UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-Q




x
            Quarterly
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act
      of 1934 for the quarterly period ended June 30,
  2010.


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: 001-34016


United States Heating Oil Fund,
LP


(Exact
name of registrant as specified in its charter)




Delaware
              
              20-8837345(State
      or other jurisdiction of
                incorporation
      or organization)
              
              (I.R.S.
      Employer
                Identification
      No.)




1320
Harbor Bay Parkway, Suite 145


Alameda,
California 94502


(Address
of principal executive offices) (Zip code)




(510)
522-9600


(Registrant’s
telephone number, including area code)




N/A


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




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




x
Yes     ̈ No




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





 ̈
Yes     ̈ No





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





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





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).




 ̈
Yes    x No





UNITED
STATES HEATING OIL FUND, LP


Table
of Contents





PagePart
      I. FINANCIAL INFORMATIONItem
      1.  Condensed Financial Statements.
                  
                  1Item
      2. Management’s Discussion and Analysis of Financial Condition and
      Results of Operations.
                  
                  16Item
      3. Quantitative and Qualitative Disclosures About Market
    Risk.
                  
                  33Item
      4. Controls and Procedures.
                  
                  34Part
      II. OTHER INFORMATIONItem
      1. Legal Proceedings.
                  
                  35Item
      1A. Risk Factors.
                  
                  35Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds.
                  
                  35Item
      3. Defaults Upon Senior Securities.
                  
                  36Item
      4. Reserved.
                  
                  36Item
      5. Other Information.
                  
                  36Item
      6. Exhibits.
                  
                  36





Part
I.FINANCIAL
INFORMATION





Item
1. Condensed Financial Statements.





Index
to Condensed Financial Statements




Documents
                        
                        PageCondensed
      Statements of Financial Condition at June 30, 2010 (Unaudited) and
      December 31, 2009
                        
                        
                        2Condensed
      Schedule of Investments (Unaudited) at June 30, 2010
                        
                        
                        3Condensed
      Statements of Operations (Unaudited) for the three and six months ended
      June 30, 2010 and 2009
                        
                        
                        4Condensed
      Statement of Changes in Partners’ Capital (Unaudited) for the six months
      ended June 30, 2010
                        
                        
                        5Condensed Statements of Cash
      Flows (Unaudited) for the six months ended June 30, 2010 and
      2009
                        
                        
                        6Notes
      to Condensed Financial Statements for the period ended June 30, 2010
      (Unaudited)
                        
                        
                        7


1


United
States Heating Oil Fund, LP


Condensed
Statements of Financial Condition


At
June 30, 2010 (Unaudited) and December 31, 2009





June 30, 2010
                        
                        
                        December 31, 2009AssetsCash
      and cash equivalents (Note 5)
                        
                        $
                        5,729,331
                        
                        
                        $
                        13,521,796Equity
      in UBS Securities LLC trading accounts:Cash
                        
                        
                        1,985,249
                        
                        
                        
                        1,756,727Unrealized
      gain (loss) on open commodity futures contracts
                        
                        
                        (420,525
                        )
                        
                        
                        1,088,212Receivable
      from General Partner (Note 3)
                        
                        
                        118,566
                        
                        
                        
                        211,527Dividend
      receivable
                        
                        
                        251
                        
                        
                        
                        658Other
      assets
                        
                        
                        234,902
                        
                        
                        
                        181,699Total
      assets
                        
                        $
                        7,647,774
                        
                        
                        $
                        16,760,619Liabilities
      and Partners' CapitalProfessional
      fees payable
                        
                        $
                        128,700
                        
                        
                        $
                        225,750General
      Partner management fees payable (Note 3)
                        
                        
                        4,725
                        
                        
                        
                        8,010Brokerage
      commission fees payable
                        
                        
                        300
                        
                        
                        
                        675Other
      liabilities
                        
                        
                        945
                        
                        
                        
                        1,089Total
      liabilities
                        
                        
                        134,670
                        
                        
                        
                        235,524Commitments and Contingencies(Notes 3, 4 and 5)Partners'
      CapitalGeneral
      Partner
                        
                        
                        -
                        
                        
                        
                        -Limited
      Partners
                        
                        
                        7,513,104
                        
                        
                        
                        16,525,095Total
      Partners’ Capital
                        
                        
                        7,513,104
                        
                        
                        
                        16,525,095Total
      liabilities and partners’ capital
                        
                        $
                        7,647,774
                        
                        
                        $
                        16,760,619Limited
      Partners’ units outstanding
                        
                        
                        300,000
                        
                        
                        
                        600,000Net
      asset value per unit
                        
                        $
                        25.04
                        
                        
                        $
                        27.54Market
      value per unit
                        
                        $
                        24.99
                        
                        
                        $
                        27.61





See
accompanying notes to condensed financial statements.


2


United
States Heating Oil Fund, LP


Condensed
Schedule of Investments (Unaudited)


At
June 30, 2010





Loss
      onOpen
                            
                            
                            %
      ofNumber
      of
                            
                            
                            Commodity
                            
                            
                            Partners’Contracts
                            
                            
                            Contracts
                            
                            
                            CapitalOpen
      Futures Contracts - LongUnited
      States ContractsNYMEX
      Heating Oil Futures HO contracts, expire August 2010
                            
                            
                            89
                            
                            
                            $
                            (420,525
                            )
                            
                            
                            (5.60
                            )Principal
                              Amount
                            
                            
                            Market
                              ValueCash
      EquivalentsUnited
      States - Money Market FundFidelity
      Institutional Government Portfolio-Class
    I
                            
                            $
                            5,305,212
                            
                            
                            $
                            5,305,212
                            
                            
                            
                            70.61Total
      Cash Equivalents
                            
                            
                            
                            
                            
                            $
                            5,305,212
                            
                            
                            
                            70.61





See
accompanying notes to condensed financial statements.


3


United
States Heating Oil Fund, LP


Condensed
Statements of Operations (Unaudited)


For
the three and six months ended June 30, 2010 and 2009





Three months
                        ended
                        June 30, 2010
                      
                      
                      Three months
                        ended
                        June 30, 2009
                      
                      
                      Six months
                        ended
                        June 30, 2010
                      
                      
                      Six months
                        ended
                        June 30, 2009IncomeGains
      (loss) on trading of commodity futures contracts:Realized
      gain (loss) on closed positions
                      
                      $
                      (678,383
                      )
                      
                      $
                      1,935,264
                      
                      
                      $
                      325,135
                      
                      
                      $
                      1,396,715Change
      in unrealized loss on open positions
                      
                      
                      (597,614
                      )
                      
                      
                      (440,966
                      )
                      
                      
                      (1,508,737
                      )
                      
                      
                      (240,475
                      )Dividend
      Income
                      
                      
                      908
                      
                      
                      
                      3,091
                      
                      
                      
                      1,621
                      
                      
                      
                      6,526Interest
      income
                      
                      
                      244
                      
                      
                      
                      188
                      
                      
                      
                      404
                      
                      
                      
                      313Other
      income
                      
                      
                      2,000
                      
                      
                      
                      -
                      
                      
                      
                      3,000
                      
                      
                      
                      1,000Total
      income (loss)
                      
                      
                      (1,272,845
                      )
                      
                      
                      1,497,577
                      
                      
                      
                      (1,178,577
                      )
                      
                      
                      1,164,079ExpensesProfessional
      fees
                      
                      
                      42,500
                      
                      
                      
                      25,025
                      
                      
                      
                      128,700
                      
                      
                      
                      49,775General
      Partner management fees (Note 3)
                      
                      
                      18,220
                      
                      
                      
                      10,403
                      
                      
                      
                      40,535
                      
                      
                      
                      16,551Brokerage
      commission fees
                      
                      
                      2,666
                      
                      
                      
                      2,035
                      
                      
                      
                      6,238
                      
                      
                      
                      3,770Other
      expenses
                      
                      
                      3,227
                      
                      
                      
                      563
                      
                      
                      
                      4,675
                      
                      
                      
                      908Total
      expenses
                      
                      
                      66,613
                      
                      
                      
                      38,026
                      
                      
                      
                      180,148
                      
                      
                      
                      71,004Expense
      waiver (Note 3)
                      
                      
                      (37,945
                      )
                      
                      
                      (22,424
                      )
                      
                      
                      (118,566
                      )
                      
                      
                      (45,637
                      )Net
      expenses
                      
                      
                      28,668
                      
                      
                      
                      15,602
                      
                      
                      
                      61,582
                      
                      
                      
                      25,367Net
      income (loss)
                      
                      $
                      (1,301,513
                      )
                      
                      $
                      1,481,975
                      
                      
                      $
                      (1,240,159
                      )
                      
                      $
                      1,138,712Net
      income (loss) per limited partnership unit
                      
                      $
                      (2.81
                      )
                      
                      $
                      4.94
                      
                      
                      $
                      (2.50
                      )
                      
                      $
                      3.77Net
      income (loss) per weighted average limitedpartnership
      unit
                      
                      $
                      (2.87
                      )
                      
                      $
                      4.94
                      
                      
                      $
                      (2.42
                      )
                      
                      $
                      4.54Weighted
      average limited partnership units outstanding
                      
                      
                      453,846
                      
                      
                      
                      300,000
                      
                      
                      
                      512,155
                      
                      
                      
                      250,829





See
accompanying notes to condensed financial statements.


4


United
States Heating Oil Fund, LP


Condensed
Statement of Changes in Partners’ Capital (Unaudited)


For
the six months ended June 30, 2010





General Partner
                  
                  
                  Limited Partners
                  
                  
                  TotalBalances,
      at December 31, 2009
                  
                  $
                  -
                  
                  
                  $
                  16,525,095
                  
                  
                  $
                  16,525,095Redemption
      of 300,000 partnership units
                  
                  
                  -
                  
                  
                  
                  (7,771,832
                  )
                  
                  
                  (7,771,832
                  )Net
      loss
                  
                  
                  -
                  
                  
                  
                  (1,240,159
                  )
                  
                  
                  (1,240,159
                  )Balances,
      at June 30, 2010
                  
                  $
                  -
                  
                  
                  $
                  7,513,104
                  
                  
                  $
                  7,513,104Net
      Asset Value Per UnitAt
      December 31, 2009
                  
                  $
                  27.54At
      June 30, 2010
                  
                  $
                  25.04





See
accompanying notes to condensed financial statements.


5


United
States Heating Oil Fund, LP


Condensed
Statements of Cash Flows (Unaudited)


For
the six months ended June 30, 2010 and 2009





Six
      months ended
                        
                        
                        Six
      months endedJune 30, 2010
                        
                        
                        June 30, 2009Cash
      Flows from Operating Activities:Net
      income (loss)
                        
                        $
                        (1,240,159
                        )
                        
                        $
                        1,138,712Adjustments
      to reconcile net income (loss) to net cash provided by (used in) operating
      activities:Increase
      in commodity futures trading account - cash
                        
                        
                        (228,522
                        )
                        
                        
                        (848,045
                        )Unrealized
      loss on futures contracts
                        
                        
                        1,508,737
                        
                        
                        
                        240,475Decrease
      in receivable from General Partner
                        
                        
                        92,961
                        
                        
                        
                        42,061Decrease
      in dividend receivable
                        
                        
                        407
                        
                        
                        
                        107Increase
      in other assets
                        
                        
                        (53,203
                        )
                        
                        
                        (101
                        )Decrease
      in professional fees payable
                        
                        
                        (97,050
                        )
                        
                        
                        (51,019
                        )Increase
      (decrease) in General Partner management fees payable
                        
                        
                        (3,285
                        )
                        
                        
                        2,302Increase
      (decrease) in brokerage commission fees payable
                        
                        
                        (375
                        )
                        
                        
                        100Decrease
      in other liabilities
                        
                        
                        (144
                        )
                        
                        
                        (73
                        )Net
      cash provided by (used in) operating activities
                        
                        
                        (20,633
                        )
                        
                        
                        524,519Cash
      Flows from Financing Activities:Subscription
      of partnership units
                        
                        
                        -
                        
                        
                        
                        2,186,790Redemption
      of partnership units
                        
                        
                        (7,771,832
                        )
                        
                        
                        -Net
      cash provided by (used in) financing activities
                        
                        
                        (7,771,832
                        )
                        
                        
                        2,186,790Net
      Increase (Decrease) in Cash and Cash Equivalents
                        
                        
                        (7,792,465
                        )
                        
                        
                        2,711,309Cash and Cash
      Equivalents, beginning of period
                        
                        
                        13,521,796
                        
                        
                        
                        2,930,413Cash and Cash
      Equivalents, end of period
                        
                        $
                        5,729,331
                        
                        
                        $
                        5,641,722





See
accompanying notes to condensed financial statements.


6


United
States Heating Oil Fund, LP


Notes
to Condensed Financial Statements


For
the period ended June 30, 2010 (Unaudited)




NOTE 1 - ORGANIZATION AND
BUSINESS





The
United States Heating Oil Fund, LP (“USHO”) was organized as a limited
partnership under the laws of the state of Delaware on April 13, 2007. USHO is a
commodity pool that issues limited partnership units (“units”) that may be
purchased and sold on the NYSE Arca, Inc. (the “NYSE Arca”). Prior to November
25, 2008, USHO’s units traded on the American Stock Exchange (the “AMEX”). USHO
will continue in perpetuity, unless terminated sooner upon the occurrence of one
or more events as described in its Amended and Restated Agreement of
Limited Partnership dated as of March 7, 2008 (the “LP Agreement”). The
investment objective of USHO is for the changes in percentage terms of its
units’ net asset value to reflect the changes in percentage terms of the spot
price of heating oil (also known as No. 2 fuel oil) for delivery to the New York
harbor as measured by the changes in the price of the futures contract for
heating oil 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 USHO’s expenses. USHO accomplishes its objective
through investments in futures contracts for heating oil, crude 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, “Futures Contracts”)
and other heating oil-related investments such as cash-settled options on
Futures Contracts, forward contracts for heating oil, cleared swap contracts and
over-the-counter transactions that are based on the price of heating oil, crude
oil and other petroleum-based fuels, Futures Contracts and indices based on the
foregoing (collectively, “Other Heating Oil-Related Investments”). As of June
30, 2010, USHO held 89 Futures Contracts for heating oil traded on the
NYMEX.





USHO
commenced investment operations on April 9, 2008 and has a fiscal year ending on
December 31. United States Commodity Funds LLC (the “General Partner”)
is responsible for the management of USHO. The General Partner is a member
of the National Futures Association (the “NFA”) and became a commodity pool
operator registered with the Commodity Futures Trading Commission (the “CFTC”)
effective December 1, 2005. The General Partner is also the general partner
of the United States Oil Fund, LP (“USOF”), the United States Natural Gas
Fund, LP (“USNG”), the United States 12 Month Oil Fund, LP (“US12OF”) and the
United States Gasoline Fund, LP (“UGA”), which listed their limited partnership
units on the AMEX under the ticker symbols “USO” on April 10, 2006, “UNG”
on April 18, 2007, “USL” on December 6, 2007 and “UGA” on February 26, 2008,
respectively. As a result of the acquisition of the AMEX by NYSE Euronext, each
of USOF’s, USNG’s, US12OF’s and UGA’s units commenced trading on the NYSE Arca
on November 25, 2008.  The General Partner is also the general partner
of the United States Short Oil Fund, LP (“USSO”), the United States 12 Month
Natural Gas Fund, LP (“US12NG”) and the United States Brent Oil Fund, LP
(“USBO”), which listed their limited partnership units on the NYSE Arca under
the ticker symbols “DNO” on September 24, 2009, “UNL” on November 18, 2009 and
“BNO” on June 2, 2010, respectively.  The General Partner has also
filed a registration statement to register units of the United States Commodity
Index Fund (“USCI”), which was declared effective on July 30, 2010 and commenced
trading on the NYSE Arca on August 10, 2010 under the ticker symbol
“USCI”.




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




USHO issues
units to certain authorized purchasers (“Authorized Purchasers”) by offering
baskets consisting of 100,000 units (“Creation Baskets”) through ALPS
Distributors, Inc., as the marketing agent (the “Marketing Agent”). The purchase
price for a Creation Basket is based upon the net asset value of a unit
calculated shortly after the close of the core trading session on the NYSE Arca
on the day the order to create the basket is properly received. In
addition, Authorized Purchasers pay USHO a $1,000 fee for each order placed
to create one or more Creation Baskets or to redeem one or more baskets
consisting of 100,000 units (“Redemption Baskets”). Units may be purchased
or sold on a nationally recognized securities exchange in smaller increments
than a Creation Basket or Redemption Basket. Units purchased or sold on a
nationally recognized securities exchange are not purchased or sold at the net
asset value of USHO but rather at market prices quoted on such
exchange.


7


In April
2008, USHO initially registered 10,000,000 units on Form S-1 with the
SEC.  On April 9, 2008, USHO listed its units on the AMEX under the
ticker symbol “UHN”. On that day, USHO established its initial net asset value
by setting the price at $50.00 per unit and issued 200,000 units in exchange for
$10,001,000. USHO also commenced investment operations on April 9, 2008, by
purchasing Futures Contracts traded on the NYMEX based on heating
oil.  As of June 30, 2010, USHO had registered a total of 60,000,000
units.





NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Revenue
Recognition





Commodity
futures contracts, forward contracts, physical commodities, and related options
are recorded on the trade date. All such transactions are recorded on the
identified cost basis and marked to market daily. Unrealized gains or losses on
open contracts are reflected in the condensed statement of financial
condition and is the difference between the original contract amount and the
market value (as determined by exchange settlement prices for futures contracts
and related options and cash dealer prices at a predetermined time for forward
contracts, physical commodities, and their related options) as of the last
business day of the year or as of the last date of the condensed financial
statements. Changes in the unrealized gains or losses between periods are
reflected in the condensed statement of operations. USHO earns interest on
its assets denominated in U.S. dollars on deposit with the futures commission
merchant at the 90-day Treasury bill rate. In addition, USHO earns income
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





USHO 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.




In
accordance with GAAP, USHO is required to determine whether a tax position is
more likely than not to be sustained upon examination by the applicable taxing
authority, including resolution of any tax related appeals or litigation
processes, based on the technical merits of the position.  USHO files
an income tax return in the U.S. federal jurisdiction, and may file income tax
returns in various U.S. states.  USHO is not subject to income tax
return examinations by major taxing authorities for years before 2007 (year of
inception).  The tax benefit recognized is measured as the largest
amount of benefit that has a greater than fifty percent likelihood of being
realized upon ultimate settlement.  De-recognition of a tax benefit
previously recognized results in USHO recording a tax liability that reduces net
assets.  However, USHO’s conclusions regarding this policy may be
subject to review and adjustment at a later date based on factors including, but
not limited to, on-going analyses of and changes to tax laws, regulations and
interpretations thereof.  USHO recognizes interest accrued related to
unrecognized tax benefits and penalties related to unrecognized tax benefits in
income tax fees payable, if assessed.  No interest expense or
penalties have been recognized as of and for the period ended June 30,
2010.





Creations
and Redemptions





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




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


8


Partnership
Capital and Allocation of Partnership Income and Losses





Profit or
loss shall be allocated among the partners of USHO 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





USHO’s
net asset value is calculated on each NYSE Arca trading day by taking the
current market value of its total assets, subtracting any liabilities and
dividing the amount by the total number of units issued and outstanding. USHO
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 June 30, 2010.





Offering
Costs





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





Cash
Equivalents





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





Reclassification





Certain
amounts in the accompanying condensed financial statements were reclassified to
conform with the current presentation.





Use
of Estimates





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




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





General
Partner Management Fee





Under
the LP Agreement, the General Partner is responsible for investing the
assets of USHO in accordance with the objectives and policies of USHO. 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 USHO. For these services, USHO is contractually obligated to pay the
General Partner a fee, which is paid monthly, that is equal to 0.60% per annum
of average daily net assets.


9


Ongoing
Registration Fees and Other Offering Expenses





USHO pays
all costs and expenses associated with the ongoing registration of its units
subsequent to the initial offering. These costs include registration or other
fees paid to regulatory agencies in connection with the offer and sale of units,
and all legal, accounting, printing and other expenses associated with such
offer and sale.For
the six months ended June 30, 2010 and 2009, USHO incurred $835 and $0,
respectively, in registration fees and other offering expenses.




Directors’
Fees and Expenses




USHO is
responsible for paying its portion of the directors’ and officers’ liability
insurance of the General Partner and the fees and expenses of the independent
directors of the General Partner who are also the General Partner’s audit
committee members. These fees and expenses for the calendar year 2010 are
estimated to be a total of $1,178,870 for all funds.  Effective as of
April 1, 2010, USHO is responsible for paying its portion of any payments that
may become due tothe
independent directorspursuant to thedeferred compensationagreements entered into
between the independent directors, the General Partner and each of the
affiliated funds.  USHO shares all director fees and expenses,
including any that may become due pursuant to the deferred compensation
agreements, with USOF, USNG, US12OF, UGA, USSO, US12NG and USBO based on the
relative assets of each fund, computed on a daily basis.





Licensing
Fees




As
discussed in Note 4, USHO entered into a licensing agreement with the NYMEX
on May 30, 2007. Pursuant to the agreement, USHO and the affiliated funds
managed by the General Partner, other than USBO, 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 six months ended
June 30, 2010 and 2009, USHO incurred $1,589 and $674 respectively, under this
arrangement.





Investor
Tax Reporting Cost





The fees
and expenses associated with USHO’s audit expenses and tax accounting and
reporting requirements are paid by USHO.  These costs are estimated to
be $136,738 for the calendar year 2010.




Other
Expenses and Fees and Expense Waivers





In
addition to the fees described above, USHO pays all brokerage fees and other
expenses in connection with the operation of USHO, excluding costs and expenses
paid by the General Partner as outlined in Note 4. The General Partner, though
under no obligation to do so, agreed to pay certain expenses, to the extent that
such expenses exceed 0.15% (15 basis points) of USHO’s NAV, on an annualized
basis, through December 31, 2010, after which date such payments are no longer
expected to be necessary.  The General Partner has no obligation to
continue such payment into subsequent periods.





NOTE
4 - CONTRACTS AND AGREEMENTS





USHO is
party to a marketing agent agreement, dated as of March 10, 2008, as
amended from time to time, with the Marketing Agent and the General
Partner, whereby the Marketing Agent provides certain marketing services for
USHO as outlined in the agreement. The fee of the Marketing Agent, which is
borne by the General Partner, is equal to 0.06% on USHO’s assets up to $3
billion; and 0.04% on USHO’s assets in excess of $3 billion.





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


10


USHO is
also party to a custodian agreement, dated March 13, 2008, as amended from time
to time, with Brown Brothers Harriman & Co. (“BBH&Co.”) and the General
Partner, whereby BBH&Co. holds investments on behalf of USHO. The General
Partner pays the fees of the custodian, which are determined by the parties
from time to time. In addition, USHO is party to an administrative agency
agreement, dated February 7, 2008, as amended from time to time, with the
General Partner and BBH&Co., whereby BBH&Co. acts as the administrative
agent, transfer agent and registrar for USHO. The General Partner also pays
the fees of BBH&Co. for its services under this agreement and such fees are
determined by the parties from time to time.





Currently,
the General Partner pays BBH&Co. for its services, in the foregoing
capacities, a minimum amount of $75,000 annually for its custody, fund
accounting and fund administration services rendered to USHO and each of the
affiliated funds managed by the General Partner, as well as a $20,000 annual fee
for its transfer agency services. In addition, the General Partner pays
BBH&Co. an asset-based charge of (a) 0.06% for the first $500 million of
USHO’s, USOF’s, USNG’s, US12OF’s, UGA’s, USSO’s, US12NG’s and USBO’s combined
net assets, (b) 0.0465% for USHO’s, USOF’s, USNG’s, US12OF’s, UGA’s, USSO’s,
US12NG’s and USBO’s combined net assets greater than $500 million but less than
$1 billion, and (c) 0.035% once USHO’s, USOF’s, USNG’s, US12OF’s, UGA’s, USSO’s,
US12NG’s and USBO’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.





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





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





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





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





USHO engages
in the trading of futures contracts and options on futures contracts
(collectively, “derivatives”). USHO 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.





USHO may
enter into futures contracts and options on futures contracts to gain exposure
to changes in the value of an underlying commodity. A futures contract obligates
the seller to deliver (and the purchaser to accept) the future delivery of a
specified quantity and type of a commodity at a specified time and
place.  Some futures contracts may call for physical delivery of the
asset, while others are settled in cash.  The contractual obligations
of a buyer or seller may generally be satisfied by taking or making physical
delivery of the underlying commodity or by making an offsetting sale or purchase
of an identical futures contract on the same or linked exchange before the
designated date of delivery.





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





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


11


All of
the futures contracts currently traded by USHO 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, USHO must rely solely on the credit of its
respective individual counterparties. However, in the future, if USHO 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. USHO also has credit risk since the sole counterparty
to all domestic and foreign futures contracts is the clearinghouse for the
exchange on which the relevant contracts are traded. In addition, USHO bears the
risk of financial failure by the clearing broker.





USHO’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 USHO’s assets posted with that futures commission merchant;
however, the vast majority of USHO’s assets are held in U.S. Treasuries, cash
and/or cash equivalents with USHO’s custodian and would not be impacted by the
insolvency of a futures commission merchant. Also, the failure or insolvency of
USHO’s custodian could result in a substantial loss of USHO’s
assets.





The
General Partner invests a portion of USHO’s cash in money market funds that
seek to maintain a stable net asset value. USHO is exposed to any risk of loss
associated with an investment in these money market funds. As of June 30, 2010
and December 31, 2009, USHO had deposits in domestic and foreign financial
institutions,including
cash investments in money market funds, in the amounts of $7,714,580 and
$15,278,523, 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, USHO 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, USHO 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.





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




NOTE 6
– FAIR VALUE OF FINANCIAL INSTRUMENTS




USHO
values its investments in accordance with Accounting Standards Codification 820
– Fair Value Measurements and Disclosures (“ASC 820”).  ASC 820
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurement. The changes to past practice resulting from the application
of ASC 820 relate to the definition of fair value, the methods used to measure
fair value, and the expanded disclosures about fair value measurement. ASC 820
establishes a fair value hierarchy that distinguishes between (1) market
participant assumptions developed based on market data obtained from sources
independent of USHO (observable inputs) and (2) USHO’s own assumptions about
market participant assumptions developed based on the best information available
under the circumstances (unobservable inputs). The three levels defined by the
ASC 820 hierarchy are as follows:




Level I –
Quoted prices (unadjusted) in active markets for identical assets or
liabilities that the reporting entity has the ability to access at the
measurement date.


12


Level II
– Inputs other than quoted prices included within Level I that are observable
for the asset or liability, either directly or indirectly.  Level II
assets include the following: quoted prices for similar assets or liabilities
in active markets, quoted prices for identical or similar assets or liabilities
in markets that are not active, inputs other than quoted prices that are
observable for the asset or liability, and inputs that are derived principally
from or corroborated by observable market data by correlation or other means
(market-corroborated inputs).




Level III
– Unobservable pricing input at the measurement date for the asset or
liability.  Unobservable inputs shall be used to measure fair value to
the extent that observable inputs are not available.




In some
instances, the inputs used to measure fair value might fall in different levels
of the fair value hierarchy.  The level in the fair value hierarchy
within which the fair value measurement in its entirety falls shall be
determined based on the lowest input level that is significant to the fair value
measurement in its entirety.




The
following table summarizes the valuation of USHO’s securities at December 31,
2009 using the fair value hierarchy:




At December
      31, 2009
                
                Total
                
                
                Level I
                
                
                Level II
                
                
                Level IIIShort-Term
      Investments
                
                $
                11,797,709
                
                
                $
                11,797,709
                
                
                $
                -
                
                
                $
                -Exchange-Traded
      Futures ContractsUnited
      States Contracts
                
                
                1,088,212
                
                
                
                1,088,212
                
                
                
                -
                
                
                
                -





During
the year ended December 31, 2009, there were no significant transfers between
Level I and Level II.




The
following table summarizes the valuation of USHO’s securities at June 30, 2010
using the fair value hierarchy:




At June
      30, 2010
                
                Total
                
                
                Level I
                
                
                Level II
                
                
                Level IIIShort-Term
      Investments
                
                $
                5,305,212
                
                
                $
                5,305,212
                
                
                $
                -
                
                
                $
                -Exchange-Traded
      Futures ContractsUnited
      States Contracts
                
                
                (420,525
                )
                
                
                (420,525
                )
                
                
                -
                
                
                
                -





During
the six months ended June 30, 2010, there were no significant transfers between
Level I and Level II.





Effective
January 1, 2009, USOF adopted the provisions of Accounting Standards
Codification 815 —Derivatives and Hedging, which require presentation of
qualitative disclosures about objectives and strategies for using derivatives,
quantitative disclosures about fair value amounts and gains and losses on
derivatives.





Fair
Value of Derivative Instruments





Derivatives
      notAccounted
      for as
                                
                                Statement
      of Financial
                                
                                Fair
      Value
                                
                                Fair
      ValueHedging Instruments
                                
                                Condition Location
                                
                                At June 30, 2010
                                
                                At December 31, 2009Futures
      - Commodity Contracts
                                
                                Assets
                                
                                $
                                (420,525)
                                
                                $
                                1,088,212


13


The
Effect of Derivative Instruments on the Statements of Operations





For
      the six months ended
                            
                            
                            For
      the six months endedJune 30, 2010
                            
                            
                            June 30, 2009Location
      of
                            
                            Realized
                            
                            
                            Change
      in
                            
                            
                            Realized
                            
                            
                            Change
      inDerivatives
      not
                            
                            Gain
      or (Loss)
                            
                            Gain
      or (Loss)
                            
                            
                            Unrealized
                            
                            
                            Gain
      or (Loss)
                            
                            
                            UnrealizedAccounted
      for as
                            
                            on
      Derivatives
                            
                            on
      Derivatives
                            
                            
                            Gain
      or (Loss)
                            
                            
                            on
      Derivatives
                            
                            
                            Gain
      or (Loss)Hedging
                            
                            Recognized
                            
                            Recognized
                            
                            
                            Recognized
                            
                            
                            Recognized
                            
                            
                            RecognizedInstruments
                            
                            in Income
                            
                            in Income
                            
                            
                            in Income
                            
                            
                            in Income
                            
                            
                            in IncomeFutures
      -
                            
                            Realized
      gain (loss) on
                            
                            $
                            325,135
                            
                            
                            
                            
                            
                            
                            $
                            1,396,715Commodity
                            
                            closed
      positionsContractsChange
      in unrealized
                            
                            
                            
                            
                            
                            $
                            (1,508,737)
                            
                            
                            
                            
                            
                            
                            $
                            (240,475)gain
      (loss) on openpositions





NOTE
7 - FINANCIAL HIGHLIGHTS





The
following table presents per unit performance data and other supplemental
financial data for the six months ended June 30, 2010 and 2009 for the
unitholders. This information has been derived from information presented in the
condensed financial statements.





For
      the six months
                          ended
                        
                        
                        For
      the six months
                          endedJune
      30, 2010
                        
                        
                        June
      30, 2009(Unaudited)
                        
                        
                        (Unaudited)Per Unit Operating
    Performance:Net
      asset value, beginning of period
                        
                        $
                        27.54
                        
                        
                        $
                        21.94Total
      income (loss)
                        
                        
                        (2.42
                        )
                        
                        
                        3.87Net
      expenses
                        
                        
                        (0.08
                        )
                        
                        
                        (0.10
                        )Net
      increase (decrease) in net asset value
                        
                        
                        (2.50
                        )
                        
                        
                        3.77Net
      asset value, end of period
                        
                        $
                        25.04
                        
                        
                        $
                        25.71Total
      Return
                        
                        
                        (9.08
                        )%
                        
                        
                        17.18
                        %Ratios
      to Average Net AssetsTotal
      income (loss)
                        
                        
                        (8.65
                        )%
                        
                        
                        20.93
                        %Management
      fees*
                        
                        
                        0.60
                        %
                        
                        
                        0.60
                        %Total
      expenses excluding management fees*
                        
                        
                        2.07
                        %
                        
                        
                        1.97
                        %Expenses
      waived*
                        
                        
                        (1.76
                        )%
                        
                        
                        (1.65
                        )%Net
      expenses excluding management fees*
                        
                        
                        0.31
                        %
                        
                        
                        0.32
                        %Net
      income (loss)
                        
                        
                        (9.10
                        )%
                        
                        
                        20.47
                        %





*Annualized





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




NOTE 8 – RECENT
ACCOUNTING PRONOUNCEMENTS





In
January 2010, the Financial Accounting Standards Board issued Accounting
Standards Update (“ASU”)No. 2010-06 “Improving
Disclosures about Fair Value Measurements.” ASU No. 2010-06 clarifies existing
disclosure andrequires additional
disclosures regarding fair value measurements. Effective for fiscal years
beginningafter
December 15, 2010, and for interim periods within those fiscal years, entities
will need to disclose informationabout purchases, sales,
issuances and settlements of Level 3 securities on a gross basis, rather than as
a net number ascurrently required. The
implementation of ASU No. 2010-06 will have no impact on USHO’s financial
statementdisclosures.




14




NOTE 9 – SUBSEQUENT
EVENTS
 
 USHO has
performed an evaluation of subsequent events through the date the financial
statements were issued. This evaluation did not result in any subsequent events
that necessitated disclosures and/or adjustments.


15





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




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




Forward-Looking
Information




This
quarterly report on Form 10-Q, including this “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” contains
forward-looking statements regarding the plans and objectives of management for
future operations. This information may involve known and unknown risks,
uncertainties and other factors that may cause USHO’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 USHO’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
USHO cannot assure investors that the projections included in these
forward-looking statements will come to pass. USHO’s actual results could
differ materially from those expressed or implied by the forward-looking
statements as a result of various factors.




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





Introduction





USHO, a
Delaware limited partnership, is a commodity pool that issues units that
may be purchased and sold on the NYSE Arca, Inc. (the “NYSE Arca”). The
investment objective of USHO 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 heating oil (also known as No. 2 fuel oil), for delivery to the
New York harbor, as measured by the changes in the price of the futures contract
for heating oil traded on the New York Mercantile Exchange (the “NYMEX”) that is
the near month contract to expire, except when the near month contract is within
two weeks of expiration, in which case it will be the futures contract that is
the next month contract to expire (the “Benchmark Futures Contract”), less
USHO’s expenses.





USHO
invests in futures contracts for heating oil, crude 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, “Futures Contracts”) and other
heating oil-related investments such as cash-settled options on Futures
Contracts, forward contracts for heating oil, cleared swap contracts and
over-the-counter transactions that are based on the price of heating oil, crude
oil and other petroleum-based fuels, Futures Contracts and indices based on the
foregoing (collectively, “Other Heating Oil-Related Investments”). For
convenience and unless otherwise specified, Futures Contracts and Other Heating
Oil-Related Investments collectively are referred to as “Heating Oil Interests”
in this quarterly report on Form 10-Q.


16


USHO
seeks to achieve its investment objective by investing in a combination of
Futures Contracts and Other Heating Oil-Related Investments such that changes in
its NAV, measured in percentage terms, will closely track the changes in
the price of the Benchmark Futures Contract, also measured in percentage
terms. USHO’s general partner believes the daily changes in the price of the
Benchmark Futures Contract have historically exhibited a close correlation
with the daily changes in the spot price of heating oil. It is not the intent of
USHO to be operated in a fashion such that the NAV will equal, in dollar terms,
the spot price of heating oil or any particular futures contract based on
heating oil.  Management believes that it is not practical to manage
the portfolio to achieve such an investment goal when investing in Futures
Contracts and Other Heating Oil-Related Investments.





On any
valuation day, the Benchmark Futures Contract is the near
month futures contract for heating oil traded on the NYMEX unless the
near month contract is within two weeks of expiration, in which case the
Benchmark Futures Contract is the next month contract for heating 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.





The
regulation of commodity interests in the United States is a rapidly changing
area of law and is subject to ongoing modification by governmental and judicial
action.  As stated under the heading, “Risk Factors” in Item 1A of
this quarterly report on Form 10-Q, regulation of the commodity interests and
energy markets is extensive and constantly changing; future regulatory
developments in the commodity interests and energy markets are impossible to
predict but may significantly and adversely affect USHO.





On July
21, 2010, a broad financial regulatory reform bill, “The Dodd-Frank Wall Street
Reform and Consumer Protection Act,” was signed into law that includes
provisions altering the regulation of commodity interests.  Provisions
in the new law include the requirement that position limits on energy-based
commodity futures contracts be established; new registration, recordkeeping,
capital and margin requirements for “swap dealers” and “major swap participants”
as determined by the new law and applicable regulations; and the forced use of
clearinghouse mechanisms for most over-the-counter transactions. Additionally,
the new law requires the aggregation, for purposes of position limits, of all
positions in energy futures held by a single entity and its affiliates, whether
such positions exist on U.S. futures exchanges, non-U.S. futures exchanges, or
in over-the-counter contracts. The U.S. Commodity Futures Trading Commission
(the “CFTC”), along with the SEC and other federal regulators, has been tasked
with developing the rules and regulations enacting the provisions noted
above.  The new law and the rules to be promulgated may negatively
impact USHO’s ability to meet its investment objective either through limits or
requirements imposed on it or upon its counterparties.  In particular,
new position limits imposed on USHO or its counterparties may impact USHO’s
ability to invest in a manner that most efficiently meets its investment
objective, and new requirements, including capital and mandatory clearing, may
increase the cost of USHO’s investments and doing business, which could
adversely affect USHO’s investors.





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





Price
Movements





Heating
oil futures prices were volatile during the six months ended June 30, 2010 and
exhibited moderate daily swings along with an uneven upward trend between
January and late April and a downward trend from May to late June
2010.  The price of the Benchmark Futures Contract started the period
at $2.12. It hit a peak on May 3, 2010 with a price of $2.3451.  The
low of the period was on February 5, 2010 when the price dropped to $1.8748. The
period ended with the Benchmark Futures Contract at $2.01 per gallon, down
approximately -4.79% over the period.  USHO’s NAV began the period at
$27.54 per unit and reached its high for the period on May 3, 2010 at $29.65 per
unit.  USHO’s NAV reached its low for the period on May 25, 2010 at
$23.64 per unit.  USHO’s NAV on June 30, 2010 was $25.04, down
approximately 9.08% for the period.  The Benchmark Futures Contract
prices listed above began with the February 2010 contract and ended with the
August 2010 contract.  The return of approximately -4.79% on the
Benchmark Futures Contract listed above is a hypothetical return only and could
not be achieved by an investor holding futures contracts.  An
investment in heating oil Futures Contracts would need to be rolled forward
during the time period described in order to achieve such a
result.  Furthermore, the change in the nominal price of the differing
heating oil Futures Contracts, measured from the start of the period to the end
of the period, does not represent the actual benchmark results that USHO seeks
to track, which are more fully described below in the section titled “Tracking
USHO’s Benchmark”.


17


During
the six months ended June 30, 2010, the heating oil futures market was in a
state of contango, meaning that the price of the near month heating oil futures
contract was typically lower than the price of the next month heating oil
futures contract, or contracts further away from expiration.  A
backwardation market is one in which the price of the near month heating oil
futures contract is higher than the price of the next month heating oil futures
contract, or contracts further away from expiration. For a discussion of the
impact of backwardation and contango on total returns, see “Term Structure of
Heating Oil Futures Prices and the Impact on Total Returns.”





Valuation
of Futures Contracts and the Computation of the NAV





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




Results
of Operations and the Heating Oil Market





Results of
Operations.On April 9, 2008, USHO listed its units on the American
Stock Exchange (the “AMEX”) under the ticker symbol “UHN.”  On that
day, USHO established its initial offering price at $50.00 per unit and issued
200,000 units to the initial authorized purchaser Merrill Lynch Professional
Clearing Corp., in exchange for $10,001,000 in cash. As a result of the
acquisition of the AMEX by NYSE Euronext, USHO’s units no longer trade on the
AMEX and commenced trading on the NYSE Arca on November 25, 2008.





Since its
initial offering of 10,000,000 units, USHO registered an additional 50,000,000
units with the SEC on April 30, 2010. As of June 30, 2010, USHO had issued
800,000 units, 300,000 of which were outstanding. As of June 30, 2010, there
were 59,200,000 units registered but not yet issued.





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





For the Six Months Ended
June 30, 2010 Compared to the Six Months Ended June 30, 2009





As of
June 30, 2010, the total unrealized loss on heating oil Futures Contracts owned
or held on that day was $420,525 and USHO established cash deposits, including
cash investments in money market funds, that were equal to $7,714,580. USHO held
74.27% of its cash assets in overnight deposits and money market funds at its
custodian bank, while 25.73% of the cash balance was held as margin deposits for
the Futures Contracts purchased.  The ending per unit NAV on June 30,
2010 was $25.04.





By
comparison, as of June 30, 2009, the total unrealized gain on heating oil
Futures Contracts owned or held on that day was $309,725 and USHO established
cash deposits, including cash investments in money market funds, that were equal
to $8,030,859. USHO held 70.25% of its cash assets in overnight deposits
and money market funds at its custodian bank, while 29.75% of the cash balance
was held as margin deposits for the Futures Contracts purchased. The ending per
unit NAV on June 30, 2009 was $25.71. The decrease in the per unit NAV from June
30, 2009 compared to June 30, 2010 was primarily a result of a decline in the
value of the futures contract that USHO had invested in between the period ended
June 30, 2009 and the period ended June 30, 2010.


18


Portfolio Expenses. USHO’s
expenses consist of investment management fees, brokerage
fees and commissions, certain offering costs, licensing fees, the fees and
expenses of the independent directors of the General Partner and expenses
relating to tax accounting and reporting requirements.  The management
fee that USHO pays to the General Partner is calculated as a percentage of the
total net assets of USHO. USHO pays the General Partner a management fee of
0.60% of its average net assets.  The fee is accrued daily and paid
monthly.





During
the six months ended June 30, 2010, the daily average total net assets
of USHO were $13,623,702. The management fee paid by USHO during the
period amounted to $40,535. By comparison, during the six months ended June 30,
2009, the daily average total net assets of USHO were $5,562,576. The
management fee paid by USHO during the period amounted to $16,551.





In
addition to the management fee, USHO pays all brokerage fees and other
expenses, including certain tax reporting costs, licensing fees for the use of
intellectual property, ongoing registration or other fees paid to the
SEC, the Financial Industry Regulatory Authority (“FINRA”) and any
other regulatory agency in connection with offers and sales of its units
subsequent to the initial offering and all legal, accounting, printing and other
expenses associated therewith. The total of these fees and expenses for the
six months ended June 30, 2010 was $139,613, as compared to $54,453 for the six
months ended June 30, 2009. The increase in expenses from the six months ended
June 30, 2009 as compared to the six months ended June 30, 2010 was primarily
due to the relative size of USHO and activity that resulted from its increased
size, including increased licensing fees. USHO incurred $835 and $0 in fees
and other expenses relating to the registration and offering of additional units
during the six months ended June 30, 2010 and 2009, respectively. During the six
months ended June 30, 2010, an expense waiver was in effect which offset certain
of the expenses incurred by USHO.  The total amount of the expense
waiver totaled $118,566.  For the six months ended June 30, 2010, the
expenses of USHO, including management fees, commissions, and all other
expenses, before allowance for the expense waiver, totaled $180,148, and after
allowance for the expense waiver, totaled $61,582.





USHO is
responsible for paying its portion of the directors’ and officers’ liability
insurance of the General Partner and the fees and expenses of the independent
directors of the General Partner who are also the General Partner’s audit
committee members.  USHO shares these fees and expenses with the
United States Oil Fund, LP (“USOF”), the United States Natural Gas Fund, LP
(“USNG”), the United States 12 Month Oil Fund, LP (“US12OF”), the United
States Gasoline Fund, LP (“UGA”), the United States Short Oil Fund, LP (“USSO”),
the United States 12 Month Natural Gas Fund, LP (“US12NG”) and the United States
Brent Oil Fund, LP (“USBO”), based on the relative assets of each fund computed
on a daily basis.  These fees and expenses for the calendar year 2010
are estimated to be a total of $1,178,870 for all funds. By comparison, for the
year ended December 31, 2009, these fees and expenses amounted to a total of
$433,046 for all funds, and USHO’s portion of such fees was $644.80. Directors’
expenses are expected to increase in 2010 due to an increase in the amount of
directors’ and officers’ liability insurance coverage and the incurrence of the
independent directors’ deferred compensation expense.  Effective as of
March 3, 2009, the General Partner obtained directors’ and officers’ liability
insurance covering all of the directors and officers of the General Partner.
Previously, the General Partner did not have liability insurance for its
directors and officers; instead, the independent directors received a payment in
lieu of directors’ and officers’ liability insurance coverage. Effective as of
April 1, 2010, USHO is also responsible for paying its portion of any payments
that may become due tothe independent
directorspursuant to
thedeferred
compensationagreements entered into
between the independent directors, the General Partner and each of the
funds.





USHO also
incurs commissions to brokers for the purchase and sale of Futures Contracts,
Other Heating Oil-Related Investments or short-term obligations of the United
States of two years or less (“Treasuries”). During the six months ended June 30,
2010, total commissions paid to brokers amounted to $6,238. By comparison,
during the six months ended June 30, 2009, total commissions paid to brokers
amounted to $3,770. The increase in the total commissions paid to brokers from
the six months ended June 30, 2009 compared to the six months ended June 30,
2010 was primarily a function of the increase in USHO’s average total net assets
during the six months ended June 30, 2010. The increase in assets required USHO
to purchase a greater number of Futures Contracts and incur a larger amount of
commissions.  As an annualized percentage of total net assets,
the figure for the six months ended June 30, 2010 represents approximately
0.09% of total net assets. By comparison, the figure for the six months ended
June 30, 2009 represented approximately 0.14% of total net assets. However,
there can be no assurance that commission costs and portfolio turnover will not
cause commission expenses to rise in future quarters.


19


The fees
and expenses associated with USHO’s audit expenses and tax accounting and
reporting requirements are paid by USHO.  These costs are estimated to
be $136,738 for the calendar year 2010. The General Partner, though under no
obligation to do so, agreed to pay certain expenses, to the extent that such
expenses exceed 0.15% (15 basis points) of USHO’s NAV, on an annualized basis,
through December 31, 2010, after which date such payments are no longer expected
to be necessary.  The General Partner has no obligation to continue
such payment into subsequent periods.





Dividend and Interest Income.
USHO seeks to invest its assets such that it holds Futures Contracts and Other
Heating Oil-Related Investments in an amount equal to the total net assets of
its portfolio. Typically, such investments do not require USHO to pay the full
amount of the contract value at the time of purchase, but rather require USHO to
post an amount as a margin deposit against the eventual settlement of the
contract. As a result, USHO retains an amount that is approximately equal to its
total net assets, which USHO 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 USHO’s custodian bank. The Treasuries, cash and/or cash
equivalents earn income that accrues on a daily basis. For the six months
ended June 30, 2010, USHO earned $2,025 in dividend and interest income on such
cash and/or cash equivalents. Based on USHO’s average daily total net assets,
this was equivalent to an annualized yield of 0.03%. USHO did not
purchase Treasuries during the six months ended June 30, 2010 and held only
cash and/or cash equivalents during this time period. By comparison, for the six
months ended June 30, 2009, USHO earned $6,839 in dividend and interest income
on such cash and/or cash equivalents. Based on USHO’s average daily total net
assets, this was equivalent to an annualized yield of 0.25%. USHO did not
purchase Treasuries during the six months ended June 30, 2009 and held only cash
and/or cash equivalents during this time period.  Interest rates on
short-term investments, including cash, cash equivalents, and Treasuries, were
sharply lower during the six months ended June 30, 2010 compared to the six
months ended June 30, 2009. As a result, the amount of income earned by USHO as
a percentage of total net assets was lower during the six months ended June 30,
2010 compared to the six months ended June 30, 2009.





For the Three Months Ended
June 30, 2010 Compared to the Three Months Ended June 30,
2009





Portfolio Expenses. During
the three months ended June 30, 2010, the daily average total net assets
of USHO were $12,180,082. The management fee paid by USHO during the
period amounted to $18,220. By comparison, during the three months ended June
30, 2009, the daily average total net assets of USHO were $6,953,804.
The management fee paid by USHO during the period amounted to
$10,403.





In
addition to the management fee, USHO pays all brokerage fees 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 and expenses for the three months ended June 30, 2010 was $48,393, as
compared to $27,623 for the three months ended June 30, 2009. The increase in
expenses from the three months ended June 30, 2009 as compared to the three
months ended June 30, 2010 was primarily due to the relative size of USHO and
activity that resulted from its increased size, including increased licensing
fees and increased tax reporting costs during the period. USHO incurred
$475 and $0 in fees and other expenses relating to the registration and offering
of additional units during the three months ended June 30, 2010 and 2009,
respectively. During the three months ended June 30, 2010, an expense waiver was
in effect which offset certain of the expenses incurred by USHO.  The
total amount of the expense waiver totaled $37,945.  For
the three months ended June 30, 2010, the expenses of USHO, including
management fees, commissions, and all other expenses, before allowance for the
expense waiver, totaled $66,613, and after allowance for the expense waiver,
totaled $28,688.





USHO is
responsible for paying its portion of the directors’ and officers’ liability
insurance of the General Partner and the fees and expenses of the independent
directors of the General Partner who are also the General Partner’s audit
committee members.  USHO shares these fees and expenses with USOF,
USNG, US12OF, UGA, USSO, US12NG and USBO based on the relative assets of each
fund computed on a daily basis. These fees and expenses for the calendar year
2010 are estimated to be a total of $1,178,870 for all funds. By comparison, for
the year ended December 31, 2009, these fees and expenses amounted to a total of
$433,046 for all funds, and USHO’s portion of such fees was $644.80. Directors’
expenses are expected to increase in 2010 due to an increase in the amount of
directors’ and officers’ liability insurance coverage and the incurrence of the
independent directors’ deferred compensation expense.  Effective as of
March 3, 2009, the General Partner obtained directors’ and officers’ liability
insurance covering all of the directors and officers of the General Partner.
Previously, the General Partner did not have liability insurance for its
directors and officers; instead, the independent directors received a payment in
lieu of directors’ and officers’ liability insurance coverage. Effective as
of April 1, 2010, USHO is also responsible for paying its portion of any
payments that may become due tothe independent
directorspursuant to
thedeferred
compensationagreements entered into
between the independent directors, the General Partner and each of the
funds.


20


USHO also
incurs commissions to brokers for the purchase and sale of Futures Contracts,
Other Heating Oil-Related Investments or Treasuries. During the three
months ended June 30, 2010, total commissions paid to brokers amounted to
$2,666. By comparison, during the three months ended June 30, 2009, total
commissions paid to brokers amounted to $2,035. The increase in the total
commissions paid to brokers from the three months ended June 30, 2009 to the
three months ended June 30, 2010 was primarily a function of the increase in
USHO’s average total net assets during the three months ended June 30, 2010. The
increase in assets required USHO to purchase a greater number of Futures
Contracts and incur a larger amount of commissions.  As an annualized
percentage of total net assets, the figure for the three months ended June
30, 2010 represents approximately 0.09% of total net assets. By comparison, the
figure for the three months ended June 30, 2009 represented approximately 0.12%
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 USHO’s audit expenses and tax accounting and
reporting requirements are paid by USHO.  These costs are estimated to
be $136,738 for the calendar year 2010. The General Partner, though under no
obligation to do so, agreed to pay certain expenses, to the extent that such
expenses exceed 0.15% (15 basis points) of USHO’s NAV, on an annualized basis,
through December 31, 2010, after which date such payments are no longer expected
to be necessary.  The General Partner has no obligation to continue
such payment into subsequent periods.





Dividend and Interest Income.
USHO seeks to invest its assets such that it holds Futures Contracts and Other
Heating Oil-Related Investments in an amount equal to the total net assets of
its portfolio. Typically, such investments do not require USHO to pay the full
amount of the contract value at the time of purchase, but rather require USHO to
post an amount as a margin deposit against the eventual settlement of the
contract. As a result, USHO retains an amount that is approximately equal to its
total net assets, which USHO 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 USHO’s custodian bank. The Treasuries, cash and/or cash
equivalents earn income that accrues on a daily basis. For the three months
ended June 30, 2010, USHO earned $1,152 in dividend and interest income on such
cash and/or cash equivalents. Based on USHO’s average daily total net assets,
this was equivalent to an annualized yield of 0.04%. USHO did not
purchase Treasuries during the three months ended June 30, 2010 and held
only cash and/or cash equivalents during this time period. By comparison, for
the three months ended June 30, 2009, USHO earned $3,279 in dividend and
interest income on such cash and/or cash equivalents. Based on USHO’s average
daily total net assets, this was equivalent to an annualized yield of 0.19%.
USHO did not purchase Treasuries during the three months ended June 30, 2009 and
held only cash and/or cash equivalents during this time
period.  Interest rates on short-term investments, including cash,
cash equivalents, and Treasuries, were sharply lower during the three months
ended June 30, 2010 compared to the three months ended June 30, 2009. As a
result, the amount of income earned by USHO as a percentage of total net assets
was lower during the three months ended June 30, 2010 compared to the three
months ended June 30, 2009.





Tracking
USHO’s Benchmark





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


21


For the
30 valuation days ended June 30, 2010, the simple average daily change in the
Benchmark Futures Contract was 0.051%, while the simple average daily change in
the NAV of USHO over the same time period was 0.047%. The average daily
difference was -0.004% (or -0.4 basis points, where 1 basis point
equals 1/100 of 1%). As a percentage of the daily movement of the Benchmark
Futures Contract, the average error in daily tracking by the NAV was -1.083%,
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 first chart
below shows the daily movement of USHO’s NAV versus the daily movement of the
Benchmark Futures Contract for the 30-day valuation period ended June 30,
2010.











*PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS


22








*PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS





Since the
offering of USHO’s units to the public on April 9, 2008 to June 30, 2010,
the simple average daily change in the Benchmark Futures Contract was
-0.085%, while the simple average daily change in the NAV of USHO over the same
time period was -0.086%. The average daily difference was -0.0001% (or -0.01
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 USHO’s
tracking error was within the plus or minus 10% range established as its
benchmark tracking goal.





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





For the
six months ended June 30, 2010, the actual total return of USHO as measured by
changes in its NAV was -9.08%. This is based on an initial NAV of $27.54 on
December 31, 2009 and an ending NAV as of June 30, 2010 of $25.04. During this
time period, USHO made no distributions to its unitholders. However, if USHO’s
daily changes in its NAV had instead exactly tracked the changes in the daily
return of the Benchmark Futures Contract, USHO would have had an estimated NAV
of $25.16 as of June 30, 2010, for a total return over the relevant time period
of -8.64%. The difference between the actual NAV total return of USHO of -9.08%
and the expected total return based on the Benchmark Futures Contract of -8.64%
was an error over the time period of -0.44%, which is to say that USHO’s actual
total return underperformed the benchmark result by that percentage. Management
believes that a portion of the difference between the actual return and the
expected benchmark return can be attributed to the net impact of the expenses
and the income that USHO collects on its cash and cash equivalent holdings.
During the six months ended June 30, 2010, USHO received dividend and interest
income of $2,025, which is equivalent to a weighted average income rate of 0.03%
for such period.  In addition, during the six months ended June 30,
2010, USHO also collected $3,000 from its Authorized Purchasers for creating or
redeeming baskets of units. This income also contributed to USHO’s actual
return. However, if the total assets of USHO continue to increase, management
believes that the impact on total returns of these fees from creations and
redemptions will diminish as a percentage of the total return. During the six
months ended June 30, 2010, USHO incurred net expenses of $61,582. Income from
dividends and interest and Authorized Purchaser collections net of expenses was
$(56,557) which is equivalent to an annualized weighted average net income rate
of -0.84% for the six months ended June 30, 2010.


23


By
comparison, for the six months ended June 30, 2009, the actual total return of
USHO as measured by changes in its NAV was 17.18%.  This was based on
an initial NAV of $21.94 on December 31, 2008 and an ending NAV as of June
30, 2009 of $25.71. During this time period, USHO made no distributions to
its unitholders. However, if USHO’s daily changes in its NAV had instead exactly
tracked the changes in the daily return of the Benchmark Futures Contract, USHO
would have had an estimated NAV of $25.72 as of June 30, 2009, for a total
return over the relevant time period of 17.25%. The difference between the
actual NAV total return of USHO of 17.18% and the expected total return based on
the Benchmark Futures Contract of 17.25% was an error over the time period of
0.07%, which is to say that USHO’s actual total return underperformed the
benchmark result by that percentage. Management believes that a portion of the
difference between the actual return and the expected benchmark return can be
attributed to the net impact of the expenses and the income that USHO collected
on its cash and cash equivalent holdings. During the six months ended June 30,
2009, USHO received dividend and interest income of $6,839, which is equivalent
to a weighted average income rate of 0.25% for such period. In addition, during
the six months ended June 30, 2009, USHO also collected $1,000 from its
Authorized Purchasers for creating or redeeming baskets of units. This income
contributed to USHO’s actual return. During the six months ended June 30, 2009,
USHO incurred net expenses of $25,367. Income from dividends and interest and
Authorized Purchaser collections net of expenses was $(17,528), which is
equivalent to an annualized weighted average net income rate of -0.64% for the
six months ended June 30, 2009.





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





First,
USHO may buy or sell its holdings in the then current Benchmark Futures Contract
at a price other than the closing settlement price of that contract on the day
during which USHO executes the trade. In that case, USHO may pay a price that is
higher, or lower, than that of the Benchmark Futures Contract,
which could cause the changes in the daily NAV of USHO to either be too
high or too low relative to the changes in the Benchmark Futures
Contract.  During the six months ended June 30, 2010, management
attempted to minimize the effect of these transactions by seeking to execute its
purchase or sale of the Benchmark Futures Contract at, or as close as
possible to, the end of the day settlement price. However, it may not always be
possible for USHO 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 USHO’s attempt to track the Benchmark Futures Contract
over time.




Second,
USHO earns dividend and interest income on its cash and cash equivalents.
USHO is not required to distribute any portion of its income to its unitholders
and did not make any distributions to unitholders during the six months ended
June 30, 2010. Interest payments, and any other income, were retained within the
portfolio and added to USHO’s NAV. When this income exceeds the level of USHO’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), USHO will
realize a net yield that will tend to cause daily changes in the NAV of USHO to
track slightly higher than daily changes in the Benchmark Futures
Contract.  During the six months ended June 30, 2010, USHO earned, on
an annualized basis, approximately 0.03% on its cash holdings. It also incurred
cash expenses on an annualized basis of 0.60% for management fees and
approximately 0.09% in brokerage commission costs related to the purchase and
sale of futures contracts, and 0.22% for other expenses. The foregoing fees and
expenses resulted in a net yield on an annualized basis of approximately -0.88%
and affected USHO’s ability to track its benchmark. If short-term interest rates
rise above the current levels, the level of deviation created by the yield would
decrease. Conversely, if short-term interest rates were to decline, the amount
of error created by the yield would increase. When short-term yields drop to a
level lower than the combined expenses of the management fee and the brokerage
commissions, then the tracking error becomes a negative number and would tend to
cause the daily returns of the NAV to underperform the daily returns of the
Benchmark Futures Contract.




Third,
USHO may hold Other Heating Oil-Related Investments in its portfolio that
may fail to closely track the Benchmark Futures Contract’s total return
movements. In that case, the error in tracking the Benchmark Futures
Contract could result in daily changes in the NAV of USHO that are either too
high, or too low, relative to the daily changes in the Benchmark Futures
Contract. During the six months ended June 30, 2010, USHO did not hold any Other
Heating Oil-Related Investments. If USHO increases in size, and due to its
obligations to comply with regulatory limits, USHO may invest in Other Heating
Oil-Related Investments, which may have the effect of increasing transaction
related expenses and may result in increased tracking error.


24


Term Structure
of Heating 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 heating oil futures
contracts and “rolling” those contracts forward each month is the price
relationship between the current near month contract and the next month
contract.  For example, if the price of the near month contract is
higher than the next month contract (a situation referred to as “backwardation”
in the futures market), then absent any other change there is a tendency for the
price of a next month contract to rise in value as it becomes the near month
contract and approaches expiration. Conversely, if the price of a near month
contract is lower than the next month contract (a situation referred to as
“contango” in the futures market), then absent any other change there is a
tendency for the price of a next month contract to decline in value as it
becomes the near month contract and approaches expiration.





As an
example, assume that the price of heating oil for immediate delivery (the “spot”
price), was $2.00 per gallon, and the value of a position in the near month
futures contract was also $2.00. Over time, the price of a gallon of heating oil
will fluctuate based on a number of market factors, including demand for
heating oil relative to its supply. The value of the near month contract will
likewise fluctuate in reaction to a number of market factors. If investors
seek to maintain their position in a near month contract and not take delivery
of the heating oil, every month they must sell their current near month contract
as it approaches expiration and invest in the next month contract.





If the
futures market is in backwardation, e.g., when the expected price
of heating 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 heating 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
income earned on 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 $2.00 investment would tend to rise
faster than the spot price of heating oil, or fall slower. As a result, it would
be possible in this hypothetical example for the spot price of heating oil to
have risen to $2.50 after some period of time, while the value of the investment
in the futures contract would have risen to $2.60, assuming backwardation is
large enough or enough time has elapsed. Similarly, the spot price of heating
oil could have fallen to $1.50 while the value of an investment in the futures
contract could have fallen to only $1.60. 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 heating 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
income earned on cash and/or cash equivalents), 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 $2.00 investment
would tend to rise slower than the spot price of heating oil, or fall faster. As
a result, it would be possible in this hypothetical example for the spot price
of heating oil to have risen to $2.50 after some period of time, while the
value of the investment in the futures contract will have risen to only $2.40,
assuming contango is large enough or enough time has elapsed. Similarly, the
spot price of heating oil could have fallen to $1.50 while the value of an
investment in the futures contract could have fallen to $1.40. 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 price of the next
month contract over the last 10 years (2000-2009) for heating oil. When the
price of the near month contract is higher than the price of the next month
contract, the market would be described as being in backwardation. When the
price of the near month contract is lower than the price of the next month
contract, the market would be described as being in contango. Although the
prices of the near month contract and the price of the next month contract do
tend to move up or down together, it can be seen that at times the near month
prices are clearly higher than the price of the next month contract
(backwardation), and other times they are below the price of the next month
contract (contango). In addition, investors can observe that heating oil prices,
both near month and next month, often display a seasonal pattern in which the
price of heating oil tends to rise in the winter months and decline in the
summer months. This mirrors the physical demand for heating oil, which typically
peaks in the winter.


25








*PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS





An
alternative way to view backwardation and contango data over time is to subtract
the dollar price of the next month heating oil futures contract from the dollar
price of the near month heating oil futures contract. If the resulting number is
a positive number, then the price of the near month contract is higher than the
price of the next month and the market could be described as being in
backwardation. If the resulting number is a negative number, then the near month
price is lower than the price of the next month and the market could be
described as being in contango. The chart below shows the results from
subtracting the next month contract price from the price of the near month
contract for the 10 year period between 2000 and 2009. Investors will note
that the near month heating oil futures contract spent time in both
backwardation and contango. Investors will further note that the markets display
a very seasonal pattern that corresponds to the seasonal demand patterns for
heating oil mentioned above. That is, in many, but not all cases, the price of
the near month is higher than the next month during the middle of the winter
months as the price of heating oil for delivery in those winter months rises to
meet peak demand. At the same time, the price of the near month contract, when
that month is just before the onset of fall, does not rise as far or as fast as
the price of a next month contract whose delivery falls closer to the start of
the winter season.


26








*PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS





While the
investment objective of USHO is not to have the market price of its units match,
dollar for dollar, changes in the spot price of heating oil, contango and
backwardation have impacted the total return on an investment in USHO units
during the past year relative to a hypothetical direct investment in
heating oil. For example, an investment in USHO units made on December 31, 2009
and held to June 30, 2010 decreased, based upon the changes in the NAV for USHO
units on those days, by -9.08%, while the spot price of heating oil for
immediate delivery during the same period decreased by -4.79% (note: this
comparison ignores the potential costs associated with physically owning and
storing heating oil, which could be substantial). By comparison, an investment
in USHO units made on December 31, 2008 and held to June 30, 2009 increased,
based upon the changes in the NAV for USHO units on those days, by 17.88%, while
the spot price of heating oil for immediate delivery during the same period
increased by 22.22% (note: this comparison ignores the potential costs
associated with physically owning and storing heating oil, which could be
substantial).





Periods
of contango or backwardation do not materially impact USHO’s investment
objective of having the percentage changes in its per unit NAV track the
percentage changes in the price of the Benchmark Futures Contract since the
impact of backwardation and contango tended to equally impact the percentage
changes in price of both USHO’s units and the Benchmark Futures
Contract. It is impossible to predict with any degree of certainty whether
backwardation or contango will occur in the future. It is likely that both
conditions will occur during different periods.





Heating Oil
Market.  During the six months ended June 30, 2010, the price
of heating oil in the United States, as measured by changes in the price of the
futures contract traded on the NYMEX that was closest to expiration, fell by
approximately -4.79% from $2.12 per gallon to $2.01 per gallon. (Investors are
cautioned that these represent prices for heating oil on a wholesale basis and
should not be directly compared to retail prices.)


27


During
the six months ended June 30, 2010, the price of crude oil, the raw
material from which heating oil is refined, was impacted by several
factors. On the consumption side, demand increased inside and outside the United
States as global economic growth, including emerging economies such as China and
India, improved for the second quarter of the year. On the supply side, efforts
to reduce production by the Organization of the Petroleum Exporting Countries to
more closely match global consumption were partially successful. Crude oil
prices did finish the second quarter of 2010 approximately 4.7% lower than at
the beginning of the year, though investors looked forward to continued
improvements in the global economy. Management believes, however, that should
the global economic situation cease to improve, or decline, there is a
meaningful possibility that crude oil prices could further retreat from their
current levels.





Management
believes that over both the medium-term and the long-term, changes in the price
of crude oil will exert the greatest influence on the price of refined petroleum
products such as heating oil. At the same time, there can be other factors that,
particularly in the short term, cause the price of heating oil to rise (or
fall), more (or less) than the price of crude oil. For example, warmer weather
during the high demand period of the winter season could cause American
consumers to reduce their heating oil consumption. Furthermore, heating oil
prices are impacted by the availability of refining capacity. As a result, it is
possible that changes in heating oil prices may not match the changes in crude
oil prices.





Heating 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 2000 and 2009, the chart below compares the monthly
movements of heating oil prices versus the monthly movements of the prices of
several other energy commodities, such as natural gas, crude 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 heating 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 heating oil had a strong positive correlation to movements
in crude oil and unleaded gasoline. Finally, heating oil had a positive, but
weaker, correlation with natural gas.





10
      Year Correlation Matrix
                                            2000-2009
                                          
                                          Large
                                            Cap
      U.S.
                                            Equities
                                            (S&P
                                            500)
                                          
                                          
                                          U.S.
      Gov't.
                                            Bonds
                                            (EFFAS
                                            U.S.
                                            Gov’t.
                                            Bond
                                            Index)
                                          
                                          
                                          Global
                                            Equities
                                            (FTSE
                                            World
                                            Index)
                                          
                                          
                                          Crude
                                            Oil
                                          
                                          
                                          Unleaded
                                            Gasoline
                                          
                                          
                                          Natural
                                            Gas
                                          
                                          
                                          Heating
                                            OilLarge
      Cap U.S. Equities (S&P 500)
                                          
                                          
                                          1.000
                                          
                                          
                                          
                                          -0.259
                                          
                                          
                                          
                                          0.966
                                          
                                          
                                          
                                          0.152
                                          
                                          
                                          
                                          0.135
                                          
                                          
                                          
                                          0.023
                                          
                                          
                                          
                                          0.087U.S.
      Gov't. Bonds (EFFAS U.S. Gov’t. Bond Index)
                                          
                                          
                                          
                                          
                                          
                                          
                                          1.000
                                          
                                          
                                          
                                          -0.237
                                          
                                          
                                          
                                          -0.127
                                          
                                          
                                          
                                          -0.214
                                          
                                          
                                          
                                          0.128
                                          
                                          
                                          
                                          -0.078Global
      Equities (FTSE World Index)
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          1.000
                                          
                                          
                                          
                                          0.246
                                          
                                          
                                          
                                          0.196
                                          
                                          
                                          
                                          0.084
                                          
                                          
                                          
                                          0.165Crude
      Oil
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          1.000
                                          
                                          
                                          
                                          0.724
                                          
                                          
                                          
                                          0.334
                                          
                                          
                                          
                                          0.783Unleaded
      Gasoline
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          1.000
                                          
                                          
                                          
                                          0.257
                                          
                                          
                                          
                                          0.613Natural
      Gas
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          1.000
                                          
                                          
                                          
                                          0.466Heating
      Oil
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          1.000Source:
      Bloomberg, NYMEX


28


PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS





The chart
below covers a more recent, but much shorter, range of dates than the above
chart. Over the one year period ended June 30, 2010, heating oil continued to
have a strong positive correlation with crude oil and unleaded gasoline. During
this period, it also had a negative, but weak correlation with the movements of
natural gas versus the positive correlation it had displayed over the ten year
period ended December 31, 2009. Notably, the correlation between heating oil and
both global equities and large-cap U.S. equities, which had been essentially
non-correlated over the ten year period ended December 31, 2009, displayed
results that indicated that they had a mildly positive correlation over this
shorter time period. Finally, the results showed that heating oil and U.S.
government bonds, which had essentially been non-correlated for the ten year
period ended December 31, 2009, were negatively correlated over this more recent
time period.





Correlation
      Matrix 12 months
                                  ended
                                  June
      30, 2010
                                
                                Large
      Cap
                                  U.S.
                                  Equities
                                  (S&P
      500)
                                
                                
                                U.S.
      Gov't.
                                  Bonds
                                  (EFFAS
                                  U.S.
      Gov’t.
                                  Bond
      Index)
                                
                                
                                Global
                                  Equities
                                  (FTSE
                                  World
                                  Index)
                                
                                
                                Crude
                                  Oil
                                
                                
                                Unleaded
                                  Gasoline
                                
                                
                                Natural
                                  Gas
                                
                                
                                Heating
                                  OilLarge
      Cap U.S. Equities (S&P 500)
                                
                                
                                1.000
                                
                                
                                
                                -0.400
                                
                                
                                
                                0.968
                                
                                
                                
                                0.495
                                
                                
                                
                                0.460
                                
                                
                                
                                -0.125
                                
                                
                                
                                0.613U.S.
      Gov't. Bonds (EFFAS U.S. Gov’t. Bond Index)
                                
                                
                                
                                
                                
                                
                                1.000
                                
                                
                                
                                -0.411
                                
                                
                                
                                -0.486
                                
                                
                                
                                -0.445
                                
                                
                                
                                -0.015
                                
                                
                                
                                -0.574Global
      Equities (FTSE World Index)
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                1.000
                                
                                
                                
                                0.523
                                
                                
                                
                                0.471
                                
                                
                                
                                -0.079
                                
                                
                                
                                0.635Crude
      Oil
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                1.000
                                
                                
                                
                                0.801
                                
                                
                                
                                -0.089
                                
                                
                                
                                0.941Unleaded
      Gasoline
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                1.000
                                
                                
                                
                                -0.524
                                
                                
                                
                                0.846Natural
      Gas
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                1.000
                                
                                
                                
                                -0.075Heating
      Oil
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                1.000Source:
      Bloomberg, NYMEX





PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS





Investors
are cautioned that the historical price relationships between heating 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
heating 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 heating oil could have long term
correlation results that indicate prices of heating 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 heating oil to equities and bonds will be
either more strongly positively correlated or more strongly negatively
correlated than the long term historical results suggest.


29


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





Critical
Accounting Policies





Preparation
of the condensed financial statements and related disclosures in compliance with
accounting principles generally accepted in the United States of America
requires the application of appropriate accounting rules and guidance, as well
as the use of estimates. USHO’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 USHO’s condensed financial statements and related
disclosures and has determined that the valuation of its investments which
are not traded on a United States or internationally recognized futures exchange
(such as forward contracts and over-the-counter contracts) involves a critical
accounting policy. The values which are used by USHO for its futures 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, USHO estimates income on a daily basis
using prevailing rates earned on its cash and cash equivalents. These estimates
are adjusted to the actual amount received on a monthly basis and the
difference, if any, is not considered material.




Liquidity
and Capital Resources





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





USHO currently
generates cash primarily from (i) the sale of baskets consisting of 100,000
units (“Creation Baskets”) and (ii) income earned on cash and/or cash
equivalents. USHO has allocated substantially all of its net assets to
trading in Heating Oil Interests. USHO invests in Heating 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
Futures Contracts and Other Heating Oil-Related Investments. A significant
portion of USHO’s NAV is held in cash and cash equivalents that are used as
margin and as collateral for its trading in Heating Oil Interests. The
balance of the net assets is held in USHO’s account at its custodian bank.
Income received from USHO’s money market funds is paid to USHO. During the six
months ended June 30, 2010, USHO’s expenses exceeded the income USHO earned and
the cash earned from the sale of Creation Baskets and the redemption of
Redemption Baskets. To the extent expenses exceed income, USHO’s NAV will be
negatively impacted.





USHO’s
investments in Heating Oil Interests may be subject to periods of illiquidity
because of market conditions, regulatory considerations and other reasons. For
example, most commodity exchanges limit the fluctuations in futures
contracts prices during a single day by regulations referred to as “daily
limits.” During a single day, no trades may be executed at prices beyond the
daily limit. Once the price of a futures contract has increased or
decreased by an amount equal to the daily limit, positions in the contracts can
neither be taken nor liquidated unless the traders are willing to effect trades
at or within the specified daily limit. Such market conditions could prevent
USHO from promptly liquidating its positions in Futures Contracts. During
the six months ended June 30, 2010, USHO was not forced to purchase or liquidate
any of its positions while daily limits were in effect; however, USHO cannot
predict whether such an event may occur in the future.


30


Prior to
the initial offering of USHO, all payments with respect to USHO’s expenses were
paid by the General Partner. USHO does not have an obligation or intention to
refund such payments by the General Partner. The General Partner is under no
obligation to pay USHO’s current or future expenses. Since the initial offering
of units, USHO has been responsible for expenses relating to (i) management
fees, (ii) brokerage fees and commissions, (iii) licensing fees for the use
of intellectual property, (iv) ongoing registration expenses in connection
with offers and sales of its units subsequent to the initial offering, (v)
other expenses, including certain tax reporting costs, (vi) fees and expenses of
the independent directors of the General Partner and (vii) other extraordinary
expenses not in the ordinary course of business, while the General Partner has
been responsible for expenses relating to the fees of USHO’s marketing agent,
administrator and custodian and registration expenses relating to the initial
offering of units. If the General Partner and USHO are unsuccessful in
raising sufficient funds to cover these respective expenses or in locating any
other source of funding, USHO will terminate and investors may lose all or part
of their investment.





Market
Risk





Trading
in Futures Contracts and Other Heating Oil-Related Investments, such as
forwards, involves USHO entering into contractual commitments to purchase
or sell heating oil at a specified date in the future. The aggregate market
value of the contracts will significantly exceed USHO’s future cash
requirements since USHO intends to close out its open positions prior to
settlement. As a result, USHO is generally only subject to the
risk of loss arising from the change in value of the contracts. USHO considers
the “fair value” of its derivative instruments to be the unrealized gain or loss
on the contracts. The market risk associated with USHO’s commitments to purchase
heating oil is limited to the aggregate market value of the contracts held.
However, should USHO enter into a contractual commitment to sell heating oil, it
would be required to make delivery of the heating 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 heating oil, the market risk to USHO could be
unlimited.




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




Credit
Risk





When USHO
enters into Futures Contracts and Other Heating Oil-Related Investments, it
is exposed to the credit risk that the counterparty will not be able to meet its
obligations. The counterparty for the Futures Contracts traded on the NYMEX
and on most other futures exchanges is the clearinghouse associated with
the particular exchange. In general, in addition to margin required to be posted
by the exchange or clearinghouse in connection with trades on the exchange or
through the clearinghouse, clearinghouses are backed by their members who may be
required to share in the financial burden resulting from the nonperformance of
one of their members and, therefore, this additional member support should
significantly reduce credit risk. Some foreign exchanges are not backed by their
clearinghouse members but may be backed by a consortium of banks or other
financial institutions. There can be no assurance that any counterparty,
clearinghouse, or their members or their financial backers will satisfy their
obligations to USHO in such circumstances.




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





If, in
the future, USHO purchases over-the-counter contracts, see “Item 3. Quantitative
and Qualitative Disclosures About Market Risk” of this quarterly report on Form
10-Q for a discussion of over-the-counter contracts.


31


As of
June 30, 2010, USHO had deposits in domestic and foreign financial
institutions,including
cash investments in money market funds, in the amount of $7,714,580. This amount
is subject to loss should these institutions cease operations.





Off
Balance Sheet Financing





As of
June 30, 2010, USHO 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 USHO. While USHO’s exposure under these indemnification
provisions cannot be estimated, they are not expected to have a material impact
on USHO’s financial position.





Redemption
Basket Obligation





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





USHO’s
primary contractual obligations are with the General Partner. In return for its
services, the General Partner is entitled to a management fee calculated monthly
as a fixed percentage of USHO’s NAV, currently 0.60% of NAV on its average daily
net assets.




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





The
General Partner pays the fees of USHO’s marketing agent, ALPS Distributors,
Inc., and the fees of the custodian and transfer agent, Brown Brothers Harriman
& Co. (“BBH&Co.”), as well as BBH&Co.’s fees for performing
administrative services, including those in connection with the preparation of
USHO’s condensed financial statements and its SEC and CFTC reports. The General
Partner and USHO have also entered into a licensing agreement with the
NYMEX pursuant to which USHO and the affiliated funds managed by the General
Partner, other than USBO, pay a licensing fee to the NYMEX. USHO also pays the
fees and expenses associated with its tax accounting and reporting requirements
with the exception of certain initial implementation service fees and base
service fees which are paid by the General Partner. The General Partner, though
under no obligation to do so, agreed to pay certain costs for tax reporting and
audit expenses normally borne by USHO to the extent that such expenses exceed
0.15% (15 basis points) of USHO’s NAV, on an annualized basis, through at least
December 31, 2010. The General Partner has no obligation to continue such
payment into subsequent periods.





In
addition to the General Partner’s management fee, USHO 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 USHO’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.  USHO also pays a portion of the fees and expenses of the
independent directors of the General Partner.  See Note 3 to the Notes
to Condensed Financial Statements (Unaudited).


32


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





As of
June 30, 2010, USHO’s portfolio consisted of 89 Heating Oil Futures HO Contracts
traded on the NYMEX.  For a list of USHO’s current holdings, please
see USHO’s website at www.unitedstatesheatingoilfund.com.





Item 3.  Quantitative and Qualitative Disclosures
About Market Risk.





Over-the-Counter
Derivatives




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




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




To
protect itself from the credit risk that arises in connection with such
contracts, USHO 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. USHO also may require that the counterparty be highly rated and/or
provide collateral or other credit support to address USHO’s exposure to the
counterparty. In addition, it is also possible for USHO and its counterparty to
agree to clear their transactions under the agreement through an established
futures clearinghouse such as those connected to the NYMEX or the ICE Futures.
In that event, USHO would no longer bear the credit risk of its original
counterparty, as the clearinghouse would now be USHO’s counterparty. USHO would
still retain any price risk associated with its transaction.




The
creditworthiness of each potential counterparty is assessed by the General
Partner. The General Partner assesses or reviews, as appropriate, the
creditworthiness of each potential or existing counterparty to an
over-the-counter contract pursuant to guidelines approved by the General
Partner’s board of directors (the “Board”). Furthermore, the
General Partner on behalf of USHO only enters into over-the-counter
contracts with counterparties who are, or are affiliates of, (a) banks
regulated by a United States federal bank regulator, (b) broker-dealers
regulated by the SEC, (c) insurance companies domiciled in the United
States, or (d) producers, users or traders of energy, whether or not
regulated by the CFTC. Any entity acting as a counterparty shall be
regulated in either the United States or the United Kingdom unless
otherwise approved by the Board after consultation with its legal counsel.
Existing counterparties are also reviewed periodically by the General
Partner.





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


33


USHO may
employ spreads or straddles in its trading to mitigate the differences in its
investment portfolio and its goal of tracking the price of the
Benchmark Futures Contract. USHO 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 USHO to changes in the price
relationship between futures contracts which will expire sooner and those that
will expire later. USHO 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 USHO, 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 heating oil prices.
USHO 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.
USHO 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 USHO or if it would lead to an overall lower cost of trading
to achieve a given level of economic exposure to movements in heating oil
prices.





During
the six months ended June 30, 2010, USHO did not employ any hedging methods such
as those described above since all of its investments were made over an
exchange. Therefore, during the six months ended June 30, 2010, USHO was not
exposed to counterparty risk.





Item 4.  Controls and
Procedures.




Disclosure
Controls and Procedures




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




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





Change
in Internal Control Over Financial Reporting




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


34


Part II. OTHER INFORMATION





Item
1.  Legal Proceedings.





Not applicable.





Item
1A.  Risk Factors.





There has
not been a material change from the risk factors previously disclosed in USHO’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2009, filed on
March 30, 2010, except for the update to the risk factor set forth below to
reflect the passage of The Dodd-Frank Wall Street Reform and Consumer Protection
Act.





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 USHO.





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 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 USHO or the ability of
USHOto
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
USHO is impossible to predict, but could be substantial and
adverse.





In the
wake of the economic crisis of 2008 and 2009, the Administration, federal
regulators and Congress are revisiting the regulation of the financial sector,
including securities and commodities markets. These efforts are likely to result
in significant changes in the regulation of these markets.





On July
21, 2010, a broad financial regulatory reform bill, “The Dodd-Frank Wall Street
Reform and Consumer Protection Act,” was signed into law that includes
provisions altering the regulation of commodity interests. Provisions in the new
law include the requirement that position limits on energy-based commodity
futures contracts be established; new registration, recordkeeping, capital and
margin requirements for “swap dealers” and “major swap participants” as
determined by the new law and applicable regulations; and the forced use of
clearinghouse mechanisms for most over-the-counter transactions. Additionally,
the new law requires the aggregation, for purposes of position limits, of all
positions in energy futures held by a single entity and its affiliates, whether
such positions exist on U.S. futures exchanges, non-U.S. futures exchanges, or
in over-the-counter contracts. The CFTC, along with the SEC and other federal
regulators, has been tasked with developing the rules and regulations enacting
the provisions noted above. The new law and the rules to be promulgated may
negatively impact USHO’s ability to meet its investment objective either through
limits or requirements imposed on it or upon its counterparties. In particular,
new position limits imposed on USHO or its counterparties may impact USHO’s
ability to invest in a manner that most efficiently meets its investment
objective, and new requirements, including capital and mandatory clearing, may
increase the cost of USHO’s investments and doing business, which could
adversely affect USHO’s investors.





Item
2.  Unregistered Sales of Equity Securities and Use of
Proceeds.





Not applicable.


35


Item
3.  Defaults Upon Senior Securities.





Not applicable.





Item 4.Reserved.





Item 5.  Other
Information.




Monthly
Account Statements




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




Item 6. Exhibits.




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





ExhibitNumber
              
              Description of Document10.8**
              
              Form
      of United States Commodity Funds LLC Director Deferred Compensation
      Agreement.31.1*
              
              Certification
      by Principal Executive Officer Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2*
              
              Certification
      by Principal Financial Officer Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1*
              
              Certification
      by Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as
      Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.32.2*
              
              Certification
      by Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as
      Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.





*
            Filed
      herewith.


**
            Incorporated
      by reference to Exhibit 99.1 to the Registrant’s Current Report on Form
      8-K, filed on April 1, 2010.




36


SIGNATURES





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





United
      States Heating Oil Fund, LP (Registrant)By:
      United States Commodity Funds LLC, its general partnerBy:
              /s/ Nicholas D.
      GerberNicholas
      D. GerberPresident
      and Chief Executive Officer(Principal
      executive officer)Date:  August
      16, 2010By:
              /s/
      Howard MahHoward
      MahChief
      Financial Officer(Principal
      financial and accounting officer)Date:  August
      16, 2010


37