units which were registered with the SEC on September 29, 2008 and
300,000,000 units which were registered with the SEC on January 16, 2009. Units
offered by USOF in subsequent offerings were sold by it for cash at the units’
NAV as described in the applicable prospectus. As of December 31, 2008, USOF had
issued 292,300,000 units, 74,900,000 of which were outstanding.  As of
December 31, 2008, there were 34,700,000 units registered but not yet
issued.




59





More
units have been issued by USOF than are outstanding due to the redemption of
units. Unlike mutual funds that are registered under the 1940 Act, units that
have been redeemed by USOF cannot be resold by USOF. As a result, USOF
contemplates that further offerings of its units will be registered with the SEC
in the future in anticipation of additional issuances.





For the Year Ended December
31, 2008 Compared to the Year Ended December 31, 2007 and the Period from April
10, 2006 to December 31, 2006





As of
December 31, 2008, the total unrealized gain on Oil Futures Contracts owned or
held on that day was $97,616,100 and USOF established cash deposits, including
cash investments in money market funds, that were equal to $2,381,842,321. Less
than half of USOF’s cash assets were held in overnight deposits at USOF’s
Custodian, while 56.95% of the cash balance was held as margin deposits for the
Oil Futures Contracts purchased. The ending per unit NAV on December 31, 2008
was $34.31.





By
comparison, as of December 31, 2007, the total unrealized gain on Oil Futures
Contracts owned or held on that day was $35,705,020 and USOF established cash
deposits, including cash investments in money market funds, that were equal to
$441,146,799. The majority of cash assets were held in overnight deposits at
USOF’s Custodian, while 19.57% of the cash balance was held as margin deposits
for the Oil Futures Contracts purchased. The ending per unit NAV on December 31,
2007 was $75.82. The change in the per unit NAV for December 31, 2007 compared
to December 31, 2008 was primarily a result of sharply lower prices for crude
oil and the related decline in the value of the Oil Futures Contracts that the
Fund had invested in during the year.  The increase in prices in 2007
was due to increased demand for crude oil that decreased in 2008 due to the
economic downturn, which led to decreased demand for oil.





By
comparison, as of December 31, 2006, the total unrealized loss on Oil Futures
Contracts owned or held on that day was $(34,383,000) and USOF established cash
deposits, including cash investments in money market funds, that were equal to
$800,007,448. The majority of cash assets were held in overnight deposits at
USOF’s Custodian, while 10.89% of the cash balance was held as margin deposits
for the Oil Futures Contracts purchased. The ending per unit NAV on December 31,
2006 was $51.87. The change in the per unit NAV for December 31, 2006 compared
to December 31, 2007 was primarily a result of sharply lower prices for crude
oil and the related decline in the value of the Oil Futures Contracts the Fund
had invested in during the year.





Portfolio Expenses. USOF pays
the General Partner a management fee of 0.45% of NAV on its average net assets.
The fee is accrued daily.





During
the year ended December 31, 2008, the daily average total net assets of USOF
were $889,910,016. During the year ended December 31, 2008, total net
assets of USOF exceeded $1 billion on a number of days. The management fee paid
by USOF amounted to $4,058,250, which was calculated at the 0.50% rate for the
total net assets up to and including $1 billion and at the rate of 0.20% on
total net assets over $1 billion, and accrued daily. Management expenses as a
percentage of total net assets averaged 0.46% over the course of the
period.





By
comparison, during the year ended December 31, 2007, the daily average total net
assets of USOF were $732,683,031. During the year ended December 31, 2007, total
net assets of USOF exceeded $1 billion on only a few days. The management fee
paid by USOF amounted to $3,622,613, which was calculated at the 0.50% rate for
the total net assets up to and including $1 billion and at the rate of 0.20% on
total net assets over $1 billion, and accrued daily. Management expenses as a
percentage of total net assets averaged 0.50% over the course of the period.
Management expenses as a percentage of total net assets were lower in 2008
compared to 2007 due primarily to the year ended 2008 having a greater number of
days in which total net assets exceeded $1 billion and were therefore charged
the lower daily rate of 0.20%.





By
comparison, during the period from April 10, 2006 to December 31, 2006, the
daily average total net assets of USOF were approximately $400,799,633. At no
time during 2006 did the total net assets of USOF exceed $1 billion. The
management fee paid by USOF amounted to $1,460,448, which was calculated at the
0.50% rate and accrued daily. Management expenses as a percentage of total net
assets averaged 0.50% over the course of the period. Management fees as a
percentage of total net assets were lower in 2007 compared to 2006 due primarily
to the year ended 2007 having a number of days in which total net assets
exceeded $1 billion and were therefore charged the lower daily rate of
0.20%




60





In
addition to the management fee, USOF 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, FINRA and any other regulatory agency in connection with offers and sales
of its units subsequent to the initial offering and all legal, accounting,
printing and other expenses associated therewith. The total of these fees, taxes
and expenses for 2008 was $4,057,544, as compared to $2,715,237 in 2007
and $500,911 in 2006. The increase in expenses during 2007 and 2008 was
primarily due to the registration and the offering of additional units,
increased brokerage fees and increased tax reporting costs due to the greater
number of unit holders during each year. For the year ended December 31, 2008,
USOF incurred $687,209 in fees and other expenses relating to the registration
and offering of additional units. By comparison, for the year ended December 31,
2007 and the period from April 10, 2006 through December 31, 2006, USOF incurred
$380,992 and $0, respectively, in ongoing registration fees and other expenses
relating to the registration and offering of additional units. Expenses incurred
from inception through December 31, 2006 in connection with organizing USOF and
the costs of the initial offering of units were borne by the General Partner,
and are not subject to reimbursement by USOF.





USOF is
responsible for paying its portion of the fees and expenses, including
directors’ and officers’ liability insurance, of the independent directors of
the General Partner who are also its audit committee members. In 2008, USOF
shared these fees with the Related Public Funds based on the relative assets of
each fund computed on a daily basis. These fees for the year ended December 31,
2008 amounted to a total of $282,000 for all five funds, and USOF’s portion of
such fees was $145,602. By comparison, for the year ended December 31, 2007 and
the period from April 10, 2006 through December 31, 2006, these fees were
$286,000 and $52,500, respectively, and USOF’s portion of such fees was $184,000
and $52,500, respectively. The decrease in directors’ expenses was due to the
proportionate sharing of these fees and expenses with the Related Public
Funds.





USOF also
incurs commissions to brokers for the purchase and sale of Oil Futures
Contracts, Other Oil Interests or Treasuries. During the year ended December 31,
2008, total commissions paid to brokers amounted to $1,607,632. By comparison,
during the year ended December 31, 2007 and the period from April 10, 2006 to
December 31, 2006, total commissions paid to brokers amounted to $1,184,956 and
$478,713, respectively. The increase in the total commissions paid to brokers
was primarily a function of the increase in USOF’s average total net assets, as
the increase in assets required USOF to purchase a greater number of futures
contracts and incur a larger amount of commissions, and also due to increased
redemptions and creations of units during each year. As an annualized percentage
of total net assets, the figure for 2008 represents approximately 0.18% of total
net assets. By comparison, the figure for 2007 represented approximately 0.16%
of total net assets and the figure for 2006 represented approximately 0.16% of
total net assets. However, there can be no assurance that commission costs and
portfolio turnover will not cause commission expenses to rise in future
quarters.





The fees
and expenses associated with USOF’s audit expenses and 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 USOF. These costs are estimated to be $1,200,000 for the year ended
December 31, 2008.




Interest Income. USOF seeks
to invest its assets such that it holds Oil Futures Contracts and Other Oil
Interests in an amount equal to the total net assets of the portfolio.
Typically, such investments do not require USOF to pay the full amount of the
contract value at the time of purchase, but rather require USOF to post an
amount as a margin deposit against the eventual settlement of the contract. As a
result, USOF retains an amount that is approximately equal to its total net
assets, which USOF invests in Treasuries, cash and/or cash equivalents. This
includes both the amount on deposit with the futures commission merchant as
margin, as well as unrestricted cash and cash equivalents held with USOF’s
Custodian. The Treasuries, cash and/or cash equivalents earn interest that
accrues on a daily basis. For 2008, USOF earned $14,050,785 in interest income
on such cash holdings. Based on USOF’s average daily total net assets, this was
equivalent to an annualized yield of 1.58%. USOF did not purchase Treasuries
during 2008 and held all of its funds in cash and/or cash equivalents during
this time period. By comparison, for 2007 and 2006, USOF earned $34,845,846 and
$13,930,431, respectively, in interest income on such cash holdings. Based on
USOF’s average daily total net assets, this is equivalent to an annualized yield
of 4.76% and 4.77%, respectively. USOF did not purchase Treasuries during 2007
or 2006 and held all of its funds in cash and/or cash equivalents during these
time periods. Interest rates on short-term investments in the United States,
including cash, cash equivalents, and short-term Treasuries were sharply lower
in 2008 compared to the same time periods in 2007 and 2006. As a result, the
amount of interest earned by USOF as a percentage of total net assets was lower
in 2008.




61





For the Three Months Ended
December 31, 2008 Compared to the Three Months Ended December 31, 2007 and
December 31, 2006





Portfolio Expenses. During
the three months ended December 31, 2008, the daily average total net assets of
USOF were $1,125,579,667. During the three months ended December 31, 2008, total
net assets of USOF exceeded $1 billion on a number of days. The management fee
paid by USOF amounted to $1,252,606, which was calculated at the 0.50% rate for
the total net assets up to and including $1 billion and at the rate of 0.20% on
total net assets over $1 billion, and accrued daily. Management expenses as a
percentage of total net assets averaged 0.44% over the course of the
period.





By
comparison, during the three months ended December 31, 2007, the daily average
total net assets of USOF were $488,404,527. At no time during the three months
ended December 31, 2007 did the total net assets of USOF exceed $1 billion. The
management fee paid by USOF amounted to $615,524, which was calculated at the
0.50% rate for the total net assets up to and including $1 billion and at the
rate of 0.20% on total net assets over $1 billion, and accrued daily. Management
expenses as a percentage of total net assets averaged 0.50% over the course of
the period. Management expenses as a percentage of total net assets were lower
in the three months ended December 31, 2008 compared to the same period for 2007
due primarily to the three months ended 2008 having a greater number of days in
which total net assets exceeded $1 billion and were therefore charged the lower
daily rate of 0.20%.





By
comparison, during the three months ended December 31, 2006, the daily average
total net assets of USOF were approximately $630,265,814. At no time during the
three months ended December 31, 2006 did the total net assets of USOF exceed $1
billion. The management fee paid by USOF amounted to $789,161, which was
calculated at the 0.50% rate and accrued daily. Management expenses as a
percentage of total net assets averaged 0.50% over the course of the period.
Management expenses as a percentage of total net assets were lower in the three
months ended December 31, 2007 compared to the same period for 2006 due
primarily to the three months ended December 31, 2007 containing a number of
days in which total net assets exceeded $1 billion and were therefore charged
the lower daily rate of 0.20%.





USOF 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, 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 months ended December 31, 2008, USOF
incurred $400,346 in ongoing registration fees and other offering expenses. By
comparison, for the three months ended December 31, 2007 and December 31, 2006,
USOF incurred $449,192 and $22,198, respectively, in ongoing registration fees
and other offering expenses. Expenses incurred from inception through December
31, 2006 in connection with organizing USOF and the costs of the initial
offering of units were borne by the General Partner, and are not subject to
reimbursement by USOF.





USOF is
responsible for paying its portion of the fees and expenses, including
directors’ and officers’ liability insurance, of the independent directors of
the General Partner who are also audit committee members. In 2008, USOF shared
these fees with the Related Public Funds based on the relative assets of each
fund computed on a daily basis. These fees for the three months ended December
31, 2008 amounted to a total of $68,750 for all five funds, and USOF’s portion
of such fees was $38,807. By
comparison, for the three months ended December 31, 2007 and December 31, 2006,
these fees were $41,379 and $71,750, respectively, and USOF’s portion of
such fees was $41,379 and $34,216, respectively.




USOF also
incurs commissions to brokers for the purchase and sale of Oil
Futures Contracts, Other Oil Interests or Treasuries. During the three months
ended December 31, 2008, total commissions paid to brokers amounted to $715,990.
By comparison, during the three months ended December 31, 2007 and December 31,
2006, total commissions paid to brokers amounted to $233,907 and $278,768,
respectively. The increase in the total commissions paid to brokers was
primarily a function of the increase in USOF’s average total net assets, as the
increase in assets required USOF to purchase a greater number of futures
contracts and incur a larger amount of commissions. As an annualized percentage
of total net assets, the figure for 2008 represents approximately 0.18% of total
net assets. By comparison, the figure for the three months ended December 31,
2007 represented approximately 0.19% of total net assets and the figure for the
three months ended December 31, 2006 represented approximately 0.18% of total
net assets. However, there can be no assurance that commission costs and
portfolio turnover will not cause commission expenses to rise in future
quarters.




62





The fees
and expenses associated with USOF’s audit expenses and 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 USOF. No amounts were required to be paid for audit expenses and tax
accounting and reporting requirements for the quarter ended December 31,
2008.





Interest Income. USOF seeks
to invest its assets such that it holds Oil Futures Contracts and Other Oil
Interests in an amount equal to the total net assets of the portfolio.
Typically, such investments do not require USOF to pay the full amount of the
contract value at the time of purchase, but rather require USOF to post an
amount as a margin deposit against the eventual settlement of the contract. As a
result, USOF retains an amount that is approximately equal to its total net
assets, which USOF 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 USOF’s Custodian. The Treasuries,
cash and/or cash equivalents earn interest that accrues on a daily basis. For
the three months ended December 31, 2008, USOF earned $1,837,513 in interest
income on such cash holdings. Based on USOF’s average daily total net assets,
this is equivalent to an annualized yield of 0.65%. USOF did not purchase
Treasuries during the three months ended December 31, 2008 and held all of its
funds in cash and/or cash equivalents during this time period. By comparison,
for the three months ended December 31, 2007 and December 31, 2006, USOF earned
$4,669,974 and $7,811,568, respectively, in interest income on such cash
holdings. Based on USOF’s average daily total net assets, this is equivalent to
an annualized yield of 3.79% and 4.92%, respectively. USOF did not purchase
Treasuries during the three months ended December 31, 2007 or December 31, 2006
and held all of its funds in cash and/or cash equivalents during these time
periods. Overall interest income increased due to the increase in average assets
held by USOF during the period.  However, interest income was lower
due to the fact that interest rates on short-term investments in the United
States, including cash, cash equivalents, and short-term Treasuries were sharply
lower in the three months ended December 31, 2008 compared to the same time
periods in 2007 and 2006. As a result, the amount of interest earned by USOF as
a percentage of total net assets was down.





Tracking USOF’s Benchmark.
USOF seeks to manage its portfolio such that changes in its average daily NAV,
on a percentage basis, closely track changes in the average daily price of the
Benchmark Oil Futures Contract, also on a percentage basis. Specifically, USOF
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 Oil Futures Contract. As an
example, if the average daily movement of the Benchmark Oil Futures Contract for
a particular 30-day time period was 0.5% per day, USOF management would attempt
to manage the portfolio such that the average daily movement of the price 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). USOF’s portfolio management goals do not include
trying to make the nominal price of USOF’s NAV equal to the nominal price of the
current Benchmark Oil Futures Contract or the spot price for crude oil.
Management believes that it is not practical to manage the portfolio to achieve
such an investment goal when investing in listed crude oil futures
contracts.





For the
30 valuation days ended December 31, 2008, the simple average daily change in
the Benchmark Oil Futures Contract was -0.704%, while the simple average daily
change in the NAV of USOF over the same time period was 0.707%. The average
daily difference was -0.002% (or 0.2 basis points, where 1 basis point equals
1/100 of 1%). As a percentage of the daily movement of the Benchmark Oil Futures
Contract, the average error in daily tracking by the NAV was 3.199%, meaning
that over this time period USOF’s tracking error was within the plus or minus
10% range established as its benchmark tracking goal.  The first chart
below shows the daily movement of USOF’s NAV versus the daily movement of the
Benchmark Oil Futures Contract for the 30-day period ending December 31,
2008.




63









*PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS









*PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS





Since the
offering of USOF units to the public on April 10, 2006 to December 31, 2008, the
simple average daily change in the Benchmark Oil Futures Contract was -0.074%,
while the simple average daily change in the NAV of USOF over the same time
period was -0.066%. The average daily difference was 0.008% (or 0.8 basis
points, where 1 basis point equals 1/100 of 1%). As a percentage of the daily
movement of the Benchmark Oil Futures Contract, the average error in daily
tracking by the NAV was 2.345%, meaning that over this time period USOF’s
tracking error was within the plus or minus 10% range established as its
benchmark tracking goal.




64





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





For the
year ended December 31, 2008, the actual total return of USOF as measured by
changes in its NAV was -54.75%. This is based on an initial NAV of $75.82 on
December 31, 2007 and an ending NAV as of December 31, 2008 of $34.31. During
this time period, USOF made no distributions to its unitholders. However, if
USOF’s daily changes in its NAV had instead exactly tracked the changes in the
daily return of the Benchmark Oil Futures Contract, USOF would have ended 2008
with an estimated NAV of $32.39, for a total return over the relevant time
period of -55.12%. The difference between the actual NAV total return of USOF of
-54.75% and the expected total return based on the Benchmark Oil Futures
Contract of -55.12% was an error over the time period of 0.37%, which is to say
that USOF’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 USOF collects on its cash and cash equivalent holdings.
During 2008, USOF received interest income of $14,050,785, which is equivalent
to a weighted average interest rate of 1.58% for 2008. In addition, during the
year ended December 31, 2008, USOF also collected $350,000 from brokerage firms
creating or redeeming baskets of units. During 2008, USOF incurred total
expenses of $8,115,794.  Income from interest and brokerage
collections net of expenses was $6,284,991, which is equivalent to a weighted
average net interest rate of 0.71% for 2008. This income also contributed to
USOF’s actual return exceeding the benchmark results. However, if the total
assets of USOF 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.





By
comparison, for the year ended December 31, 2007, the actual total return of
USOF as measured by changes in its NAV was 46.17%. This is based on an initial
NAV of $51.87 on December 31, 2006 and an ending NAV as of December 31, 2007 of
$75.82. During this time period, USOF made no distributions to its unitholders.
However, if USOF’s daily changes in its NAV had instead exactly tracked the
changes in the daily return of the Benchmark Oil Futures Contract, USOF would
have ended 2007 with an estimated NAV of $73.01, for a total return over the
relevant time period of 40.75%. The difference between the actual NAV total
return of USOF of 46.17% and the expected total return based on the Benchmark
Oil Futures Contract of 40.75% was an error over the time period of +5.42%,
which is to say that USOF’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 USOF collects on its cash and cash equivalent
holdings. During 2007, USOF received interest income of $34,845,846, which is
equivalent to a weighted average interest rate of  4.76% for 2007. In
addition, during the year ended December 31, 2007, USOF also collected
$1,184,956 from brokerage firms creating or redeeming baskets of units. This
income also contributed to USOF’s actual return exceeding the benchmark
results.





By
comparison, for the period from April 10, 2006 through December 31, 2006, the
actual total return of USOF as measured by changes in its NAV was -23.03%.
This is based on initial NAV of $67.39 on April 10, 2006 and an ending NAV as of
December 31, 2006 of $51.87. During this time period, USOF made no distributions
to its unitholders. However, if USOF’s daily changes in its NAV had instead
exactly tracked the changes in the daily return of the Benchmark Oil Futures
Contracts, USOF would have ended 2006 with an estimated NAV of $50.61, for a
total return over the relevant time period of -24.90%. The difference between
the actual NAV total return of USOF of -23.03% and the expected total return
based on the Benchmark Oil Futures Contracts of -24.90% was an error over the
time period of +1.87%, which is to say that USOF’s actual total return exceeded
the benchmark result by that percentage. Management believes that the majority
of the difference between the actual return and the expected benchmark return
can be attributed to the impact of the interest that USOF collects on its cash
and cash equivalent holdings. During 2006, USOF received interest income of
$13,930,431, which is equivalent to a weighted average interest rate of 4.77%
for 2006. In addition, during the period ended December 31, 2006, USOF also
collected $478,713 from brokerage firms creating or redeeming baskets of units.
This income also contributed to USOF’s actual return exceeding the benchmark
results.




65





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





First,
USOF may buy or sell its holdings in the then current Benchmark Oil Futures
Contract at a price other than the closing settlement price of that contract on
the day in which USOF executes the trade. In that case, USOF may pay a price
that is higher, or lower, than that of the Benchmark Oil Futures Contract, which
could cause the changes in the daily NAV of USOF to either be too high or too
low relative to the changes in the Benchmark Oil Futures Contract. In 2008,
management attempted to minimize the effect of these transactions by seeking to
execute its purchase or sale of the Benchmark Oil Futures Contracts at, or as
close as possible to, the end of the day settlement price. However, it may not
always be possible for USOF 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 USOF’s attempt to track the Benchmark Oil Futures
Contract over time.





Second,
USOF earns interest on its cash, cash equivalents and Treasury holdings. USOF is
not required to distribute any portion of its income to its unitholders and did
not make any distribution to unitholders in 2008. Interest payments, and any
other income, were retained within the portfolio and added to USOF’s NAV. When
this income exceeds the level of USOF’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), USOF will realize a net yield that will tend to cause daily
changes in the NAV of USOF to track slightly higher than daily changes in the
Benchmark Oil Futures Contracts. During 2008, USOF earned, on an annualized
basis, approximately 1.58% on its cash holdings. It also incurred cash expenses
on an annualized basis of 0.46% for management fees and approximately 0.18% in
brokerage commission costs related to the purchase and sale of futures
contracts, and 0.27% for other expenses. The foregoing fees and expenses
resulted in a net yield on an annualized basis of approximately 0.67% and
affected USOF’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 Oil Futures Contract.





Third,
USOF may hold Other Oil Interests in its portfolio that may fail to closely
track the Benchmark Oil Futures Contract’s total return movements. In that case,
the error in tracking the Benchmark Oil Futures Contract could result in daily
changes in the NAV of USOF that are either too high, or too low, relative to the
daily changes in the Benchmark Oil Futures Contract. During 2008, USOF did not
hold any Other Oil Interests. However, there can be no assurance that in the
future USOF will not make use of such Other Oil Interests.





Term Structure of Crude Oil Futures
Prices and the Impact on Total Returns.Several factors determine the
total return from investing in a futures contract position. One factor that
impacts the total return that will result from investing in near month crude oil
futures contracts and “rolling” those contracts forward each month is the price
relationship between the current near month contract and the 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 crude oil for immediate delivery (the “spot”
price), was $50 per barrel, and the value of a position in the near month
futures contract was also $50. Over time, the price of the barrel of crude oil
will fluctuate based on a number of market factors, including demand for oil
relative to its supply. The value of the near month contract will likewise
fluctuate in reaction to a number of market factors. If investors seek to
maintain their holding in a near month contract position and not take delivery
of the oil, every month they must sell their current near month contract as it
approaches expiration and invest in the next month contract.




66







If the
futures market is in backwardation, e.g., when the expected price
of oil in the future would be less, the investor would be buying a next month
contract for a lower price than the current near month contract. Hypothetically,
and assuming no other changes to either prevailing crude oil prices or the price
relationship between the spot price, the near month contract and the next month
contract (and ignoring the impact of commission costs and the interest earned on
Treasuries, cash and/or cash equivalents), the value of the next month contract
would rise as it approaches expiration and becomes the new near month contract.
In this example, the value of the $50 investment would tend to rise faster than
the spot price of crude oil, or fall slower. As a result, it would be possible
in this hypothetical example for the price of spot crude oil to have risen to
$60 after some period of time, while the value of the investment in the futures
contract would have risen to $65, assuming backwardation is large enough or
enough time has elapsed. Similarly, the spot price of crude oil could have
fallen to $40 while the value of an investment in the futures contract could
have fallen to only $45. Over time, if backwardation remained constant, the
difference would continue to increase.





If the
futures market is in contango, the investor would be buying a next month
contract for a higher price than the current near month contract.
Hypothetically, and assuming no other changes to either prevailing crude oil
prices or the price relationship between the spot price, the near month contract
and the next month contract (and ignoring the impact of commission costs and the
interest earned on cash), the value of the next month contract would fall as it
approaches expiration and becomes the new near month contract. In this example,
it would mean that the value of the $50 investment would tend to rise slower
than the spot price of crude oil, or fall faster. As a result, it would be
possible in this hypothetical example for the spot price of crude oil to have
risen to $60 after some period of time, while the value of the investment in the
futures contract will have risen to only $55, assuming contango is large enough
or enough time has elapsed. Similarly, the spot price of crude oil could have
fallen to $45 while the value of an investment in the futures contract could
have fallen to $40. Over time, if contango remained constant, the difference
would continue to increase.





The chart
below compares the price of the near month contract to the average price of the
first 12 months over the last 10 years (1999-2008). When the price of the near
month contract is higher than the average price of the front 12 month contracts,
the market would be described as being in backwardation. When the price of the
near month contract is lower than the average price of the front 12 month
contracts, the market would be described as being in contango. Although the
prices of the near month contract and the average price of the front 12 month
contracts do tend to move up or down together, it can be seen that at times the
near month prices are clearly higher than the average price of the 12 month
contracts (backwardation), and other times they are below the average price of
the front 12 month contracts (contango).











*PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS




67





An
alternative way to view the same data is to subtract the dollar price of the
near month contract from the average dollar price of the front 12 month
contracts. If the resulting number is a positive number, then the near month
price is higher than the average price of the front 12 months and the market
could be described as being in backwardation. If the resulting number is a
negative number, than the near month price is lower than the average price of
the front 12 months and the market could be described as being in contango. The
chart below shows the results from subtracting the near month price from the
average price of the front 12 month contracts for the 10 year period between
1999 and 2008.











*PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS





An
investment in a portfolio that involved owning only the near month contract
would likely produce a different result than an investment in a portfolio that
owned an equal number of each of the front 12 months’ worth of contracts.
Generally speaking, when the crude oil futures market is in backwardation, the
near month only portfolio would tend to have a higher total return than the 12
month portfolio. Conversely, if the crude oil futures market was in contango,
the portfolio containing 12 months’ worth of contracts would tend to outperform
the near month only portfolio. The chart below shows the results of owning a
portfolio consisting of the near month contract versus a portfolio containing
the front 12 months’ worth of contracts. In this example, each month, the near
month only portfolio would sell the near month contract at expiration and buy
the next month out contract. The portfolio holding an equal number of the front
12 months’ worth of contracts would sell the near month contract at expiration
and replace it with the contract that becomes the new twelfth month
contract.




68











*PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS





As seen
in the chart above, there have been periods of both positive and negative annual
total returns for both hypothetical portfolios over the last 10 years. In
addition, there have been periods during which the near month only approach had
higher returns, and periods where the 12 month approach had higher total
returns. The above chart does not represent the performance history of USOF or
any affiliated funds.





Historically,
the crude oil futures markets have experienced periods of contango and
backwardation, with backwardation being in place more often than contango.
During the previous two years, including 2006 and the first half of 2007, these
markets have experienced contango. However, starting early in the third quarter
of 2007, the crude oil futures market moved into backwardation. The crude oil
markets remained in backwardation until late in the second quarter of 2008 when
they moved into contango. The crude oil markets remained in contango until late
in the third quarter of 2008, when the markets moved into backwardation.
Finally, the crude oil market moved back into contango for the balance of
2008.





Periods
of contango or backwardation do not materially impact USOF’s investment
objective of having percentage changes in its per unit NAV track percentage
changes in the price of the Benchmark Oil Futures Contract since the impact of
backwardation and contango tended to equally impact the percentage changes in
price of both USOF’s units and the Benchmark Oil 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.





Crude Oil
Market. During the year ended December 31, 2008, crude oil prices were impacted
by several factors. On the consumption side, demand remained strong outside the
United States as continued global economic growth, especially in emerging
economies such as China and India, remained brisk for the first half of the
year. Additionally, the U.S. dollar, the currency in which crude oil is traded
globally, continued to fall, effectively making crude oil cheaper for most
non-U.S. dollar economies. Crude oil prices reached an all time high in July
2008 when the front month contract price reached approximately $145 a
barrel.




69





However,
concerns about a weakening U.S. economy leading to reduced demand for oil
products became a major factor late in the third quarter of 2008. Weakening
demand increased in the U.S. and spread to other countries in the fourth quarter
of 2008 from a combination of the financial crisis and a global economic
slowdown. On the supply side, production remained steady despite concerns about
violence impacting production in Iraq and Nigeria. Oil prices reversed
their upward trend and fell sharply late in the third quarter of 2008 as a
slowing U.S. economy, and flat demand growth outside of the U.S., was enough to
improve the global supply and demand balance. The front month futures contract
ended 2008 at approximately $45, down 70% from its July highs.





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





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





10 Year Correlation
                                        Matrix 1998-2008
                                      
                                      Large
                                        Cap
                                        U.S.
                                        Equities
                                        (S&P
                                        500)
                                      
                                      
                                      U.S. Govt.
                                        Bonds
                                        (EFFAS
                                        U.S.
                                        Government
                                        Bond Index)
                                      
                                      
                                      Global
                                        Equities
                                        (FTSE
                                        World
                                        Index)
                                      
                                      
                                      Unleaded
                                        Gasoline
                                      
                                      
                                      Natural
                                        Gas
                                      
                                      
                                      Heating
                                        Oil
                                      
                                      
                                      Crude
                                        OilLarge
      Cap U.S. Equities (S&P 500)
                                      
                                      
                                      1
                                      
                                      
                                      
                                      -0.223
                                      
                                      
                                      
                                      0.936
                                      
                                      
                                      
                                      0.266
                                      
                                      
                                      
                                      0.045
                                      
                                      
                                      
                                      0.003
                                      
                                      
                                      
                                      0.063U.S.
      Govt. Bonds (EFFAS U.S. Government Bond Index)
                                      
                                      
                                      
                                      
                                      
                                      
                                      1
                                      
                                      
                                      
                                      -0.214
                                      
                                      
                                      
                                      -0.134
                                      
                                      
                                      
                                      0.054
                                      
                                      
                                      
                                      0.037
                                      
                                      
                                      
                                      -0.29Global
      Equities (FTSE World Index)
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      1
                                      
                                      
                                      
                                      0.384
                                      
                                      
                                      
                                      0.072
                                      
                                      
                                      
                                      0.084
                                      
                                      
                                      
                                      0.155Unleaded
      Gasoline
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      1
                                      
                                      
                                      
                                      0.254
                                      
                                      
                                      
                                      0.787
                                      
                                      
                                      
                                      0.747Natural
      Gas
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      1
                                      
                                      
                                      
                                      0.394
                                      
                                      
                                      
                                      0.292Heating
      Oil
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      1
                                      
                                      
                                      
                                      0.738Crude
      Oil
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      1source:
      Bloomberg, NYMEX





PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS




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


The chart
below covers a more recent, but much shorter, range of dates than the above
chart. Over the year ended December 31, 2008, crude oil continued to have a
strong positive correlation with heating oil and unleaded gasoline. During this
period it also had a stronger correlation with the movements of natural gas than
it had displayed over the prior ten year period. Notably, the correlation
between crude oil and both large cap U.S. equities and global equities, which
had been essentially non-correlated over the prior ten years, displayed results
that indicated that they had a weak but positive correlation over this shorter
time period, particularly due to the recent downturn in the U.S. economy.
Finally, the results showed that crude oil and U.S. government bonds, which had
essentially been non-correlated for the prior ten year period, were weakly
negatively correlated over this more recent time period.




70





Correlation Matrix
                                        2008
                                      
                                      Large
                                        Cap
                                        U.S.
                                        Equities
                                        (S&P
                                        500)
                                      
                                      
                                      U.S. Govt.
                                        Bonds
                                        (EFFAS
                                        U.S.
                                        Government
                                        Bond Index)
                                      
                                      
                                      Global
                                        Equities
                                        (FTSE
                                        World
                                        Index)
                                      
                                      
                                      Unleaded
                                        Gasoline
                                      
                                      
                                      Natural
                                        Gas
                                      
                                      
                                      Heating
                                        Oil
                                      
                                      
                                      Crude
                                        OilLarge
      Cap U.S. Equities (S&P 500)
                                      
                                      
                                      1
                                      
                                      
                                      
                                      -0.515
                                      
                                      
                                      
                                      0.839
                                      
                                      
                                      
                                      0.337
                                      
                                      
                                      
                                      0.083
                                      
                                      
                                      
                                      0.264
                                      
                                      
                                      
                                      0.248U.S.
      Govt. Bonds (EFFAS U.S. Government Bond Index)
                                      
                                      
                                      
                                      
                                      
                                      
                                      1
                                      
                                      
                                      
                                      -0.406
                                      
                                      
                                      
                                      -0.233
                                      
                                      
                                      
                                      -0.053
                                      
                                      
                                      
                                      -0.159
                                      
                                      
                                      
                                      -0.224Global
      Equities (FTSE World Index)
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      1
                                      
                                      
                                      
                                      0.486
                                      
                                      
                                      
                                      0.202
                                      
                                      
                                      
                                      0.429
                                      
                                      
                                      
                                      0.403Unleaded
      Gasoline
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      1
                                      
                                      
                                      
                                      0.407
                                      
                                      
                                      
                                      0.853
                                      
                                      
                                      
                                      0.786Natural
      Gas
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      1
                                      
                                      
                                      
                                      0.476
                                      
                                      
                                      
                                      0.408Heating
      Oil
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      1
                                      
                                      
                                      
                                      0.812Crude
      Oil
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      1source:
      Bloomberg, NYMEX





PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS





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




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


Critical
Accounting Policies





Preparation
of the 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. USOF’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 USOF’s 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 USOF 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, USOF 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.




71





Liquidity
and Capital Resources





USOF has
not made, and does not anticipate making, use of borrowings or other lines of
credit to meet its obligations. USOF has met, and it is anticipated that USOF
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. USOF’s liquidity needs
include: redeeming units, providing margin deposits for its existing Oil Futures
Contracts or the purchase of additional Oil Futures Contracts and posting
collateral for its over-the-counter contracts and payment of its expenses,
summarized below under “Contractual Obligations.”




USOF
currently generates cash primarily from (i) the sale of Creation Baskets and
(ii) interest earned on Treasuries, cash and/or cash equivalents. USOF has
allocated substantially all of its net assets to trading in oil interests. USOF
invests in oil interests to the fullest extent possible without being leveraged
or unable to satisfy its current or potential margin or collateral obligations
with respect to its investments in Oil Futures Contracts and Other Oil
Interests. A significant portion of the NAV is held in cash and cash equivalents
that are used as margin and as collateral for USOF’s trading in oil interests.
The balance of the net assets is held in USOF’s account at its custodian bank.
Interest earned on USOF’s interest-bearing funds is paid to USOF. In prior
periods, the amount of cash earned by USOF from the sale of Creation Baskets and
from interest has exceeded the amount of cash required to pay USOF’s expenses.
However, there can be no assurance that the amount of cash earned will do so in
a period of very low short-term interest rates. In that event, USOF may not be
able to rely on its income to cover cash expenses which could cause a drop in
USOF’s NAV over time.




USOF’s
investment in oil interests may be subject to periods of illiquidity because of
market conditions, regulatory considerations and other reasons. For example,
most commodity exchanges limit the fluctuations in Oil 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 an Oil 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 USOF from promptly
liquidating its positions in Oil Futures Contracts. During the year ended
December 31, 2008, USOF was not forced to purchase or liquidate any of its
positions while daily limits were in effect; however, USOF cannot predict
whether such an event may occur in the future.





Since
March 23, 2007, USOF has been responsible for expenses relating to (i)
investment management fees, (ii) brokerage fees and commissions, (iii) licensing
fees for the use of intellectual property, (iv) ongoing registration expenses in
connection with offers and sales of its units subsequent to the initial
offering, (v) taxes and other expenses, including certain tax reporting costs,
(vi) fees and expenses of the independent directors of the General Partner and
(vii) other extraordinary expenses not in the ordinary course of business, while
the General Partner is responsible for expenses relating to the fees of the
Marketing Agent, the Administrator and the Custodian. If the General Partner and
USOF are unsuccessful in raising sufficient funds to cover these respective
expenses or in locating any other source of funding, USOF will terminate and
investors may lose all or part of their investment.





72





Market
Risk





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





USOF’s
exposure to market risk depends on a number of factors, including the markets
for oil, the volatility of interest rates and foreign exchange rates, the
liquidity of the Oil Futures Contracts and Other Oil Interests markets and the
relationships among the contracts held by USOF. The limited experience that USOF
has had in utilizing its model to trade in oil interests in a manner intended to
track the changes in the spot price of crude oil as represented by the change in
the front month crude oil futures contract, 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 USOF
enters into Oil Futures Contracts and Other Oil Interests, it is exposed to the
credit risk that the counterparty will not be able to meet its obligations. The
counterparty for the Oil Futures Contracts traded on the NYMEX and on most other
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 USOF in such circumstances.





The
General Partner attempts to manage the credit risk of USOF by following various
trading limitations and policies. In particular, USOF generally posts margin
and/or holds liquid assets that are approximately equal to the market value of
its obligations to counterparties under the Oil Futures Contracts and Other Oil
Interests it holds. The General Partner has implemented procedures that include,
but are not limited to, executing and clearing trades only with creditworthy
parties and/or requiring the posting of collateral or margin by such parties for
the benefit of USOF to limit its credit exposure. UBS Securities LLC, USOF’s
commodity broker, or any other broker that may be retained by USOF in the
future, when acting as USOF’s futures commission merchant in accepting orders to
purchase or sell Oil Futures Contracts on United States exchanges, is required
by CFTC regulations to separately account for and segregate as belonging to
USOF, all assets of USOF relating to domestic Oil Futures Contracts trading.
These futures commission merchants are not allowed to commingle USOF’s assets
with its other assets. In addition, the CFTC requires commodity brokers to hold
in a secure account the USOF assets related to foreign Oil Futures Contracts
trading. During the year ended December 31, 2008, the only foreign exchange on
which USOF made investments was the ICE Futures, which is a London based futures
exchange. Those crude oil contracts are denominated in U.S.
dollars.




If, in
the future, USOF purchases over-the-counter contracts, see “Item 7A:
Quantitative and Qualitative Disclosure About Market Risk” for a discussion of
over-the-counter contracts.


As of December 31, 2008, USOF had
deposits in domestic and foreign financial institutions, including cash
investments in money market funds, in the amount of $2,381,842,321. This amount
is subject to loss should these institutions cease
operations.





Off
Balance Sheet Financing





As of
December 31, 2008, USOF 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 USOF. While USOF’s exposure under
these indemnification provisions cannot be estimated, they are not expected to
have a material impact on USOF’s financial position.


73




Redemption
Basket Obligation





In order
to meet its investment objective and pay its contractual obligations described
below, USOF requires liquidity to redeem units, which redemptions must be
in blocks of 100,000 units called Redemption Baskets. USOF 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





USOF’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 USOF’s NAV, which, through December 31, 2008, was calculated
at a rate of 0.50% for a NAV of $1 billion or less, and thereafter at a rate of
0.20% for a NAV above $1 billion. Beginning January 1, 2009, USOF pays the
General Partner a management fee equal to 0.45% of NAV on its average net
assets.





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





The General Partner pays the fees
of the Marketing Agent and the fees of the custodian and transfer agent,
BBH&Co., as well as BBH&Co.’s fees for performing administrative
services, including in connection with the preparation of USOF’s financial
statements and its SEC and CFTC reports. The General Partner and USOF have
also entered into a licensing agreement with the NYMEX pursuant to which
USOF and the affiliated funds managed by the General Partner pay a licensing fee
to the NYMEX. The General Partner also pays certain initial
implementation service fees and base service fees charged by the accounting
firm for its tax accounting and reporting requirements; however, USOF pays
the fees and expenses associated with its tax accounting and reporting
requirements.




In addition to the General Partner’s
management fee, USOF pays its brokerage fees (including fees to a futures
commission merchant), over-the-counter dealer spreads, any licensing fees
for the use of intellectual property, and, subsequent to the initial offering,
registration and other fees paid to the SEC, FINRA, or other regulatory agencies
in connection with the offer and sale of units, as well as legal, printing,
accounting and other expenses associated therewith, and extraordinary expenses.
The latter are expenses not incurred in the ordinary course of USOF’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. USOF also pays a
portion of the fees and expenses of the independent directors of the General
Partner. See Note 3 to the Notes to Financial Statements.





The
parties cannot anticipate the amount of payments that will be required under
these arrangements for future periods, as USOF’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 USOF’s
existence. Either party may terminate these agreements earlier for certain
reasons described in the agreements.





Item
7A.  Quantitative and Qualitative Disclosure About Market
Risk





Over-the-Counter
Derivatives




In the
future, USOF may purchase over-the-counter contracts. Unlike most of the
exchange-traded Oil Futures Contracts or exchange-traded options on such
futures, each party to an over-the-counter contract bears the credit risk
that the other party may not be able to perform its obligations under its
contract.


74


Some
crude oil-based derivatives transactions contain fairly generic terms and
conditions and are available from a wide range of participants. Other crude
oil-based derivatives have highly customized terms and conditions and are not as
widely available. Many of these over-the-counter contracts are cash-settled
forwards for the future delivery of crude oil- or petroleum-based fuels that
have terms similar to the Oil Futures Contracts. Others take the form of “swaps”
in which the two parties exchange cash flows based on pre-determined formulas
tied to the spot price of crude oil, forward crude oil prices or crude oil
futures prices. For example, USOF may enter into over-the-counter derivative
contracts whose value will be tied to changes in the difference between
the spot price of light, sweet crude oil, the price of Oil Futures
Contracts traded on the NYMEX and the prices of other Oil Futures Contracts that
may be invested in by USOF.





To
protect itself from the credit risk that arises in connection with such
contracts, USOF may enter into agreements with each counterparty that provide
for the netting of its overall exposure to such counterparty, such as the
agreements published by the International Swaps and Derivatives Association,
Inc. USOF also may require that the counterparty be highly rated and/or
provide collateral or other credit support to address USOF’s exposure to the
counterparty. In addition, it is also possible for USOF and its counterparty to
agree to clear their agreement through an established futures clearinghouse such
as those connected to the NYMEX or the ICE Futures. In that event, USOF would no
longer have credit risk of its original counterparty, as the clearinghouse would
now be USOF’s counterparty. USOF would still retain any price risk associated
with its transaction.





The
creditworthiness of each potential counterparty will be assessed by the General
Partner. The General Partner will assess or review, as appropriate, the
creditworthiness of each potential or existing counterparty to an
over-the-counter contract pursuant to guidelines approved by the Board.
Furthermore, the General Partner on behalf of USOF 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) commodity futures
merchants; or (e) affiliates of the foregoing. Existing counterparties are also
reviewed periodically by the General Partner.





USOF
anticipates that the use of Other Oil Interests together with its investments in
Oil Futures Contracts will produce price and total return results that closely
track the investment goals of USOF.





USOF 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 Oil
Futures Contract. USOF 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 USOF to changes in the price relationship between
futures contracts which will expire sooner and those that will expire later.
USOF 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 USOF, or if the General Partner felt it
would lead to an overall lower cost of trading to achieve a given level of
economic exposure to movements in oil prices. USOF 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. USOF 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 USOF or if it would
lead to an overall lower cost of trading to achieve a given level of economic
exposure to movements in oil prices.




During the year ended December 31,
2008, USOF did not employ any hedging methods such as those described above
since all of its investments were made over an exchange. Therefore, USOF was not
exposed to counterparty risk.


75


Item
8.  Financial Statements and Supplementary Data.





United
States Oil Fund, LP





Index
to Financial Statements





Documents
                            
                            PageManagement’s
      Annual Report on Internal Control Over Financial
      Reporting.
                            
                            
                            77Reports of Independent Registered Public
      Accounting Firm.
                            
                            
                            78Statements of Financial Condition at December 31,
      2008 and 2007.
                            
                            
                            80Schedule of Investments at December 31, 2008 and
      2007.
                            
                            
                            81Statements of Operations for the years ended
      December 31, 2008 and 2007, the period fromApril 10, 2006 (commencement of operations)
      to December 31, 2006.
                            
                            
                            83Statements of Changes in Partners’ Capital for the
      years ended December 31, 2008 and 2007, the period from April 10, 2006
      (commencement of operations) to December 31, 2006 and the period from May
      12, 2005 (inception) to December 31, 2005.
                            
                            
                            84Statements of Cash Flows for the years ended
      December 31, 2008 and 2007 and the period from April 10, 2006
      (commencement of operations) to December
      31, 2006.
                            
                            
                            85Notes to Financial Statements for the periods
      ended December 31, 2008, 2007 and 2006.
                            
                            
                            86




76


Management’s
Annual Report on Internal Control Over Financial Reporting.




USOF’s
management assessed the effectiveness of USOF’s internal control over financial
reporting as of December 31, 2008. In making this assessment, it used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission in Internal Control
Integrated Framework.Based on the assessment, USOF believes that, as of
December 31, 2008, its internal control over financial reporting is
effective.


77


Attestation
Report of Registered Public Accounting Firm.





Report
of Independent Registered Public Accounting Firm


Auditors’
Report on Internal Control over Financial Reporting





To the
Partners of


United
States Oil Fund, LP




We have
audited the internal control over financial reporting of United States Oil Fund,
LP (the “Fund”) as of December 31, 2008, based on criteria established in
Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. The Fund’s management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Annual Report on Internal
Control Over Financial Reporting. Our responsibility is to express an opinion on
the Fund’s internal control over financial reporting based on our
audit.





We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.




A
company’s internal control over financial reporting is a process designed by, or
under the supervision of, the company’s principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company’s board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the
financial statements.





Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.





In our
opinion, the Fund maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2008, based on the criteria
established in Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.




We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the financial statements as of and for the year
ended December 31, 2008, of the Fund and our report dated February 18, 2009
expressed an unqualified opinion on those financial statements.




/s/
SPICER JEFFRIES LLP


Greenwood
Village, Colorado


February
18, 2009


78





Report
of Independent Registered Public Accounting Firm





To the
Partners of


United
States Oil Fund, LP




We have
audited the accompanying statements of financial condition of United
States Oil Fund, LP, (the “Fund”) as of December 31, 2008 and 2007,
including the schedule of investments as of December 31, 2008 and 2007, and
the related statements of operations, changes in partners’ capital and cash
flows for the years ended December 31, 2008 and 2007 and the period from
April 10, 2006 (commencement of operations) through December 31, 2006. These
financial statements are the responsibility of the Fund’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.





We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of United States Oil Fund,
LP as of December 31, 2008 and 2007, and the results of its operations
and its cash flows for the years ended December 31, 2008 and 2007 and the period
from April 10, 2006 (commencement of operations) through December 31,
2006, in conformity with accounting principles generally accepted in the
United States of America.





We also
have audited, in accordance with standards of the Public Company Accounting
Oversight Board (United States), the Fund's internal control over financial
reporting as of December 31, 2008, based on criteria established in Internal
Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated February 18, 2009
expressed an unqualified opinion on the Fund's internal control over financial
reporting.





/s/
SPICER JEFFRIES LLP
 Greenwood
Village, Colorado


February
18, 2009


79





United
States Oil Fund, LP


Statements
of Financial Condition


At
December 31, 2008 and 2007





2008
                            
                            
                            2007AssetsCash
      and cash equivalents
                            
                            $
                            1,025,376,289
                            
                            
                            $
                            354,816,049Equity
      in UBS Securities LLC trading accounts:Cash
                            
                            
                            1,356,466,032
                            
                            
                            
                            86,330,750Unrealized
      gain on open commodity futures contracts
                            
                            
                            97,616,100
                            
                            
                            
                            35,705,020Receivable
      for units sold
                            
                            
                            90,984,366
                            
                            
                            
                            7,581,679Interest
      receivable
                            
                            
                            351,735
                            
                            
                            
                            962,551Other
      assets
                            
                            
                            696,590
                            
                            
                            
                            420,705Total
      assets
                            
                            $
                            2,571,491,112
                            
                            
                            $
                            485,816,754Liabilities
      and Partners’ CapitalGeneral
      Partner management fees (Note 3)
                            
                            $
                            513,420
                            
                            
                            $
                            226,782Tax
      reporting fees payable
                            
                            
                            914,255
                            
                            
                            
                            239,954Brokerage
      commission fees payable
                            
                            
                            180,086
                            
                            
                            
                            22,886License
      fees payable
                            
                            
                            85,968
                            
                            
                            
                            47,788Directors’
      fees payable
                            
                            
                            37,152
                            
                            
                            
                            33,235Other
      liabilities
                            
                            
                            136,300
                            
                            
                            
                            23,372Total
      liabilities
                            
                            
                            1,867,181
                            
                            
                            
                            594,017Commitments and Contingencies(Notes 3, 4 and 5)Partners’
      CapitalGeneral
      Partner
                            
                            
                            -
                            
                            
                            
                            -Limited
      Partners
                            
                            
                            2,569,623,931
                            
                            
                            
                            485,222,737Total
      Partners’ Capital
                            
                            
                            2,569,623,931
                            
                            
                            
                            485,222,737Total
      liabilities and partners’ capital
                            
                            $
                            2,571,491,112
                            
                            
                            $
                            485,816,754Limited
      Partners’ units outstanding
                            
                            
                            74,900,000
                            
                            
                            
                            6,400,000Net
      asset value per unit
                            
                            $
                            34.31
                            
                            
                            $
                            75.82Market
      value per unit
                            
                            $
                            33.10
                            
                            
                            $
                            75.75





See
accompanying notes to financial statements.


80





United
States Oil Fund, LP


Schedule
of Investments


At
December 31, 2008





Open
Futures Contracts





Gain on OpenNumber of
                                  
                                  Commodity
                                  
                                  % of Partners’Contracts
                                  
                                  Contracts
                                  
                                  CapitalForeign ContractsCrude
      Oil Futures contracts, expire February 2009
                                  
                                  
                                  5,847
                                  
                                  $
                                  9,851,000
                                  
                                  
                                  0.38United
      States ContractsCrude
      Oil Futures contracts, expire February 2009
                                  
                                  
                                  51,772
                                  
                                  
                                  87,765,100
                                  
                                  
                                  3.4257,619
                                  
                                  
                                  97,616,100
                                  
                                  
                                  3.80




Cash
Equivalents




Cost
                              
                              Market ValueUnited
      States - Money Market FundGoldman
      Sachs Financial Square Funds - Government Fund
                              
                              $
                              410,363,791
                              
                              
                              410,363,791
                              
                              15.97$
                              410,363,791
                              
                              
                              410,363,791
                              
                              15.97Cash
                              
                              
                              615,012,498
                              
                              23.93Total
      Cash and Cash Equivalents
                              
                              
                              1,025,376,289
                              
                              39.90Cash
      on deposit with broker
                              
                              
                              1,356,466,032
                              
                              52.79Other
      assets and receivables in excess of liabilities
                              
                              
                              90,165,510
                              
                              3.51Total
      Partners’ Capital
                              
                              $
                              2,569,623,931
                              
                              100.00





See
accompanying notes to financial statements.


81





United
States Oil Fund, LP
 Schedule
of Investments
 At
December 31, 2007
 
 Open
Futures Contracts





Gain on OpenNumber of
                                
                                Commodity
                                
                                % of Partners’Contracts
                                
                                Contracts
                                
                                CapitalForeign ContractsCrude
      Oil Futures contracts, expire February 2008
                                
                                
                                300
                                
                                $
                                2,361,000
                                
                                
                                0.49United
      States ContractsCrude
      Oil Futures contracts, expire February 2008
                                
                                
                                4,754
                                
                                
                                33,344,020
                                
                                
                                6.875,054
                                
                                
                                35,705,020
                                
                                
                                7.36




Cash
Equivalents




Cost
                      
                      
                      Market ValueUnited
      States - Money Market FundGoldman
      Sachs Financial Square Funds - Treasury Instruments Fund
                      
                      $
                      253,701,525
                      
                      
                      
                      253,701,525
                      
                      
                      
                      52.28$
                      253,701,525
                      
                      
                      
                      253,701,525
                      
                      
                      
                      52.28Cash
                      
                      
                      
                      
                      
                      
                      101,114,524
                      
                      
                      
                      20.84Total
      Cash and Cash Equivalents
                      
                      
                      
                      
                      
                      
                      354,816,049
                      
                      
                      
                      73.12Cash
      on deposit with broker
                      
                      
                      
                      
                      
                      
                      86,330,750
                      
                      
                      
                      17.79Other
      assets and receivables in excess of liabilities
                      
                      
                      
                      
                      
                      
                      8,370,918
                      
                      
                      
                      1.73Total
      Partners’ Capital
                      
                      
                      
                      
                      
                      $
                      485,222,737
                      
                      
                      
                      100.00




See
accompanying notes to financial statements.


82





United
States Oil Fund, LP


Statements
of Operations


For
the years ended December 31, 2008 and 2007 and the period from April


10,
2006 (commencement of operations) to December 31, 2006





Period fromYear ended
                                          
                                          
                                          Year ended
                                          
                                          
                                          April 10, 2006
                                            toDecember 31,
                                            2008
                                          
                                          
                                          December31,
                                            2007
                                          
                                          
                                          December 31,
                                            2006IncomeGains
      (losses) on trading of commodity futures contracts:Realized
      gains (losses) on closed positions
                                          
                                          $
                                          (923,692,430
                                          )
                                          
                                          $
                                          185,522,880
                                          
                                          
                                          $
                                          (104,063,960
                                          )Change
      in unrealized gains (losses) on open positions
                                          
                                          
                                          61,911,080
                                          
                                          
                                          
                                          70,088,020
                                          
                                          
                                          
                                          (34,383,000
                                          )Interest
      income
                                          
                                          
                                          14,050,785
                                          
                                          
                                          
                                          34,845,846
                                          
                                          
                                          
                                          13,930,431Other
      income
                                          
                                          
                                          350,000
                                          
                                          
                                          
                                          297,000
                                          
                                          
                                          
                                          129,000Total
      income (loss)
                                          
                                          
                                          (847,380,565
                                          )
                                          
                                          
                                          290,753,746
                                          
                                          
                                          
                                          (124,387,529
                                          )ExpensesGeneral
      Partner management fees (Note 3)
                                          
                                          
                                          4,058,250
                                          
                                          
                                          
                                          3,622,613
                                          
                                          
                                          
                                          1,460,448Brokerage
      commission fees
                                          
                                          
                                          1,607,632
                                          
                                          
                                          
                                          1,184,956
                                          
                                          
                                          
                                          478,713Registration
      fees
                                          
                                          
                                          687,209
                                          
                                          
                                          
                                          380,992
                                          
                                          
                                          
                                          -License
      fees
                                          
                                          
                                          279,809
                                          
                                          
                                          
                                          385,335
                                          
                                          
                                          
                                          22,198Directors’
      fees
                                          
                                          
                                          144,929
                                          
                                          
                                          
                                          340,722
                                          
                                          
                                          
                                          -Professional
      fees
                                          
                                          
                                          1,337,965
                                          
                                          
                                          
                                          423,232
                                          
                                          
                                          
                                          -Total
      expenses
                                          
                                          
                                          8,115,794
                                          
                                          
                                          
                                          6,337,850
                                          
                                          
                                          
                                          1,961,359Net
      income (loss)
                                          
                                          $
                                          (855,496,359
                                          )
                                          
                                          $
                                          284,415,896
                                          
                                          
                                          $
                                          (126,348,888
                                          )Net
      income (loss) per limited partnership unit
                                          
                                          $
                                          (41.51
                                          )
                                          
                                          $
                                          23.95
                                          
                                          
                                          $
                                          (15.52
                                          )Net
      income (loss) per weighted average limited partnership
unit
                                          
                                          $
                                          (63.14
                                          )
                                          
                                          $
                                          20.71
                                          
                                          
                                          $
                                          (18.00
                                          )Weighted
      average limited partnership units outstanding
                                          
                                          
                                          13,549,727
                                          
                                          
                                          
                                          13,730,137
                                          
                                          
                                          
                                          7,018,797





See
accompanying notes to financial statements.


83





United
States Oil Fund, LP


Statements
of Changes in Partners’ Capital


For
the years ended December 31, 2008 and 2007, the period from April 10, 2006


(commencement
of operations) to December 31, 2006 and the period from May 12, 2005
(inception) to December 31, 2005





General
                                    Partner
                                  
                                  
                                  Limited Partners
                                  
                                  
                                  TotalBalances,
      at Inception
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -Initial
      contribution of capital
                                  
                                  
                                  20
                                  
                                  
                                  
                                  980
                                  
                                  
                                  
                                  1,000Balances,
      at December 31, 2005
                                  
                                  
                                  20
                                  
                                  
                                  
                                  980
                                  
                                  
                                  
                                  1
      ,000Addition
      of 29,000,000 partnership units
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,740,249,722
                                  
                                  
                                  
                                  1,740,249,722Redemption
      of 13,500,000 partnership units
                                  
                                  
                                  (20
                                  )
                                  
                                  
                                  (809,952,560
                                  )
                                  
                                  
                                  (809,952,580
                                  )Net
      loss
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (126,348,888
                                  )
                                  
                                  
                                  (126,348,888
                                  )Balances,
      at December 31, 2006
                                  
                                  
                                  -
                                  
                                  
                                  
                                  803,949,254
                                  
                                  
                                  
                                  803,949,254Addition
      of 78,400,000 partnership units
                                  
                                  
                                  -
                                  
                                  
                                  
                                  4,402,551,383
                                  
                                  
                                  
                                  4,402,551,383Redemption
      of 87,500,000 partnership units
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (5,005,693,796
                                  )
                                  
                                  
                                  (5,005,693,796
                                  )Net
      income
                                  
                                  
                                  -
                                  
                                  
                                  
                                  284,415,896
                                  
                                  
                                  
                                  284,415,896Balances,
      at December 31, 2007
                                  
                                  
                                  -
                                  
                                  
                                  
                                  485,222,737
                                  
                                  
                                  
                                  485,222,737Addition
      of 184,900,000 partnership units
                                  
                                  
                                  -
                                  
                                  
                                  
                                  12,435,374,223
                                  
                                  
                                  
                                  12,435,374,223Redemption
      of 116,400,000 partnership units
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (9,495,476,670
                                  )
                                  
                                  
                                  (9,495,476,670
                                  )Net
      loss
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (855,496,359
                                  )
                                  
                                  
                                  (855,496,359
                                  )Balances,
      at December 31, 2008
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  2,569,623,931
                                  
                                  
                                  $
                                  2,569,623,931Net
      Asset Value Per UnitAt
      December 31, 2005
                                  
                                  $
                                  -At
      April 10, 2006 (commencement of operations)
                                  
                                  $
                                  67.39At
      December 31, 2006
                                  
                                  $
                                  51.87At
      December 31, 2007
                                  
                                  $
                                  75.82At
      December 31, 2008
                                  
                                  $
                                  34.31





See
accompanying notes to financial statements.


84





United
States Oil Fund, LP


Statements
of Cash Flows


For
the years ended December 31, 2008 and 2007 and the period from April 10, 2006
(commencement of operations) to December 31, 2006





Period fromYear ended
                    
                    
                    Year ended
                    
                    
                    April 10, 2006
                      toDecember 31,
                      2008
                    
                    
                    December 31,
                      2007
                    
                    
                    December 31,
                      2006Cash
      Flows from Operating Activities:Net
      income (loss)
                    
                    $
                    (855,496,359
                    )
                    
                    $
                    284,415,896
                    
                    
                    $
                    (126,348,888
                    )Adjustments
      to reconcile net income (loss) to net cash provided by (used in) operating
      activities:Decrease
      (increase) in commodity futures trading account - cash
                    
                    
                    (1,270,135,282
                    )
                    
                    
                    792,886
                    
                    
                    
                    (87,123,636
                    )Unrealized
      (gains) losses on futures contracts
                    
                    
                    (61,911,080
                    )
                    
                    
                    (70,088,020
                    )
                    
                    
                    34,383,000Decrease
      (increase) in interest receivable and other assets
                    
                    
                    334,931
                    
                    
                    
                    1,259,974
                    
                    
                    
                    (2,643,230
                    )Increase
      (decrease) in management fees payable
                    
                    
                    286,638
                    
                    
                    
                    (105,954
                    )
                    
                    
                    332,736Increase
      (decrease) in commission fees payable
                    
                    
                    157,200
                    
                    
                    
                    (21,500
                    )
                    
                    
                    44,386Increase
      in other liabilities
                    
                    
                    829,326
                    
                    
                    
                    322,151
                    
                    
                    
                    22,198Net
      cash provided by (used in) operating activities
                    
                    
                    (2,185,934,626
                    )
                    
                    
                    216,575,433
                    
                    
                    
                    (181,333,434
                    )Cash
      Flows from Financing Activities:Subscription
      of partnership units
                    
                    
                    12,351,971,536
                    
                    
                    
                    4,431,050,600
                    
                    
                    
                    1,704,168,826Redemption
      of partnership units
                    
                    
                    (9,495,476,670
                    )
                    
                    
                    (5,005,693,796
                    )
                    
                    
                    (809,952,580
                    )Net
      cash provided by (used in) financing activities
                    
                    
                    2,856,494,866
                    
                    
                    
                    (574,643,196
                    )
                    
                    
                    894,216,246Net
      Increase (Decrease) in Cash and Cash Equivalents
                    
                    
                    670,560,240
                    
                    
                    
                    (358,067,763
                    )
                    
                    
                    712,882,812Cash and Cash
      Equivalents, beginning of period
                    
                    
                    354,816,049
                    
                    
                    
                    712,883,812
                    
                    
                    
                    1,000Cash and Cash
      Equivalents, end of period
                    
                    $
                    1,025,376,289
                    
                    
                    $
                    354,816,049
                    
                    
                    $
                    712,883,812





See
accompanying notes to financial statements.


85




United
States Oil Fund, LP


Notes
to Financial Statements


For
the periods ended December 31, 2008, 2007 and 2006




NOTE
1 - ORGANIZATION AND BUSINESS





The
United States Oil Fund, LP (“USOF”) was organized as a limited partnership under
the laws of the state of Delaware on May 12, 2005. USOF is a commodity pool that
issues units that may be purchased and sold on the NYSE Arca, Inc. (the “NYSE
Arca”). Prior to November 25, 2008, USOF’s units traded on the American Stock
Exchange (the “AMEX”). USOF will continue in perpetuity, unless terminated
sooner upon the occurrence of one or more events as described in its Fifth
Amended and Restated Agreement of Limited Partnership dated as of October 13,
2008 (the “LP Agreement”). The investment objective of USOF is for the changes
in percentage terms of its net asset value to reflect the changes in percentage
terms of the price of light, sweet crude oil delivered to Cushing, Oklahoma, as
measured by the changes in the price of the futures contract on light, sweet
crude oil 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 USOF’s expenses. USOF
accomplishes its objective through investments in futures contracts for
light, sweet crude oil, and other types of crude oil, heating oil, gasoline,
natural gas and other petroleum-based fuels that are traded on the NYMEX, ICE
Futures or other U.S. and foreign exchanges (collectively, “Oil Futures
Contracts”) and other oil related investments such as cash-settled options on
Oil Futures Contracts, forward contracts for oil and over-the-counter
transactions that are based on the price of crude oil, heating oil, gasoline,
natural gas and other petroleum-based fuels, Oil Futures Contracts and indices
based on the foregoing (collectively, “Other Oil Interests”). As of December 31,
2008, USOF held 51,772 Oil Futures Contracts traded on the NYMEX and 5,847 Oil
Futures Contracts traded on the ICE Futures.





USOF
commenced investment operations on April 10, 2006 and has a fiscal year ending
on December 31. United States Commodity Funds LLC (formerly known as Victoria
Bay Asset Management, LLC) (the “General Partner”) is responsible for the
management of USOF. 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 Natural Gas Fund, LP
(“USNG”), the United States 12 Month Oil Fund, LP (“US12OF”), the United
States Gasoline Fund, LP (“UGA”) and the United States Heating Oil Fund, LP
(“USHO”), which listed their limited partnership units on the AMEX under the
ticker symbols “UNG” on April 18, 2007, “USL” on December 6, 2007,
“UGA” on February 26, 2008 and “UHN” on April 9, 2008, respectively. As a result
of the acquisition of the AMEX by NYSE Euronext, each of USNG’s, US12OF’s, UGA’s
and USHO’s units commenced trading on the NYSE Arca on November 25,
2008.





USOF
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 the earlier of the close of the New York
Stock Exchange (the “NYSE”) or 4:00 p.m. New York time on the day the order to
create the basket is properly received.





In
addition, Authorized Purchasers pay USOF 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 purchased or sold at the net asset value of USOF but rather at
market prices quoted on such exchange.





In April
2006, USOF initially registered 17,000,000 units on Form S-1 with the U.S.
Securities and Exchange Commission (the “SEC”). On April 10, 2006, USOF listed
its units on the AMEX under the ticker symbol “USO”. On that day, USOF
established its initial net asset value by setting the price at $67.39 per unit
and issued 200,000 units in exchange for $13,479,000. USOF also commenced
investment operations on April 10, 2006 by purchasing Oil Futures Contracts
traded on the NYMEX based on light, sweet crude oil. As a result
of the acquisition of the AMEX by NYSE Euronext, USOF’s units commenced trading
on the NYSE Arca on November 25, 2008. As of December 31, 2008, USOF had
registered a total of 327,000,000 units.





86




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 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 financial statements. Changes in the
unrealized gains or losses between periods are reflected in the statement
of operations. USOF earns interest on its assets denominated in U.S. dollars on
deposit with the futures commission merchant at the overnight Federal Funds
Rate less 32 basis points. In addition, USOF 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





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




Additions
and Redemptions





Authorized
Purchasers may purchase Creation Baskets or redeem units (“Redemption Baskets”)
only in blocks of 100,000 units equal to the net asset value of the units
determined as of the earlier of the close of the NYSE or 4:00 p.m. New York time
on the day the order is placed.





USOF
records 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 USOF’s statement of financial condition as receivable for units sold, and
amounts payable to Authorized Purchasers upon redemption are reflected as
payable for units redeemed.





Partnership
Capital and Allocation of Partnership Income and Losses





Profit or
loss shall be allocated among the partners of USOF 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





USOF
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. USOF uses the closing
price for the contracts on the relevant exchange on that day to determine the
value of contracts held on such exchange.





Net
Income (Loss) per Unit





Net
income (loss) per unit is the difference between the net asset value per
unit at the beginning of each period and at the end of each period. The
weighted average number of units outstanding was computed for purposes of
disclosing net income (loss) per weighted average unit. The weighted average
units are equal to the number of units outstanding at the end of the period,
adjusted proportionately for units redeemed based on the amount of time the
units were outstanding during such period. There were no units held by the
General Partner at December 31, 2008.




87





Offering
Costs





Offering
costs incurred in connection with the registration of additional units after the
initial registration of units are borne by USOF. 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 funds and overnight deposits or time
deposits with original maturity dates of three months or less.





Use
of Estimates





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires USOF’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 financial statements, and the reported amounts of the revenue and expenses
during the reporting period. Actual results could differ from those estimates
and assumptions.




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





General
Partner Management Fee





Under the
LP Agreement, the General Partner is responsible for investing the assets of
USOF in accordance with the objectives and policies of USOF. 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 USOF. For these services, through December 31, 2008, USOF was
contractually obligated to pay the General Partner a fee, which was paid monthly
and based on average daily net assets, that was equal to 0.50% per annum on
average daily net assets of $1,000,000,000 or less and 0.20% per annum on
average daily net assets that were greater than $1,000,000,000. As of January 1,
2009, this fee changed to 0.45% per annum on all amounts of average daily net
assets.




Ongoing
Registration Fees and Other Offering Expenses





USOF 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 years ended December 31, 2008 and 2007 and the
period ended December 31, 2006, USOF incurred $687,209, $380,992 and $0,
respectively, in registration fees and other offering
expenses.




Directors’
Fees




USOF 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. During 2008, USOF shared these fees with
USNG, US12OF, UGA and USHO based on the relative assets of each fund, computed
on a daily basis. These fees for calendar year 2008 amounted to a total of
$282,000 for all five funds, and USOF’s portion of such fees was $144,929. For
the calendar year 2007 and the period from April 10, 2006 through December 31,
2006, these fees were $286,000 and $52,500, respectively, and USOF’s portion of
such fees was $184,000 and $52,500, respectively.





Licensing
Fees





As
discussed in Note 4, USOF 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, USOF 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 years ended December 31, 2008 and 2007 and the period ended
December 31, 2006, USOF incurred $279,809, $385,335 and $22,198, respectively,
under this arrangement.




88




Investor
Tax Reporting Cost




The fees
and expenses associated with USOF’s audit expenses and 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 USOF. These costs are estimated to be $1,200,000 for the year ended
December 31, 2008.




Other
Expenses and Fees




In
addition to the fees described above, USOF pays all brokerage fees, taxes
and other expenses in connection with the operation of USOF, excluding costs and
expenses paid by the General Partner as outlined in Note 4.




NOTE
4 - CONTRACTS AND AGREEMENTS





USOF is
party to a marketing agent agreement, dated as of March 13, 2006, with the
Marketing Agent, whereby the Marketing Agent provides certain marketing services
for USOF as outlined in the agreement. The fees of the Marketing Agent, which
are borne by the General Partner, include a marketing fee of $425,000 per annum
plus the following incentive fee: 0.00% on USOF’s assets from $0 - $500 million;
0.04% on USOF’s assets from $500 million - $4 billion; and 0.03% on USOF’s
assets in excess of $4 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.





USOF is
also party to a custodian agreement, dated March 13, 2006, with Brown Brothers
Harriman & Co. (“BBH&Co.”), whereby BBH&Co. holds investments on
behalf of USOF. The General Partner pays the fees of the custodian, which
are determined by the parties from time to time. In addition, USOF is party to
an administrative agency agreement, dated March 13, 2006, with the General
Partner and BBH&Co., whereby BBH&Co. acts as the administrative agent,
transfer agent and registrar for USOF. 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 amount of $75,000 annually for its custody,
fund accounting and fund administration services rendered to all funds, as well
as a $20,000 annual fee for its transfer agency services. In addition, an
asset-based charge of (a) 0.06% for the first $500 million of USOF’s, USNG’s,
US12OF’s, UGA’s and USHO’s combined net assets, (b) 0.0465% for USOF’s, USNG’s,
US12OF’s, UGA’s and USHO’s combined net assets greater than $500 million but
less than $1 billion, and (c) 0.035% once USOF’s, USNG’s, US12OF’s, UGA’s and
USHO’s combined net assets exceed $1 billion. The annual minimum amount will not
apply if the asset-based charge for all accounts in the aggregate exceeds
$75,000. The General Partner also pays transaction fees ranging from $7.00 to
$15.00 per transaction.





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





USOF
invests primarily in Oil Futures Contracts traded on the NYMEX. On May 30, 2007,
USOF and the NYMEX entered into a license agreement whereby USOF 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, USOF 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.





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





89




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





USOF engages
in the speculative trading of futures contracts and options on futures contracts
(collectively, “derivatives”). USOF 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 USOF 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, USOF must rely solely on the credit of its respective individual
counterparties. However, in the future, if USOF 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. USOF 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, USOF 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.





USOF’s
cash and other property, such as U.S. Treasuries, deposited with a futures
commission merchant are considered commingled with all other customer funds
subject to the futures commission merchant’s segregation requirements. In the
event of a futures commission merchant’s insolvency, recovery may be limited to
a pro rata share of segregated funds available. It is possible that the
recovered amount could be less than the total of cash and other property
deposited. The insolvency of a futures commission merchant could result in the
complete loss of USOF’s assets posted with that futures commission merchant;
however, the vast majority of USOF’s assets are held in Treasuries, cash and/or
cash equivalents with USOF’s custodian and would not be impacted by the
insolvency of a futures commission merchant. Also, the failure or insolvency of
USOF’s custodian could result in a substantial loss of USOF’s
assets.




USOF
invests its cash in money market funds that seek to maintain a stable net asset
value. USOF is exposed to any risk of loss associated with an investment in
these money market funds. As of December 31, 2008 and 2007, USOF had deposits in
domestic and foreign financial institutions, including cash investments in money
market funds, in the amounts of $2,381,842,321 and $441,146,799, 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, USOF 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, USOF 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.





USOF’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, USOF 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 USOF are reported in its 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.





90





NOTE 6
- FINANCIAL HIGHLIGHTS





The
following table presents per unit performance data and other supplemental
financial data for the years ended December 31, 2008 and 2007 and the period
from April 10, 2006 (commencement of operations) to December 31, 2006. This
information has been derived from information presented in the financial
statements.




For theperiod fromApril 10,Year ended
                                                  
                                                  
                                                  Year ended
                                                  
                                                  
                                                  2006 toDecember
      31,
                                                  
                                                  
                                                  December
      31,
                                                  
                                                  
                                                  December 31,2008
                                                  
                                                  
                                                  2007
                                                  
                                                  
                                                  2006Per Unit Operating
    Performance:Net
      asset value, beginning of period
                                                  
                                                  $
                                                  75.82
                                                  
                                                  
                                                  $
                                                  51.87
                                                  
                                                  
                                                  $
                                                  67.39Total income
      (loss)
                                                  
                                                  
                                                  (40.91
                                                  )
                                                  
                                                  
                                                  24.41
                                                  
                                                  
                                                  
                                                  (15.24
                                                  )Total
      expenses
                                                  
                                                  
                                                  (0.60
                                                  )
                                                  
                                                  
                                                  (0.46
                                                  )
                                                  
                                                  
                                                  (0.28
                                                  )Net
      increase (decrease) in net asset value
                                                  
                                                  
                                                  (41.51
                                                  )
                                                  
                                                  
                                                  23.95
                                                  
                                                  
                                                  
                                                  (15.52
                                                  )Net
      asset value, end of period
                                                  
                                                  $
                                                  34.31
                                                  
                                                  
                                                  $
                                                  75.82
                                                  
                                                  
                                                  $
                                                  51.87Total
      Return
                                                  
                                                  
                                                  (54.75
                                                  )%
                                                  
                                                  
                                                  46.17
                                                  %
                                                  
                                                  
                                                  (23.03
                                                  )%Ratios
      to Average Net Assets (annualized)Total income
      (loss)
                                                  
                                                  
                                                  (95.22
                                                  )%
                                                  
                                                  
                                                  39.68
                                                  %
                                                  
                                                  
                                                  (42.59
                                                  )%*Expenses
      excluding management fees
                                                  
                                                  
                                                  (0.45
                                                  )%
                                                  
                                                  
                                                  (0.36
                                                  )%
                                                  
                                                  
                                                  (0.17
                                                  )%*Management
      fees
                                                  
                                                  
                                                  (0.46
                                                  )%
                                                  
                                                  
                                                  (0.50
                                                  )%
                                                  
                                                  
                                                  (0.50
                                                  )%*Net income
      (loss)
                                                  
                                                  
                                                  (96.13
                                                  )%
                                                  
                                                  
                                                  38.82
                                                  %
                                                  
                                                  
                                                  (43.26
                                                  )%**Annualized




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 USOF.




NOTE
7 - QUARTERLY FINANCIAL DATA (Unaudited)





The
following summarized (unaudited) quarterly financial information presents the
results of operations and other data for three-month periods ended March 31,
June 30, September 30 and December 31, 2008 and 2007.





First
                        Quarter
                      
                      
                      Second
                        Quarter
                      
                      
                      Third
                        Quarter
                      
                      
                      Fourth
                        Quarter2008
                      
                      
                      2008
                      
                      
                      2008
                      
                      
                      2008Tot  Total
      Income (Loss)
                      
                      $
                      30,757,600
                      
                      
                      $
                      249,301,882
                      
                      
                      $
                      (382,128,020
                      )
                      
                      $
                      (745,312,027
                      )Total
      Expenses
                      
                      
                      1,345,783
                      
                      
                      
                      1,903,219
                      
                      
                      
                      2,263,544
                      
                      
                      
                      2,603,248Net
      Income (Loss)
                      
                      $
                      29,411,817
                      
                      
                      $
                      247,398,663
                      
                      
                      $
                      (384,391,564
                      )
                      
                      $
                      (747,915,275
                      )Net
      Income (Loss) per Unit
                      
                      $
                      5.51
                      
                      
                      $
                      32.24
                      
                      
                      $
                      (32.13
                      )
                      
                      $
                      (46.87
                      )





First
                        Quarter
                      
                      
                      Second
                        Quarter
                      
                      
                      Third
                        Quarter
                      
                      
                      Fourth
                        Quarter2007
                      
                      
                      2007
                      
                      
                      2007
                      
                      
                      2007Tot  Total
      Income (Loss)
                      
                      $
                      96,724,633
                      
                      
                      $
                      (2,341,885
                      )
                      
                      $
                      94,227,844
                      
                      
                      $
                      102,143,154Total
      Expenses
                      
                      
                      1,760,542
                      
                      
                      
                      2,089,154
                      
                      
                      
                      1,189,531
                      
                      
                      
                      1,298,623Net
      Income (Loss)
                      
                      $
                      94,964,091
                      
                      
                      $
                      (4,431,039
                      )
                      
                      $
                      93,038,313
                      
                      
                      $
                      100,844,531Net
      Income (Loss) per Unit
                      
                      $
                      1.69
                      
                      
                      $
                      (0.38
                      )
                      
                      $
                      9.48
                      
                      
                      $
                      13.16




91




NOTE
8 - FAIR VALUE OF FINANCIAL INSTRUMENTS





Effective
January 1, 2008, USOF 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
USOF (observable inputs) and (2) USOF’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 identicalassets 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 USOF’s securities at December 31,
2008 using the fair value hierarchy:





At December
      31, 2008
                    
                    Total
                    
                    
                    Level
      I
                    
                    
                    Level
      II
                    
                    
                    Level
      IIIInvestments
                    
                    $
                    410,363,791
                    
                    
                    $
                    410,363,791
                    
                    
                    $
                    -
                    
                    
                    $
                    -Derivative
      assets
                    
                    
                    97,616,100
                    
                    
                    
                    97,616,100
                    
                    
                    
                    -
                    
                    
                    
                    -





NOTE
9 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS





In March
2008, Statement of Financial Standards No. 161, Disclosures about Derivative
Instruments and Hedging Activities (“SFAS 161”), was issued and became effective
for fiscal years that began after November 15, 2008.  SFAS 161
requires enhanced disclosures to provide information about the reasons USOF
invests in derivative instruments, the accounting treatment of derivative
instruments and the effect derivatives have on USOF’s financial performance. The
General Partner is currently evaluating the impact the adoption of SFAS 161 will
have on USOF’s financial statement disclosures.





92





Item
      9.
            Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure.




Not
applicable.





Item
      9A.
            Controls
      and Procedures.





Disclosure
Controls and Procedures




USOF
maintains disclosure controls and procedures that are designed to ensure that
material information required to be disclosed in USOF’s periodic reports filed
or submitted under the Exchange Act 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 USOF if
USOF had any officers, have evaluated the effectiveness of USOF’s
disclosure controls and procedures and have concluded that the
disclosure controls and procedures of USOF have been effective as of the end of
the period covered by this annual report on Form 10-K.





Management’s
Annual Report on Internal Control Over Financial Reporting




USOF is
responsible for establishing and maintaining adequate internal control over
financial reporting. USOF’s internal control system is designed to provide
reasonable assurance to its management and the board of directors of the General
Partner regarding the preparation and fair presentation of published financial
statements. All internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement
preparation and presentation. Management’s report on internal control over
financial reporting is set forth above under the heading, “Management’s Annual
Report on Internal Control Over Financial Reporting” in Item 8 of this annual
report on Form 10-K.





Change
in Internal Control Over Financial Reporting




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





Item
      9B.
            Other
      Information.




Monthly
Account Statements




Pursuant
to the requirement under Rule 4.22(h) under the CEA, each month USOF 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 USOF’s website at
www.unitedstatesoilfund.com.





Part
III





Item
      10.
            Directors,
      Executive Officers and Corporate
Governance.




Mr.
Nicholas Gerber and Mr. Howard Mah serve as executive officers of the General
Partner. USOF has no executive officers. Its affairs are generally managed by
the General Partner. The following individuals serve as Management &
Directors of the General Partner.





93




Nicholas
Gerber has been the President and CEO of the General Partner since June
9, 2005 and a Management Director of the General Partner since May 10, 2005. He
maintains his main business office at 1320 Harbor Bay Parkway, Suite 145,
Alameda, California 94502. Mr. Gerber has acted as a portfolio manager for USOF
and the Related Public Funds since April 2006. Mr. Gerber will act as a
portfolio manager for USSO and US12NG. He has been listed with the CFTC as a
Principal of the General Partner since November 29, 2005, and registered with
the CFTC as an Associated Person of the General Partner on December 1, 2005.
Currently, Mr. Gerber manages USOF and the Related Public Funds. He will also
manage USSO and US12NG. Mr. Gerber has also served as Vice President/Chief
Investment Officer of Lyon’s Gate Reinsurance Company, Ltd. since June of 2003.
Mr. Gerber has an extensive background in securities portfolio management and in
developing investment funds that make use of indexing and futures contracts. He
is also the founder of Ameristock Corporation, a California-based investment
adviser registered under the Investment Advisers Act of 1940, that has been
sponsoring and providing portfolio management services to mutual funds since
March 1995. Since August 1995, Mr. Gerber has been the portfolio manager of the
Ameristock Mutual Fund, Inc. a mutual fund registered under the Investment
Company Act of 1940, focused on large cap U.S. equities that, as of December 31,
2008, had approximately $188 million in assets. He has also been a Trustee for
the Ameristock ETF Trust since June 2006, and served as a portfolio manager for
the Ameristock/Ryan 1Year, 2 Year, 5 Year, 10 Year and 20 Year Treasury ETF from
June 2007 to June 2008 when such funds were liquidated. In these roles, Mr.
Gerber has gained extensive experience in evaluating and retaining third-party
service providers, including custodians, accountants, transfer agents, and
distributors. Mr. Gerber has passed the Series 3 examination for associated
persons. He holds an MBA in finance from the University of San Francisco and a
BA from Skidmore College. Mr. Gerber is 46 years old.





Howard Mah
has been a Management Director of the General Partner since May 10, 2005,
Secretary of the General Partner since June 9, 2005, and Chief Financial Officer
of the General Partner since May 23, 2006. He has been listed with the CFTC as a
Principal of the General Partner since November 29, 2005. In these roles, Mr.
Mah is currently involved in the management of USOF and the Related Public Funds
and will be involved in the management of USSO and US12NG. Mr. Mah also serves
as the General Partner’s Chief Compliance Officer. He received a Bachelor of
Education from the University of Alberta, in 1986 and an MBA from the University
of San Francisco in 1988. He has been Secretary and Chief Compliance Officer of
the Ameristock ETF Trust since February 2007, Chief Compliance Officer of
Ameristock Corporation since January 2001; a tax & finance consultant in
private practice since January 1995, Secretary of Ameristock Mutual Fund since
June 1995 and Ameristock Focused Value Fund from December 2000 to January 2005;
Chief Compliance Officer of Ameristock Mutual Fund since August 2004 and the
Co-Portfolio Manager of the Ameristock Focused Value Fund from December 2000 to
January 2005. Mr. Mah is 44 years old.





Andrew F.
Ngim has been a Management Director of the General Partner since May 10,
2005 and Treasurer of the General Partner since June 9, 2005. He has been listed
with the CFTC as a Principal of the General Partner since November 29, 2005. As
Treasurer of the General Partner, Mr. Ngim is currently involved in the
management of USOF and the Related Public Funds and will be involved in the
management of USSO and US12NG. He received a Bachelor of Arts from the
University of California at Berkeley in 1983. Mr. Ngim has been Ameristock
Corporation’s Managing Director since January 1999 and co-portfolio manager of
Ameristock Corporation since January 2000, Trustee of the Ameristock ETF Trust
since February 2007, and served as a portfolio manager for the Ameristock/Ryan 1
Year, 2 Year, 5 Year, 10 Year and 20 Year Treasury ETF from June 2007 to June
2008 when such funds were liquidated. Mr. Ngim is 48 years old.





Robert L.
Nguyen has been a Management Director of the General Partner since May
10, 2005. He has been listed with the CFTC as a Principal of the General Partner
since November 29, 2005 and registered with the CFTC as an Associated Person on
November 9, 2007. As a Management Director of the General Partner, Mr. Nguyen is
currently involved in the management of USOF and the Related Public Funds and
will be involved in the management of USSO and US12NG. He received a Bachelor of
Science from California State University Sacramento in 1981. Mr. Nguyen has been
the Managing Principal of Ameristock Corporation since January 2000. Mr. Nguyen
is 49 years old.





The
following individuals provide significant services to USOF but are employed by
the entities noted below.





John P.
Love has acted as the Portfolio Operations Manager for USOF since January
2006 and is expected to be the Portfolio Operations Manager for USSO and US12NG.
Mr. Love is also employed by the General Partner. He has been listed with the
CFTC as a Principal of the General Partner since January 17, 2006. Mr. Love also
served as the operations manager of Ameristock Corporation from October 2002 to
January 2007, where he was responsible for back office and marketing activities
for the Ameristock Mutual Fund and Ameristock Focused Value Fund and for the
firm in general. Mr. Love holds a Series 3 license and registered with the CFTC
as an Associated Person of the General Partner on December 1, 2005. He holds a
BFA in cinema-television from the University of Southern California. Mr. Love is
37 years old.





94




John T. Hyland,
CFA acts as a Portfolio Manager and as the Chief Investment Officer for
the General Partner. Mr. Hyland is employed by the General Partner. He
registered with the CFTC as an Associated Person of the General Partner on
December 1, 2005, and has been listed as a Principal of the General Partner
since January 17, 2006. Mr. Hyland became the Portfolio Manager for USOF, USNG,
US12OF, UGA and USHO in April 2006, April 2007, December 2007, February 2008 and
April 2008, respectively, and as Chief Investment Officer of the General Partner
since January 2008, acts in such capacity on behalf of USOF and the Related
Public Funds. He is also expected to become the Portfolio Manager for USSO and
US12NG. As part of his responsibilities for USOF and the Related Public Funds,
Mr. Hyland handles day-to-day trading, helps set investment policies, and
oversees USOF’s and the Related Public Funds’ activities with their futures
commission brokers, custodian-administrator, and marketing agent. Mr. Hyland has
an extensive background in portfolio management and research with both equity
and fixed income securities, as well as in the development of new types of
complex investment funds. In July 2001, Mr. Hyland founded Towerhouse Capital
Management, LLC, a firm that provides portfolio management and new fund
development expertise to non-U.S. institutional investors. Mr. Hyland has been,
and remains, a Principal and Portfolio Manager for Towerhouse. From July 2001 to
January 2002, Mr. Hyland was the Director of Global Property Securities Research
for Roulac International, where he worked on the development of a hedge fund
focused on global real estate stocks. Mr. Hyland received his Chartered
Financial Analyst (“CFA”) designation in 1994. From 1993 until 2003, Mr. Hyland
was on the Board of Directors of the Security Analysts of San Francisco
(“SASF”), a not-for-profit organization of investment management professionals.
He served as the president of the SASF from 2001-2002. Mr. Hyland is a member of
the CFA Institute (formerly AIMR). He is also a member of the National
Association of Petroleum Investment Analysts, a not-for-profit organization of
investment professionals focused on the oil industry. He serves as an arbitrator
for FINRA, as part of their dispute resolution program. He is a graduate of the
University of California, Berkeley and received a BA in political
science/international relations in 1982. Mr. Hyland is 49 years
old.




The
following individuals serve as independent directors of the General
Partner.





Peter M.
Robinson has been an Independent Director of the General Partner since
September 30, 2005 and, as such, serves on the board of directors of the General
Partner, which acts on behalf of USOF, and the Related Public Funds and will
serve on behalf of USSO and US12NG, if such funds commence operations. Mr.
Robinson has been employed as a Research Fellow with the Hoover Institution
since 1993. Mr. Robinson graduated from Dartmouth College in 1979 and Oxford
University in 1982. Mr. Robinson spent six years in the White House, serving
from 1982 to 1983 as chief speechwriter to Vice President George Bush and from
1983 to 1988 as special assistant and speechwriter to President Ronald Reagan.
After the White House, Mr. Robinson received an MBA from the Stanford University
Graduate School of Business. Mr. Robinson then spent a year in New York City
with Fox Television. He spent a second year in Washington, D.C., with the
Securities and Exchange Commission, where he served as the director of the
Office of Public Affairs, Policy Evaluation, and Research. Mr. Robinson has also
written three books and has been published in the New York Times, Red Herring,
and Forbes ASAP and he
is the editor of Can Congress
Be Fixed?: Five Essays on Congressional Reform (Hoover Institution Press,
1995). Mr. Robinson is 51 years old.





Gordon L.
Ellis has been an Independent Director of the General Partner since
September 30, 2005 and, as such, serves on the board of directors of the General
Partner, which acts on behalf of USOF, and the Related Public Funds and will
serve on behalf of USSO and US12NG, if such funds commence operations. Mr. Ellis
has been Chairman of International Absorbents, Inc. since July 1988, President
and Chief Executive Officer since November 1996 and a Class I Director of the
company since July 1985. Mr. Ellis is also a director of Absorption Corp.,
International Absorbents, Inc.’s wholly-owned subsidiary. Mr. Ellis is a
director/trustee of Polymer Solutions, Inc., a former publicly-held company that
sold all of its assets effective as of February 3, 2004 and is currently winding
down its operations and liquidating following such sale. Mr. Ellis is a
Professional Engineer, a Certified Director, and holds an MBA in international
finance. Mr. Ellis is 62 years old.





95




Malcolm R. Fobes
III has been an Independent Director of the General Partner since
September 30, 2005 and, as such, serves on the board of directors of the General
Partner, which acts on behalf of USOF and the Related Public Funds and will
serve on behalf of USSO and US12NG, if such funds commence operations. Mr. Fobes
is the founder, Chairman and Chief Executive Officer of Berkshire Capital
Holdings, Inc., a California-based investment adviser registered under the
Investment Advisers Act of 1940, that has been sponsoring and providing
portfolio management services to mutual funds since 1997. Since 1997, Mr. Fobes
has been the Chairman and President of The Berkshire Funds, a mutual fund
investment company registered under the Investment Company Act of 1940. Mr.
Fobes also serves as portfolio manager of the Berkshire Focus Fund, a mutual
fund registered under the Investment Company Act of 1940, which concentrates its
investments in the electronic technology industry. From April 2000 to July 2006,
Mr. Fobes also served as co-portfolio manager of The Wireless Fund, a mutual
fund registered under the Investment Company Act of 1940, which concentrates its
investments in companies engaged in the development, production, or distribution
of wireless-related products or services. In these roles, Mr. Fobes has gained
extensive experience in evaluating and retaining third-party service providers,
including custodians, accountants, transfer agents, and distributors. Mr. Fobes
was also contributing editor of Start a Successful Mutual Fund: The Step-by-Step
Reference Guide to Make It Happen (JV Books, 1995). Prior to forming Berkshire
Capital Holdings, Inc., Mr. Fobes was employed by various technology-related
companies, including Adobe Systems, Inc., a leading provider of digital
publishing and imaging software technologies. Mr. Fobes holds a B.S. degree in
Finance and Economics from San Jose State University in California. Mr. Fobes is
44 years old.





The
following are individual Principals, as that term is defined in CFTC Rule 3.1,
for the General Partner: Melinda Gerber, the Gerber Family Trust, Howard Mah,
Andrew Ngim, Robert Nguyen, Peter Robinson, Gordon Ellis, Malcolm Fobes, John
Love, and John Hyland. These individuals are principals due to their positions,
however, Nicholas Gerber and Melinda Gerber are also principals due to their
controlling stake in Wainwright. None of the principals owns or has any other
beneficial interest in USOF. Nicholas Gerber and John Hyland make trading and
investment decisions for USOF. Nicholas Gerber, John Love and John Hyland
execute trades on behalf of USOF. In addition, Nicholas Gerber, John Love, John
Hyland, Robert Nguyen, Kathryn Rooney and Ray Allen are registered with the CFTC
as Associated Persons of the General Partner and are NFA Associate
Members.





Audit
Committee





The Board
of the General Partner has an audit committee which is made up of the three
independent directors (Peter M. Robinson, Gordon L. Ellis, and Malcolm R. Fobes
III). The audit committee is governed by an audit committee charter that is
posted on USOF’s website at www.unitedstatesoilfund.com. Any unitholder of USOF
may also obtain a printed copy of the audit committee charter, free of charge,
by calling 1-800-920-0259. The Board has determined that each member of the
audit committee meets the financial literacy requirements of the NYSE Arca and
the audit committee charter. The Board has further determined that each of
Messrs. Ellis and Fobes have accounting or related financial management
expertise, as required by the NYSE Arca, such that each of them is considered an
“Audit Committee Financial Expert” as such term is defined in Item 407(d)(5) of
Regulation S-K.





Other
Committees





Since the
individuals who perform work on behalf of USOF are not compensated by USOF, but
instead by the General Partner, Ameristock or ALPS Distributors, Inc., USOF does
not have a compensation committee. Similarly, since the Directors noted above
serve on the board of directors of the General Partner, there is no nominating
committee of the board of directors that acts on behalf of USOF.





Corporate
Governance Policy





The Board
of the General Partner has adopted a Corporate Governance Policy that applies to
USOF, US12OF, USNG, UGA, USHO, USSO and US12NG. USOF has posted the text of the
Corporate Governance Policy on its website at
www.unitedstatesoilfund.com. Any unitholder of USOF may also obtain a
printed copy of the Corporate Governance Policy, free of charge, by calling
1-800-920-0259.





96




Code
of Ethics





The
General Partner of USOF has adopted a Code of Business Conduct and Ethics (the
“Code of Ethics”) that applies to its principal executive officer, principal
financial officer, principal accounting officer or controller, or persons
performing similar functions, and also to USOF. USOF has posted the text of
the Code of Ethics on its website at www.unitedstatesoilfund.com. Any
unitholder of USOF may also obtain a printed copy of the Code of Ethics, free of
charge, by calling 1-800-920-0259. USOF intends to disclose any amendments or
waivers to the Code of Ethics applicable to the General Partner’s principal
executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions, on its website. A copy of
the Code of Ethics is filed as an exhibit to this annual report on Form
10-K.





Executive
Sessions of the Non-Management Directors





In
accordance with the Corporate Governance Policy of the General Partner, the
non-management directors of the Board (who are the same as the independent
directors of the Board) meet separately from the other directors in regularly
scheduled executive sessions, without the presence of Management Directors or
executive officers of the General Partner. The non-management directors have
designated Malcolm R. Fobes III to preside over each such executive session.
Interested parties who wish to make their concerns known to the non-management
directors may communicate directly with Mr. Fobes by writing to 475 Milan Drive,
No. 103, San Jose, CA  95134-2453 or by e-mail at
uscf.director@gmail.com





Other
Information





In
addition to the certifications of the Chief Executive Officer and Chief
Financial Officer of the General Partner filed or furnished with this annual
report on Form 10-K regarding the quality of USOF’s public disclosure, USOF will
submit, within 30 days after filing this annual report on Form 10-K, to the NYSE
Arca a certification of the Chief Executive Officer of the General Partner
certifying that he is not aware of any violation by USOF of NYSE Arca corporate
governance listing standards.




Item
      11.
            Executive
      Compensation.




Compensation
to the General Partner and Other Compensation




USOF does
not directly compensate any of the executive officers noted above. The
executive officers noted above are compensated by the General Partner for
the work they perform on behalf of USOF and other entities controlled by the
General Partner. USOF does not reimburse the General Partner for, nor does it
set the amount or form of any portion of, the compensation paid to the executive
officers by the General Partner. USOF pays fees to the General Partner pursuant
to the LP Agreement under which, through December 31, 2008, the fund was
obligated to pay the General Partner an annualized fee of 0.50% of average daily
net assets of USOF for the first $1,000,000,000 and 0.20% of average daily net
assets of USOF for amounts above $1,000,000,000. For 2008, USOF paid the General
Partner aggregate fees of $4,058,250. Beginning January 1, 2009, USOF pays the
General Partner a management fee of 0.45% of NAV on all of its average net
assets.




Director
Compensation





The
following table sets forth compensation earned during the year ended
December 31, 2008, by the Directors of the General Partner. USOF's
portion of the aggregate fees paid to the Directors for the calender year 2008
was $144,929.




97





Change
      inPensionValue
      andFees
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          NonqualifiedEarned
      or
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          Non-Equity
                                                                                                          
                                                                                                          DeferredPaid
      in
                                                                                                          
                                                                                                          Stock
                                                                                                          
                                                                                                          Option
                                                                                                          
                                                                                                          Incentive
      Plan
                                                                                                          
                                                                                                          Compensation
                                                                                                          
                                                                                                          
                                                                                                          All
      OtherName
                                                                                                          
                                                                                                          Cash
                                                                                                          
                                                                                                          Awards
                                                                                                          
                                                                                                          Awards
                                                                                                          
                                                                                                          Compensation
                                                                                                          
                                                                                                          Plan
                                                                                                          
                                                                                                          
                                                                                                          Compensation(1)
                                                                                                          
                                                                                                          
                                                                                                          TotalManagement DirectorsNicholas
      Gerber
                                                                                                          
                                                                                                          $
                                                                                                          0
                                                                                                          
                                                                                                          NA
                                                                                                          
                                                                                                          NA
                                                                                                          
                                                                                                          NA
                                                                                                          
                                                                                                          $
                                                                                                          0
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          0
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          0Andrew
      F. Ngim
                                                                                                          
                                                                                                          $
                                                                                                          0
                                                                                                          
                                                                                                          NA
                                                                                                          
                                                                                                          NA
                                                                                                          
                                                                                                          NA
                                                                                                          
                                                                                                          $
                                                                                                          0
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          0
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          0Howard
      Mah
                                                                                                          
                                                                                                          $
                                                                                                          0
                                                                                                          
                                                                                                          NA
                                                                                                          
                                                                                                          NA
                                                                                                          
                                                                                                          NA
                                                                                                          
                                                                                                          $
                                                                                                          0
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          0
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          0Robert
      L. Nguyen
                                                                                                          
                                                                                                          $
                                                                                                          0
                                                                                                          
                                                                                                          NA
                                                                                                          
                                                                                                          NA
                                                                                                          
                                                                                                          NA
                                                                                                          
                                                                                                          $
                                                                                                          0
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          0
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          0Independent
      DirectorsPeter
      M. Robinson
                                                                                                          
                                                                                                          $
                                                                                                          52,000
                                                                                                          
                                                                                                          NA
                                                                                                          
                                                                                                          NA
                                                                                                          
                                                                                                          NA
                                                                                                          
                                                                                                          $
                                                                                                          0
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          35,000
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          87,000Gordon
      L. Ellis
                                                                                                          
                                                                                                          $
                                                                                                          52,000
                                                                                                          
                                                                                                          NA
                                                                                                          
                                                                                                          NA
                                                                                                          
                                                                                                          NA
                                                                                                          
                                                                                                          $
                                                                                                          0
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          35,000
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          87,000Malcolm
      R. Fobes III
                                                                                                          
                                                                                                          $
                                                                                                          73,000
                                                                                                          
                                                                                                          NA
                                                                                                          
                                                                                                          NA
                                                                                                          
                                                                                                          NA
                                                                                                          
                                                                                                          $
                                                                                                          0
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          35,000
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          108,000




(1)
            Payments
      made under this column represent cash payments made in lieu of directors’
      and officers’ insurance coverage. Such payments were made only to the
      Independent Directors of the General Partner for their service on the
      Board of the General Partner on behalf of USOF and the Related Public
      Funds.





Item
      12.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters.





None of
the directors or executive officers of the General Partner, nor the employees of
USOF own any units of USOF. In addition, USOF is not aware of any 5% holder
of its units.




Item
      13.
            Certain
      Relationships and Related Transactions, and Director
      Independence.




Certain
Relationships and Related Transactions





USOF has
and will continue to have certain relationships with the General Partner and its
affiliates. However, there have been no direct financial transactions
between USOF and the directors or officers of the General Partner that have not
been disclosed herein. See “Item 11. Executive Compensation” and “Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.” Any transaction with a related person that must be
disclosed in accordance with SEC Regulation S-K item 404(a), including financial
transactions by USOF with directors or executive officers of the General Partner
or holders of beneficial interests in the General Partner or USOF of more than
5%, will be subject to the provisions regarding “Resolutions of Conflicts of
Interest; Standard of Care” as set forth in Section 7.7 of the LP Agreement and
will be reviewed and approved by the audit committee of the Board of the General
Partner.





Director
Independence





In March
2008, the Board undertook a review of the independence of the directors of the
General Partner and considered whether any director has a material relationship
or other arrangement with the General Partner, USOF or the Related Public
Funds that could compromise his ability to exercise independent judgment in
carrying out his responsibilities. As a result of this review, the Board
determined that each of Messrs. Fobes, Ellis and Robinson is an “independent
director,” as defined under the rules of NYSE Arca.





Item
      14.
            Principal
      Accountant Fees and Services.




The fees
for services billed to USOF by its independent auditors for the last two fiscal
years are as follows:




98




2008
                                                      
                                                      
                                                      2007Audit
      fees
                                                      
                                                      $
                                                      160,000
                                                      *
                                                      
                                                      $
                                                      100,000Audit-related
      fees
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -Tax
      fees
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      6,300All
      other fees
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -$
                                                      160,000
                                                      
                                                      
                                                      $
                                                      106,000





* Amount
expected to be billed for 2008 services.





Audit
fees consist of fees paid to Spicer Jeffries LLP for (i) the audit of
USOF’s annual financial statements included in the annual report on Form 10-K,
and review of financial statements included in the quarterly reports on
Form 10-Q and filed on USOF’s current reports on Form 8-K; (ii) the audit of
USOF’s internal control over financial reporting included in the annual report
on Form 10-K; and (iii) services that are normally provided by the
Independent Registered Public Accountants in connection with statutory and
regulatory filings of registration statements.




Tax fees
consist of fees paid to Spicer Jeffries LLP for professional services rendered
in connection with tax compliance and partnership income tax return
filings.




The audit
committee has established policies and procedures which are intended to control
the services provided by USOF’s independent auditors and to monitor their
continuing independence.  Under these policies and procedures, no
audit or permitted non-audit services (including fees and terms thereof), except
for the de minimis
exceptions for non-audit services described in Section 10A(i)(1)(B) of the
Exchange Act, may be undertaken by USOF’s independent auditors unless the
engagement is specifically pre-approved by the audit committee.  The
audit committee may form and delegate authority to subcommittees consisting of
one or more members when appropriate, including the authority to grant
pre-approvals of audit and permitted non-audit services, provided that decisions
of such subcommittee to grant pre-approvals must be presented to the full audit
committee at its next scheduled meeting.





Part IV





Item
      15.
            Exhibits
      and Financial Statement Schedules.





1.
              See
      Index to Financial Statements on page 76.2.
              No
      financial statement schedules are filed herewith because (i) such
      schedules are not required or (ii) the information required has been
      presented in the aforementioned financial statements.3.
              Exhibits
      required to be filed by Item 601 of Regulation
  S-K.





Exhibit
Index




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





Exhibit
                                            Number
                                          
                                          Description
      of Document3.1*
                                          
                                          Fifth Amended and Restated Agreement of Limited
      Partnership.3.2**
                                          
                                          Certificate of Limited Partnership of the
      Registrant.10.1***
                                          
                                          Form of Initial Authorized Purchaser
      Agreement.10.2****
                                          
                                          Form of Marketing Agent
      Agreement.10.3*****
                                          
                                          License Agreement.10.4***
                                          
                                          Form of Custodian
  Agreement.
  99
  10.5******
                                        
                                        Amendment Agreement to the Custodian
      Agreement.10.6***
                                        
                                        Form of Administrative Agency
      Agreement.10.7******
                                        
                                        Amendment Agreement to the Administrative Agency
      Agreement.14.1******
                                        
                                        Code
      of Ethics.23.1******
                                        
                                        Consent
      of Independent Registered Public Accounting
  Firm.




31.1******
                
                Certification
      of Principal Executive Officer Pursuant to Rule 13a-14(a) under the
      Securities Exchange Act of 1934.31.2******
                
                Certification
      of Principal Financial Officer Pursuant to Rule 13a-14(a) under the
      Securities Exchange Act of 1934.32.1******
                
                Certification
      of Principal Executive Officer Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002 (18 U. S. C. 1350).32.2******
                
                Certification
      of Principal Financial Officer Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002 (18 U. S. C.
1350).





*
                  
                  Incorporated
      by reference to Registrant’s Current Report on Form 8-K filed on
      October 14, 2008.**
                  
                  Incorporated
      by reference to Registrant’s Registration Statement on Form S-1 (File No.
      333-124950) filed on May 16, 2005.***
                  
                  Incorporated
      by reference to Registrant’s Pre-Effective Amendment No. 5 to the
      Registration Statement on Form S-1 (File No. 333-124950) filed on March
      13, 2006.****
                  
                  Incorporated
      by reference to Registrant’s Pre-Effective Amendment No. 7 to the
      Registration Statement on Form S-1 (File No. 333-124950) filed on April 7,
      2006.*****
                  
                  Incorporated
      by reference to United States Natural Gas Fund, LP’s Quarterly Report on
      Form 10-Q for the Quarter ended March 31, 2007, filed on June 1,
      2007.******
                  
                  Filed
      herewith.




100




SIGNATURES




Pursuant
to the requirements of Section 13 or 15(d) 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 Oil Fund, LP (Registrant)By:
                United
      States Commodity Funds LLC, its general partner(formerly
      known as Victoria Bay Asset Management,
LLC)


By:
                  /s/
      Nicholas
      D. GerberNicholas
      D. GerberChief
      Executive Officer(Principal
      executive officer)Date:  March
      2, 2009By:
                  /s/
      Howard MahHoward
      MahChief
      Financial Officer(Principal
      financial and accounting officer)Date:  March
      2, 2009




101




Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has been
signed below by the following persons on behalf of the Registrant in the
capacities and on the dates indicated.




Signature
                            
                            Title
      (Capacity)
                            
                            Date/s/
      Nicholas D. Gerber
                            
                            Management
      Director
                            
                            March 2,
      2009Nicholas
      D. Gerber/s/
      Howard Mah
                            
                            Management
      Director
                            
                            March 2,
      2009Howard
      Mah/s/
      Andrew Ngim
                            
                            Management
      Director
                            
                            March 2,
      2009Andrew
      Ngim/s/
      Robert Nguyen
                            
                            Management
      Director
                            
                            March 2,
      2009Robert
      Nguyen/s/
      Peter M. Robinson
                            
                            Independent
      Director
                            
                            March 2,
      2009Peter
      M. Robinson/s/
      Gordon L. Ellis
                            
                            Independent
      Director
                            
                            March 2,
      2009Gordon
      L. Ellis/s/
      Malcolm R. Fobes III
                            
                            Independent
      Director
                            
                            March 2,
      2009Malcolm
      R. Fobes III




102