UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549


FORM
10-K




x
            Annual
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act
      of 1934 for the fiscal year ended December 31,
  2008.




or





 ̈
            Transition
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act
      of 1934 for the transition period
      from              
      to             
      .





Commission
file number: 001-33859




United
States 12 Month Oil Fund, LP


(Exact
name of registrant as specified in its charter)




Delaware
            
            20-0431897(State
      or other jurisdiction of
              incorporation
      or organization)
            
            (I.R.S.
      Employer
              Identification
      No.)




1320
Harbor Bay Parkway, Suite 145


Alameda,
California 94502


(Address
of principal executive offices) (Zip code)




(510)
522-3336


(Registrant’s
telephone number, including area code)




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




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




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




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




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




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




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









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




Large
accelerated filer    ̈                                                                        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




The
aggregate market value of the registrant’s units held by non-affiliates of the
registrant as of June 30, 2008 was: $8,392,000.




The
registrant had 4,900,000 outstanding units as of March 30,
2009.




DOCUMENTS
INCORPORATED BY REFERENCE:


None.









UNITED STATES12 MONTH OIL FUND,
LP





Table
of Contents





Part I.
              
              PageItem 1. Business.
              
              1Item 1A. Risk Factors.
              
              42Item 1B. Unresolved Staff Comments.
              
              58Item 2. Properties.
              
              59Item 3. Legal Proceedings.
              
              59Item 4. Submission of Matters to a Vote of Security
      Holders.
              
              59Part II.Item 5. Market for Registrant’s Common Equity, Related
      Stockholder Matters and Issuer Purchases of Equity
      Securities.
              
              59Item 6. Selected Financial Data.
              
              60Item 7. Management’s Discussion and Analysis of Financial
      Condition and Results of Operations.
              
              60Item 7A. Quantitative and Qualitative Disclosures About
      Market Risk.
              
              77Item 8. Financial Statements and Supplementary
      Data.
              
              79Item 9. Changes in and Disagreements With Accountants on
      Accounting and Financial Disclosure.
              
              108Item 9A. Controls and Procedures.
              
              108Item 9B. Other Information.
              
              108Part III.Item 10. Directors, Executive Officers and Corporate
      Governance.
              
              108Item 11. Executive Compensation.
              
              112Item 12. Security Ownership of Certain Beneficial Owners
      and Management and Related Stockholder Matters.
              
              113Item 13. Certain Relationships and Related Transactions,
      and Director Independence.
              
              113Item 14. Principal Accountant Fees and
      Services.
              
              113Part IV.Item 15. Exhibits and Financial Statement
      Schedules.
              
              114Exhibit Index.
              
              114Signatures
              
              116










Part I





Item 1.  Business.




What
is US12OF?




The
United States 12 Month Oil Fund, LP (“US12OF”) is a Delaware limited
partnership organized on June 27, 2007. US12OF maintains its main business
office at 1320 Harbor Bay Parkway, Suite 145, Alameda, California 94502. US12OF
is a commodity pool that issues limited partnership interests (“units”) traded
on the NYSE Arca, Inc. (the “NYSE Arca”). It operates pursuant to the terms of
the Amended and Restated Agreement of Limited Partnership dated as of
December 4, 2007 (the “LP Agreement”), which grants full management control to
United States Commodity Funds LLC (the “General Partner”).




The
investment objective of US12OF is for the changes in percentage terms of its
units’ net asset value (“NAV”) reflect the changes in percentage terms of the
price of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by
the changes in the average of the prices of 12 futures contracts on light, sweet
crude oil traded on the New York Mercantile Exchange (the “NYMEX”) consisting of
the near month contract to expire and the contracts for the following 11 months
for a total of 12 consecutive months’ contracts (the “Benchmark Futures
Contracts”), except when the near month contract is within two weeks of
expiration, in which case it is measured by the futures contracts that are the
next month contract to expire and the contracts for the following 11 consecutive
months, less US12OF’s expenses. When calculating the daily movement of the
average price of the 12 contracts, each contract month is equally weighted.
US12OF began trading on December 6, 2007.  The General Partner is the
general partner of US12OF and is responsible for the management of
US12OF.





Who
is the General Partner?




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





On May
12, 2005, the General Partner formed the United States Oil Fund, LP
(“USOF”), another limited partnership that is a commodity pool and
issues units traded on the NYSE Arca.  The investment
objective of USOF is to have the changes in percentage terms of its units’ NAV
reflect the changes in percentage terms of the price of light, sweet crude oil
delivered to Cushing, Oklahoma, as measured by the changes in the price of the
futures contract for light, sweet crude oil traded on the NYMEX, less USOF’s
expenses. USOF began trading on April 10, 2006.  The General
Partner is the general partner of USOF and is responsible for the management of
USOF.




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




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




1




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





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





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





The
General Partner is required to evaluate the credit risk of US12OF to the futures
commission merchant, oversee the purchase and sale of US12OF’s units by certain
authorized purchasers (“Authorized Purchasers”), review daily positions and
margin requirements of US12OF and manage US12OF’s investments. The General
Partner also pays the fees of ALPS Distributors, Inc. (the “Marketing Agent”)
and Brown Brothers Harriman & Co. (“BBH&Co.”), which acts as the
administrator (the “Administrator”) and the custodian (the
“Custodian”) for US12OF.




Limited
partners have no right to elect the General Partner on an annual or any other
continuing basis. If the General Partner voluntarily withdraws, however, the
holders of a majority of US12OF’s outstanding units (excluding for purposes of
such determination units owned, if any, by the withdrawing General Partner
and its affiliates) may elect its successor. The General Partner may not be
removed as general partner except upon approval by the affirmative vote of the
holders of at least 66 and 2/3 percent of US12OF’s outstanding units (excluding
units owned, if any, by the General Partner and its affiliates), subject to
the satisfaction of certain conditions set forth in the LP
Agreement.




The
business and affairs of the General Partner are managed by a board of directors
(the “Board”), which is comprised of four management directors, some of whom are
also its executive officers (the “Management Directors”), and three independent
directors who meet the independent director requirements established by the NYSE
Arca and the Sarbanes-Oxley Act of 2002. Notwithstanding the foregoing, the
Management Directors have the authority to manage the General Partner pursuant
to its limited liability company agreement. Through its Management Directors,
the General Partner manages the day-to-day operations of US12OF. The Board has
an audit committee which is made up of the three independent directors (Peter M.
Robinson, Gordon L. Ellis and Malcolm R. Fobes III). For additional information
relating to the audit committee, please see “Item 10. Directors, Executive
Officers and Corporate Governance – Audit Committee” in this annual report on
Form 10-K.





How
Does US12OF Operate?





The net
assets of US12OF consist primarily of investments in futures contracts for
light, sweet crude oil, but may also consist of other types of crude oil,
heating oil, gasoline, natural gas, and other petroleum-based fuels that are
traded on the NYMEX, ICE Futures (formerly, the International Petroleum
Exchange) or other U.S. and foreign exchanges (collectively, “Futures
Contracts”). US12OF may also invest in other crude oil-related investments such
as cash-settled options on Futures Contracts, forward contracts for crude oil,
and over-the-counter transactions that are based on the price of crude oil,
heating oil, gasoline, natural gas and other petroleum-based fuels, Futures
Contracts and indices based on the foregoing (collectively, “Other Crude
Oil-Related Investments”). For convenience and unless otherwise specified,
Futures Contracts and Other Crude Oil-Related Investments collectively are
referred to as “Crude Oil Interests” in this annual report on Form
10-K.




2




US12OF
invests in Crude Oil Interests to the fullest extent possible without being
leveraged or unable to satisfy its current or potential margin or collateral
obligations with respect to its investments in Futures Contracts and Other Crude
Oil-Related Investments. In pursuing this objective, the primary focus of the
General Partner is the investment in Futures Contracts and the management of US12OF’s investments in
short-term obligations of the United States of two years or less (“Treasuries”),
cash and/or cash equivalents for margining purposes and as
collateral.





The
investment objective of US12OF is to have the changes in percentage terms of its
units’ NAV reflect the changes in percentage terms of the spot price of light,
sweet crude oil delivered to Cushing, Oklahoma, as measured by the changes in
the average of the prices of the Benchmark Futures Contracts, less US12OF’s
expenses. When calculating the daily movement of the average price of the 12
contracts each contract month is equally weighted. It is not the intent of
US12OF to be operated in a fashion such that its NAV will equal, in dollar
terms, the spot price of light, sweet crude oil or any particular futures
contract based on light, sweet crude oil.





The
General Partner believes that holding futures contracts whose expiration dates
are spread out over a 12 month period of time will cause the total return of
such a portfolio to vary compared to a portfolio that holds only a single
month’s contract (such as the near month contract). In particular, the General
Partner believes that the total return of a portfolio holding contracts with a
range of expiration months will be impacted differently by the price
relationship between different contract months of the same commodity future
compared to the total return of a portfolio consisting of the near month
contract. For example, in cases in which the near month contract’s price is
higher than the price of contracts that expire later in time (a situation known
as “backwardation” in the futures markets), then absent the impact of the
overall movement in crude oil prices the value of the near month contract would
tend to rise as it approaches expiration. Conversely, in cases in which the near
month contract’s price is lower than the price of contracts that expire later in
time (a situation known as “contango” in the futures markets), then absent the
impact of the overall movement in crude oil prices the value of the near month
contract would tend to decline as it approaches expiration. The total return of
a portfolio that owned the near month contract and “rolled” forward each month
by selling the near month contract as it approached expiration and purchasing
the next month contract to expire would be positively impacted by a
backwardation market, and negatively impacted by a contango market. Depending on
the exact price relationship of the different month’s prices, portfolio
expenses, and the overall movement of crude oil prices, the impact of
backwardation and contango could have a major impact on the total return of such
a portfolio over time. The General Partner believes that based on historical
evidence a portfolio that held futures contracts with a range of expiration
dates spread out over a 12 month period of time would typically be impacted less
by the positive effect of backwardation and the negative effect of contango
compared to a portfolio that held contracts of a single near month. As a result,
absent the impact of any other factors, a portfolio of 12 different monthly
contracts would tend to have a lower total return than a near month only
portfolio in a backwardation market and a higher total return in a contango
market. However there can be no assurance that such historical relationships
would provide the same or similar results in the future.





As a
specific benchmark, the General Partner endeavors to place US12OF’s trades in
Futures Contracts and Other Crude Oil-Related Investments and otherwise manage
US12OF’s investments so that A will be within plus/minus 10 percent of B,
where:





·
            A
      is the average daily change in US12OF’s NAV for any period of 30
      successive valuation days; i.e., any trading day
      as of which US12OF calculates its NAV,
and


·
            B
      is the average daily change in the prices of the Benchmark Futures
      Contracts over the same period.





The
General Partner believes that market arbitrage opportunities cause daily changes
in US12OF’s unit price on the NYSE Arca to closely track daily changes in
US12OF’s NAV per unit. The General Partner believes that changes in US12OF’s NAV
in percentage terms will closely track the changes in percentage terms in the
Benchmark Futures Contracts, less US12OF’s expenses. The following two graphs
demonstrate the correlation between the daily and monthly changes in the NAV of
US12OF and the daily and monthly changes in the average of the prices of the
Benchmark Futures Contracts both since the initial public offering of US12OF’s
units on December 6, 2007 through December 31, 2008 and during the last thirty
valuation days ended December 31, 2008.




3









*PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS










*PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS




4




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





The
expected correlation of the price of US12OF’s units, US12OF’s NAV and the price
of the Benchmark Futures Contracts is illustrated in the following
diagram:








The
      Price of US12OF's Units is Expected to Correlate Closely with US12OF's
      NAV
                      
                      US12OF's units are traded on
      the NYSE Arca.  The price of the units will fluctuate in response to
      US12OF's NAV and the supply and demand pressures of the Exchange. 
      Because of certain arbitrage opportunities, the General Partner believed
      the price of US12OF's units traded on the Exchange will correlate closely
      with US12OF's
NAV.









Changes
      in US12OF's NAV are Expected to Correlate Closely with Changes in the
      Price of the Benchmark Futures Contract
                    
                    The General Partner will
      endeavor to invest US12OF's assets as fully as possible in Futures
      Contracts and Other Crude Oil-Related Investments so that the changes in
      the NAV will closely correlate with the changes in the price of the
      Benchmark Futures
Contracts.










5




The
General Partner employs a “neutral” investment strategy in order to track
changes in the prices of the Benchmark Futures Contracts regardless of
whether these prices go up or go down. US12OF’s “neutral” investment
strategy is designed to permit investors generally to purchase and sell US12OF’s
units for the purpose of investing indirectly in crude oil in a cost-effective
manner, and/or to permit participants in the crude oil or other industries to
hedge the risk of losses in their crude oil-related transactions. Accordingly,
depending on the investment objective of an individual investor, the risks
generally associated with investing in crude oil and/or the risks involved in
hedging may exist. In addition, an investment in US12OF involves the risk that
the changes in the price of US12OF’s units will not accurately track the changes
in the Benchmark Futures Contracts.




The
Benchmark Futures Contracts changes from the near month contract to expire and
the 11 following months to the next month contact to expire and the 11 following
months during one day each month. On that day US12OF will “roll” its positions
by closing, or selling, its oil interests and reinvesting the proceeds from
closing these positions in new oil interests.   The anticipated
monthly dates on which the Benchmark Futures Contracts will be changed and
US12OF’s Other Crude Oil-Related Investments will be “rolled” in 2009 are posted
on US12OF’s website at www.unitedstates12monthoilfund.com, and are subject to
change.





US12OF’s
total portfolio composition is disclosed on its website each business day that
the NYSE Arca is open for trading. The website disclosure of portfolio holdings
is made daily and includes, as applicable, the name and value of each Crude Oil
Interest, the specific types of Other Crude Oil-Related Investments and
characteristics of such Other Crude Oil-Related Investments, Treasuries, and
amount of the cash and/or cash equivalents held in US12OF’s portfolio. US12OF’s
website is publicly accessible at no charge. US12OF’s assets are held in
segregated pursuant to the Commodity Exchange Act (the “CEA”) and CFTC
regulations.





The
units issued by US12OF may only be purchased by Authorized Purchasers
and only in blocks of 100,000 units called Creation Baskets. The amount of the
purchase payment for a Creation Basket is equal to the aggregate NAV of units in
the Creation Basket. Similarly, only Authorized Purchasers may redeem units and
only in blocks of 100,000 units called Redemption Baskets. The amount of the
redemption proceeds for a Redemption Basket is equal to the aggregate NAV of
units in the Redemption Basket. The purchase price for Creation Baskets and the
redemption price for Redemption Baskets are the actual NAV calculated at the end
of the business day when notice for a purchase or redemption is received by
US12OF. The NYSE Arca publishes an approximate intra-day NAV based on the prior
day’s NAV and the current price of Benchmark Futures Contracts, but the
basket price is determined based on the actual NAV at the end of the
day.




While
US12OF issues units only in Creation Baskets, units may also be
purchased and sold in much smaller increments on the NYSE Arca. These
transactions, however, are effected at the bid and ask prices established
by specialist firm(s). Like any listed security, units can be purchased and sold
at any time a secondary market is open.





What
is US12OF’s Investment Strategy?




In
managing US12OF’s assets, the General Partner does not use a technical trading
system that issues buy and sell orders. The General Partner instead employs a
quantitative methodology whereby each time a Creation Basket is sold, the
General Partner purchases Crude Oil Interests, such as the Benchmark Futures
Contracts, that have an aggregate market value that approximates the amount of
Treasuries and/or cash received upon the issuance of the Creation
Basket.




As an
example, assume that a Creation Basket is sold by US12OF, and that US12OF’s
closing NAV per unit is $50.00. In that case, US12OF would receive $5,000,000 in
proceeds from the sale of the Creation Basket ($50 NAV per unit multiplied by
100,000 units, and excluding the Creation Basket fee of $1,000). If one were to
assume further that the General Partner wants to invest the entire proceeds from
the Creation Basket in the Benchmark Futures Contracts and that the
average market value of the Benchmark Futures Contracts is $59,950, US12OF
would be unable to buy the exact number of Benchmark Futures Contracts with an
aggregate market value equal to $5,000,000. Instead, US12OF would be able to
purchase 83 Benchmark Futures Contracts with an aggregate market value of
$4,975,850. Assuming a margin requirement equal to 10% of the value of the
Benchmark Futures Contracts, US12OF would be required to deposit $497,585 in
Treasuries and cash with the futures commission merchant through which the
Benchmark Futures Contracts were purchased. The remainder of the proceeds from
the sale of the Creation Basket, $4,502,415, would remain invested in cash, cash
equivalents and Treasuries as determined by the General Partner from time to
time based on factors such as potential calls for margin or anticipated
redemptions.




6




The
specific Futures Contracts purchased depend on various factors, including a
judgment by the General Partner as to the appropriate diversification of
US12OF’s investments in futures contracts with respect to the month of
expiration, and the prevailing price volatility of particular contracts. In
addition, US12OF may make use of a mixture of standard sized futures contracts
as well as the smaller sized “mini” contracts. While the General Partner has
made significant investments in NYMEX Futures Contracts, as US12OF reaches
certain accountability levels or position limits on the NYMEX, or for other
reasons, it has also and may continue to invest in Futures Contracts traded on
other exchanges or invest in Other Crude Oil-Related Investments such as
contracts in the “over-the-counter” market.





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





By
remaining invested as fully as possible in Futures Contracts or Other Crude
Oil-Related Investments, the General Partner believes that the changes in
percentage terms in US12OF’s NAV will continue to closely track the changes in
percentage terms in the average of the prices of the Futures Contracts in which
US12OF invests. The General Partner believes that certain arbitrage
opportunities result in the price of the units traded on the NYSE Arca closely
tracking the NAV of US12OF. For performance data relating to US12OF’s ability to
track its benchmark, see “Management’s Discussion and Analysis of Financial
Condition and Results of Operations – Tracking US12OF’s Benchmark”.





What
are Futures Contracts?




Futures
Contracts are agreements between two parties. One party agrees to buy crude oil
from the other party at a later date at a price and quantity agreed upon when
the contract is made. Futures Contracts are traded on futures exchanges,
including the NYMEX. For example, the Benchmark Futures Contracts are traded on
the NYMEX in units of 1,000 barrels (a “mini” contract is 500 barrels). Futures
Contracts traded on the NYMEX are priced by floor brokers and other exchange
members both through an “open outcry” of offers to purchase or sell the
contracts and through an electronic, screen-based system that determines the
price by matching electronically offers to purchase and sell.




Certain
typical and significant characteristics of Futures Contracts are discussed
below. Additional risks of investing in Futures Contracts are included in
“What are the Risk Factors Involved with an Investment in US12OF?”




Impact of Accountability Levels,
Position Limits and Price Fluctuation Limits. Futures Contracts
include typical and significant characteristics. Most significantly, the CFTC
and U.S. designated contract markets such as the NYMEX have established
accountability levels and position limits on the maximum net long or net short
futures contracts in commodity interests that any person or group of persons
under common trading control (other than as a hedge, which an investment by
US12OF is not) may hold, own or control. The net position is the difference
between an individual or firm’s open long contracts and open short contracts in
any one commodity. In addition, most U.S. futures exchanges, such as the NYMEX,
limit the daily price fluctuation for Futures Contracts. Currently,
the ICE Futures imposes position and accountability limits that are similar to
those imposed by NYMEX but does not limit the maximum daily price
fluctuation.





The
accountability levels for the Benchmark Futures Contracts and other Oil Futures
Contracts traded on the NYMEX are not a fixed ceiling, but rather a threshold
above which the NYMEX may exercise greater scrutiny and control over an
investor’s positions. The current accountability level for any one month in the
Benchmark Futures Contracts is 10,000 contracts. In addition, the NYMEX
imposes an accountability level for all months of 20,000 net futures contracts
in light, sweet crude oil. If US12OF and the Related Public Funds exceed these
accountability levels for investments in futures contracts for light, sweet
crude oil, the NYMEX will monitor US12OF’s and the Related Public Funds’
exposure and ask for further information on their activities, including the
total size of all positions, investment and trading strategy, and the extent of
liquidity resources of US12OF and the Related Public Funds. If deemed necessary
by the NYMEX, it could also order US12OF to reduce its position back to the
accountability level. In
addition, the ICE Futures maintains the same accountability levels, position
limits and monitoring authority for its light, sweet crude oil contracts as the
NYMEX.As of December 31, 2008, US12OF and the Related Public Funds held
57,735 Benchmark Futures Contracts and 51,888 futures contracts for light, sweet
crude oil traded on the NYMEX. As of
December 31, 2008, US12OF held no futures contracts traded on the ICE
Futures.




7




If the
NYMEX or the ICF Futures orders US12OF to reduce its position back to the
accountability level, or to an accountability level that the NYMEX or the ICF
Futures deems appropriate for US12OF, such an accountability level may impact
the mix of investments in Crude Oil Interests made by US12OF. To illustrate,
assume that the average price of the Benchmark Futures Contracts and
the unit price of US12OF are each $10, and that the NYMEX has determined that
US12OF may not own more than 10,000 Benchmark Futures Contracts. In such case,
US12OF could invest up to $1 billion of its daily net assets in the
Benchmark Futures Contracts (i.e., $10 per contract
multiplied by 1,000 (a Benchmark Futures Contract is a contract for 1,000
barrels of oil multiplied by 10,000 contracts)) before reaching the
accountability level imposed by the NYMEX. Once the daily net assets of the
portfolio exceed $1 billion in Benchmark Futures Contracts, the portfolio
may not be able to make any further investments in Benchmark Futures
Contracts, depending on whether the NYMEX imposes limits. If the NYMEX does
impose limits at the $1 billion level (or another level), US12OF anticipates
that it will invest the majority of its assets above that level in a mix of
other Futures Contracts or Other Crude Oil-Related Investments.




In
addition to accountability levels, the NYMEX and the ICE Futures impose
position limits on contracts held in the last few days of trading in the near
month contract to expire. It is unlikely that US12OF will run up against such
position limits because US12OF’s investment strategy is to close out its
positions and “roll” from the near month contract to expire to the next
month contract during one day beginning two weeks from expiration of the
contract.




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





US12OF
anticipates that to the extent it invests in Futures Contracts other
than light, sweet crude oil contracts (such as futures contracts for Brent
crude oil, natural gas, heating oil, and gasoline) and Other Crude Oil-Related
Investments, it will enter into various non-exchange-traded derivative contracts
to hedge the short-term price movements of such Futures Contracts and Other
Crude Oil-Related Investments against the current Benchmark Futures
Contracts.





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




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




9




Price Volatility. Despite
daily price limits, the price volatility of Futures Contracts generally has
been historically greater than that for traditional securities such as stocks
and bonds. Price volatility often is greater day-to-day as opposed to
intra-day. Crude oil Futures Contracts tend to be more volatile than stocks
and bonds because price movements for crude oil are more currently and directly
influenced by economic factors for which current data is available and are
traded by oil futures traders throughout the day. These economic factors include
changes in interest rates; actions by oil producing countries, such as the
Organization of Petroleum Exporting Countries (“OPEC”) countries;
governmental, agricultural, trade, fiscal, monetary and exchange control
programs and policies; weather and climate conditions; changing supply and
demand relationships; changes in balances of payments and trade; U.S. and
international rates of inflation; currency devaluations and revaluations; U.S.
and international political and economic events; and changes in philosophies and
emotions of market participants. Because US12OF invests a significant portion of
its assets in Futures Contracts, the assets of US12OF, and therefore the
prices of US12OF units, may be subject to greater volatility than traditional
securities.




Marking-to-Market Futures
Positions. Futures Contracts are marked to market at the end of each
trading day and the margin required with respect to such contracts is adjusted
accordingly. This process of marking-to-market is designed to prevent losses
from accumulating in any futures account. Therefore, if US12OF’s futures
positions have declined in value, US12OF may be required to post variation
margin to cover this decline. Alternatively, if US12OF futures positions have
increased in value, this increase will be credited to US12OF’s
account.




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





US12OF
may purchase Futures Contracts traded on the NYMEX that are based on light,
sweet crude oil. The ICE Futures also offers a WTI Crude Futures Contract which
trades in units of 1,000 barrels.  The WTI Crude Futures Contract
is cash settled against the prevailing market price for U.S. light sweet crude
oil. US12OF may also purchase contracts on other exchanges, including the ICE
Futures and the Singapore Exchange. The contracts provide for delivery of
several grades of domestic and internationally traded foreign crudes, and, among
other things, serves the diverse needs of the physical market. In Europe, Brent
crude oil is the standard for futures contracts and is primarily traded on the
ICE Futures, an electronic marketplace for energy trading and price discovery.
Brent crude oil is the price reference for two-thirds of the world’s traded oil.
The ICE Brent Futures is a deliverable contract with an option to cash settle
which trades in units of 1,000 barrels (42,000 U.S. gallons).





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





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





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





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





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




10




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




Why
Does US12OF Purchase and Sell Futures Contracts?




US12OF’s
investment objective is to have the changes in percentage terms of the units’
NAV reflect the changes in percentage terms of the Benchmark Futures Contracts,
less US12OF’s expenses. US12OF invests primarily in Futures Contracts. US12OF
seeks to have its aggregate NAV approximate at all times the aggregate market
value of the Futures Contracts (or Other Crude Oil-Related
Investments) US12OF holds.





Other
than investing in Futures Contracts and Other Crude Oil-Related Investments,
US12OF only invests in assets to support these investments in oil interests. At
any given time, most of US12OF’s investments are in Treasuries, cash and/or cash
equivalents that serve as segregated assets supporting US12OF’s positions
in Futures Contracts and Other Crude Oil-Related Investments. For example,
the purchase of a Futures Contract with a stated value of $10 million would not
require US12OF to pay $10 million upon entering into the contract; rather, only
a margin deposit, generally of 5% to 20% of the stated value of the Futures
Contract, would be required. To secure its Futures Contract obligations,
US12OF would deposit the required margin with the futures commission
merchant and hold, through its Custodian, Treasuries, cash and/or cash
equivalents in an amount equal to the balance of the current market value
of the contract, which at the contract’s inception would be $10 million minus
the amount of the margin deposit, or $9.5 million (assuming a 5%
margin).




As a
result of the foregoing, typically only 5% to 20% of US12OF’s assets are held as
margin in segregated accounts with the futures commission merchant. In
addition to the Treasuries or cash it posts with the futures commission merchant
for the Futures Contracts it owns, US12OF holds, through the Custodian,
Treasuries, cash and/or cash equivalents that can be posted as additional
margin or as collateral to support its over-the-counter contracts. US12OF earns
interest income from the Treasuries and/or cash equivalents that it purchases,
and on the cash it holds through the Custodian. US12OF anticipates that the
earned interest income will increase the NAV and limited partners’ capital
contribution accounts. US12OF reinvests the earned interest income, holds it in
cash, or uses it to pay its expenses. If US12OF reinvests the earned interest
income, it will make investments that are consistent with its investment
objectives.




11




What
is the Flow of Units?












What
are the Trading Policies of US12OF?




Liquidity




US12OF
invests only in Futures Contracts and Other Crude Oil-Related Investments
that are traded in sufficient volume to permit, in the opinion of the General
Partner, ease of taking and liquidating positions in these financial interests.
This can include both standard sized futures contracts as well as smaller sized
mini contracts.




Spot
Commodities





While the
crude oil Futures Contracts traded on the NYMEX can be physically settled,
US12OF does not intend to take or make physical delivery. US12OF may from time
to time trade in Other Crude Oil-Related Investments, including contracts
based on the spot price of crude oil.





Leverage




While
US12OF’s historical ratio of margin to total assets has generally ranged
from 5% to 20%, the General Partner endeavors to have the value of US12OF’s
Treasuries, cash and/or cash equivalents, whether held by US12OF or posted as
margin or collateral, to at all times approximate the aggregate market value of
US12OF’s obligations under its Futures Contracts and Other Crude Oil-Related
Investments.




12




Borrowings




Borrowings
are not used by US12OF, unless US12OF is required to borrow money in the
event of physical delivery, if US12OF trades in cash commodities, or for
short-term needs created by unexpected redemptions. US12OF expects to have the
value of its Treasuries, cash and/or cash equivalents whether held by US12OF or
posted as margin or collateral, at all times approximate the aggregate market
value of its obligations under its Futures Contracts and Other Crude Oil-Related
Investments. US12OF has not established and does not plan to establish credit
lines.





Pyramiding





US12OF
has not and will not employ the technique, commonly known as pyramiding, in
which the speculator uses unrealized profits on existing positions as variation
margin for the purchase or sale of additional positions in the same or another
commodity interest.





Who
are the Service Providers?




BBH&Co.
is the registrar and transfer agent for the units. BBH&Co. is also the
Custodian for US12OF. In this capacity, BBH&Co. holds
US12OF’s Treasuries, cash and/or cash equivalents pursuant to a
custodial agreement. In addition, in its capacity as Administrator for USOF,
BBH&Co. performs certain administrative and accounting services for US12OF
and prepares certain U.S. Securities and Exchange Commission (the “SEC”) and
CFTC reports on behalf of US12OF. The General Partner pays BBH&Co. a fee for
these services.




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





US12OF
also employs ALPS Distributors, Inc. as a Marketing Agent. The General
Partner pays the Marketing Agent an annual fee. In no event may the aggregate
compensation paid to the Marketing Agent and any affiliate of the General
Partner for distribution-related services in connection with the offering of
units exceed ten percent (10%) of the gross proceeds of the
offering.





ALPS’s
principal business address is 1290
Broadway,Suite1100,Denver,CO80203. ALPS is the marketing
agent for US12OF. ALPS is a broker-dealer registered with the Financial
Industry Regulatory Authority (“FINRA”) and a member of the Securities Investor Protection
Corporation.





US12OF
and the futures commission merchant, UBS Securities LLC (“UBS Securities”) have
entered into an Institutional Futures Client Account Agreement. This Agreement
requires UBS Securities to provide services to US12OF in connection with the
purchase and sale of oil interests that may be purchased or sold by or through
UBS Securities for US12OF’s account. US12OF pays UBS Securities commissions for
executing and clearing trades on behalf of US12OF.





UBS
Securities is not affiliated with US12OF or the General Partner. Therefore,
US12OF does not believe that US12OF has any conflicts of interest with UBS
Securities or their trading principals arising from their acting as
US12OF’s futures commission merchant.





UBS
Securities’s principal business address is 677 Washington Blvd, Stamford, CT
06901. UBS Securities is a futures clearing broker for US12OF. UBS Securities is
registered in the U.S. with FINRA as a broker-dealer and with the CFTC as a
futures commission merchant. UBS Securities is a member of the NFA and of
various U.S. futures and securities exchanges.




13




UBS
Securities will act only as clearing broker for US12OF and as such will be paid
commissions for executing and clearing trades on behalf of US12OF. UBS
Securities has not passed upon the adequacy or accuracy of this annual report on
Form 10-K. UBS Securities neither will act in any supervisory capacity with
respect to the General Partner nor participate in the management of
US12OF.





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





Fees of
US12OF


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





Service
      Provider
                  Compensation
      Paid by the General PartnerBrown
      Brothers Harriman & Co.,
                    Custodian
      and Administrator
                  Minimum
      amount of $75,000 annually* for its custody, fund accounting and fund
      administration services rendered to all funds, as well as a $20,000 annual
      fee for its transfer agency services. In addition, an asset-based charge
      of (a) 0.06% for the first $500 million of US12OF’s and the Related Public
      Funds’ combined net assets, (b) 0.0465% for US12OF’s and the Related
      Public Funds’ combined net assets greater than $500 million but less than
      $1 billion, and (c) 0.035% once US12OF’s and the Related Public Funds’
      combined net assets exceed $1 billion.**ALPS
      Distributors, Inc., Marketing Agent
                  0.06%
      on US12OF’sassets up to $3 billion; 0.04% on US12OF’sassets in excess of $3
billion.





*         The
General Partner pays this compensation.


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





Compensation
to the General Partner





US12OF is
contractually obligated to pay the General Partner a management fee based on
0.60% per annum on its average net assets. Fees are calculated on a daily basis
(accrued at 1/365 of the applicable percentage of NAV on that day) and paid on a
monthly basis. NAV is calculated by taking the current market value of US12OF’s
total assets and subtracting any liabilities.





Fees
and Compensation Arrangements between US12OF and Non-Affiliated Service
Providers*





Service
      Provider
                Compensation
      Paid by US12OFUBS
      Securities LLC, Futures Commission Merchant
                Approximately
      $3.50 per buy or sell; charges may varyNon-Affiliated
      Brokers
                Approximately
      0.03% of assets




*         US12OF
pays this compensation.




14





New
York Mercantile Exchange Licensing Fee*





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





*
              Fees
      are calculated on a daily basis (accrued at 1/365 of the applicable
      percentage of NAV on that day) and paid on a monthly basis. US12OF is
      responsible for its pro rata share of the assets held by US12OF and the
      Related Public Funds as well as other funds managed by the General
      Partner, including USSO and US12NG, when and if such funds commence
      operations.




Expenses
Paid by US12OF through December 31, 2008 in dollar terms:





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




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




Expenses
Paid by US12OF through December 31, 2008 as a Percentage of Average Daily Net
Assets:





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





Form
of Units




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




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




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




15




Transfer
of Units




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




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




DTC has
advised US12OF that it takes any action permitted to be taken by a unitholder
(including, without limitation, the presentation of a global certificate for
exchange) only at the direction of one or more DTC Participants in whose account
with DTC interests in global certificates are credited and only in respect of
such portion of the aggregate principal amount of the global certificate as to
which such DTC Participant or Participants has or have given such
direction.




Transfer/Application
Requirements. All purchasers of US12OF’s units, and potentially any
purchasers of units in the future, who wish to become limited partners or other
record holders and receive cash distributions, if any, or have certain other
rights, must deliver an executed transfer application in which the purchaser or
transferee must certify that, among other things, he, she or it agrees to be
bound by US12OF’s LP Agreement and is eligible to purchase US12OF’s securities.
Each purchaser of units must execute a transfer application and certification.
The obligation to provide the form of transfer application is imposed on the
seller of units or, if a purchase of units is made through an exchange, the form
may be obtained directly through US12OF. Further, the General Partner may
request each record holder to furnish certain information, including that record
holder’s nationality, citizenship or other related status. A record holder is a
unitholder that is, or has applied to be, a limited partner. An investor who is
not a U.S. resident may not be eligible to become a record holder or one of
US12OF’s limited partners if that investor’s ownership would subject US12OF to
the risk of cancellation or forfeiture of any of US12OF’s assets under any
federal, state or local law or regulation. If the record holder fails to furnish
the information or if the General Partner determines, on the basis of the
information furnished by the holder in response to the request, that such holder
is not qualified to become one of US12OF’s limited partners, the General Partner
may be substituted as a holder for the record holder, who will then be treated
as a non-citizen assignee, and US12OF will have the right to redeem those
securities held by the record holder.




A
transferee’s broker, agent or nominee may complete, execute and deliver a
transfer application and certification. US12OF may, at its discretion, treat the
nominee holder of a unit as the absolute owner. In that case, the beneficial
holder’s rights are limited solely to those that it has against the nominee
holder as a result of any agreement between the beneficial owner and the nominee
holder.




A person
purchasing US12OF’s existing units, who does not execute a transfer application
and certify that the purchaser is eligible to purchase those securities acquires
no rights in those securities other than the right to resell those securities.
Whether or not a transfer application is received or the consent of the General
Partner obtained, US12OF’s units are securities and are transferable according
to the laws governing transfers of securities.





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




16




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





·
            automatically
      request admission as a substituted limited
  partner;





·         agree
to be bound by the terms and conditions of, and execute, US12OF’s LP
Agreement;





·         represent
that such transferee has the capacity and authority to enter into US12OF’s LP
Agreement;





·         grant
powers of attorney to US12OF’s General Partner and any liquidator of us;
and





·         make
the consents and waivers contained in US12OF’s LP Agreement.





An
assignee will become a limited partner in respect of the transferred units upon
the consent of US12OF’s General Partner and the recordation of the name of the
assignee on US12OF’s books and records. Such consent may be withheld in the sole
discretion of US12OF’s General Partner.




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




Until a
unit has been transferred on US12OF’s books, US12OF and the transfer agent may
treat the record holder of the unit as the absolute owner for all purposes,
except as otherwise required by law or stock exchange regulations.




Withdrawal
of Limited Partners




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





Calculating
NAV




US12OF’s
NAV is calculated by:





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





·         Subtracting
any liabilities





BBH&Co.,
the Administrator, calculates the NAV of US12OF once each trading day. The NAV
for a particular trading day is released after 4:15 p.m. New York time. It
calculates the NAV as of the earlier of the close of the NYSE or 4:00 p.m. New
York time. Trading on the NYSE Arca typically closes at 4:15 p.m. New York time.
The Administrator uses the NYMEX closing price (determined at the earlier of the
close of the NYMEX or 2:30 p.m. New York time) for the contracts traded on the
NYMEX, but determines the value of all other US12OF investments as of the
earlier of the close of the NYSE or 4:00 p.m. New York time in accordance with
the current Administrative Agency Agreement among BBH&Co., US12OF and the
General Partner which is incorporated by reference into this annual report on
Form 10-K.




17




In
addition, in order to provide updated information relating to US12OF for use by
investors and market professionals, the NYSE Arca calculates and disseminates
throughout the trading day an updated indicative fund value. The indicative fund
value is calculated by using the prior day’s closing NAV per unit of US12OF as a
base and updating that value throughout the trading day to reflect changes in
the most recently reported trade price for the Benchmark Futures Contracts
on the NYMEX. The prices reported for an active Benchmark Futures Contract
month are adjusted based on the prior day’s spread differential between
settlement values for that contract and the spot month contract. In the event
that the spot month contract is also the active contract, the last sale price
for the active contract is not adjusted. The indicative fund value unit basis
disseminated during NYSE Arca trading hours should not be viewed as an actual
real time update of the NAV, because the NAV is calculated only once at the end
of each trading day.




The
indicative fund value is disseminated on a per unit basis every 15 seconds
during regular NYSE Arca trading hours of 9:30 a.m. New York time to 4:15 p.m.
New York time. The normal trading hours of the NYMEX are 10:00 a.m. New York
time to 2:30 p.m. New York time. This means that there is a gap in time at the
beginning and the end of each day during which US12OF’s units are traded on the
NYSE Arca, but real-time NYMEX trading prices for oil futures contracts traded
on the NYMEX are not available. As a result, during those gaps there will be no
update to the indicative fund value.




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




Dissemination
of the indicative fund value provides additional information that is not
otherwise available to the public and is useful to investors and market
professionals in connection with the trading of US12OF units on the NYSE Arca.
Investors and market professionals are able throughout the trading day to
compare the market price of US12OF and the indicative fund value. If the market
price of US12OF units diverges significantly from the indicative fund value,
market professionals will have an incentive to execute arbitrage trades. For
example, if US12OF appears to be trading at a discount compared to the
indicative fund value, a market professional could buy US12OF units on the NYSE
Arca and sell short oil futures contracts. Such arbitrage trades can
tighten the tracking between the market price of US12OF and the indicative fund
value and thus can be beneficial to all market participants.




In
addition, other Futures Contracts, Other Crude Oil-Related Investments and
Treasuries held by US12OF are valued by the Administrator, using rates and
points received from client approved third party vendors (such as Reuters and WM
Company) and advisor quotes. These investments are not included in the
indicative value. The indicative fund value is based on the prior day’s NAV and
moves up and down according solely to changes in the average of the prices of
the Benchmark Futures Contracts.





Creation
and Redemption of Units




US12OF
creates and redeems units from time to time, but only in one or more Creation
Baskets or Redemption Baskets. The creation and redemption of baskets are only
made in exchange for delivery to US12OF or the distribution by US12OF of the
amount of Treasuries and any cash represented by the baskets being created or
redeemed, the amount of which is based on the combined NAV of the number of
units included in the baskets being created or redeemed determined as of 4:00
p.m. New York time on the day the order to create or redeem baskets is properly
received.




Authorized
Purchasers are the only persons that may place orders to create and redeem
baskets. Authorized Purchasers must be (1) registered broker-dealers or other
securities market participants, such as banks and other financial institutions,
that are not required to register as broker-dealers to engage in securities
transactions as described below, and (2) DTC Participants. To become an
Authorized Purchaser, a person must enter into an Authorized Purchaser Agreement
with the General Partner. The Authorized Purchaser Agreement provides the
procedures for the creation and redemption of baskets and for the delivery of
the Treasuries and any cash required for such creations and redemptions. The
Authorized Purchaser Agreement and the related procedures attached thereto may
be amended by US12OF, without the consent of any limited partner or unitholder
or Authorized Purchaser. Authorized Purchasers pay a transaction fee of $1,000
to US12OF for each order they place to create or redeem one or more baskets.
Authorized Purchasers who make deposits with US12OF in exchange for baskets
receive no fees, commissions or other form of compensation or inducement of any
kind from either US12OF or the General Partner, and no such person will have any
obligation or responsibility to the General Partner or US12OF to effect any sale
or resale of units. As of December 31, 2008, 2 Authorized Purchasers had
entered into agreements with US12OF to purchase Creation Baskets.




18




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




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




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




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




Creation
Procedures





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




By
placing a purchase order, an Authorized Purchaser agrees to deposit Treasuries,
cash or a combination of Treasuries and cash with US12OF, as described
below. Prior to the delivery of baskets for a purchase order, the Authorized
Purchaser must also have wired to the Custodian the non-refundable transaction
fee due for the purchase order. Authorized Purchasers may not withdraw a
creation request.




Determination
of Required Deposits





The total
deposit required to create each basket (“Creation Basket Deposit”) is the amount
of Treasuries and/or cash that is in the same proportion to the total assets of
US12OF (net of estimated accrued but unpaid fees, expenses and other
liabilities) on the date the order to purchase is accepted as the number of
units to be created under the purchase order is in proportion to the total
number of units outstanding on the date the order is received. The General
Partner determines, directly in its sole discretion or in consultation with the
Administrator, the requirements for Treasuries and the amount of cash, including
the maximum permitted remaining maturity of a Treasury and proportions of
Treasury and cash that may be included in deposits to create baskets. The amount
of cash deposit required is the difference between the aggregate market value of
the Treasuries required to be included in a Creation Basket Deposit as of 4:00
p.m. New York time on the date the order to purchase is properly received and
the total required deposit.




19




Delivery
of Required Deposits





An
Authorized Purchaser who places a purchase order is responsible for transferring
to US12OF’s account with the Custodian the required amount of Treasuries and
cash by the end of the third business day following the purchase order date.
Upon receipt of the deposit amount, the Administrator directs DTC to credit the
number of baskets ordered to the Authorized Purchaser’s DTC account on the third
business day following the purchase order date. The expense and risk of delivery
and ownership of Treasuries until such Treasuries have been received by the
Custodian on behalf of US12OF shall be borne solely by the Authorized
Purchaser.




Because
orders to purchase baskets must be placed by 12:00 p.m., New York time, but the
total payment required to create a basket during the continuous offering period
will not be determined until 4:00 p.m., New York time, on the date the purchase
order is received, Authorized Purchasers will not know the total amount of the
payment required to create a basket at the time they submit an irrevocable
purchase order for the basket. US12OF’s NAV and the total amount of the payment
required to create a basket could rise or fall substantially between the time an
irrevocable purchase order is submitted and the time the amount of the purchase
price in respect thereof is determined.





Rejection
of Purchase Orders





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





·
            it
      determines that the investment alternative available to US12OF at that
      time will not enable it to meet its investment
  objective;


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


·
            it
      believes that the purchase order or the Creation Basket Deposit would have
      adverse tax consequences to US12OF or its
  unitholders;





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





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





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





Redemption
Procedures




The
procedures by which an Authorized Purchaser can redeem one or more baskets
mirror the procedures for the creation of baskets. On any business day, an
Authorized Purchaser may place an order with the Marketing Agent to redeem one
or more baskets. Redemption orders must be placed by 12:00 p.m. New York time or
the close of regular trading on the NYSE, whichever is earlier. A redemption
order so received will be effective on the date it is received in satisfactory
form by the Marketing Agent. The redemption procedures allow Authorized
Purchasers to redeem baskets and do not entitle an individual unitholder to
redeem any units in an amount less than a Redemption Basket, or to redeem
baskets other than through an Authorized Purchaser. By placing a redemption
order, an Authorized Purchaser agrees to deliver the baskets to be redeemed
through DTC’s book-entry system to US12OF not later than 3:00 p.m. New York time
on the third business day following the effective date of the redemption order.
Prior to the delivery of the redemption distribution for a redemption order, the
Authorized Purchaser must also have wired to US12OF’s account at the Custodian
the non-refundable transaction fee due for the redemption order. Authorized
Purchasers may not withdraw a redemption request.




20




Determination
of Redemption Distribution





The
redemption distribution from US12OF consists of a transfer to the redeeming
Authorized Purchaser of an amount of Treasuries and/or cash that is in the same
proportion to the total assets of US12OF (net of estimated accrued but unpaid
fees, expenses and other liabilities) on the date the order to redeem is
properly received as the number of units to be redeemed under the redemption
order is in proportion to the total number of units outstanding on the date the
order is received. The General Partner, directly or in consultation with the
Administrator, determines the requirements for Treasuries and the amounts of
cash, including the maximum permitted remaining maturity of a Treasury, and the
proportions of Treasuries and cash that may be included in distributions to
redeem baskets.





Delivery
of Redemption Distribution





The
redemption distribution due from US12OF will be delivered to the Authorized
Purchaser by 3:00 p.m. New York time on the third business day following the
redemption order date if, by 3:00 p.m. New York time on such third business day,
US12OF’s DTC account has been credited with the baskets to be redeemed. If
US12OF’s DTC account has not been credited with all of the baskets to be
redeemed by such time, the redemption distribution will be delivered to the
extent of whole baskets received. Any remainder of the redemption distribution
will be delivered on the next business day to the extent of remaining whole
baskets received if US12OF receives the fee applicable to the extension of the
redemption distribution date which the General Partner may, from time to time,
determine and the remaining baskets to be redeemed are credited to US12OF’s DTC
account by 3:00 p.m. New York time on such next business day. Any further
outstanding amount of the redemption order shall be cancelled. Pursuant to
information from the General Partner, the Custodian will also be authorized to
deliver the redemption distribution notwithstanding that the baskets to be
redeemed are not credited to US12OF’s DTC account by 3:00 p.m. New York time on
the third business day following the redemption order date if the Authorized
Purchaser has collateralized its obligation to deliver the baskets through DTC’s
book entry-system on such terms as the General Partner may from time to time
determine.





Suspension
or Rejection of Redemption Orders





The
General Partner may, in its discretion, suspend the right of redemption, or
postpone the redemption settlement date, (1) for any period during which the
NYSE Arca or the NYMEX is closed other than customary weekend or holiday
closings, or trading on the NYSE Arca or the NYMEX is suspended or restricted,
(2) for any period during which an emergency exists as a result of which
delivery, disposal or evaluation of Treasuries is not reasonably practicable, or
(3) for such other period as the General Partner determines to be necessary for
the protection of the limited partners. For example, the General Partner may
determine that it is necessary to suspend redemptions to allow for the orderly
liquidation of US12OF’s assets at an appropriate value to fund a redemption. If
the General Partner has difficulty liquidating its positions, e.g., because of a market disruption event in
the futures markets, a suspension of trading by the exchange where the futures
contracts are listed or an unanticipated delay in the liquidation of a position
in an over the counter contract, it may be appropriate to suspend redemptions
until such time as such circumstances are rectified. None of the General
Partner, the Marketing Agent, the Administrator, or the Custodian will be liable
to any person or in any way for any loss or damages that may result from any
such suspension or postponement.





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





21




Creation
and Redemption Transaction Fee




To
compensate US12OF for its expenses in connection with the creation and
redemption of baskets, an Authorized Purchaser is required to pay a transaction
fee to US12OF of $1,000 per order to create or redeem baskets. An order may
include multiple baskets. The transaction fee may be reduced, increased or
otherwise changed by the General Partner. The General Partner shall notify DTC
of any change in the transaction fee and will not implement any increase in the
fee for the redemption of baskets until 30 days after the date of the
notice.




Tax
Responsibility




Authorized
Purchasers are responsible for any transfer tax, sales or use tax, stamp tax,
recording tax, value added tax or similar tax or governmental charge applicable
to the creation or redemption of baskets, regardless of whether or not such tax
or charge is imposed directly on the Authorized Purchaser, and agree to
indemnify the General Partner and US12OF if they are required by law to pay any
such tax, together with any applicable penalties, additions to tax or interest
thereon.




Secondary
Market Transactions




As noted,
US12OF will create and redeem units from time to time, but only in one or more
Creation Baskets or Redemption Baskets. The creation and redemption of baskets
will only be made in exchange for delivery to US12OF or the distribution by
US12OF of the amount of Treasuries and cash represented by the baskets being
created or redeemed, the amount of which will be based on the aggregate NAV of
the number of units included in the baskets being created or redeemed determined
on the day the order to create or redeem baskets is properly
received.





As
discussed above, Authorized Purchasers are the only persons that may place
orders to create and redeem baskets. Authorized Purchasers must be registered
broker-dealers or other securities market participants, such as banks and other
financial institutions that are not required to register as broker-dealers to
engage in securities transactions. An Authorized Purchaser is under no
obligation to create or redeem baskets, and an Authorized Purchaser is under no
obligation to offer to the public units of any baskets it does create.
Authorized Purchasers that do offer to the public units from the baskets they
create will do so at per-unit offering prices that are expected to reflect,
among other factors, the trading price of the units on the NYSE Arca, the NAV of
US12OF at the time the Authorized Purchaser purchased the Creation Baskets and
the NAV of the units at the time of the offer of the units to the public,
the supply of and demand for units at the time of sale, and the liquidity of
the Futures Contract market and the market for Other Crude Oil-Related
Investments. The prices of units offered by Authorized Purchasers are expected
to fall between US12OF’s NAV and the trading price of the units on the NYSE Arca
at the time of sale. Units initially comprising the same basket but offered by
Authorized Purchasers to the public at different times may have different
offering prices. An order for one or more baskets may be placed by an Authorized
Purchaser on behalf of multiple clients. Authorized Purchasers who make deposits
with US12OF in exchange for baskets receive no fees, commissions or other form
of compensation or inducement of any kind from either US12OF or the General
Partner, and no such person has any obligation or responsibility to the General
Partner or US12OF to effect any sale or resale of units. Units are expected to
trade in the secondary market on the NYSE Arca. Units may trade in the secondary
market at prices that are lower or higher relative to their NAV per unit. The
amount of the discount or premium in the trading price relative to the NAV per
unit may be influenced by various factors, including the number of investors who
seek to purchase or sell units in the secondary market and the liquidity of the
Futures Contracts market and the market for Other Crude Oil-Related Investments.
While the units trade on the NYSE Arca until 4:15 p.m. New York time, liquidity
in the market for Futures Contracts and Other Crude Oil-Related Investments may
be reduced after the close of the NYMEX at 2:30 p.m. New York time. As a result,
during this time, trading spreads, and the resulting premium or discount, on the
units may widen.




Prior
Performance of US12OF





US12OF’s
units began trading on the American Stock Exchange (the “AMEX”) on December 6,
2007 and are offered on a continuous basis. As a result of the acquisition of
the AMEX by NYSE Euronext, US12OF’s units commenced trading on the NYSE Arca on
November 25, 2008. As of December 31, 2008, the total amount of money raised by
US12OF from Authorized Purchasers was $23,231,434; the total number of
Authorized Purchasers was 2; the number of baskets purchased by Authorized
Purchasers was 5; and the aggregate amount of units purchased was 500,000. For
more information on the performance of US12OF, see the Performance Tables
below.




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


22




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




PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS




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




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


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





Compensation
to the General Partner and Other Compensation





Expenses
paid by US12OF through December 31, 2008 in dollar terms:





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





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


Expenses
paid by US12OF through December 31, 2008 as a Percentage of Average Daily Net
Assets:





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




23




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




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




COMPOSITE
PERFORMANCE DATA FOR US12OF




PAST PERFORMANCE
IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS





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


*         Partial
from December 6, 2007





Terms
Used in Performance Tables





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





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





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





Prior
Performance of the Related Public Funds





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




24




USOF is a
commodity pool and issues units traded on the NYSE Arca. The investment
objective of USOF is to have the changes in percentage terms of its units’ NAV
reflect the changes in percentage terms of the spot price of light, sweet
crude oil delivered to Cushing, Oklahoma, as measured by the changes in the
price of the futures contract for light, sweet crude oil as traded on the
NYMEX that is the near month contract to expire, except when the near month
contract is within two weeks of expiration, in which case the futures contract
will be the next month contract to expire, less USOF’s expenses. USOF’s units
began trading on April 10, 2006 and are offered on a continuous basis. USOF
invests in a mixture of listed crude oil futures contracts, other non-listed oil
related investments, Treasuries, cash and cash equivalents. As of December 31,
2008, the total amount of money raised by USOF from its authorized purchasers
was $18,578,175,328; the total number of authorized purchasers of USOF was 14;
the number of baskets purchased by authorized purchasers of USOF was 2,923; and
the aggregate amount of units purchased was 292,300,000. USOF employs an
investment strategy in its operations that is similar to the investment strategy
of US12OF, except that its benchmark is the near month contract to expire for
light, sweet crude oil delivered to Cushing, Oklahoma.





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





USNG is a
commodity pool and issues units traded on the NYSE Arca. The investment
objective of USNG is to have the changes in percentage terms of its units’ NAV
reflect the changes in percentage terms of the price of natural gas delivered at
the Henry Hub, Louisiana as measured by the changes in the price of the futures
contract for natural gas traded on the NYMEX, less USNG’s expenses. USNG’s units
began trading on April 18, 2007 and are offered on a continuous basis. USNG may
invest in a mixture of listed natural gas futures contracts, other non-listed
natural gas related investments, Treasuries, cash and cash equivalents. As of
December 31, 2008, the total amount of money raised by USNG from its authorized
purchasers was $4,150,671,803; the total number of authorized purchasers of USNG
was 7; the number of baskets purchased by authorized purchasers of USNG was
1,077; and the aggregate amount of units purchased was 107,700,000. USNG employs
an investment strategy in its operations that is similar to the investment
strategy of US12OF, except its benchmark is the near month contract for natural
gas delivered at the Henry Hub, Louisiana.





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




UGA is a
commodity pool and issues units traded on the NYSE Arca. The investment
objective of UGA is to have the changes in percentage terms of its units’ NAV
reflect the changes in percentage terms in the price of unleaded gasoline for
delivery to the New York harbor, as measured by the changes in the price of the
futures contract for gasoline traded on the NYMEX, less UGA’s expenses. UGA
may invest in a mixture of listed gasoline futures contracts, other non-listed
gasoline related investments, Treasuries, cash and cash equivalents. UGA’s units
began trading on February 26, 2008 and are offered on a continuous
basis. As of December 31, 2008, the total amount of money raised by UGA
from its authorized purchasers was $46,114,901; the total number of authorized
purchasers of UGA was 4; the number of baskets purchased by authorized
purchasers of UGA was 13; and the aggregate amount of units purchased was
1,300,000. UGA employs an investment strategy in its operations that is similar
to the investment strategy of US12OF, except that its benchmark is the near
month contract for unleaded gasoline delivered to the New York
harbor.





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




25




USHO is a
commodity pool and issues units traded on the NYSE Arca. The investment
objective of USHO is to have the changes in percentage terms of its units’ NAV
reflect the changes in percentage terms of the price of heating oil for delivery
to the New York harbor, as measured by the changes in the price of the futures
contract for heating oil traded on the NYMEX, less USHO’s expenses. USHO
may invest in a mixture of listed heating oil futures contracts, other
non-listed heating oil-related investments, Treasuries, cash and cash
equivalents. USHO’s units began trading on April 9, 2008 and are offered on a
continuous basis. As of December 31, 2008, the total amount of money raised by
USHO from its authorized purchasers was $17,556,271; the total number of
authorized purchasers of USHO was 4; the number of baskets purchased by
authorized purchasers of USHO was 4; and the aggregate amount of units purchased
was 400,000. USHO employs an investment strategy in its operations that is
similar to the investment strategy of US12OF, except that its benchmark is the
near month contract for heating oil delivered to the New York
harbor.





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




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





There are
significant differences between investing in US12OF and the Related Public Funds
and investing directly in the futures market. The General Partner’s results with
US12OF and the Related Public Funds may not be representative of results that
may be experienced with a fund directly investing in futures contracts or other
managed funds investing in futures contracts. Moreover, given the different
investment objectives of US12OF and the Related Public Funds, the performance of
US12OF may not be representative of results that may be experienced by the other
Related Public Funds. For more information on the performance of the Related
Public Funds, see the Performance Tables below.





USOF:





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




PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS





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




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


**
            Amounts
      are for organizational and offering expenses incurred in connection with
      the offerings from April 10, 2006 through December 31, 2008. Through
      December 31, 2006, these expenses were paid for by an affiliate of the
      General Partner in connection with the initial public offering. Following
      December 31, 2006, USOF has borne the expenses related to the offering of
      its units.




26




Compensation
to the General Partner and Other Compensation





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





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





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





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





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




27




COMPOSITE
PERFORMANCE DATA FOR USOF




PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS





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


*         Partial
from April 10, 2006





USNG:





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




PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS





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





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


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





Compensation
to the General Partner and Other Compensation





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





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





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





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




28




USNG
      Performance:Name of Commodity
      Pool:
                  USNGType of Commodity
      Pool:
                  Exchange
      traded securityInception of
      Trading:
                  April
      18, 2007Aggregate Subscriptions (from
      inception throughDecember31, 2008):
                  $4,150,671,803Total Net Assets as ofDecember 31,
      2008:
                  $695,714,510InitialNAVper Unit as of
      Inception:
                  $50.00NAVper Unit as ofDecember 31, 2008:
                  $23.27Worst Monthly Percentage
      Draw-down:
                  July
      2008 (32.13)%Worst Peak-to-Valley
      Draw-down:
                  June
      2008 – December 2008
(62.86)%





COMPOSITE
PERFORMANCE DATA FOR USNG




PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS





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


*         Partial
from April 17, 2007





UGA:





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




PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS





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





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


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




29




Compensation
to the General Partner and Other Compensation


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





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




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




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





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





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





COMPOSITE
PERFORMANCE DATA FOR UGA




PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS





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


*         Partial
from February 26, 2008




30




USHO:





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


PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS





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





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


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





Compensation
to the General Partner and Other Compensation





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





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




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




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





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




31




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





COMPOSITE
PERFORMANCE DATA FOR USHO




PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS





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


*         Partial
from April 8, 2008





Other
Related Commodity Trading and Investment Management Experience





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




Investments




The
General Partner applies substantially all of US12OF’s assets toward trading
in Futures Contracts and Other Crude Oil-Related Investments, Treasuries,
cash and/or cash equivalents. The General Partner has sole authority to
determine the percentage of assets that are:





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




32




·         used
for other investments, and





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





The
General Partner deposits substantially all of US12OF’s net assets with the
futures commission merchant or other custodian for trading. When US12OF
purchases a Futures Contract and certain exchange traded Other Crude Oil-Related
Investments, US12OF is required to deposit with the selling futures commission
merchant on behalf of the exchange a portion of the value of the contract or
other interest as security to ensure payment for the obligation under oil
interests at maturity. This deposit is known as “margin.” US12OF invests the
remainder of its assets equal to the difference between the margin deposited and
the market value of the Futures Contract in Treasuries, cash and/or cash
equivalents.




US12OF’s
assets are held in segregated accounts pursuant to the CEA and CFTC regulations.
The General Partner believes that all entities that hold or trade US12OF’s
assets are based in the United States and are subject to United States
regulations.




Approximately
5% to 20% of US12OF’s assets have normally been committed as margin
for Futures Contracts. However, from time to time, the percentage of assets
committed as margin may be substantially more, or less, than such range. The
General Partner invests the balance of US12OF’s assets not invested in Crude Oil
Interests or held in margin as reserves to be available for changes in margin.
All interest income is used for US12OF’s benefit.




The
futures commission merchant, a government agency or a commodity exchange could
increase margins applicable to US12OF to hold trading positions at any time.
Moreover, margin is merely a security deposit and has no bearing on the profit
or loss potential for any positions taken.





The
Commodity Interest Markets




General




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




Futures
Contracts




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




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




33




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




Forward
Contracts




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





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




Further,
as the result of the CFMA, over-the-counter derivative instruments such as
forward contracts and swap agreements (and options on forwards and physical
commodities) may begin to be traded on lightly-regulated exchanges or electronic
trading platforms that may, but are not required to, provide for clearing
facilities. Exchanges and electronic trading platforms on which over-the-counter
instruments may be traded and the regulation and criteria for that trading are
more fully described below under “Futures Exchanges and Clearing Organizations.”
Nonetheless, absent a clearing facility, US12OF’s trading in foreign exchange
and other forward contracts is exposed to the creditworthiness of the
counterparties on the other side of the trade.




Options
on Futures Contracts




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




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




34




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




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




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





Options
on Forward Contracts or Commodities




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




Swap
Contracts




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




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





Block Trading




Block Trading refers to privately
negotiated futures or option transactions executed apart from the public auction
market. A block transaction may be executed either on or off the exchange
trading floor but is still reported to and cleared by the
exchange.




Exchange for
Physical




An Exchange For Physical (“EFP”) is a technique
(originated in physical commodity markets) whereby a position in the underlying
subject of a derivatives contract is traded for a futures position. In financial
futures markets, the EFP bypasses any cash settlement mechanism that is built
into the contract and substitutes physical settlement. EFPs are used primarily
to adjust underlying cash market positions at a low trading cost. An EFP by
itself will not change either party’s net risk position materially, but EFPs are
often used to set up a subsequent trade which will modify the investor’s market
risk exposure at low cost.





35




Exchange for Swap




An Exchange For Swap (“EFS”) is an off market transaction which
involves the swapping (or exchanging) of an over-the-counter position for a
futures position. The over-the-counter transaction must be for the same or
similar quantity or amount of a specified commodity, or a substantially similar
commodity or instrument. The over-the-counter side of theEFScan include swaps, swap options, or
other instruments traded in the over-the-counter market.




In order that anEFStransaction can take place, the
over-the-counter side and futures components must be “substantially similar” in
terms of either value and or quantity. The net result is that the
over-the-counter position (and the inherent counterparty credit exposure) is
transferred from the over-the-counter market to the futures market. EFSs can
also work in reverse, where a futures position can be reversed and transferred
to the over-the-counter market.





Participants




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




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




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





Futures
Exchanges and Clearing Organizations




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




36




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




U.S.
Futures Exchanges




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




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





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




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




37




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




The
General Partner intends to monitor the development of and opportunities and
risks presented by the new less-regulated exchanges and exempt boards as well as
other trading platforms currently in place or that are being considered by
regulators and may, in the future, allocate a percentage of US12OF’s assets to
trading in products on these exchanges. Provided US12OF maintains assets
exceeding $5 million, US12OF would qualify as an eligible contract participant
and thus would be able to trade on such exchanges.




Non-U.S.
Futures Exchanges




Non-U.S.
futures exchanges differ in certain respects from their U.S. counterparts.
Importantly, non-U.S. futures exchanges are not subject to regulation by the
CFTC, but rather are regulated by their home country regulator. In contrast to
U.S. designated contract markets, some non-U.S. exchanges are principals’
markets, where trades remain the liability of the traders involved, and the
exchange or an affiliated clearing organization, if any, does not become
substituted for any party. Due to the absence of a clearing system, such
exchanges are significantly more susceptible to disruptions. Further,
participants in such markets must often satisfy themselves as to the individual
creditworthiness of each entity with which they enter into a trade. Trading on
non-U.S. exchanges is often in the currency of the exchange’s home jurisdiction.
Consequently, US12OF is subject to the additional risk of fluctuations in the
exchange rate between such currencies and U.S. dollars and the possibility that
exchange controls could be imposed in the future. Trading on non-U.S. exchanges
may differ from trading on U.S. exchanges in a variety of ways and, accordingly,
may subject US12OF to additional risks.





Accountability
Levels and Position Limits




The CFTC
and U.S. designated contract markets have established accountability levels and
position limits on the maximum net long or net short futures contracts in
commodity interests that any person or group of persons under common
trading control (other than a hedgor, which US12OF is not) may hold, own or
control. Among the purposes of accountability levels and position limits is to
prevent a corner or squeeze on a market or undue influence on prices by any
single trader or group of traders. The position limits currently established by
the CFTC apply to certain agricultural commodity interests, such as grains
(oats, barley, and flaxseed), soybeans, corn, wheat, cotton, eggs, rye, and
potatoes, but not to interests in energy products. In addition, U.S. exchanges
may set accountability levels and position limits for all commodity interests
traded on that exchange. For example, the current accountability level for
investments at any one time in crude oil Futures Contracts for light, sweet
crude oil (including investments in the Benchmark Futures Contracts) on the
NYMEX is 10,000 contracts for one month and 20,000 contracts for all months. The
NYMEX also imposes position limits on contracts held in the last few days of
trading in the near month contract to expire. The ICE
Futures has recently adopted similar accountability levels and position limits
for certain of its oil Futures Contracts that are traded on the ICE Futures and
settled against the price of a contract listed for trading on a U.S. designated
contract market such as NYMEX.Certain exchanges or clearing
organizations also set limits on the total net positions that may be held by a
clearing broker. In general, no position limits are in effect in forward or
other over-the-counter contract trading or in trading on non-U.S. futures
exchanges, although the principals with which US12OF and the clearing brokers
may trade in such markets may impose such limits as a matter of credit policy.
For purposes of determining accountability levels and position limits, US12OF’s
commodity interest positions will not be attributable to investors in their own
commodity interest trading.




Daily
Price Limits




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




38




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




Commodity
Prices




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





Regulation




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




The CFTC
possesses exclusive jurisdiction to regulate the activities of CPOs and
commodity trading advisors and has adopted regulations with respect to the
activities of those persons and/or entities. Under the CEA, a registered CPO,
such as the General Partner, is required to make annual filings with the CFTC
describing its organization, capital structure, management and controlling
persons. In addition, the CEA authorizes the CFTC to require and review books
and records of, and documents prepared by, registered CPOs. Pursuant to this
authority, the CFTC requires CPOs to keep accurate, current and orderly records
for each pool that they operate. The CFTC may suspend the registration of
a CPO (1) if the CFTC finds that the operator’s trading practices tend to
disrupt orderly market conditions, (2) if any controlling person of the operator
is subject to an order of the CFTC denying such person trading privileges on any
exchange, and (3) in certain other circumstances. Suspension, restriction or
termination of the General Partner’s registration as a CPO would prevent it,
until that registration were to be reinstated, from managing US12OF, and might
result in the termination of US12OF. US12OF itself is not required to be
registered with the CFTC in any capacity.




The CEA
gives the CFTC similar authority with respect to the activities of commodity
trading advisors. If a trading advisor’s commodity trading advisor registration
were to be terminated, restricted or suspended, the trading advisor would be
unable, until the registration were to be reinstated, to render trading advice
to US12OF.




39




The CEA
requires all futures commission merchants, such as US12OF’s clearing brokers, to
meet and maintain specified fitness and financial requirements, to segregate
customer funds from proprietary funds and account separately for all customers’
funds and positions, and to maintain specified books and records open to
inspection by the staff of the CFTC. The CFTC has similar authority over
introducing brokers, or persons who solicit or accept orders for commodity
interest trades but who do not accept margin deposits for the execution of
trades. The CEA authorizes the CFTC to regulate trading by futures commission
merchants and by their officers and directors, permits the CFTC to require
action by exchanges in the event of market emergencies, and establishes an
administrative procedure under which customers may institute complaints for
damages arising from alleged violations of the CEA. The CEA also gives the
states powers to enforce its provisions and the regulations of the
CFTC.




US12OF’s
investors are afforded prescribed rights for reparations under the CEA.
Investors may also be able to maintain a private right of action for violations
of the CEA. The CFTC has adopted rules implementing the reparation provisions of
the CEA, which provide that any person may file a complaint for a reparations
award with the CFTC for violation of the CEA against a floor broker or a futures
commission merchant, introducing broker, commodity trading advisor, CPO, and
their respective associated persons.




Pursuant
to authority in the CEA, the NFA has been formed and registered with the CFTC as
a registered futures association. At the present time, the NFA is the only
self-regulatory organization for commodity interest professionals, other than
futures exchanges. The CFTC has delegated to the NFA responsibility for the
registration of commodity trading advisors, CPOs, futures commission merchants,
introducing brokers, and their respective associated persons and floor brokers.
The General Partner, each trading advisor, the selling agents and the clearing
brokers are members of the NFA. As such, they are subject to NFA standards
relating to fair trade practices, financial condition and consumer protection.
US12OF itself is not required to become a member of the NFA. As the
self-regulatory body of the commodity interest industry, the NFA promulgates
rules governing the conduct of professionals and disciplines those professionals
that do not comply with these rules. The NFA also arbitrates disputes between
members and their customers and conducts registration and fitness screening of
applicants for membership and audits of its existing members.





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




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




The
function of the CFTC is to implement the objectives of the CEA of preventing
price manipulation and other disruptions to market integrity, avoiding systemic
risk, preventing fraud and promoting innovation, competition and financial
integrity of transactions. As mentioned above, this regulation, among other
things, provides that the trading of commodity interest contracts generally must
be upon exchanges designated as contract markets or DTEFs and that all trading
on those exchanges must be done by or through exchange members. Under the CFMA,
commodity interest trading in some commodities between sophisticated persons may
be traded on a trading facility not regulated by the CFTC. As a general matter,
trading in spot contracts, forward contracts, options on forward contracts or
commodities, or swap contracts between eligible contract participants is not
within the jurisdiction of the CFTC and may therefore be effectively
unregulated. The trading advisors may engage in those transactions on behalf of
US12OF in reliance on this exclusion from regulation.




In
general, the CFTC does not regulate the interbank and forward foreign currency
markets with respect to transactions in contracts between certain sophisticated
counterparties such as US12OF or between certain regulated institutions and
retail investors. Although U.S. banks are regulated in various ways by the
Federal Reserve Board, the Comptroller of the Currency and other U.S. federal
and state banking officials, banking authorities do not regulate the forward
markets.




40




While the
U.S. government does not currently impose any restrictions on the movements of
currencies, it could choose to do so. The imposition or relaxation of exchange
controls in various jurisdictions could significantly affect the market for that
and other jurisdictions’ currencies. Trading in the interbank market also
exposes US12OF to a risk of default since failure of a bank with which US12OF
had entered into a forward contract would likely result in a default and thus
possibly substantial losses to US12OF.




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




Commodity
Margin




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





Brokerage
firms, such as US12OF’s clearing brokers, carrying accounts for traders in
commodity interest contracts may not accept lower, and generally require higher,
amounts of margin as a matter of policy to further protect themselves. The
clearing brokers require US12OF to make margin deposits equal to exchange
minimum levels for all commodity interest contracts. This requirement may be
altered from time to time in the clearing brokers’ discretion.




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




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




Margin
requirements are computed each day by a trader’s clearing broker. When the
market value of a particular open commodity interest position changes to a point
where the margin on deposit does not satisfy maintenance margin requirements, a
margin call is made by the broker. If the margin call is not met within a
reasonable time, the broker may close out the trader’s position. With respect to
US12OF’s trading, US12OF (and not its investors personally) is subject to margin
calls.




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




41




SEC
Reports




US12OF makes available, free of charge,
on its website, its annual reports on Form 10-K, its quarterly reports on Form
10-Q, its current reports on Form 8-K and amendments to these reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as
reasonably practicable after these forms are filed with, or furnished to, the
SEC. These reports are also available from the SEC though its website at:www.sec.gov.





CFTC
Reports





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





Item 1A.   Risk Factors.





The
risk factors should be read in connection with the other information included in
this annual report on Form 10-K, including Management’s Discussion and Analysis
of Financial Condition and Results of Operations and US12OF’s financial
statements and the related notes.




Risks
Associated With Investing Directly or Indirectly in Crude Oil





Investing
in Crude Oil Interests subjects US12OF to the risks of the crude oil industry
and this could result in large fluctuations in the price of US12OF’s
units.




US12OF is
subject to the risks and hazards of the crude oil industry because it invests in
oil interests. The risks and hazards that are inherent in the oil industry may
cause the price of oil to widely fluctuate. If the changes in percentage terms
of US12OF’s units accurately track the percentage changes in the Benchmark Oil
Futures Contract or spot price of light, sweet crude oil, then the price of
its units may also fluctuate.




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





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





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





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


·         title
problems,


·         political
conflicts, including war,


·         weather
conditions,


·         compliance
with governmental requirements,


·         refinery
capacity, and


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





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





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





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




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




42




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





The
price of US12OF’s units may be influenced by factors such as the short-term
supply and demand for crude oil and the short-term supply and demand for
US12OF’s units. This may cause the units to trade at a price that is above or
below US12OF’s NAV per unit. Accordingly, changes in the price of units may
substantially vary from the changes in the spot price of light, sweet crude
oil. If this variation occurs, then investors may not be able to effectively use
US12OF as a way to hedge against crude oil-related losses or as a way to
indirectly invest in crude oil.





While it
is expected that the trading prices of the units will fluctuate in accordance
with changes in US12OF’s NAV, the prices of units may also be influenced by
other factors, including the short-term supply and demand for crude oil and the
units. There is no guarantee that the units will not trade at appreciable
discounts from, and/or premiums to, US12OF’s NAV. This could cause changes in
the price of the units to substantially vary from changes in the spot price
of light, sweet crude oil. This may be harmful to investors because if
changes in the price of units vary substantially from changes in the spot price
of light, sweet crude oil, then investors may not be able to effectively
use US12OF as a way to hedge the risk of losses in their crude oil-related
transactions or as a way to indirectly invest in crude oil.





Changes
in US12OF’s NAV may not correlate with changes in the average of the prices of
the Benchmark Futures Contracts. If this were to occur, investors may not
be able to effectively use US12OF as a way to hedge against crude oil-related
losses or as a way to indirectly invest in crude oil.




The
General Partner endeavors to invest US12OF’s assets as fully as possible in
short-term Futures Contracts and Other Crude Oil-Related Investments so that the
changes in percentage terms of the NAV closely correlate with the changes in
percentage terms in the average of the prices of the Benchmark Futures
Contracts. However, changes in US12OF’s NAV may not correlate with the changes
in the average of the prices of the Benchmark Futures Contracts for several
reasons as set forth below:





·
            US12OF
      (i) may not be able to buy/sell the exact amount of Futures Contracts and
      Other Crude Oil-Related Investments to have a perfect correlation with
      NAV; (ii) may not always be able to buy and sell Futures Contracts or
      Other Crude Oil-Related Investments at the market price; (iii) may not
      experience a perfect correlation between the spot price of light,
      sweet crude oil and the underlying investments in Futures Contracts, Other
      Crude Oil-Related Investments and Treasuries, cash and/or cash
      equivalents; and (iv) is required to pay fees, including brokerage fees
      and  the management fee, which will have an effect on the
      correlation.





·
            Short-term
      supply and demand for light, sweet crude oil may cause changes in the
      market price of the Benchmark Futures Contracts to vary from changes in
      US12OF’s NAV if US12OF has fully invested in Futures Contracts that do not
      reflect such supply and demand and it is unable to replace such contracts
      with Futures Contracts that do reflect such supply and demand. In
      addition, there are also technical differences between the two markets,
      e.g., one is a physical market
      while the other is a futures market traded on exchanges, that may cause
      variations between the spot price of crude oil and the prices of related
      futures contracts.





·
            US12OF
      plans to buy only as many Futures Contracts and Other Crude Oil-Related
      Investments that it can to get the changes in percentage terms of the NAV
      as close as possible to the changes in percentage terms in the average of
      the prices of the Benchmark Futures Contracts. The remainder of its assets
      will be invested in Treasuries, cash and/or cash equivalents and will be
      used to satisfy initial margin and additional margin requirements, if any,
      and to otherwise support its investments in oil interests. Investments in
      Treasuries, cash and/or cash equivalents, both directly and as margin,
      will provide rates of return that will vary from changes in the value of
      the spot price of light, sweet crude oil and the average of the
      prices of the Benchmark Futures
Contracts.




43




·
            In
      addition, because US12OF incurs certain expenses in connection with its
      investment activities, and holds most of its assets in more liquid
      short-term securities for margin and other liquidity purposes and for
      redemptions that may be necessary on an ongoing basis, the General Partner
      is generally not able to fully invest US12OF’s assets in Futures Contracts
      or Other Crude Oil-Related Investments and there cannot be perfect
      correlation between changes in US12OF’s NAV and changes in the average of
      the prices of the Benchmark Futures
Contracts.





·
            As
      US12OF grows, there may be more or less correlation. For example, if
      US12OF only has enough money to buy three Benchmark Futures Contracts and
      it needs to buy four contracts to track the price of oil then the
      correlation will be lower, but if it buys 20,000 Benchmark Futures
      Contracts and it needs to buy 20,001 contracts then the correlation will
      be higher. At certain asset levels, US12OF may be limited in its ability
      to purchase the Benchmark Futures Contracts or Other Crude Oil-Related
      Investments due to accountability levels imposed by the relevant
      exchanges. To the extent that US12OF invests in these other Futures
      Contracts or Other Crude Oil-Related Investments, the correlation with the
      Benchmark Futures Contracts may be lower. If US12OF is required to invest
      in other Futures Contracts and Other Crude Oil-Related Investments that
      are less correlated with the Benchmark Futures Contracts, US12OF would
      likely invest in over-the-counter contracts to increase the level of
      correlation of US12OF’s assets. Over-the-counter contracts entail certain
      risks described below under “Over-the-Counter Contract
    Risk.”





·
            US12OF
      will invest in equal amounts of each of the Benchmark Futures Contracts.
      Certain months of these futures contracts may have less liquidity and
      availability than other months of these future contracts. The inability to
      purchase and hold the Benchmark Futures Contracts in equal amounts may
      cause less correlation between the units’ NAV and the average of the
      prices of the Benchmark Futures
Contracts.





·
            US12OF
      may not be able to buy the exact number of Futures Contracts and Other
      Crude Oil-Related Investments to have a perfect correlation with the
      Benchmark Futures Contracts if the purchase price of  Futures
      Contracts required to be fully invested in such contracts is higher than
      the proceeds received for the sale of a Creation Basket on the day the
      basket was sold. In such case, US12OF could not invest the entire proceeds
      from the purchase of the Creation Basket in such futures contracts (for
      example, assume US12OF receives $4,000,000 for the sale of a Creation
      Basket and assume that the average of the prices of the Futures Contracts
      for light, sweet crude oil that reflects the prices of the Benchmark
      Futures Contracts is $46.00, then US12OF could only invest in Futures
      Contracts with an aggregate value of $3,956,600). US12OF would be required
      to invest a percentage of the proceeds in cash, Treasuries or other liquid
      securities to be deposited as margin with the futures commission merchant
      through which the contracts were purchased. The remainder of the purchase
      price for the Creation Basket would remain invested in cash and/or cash
      equivalents and Treasuries or other liquid securities as determined by the
      General Partner from time to time based on factors such as potential calls
      for margin or anticipated redemptions. If the trading market for Futures
      Contracts is suspended or closed, US12OF may not be able to purchase these
      investments at the last reported price for such
    investments.





·
            US12OF
      may make use of “mini” contracts as a way of investing a dollar amount in
      contracts that may more closely match the dollar amount of net assets of
      the fund. However, even the use of mini contracts does not completely
      eliminate the risk that US12OF will not be able to buy or sell the exact
      number of Futures Contracts necessary. In addition there is a risk that
      because of the size and relative liquidity of such contracts when compared
      to standard size Futures Contracts such as the Benchmark Futures
      Contracts, the price of a smaller contract for a particular month may not
      equate to the Benchmark Futures Contract for the same month, which could
      cause the change in the US12OF’s per unit price and NAV to vary from
      changes in the average price of the Benchmark Futures
      Contracts.




If
changes in US12OF’s NAV do not correlate with changes in the average of the
prices of the Benchmark Futures Contracts, then investing in US12OF may not be
an effective way to hedge against oil-related losses or indirectly invest in
oil.




44




The
Benchmark Futures Contracts may not correlate with the spot price of light,
sweet crude oil and this could cause changes in the price of the units to
substantially vary from the changes in the spot price of light, sweet crude oil.
If this were to occur, then investors may not be able to effectively use US12OF
as a way to hedge against crude oil-related losses or as a way to indirectly
invest in crude oil.




When
using the Benchmark Futures Contracts as a strategy to track the spot price
of light, sweet crude oil, at best the correlation between changes in
prices of such Crude Oil Interests and the spot price of crude oil can be
only approximate. The degree of imperfection of correlation depends upon
circumstances such as variations in the speculative oil market, supply of and
demand for such Crude Oil Interests and technical influences in oil futures
trading. If there is a weak correlation between the Crude Oil Interests and the
spot price of light, sweet crude oil, then the price of units may not
accurately track the spot price of light, sweet crude oil and investors may
not be able to effectively use US12OF as a way to hedge the risk of losses in
their oil-related transactions or as a way to indirectly invest in
oil.





US12OF
may experience a loss if it is required to sell Treasuries at a price lower than
the price at which they were acquired.





The value
of Treasuries generally moves inversely with movements in interest rates. If
US12OF is required to sell Treasuries at a price lower than the price at which
they were acquired, US12OF will experience a loss. This loss may adversely
impact the price of the units and may decrease the correlation between the price
of the units, the prices of the Benchmark Futures Contracts and Other Crude
Oil-Related Investments, and the spot price of light, sweet crude
oil.





Certain
of US12OF’s investments could be illiquid which could cause large losses to
investors at any time or from time to time.





At any
given time, US12OF may own 12 different monthly crude oil contracts which have
differing expiration schedules. The amount of liquidity in the crude oil futures
market for each of those months will vary. In some cases certain of those months
may have relatively small amounts of open interest and daily trading volume. As
a result, US12OF may not always be able to liquidate its positions in its
investments at the desired price. It is difficult to execute a trade at a
specific price when there is a relatively small volume of buy and sell orders in
a market. A market disruption, such as a foreign government taking political
actions that disrupt the market in its currency, its crude oil production or
exports, or in another major export, can also make it difficult to liquidate a
position. Alternatively, limits imposed by futures exchanges or other regulatory
organizations, such as accountability levels, position limits and daily price
fluctuation limits, may contribute to a lack of liquidity with respect to some
Crude Oil Interests.





Unexpected
market illiquidity may cause major losses to investors at any time or from time
to time. In addition, US12OF has not and does not intend at this time to
establish a credit facility, which would provide an additional source of
liquidity and instead will rely only on the Treasuries, cash and/or cash
equivalents that it holds. The anticipated large value of the positions in
Futures Contracts that the General Partner will acquire or enter into for US12OF
increases the risk of illiquidity. The Other Crude Oil-Related Investments that
US12OF invests in, such as negotiated over-the-counter contracts, may have a
greater likelihood of being illiquid since they are contracts between two
parties that take into account not only market risk, but also the relative
credit, tax, and settlement risks under such contracts. Such contracts also have
limited transferability that results from such risks and the contract’s express
limitations.





Because
both Futures Contracts and Other Crude Oil-Related Investments may be illiquid,
US12OF’s Crude Oil Interests may be more difficult to liquidate at favorable
prices in periods of illiquid markets and losses may be incurred during the
period in which positions are being liquidated.




45




If
the nature of hedgors and speculators in futures markets has shifted such that
crude oil purchasers are the predominant hedgors in the market, US12OF might
have to reinvest at higher futures prices or choose Other Crude Oil-Related
Investments.





The
changing nature of the hedgors and speculators in the crude oil market
influences whether futures prices are above or below the expected future spot
price. In order to induce speculators to take the corresponding long side of the
same futures contract, crude oil producers must generally be willing to sell
futures contracts at prices that are below expected future spot prices.
Conversely, if the predominant hedgors in the futures market are the purchasers
of the crude oil who purchase futures contracts to hedge against a rise in
prices, then speculators will only take the short side of the futures contract
if the futures price is greater than the expected future spot price of crude
oil. This can have significant implications for US12OF when it is time to
reinvest the proceeds from a maturing Futures Contract into a new Futures
Contract.





While
US12OF does not intend to take physical delivery of oil under its Futures
Contracts, physical delivery under such contracts impacts the value of the
contracts.





While it
is not the current intention of US12OF to take to take physical delivery of
crude oil under its Futures Contracts, futures contracts are not required to be
cash-settled and it is possible to take delivery under some of these contracts.
Storage costs associated with purchasing crude oil could result in costs and
other liabilities that could impact the value of Futures Contracts or Other
Crude Oil-Related Investments. Storage costs include the time value of money
invested in crude oil as a physical commodity plus the actual costs of storing
the crude oil less any benefits from ownership of crude oil that are not
obtained by the holder of a futures contract. In general, Futures Contracts have
a one-month delay for contract delivery and the back month (the back month is
any future delivery month other than the spot month) includes storage costs. To
the extent that these storage costs change for crude oil while US12OF holds
Futures Contracts or Other Crude Oil-Related Investments, the value of the
Futures Contracts or Other Crude Oil-Related Investments, and therefore US12OF’s
NAV, may change as well. Because it holds Futures Contracts that will mature up
to 13 months later than the spot or current month, US12OF’s NAV will be impacted
more from the changes in storage costs than would the NAV of a fund that holds
more current futures contracts.





The
price relationship between the near month contract and the other monthly
contracts that compose the Benchmark Futures Contracts will vary and may impact
both the total return over time of US12OF’s NAV, as well as the degree to which
its total return tracks other crude oil price indices’ total
returns.





The
Benchmark Futures Contracts consist of the near month contract to expire and the
contracts for the following 11 months, except during the last two weeks of the
current month when the near month contract is sold and replaced by the futures
contract for the thirteenth month following the current month. In the event of a
crude oil futures market where near month contracts trade at a higher price than
the price of contracts that expire later in time, a situation described as
“backwardation” in the futures market, then absent the impact of the overall
movement in crude oil prices the value of the benchmark contract would tend to
rise as it approaches expiration. As a result, the total return of the Benchmark
Futures Contract would tend to track higher. Conversely, in the event of a crude
oil futures market where near month contracts trade at a lower price than the
price of contracts that expire later in time, a situation described as
“contango” in the futures market, then absent the impact of the overall movement
in crude oil prices the value of the benchmark contract would tend to decline as
it approaches expiration. As a result the total return of the Benchmark Futures
Contract would tend to track lower. When compared to total return of other price
indices, such as the spot price of crude oil, the impact of backwardation and
contango may lead the total return of US12OF’s NAV to vary significantly. In the
event of a prolonged period of contango, and absent the impact of rising or
falling oil prices, this could have a significant negative impact on US12OF’s
NAV and total return. Furthermore, a portfolio that consists of twelve different
monthly contracts, ranging in a “strip” from the first month to the twelfth
month, will be impacted differently by contango and backwardation than a
portfolio that consists of just the first month contract.





Because
US12OF’s portfolio will typically hold as many as 12 different crude oil futures
contracts at all times, it may be more expensive for US12OF to buy or sell
futures contracts for its portfolio.





Because
US12OF will typically hold as many as 12 different futures contracts at any one
time, the cost of trading a large number of different contracts could be greater
than the cost of trading the same dollar amount using just one contract. In
addition, the bid/ask spread for buying these different contracts could also on
average be greater than the bid/ask spread for buying a single futures contract
month. This could make it more expensive for US12OF to invest compared to
investing in a single monthly contract. Wider bid/ask spreads and/or higher
commission or brokerage costs would negatively impact an investor’s investment
return s in
US12OF.




46




Because
US12OF’s portfolio will typically hold as many as 12 different crude oil futures
contracts at all times, firms that make a market in the units will also need to
hold multiple contracts when hedging their inventories of units and when
creating or redeeming baskets. This could lead to the units of US12OF trading at
wider bid/ask spreads in the secondary market than an exchange traded security
holding crude oil futures that uses a fewer number of futures contracts at any
given time.





Brokerage
firms or other market participants that make a secondary market in the units of
US12OF may do so by simultaneously hedging their positions by being long, or
short, the same Futures Contracts that US12OF holds in its portfolio. The cost
to brokerage firms or other market participants in putting on and taking off
these hedges is one of the factors that determine the size of the bid/ask spread
they quote on a security such as US12OF. Because US12OF will typically hold as
many as 12 different futures contracts at any one time, the brokerage firms or
other market participants will also find themselves having to trade a number of
different contracts as well. The cost of trading a large number of different
contracts may be greater than the cost of trading the same dollar amount using
just one contract. As a result, the bid/ask spread for US12OF may be wider than
the bid/ask spread for an exchange traded security investing in a fewer number
of futures contracts at any given time. The wider bid/ask spread may negatively
impact an investor’s investment returns in US12OF.





Regulation
of the commodity interests and energy markets is extensive and constantly
changing; future regulatory developments are impossible to predict but may
significantly and adversely affect US12OF.





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





The
regulation of commodity interest transactions in the United States is a rapidly
changing area of law and is subject to ongoing modification by governmental and
judicial action. Considerable regulatory attention has been focused on
non-traditional investment pools which are publicly distributed in the United
States. There is a possibility of future regulatory changes altering, perhaps to
a material extent, the nature of an investment by US12OF or the ability of
US12OF to continue to implement its investment strategy. In addition, various
national governments have expressed concern regarding the disruptive effects of
speculative trading in the energy markets and the need to regulate the
derivatives markets in general. The effect of any future regulatory change on
US12OF is impossible to predict, but could be substantial and
adverse.





Investing
in US12OF for purposes of hedging may be subject to several risks including the
possibility of losing the benefit of favorable market movement.





Participants
in the crude oil or in other industries may use US12OF as a vehicle to hedge the
risk of losses in their crude oil-related transactions. There are several risks
in connection with using US12OF as a hedging device. While hedging can provide
protection against an adverse movement in market prices, it can also preclude a
hedgor’s opportunity to benefit from a favorable market movement. In a hedging
transaction, the hedgor may be concerned that the hedged item will increase in
price, but must recognize the risk that the price may instead decline and if
this happens he will have lost his opportunity to profit from the change in
price because the hedging transaction will result in a loss rather than a gain.
Thus, the hedgor foregoes the opportunity to profit from favorable price
movements.





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





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




47




In
addition, using an investment in US12OF as a hedge for changes in energy costs
(e.g., investing in
crude oil, heating oil, gasoline, natural gas or other fuels, or electricity)
may not correlate because changes in the spot price of crude oil may vary from
changes in energy costs because the spot price may not be at the same rate as
changes in the price of other energy products, and, in any case, the price of
crude oil does not reflect the refining, transportation, and other costs that
may impact the hedgor’s energy costs.





An
investment in US12OF may provide little or no diversification benefits. Thus, in
a declining market, US12OF may have no gains to offset losses from other
investments, and an investor may suffer losses on an investment in
US12OF while incurring losses with respect to other asset
classes.





Historically,
Futures Contracts and Other Crude Oil-Related Investments have generally been
non-correlated to the performance of other asset classes such as stocks and
bonds. Non-correlation means that there is a low statistically valid
relationship between the performance of futures and other commodity interest
transactions, on the one hand, and stocks or bonds, on the other hand. However,
there can be no assurance that such non-correlation will continue during future
periods. If, contrary to historic patterns, US12OF’s performance were to move in
the same general direction as the financial markets, investors will obtain
little or no diversification benefits from an investment in the units. In such a
case, US12OF may have no gains to offset losses from other investments, and
investors may suffer losses on their investment in US12OF at the same time they
incur losses with respect to other investments.





Variables
such as drought, floods, weather, embargoes, tariffs and other political events
may have a larger impact on crude oil prices and crude oil-linked instruments,
including Futures Contracts and Other Crude Oil-Related Investments, than on
traditional securities. These additional variables may create additional
investment risks that subject US12OF’s investments to greater volatility than
investments in traditional securities.





Non-correlation
should not be confused with negative correlation, where the performance of two
asset classes would be opposite of each other. There is no historic evidence
that the spot price of crude oil and prices of other financial assets, such as
stocks and bonds, are negatively correlated. In the absence of negative
correlation, US12OF cannot be expected to be automatically profitable during
unfavorable periods for the stock market, or vice versa.





US12OF’s
Operating Risks





US12OF
is not a registered investment company so unitholders do not have the
protections of the 1940 Act.





US12OF is
not an investment company subject to the 1940 Act. Accordingly, investors do not
have the protections afforded by that statute which, for example, requires
investment companies to have a majority of disinterested directors and regulates
the relationship between the investment company and its investment
manager.





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




In
managing and directing the day-to-day activities and affairs of US12OF, the
General Partner relies heavily on Messrs. Nicholas Gerber, John Love
and John Hyland. If Messrs. Gerber, Love or Hyland were to leave
or be unable to carry out their present responsibilities, it may have an adverse
effect on the management of US12OF. Furthermore, Messrs. Gerber, Love
and Hyland are currently involved in the management of the Related Public
Funds and the General Partner has filed a registration statement for two other
exchange traded security funds, USSO and US12NG. Mr. Gerber is also
employed by Ameristock Corporation, a registered investment adviser that manages
a public mutual fund. It is estimated that Mr. Gerber will spend approximately
50% of his time on US12OF and Related Public Fund matters.  Mr. Love will
spend approximately 100% of his time on US12OF and Related Public Fund matters
and Mr. Hyland will spend approximately 85% of his time on US12OF and Related
Public Fund matters. To the extent that the General Partner establishes
additional funds, even greater demands will be placed on Messrs.
Gerber, Love and Hyland, as well as the other officers of the General
Partner, including Mr. Howard Mah, the Chief Financial Officer, and its Board of
Directors.




48




Accountability levels, position
limits, and daily price fluctuation limits set by the exchanges have the
potential to cause a tracking error, which could cause the price of units to
substantially vary from theaverage of
the prices of the
Benchmark Futures Contracts and prevent investors from being able to effectively
use US12OF as a way to hedge against crude oil-related losses or as a way to
indirectly invest in crude oil.





U.S.
designated contract markets such as the NYMEX have established accountability
levels and position limits on the maximum net long or net short futures
contracts in commodity interests that any person or group of persons under
common trading control (other than as a hedge, which an investment by US12OF is
not) may hold, own or control. For example, the current accountability level for
investments at any one time in the Benchmark Futures Contract is 20,000.
While this is not a fixed ceiling, it is a threshold above which the NYMEX may
exercise greater scrutiny and control over an investor, including limiting an
investor to holding no more than 20,000 Benchmark Futures Contracts. With regard
to position limits, the NYMEX limits an investor from holding more than 3,000
net futures in the last 3 days of trading in the near month contract to
expire.





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





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





All of
these limits may potentially cause a tracking error between the price of the
units and the average of the prices of the Benchmark Futures Contracts. This may
in turn prevent investors from being able to effectively use US12OF as a way to
hedge against crude oil-related losses or as a way to indirectly invest in crude
oil.





US12OF
has not limited the size of its offering and is committed to utilizing
substantially all of its proceeds to purchase Futures Contracts and Other Crude
Oil-Related Investments. If US12OF encounters accountability levels, position
limits, or price fluctuation limits for Futures Contracts on the NYMEX, it may
then, if permitted under applicable regulatory requirements, purchase Futures
Contracts on the ICE Futures (formerly, the International Petroleum Exchange) or
other exchanges that trade listed crude oil futures. The Futures Contracts
available on the ICE Futures are generally comparable to the contracts on the
NYMEX, but they may have different underlying commodities, sizes, deliveries,
and prices. In addition, the Futures Contracts available or the ICE Futures may
be subject to accountability levels or position limits.





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





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





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





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




49




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





If the
General Partner were to utilize a spread or straddle position and the spread
performed differently than expected, the results could impact US12OF’s tracking
error. This could affect US12OF’s investment objective of having its NAV closely
track the changes in the Benchmark Futures Contracts. Additionally, a loss on a
spread position would negatively impact US12OF’s absolute return.





US12OF
and the General Partner may have conflicts of interest, which may permit them to
favor their own interests to the detriment of unitholders.





US12OF
and the General Partner may have inherent conflicts to the extent the General
Partner attempts to maintain US12OF’s asset size in order to preserve its fee
income and this may not always be consistent with US12OF’s objective of having
the value of its units’ NAV track changes in the Benchmark Futures Contracts.
The General Partner’s officers, directors and employees do not devote their time
exclusively to US12OF. These persons are directors, officers or employees of
other entities that may compete with US12OF for their services. They could have
a conflict between their responsibilities to US12OF and to those other
entities.





In
addition, the General Partner’s principals, officers, directors or employees may
trade futures and related contracts for their own account. A conflict of
interest may exist if their trades are in the same markets and at the same time
as US12OF trades using the clearing broker to be used by US12OF. A potential
conflict also may occur if the General Partner’s principals, officers, directors
or employees trade their accounts more aggressively or take positions in their
accounts which are opposite, or ahead of, the positions taken by
US12OF.





The
General Partner has sole current authority to manage the investments and
operations of US12OF, and this may allow it to act in a way that furthers its
own interests which may create a conflict with the best interests of investors.
Limited partners have limited voting control, which will limit the ability to
influence matters such as amendment of the LP Agreement, change in US12OF’s
basic investment policy, dissolution of this fund, or the sale or distribution
of US12OF’s assets.





The
General Partner serves as the general partner to each of US12OF and the Related
Public Funds and will serve as the general partner for USSO and US12NG, if such
funds offer their securities to the public or begin operations. The General
Partner may have a conflict to the extent that its trading decisions for US12OF
may be influenced by the effect they would have on the other funds it manages.
These trading decisions may be influenced since the General Partner also serves
as the general partner for all of the funds and is required to meet all of the
funds’ investment objectives as well as US12OF’s. If the General Partner
believes that a trading decision it made on behalf of US12OF might (i) impede
its other funds from reaching their investment objectives, or (ii) improve the
likelihood of meeting its other funds’ objectives, then the General Partner may
choose to change its trading decision for US12OF, which could either impede or
improve the opportunity for US12OF to meet its investment objective. In
addition, the General Partner is required to indemnify the officers and
directors of its other funds if the need for indemnification arises. This
potential indemnification will cause the General Partner’s assets to decrease.
If the General Partner’s other sources of income are not sufficient to
compensate for the indemnification, then the General Partner may terminate and
investors could lose their investment.




50




Unitholders
may only vote on the removal of the General Partner and limited partners have
only limited voting rights. Unitholders and limited partners will not
participate in the management of US12OF and do not control the General Partner
so they will not have influence over basic matters that affect
US12OF.




Unitholders
that have not applied to become limited partners have no voting rights, other
than to remove the General Partner. Limited partners will have limited voting
rights with respect to US12OF’s affairs. Unitholders may remove the General
Partner only if 66 2/3% of the unitholders elect to do so. Unitholders and
limited partners will not be permitted to participate in the management or
control of US12OF or the conduct of its business. Unitholders and limited
partners must therefore rely upon the duties and judgment of the General Partner
to manage US12OF’s affairs.





The
General Partner may manage a large amount of assets and this could affect
US12OF’s ability to trade profitably.





Increases
in assets under management may affect trading decisions. In general, the General
Partner does not intend to limit the amount of assets of US12OF that it may
manage. The more assets the General Partner manages, the more difficult it may
be for it to trade profitably because of the difficulty of trading larger
positions without adversely affecting prices and performance and of managing
risk associated with larger positions.





US12OF
could terminate at any time and cause the liquidation and potential loss of an
investor’s investment and could upset the overall maturity and timing of
an investor’s investment portfolio.





US12OF
may terminate at any time, regardless of whether US12OF has incurred losses,
subject to the terms of the LP Agreement. In particular, unforeseen
circumstances, including the death, adjudication of incompetence, bankruptcy,
dissolution, or removal of the General Partner could cause US12OF to terminate
unless a majority in interest of the limited partners within 90 days of the
event elects to continue the partnership and appoints a successor general
partner, or the affirmative vote of a majority in interest of the limited
partners subject to certain conditions. However, no level of losses will require
the General Partner to terminate US12OF. US12OF’s termination would cause the
liquidation and potential loss of an investor’s investment. Termination could
also negatively affect the overall maturity and timing of an investor’s
investment portfolio.





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





Under
Delaware law, a limited partner might be held liable for US12OF obligations as
if it were a General Partner if the limited partner participates in the control
of the partnership’s business and the persons who transact business with the
partnership think the limited partner is the General Partner.





A limited
partner will not be liable for assessments in addition to its initial capital
investment in any of US12OF’s capital securities representing units. However, a
limited partner may be required to repay to US12OF any amounts wrongfully
returned or distributed to it under some circumstances. Under Delaware law,
US12OF may not make a distribution to limited partners if the distribution
causes US12OF’s liabilities (other than liabilities to partners on account of
their partnership interests and nonrecourse liabilities) to exceed the fair
value of US12OF’s assets. Delaware law provides that a limited partner who
receives such a distribution and knew at the time of the distribution that the
distribution violated the law will be liable to the limited partnership for the
amount of the distribution for three years from the date of the
distribution.





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





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





US12OF’s
existing units are, and any units US12OF issues in the future will be, subject
to restrictions on transfer. Failure to satisfy these requirements will preclude
a transferee from being able to have all the rights of a limited
partner.





No
transfer of any unit or interest therein may be made if such transfer would (a)
violate the then applicable federal or state securities laws or rules and
regulations of the SEC, any state securities commission, the CFTC or any other
governmental authority with jurisdiction over such transfer, or (b) cause US12OF
to be taxable as a corporation or affect US12OF’s existence or qualification as
a limited partnership. In addition, investors may only become limited partners
if they transfer their units to purchasers that meet certain conditions outlined
in the LP Agreement, which provides that each record holder or limited partner
or unitholder applying to become a limited partner (each a record holder) may be
required by the General Partner to furnish certain information, including that
holder’s nationality, citizenship or other related status. A transferee who is
not a U.S. resident may not be eligible to become a record holder or a limited
partner if its ownership would subject US12OF to the risk of cancellation or
forfeiture of any of its assets under any federal, state or local law or
regulation. All purchasers of US12OF’s units, who wish to become limited
partners or record holders, and receive cash distributions, if any, or have
certain other rights, must deliver an executed transfer application in which the
purchaser or transferee must certify that, among other things, he, she or it
agrees to be bound by US12OF’s LP Agreement and is eligible to purchase US12OF’s
securities. Any transfer of units will not be recorded by the transfer agent or
recognized by US12OF unless a completed transfer application is delivered to the
General Partner or the Administrator. A person purchasing US12OF’s existing
units, who does not execute a transfer application and certify that the
purchaser is eligible to purchase those securities acquires no rights in those
securities other than the right to resell those securities. Whether or not a
transfer application is received or the consent of the General Partner obtained,
US12OF’s units will be securities and will be transferable according to the laws
governing transfers of securities. See “Transfer of Units.”




51




US12OF
does not expect to make cash distributions.





The
General Partner has not previously made any cash distributions and intends to
re-invest any realized gains in additional oil interests rather than
distributing cash to limited partners. Therefore, unlike mutual funds, commodity
pools or other investment pools that actively manage their investments in an
attempt to realize income and gains from their investing activities and
distribute such income and gains to their investors, US12OF generally does not
expect to distribute cash to limited partners. An investor should not invest in
US12OF if it will need cash distributions from US12OF to pay taxes on its share
of income and gains of US12OF, if any, or for any other reason. Although US12OF
does not intend to make cash distributions, the income earned from its
investments held directly or posted as margin may reach levels that merit
distribution, e.g., at levels where such
income is not necessary to support its underlying investments in oil interests
and investors adversely react to being taxed on such income without receiving
distributions that could be used to pay such tax. If this income becomes
significant then cash distributions may be made.





There
is a risk that US12OF will not earn trading gains sufficient to compensate for
the fees and expenses that it must pay and as such US12OF may not earn any
profit.





US12OF
pays brokerage charges of approximately 0.03%, futures commission merchant fees
of $3.50 per buy or sell, management fees of 0.60% of NAV on its average net
assets, and over-the-counter spreads and extraordinary expenses (e.g., subsequent offering
expenses, other expenses not in the ordinary course of business, including the
indemnification of any person against liabilities and obligations to the extent
permitted by law and required under the LP Agreement and under agreements
entered into by the General Partner on US12OF’s behalf and the bringing and
defending of actions at law or in equity and otherwise engaging in the conduct
of litigation and the incurring of legal expenses and the settlement of claims
and litigation) that can not be quantified. These fees and expenses must be paid
in all cases regardless of whether US12OF’s activities are profitable.
Accordingly, US12OF must earn trading gains sufficient to compensate for these
fees and expenses before it can earn any profit.





US12OF
has historically depended upon its affiliates to pay all its expenses. If this
offering of units does not raise sufficient funds to pay US12OF’s future
expenses and no other source of funding of expenses is found, US12OF may be
forced to terminate and investors may lose all or part of their
investment.





Prior to
the offering of units that commenced on December 6, 2007, all of US12OF’s
expenses were funded by the General Partner and its affiliates. These payments
by the General Partner and its affiliates were designed to allow US12OF the
ability to commence the public offering of its units. US12OF now directly pays
certain of these fees and expenses. The General Partner will continue to
pay other fees and expenses, as set forth in the LP Agreement. If the General
Partner and US12OF are unable to raise sufficient funds to cover their expenses
or locate any other source of funding, US12OF may be forced to terminate and
investors may lose all or part of their investment.




52




US12OF
may incur higher fees and expenses upon renewing existing or entering into new
contractual relationships.





The
clearing arrangements between the clearing brokers and US12OF generally are
terminable by the clearing brokers once the clearing broker has given US12OF
notice. Upon termination, the General Partner may be required to renegotiate or
make other arrangements for obtaining similar services if US12OF intends to
continue trading in Futures Contracts or Other Crude Oil-Related Investments at
its present level of capacity. The services of any clearing broker may not be
available, or even if available, these services may not be available on the
terms as favorable as those of the expired or terminated clearing
arrangements.





US12OF
may miss certain trading opportunities because it will not receive the benefit
of the expertise of independent trading advisors.





The
General Partner does not employ trading advisors for US12OF; however, it
reserves the right to employ them in the future. The only advisor to US12OF is
the General Partner. A lack of independent trading advisors may be
disadvantageous to US12OF because it will not receive the benefit of a trading
advisor’s expertise.





An
unanticipated number of redemption requests during a short period of time could
have an adverse effect on the NAV of US12OF.





If a
substantial number of requests for redemption of Redemption Baskets are received
by US12OF during a relatively short period of time, US12OF may not be able to
satisfy the requests from US12OF’s assets not committed to trading. As a
consequence, it could be necessary to liquidate positions in US12OF’s trading
positions before the time that the trading strategies would otherwise dictate
liquidation.





The financial markets are currently in a
period of disruption and recession and US12OF does not expect these conditions
to improve in the near future.





Currently
and throughout 2008, the financial markets have experienced very difficult
conditions and volatility as well as significant adverse trends.  The
deteriorating conditions in these markets have resulted in a decrease in
availability of corporate credit and liquidity and have led indirectly to the
insolvency, closure or acquisition of a number of major financial institutions
and have contributed to further consolidation within the financial services
industry.  A continued recession or a depression could adversely
affect the financial condition and results of operations of US12OF’s service
providers and Authorized Purchasers which would impact the ability of the
General Partner to achieve US12OF’s investment objective.





The
failure or bankruptcy of a clearing broker could result in a substantial loss of
US12OF’s assets; the clearing broker could be subject to proceedings that impair
its ability to execute USOF’s trades.





Under
CFTC regulations, a clearing broker maintains customers’ assets in a bulk
segregated account. If a clearing broker fails to do so, or is unable to satisfy
a substantial deficit in a customer account, its other customers may be subject
to risk of a substantial loss of their funds in the event of that clearing
broker’s bankruptcy. In that event, the clearing broker’s customers, such as
US12OF, are entitled to recover, even in respect of property specifically
traceable to them, only a proportional share of all property available for
distribution to all of that clearing broker’s customers. The bankruptcy of a
clearing broker could result in the complete loss of US12OF’s assets posted with
the clearing broker; though the vast majority of US12OF’s assets are held in
Treasuries, cash and/or cash equivalents with US12OF’s custodian and would not
be impacted by the bankruptcy of a clearing broker. US12OF also may be subject
to the risk of the failure of, or delay in performance by, any exchanges and
markets and their clearing organizations, if any, on which commodity interest
contracts are traded.




From time
to time, the clearing brokers may be subject to legal or regulatory proceedings
in the ordinary course of their business. A clearing broker’s involvement in
costly or time-consuming legal proceedings may divert financial resources or
personnel away from the clearing broker’s trading operations, which could impair
the clearing broker’s ability to successfully execute and clear US12OF’s
trades.





53




The
failure or insolvency of US12OF’s custodian could result in a substantial loss
of US12OF’s assets.




As noted
above, the vast majority of US12OF’s assets are held in Treasuries, cash and/or
cash equivalents with US12OF’s custodian. The insolvency of the custodian could
result in a complete loss of US12OF’s assets held by that custodian, which, at
any given time, would likely comprise a substantial portion of US12OF’s total
assets.





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





Third
parties may utilize US12OF’s intellectual property or technology, including the
use of its business methods, trademarks and trading program software, without
permission. The General Partner has a patent pending for US12OF’s business
method and it is registering its trademarks. US12OF does not currently have any
proprietary software. However, if it obtains proprietary software in the future,
then any unauthorized use of US12OF’s proprietary software and other technology
could also adversely affect its competitive advantage. US12OF may have
difficulty monitoring unauthorized uses of its patents, trademarks, proprietary
software and other technology. Also, third parties may independently develop
business methods, trademarks or proprietary software and other technology
similar to that of the General Partner or claim that the General Partner has
violated their intellectual property rights, including their copyrights,
trademark rights, trade names, trade secrets and patent rights. As a result, the
General Partner may have to litigate in the future to protect its trade secrets,
determine the validity and scope of other parties’ proprietary rights, defend
itself against claims that it has infringed or otherwise violated other parties’
rights, or defend itself against claims that its rights are invalid. Any
litigation of this type, even if the General Partner is successful and
regardless of the merits, may result in significant costs, divert its resources
from US12OF, or require it to change its proprietary software and other
technology or enter into royalty or licensing agreements.





The
success of US12OF depends on the ability of the General Partner to accurately
implement trading systems, and any failure to do so could subject US12OF to
losses on such transactions.





The
General Partner uses mathematical formulas built into a generally available
spreadsheet program to decide whether it should buy or sell Crude Oil Interests
each day. Specifically, the General Partner uses the spreadsheet to make
mathematical calculations and to monitor positions in Crude Oil Interests and
Treasuries and correlations to the Benchmark Futures Contracts. The General
Partner must accurately process the spreadsheets’ outputs and execute the
transactions called for by the formulas. In addition, US12OF relies on the
General Partner to properly operate and maintain its computer and communications
systems. Execution of the formulas and operation of the systems are subject to
human error. Any failure, inaccuracy or delay in implementing any of the
formulas or systems and executing US12OF’s transactions could impair its ability
to achieve US12OF’s investment objective. It could also result in decisions to
undertake transactions based on inaccurate or incomplete information. This could
cause substantial losses on transactions.





US12OF
may experience substantial losses on transactions if the computer or
communications system fails.





US12OF’s
trading activities, including its risk management, depend on the integrity and
performance of the computer and communications systems supporting them.
Extraordinary transaction volume, hardware or software failure, power or
telecommunications failure, a natural disaster or other catastrophe could cause
the computer systems to operate at an unacceptably slow speed or even fail. Any
significant degradation or failure of the systems that the General Partner uses
to gather and analyze information, enter orders, process data, monitor risk
levels and otherwise engage in trading activities may result in substantial
losses on transactions, liability to other parties, lost profit opportunities,
damages to the General Partner’s and US12OF’s reputations, increased operational
expenses and diversion of technical resources.





If
the computer and communications systems are not upgraded, as needed, US12OF’s
financial condition could be harmed.





The
development of complex computer and communications systems and new technologies
may render the existing computer and communications systems supporting US12OF’s
trading activities obsolete. In addition, these computer and communications
systems must be compatible with those of third parties, such as the systems of
exchanges, clearing brokers and the executing brokers. As a result, if these
third parties upgrade their systems, the General Partner will need to make
corresponding upgrades to continue effectively its trading activities. US12OF’s
future success will depend on US12OF’s ability to respond to changing
technologies on a timely and cost-effective basis.




54




US12OF
depends on the reliable performance of the computer and communications systems
of third parties, such as brokers and futures exchanges, and may experience
substantial losses on transactions if they fail.





US12OF
depends on the proper and timely function of complex computer and communications
systems maintained and operated by the futures exchanges, brokers and other data
providers that the General Partner uses to conduct trading activities. Failure
or inadequate performance of any of these systems could adversely affect the
General Partner’s ability to complete transactions, including its ability to
close out positions, and result in lost profit opportunities and significant
losses on commodity interest transactions. This could have a material adverse
effect on revenues and materially reduce US12OF’s available capital. For
example, unavailability of price quotations from third parties may make it
difficult or impossible for the General Partner to use its proprietary software
that it relies upon to conduct its trading activities. Unavailability of records
from brokerage firms may make it difficult or impossible for the General Partner
to accurately determine which transactions have been executed or the details,
including price and time, of any transaction executed. This unavailability of
information also may make it difficult or impossible for the General Partner to
reconcile its records of transactions with those of another party or to
accomplish settlement of executed transactions.





The
occurrence of a terrorist attack, or the outbreak, continuation or expansion of
war or other hostilities could disrupt US12OF’s trading activity and materially
affect US12OF’s profitability.





The
operations of US12OF, the exchanges, brokers and counterparties with which
US12OF does business, and the markets in which US12OF does business could be
severely disrupted in the event of a major terrorist attack or the outbreak,
continuation or expansion of war or other hostilities. The terrorist attacks of
September 11, 2001 and the war in Iraq, global anti-terrorism initiatives and
political unrest in the Middle East and Southeast Asia continue to fuel this
concern.





Risk
of Leverage and Volatility





If
the General Partner permits US12OF to become leveraged, investors could lose all
or substantially all of their investment if US12OF’s trading positions suddenly
turn unprofitable.





Commodity
pools’ trading positions in futures contracts or other commodity interests are
typically required to be secured by the deposit of margin funds that represent
only a small percentage of a futures contract’s (or other commodity interests’)
entire market value. This feature permits commodity pools to “leverage” their
assets by purchasing or selling futures contracts (or other commodity interests)
with an aggregate value in excess of the commodity pool’s assets. While this
leverage can increase the pool’s profits, relatively small adverse movements in
the price of the pool’s futures contracts can cause significant losses to the
pool. While the General Partner has not and does not currently intend to
leverage US12OF’s assets, it is not prohibited from doing so under the LP
Agreement or otherwise.





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




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





·         changes
in interest rates;





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





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




55




·         weather
and climate conditions;




· countries
such as China;




·         changes
in balances of payments and trade;





·         U.S.
and international rates of inflation;





·         currency
devaluations and revaluations;





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





·         changes
in philosophies and emotions of market participants.





Since
US12OF’s commencement of operations on December 6, 2007, there has been
tremendous volatility in the prices of the Benchmark Futures
Contracts.  For example, the price of the NYMEX futures contract for
light, sweet crude oil rose to an all-time high of $145.29 on July 3, 2008 and
dropped to a 2008 low of $33.87 on December 19, 2008. The General Partner
anticipates that there will be continued volatility in the price of the NYMEX
futures contract for light, sweet crude oil and futures contracts for other
petroleum-based commodities.  Consequently, investors should know that
this volatility can lead to a loss of all or substantially all of their
investment in US12OF.





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





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




Over-the-Counter
Contract Risk





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





A portion
of US12OF’s assets may be used to trade over-the-counter crude oil interest
contracts, such as forward contracts or swap or spot contracts. Over-the-counter
contracts are typically traded on a principal-to-principal basis through dealer
markets that are dominated by major money center and investment banks and other
institutions and are essentially unregulated by the CFTC. Investors therefore do
not receive the protection of CFTC regulation or the statutory scheme of the CEA
in connection with this trading activity by US12OF. The markets for
over-the-counter contracts rely upon the integrity of market participants in
lieu of the additional regulation imposed by the CFTC on participants in the
futures markets. The lack of regulation in these markets could expose US12OF in
certain circumstances to significant losses in the event of trading abuses or
financial failure by participants.




56




US12OF
will be subject to credit risk with respect to counterparties to
over-the-counter contracts entered into by US12OF or held by special purpose or
structured vehicles.





US12OF
faces the risk of non-performance by the counterparties to the over-the-counter
contracts. Unlike in futures contracts, the counterparty to these contracts is
generally a single bank or other financial institution, rather than a clearing
organization backed by a group of financial institutions. As a result, there
will be greater counterparty credit risk in these transactions. A counterparty
may not be able to meet its obligations to US12OF, in which case US12OF could
suffer significant losses on these contracts.





If a
counterparty becomes bankrupt or otherwise fails to perform its obligations due
to financial difficulties, US12OF may experience significant delays in obtaining
any recovery in a bankruptcy or other reorganization proceeding. US12OF may
obtain only limited recovery or may obtain no recovery in such
circumstances.





US12OF
may be subject to liquidity risk with respect to its over-the-counter
contracts.





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





Risk
of Trading in International Markets





Trading
in international markets would expose US12OF to credit and regulatory
risk.





The
General Partner invests primarily in Futures Contracts, a significant portion of
which are traded on United States exchanges, including the NYMEX. However, a
portion of US12OF’s trades may take place on markets and exchanges outside the
United States. Some non-U.S. markets present risks because they are not subject
to the same degree of regulation as their U.S. counterparts. None of the CFTC,
NFA, or any domestic exchange regulates activities of any foreign boards of
trade or exchanges, including the execution, delivery and clearing of
transactions, nor has the power to compel enforcement of the rules of a foreign
board of trade or exchange or of any applicable non-U.S. laws. Similarly, the
rights of market participants, such as US12OF, in the event of the insolvency or
bankruptcy of a non-U.S. market or broker are also likely to be more limited
than in the case of U.S. markets or brokers. As a result, in these markets,
US12OF has less legal and regulatory protection than it does when it trades
domestically.





In some
of these non-U.S. markets, the performance on a contract is the responsibility
of the counterparty and is not backed by an exchange or clearing corporation and
therefore exposes US12OF to credit risk. Trading in non-U.S. markets also leaves
US12OF susceptible to swings in the value of the local currency against the U.S.
dollar. Additionally, trading on non-U.S. exchanges is subject to the risks
presented by exchange controls, expropriation, increased tax burdens and
exposure to local economic declines and political instability. An adverse
development with respect to any of these variables could reduce the profit or
increase the loss earned on trades in the affected international
markets.





International
trading activities subject US12OF to foreign exchange risk.





The price
of any non-U.S. Futures Contract, option on any non-U.S. Futures Contract, or
other non-U.S. Crude Oil Interest and, therefore, the potential profit and
loss on such contract, may be affected by any variance in the foreign exchange
rate between the time the order is placed and the time it is liquidated, offset
or exercised. As a result, changes in the value of the local currency relative
to the U.S. dollar may cause losses to US12OF even if the contract traded is
profitable.





US12OF’s
international trading could expose it to losses resulting from non-U.S.
exchanges that are less developed or less reliable than United States
exchanges.





Some
non-U.S. exchanges may be in a more developmental stage so that prior price
histories may not be indicative of current price dynamics. In addition, US12OF
may not have the same access to certain positions on foreign trading exchanges
as do local traders, and the historical market data on which the General Partner
bases its strategies may not be as reliable or accessible as it is for U.S.
exchanges.





57





Tax
Risk





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





Cash or
property will be distributed at the sole discretion of the General Partner. The
General Partner has not and does not currently intend to make cash or other
distributions with respect to units. Investors will be required to pay U.S.
federal income tax and, in some cases, state, local, or foreign income tax, on
their allocable share of US12OF’s taxable income, without regard to whether they
receive distributions or the amount of any distributions. Therefore, the tax
liability of an investor with respect to its units may exceed the amount of cash
or value of property (if any) distributed.





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





Due to
the application of the assumptions and conventions applied by US12OF in making
allocations for tax purposes and other factors, an investor’s allocable share of
US12OF’s income, gain, deduction or loss may be different than its economic
profit or loss from its units for a taxable year. This difference could be
temporary or permanent and, if permanent, could result in it being taxed on
amounts in excess of its economic income.





Items
of income, gain, deduction, loss and credit with respect to units could be
reallocated if the IRS does not accept the assumptions and conventions applied
by US12OF in allocating those items, with potential adverse consequences for an
investor.





The U.S.
tax rules pertaining to partnerships are complex and their application to large,
publicly traded partnerships such as US12OF is in many respects uncertain.
US12OF applies certain assumptions and conventions in an attempt to comply with
the intent of the applicable rules and to report taxable income, gains,
deductions, losses and credits in a manner that properly reflects unitholders’
economic gains and losses. These assumptions and conventions may not fully
comply with all aspects of the Internal Revenue Code (the “Code”) and applicable
Treasury Regulations, however, and it is possible that the U.S. Internal Revenue
Service will successfully challenge US12OF’s allocation methods and require
US12OF to reallocate items of income, gain, deduction, loss or credit in a
manner that adversely affects investors. If this occurs, investors may be
required to file an amended tax return and to pay additional taxes plus
deficiency interest.





US12OF
could be treated as a corporation for federal income tax purposes, which may
substantially reduce the value of the units.





US12OF
has received an opinion of counsel that, under current U.S. federal income tax
laws, US12OF will be treated as a partnership that is not taxable as a
corporation for U.S. federal income tax purposes, provided that (i) at least 90
percent of US12OF’s annual gross income consists of “qualifying income” as
defined in the Code, (ii) US12OF is organized and operated in accordance with
its governing agreements and applicable law and (iii) US12OF does not elect to
be taxed as a corporation for federal income tax purposes. Although the General
Partner anticipates that US12OF has satisfied and will continue to satisfy the
“qualifying income” requirement for all of its taxable years, that result cannot
be assured. US12OF has not requested and will not request any ruling from the
IRS with respect to its classification as a partnership not taxable as a
corporation for federal income tax purposes. If the IRS were to successfully
assert that US12OF is taxable as a corporation for federal income tax purposes
in any taxable year, rather than passing through its income, gains, losses and
deductions proportionately to unitholders, US12OF would be subject to tax on its
net income for the year at corporate tax rates. In addition, although the
General Partner does not currently intend to make distributions with respect to
units, any distributions would be taxable to unitholders as dividend income.
Taxation of US12OF as a corporation could materially reduce the after-tax return
on an investment in units and could substantially reduce the value of the
units.





Item 1B.  Unresolved Staff Comments.





Not
applicable.




58




Item 2.  Properties.





Not
applicable.





Item 3.  Legal Proceedings.




Although
US12OF may, from time to time, be involved in litigation arising out of its
operations in the normal course of business or otherwise, US12OF is currently
not a party to any pending material legal proceedings.




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





Not
applicable.




Part II





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




Price
Range of Units





US12OF’s
units have traded on the NYSE Arca under the symbol “USL” since November
25, 2008.  Prior to trading on the NYSE Arca, US12OF’s units
previously traded on the AMEX under the symbol “USL” since its initial public
offering on December 6, 2007. The following table sets forth the range of
reported high and low sales prices of the units as reported on AMEX and NYSE
Arca, as applicable, for the periods indicated below.





High
                    
                    
                    LowFiscal year 2008First
      quarter
                    
                    $
                    63.03
                    
                    
                    $
                    50.19Second
      quarter
                    
                    $
                    85.76
                    
                    
                    $
                    57.30Third
      quarter
                    
                    $
                    89.24
                    
                    
                    $
                    55.08Fourth
      quarter
                    
                    $
                    60.16
                    
                    
                    $
                    27.09




High
                      
                      
                      LowFiscal year 2007First
      quarter
                      
                      $
                      −
                      
                      
                      $
                      −Second
      quarter
                      
                      $
                      −
                      
                      
                      $
                      −Third
      quarter
                      
                      $
                      −
                      
                      
                      $
                      −Fourth
      quarter
                      
                      $
                      54.84
                      
                      
                      $
                      49.78





As
of December 31, 2008, US12OF had 540 holders of units.





Dividends





US12OF
has not made and does not currently intend to make cash distributions to its
unitholders.





Issuer
Purchases of Equity Securities




US12OF
does not purchase units directly from its unitholders; however, in connection
with its redemption of baskets held by Authorized Purchasers, US12OF redeemed 3
baskets (comprising 300,000 units) during the year ended December 31,
2008.




59




Item 6.  Selected Financial Data.





Financial
Highlights (for the year ended December 31, 2008 and the period from December 6,
2007 (commencement of operations) to December 31, 2007)


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




Year ended
                        December 31, 2008
                      
                      
                      For the period from
      December 6, 2007
                        to
      December 31, 2007Total
      assets
                      
                      $
                      6,350
                      
                      
                      $
                      21,704Net
      realized and unrealized gain (loss) on futures transactions, inclusive of
      commissions
                      
                      $
                      (2,393
                      )
                      
                      $
                      1,524Net
      income (loss)
                      
                      $
                      (2,305
                      )
                      
                      $
                      1,564Weighted-average
      limited partnership units
                      
                      
                      142,077
                      
                      
                      
                      392,593Net
      income (loss) per unit
                      
                      $
                      (22.99
                      )
                      
                      $
                      4.23Net
      income (loss) per weighted average unit
                      
                      $
                      (16.23
                      )
                      
                      $
                      3.98Cash
      and cash equivalents at end of year/period
                      
                      $
                      4,012
                      
                      
                      $
                      18,174





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




The
following discussion should be read in conjunction with the financial statements
and the notes thereto of US12OF included elsewhere in this annual report on
Form 10-K.




Forward-Looking
Information




This
annual report on Form 10-K, including this “Management’s Discussion and Analysis
of Financial Condition and Results of Operations,” contains forward-looking
statements regarding the plans and objectives of management for future
operations. This information may involve known and unknown risks, uncertainties
and other factors that may cause US12OF’s actual results, performance or
achievements to be materially different from future results, performance or
achievements expressed or implied by any forward-looking statements.
Forward-looking statements, which involve assumptions and describe US12OF’s
future plans, strategies and expectations, are generally identifiable by use of
the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,”
“believe,” “intend” or “project,” the negative of these words, other
variations on these words or comparable terminology. These forward-looking
statements are based on assumptions that may be incorrect, and US12OF cannot
assure investors that these projections included in these forward-looking
statements will come to pass. US12OF’s actual results could differ
materially from those expressed or implied by the forward-looking statements as
a result of various factors.




US12OF
has based the forward-looking statements included in this annual report on Form
10-K on information available to it on the date of this annual report on
Form 10-K, and US12OF assumes no obligation to update any such
forward-looking statements. Although US12OF undertakes no obligation to revise
or update any forward-looking statements, whether as a result of new
information, future events or otherwise, investors are advised to consult any
additional disclosures that US12OF may make directly to them or through
reports that US12OF in the future files with the SEC, including annual
reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form
8-K.





Introduction





US12OF, a
Delaware limited partnership, is a commodity pool that issues units that may be
purchased and sold on the NYSE Arca. The investment objective of US12OF is to
have the changes in percentage terms of the units’ NAV  reflect the
changes in percentage terms of the spot price of light, sweet crude oil
delivered to Cushing, Oklahoma, as measured by the changes in the average of the
prices of 12 Futures Contracts on crude oil traded on the NYMEX consisting of
the near month contract to expire and the contracts for the following 11 months
for a total of 12 consecutive months’ contracts, except when the near month
contract is within two weeks of expiration, in which case it will be measured by
the futures contracts that is the next month contract to expire and the
contracts for the following 11 consecutive months, less US12OF’s
expenses.





US12OF
seeks to achieve its investment objective by investing in a combination of
Futures Contracts and Other Crude Oil-Related Investments such that changes in
its NAV, measured in percentage terms, will closely track the changes in
the average of the prices of the Benchmark Futures Contracts, also measured
in percentage terms. US12OF’s General Partner believes the Benchmark Futures
Contracts historically have exhibited a close correlation with the spot
price of light, sweet crude oil. It is not the intent of US12OF to be operated
in a fashion such that the NAV will equal, in dollar terms, the spot price of
light, sweet crude oil or any particular futures contract based on light, sweet
crude oil. Management believes that it is not practical to manage the portfolio
to achieve such an investment goal when investing in listed crude oil Futures
Contracts.




60




On any
valuation day, the Benchmark Futures Contracts are the near month futures
contract for light, sweet crude oil traded on the NYMEX and the contracts
for the following 11 months for a total of 12 consecutive months’ contracts
unless the near month contract will expire within two weeks of the valuation
day, in which case the Benchmark Futures Contracts are the next month contract
for light, sweet crude oil traded on the NYMEX and the contracts for the
following 11 consecutive months. “Near month contract” means the next contract
traded on the NYMEX due to expire. “Next month contract” means the first
contract traded on the NYMEX due to expire after the near month
contract.





US12OF
may also invest in Futures Contracts and Other Crude Oil-Related
Investments. The General Partner of US12OF, which is registered as a CPO with
the CFTC, is authorized by the LP Agreement to manage US12OF. The General
Partner is authorized by US12OF in its sole judgment to employ and establish the
terms of employment for, and termination of, commodity trading advisors or
futures commission merchants.





Crude oil
futures prices were very volatile during all of 2008 and exhibited wide swings.
The average price of the Benchmark Futures Contracts started the year near the
$96 per barrel level. They rose sharply over the course of the year and hit a
peak in early July 2008 of approximately $146 per barrel. After that, the prices
steadily declined, with the decline becoming more pronounced with the onset of
the global financial crisis in mid-to-late September 2008. The low of the year
was in late December 2008 when average prices reached the $43 per barrel level.
The year ended with the average price of the Benchmark Futures Contracts near
$54 per barrel, down approximately 44% over the year. Similarly, US12OF’s NAV
also rose during the year from a starting level of $54.16 per unit to a high in
early July 2008 of $87.12 per unit. US12OF’s NAV reached its low for the year in
late December 2008 at approximately $25.34 per unit. The NAV on December 31,
2008 was $31.24, down 42.39% over the year.





For the
first half of 2008, the crude oil futures market remained in a state of
backwardation, meaning that the price of the front month crude oil futures
contract was typically higher than the price of the second month crude oil
futures contract, or contracts further away from expiration. For much of the
third quarter, the crude oil futures market moved back and forth between a mild
backwardation market and a mild contango market. A contango market is one in
which the price of the front month crude oil futures contract is less than the
price of the second month crude oil futures contract, or contracts further away
from expiration. From late November 2008 to the end of the year, the market
moved into a much steeper contango market. For a discussion of the impact of
backwardation and contango on total returns see “Term Structure of Crude Oil
Prices and the Impact on Total Returns”.





Valuation
of Futures Contracts and the Computation of the NAV





The NAV
of US12OF units is calculated once each trading day as of the earlier of the
close of the NYSE or  4:00 p.m. New York time. The NAV for a
particular trading day is released after 4:15 p.m. New York
time. Trading on the NYSE typically closes at 4:00 p.m. New York time.
US12OF uses the NYMEX closing price (determined at the earlier of the close of
the NYMEX or 2:30 p.m. New York time) for the contracts held on the NYMEX,
but calculates or determines the value of all other US12OF investments,
including ICE Futures or other futures contracts, as of the earlier of
the close of the NYSE or 4:00 p.m. New York time.




Results
of Operations and the Crude Oil Market





Results of
Operations. On December 6, 2007, US12OF listed its units on
the AMEX under the ticker symbol “USL.” On that day US12OF established its
initial offering price at $50.00 per unit and issued 300,000 units to the
initial Authorized Purchaser, Merrill Lynch Professional Clearing Corp., in
exchange for $15,000,000 in cash. As a result of the acquisition of the AMEX by
NYSE Euronext, US12OF’s units no longer trade on the AMEX and commenced trading
on the NYSE Arca on November 25, 2008. As of December 31, 2008, US12OF had
issued 500,000 units, 200,000 of which were outstanding.




61




More
units have been issued by US12OF than are outstanding due to the redemption of
units. Unlike mutual funds that are registered under the 1940 Act, units that
have been redeemed by US12OF cannot be resold by US12OF. As a result, US12OF
contemplates that further offerings of its units will be registered with
the SEC in the future in anticipation of additional issuances.





Since
US12OF was conducting operations for only a portion of the year ended December
31, 2007, the comparison of the results of operations for the years ended
December 31, 2007 and 2008 may not be meaningful.





For the Year Ended December
31, 2008 Compared to the Period from December 6, 2007 (commencement of
operations) to December 31, 2007





As of
December 31, 2008, the total unrealized loss on Futures Contracts owned or
held on that day was $(2,754,630) and US12OF established cash deposits,
including cash investments in money market funds, that were equal to $9,005,535.
Less than half of cash assets were held in overnight deposits at US12OF’s
Custodian, while 55.45% of the cash balance was held as margin deposits for the
Futures Contracts purchased. The ending per unit NAV on December 31, 2008 was
$31.24.





By
comparison, as of December 31, 2007, the total unrealized gain on Futures
Contracts owned or held on that day was $1,525,370 and US12OF established
cash deposits, including cash investments in money market funds, that were equal
to $20,173,384. The majority of cash assets were held in overnight deposits at
US12OF’s Custodian, while 9.91% of the cash balance was held as margin deposits
for the Futures Contracts purchased. The ending per unit NAV on December 31,
2007 was $54.23. The change in the per unit NAV for December 31, 2007 compared
to December 31, 2008 was primarily a result of sharply lower prices for crude
oil and the decline in the value of the crude oil Futures Contracts that US12OF
had invested in during the year.





Portfolio Expenses. US12OF’s
expenses consist of investment management fees, brokerage fees and
commissions, certain offering costs, licensing fees and the fees and expenses of
the independent directors of the General Partner. US12OF pays the General
Partner a management fee of 0.60% of NAV on its total net assets. The
fee is accrued daily.





During
the year ended December 31, 2008, the daily average total net assets
of U12SOF were $8,197,841. The management fee paid by US12OF
amounted to $49,187, which was calculated at the 0.60% rate and accrued daily.
Management expenses as a percentage of total net assets averaged 0.60% over the
course of the period.





By
comparison, during the period from December 6, 2007, to December 31, 2007, the
daily average total net assets of US12OF were approximately $20,566,413.
The management fee paid by US12OF amounted to $8,790, which was calculated at
the 0.60% rate and accrued daily.





US12OF pays
for all brokerage fees, taxes and other expenses, including certain tax
reporting costs, licensing fees for the use of intellectual property, ongoing
registration or other fees paid to the SEC, FINRA and any other
regulatory agency in connection with offers and sales of its units
subsequent to the initial offering and all legal, accounting, printing and other
expenses associated therewith.  For the year ended December 31, 2008,
US12OF incurred $0 in fees and other expenses relating to the registration
and offering of additional units. By comparison, for the period from December 6,
2007 through December 31, 2007, US12OF incurred $0 in fees and other
expenses relating to the registration and offering of additional units. Expenses
incurred in connection with organizing US12OF and the costs of the initial
offering of units were borne by the General Partner, and are not
subject to reimbursement by US12OF.





US12OF is
responsible for paying its portion of the fees and expenses, including
directors’ and officers’ liability insurance, of the independent directors
of the General Partner who are also audit committee members. In 2008,
US12OF shared these fees with the Related Public Funds based on the
relative assets of each fund computed on a daily basis. These fees for the year
ended December 31, 2008 amounted to a total of $282,000 for all five funds, and
US12OF’s portion of such fees was $1,762. By comparison, for the period from
December 6, 2007 to December 31, 2007, these fees were $286,000, and US12OF’s
portion of such fees was $350.




62




US12OF
also incurs commissions to brokers for the purchase and sale of Futures
Contracts, Other Crude Oil-Related Investments or Treasuries. During the
year ended December 31, 2008, total commissions paid to brokers amounted to
$2,325. By comparison, during the period from December 6, 2007 to December 31,
2007, total commissions paid to brokers amounted to $892. As an annualized
percentage of total net assets, the figure for 2008 represents
approximately 0.03% of total net assets. By comparison, the figure for 2007
represented approximately 0.06% of total net assets. The increase in fees is
attributable to US12OF having to roll a portion of its portfolio each month
during 2008 as compared to 2007, when no rolls occurred. 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 US12OF’s audit expenses and tax accounting and
reporting requirements, with the exception of certain initial implementation
service fees and base service fees which were borne by the General Partner, are
paid by US12OF. The General Partner, though under no obligation to do so,
agreed to pay certain expenses, including those relating to audit expenses and
tax accounting and reporting requirements normally borne by US12OF to the extent
that such expenses exceeded 0.15% (15 basis points) of US12OF’s NAV, on an
annualized basis, through December 31, 2008.The General Partner has no
obligation to continue such payment into subsequent years.  The total
amount of these costs to be paid by the General Partner and US12OF is
estimated to be $55,000 for the year ended December 31, 2008.





Interest Income. US12OF seeks
to invest its assets such that it holds Futures Contracts and Other Crude
Oil-Related Investments in an amount equal to the total net assets of the
portfolio. Typically, such investments do not require US12OF to pay the full
amount of the contract value at the time of purchase, but rather require US12OF
to post an amount as a margin deposit against the eventual settlement of the
contract. As a result, US12OF retains an amount that is approximately equal to
its total net assets, which US12OF invests in Treasuries, cash and/or cash
equivalents. This includes both the amount on deposit with the futures
commission merchant as margin, as well as unrestricted cash and cash equivalents
held with US12OF’s Custodian. The Treasuries, cash and/or cash equivalents earn
interest that accrues on a daily basis. For 2008, US12OF earned $151,396 in
interest income on such cash holdings. Based on US12OF’s average daily total net
assets, this is equivalent to an annualized yield of 1.85%. US12OF did not
purchase Treasuries during 2008 and held all of its funds in cash and/or
cash equivalents during this time period. By comparison, for 2007, US12OF earned
$49,954 in interest income on such cash holdings. Based on US12OF’s average
daily net assets, this is equivalent to an annualized yield of 3.41%. US12OF did
not purchase Treasuries during 2007 and held all of its funds in cash
and/or cash equivalents during this time period. Interest rates on short-term
investments in the United States, including cash, cash equivalents, and
short-term Treasuries were sharply lower in 2008 compared to the same time
period in 2007. As a result the amount of interest earned by USOF as a
percentage of total net assets was lower in 2008.





For the Three Months Ended
December 31, 2008 Compared to the Period from December 6, 2007 (commencement of
operations) to December 31, 2007





Since
US12OF was conducting operations for only a portion of the quarter ended
December 31, 2007, the comparison of the results of operations for the quarters
ended December 31, 2007 and 2008 may not be meaningful.





Portfolio Expenses. During
the three months ended December 31, 2008, the daily average total net assets
of U12SOF were $4,256,374. The management fee paid by US12OF
amounted to $6,419, which was calculated at the 0.60% rate and accrued
daily.





By
comparison, during the period from December 6, 2007, to December 31, 2007, the
daily average total net assets of U12SOF were $20,566,413. The
management fee paid by US12OF amounted to $8,790, which was calculated at the
0.60% rate and accrued daily.





US12OF pays
for all brokerage fees, taxes and other expenses, including certain tax
reporting costs, licensing fees for the use of intellectual property, ongoing
registration or other fees paid to the SEC, FINRA and any other
regulatory agency in connection with offers and sales of its units
subsequent to the initial offering and all legal, accounting, printing and other
expenses associated therewith. For the three months ended December 31,
2008, US12OF incurred no ongoing registration fees and other offering
expenses since it continued to offer securities from its initial registration
statement. Expenses incurred in connection with organizing US12OF and the costs
of the initial offering of units were borne by the General Partner,
and are not subject to reimbursement by US12OF.




63





US12OF is
responsible for paying its portion of the fees and expenses, including
directors’ and officers’ liability insurance, of the independent directors
of the General Partner who are also audit committee members. For the three
months ended December 31, 2008, US12OF shared these fees with the
Related Public Funds based on the relative assets of each fund computed on a
daily basis. These fees for the three months ended December 31, 2008 amounted to
a total of $68,750 for all five funds, and US12OF’s portion of such fees was
$154. By comparison, for the period from December 6, 2007 to December 31, 2007,
these fees were $68,750, and US12OF’s portion of such fees was
$350.





US12OF also incurs commissions to
brokers for the purchase and sale of Futures Contracts, Other Crude Oil-Related
Investments or Treasuries. During the three months endedDecember 31, 2008, total commissions paid to brokers
amounted to $757. By comparison, during the period fromDecember 6, 2007toDecember 31, 2007, total commissions paid to brokers
amounted to $892. As an annualized percentage of total net assets, the figure
for 2008 represents approximately 0.07% of total net assets. By comparison, the
figure for 2007 represented approximately 0.06% of total net assets. Commissions
as an annualized percentage of total net assets increased during 2008, despite
decreased trading activity, due to a decrease in total net assets upon which the
percentage is calculated. However, there can be no assurance that commission
costs and portfolio turnover will not cause commission expenses to rise in the
future.





The fees
and expenses associated with US12OF’s audit expenses and tax accounting and
reporting requirements, with the exception of certain initial implementation
service fees and base service fees which were borne by the General Partner, are
paid by US12OF. The General Partner, though under no obligation to do so,
agreed to pay certain expenses, including those relating to audit expenses and
tax accounting and reporting requirements normally borne by US12OF to the extent
that such expenses exceeded 0.15% (15 basis points) of US12OF’s NAV, on an
annualized basis, through December 31, 2008.The General Partner has no
obligation to continue such payment into subsequent years.  No amounts were required to be paid for
audit expenses and tax accounting and reporting requirements during the quarter
endedDecember 31,
2008.





Interest Income. US12OF seeks
to invest its assets such that it holds Futures Contracts and Other Crude
Oil-Related Investments in an amount equal to the total net assets of the
portfolio. Typically, such investments do not require US12OF to pay the full
amount of the contract value at the time of purchase, but rather require US12OF
to post an amount as a margin deposit against the eventual settlement of the
contract. As a result, US12OF retains an amount that is approximately equal to
its total net assets, which US12OF invests in Treasuries, cash and/or cash
equivalents. This includes both the amount on deposit with the futures
commission merchant as margin, as well as unrestricted cash held with US12OF’s
Custodian. The Treasuries, cash and/or cash equivalents earn interest that
accrues on a daily basis. For the three months ended December 31, 2008, US12OF
earned $10,012 in interest income on such cash holdings. Based on US12OF’s
average daily total net assets, this is equivalent to an annualized yield of
0.94%. US12OF did not purchase Treasuries during the three months ended
December 31, 2008 and held all of its funds in cash and/or cash equivalents
during this time period. By comparison, for the period from December 6, 2007 to
December 31, 2007, US12OF earned $49,954 in interest income on such cash
holdings. Based on US12OF’s average daily net assets, this is equivalent to an
annualized yield of 3.41%. US12OF did not purchase Treasuries during the
period from December 6, 2007 to December 31, 2007 and held all of its funds in
cash and/or cash equivalents during this time period. Interest rates on
short-term investments in the United States, including cash, cash equivalents,
and short-term Treasuries were sharply lower during the three months ended
December 31, 2008 compared to the period from December 6, 2007 to December 31,
2007. As a result the amount of interest earned by US12OF as a percentage of
total net assets was lower in 2008.





Tracking US12OF’s Benchmark.
US12OF seeks to manage its portfolio such that changes in its average daily NAV,
on a percentage basis, closely track changes in the average of the daily prices
of the Benchmark Futures Contracts, also on a percentage basis. Specifically,
US12OF seeks to manage the portfolio such that over any rolling period of 30
valuation days, the average daily change in the NAV is within a range of 90% to
110% (0.9 to 1.1), of the average daily change of the Benchmark Futures
Contracts. As an example, if the average daily movement of the average of
the prices of the Benchmark Futures Contracts for a particular 30-day time
period was 0.5% per day, US12OF management would attempt to manage the portfolio
such that the average daily movement of the NAV during that same time period
fell between 0.45% and 0.55% (i.e., between 0.9 and 1.1 of
the benchmark’s results). US12OF’s portfolio management goals do not include
trying to make the nominal price of US12OF’s NAV equal to the average of the
nominal prices of the current Benchmark Futures Contracts or the spot price
for crude oil. Management believes that it is not practical to manage the
portfolio to achieve such an investment goal when investing in listed crude oil
futures contracts.




64




For the
30 valuation days ended December 31, 2008, the simple average daily change in
the Benchmark Futures Contracts was -0.323%, while the simple average daily
change in the NAV of US12OF over the same time period was -0.315%. The average
daily difference was 0.007% (or 0.7 basis points, where 1 basis point equals
1/100 of 1%). As a percentage of the daily movement of the Benchmark Futures
Contracts, the average error in daily tracking by the NAV was 0.024%, meaning
that over this time period US12OF’s tracking error was within the plus or minus
10% range established as its benchmark tracking goal. The first chart below
shows the daily movement of US12OF’s NAV versus the daily movement of the
Benchmark Futures Contracts for the 30-day period ended December 31,
2008.











*PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS




65










*PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS




Since the
offering of US12OF units to the public on December 6, 2007 to December 31,
2008, the simple average daily change in the Benchmark Futures Contracts was
-0.134%, while the simple average daily change in the NAV of US12OF over the
same time period was -0.128%. The average daily difference was 0.006% (or 0.6
basis points, where 1 basis point equals 1/100 of 1%). As a percentage of the
daily movement of the Benchmark Futures Contracts, the average error in daily
tracking by the NAV was 0.479%, meaning that over this time period US12OF’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 US12OF versus the
return of its Benchmark Futures Contracts can be calculated by comparing the
actual return of US12OF, measured by changes in its NAV, versus the expected changes in its NAV
under the assumption that US12OF’s returns had been exactly the same as the
daily changes in the average of the prices of its Benchmark Futures
Contracts.





For the
year ended December 31, 2008, the actual total return of US12OF as measured
by changes in its NAV was -42.39%. This is based on an initial NAV of
$54.23 on December 31, 2007 and an ending NAV as of December 31,
2008 of $31.24. During this time period, US12OF made no distributions to
its unitholders. However, if US12OF’s daily changes in its NAV had instead
exactly tracked the changes in the daily return of the Benchmark Futures
Contracts, US12OF would have ended 2008 with an estimated NAV of $30.71, for a
total return over the relevant time period of -43.36%. The difference between
the actual NAV total return of US12OF of -42.39% and the expected total return
based on the Benchmark Futures Contract of -43.36% was an error over the time
period of 0.97%, which is to say that US12OF’s actual total return exceeded the
benchmark result by that percentage. Management believes that a portion
of the difference between the actual return and the expected benchmark
return can be attributed to the impact of the interest that US12OF collects on
its cash and cash equivalent holdings. During 2008, US12OF received interest
income of $151,396, which is equivalent to a weighted average interest rate of
1.85% for 2008. In addition, during the year ended December 31, 2008, US12OF
also collected $4,000 from brokerage firms creating or redeeming baskets of
units. During 2008, US12OF incurred net expenses of
$167,065.  Income from interest and brokerage collections net of
expenses was $85,350, which is equivalent to a weighted average net interest
rate of 1.04% for 2008. This income also contributed to US12OF’s actual return
exceeding the benchmark results. However, if the total assets of US12OF continue
to increase, management believes that the impact on total returns of these fees
from creations and redemptions will diminish as a percentage of the total
return.




66






By
comparison, for the period from December 6, 2007 to December 31, 2007, the
actual total return of US12OF as measured by changes in its NAV was 8.46%. This
is based on an initial NAV of $50.00 on December 6, 2007 and an ending NAV
as of December 31, 2007 of $54.23. During this time period, US12OF made no
distributions to its unitholders. However, if US12OF’s daily changes in its NAV
had instead exactly tracked the changes in the daily return of the Benchmark
Futures Contracts, US12OF would have ended 2007 with an estimated NAV of $54.14,
for a total return over the relevant time period of 8.28%. The difference
between the actual NAV total return of US12OF of 8.46% and the expected total
return based on the Benchmark Futures Contracts of 8.28% was an error over the
time period of 0.18%, which is to say that US12OF’s actual total return exceeded
the benchmark result by that percentage. Management believes that the majority
of the difference between the actual return and the expected benchmark return
can be attributed to the impact of the interest that US12OF collects on its cash
and cash equivalent holdings. During 2007, US12OF received interest income of
$49,954, which is equivalent to a weighted average interest rate of 3.41% for
2007. In addition, during the period ended December 31, 2007, US12OF also
collected $2,000 from brokerage firms creating or redeeming baskets of units.
This income also contributed to US12OF’s actual return exceeding the benchmark
results.





There are
currently three factors that have impacted or are most likely to impact
US12OF’s ability to accurately track its Benchmark Futures
Contracts.





First,
US12OF may buy or sell its holdings in the then current Benchmark Futures
Contracts at a price other than the closing settlement price of that contract on
the day in which US12OF executes the trade. In that case, US12OF may pay a price
that is higher, or lower, than that of the Benchmark Futures Contracts,
which could cause the changes in the daily NAV of US12OF to either be too
high or too low relative to the changes in the Benchmark Futures Contracts. In
2008, management attempted to minimize the effect of these transactions by
seeking to execute its purchase or sale of the Benchmark Futures Contracts
at, or as close as possible to, the end of the day settlement price. However, it
may not always be possible for US12OF to obtain the closing settlement price and
there is no assurance that failure to obtain the closing settlement price in the
future will not adversely impact US12OF’s attempt to track the Benchmark Futures
Contracts over time.




Second,
US12OF earns interest on its cash, cash equivalents and Treasury
holdings. US12OF is not required to distribute any portion of its income to its
unitholders and did not make any distribution to unitholders in 2008. Interest
payments, and any other income, were retained within the portfolio and added to
US12OF’s NAV. When this income exceeds the level of US12OF’s expenses for its
management fee, brokerage commissions and other expenses (including ongoing
registration fees, licensing fees and the fees and expenses of the
independent directors of the General Partner), US12OF will realize a net yield
that will tend to cause daily changes in the NAV of US12OF to track slightly
higher than daily changes in the average of the prices of
the Benchmark Futures Contracts. During 2008, US12OF earned, on an
annualized basis, approximately 1.85% on its cash holdings. It also incurred
cash expenses on an annualized basis of 0.60% for management fees and
approximately 0.03% in brokerage commission costs related to the purchase and
sale of futures contracts, and 0.23% for other expenses. The foregoing fees and
expenses resulted in a net yield on an annualized basis of approximately 0.99%
and affected US12OF’s ability to track its benchmark. If short-term interest
rates rise above the current levels, the level of deviation created by the yield
would increase. Conversely, if short-term interest rates were to decline, the
amount of error created by the yield would decrease. If short-term yields drop
to a level lower than the combined expenses of the management fee and the
brokerage commissions, then the tracking error would become a negative number
and would tend to cause the daily returns of the NAV to underperform the daily
returns of the Benchmark Futures Contracts.




Third,
US12OF may hold Other Crude Oil-Related Investments in its portfolio that
may fail to closely track the Benchmark Futures Contracts’ total return
movements. In that case, the error in tracking the Benchmark Futures Contracts
could result in daily changes in the NAV of US12OF that are either too high, or
too low, relative to the daily changes in the Benchmark Futures Contracts.
During 2008, US12OF did not hold any Other Crude Oil-Related Investments.
However, there can be no assurance that in the future US12OF will not make use
of such Other Crude Oil-Related Investments.




67




Term Structure of Crude Oil Futures
Prices and the Impact on Total Returns.Several factors determine the
total return from investing in a futures contract position. One factor that
impacts the total return that will result from investing in near month
crude oil futures contracts and “rolling” those contracts forward each month is
the price relationship between the current near month contract and the later
month contracts. For example, if the price of the near month contract is higher
than the next month contract (a situation referred to as “backwardation” in the
futures market), then absent any other change there is a tendency for the price
of a next month contract to rise in value as it becomes the near month contract
and approaches expiration. Conversely, if the price of a near month contract is
lower than the next month contract (a situation referred to as “contango” in the
futures market), then absent any other change there is a tendency for the price
of a next month contract to decline in value as it becomes the near month
contract and approaches expiration.




As an
example, assume that the price of crude oil for immediate delivery (the “spot”
price), was $50 per barrel, and the value of a position in the near month
futures contract was also $50. Over time, the price of the barrel of crude oil
will fluctuate based on a number of market factors, including demand for
oil relative to its supply. The value of the near month contract will likewise
fluctuate in reaction to a number of market factors. If investors seek to
maintain their holding in a near month contract position and not take delivery
of the oil, every month they must sell their current near month contract as it
approaches expiration and invest in the next month contract.





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





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




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




68









*PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS





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




69









*PAST PERFORMANCE
IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS





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




70









*PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS





As seen
in the chart above, there have been periods of both positive and negative annual
total returns for both hypothetical portfolios over the last 10 years. In
addition, there have been periods during which the near month only approach had
higher returns, and periods where the 12 month approach had higher total
returns. The above chart does not represent the performance history of US12OF or
any affiliated funds.





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





The
General Partner believes that holding futures contracts whose expiration dates
are spread out over a 12 month period of time will cause the total return of
such a portfolio to vary compared to a portfolio that holds only a single
month’s contract (such as the near month contract).  In particular,
the General Partner believes that the total return of a portfolio holding
contracts with a range of expiration months will be impacted differently by the
price relationship between different contract months of the same commodity
future compared to the total return of a portfolio consisting of the near month
contract. The General Partner believes that based on historical evidence a
portfolio that held futures contracts with a range of expiration dates spread
out over a 12 month period of time would typically be impacted less by the
positive effect of backwardation, and less by the negative effect of contango,
compared to a portfolio that held contracts of a single near month. As a result,
absent the impact of any other factors, a portfolio of 12 different monthly
contracts would tend to have a lower total return than a near month only
portfolio in a backwardation market and a higher total return in a contango
market. However there can be no assurance that such historical
relationships would provide the same or similar results in the
future.




71




Periods
of contango or backwardation do not materially impact US12OF’s investment
objective of having percentage changes in its per unit NAV track percentage
changes in the average of the prices of the Benchmark Futures Contracts
since the impact of backwardation and contango tended to equally impact the
percentage changes in price of both US12OF’s units and the
Benchmark Futures Contracts. It is impossible to predict with any degree of
certainty whether backwardation or contango will occur in the future. It is
likely that both conditions will occur during different periods.




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





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





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





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




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


source:
Bloomberg, NYMEX


PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS




72




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




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


source:
Bloomberg, NYMEX


PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS





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




73




The correlations between
crude oil, natural gas, heating oil and gasoline are relevant because the
General Partner endeavors to invest US12OF’s assets in crude oil Futures
Contracts and Crude Oil Interests so that daily changes in US12OF’s NAV
correlate as closely as possible with daily changes in the price of the
Benchmark Oil Futures Contracts. If certain other fuel-based commodity futures
contracts do not closely correlate with the crude oil Futures
Contracts then their use could lead to greater tracking error. As noted, the
General Partner also believes that the changes in the price of the Benchmark Oil
Futures Contracts will closely correlate with changes in the spot price of
light, sweet crude oil.





Critical
Accounting Policies





Preparation
of the financial statements and related disclosures in compliance with
accounting principles generally accepted in the United States of America
requires the application of appropriate accounting rules and guidance, as well
as the use of estimates. US12OF’s application of these policies involves
judgments and actual results may differ from the estimates used.




The
General Partner has evaluated the nature and types of estimates that
it makes in preparing US12OF’s financial statements and related
disclosures and has determined that the valuation of its investments which
are not traded on a United States or internationally recognized futures exchange
(such as forward contracts and over-the-counter contracts) involves a critical
accounting policy.  The values which are used by US12OF for its forward
contracts are provided by its commodity broker who uses market prices when
available, while over-the-counter contracts are valued based on the present
value of estimated future cash flows that would be received from or paid to a
third party in settlement of these derivative contracts prior to their delivery
date and valued on a daily basis. In addition, US12OF estimates interest income
on a daily basis using prevailing interest rates earned on its cash and cash
equivalents. These estimates are adjusted to the actual amount received on
a monthly basis and the difference, if any, is not considered
material.




Liquidity
and Capital Resources





US12OF
has not made, and does not anticipate making, use of borrowings or other lines
of credit to meet its obligations. US12OF has met, and it is anticipated that
US12OF will continue to meet, its liquidity needs in the normal course of
business from the proceeds of the sale of its investments or from the
Treasuries, cash and/or cash equivalents that it intends to hold at all times.
US12OF’s liquidity needs include: redeeming units, providing margin deposits for
its existing oil Futures Contracts or the purchase of additional crude oil
Futures Contracts and posting collateral for its over-the-counter contracts and
payment of its expenses, summarized below under “Contractual
Obligations.”





US12OF
currently generates cash primarily from (i) the sale of Creation Baskets and
(ii) interest earned on Treasuries, cash and/or cash equivalents. US12OF has
allocated substantially all of its net assets to trading in Crude Oil Interests.
US12OF invests in Crude Oil Interests to the fullest extent possible without
being leveraged or unable to satisfy its current or potential margin or
collateral obligations with respect to its investments in Futures Contracts and
Other Crude Oil-Related Investments. A significant portion of the NAV is held in
cash and cash equivalents that are used as margin and as collateral for
US12OF’s trading in Crude Oil Interests. The balance of the net assets is held
in US12OF’s account at its custodian bank. Interest earned on US12OF’s
interest-bearing funds is paid to US12OF. In prior periods, the amount of cash
earned by US12OF from the sale of Creation Baskets and from interest has
exceeded the amount of cash required to pay US12OF expenses. However there can
be no assurance that the amount of cash earned will do so in a period of very
low short-term interest rates. In that event, US12OF may not be able to rely on
its income to cover cash expenses which could cause a drop in US12OF’s NAV over
time.




74




US12OF’s
investment in Crude Oil Interests may be subject to periods of illiquidity
because of market conditions, regulatory considerations and other reasons. For
example, most commodity exchanges limit the fluctuations in Futures
Contracts prices during a single day by regulations referred to as “daily
limits.” During a single day, no trades may be executed at prices beyond the
daily limit. Once the price of an Futures Contract has increased or
decreased by an amount equal to the daily limit, positions in the contracts can
neither be taken nor liquidated unless the traders are willing to effect trades
at or within the specified daily limit. Such market conditions could prevent
US12OF from promptly liquidating its positions in Futures Contracts. During
the year ended December 31, 2008, US12OF was not forced to purchase or
liquidate any of its positions while daily limits were in effect; however,
US12OF cannot predict whether such an event may occur in the
future.




Prior to
the initial offering of US12OF, all payments with respect to US12OF’s expenses
were paid by the General Partner. US12OF does not have an obligation or
intention to refund such payments by the General Partner. The General Partner is
under no obligation to pay US12OF’s current or future
expenses.





Market
Risk





Trading
in Futures Contracts and Other Crude Oil-Related Investments, such as
forwards, involves US12OF entering into contractual commitments to purchase
or sell oil at a specified date in the future. The aggregate market value of
the contracts will significantly exceed US12OF’s future cash requirements
since US12OF intends to close out its open positions prior to settlement. As a
result, US12OF is generally only subject to the risk of loss arising
from the change in value of the contracts. US12OF considers the “fair value” of
its derivative instruments to be the unrealized gain or loss on the contracts.
The market risk associated with US12OF’s commitments to purchase oil is limited
to the aggregate market value of the contracts held. However, should US12OF
enter into a contractual commitment to sell oil, it would be required to make
delivery of the oil at the contract price, repurchase the contract at prevailing
prices or settle in cash. Since there are no limits on the future price of oil,
the market risk to US12OF could be unlimited.




US12OF’s
exposure to market risk depends on a number of factors, including the
markets for oil, the volatility of interest rates and foreign exchange rates,
the liquidity of the Futures Contracts and Other Crude Oil-Related
Investments markets and the relationships among the contracts held by US12OF.
The limited experience that US12OF has had in utilizing its model to trade
in Crude Oil Interests in a manner intended to track the changes in the spot
price of crude oil, as well as drastic market occurrences, could ultimately lead
to the loss of all or substantially all of an investor’s capital.




Credit
Risk





When
US12OF enters into Futures Contracts and Other Crude 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 foreign futures exchanges is the
clearinghouse associated with the particular exchange. In general,
clearinghouses are backed by their members who may be required to share in the
financial burden resulting from the nonperformance of one of their members and,
therefore, this additional member support should significantly reduce credit
risk. Some foreign exchanges are not backed by their clearinghouse members but
may be backed by a consortium of banks or other financial institutions. There
can be no assurance that any counterparty, clearinghouse, or their members or
their financial backers will satisfy their obligations to US12OF in such
circumstances.




75




The
General Partner attempts to manage the credit risk of US12OF by following
various trading limitations and policies. In particular, US12OF generally posts
margin and/or holds liquid assets that are approximately equal to the market
value of its obligations to counterparties under the Futures Contracts and Other
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 US12OF to limit its credit
exposure.





UBS
Securities LLC, US12OF’s commodity broker, or any other broker that may be
retained by US12OF in the future, when acting as US12OF’s futures commission
merchant in accepting orders to purchase or sell Futures Contracts on United
States exchanges, is required by CFTC regulations to separately account for
and segregate as belonging to US12OF, all assets of US12OF relating to domestic
Futures Contracts trading. These futures commission merchants are not allowed to
commingle US12OF’s assets with its other assets. In addition, the CFTC requires
commodity brokers to hold in a secure account the US12OF assets related to
foreign Futures Contracts trading.




If, in
the future, US12OF purchases over-the-counter contracts, see “Item 7A:
Quantitative and Qualitative Disclosure About Market Risk” for a discussion of
over-the-counter contracts.





As of December 31, 2008, US12OF had
deposits in domestic and foreign financial institutions, including cash
investments in money market funds, in the amount of $9,005,535. This amount is
subject to loss should these institutions cease operations.





Off
Balance Sheet Financing





As of
December 31, 2008, US12OF has no loan guarantee, credit support or other
off-balance sheet arrangements of any kind other than agreements entered into in
the normal course of business, which may include indemnification provisions
relating to certain risks that service providers undertake in performing
services which are in the best interests of US12OF. While US12OF’s exposure
under these indemnification provisions cannot be estimated, they are not
expected to have a material impact on US12OF’s financial position.





Redemption
Basket Obligation





In order
to meet its investment objective and pay its contractual obligations described
below, US12OF requires liquidity to redeem units, which redemptions must be
in blocks of 100,000 units called Redemption Baskets. US12OF has to
date satisfied this obligation by paying from the cash or cash equivalents
it holds or through the sale of its Treasuries in an amount proportionate
to the number of units being redeemed.




Contractual
Obligations





US12OF’s
primary contractual obligations are with the General Partner. In return for its
services, the General Partner is entitled to a management fee calculated as a
fixed percentage of US12OF’s NAV, currently equal to 0.60% of NAV on its average
net assets.




The
General Partner agreed to pay the start-up costs associated with the
formation of US12OF, primarily its legal, accounting and other costs in
connection with the General Partner’s registration with the CFTC as
a commodity pool operator and the registration and listing of US12OF
and its units with the SEC, FINRA and the AMEX, respectively. However,
following US12OF’s initial offering of units, offering costs incurred in
connection with registering and listing additional units of US12OF are directly
borne on an ongoing basis by US12OF, and not by the General
Partner.





The
General Partner pays the fees of the Marketing Agent and the fees of the
custodian and transfer agent, BBH&Co., as well as BBH&Co.’s fees for
performing administrative services, including in connection with the preparation
of US12OF’s financial statements and its SEC and CFTC reports. The General
Partner and US12OF have also entered into a licensing agreement with
the NYMEX pursuant to which US12OF and the affiliated funds managed by the
General Partner pay a licensing fee to the NYMEX. The General Partner also pays
certain initial implementation service fees and base service fees charged by the
accounting firm for its tax accounting and reporting requirements; however,
US12OF pay the fees and expenses associated with its tax accounting and
reporting requirements.




76




In addition to the General Partner’s
management fee, US12OF pays its brokerage fees (including fees to a futures
commission merchant), over-the-counter dealer spreads, any licensing fees
for the use of intellectual property, and, subsequent to the initial offering,
registration and other fees paid to the SEC, FINRA, or other regulatory agencies
in connection with the offer and sale of units, as well as legal, printing,
accounting and other expenses associated therewith, and extraordinary expenses.
The latter are expenses not incurred in the ordinary course of US12OF’s
business, including expenses relating to the indemnification of any person
against liabilities and obligations to the extent permitted by law and under the
LP Agreement, the bringing or defending of actions in law or in equity or
otherwise conducting litigation and incurring legal expenses and the settlement
of claims and litigation. Commission payments to a futures commission
merchant are on a contract-by-contract, or round turn, basis. US12OF also pays a
portion of the fees and expenses of the independent directors of the General
Partner. See Note 3 to the Notes to Financial Statements.





The
parties cannot anticipate the amount of payments that will be required under
these arrangements for future periods, as US12OF’s NAVs and trading levels to
meet its investment objectives will not be known until a future date. These
agreements are effective for a specific term agreed upon by the parties with an
option to renew, or, in some cases, are in effect for the duration of US12OF’s
existence. Either party may terminate these agreements earlier for certain
reasons described in the agreements.





Item 7A.  Quantitative and Qualitative Disclosure About Market
Risk





Over-the-Counter
Derivatives




In the
future, US12OF may purchase over-the-counter contracts. Unlike most of the
exchange-traded oil Futures Contracts or exchange-traded options on such
futures, each party to an over-the-counter contract bears the credit risk that
the other party may not be able to perform its obligations under its
contract.




Some
crude oil-based derivatives transactions contain fairly generic terms and
conditions and are available from a wide range of participants. Other crude
oil-based derivatives have highly customized terms and conditions and are not as
widely available. Many of these over-the-counter contracts are cash-settled
forwards for the future delivery of crude oil- or petroleum-based fuels that
have terms similar to the Futures Contracts. Others take the form of “swaps” in
which the two parties exchange cash flows based on pre-determined formulas tied
to the spot price of crude oil, forward crude oil prices or crude oil
futures prices. For example, US12OF may enter into over-the-counter derivative
contracts whose value will be tied to changes in the difference between
the spot price of light, sweet crude oil, the price of Futures
Contracts traded on the NYMEX and the prices of other Futures Contracts
that may be invested in by US12OF.




To
protect itself from the credit risk that arises in connection with such
contracts, US12OF may enter into agreements with each counterparty that provide
for the netting of its overall exposure to such counterparty, such as the
agreements published by the International Swaps and Derivatives Association,
Inc. US12OF also may require that the counterparty be highly rated and/or
provide collateral or other credit support to address US12OF’s exposure to the
counterparty. In addition, it is also possible for US12OF and its counterparty
to agree to clear their agreement through an established futures clearinghouse
such as those connected to the NYMEX or the ICE Futures. In that event, US12OF
would no longer have credit risk of its original counterparty, as the
clearinghouse would now be US12OF’s counterparty. US12OF would still retain any
price risk associated with its transaction.





The
creditworthiness of each potential counterparty will be assessed by the General
Partner. The General Partner will assess or review, as appropriate, the
creditworthiness of each potential or existing counterparty to an
over-the-counter contract pursuant to guidelines approved by the Board.
Furthermore, the General Partner on behalf of US12OF only enters into
over-the-counter contracts with (a) members of the Federal Reserve System or
foreign banks with branches regulated by the Federal Reserve Board; (b) primary
dealers in U.S. government securities; (c) broker-dealers; (d) commodity futures
merchants; or (e) affiliates of the foregoing. Existing counterparties are also
reviewed periodically by the General Partner.




77




US12OF
anticipates that the use of Other Crude Oil-Related Investments together with
its investments in Futures Contracts will produce price and total return results
that closely track the investment goals of US12OF.




US12OF
may employ spreads or straddles in its trading to mitigate the differences in
its investment portfolio and its goal of tracking the average of the prices of
the Benchmark Futures Contract. US12OF would use a spread when it chooses to
take simultaneous long and short positions in futures written on the same
underlying asset, but with different delivery months. The effect of holding such
combined positions is to adjust the sensitivity of US12OF to changes in the
price relationship between futures contracts which will expire sooner and those
that will expire later. US12OF would use such a spread if the General Partner
felt that taking such long and short positions, when combined with the rest of
its holdings, would more closely track the investment goals of US12OF, or if the
General Partner felt it would lead to an overall lower cost of trading to
achieve a given level of economic exposure to movements in oil prices. US12OF
would enter into a straddle when it chooses to take an option position
consisting of a long (or short) position in both a call option and put option.
The economic effect of holding certain combinations of put options and call
options can be very similar to that of owning the underlying futures contracts.
US12OF would make use of such a straddle approach if, in the opinion of the
General Partner, the resulting combination would more closely track the
investment goals of US12OF or if it would lead to an overall lower cost of
trading to achieve a given level of economic exposure to movements in oil
prices.




During the year ended December 31,
2008, US12OF did not employ any hedging methods such as those described above
since all of its investments were made over an exchange. Therefore, US12OF was
not exposed to counterparty risk.





78




Item 8.  Financial Statements and Supplementary
Data.




United
States 12 Month Oil Fund, LP





Index
to Financial Statements




Documents
                                  
                                  PageManagement’s
      Annual Report on Internal Control over Financial
Reporting.
                                  
                                  80Report
      of Independent Registered Public Accounting Firm.
                                  
                                  81Statements
      of Financial Condition of US12OF at December 31, 2008 and
      2007.
                                  
                                  82Schedule
      of Investments of US12OF at December 31, 2008 and 2007.
                                  
                                  83Statements
      of Operations of US12OF for the year ended December 31, 2008 and the
      period from June 27, 2007 (inception) to December 31,
      2007.
                                  
                                  85Statements
      of Changes in Partners’ Capital of US12OF for the year ended December 31,
      2008 and the period from June 27, 2007 (inception) to December 31,
      2007.
                                  
                                  86Statements
      of Cash Flows of US12OF for the year ended December 31, 2008 and the
      period from June 27, 2007 (inception) to December
      31, 2007.
                                  
                                  87Notes
      to Financial Statements for the year ended December 31, 2008 and the
      period ended December 31, 2007.
                                  
                                  88




79




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




US12OF’s
management assessed the effectiveness of US12OF’s internal control over
financial reporting as of December 31, 2008. In making this assessment, it used
the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission in Internal Control Integrated Framework. Based on the
assessment, US12OF believes that, as of December 31, 2008, its internal control
over financial reporting is effective. This annual report on Form 10-K does not
include an attestation report of the US12OF’s registered public accounting firm
regarding internal control over financial reporting. Management’s report was not
subject to attestation by the company’s registered public accounting firm
pursuant to temporary rules of the Securities and Exchange Commission that
permit the company to provide only management’s report in this annual
report.




80




Report
of Independent Registered Public Accounting Firm





To the
Partners of


United
States 12 Month Oil Fund, LP




We have
audited the accompanying statements of financial condition of United States 12
Month Oil Fund, LP, (the “Fund”) as of December 31, 2008 and 2007, including the
schedule of investments as of December 31, 2008 and 2007, and the related
statements of operations, changes in partners’ capital and cash flows for the
year ended December 31, 2008 and the period from June 27, 2007 (inception)
through December 31, 2007. These financial statements are the responsibility of
the Fund’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.





We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Fund is not required
to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Fund’s internal control over financial
reporting. Accordingly,
we express no such opinion, examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of United States 12 Month Oil Fund, LP
as of December 31, 2008 and 2007, and the results of its operations and its cash
flows for the year ending December 31, 2008 and the period from June 27, 2007
(inception) through December 31, 2007, in conformity with accounting principles
generally accepted in the United States of America.




/s/
SPICER JEFFRIES LLP




Greenwood
Village, Colorado


February
20, 2009





81




United
      States 12 Month Oil Fund, LPStatements
      of Financial ConditionDecember
      31, 2008 and 20072008
                                                
                                                
                                                2007AssetsCash
      and cash equivalents
                                                
                                                $
                                                4,012,323
                                                
                                                
                                                $
                                                18,174,276Equity
      in UBS Securities LLC trading accounts:Cash
                                                
                                                
                                                4,993,212
                                                
                                                
                                                
                                                1,999,108Unrealized
      gain (loss) on open commodity futures contracts
                                                
                                                
                                                (2,754,630
                                                )
                                                
                                                
                                                1,525,370Interest
      receivable
                                                
                                                
                                                2,343
                                                
                                                
                                                
                                                4,994Receivable
      from general partner
                                                
                                                
                                                97,019
                                                
                                                
                                                
                                                -Total
      assets
                                                
                                                $
                                                6,350,267
                                                
                                                
                                                $
                                                21,703,748Liabilities
      and Partners' CapitalGeneral
      Partner management fees (Note 3)
                                                
                                                $
                                                2,151
                                                
                                                
                                                $
                                                8,790Audit
      and tax reporting fees payable
                                                
                                                
                                                99,399
                                                
                                                
                                                
                                                2,600Brokerage
      commission fees payable
                                                
                                                
                                                650
                                                
                                                
                                                
                                                -Other
      liabilities
                                                
                                                
                                                489
                                                
                                                
                                                
                                                879Total
      liabilities
                                                
                                                
                                                102,689
                                                
                                                
                                                
                                                12,269Commitments and Contingencies(Notes 3, 4 and 5)Partners'
      CapitalGeneral
      Partner
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -Limited
      Partners
                                                
                                                
                                                6,247,578
                                                
                                                
                                                
                                                21,691,479Total
      Partners' Capital
                                                
                                                
                                                6,247,578
                                                
                                                
                                                
                                                21,691,479Total
      liabilities and partners' capital
                                                
                                                $
                                                6,350,267
                                                
                                                
                                                $
                                                21,703,748Limited
      Partners' units outstanding
                                                
                                                
                                                200,000
                                                
                                                
                                                
                                                400,000Net
      asset value per unit (commencement of operations, December 6,
      2007)
                                                
                                                $
                                                50.00
                                                
                                                
                                                $
                                                50.00Net
      asset value per unit
                                                
                                                $
                                                31.24
                                                
                                                
                                                $
                                                54.23Market
      value per unit
                                                
                                                $
                                                29.89
                                                
                                                
                                                $
                                                53.88See
      accompanying notes to financial statements.




82





United
      States 12 Month Oil Fund, LPSchedule
      of InvestmentsDecember
      31, 2008Open
      Futures ContractsGain
      (Loss) on OpenNumber
      of
                                                          
                                                          
                                                          Commodity
                                                          
                                                          
                                                          %
      of Partners'Contracts
                                                          
                                                          
                                                          Contracts
                                                          
                                                          
                                                          CapitalUnited
      States ContractsCrude
      Oil Futures contracts, expire February 2009
                                                          
                                                          
                                                          10
                                                          
                                                          
                                                          $
                                                          (246,750
                                                          )
                                                          
                                                          
                                                          (3.95
                                                          )Crude
      Oil Futures contracts, expire March 2009
                                                          
                                                          
                                                          10
                                                          
                                                          
                                                          
                                                          (189,900
                                                          )
                                                          
                                                          
                                                          (3.04
                                                          )Crude
      Oil Futures contracts, expire April 2009
                                                          
                                                          
                                                          10
                                                          
                                                          
                                                          
                                                          (248,520
                                                          )
                                                          
                                                          
                                                          (3.98
                                                          )Crude
      Oil Futures contracts, expire May 2009
                                                          
                                                          
                                                          9
                                                          
                                                          
                                                          
                                                          (200,760
                                                          )
                                                          
                                                          
                                                          (3.21
                                                          )Crude
      Oil Futures contracts, expire June 2009
                                                          
                                                          
                                                          10
                                                          
                                                          
                                                          
                                                          (314,350
                                                          )
                                                          
                                                          
                                                          (5.03
                                                          )Crude
      Oil Futures contracts, expire July 2009
                                                          
                                                          
                                                          10
                                                          
                                                          
                                                          
                                                          (405,450
                                                          )
                                                          
                                                          
                                                          (6.49
                                                          )Crude
      Oil Futures contracts, expire August 2009
                                                          
                                                          
                                                          9
                                                          
                                                          
                                                          
                                                          (413,310
                                                          )
                                                          
                                                          
                                                          (6.62
                                                          )Crude
      Oil Futures contracts, expire September 2009
                                                          
                                                          
                                                          10
                                                          
                                                          
                                                          
                                                          (305,000
                                                          )
                                                          
                                                          
                                                          (4.88
                                                          )Crude
      Oil Futures contracts, expire October 2009
                                                          
                                                          
                                                          9
                                                          
                                                          
                                                          
                                                          (257,730
                                                          )
                                                          
                                                          
                                                          (4.12
                                                          )Crude
      Oil Futures contracts, expire November 2009
                                                          
                                                          
                                                          10
                                                          
                                                          
                                                          
                                                          (159,100
                                                          )
                                                          
                                                          
                                                          (2.55
                                                          )Crude
      Oil Futures contracts, expire December 2009
                                                          
                                                          
                                                          9
                                                          
                                                          
                                                          
                                                          (43,060
                                                          )
                                                          
                                                          
                                                          (0.69
                                                          )Crude
      Oil Futures contracts, expire January 2010
                                                          
                                                          
                                                          10
                                                          
                                                          
                                                          
                                                          29,300
                                                          
                                                          
                                                          
                                                          0.47116
                                                          
                                                          
                                                          
                                                          (2,754,630
                                                          )
                                                          
                                                          
                                                          (44.09
                                                          )Cash
      EquivalentsCost
                                                          
                                                          
                                                          Market
      ValueUnited
      States - Money Market FundGoldman
      Sachs Financial Square Funds - Government Fund
                                                          
                                                          $
                                                          2,357,439
                                                          
                                                          
                                                          
                                                          2,357,439
                                                          
                                                          
                                                          
                                                          37.73$
                                                          2,357,439
                                                          
                                                          
                                                          
                                                          2,357,439
                                                          
                                                          
                                                          
                                                          37.73Cash
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          1,654,884
                                                          
                                                          
                                                          
                                                          26.49Total
      Cash and Cash Equivalents
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          4,012,323
                                                          
                                                          
                                                          
                                                          64.22Cash
      on deposit with broker
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          4,993,212
                                                          
                                                          
                                                          
                                                          79.92Liabilities,
      less receivables
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (3,327
                                                          )
                                                          
                                                          
                                                          (0.05
                                                          )Total
      Partners' Capital
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          6,247,578
                                                          
                                                          
                                                          
                                                          100.00See
      accompanying notes to financial statements.




83




United
      States 12 Month Oil Fund, LPSchedule
      of InvestmentsAt
      December 31, 2007Open
      Futures ContractsGain
      onNumber
      of
                                                                
                                                                Open
      Commodity
                                                                
                                                                %
      of Partners’Contracts
                                                                
                                                                Contracts
                                                                
                                                                CapitalUnited
      States ContractsCrude
      Oil Futures contracts, expire February 2008
                                                                19
                                                                
                                                                $
                                                                151,860
                                                                
                                                                0.70Crude
      Oil Futures contracts, expire March 2008
                                                                20
                                                                
                                                                
                                                                161,850
                                                                
                                                                0.74Crude
      Oil Futures contracts, expire April 2008
                                                                19
                                                                
                                                                
                                                                148,020
                                                                
                                                                0.68Crude
      Oil Futures contracts, expire May 2008
                                                                20
                                                                
                                                                
                                                                149,550
                                                                
                                                                0.69Crude
      Oil Futures contracts, expire June 2008
                                                                19
                                                                
                                                                
                                                                134,150
                                                                
                                                                0.62Crude
      Oil Futures contracts, expire July 2008
                                                                19
                                                                
                                                                
                                                                129,490
                                                                
                                                                0.60Crude
      Oil Futures contracts, expire August 2008
                                                                19
                                                                
                                                                
                                                                121,220
                                                                
                                                                0.56Crude
      Oil Futures contracts, expire September 2008
                                                                20
                                                                
                                                                
                                                                121,400
                                                                
                                                                0.56Crude
      Oil Futures contracts, expire October 2008
                                                                19
                                                                
                                                                
                                                                108,700
                                                                
                                                                0.50Crude
      Oil Futures contracts, expire November 2008
                                                                20
                                                                
                                                                
                                                                108,700
                                                                
                                                                0.50Crude
      Oil Futures contracts, expire December 2008
                                                                19
                                                                
                                                                
                                                                96,840
                                                                
                                                                0.45Crude
      Oil Futures contracts, expire January 2009
                                                                19
                                                                
                                                                
                                                                93,590
                                                                
                                                                0.43232
                                                                
                                                                
                                                                1,525,370
                                                                
                                                                7.03Market
      Value


Cash
                                                                                        
                                                                                        
                                                                                        
                                                                                        18,174,276
                                                                                        
                                                                                        83.78Total
      Cash and Cash Equivalents
                                                                                        
                                                                                        
                                                                                        
                                                                                        18,174,276
                                                                                        
                                                                                        83.78Cash
      on deposit with broker
                                                                                        
                                                                                        
                                                                                        
                                                                                        1,999,108
                                                                                        
                                                                                        9.22Liabilities,
      less receivables
                                                                                        
                                                                                        
                                                                                        
                                                                                        (7,275)
                                                                                        
                                                                                        (0.03)Total
      Partners’ Capital
                                                                                        
                                                                                        
                                                                                        $
                                                                                        21,691,479
                                                                                        
                                                                                        100.00See
      accompanying notes to financial statements.




84




United
      States 12 Month Oil Fund, LPStatements
      of OperationsFor
      the year ended December 31, 2008 and the period from June 27, 2007
      (inception) to December 31, 2007Period
      fromYear
      Ended
                                            
                                            
                                            June
      27, 2007 toDecember
      31, 2008
                                            
                                            
                                            December
      31, 2007IncomeGains
      (losses) on trading of commodity futures contracts:Realized
      gains on closed positions
                                            
                                            $
                                            1,889,260
                                            
                                            
                                            $
                                            -Change
      in unrealized gains (losses) on open positions
                                            
                                            
                                            (4,280,000
                                            )
                                            
                                            
                                            1,525,370Interest
      income
                                            
                                            
                                            151,396
                                            
                                            
                                            
                                            49,954Other
      income
                                            
                                            
                                            4,000
                                            
                                            
                                            
                                            2,000Total
      income (loss)
                                            
                                            
                                            (2,235,344
                                            )
                                            
                                            
                                            1,577,324ExpensesGeneral
      Partner management fees (Note 3)
                                            
                                            
                                            49,187
                                            
                                            
                                            
                                            8,790Brokerage
      commission fees
                                            
                                            
                                            2,325
                                            
                                            
                                            
                                            892Audit
      and tax reporting fees
                                            
                                            
                                            109,240
                                            
                                            
                                            
                                            2,600Other
      expenses
                                            
                                            
                                            6,313
                                            
                                            
                                            
                                            879Total
      expenses
                                            
                                            
                                            167,065
                                            
                                            
                                            
                                            13,161Expense
      waiver
                                            
                                            
                                            (97,019
                                            )
                                            
                                            
                                            -Net
      expenses
                                            
                                            
                                            70,046
                                            
                                            
                                            
                                            13,161Net
      income (loss)
                                            
                                            $
                                            (2,305,390
                                            )
                                            
                                            $
                                            1,564,163Net
      income (loss) per limited partnership unit
                                            
                                            $
                                            (22.99
                                            )
                                            
                                            $
                                            4.23Net
      income (loss) per weighted average limited partnershipunit
                                            
                                            $
                                            (16.23
                                            )
                                            
                                            $
                                            3.98Weighted
      average limited partnership units outstanding
                                            
                                            
                                            142,077
                                            
                                            
                                            
                                            392,593See
      accompanying notes to financial statements.





85




United
      States 12 Month Oil Fund, LPStatements
      of Changes in Partners' CapitalFor
      the year ended December 31, 2008 and the period from June 27, 2007
      (inception) to December 31, 2007General
      Partner
                                    
                                    
                                    Limited
      Partners
                                    
                                    
                                    TotalBalances,
      at Inception
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -Initial
      contribution of capital
                                    
                                    
                                    20
                                    
                                    
                                    
                                    980
                                    
                                    
                                    
                                    1,000Addition
      of 400,000 partnership units
                                    
                                    
                                    -
                                    
                                    
                                    
                                    20,127,316
                                    
                                    
                                    
                                    20,127,316Redemption
      of 0 partnership units
                                    
                                    
                                    (20
                                    )
                                    
                                    
                                    (980
                                    )
                                    
                                    
                                    (1,000
                                    )Net
      income
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,564,163
                                    
                                    
                                    
                                    1,564,163Balances,
      at December 31, 2007
                                    
                                    
                                    -
                                    
                                    
                                    
                                    21,691,479
                                    
                                    
                                    
                                    21,691,479Addition
      of 100,000 partnership units
                                    
                                    
                                    -
                                    
                                    
                                    
                                    3,105,118
                                    
                                    
                                    
                                    3,105,118Redemption
      of 300,000 partnership units
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (16,243,629
                                    )
                                    
                                    
                                    (16,243,629
                                    )Net
      loss
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (2,305,390
                                    )
                                    
                                    
                                    (2,305,390
                                    )Balances,
      at December 31, 2008
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    6,247,578
                                    
                                    
                                    $
                                    6,247,578Net
      Asset Value Per UnitAt
      June 27, 2007 (inception)
                                    
                                    $
                                    -At
      December 6, 2007 (commencement of operations)
                                    
                                    $
                                    50.00At
      December 31, 2007
                                    
                                    $
                                    54.23At
      December 31, 2008
                                    
                                    $
                                    31.24See
      accompanying notes to financial statements.




86




United
      States 12 Month Oil Fund, LPStatements
      of Cash FlowsFor
      the year ended December 31, 2008 and the period from June 27, 2007
      (inception) to December 31, 2007Period
      fromYear
      Ended
                                    
                                    
                                    June
      27, 2007 toDecember
      31, 2008
                                    
                                    
                                    December
      31, 2007Cash
      Flows from Operating Activities:Net
      income (loss)
                                    
                                    $
                                    (2,305,390
                                    )
                                    
                                    $
                                    1,564,163Adjustments
      to reconcile net income (loss) to net cash used in operating
      activities:Increase
      in commodity futures trading account - cash
                                    
                                    
                                    (2,994,104
                                    )
                                    
                                    
                                    (1,999,108
                                    )Unrealized
      (gains) losses on futures contracts
                                    
                                    
                                    4,280,000
                                    
                                    
                                    
                                    (1,525,370
                                    )(Increase)
      decrease in interest receivable
                                    
                                    
                                    2,652
                                    
                                    
                                    
                                    (4,994
                                    )Increase
      in receivable from general partner
                                    
                                    
                                    (97,020
                                    )
                                    
                                    
                                    -Increase
      (decrease) in management fees payable
                                    
                                    
                                    (6,639
                                    )
                                    
                                    
                                    8,790Increase
      in audit and tax reporting fees payable
                                    
                                    
                                    96,799
                                    
                                    
                                    
                                    2,600Increase
      in commission fees payable
                                    
                                    
                                    650
                                    
                                    
                                    
                                    -Increase
      (decrease) in other liabilities
                                    
                                    
                                    (390
                                    )
                                    
                                    
                                    879Net
      cash used in operating activities
                                    
                                    
                                    (1,023,442
                                    )
                                    
                                    
                                    (1,953,040
                                    )Cash
      Flows from Financing Activities:Subscription
      of partnership units
                                    
                                    
                                    3,105,118
                                    
                                    
                                    
                                    20,128,316Redemption
      of partnership units
                                    
                                    
                                    (16,243,629
                                    )
                                    
                                    
                                    (1,000
                                    )Net
      cash provided by (used in) financing activities
                                    
                                    
                                    (13,138,511
                                    )
                                    
                                    
                                    20,127,316Net
      Increase (Decrease) in Cash and Cash Equivalents
                                    
                                    
                                    (14,161,953
                                    )
                                    
                                    
                                    18,174,276Cash and Cash
      Equivalents, beginning of period
                                    
                                    
                                    18,174,276
                                    
                                    
                                    
                                    -Cash and Cash
      Equivalents, end of period
                                    
                                    $
                                    4,012,323
                                    
                                    
                                    $
                                    18,174,276See
      accompanying notes to financial statements.





87




United
States 12 Month Oil Fund, LP


Notes
to Financial Statements


For
the year ended December 31, 2008 and the period ended December 31,
2007




NOTE
1 - ORGANIZATION AND BUSINESS





The
United States 12 Month Oil Fund, LP (“US12OF”) was organized as a limited
partnership under the laws of the state of Delaware on June 27, 2007. US12OF is
a commodity pool that issues units that may be purchased and sold on the NYSE
Arca, Inc. (the “NYSE Arca”). Prior to November 25, 2008, US12OF’s units traded
on the American Stock Exchange (the “AMEX”). US12OF will continue in perpetuity,
unless terminated sooner upon the occurrence of one or more events as described
in its Amended and Restated Agreement of Limited Partnership dated as of
December 4, 2007 (the “LP Agreement”). The investment objective of US12OF is for
the changes in percentage terms of its net asset value to reflect the changes in
percentage terms of the price of light, sweet crude oil delivered to
Cushing, Oklahoma, as measured by the changes in the average of the prices of
the 12 futures contracts on light, sweet crude oil as traded on
the New York Mercantile Exchange (the “NYMEX”), consisting of the near
month contract to expire and the contracts for the following 11 months for a
total of 12 consecutive months’ contracts, except when the near month contract
is within two weeks of expiration, in which case it will be measured by the
futures contracts that are the next month contract to expire and the contracts
for the following 11 consecutive months, less US12OF’s expenses. US12OF
accomplishes its objectives through investments in futures contracts for light,
sweet crude oil, and other types of crude oil, heating oil, gasoline, natural
gas and other petroleum-based fuels that are traded on the NYMEX, ICE Futures or
other U.S. and foreign exchanges (collectively, “Futures Contracts”) and other
oil-related investments such as cash-settled options on Futures Contracts,
forward contracts for oil and over-the-counter transactions that are based on
the price of crude oil, heating oil, gasoline, natural gas and other
petroleum-based fuels, Futures Contracts and indices based on the foregoing
(collectively, “Other Crude Oil-Related Investments”). As of December 31, 2008,
US12OF held 116 Futures Contracts traded on the NYMEX.




US12OF
commenced investment operations on December 6, 2007 and has a fiscal year ending
on December 31. United States Commodity Funds LLC (formerly known as Victoria
Bay Asset Management, LLC) (the “General Partner”) is responsible for the
management of US12OF. The General Partner is a member of the National
Futures Association (the “NFA”) and became a commodity pool operator
with the Commodity Futures Trading Commission effective December 1, 2005. The
General Partner is also the general partner of the United States Oil Fund, LP
(“USOF”), the United States Natural Gas Fund, LP (“USNG”), the United
States Gasoline Fund, LP (“UGA”) and the United States Heating Oil Fund, LP
(“USHO”), which listed their limited partnership units on the AMEX under the
ticker symbols “USO” on April 10, 2006, “UNG” on April 18, 2007, “UGA” on
February 26, 2008 and “UHN” on April 9, 2008, respectively. As a result of the
acquisition of the AMEX by NYSE Euronext, each of USOF’s, USNG’s, UGA’s and
USHO’s units commenced trading on the NYSE Arca on November 25,
2008.





US12OF
issues limited partnership interests (“units”) to certain authorized purchasers
(“Authorized Purchasers”) by offering baskets consisting of 100,000 units
(“Creation Baskets”) through ALPS Distributors, Inc. (the “Marketing
Agent”). The purchase price for a Creation Basket is based upon the net asset
value of a unit determined as of the earlier of the close of the New York
Stock Exchange (the “NYSE”) or 4:00 p.m. New York time on the day the order to
create the basket is properly received.





In
addition, Authorized Purchasers pay US12OF a $1,000 fee for each order
to create one or more Creation Baskets. Units may be purchased or sold
on a nationally recognized securities exchange in smaller increments than a
Creation Basket. Units purchased or sold on a nationally recognized securities
exchange are not purchased or sold at the net asset value of US12OF but rather
at market prices quoted on such exchange.





In
December 2007, US12OF initially registered 11,000,000 units on Form S-1 with the
U.S. Securities and Exchange Commission (the “SEC”). On December 6, 2007, US12OF
listed its units on the AMEX under the ticker symbol “USL”. On that day, US12OF
established its initial net asset value by setting the price at $50.00 per unit
and issued 300,000 units in exchange for $15,000,000. US12OF also commenced
investment operations on December 6, 2007 by purchasing Futures Contracts
traded on the NYMEX based on light, sweet crude oil. As a result of
the acquisition of the AMEX by NYSE Euronext, US12OF’s units commenced trading
on the NYSE Arca on November 25, 2008. As of December 31, 2008, US12OF had
registered a total of 11,000,000 units.




88




NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Revenue
Recognition





Commodity
futures contracts, forward contracts, physical commodities, and related options
are recorded on the trade date. All such transactions are recorded on the
identified cost basis and marked to market daily. Unrealized gains or losses on
open contracts are reflected in the statement of financial condition and in the
difference between the original contract amount and the market value (as
determined by exchange settlement prices for futures contracts and related
options and cash dealer prices at a predetermined time for forward contracts,
physical commodities, and their related options) as of the last business day of
the year or as of the last date of the financial statements. Changes in the
unrealized gains or losses between periods are reflected in the statement of
operations. US12OF earns interest on its assets denominated in U.S. dollars on
deposit with the futures commission merchant at the 90-day Treasury bill
rate. In addition, US12OF earns interest on funds held at the custodian at
prevailing market rates earned on such investments.





Brokerage
Commissions





Brokerage
commissions on all open commodity futures contracts are accrued on a full-turn
basis.




Income
Taxes





US12OF is
not subject to federal income taxes; each partner reports his/her allocable
share of income, gain, loss deductions or credits on his/her own income tax
return.




Additions
and Redemptions





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





US12OF
records units sold or redeemed one business day after the trade date of the
purchase or redemption. The amounts due from Authorized Purchasers are reflected
in US12OF’s statement of financial condition as receivable for units sold, and
amounts payable to Authorized Purchasers upon redemption are reflected as
payable for units redeemed.





Partnership
Capital and Allocation of Partnership Income and Losses





Profit or
loss shall be allocated among the partners of US12OF in proportion to the number
of units each partner holds as of the close of each month. The General Partner
may revise, alter or otherwise modify this method of allocation as described in
the LP Agreement.





Calculation
of Net Asset Value





US12OF
calculates its net asset value on each trading day by taking the current market
value of its total assets, subtracting any liabilities and dividing the amount
by the total number of units issued and outstanding. US12OF uses the closing
price for the contracts on the relevant exchange on that day to determine the
value of contracts held on such exchange.





Net
Income (Loss) per Unit





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




89




Offering
Costs





Offering
costs incurred in connection with the registration of additional units after the
initial registration of units are borne by US12OF. These costs include
registration fees paid to regulatory agencies and all legal, accounting,
printing and other expenses associated therewith. These costs will be accounted
for as a deferred charge and thereafter amortized to expense over twelve months
on a straight line basis or a shorter period if warranted.





Cash
Equivalents





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





Use
of Estimates





The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires US12OF’s
management to make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of the revenue
and expenses during the reporting period. Actual results could differ from those
estimates and assumptions.




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





General
Partner Management Fee





Under the
LP Agreement, the General Partner is responsible for investing the assets of
US12OF in accordance with the objectives and policies of US12OF. In addition,
the General Partner has arranged for one or more third parties to provide
administrative, custody, accounting, transfer agency and other necessary
services to US12OF. For these services, US12OF is contractually obligated to pay
the General Partner a fee, which is paid monthly and based on average daily net
assets, that is equal to 0.60% per annum on average daily net
assets.




Ongoing
Registration Fees and Other Offering Expenses





US12OF
pays all costs and expenses associated with the
ongoing registration of 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 year ended
December 31, 2008 and the period ended December 31, 2007, US12OF incurred $0 and
$0, respectively, in registration fees and other offering
expenses.





Directors’
Fees




US12OF is
responsible for paying the fees and expenses, including directors’ and officers’
liability insurance, of the independent directors of the General Partner who are
also audit committee members. During 2008, US12OF shared these fees with
USOF, USNG, UGA and USHO based on the relative assets of each fund, computed on
a daily basis. These fees for calendar year 2008 amounted to a total of $282,000
for all five funds, and US12OF’s portion of such fees was $1,762. For the period
from December 6, 2007 through December 31, 2007, these fees were $286,000, and
US12OF’s portion of such fees was $350.





Licensing
Fees





As
discussed in Note 4, US12OF entered into a licensing agreement with the
NYMEX on January 16, 2008. The agreement has an effective date of December 4,
2007 with respect to US12OF. Pursuant to the agreement, US12OF and the
affiliated funds managed by the General Partner pay a licensing fee that is
equal to 0.04% for the first $1,000,000,000 of combined assets of the funds
and 0.02% for combined assets above $1,000,000,000. During the year ended
December 31, 2008 and the period ended December 31, 2007, US12OF incurred $2,854
and $540, respectively, under this arrangement.




90




Investor
Tax Reporting Cost




The fees
and expenses associated with US12OF’s audit expenses and tax accounting and
reporting requirements, with the exception of certain initial implementation
service fees and base service fees which were borne by the General Partner, are
paid by US12OF. The General Partner, though under no obligation to do so,
agreed to pay certain expenses, including those relating to audit expenses and
tax accounting and reporting requirements normally borne by US12OF to the extent
that such expenses exceeded 0.15% (15 basis points) of US12OF’s NAV, on an
annualized basis, through December 31, 2008. The General Partner has no
obligation to continue such payment into subsequent years.  The total
amount of these costs to be paid by the General Partner and US12OF are estimated
to be $55,000 for the year ended December 31, 2008.


Other
Expenses and Fees




In
addition to the fees described above, US12OF pays all brokerage fees, taxes
and other expenses in connection with the operation of US12OF, excluding costs
and expenses paid by the General Partner as outlined in Note
4.





NOTE
4 - CONTRACTS AND AGREEMENTS





US12OF is
party to a marketing agent agreement, dated as of November 13, 2007, with
the Marketing Agent, whereby the Marketing Agent provides certain marketing
services for US12OF as outlined in the agreement. The fee of the Marketing
Agent, which is borne by the General Partner, is equal to 0.06% on US12OF’s
assets up to $3 billion; and 0.04% on US12OF’s assets in excess of $3
billion.





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





US12OF is
also party to a custodian agreement, dated October 5, 2007, with Brown Brothers
Harriman & Co. (“BBH&Co.”), whereby BBH&Co. holds investments on
behalf of US12OF. The General Partner pays the fees of the custodian, which
are determined by the parties from time to time. In addition, US12OF is party to
an administrative agency agreement, dated October 5, 2007, with the General
Partner and BBH&Co., whereby BBH&Co. acts as the administrative agent,
transfer agent and registrar for US12OF. The General Partner also pays the fees
of BBH&Co. for its services under this agreement and such fees are
determined by the parties from time to time.





Currently,
the General Partner pays BBH&Co. for its services, in the foregoing
capacities, the greater of a minimum amount of $75,000 annually for its custody,
fund accounting and fund administration services rendered to all funds, as well
as a $20,000 annual fee for its transfer agency services. In addition, an
asset-based charge of (a) 0.06% for the first $500 million of US12OF’s, USOF’s,
USNG’s, UGA’s and USHO’s combined net assets, (b) 0.0465% for US12OF’s, USOF’s,
USNG’s, UGA’s and USHO’s combined net assets greater than $500 million but less
than $1 billion, and (c) 0.035% once US12OF’s, USOF’s, USNG’s, UGA’s and USHO’s
combined net assets exceed $1 billion. The annual minimum amount will not apply
if the asset-based charge for all accounts in the aggregate exceeds $75,000. The
General Partner also pays transaction fees ranging from $7.00 to $15.00 per
transaction.





US12OF
has entered into a brokerage agreement with UBS Securities LLC (“UBS
Securities”). The agreement requires UBS Securities to provide services to
US12OF in connection with the purchase and sale of Futures Contracts and Other
Crude Oil-Related Investments that may be purchased and sold by or through UBS
Securities for US12OF’s account. The agreement provides that UBS Securities
charge US12OF commissions of approximately $7 per round-turn trade, plus
applicable exchange and NFA fees for Futures Contracts and options on Futures
Contracts.





US12OF
invests primarily in Futures Contracts traded on the NYMEX. On January 16, 2008,
US12OF and the NYMEX entered into a license agreement whereby US12OF was granted
a non-exclusive license to use certain of the NYMEX’s settlement prices and
service marks. The agreement has an effective date of December 4, 2007 with
respect to US12OF. Under the license agreement, US12OF and the
affiliated funds managed by the General Partner pay the NYMEX an asset-based fee
for the license, the terms of which are described in Note 3.





US12OF
expressly disclaims any association with the NYMEX or endorsement of US12OF by
the NYMEX and acknowledges that “NYMEX” and “New York Mercantile Exchange” are
registered trademarks of the NYMEX.




91




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





US12OF
engages in the speculative trading of Futures Contracts and options on
Futures Contracts (collectively, “derivatives”). US12OF is exposed to both
market risk, which is the risk arising from changes in the market value of the
contracts, and credit risk, which is the risk of failure by another party to
perform according to the terms of a contract.





All of
the contracts currently traded by US12OF are exchange-traded. The risks
associated with exchange-traded contracts are generally perceived to be less
than those associated with over-the-counter transactions since, in
over-the-counter transactions, US12OF must rely solely on the credit of its
respective individual counterparties. However, in the future, if US12OF
were to enter into non-exchange traded contracts, it would be subject to the
credit risk associated with counterparty non-performance. The credit risk from
counterparty non-performance associated with such instruments is the net
unrealized gain, if any. US12OF also has credit risk since the sole counterparty
to all domestic and foreign futures contracts is the exchange on which the
relevant contracts are traded. In addition, US12OF bears the risk of financial
failure by the clearing broker.




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





US12OF’s
cash and other property, such as U.S. Treasuries, deposited with a futures
commission merchant are considered commingled with all other customer funds
subject to the futures commission merchant’s segregation requirements. In the
event of a futures commission merchant’s insolvency, recovery may be limited to
a pro rata share of segregated funds available. It is possible that the
recovered amount could be less than the total of cash and other property
deposited. The insolvency of a futures commission merchant could result in the
complete loss of US12OF’s assets posted with that futures commission merchant;
however, the vast majority of US12OF’s assets are held in Treasuries, cash
and/or cash equivalents with US12OF’s custodian and would not be impacted by the
insolvency of a futures commission merchant. Also, the failure or insolvency of
US12OF’s custodian could result in a substantial loss of US12OF’s
assets.




US12OF
invests its cash in money market funds that seek to maintain a stable net asset
value. US12OF is exposed to any risk of loss associated with an investment in
these money market funds. As of December 31, 2008 and 2007, US12OF had deposits
in domestic and foreign financial institutions, including cash investments in
money market funds, in the amount of $9,005,535 and $20,173,384, respectively.
This amount is subject to loss should these institutions cease
operations.




For
derivatives, risks arise from changes in the market value of the contracts.
Theoretically, US12OF is exposed to a market risk equal to the value of futures
contracts purchased and unlimited liability on such contracts sold short. As
both a buyer and a seller of options, US12OF pays or receives a premium at the
outset and then bears the risk of unfavorable changes in the price of the
contract underlying the option.





US12OF’s
policy is to continuously monitor its exposure to market and counterparty risk
through the use of a variety of financial, position and credit exposure
reporting controls and procedures. In addition, US12OF has a policy of requiring
review of the credit standing of each broker or counterparty with which it
conducts business.





The
financial instruments held by US12OF are reported in its 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.





92


NOTE 6
- FINANCIAL HIGHLIGHTS
 
 The
following table presents per unit performance data and other supplemental
financial data for year ended December 31, 2008 and the period from December 6,
2007 (commencement of operations) to December 31, 2007. This information has
been derived from information presented in the financial
statements.




For the year ended
                                                                                      December 31, 2008
                                                                                    
                                                                                    
                                                                                    For the period from
                                                                                      December 6, 2007
                                                                                      (commencement of
                                                                                      operations) to
                                                                                      December 31, 2007Per Unit Operating
    Performance:Net
      asset value, beginning of period
                                                                                    
                                                                                    $
                                                                                    54.23
                                                                                    
                                                                                    
                                                                                    $
                                                                                    50.00Total income
      (loss)
                                                                                    
                                                                                    
                                                                                    (21.81
                                                                                    )
                                                                                    
                                                                                    
                                                                                    4.26Net
      expenses
                                                                                    
                                                                                    
                                                                                    (1.18
                                                                                    )
                                                                                    
                                                                                    
                                                                                    (0.03
                                                                                    )Net
      increase (decrease) in net asset value
                                                                                    
                                                                                    
                                                                                    (22.99
                                                                                    )
                                                                                    
                                                                                    
                                                                                    4.23Net
      asset value, end of period
                                                                                    
                                                                                    $
                                                                                    31.24
                                                                                    
                                                                                    
                                                                                    $
                                                                                    54.23Total
      Return
                                                                                    
                                                                                    
                                                                                    (42.39
                                                                                    )%
                                                                                    
                                                                                    
                                                                                    8.46
                                                                                    %Ratios
      to Average Net AssetsTotal income
      (loss)
                                                                                    
                                                                                    
                                                                                    (27.27
                                                                                    )%
                                                                                    
                                                                                    
                                                                                    107.67
                                                                                    %Management
      fees
                                                                                    
                                                                                    
                                                                                    0.60
                                                                                    %
                                                                                    
                                                                                    
                                                                                    0.60
                                                                                    %*Total
      expenses excluding management fees
                                                                                    
                                                                                    
                                                                                    1.44
                                                                                    %
                                                                                    
                                                                                    
                                                                                    0.30
                                                                                    %*Expenses
      waived
                                                                                    
                                                                                    
                                                                                    1.18
                                                                                    %
                                                                                    
                                                                                    
                                                                                    -
                                                                                    %*Net
      expenses excluding management fees
                                                                                    
                                                                                    
                                                                                    0.26
                                                                                    %
                                                                                    
                                                                                    
                                                                                    0.30
                                                                                    %*Net income
      (loss)
                                                                                    
                                                                                    
                                                                                    (28.12
                                                                                    )%
                                                                                    
                                                                                    
                                                                                    106.77
                                                                                    %*
      Annualized




Total
returns are calculated based on the change in value during the period. An
individual limited partner’s total return and ratio may vary from the above
total returns and ratios based on the timing of contributions to and withdrawals
from US12OF.




NOTE 7
- QUARTERLY FINANCIAL DATA (Unaudited)





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





First
                                        Quarter
                                      
                                      
                                      Second
                                        Quarter
                                      
                                      
                                      Third
                                        Quarter
                                      
                                      
                                      Fourth
                                        Quarter2008
                                      
                                      
                                      2008
                                      
                                      
                                      2008
                                      
                                      
                                      2008Total
      Income (Loss)
                                      
                                      $
                                      241,297
                                      
                                      
                                      $
                                      2,762,450
                                      
                                      
                                      $
                                      (2,330,673
                                      )
                                      
                                      $
                                      (2,908,418
                                      )Total
      Expenses
                                      
                                      
                                      35,973
                                      
                                      
                                      
                                      98,087
                                      
                                      
                                      
                                      59,678
                                      
                                      
                                      
                                      (26,673
                                      )Expense
      Waivers
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (87,624
                                      )
                                      
                                      
                                      (45,330
                                      )
                                      
                                      
                                      35,935Net
      Expenses
                                      
                                      
                                      35,973
                                      
                                      
                                      
                                      10,463
                                      
                                      
                                      
                                      14,348
                                      
                                      
                                      
                                      9,262Net
      Income (Loss)
                                      
                                      $
                                      205,324
                                      
                                      
                                      $
                                      2,751,987
                                      
                                      
                                      $
                                      (2,345,021
                                      )
                                      
                                      $
                                      (2,917,680
                                      )Net
      Income (Loss) per Unit
                                      
                                      $
                                      4.08
                                      
                                      
                                      $
                                      25.74
                                      
                                      
                                      $
                                      (23.45
                                      )
                                      
                                      $
                                      (29.36
                                      )





Fourth
                                                                                                    Quarter2007Total
      Income
                                                                                                  
                                                                                                  $
                                                                                                  1,577,324Total
      Expenses
                                                                                                  
                                                                                                  
                                                                                                  13,161Net
      Income
                                                                                                  
                                                                                                  $
                                                                                                  1,564,163Net
      Income per Unit
                                                                                                  
                                                                                                  $
                                                                                                  4.23




93




NOTE
8 - FAIR VALUE OF FINANCIAL INSTRUMENTS





Effective
January 1, 2008, US12OF adopted FAS 157 - Fair Value Measurements (“FAS 157” or
the “Statement”). FAS 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles (“GAAP”), and
expands disclosures about fair value measurement. The changes to current
practice resulting from the application of the Statement relate to the
definition of fair value, the methods used to measure fair value, and the
expanded disclosures about fair value measurement. The Statement establishes a
fair value hierarchy that distinguishes between (1) market participant
assumptions developed based on market data obtained from sources independent of
US12OF (observable inputs) and (2) US12OF’s own assumptions about market
participant assumptions developed based on the best information available under
the circumstances (unobservable inputs). The three levels defined by the FAS 157
hierarchy are as follows:





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





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





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





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





The
following table summarizes the valuation of US12OF’s securities at December 31,
2008 using the fair value hierarchy:





At December
      31, 2008
                  Total
                  
                  Level I
                  
                  Level II
                  
                  Level IIIInvestments
                  
                  $
                  2,357,439
                  
                  
                  $
                  2,357,439
                  
                  
                  $
                  -
                  
                  
                  $
                  -Derivative
      assets
                  
                  
                  (2,754,630
                  )
                  
                  
                  (2,754,630
                  )
                  
                  
                  -
                  
                  
                  
                  -








NOTE
9 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS





In March
2008, Statement of Financial Standards No. 161, Disclosures about Derivative
Instruments and Hedging Activities (“SFAS 161”), was issued and became effective
for fiscal years that began after November 15, 2008.  SFAS 161
requires enhanced disclosures to provide information about the reasons US12OF
invests in derivative instruments, the accounting treatment of derivative
instruments and the effect derivatives have on US12OF’s financial performance.
The General Partner is currently evaluating the impact the adoption of SFAS 161
will have on US12OF’s financial statement disclosures.




94




United
States Commodity Funds LLC and Subsidiaries
 (formerly
Victoria Bay Asset Management, LLC)
 
 Index
to Financial Statements





Documents
                      
                      
                      PageReport
      of Independent Registered Public Accounting Firm.
                      
                      
                      96Consolidated
      Statements of Financial Condition.
                      
                      
                      97Consolidated
      Statements of Operations and Other Comprehensive Income.
                      
                      
                      98Consolidated
      Statements of Changes in Member’s Equity (Deficit).
                      
                      
                      99Consolidated
      Statements of Cash Flows.
                      
                      
                      100Notes to Consolidated Financial
      Statements.
                      
                      
                      101


95




Report
of Independent Registered Public Accounting Firm
 
 To the
Board of Directors and Member of
 United
States Commodity Funds LLC and Subsidiaries
 
 We have
audited the accompanying consolidated statements of financial condition of
United States Commodity Funds LLC (formerly Victoria Bay Asset Management, LLC)
and Subsidiaries, (the “Company”) as of December 31, 2008 and 2007, and the
related consolidated statements of operations and other comprehensive income,
changes in member’s equity (deficit) and cash flows for the years then ended.
These financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
 
 We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of United States
Commodity Funds LLC (formerly Victoria Bay Asset Management, LLC) and
Subsidiaries as of December 31, 2008 and 2007, and the consolidated results of
their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of
America.
  /s/
SPICER JEFFRIES LLP
  Greenwood
Village, Colorado
 March 16,
2009
  96
  UNITED
STATES COMMODITY FUNDS LLC AND SUBSIDIARIES
 (formerly
Victoria Bay Asset Management, LLC)
 
 CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION
 
 ASSETS
                
                2008
                
                
                2007Cash
                
                $
                125,815
                
                
                $
                53,910Management
      fees receivable
                
                
                893,111
                
                
                
                500,128Investments
      (Note 2)
                
                
                34,579
                
                
                
                123,398Deferred
      offering costs (Note 3)
                
                
                352,794
                
                
                
                187,056Other
      assets
                
                
                1,960
                
                
                
                2,940Total
      assets
                
                $
                1,408,259
                
                
                $
                867,432LIABILITIES AND
      MEMBER'S EQUITY (DEFICIT)LIABILITIES:Accounts
      payable
                
                $
                624,688
                
                
                $
                1,035,444Expense
      waiver payable (Note 3)
                
                
                311,038
                
                
                
                -Minority
      interest: Limited Partner in United StatesHeating
      Oil Fund, LP
                
                
                -
                
                
                
                980Minority
      interest: Limited Partner in United StatesGasoline
      Fund, LP
                
                
                -
                
                
                
                980Minority
      interest: Limited Partner in United States12
      Month Natural Gas Fund, LP
                
                
                980
                
                
                
                980Minority
      interest: Limited Partner in United StatesShort
      Oil Fund, LP
                
                
                980
                
                
                
                -Total
      liabilities
                
                
                937,686
                
                
                
                1,038,384COMMITMENTS AND CONTINGENCIES(Note
      6)MEMBER'S EQUITY (DEFICIT)(Note
      5)
                
                
                470,573
                
                
                
                (170,952
                )Total
      liabilities and member's equity
                
                $
                1,408,259
                
                
                $
                867,432
  The
accompanying notes are an integral part of these statements.
  97
  UNITED
STATES COMMODITY FUNDS LLC AND SUBSIDIARIES
 (formerly
Victoria Bay Asset Management, LLC)
 
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 AND
OTHER COMPREHENSIVE INCOME
  2008
                
                
                2007REVENUE:Management
      fees
                
                $
                8,631,883
                
                
                $
                4,871,265EXPENSES:Distribution
      fees
                
                
                1,026,625
                
                
                
                650,829Administration
      fees
                
                
                665,696
                
                
                
                434,905Transfer
      agent fees
                
                
                208,274
                
                
                
                134,758Custodial
      fees
                
                
                118,453
                
                
                
                80,184Professional
      fees
                
                
                1,159,643
                
                
                
                1,337,170Salaries,
      wages and benefits
                
                
                1,389,888
                
                
                
                690,488Expense
      waiver expense
                
                
                311,038
                
                
                
                -Advertising
      and promotion
                
                
                79,202
                
                
                
                49,370General
      and administrative
                
                
                519,379
                
                
                
                356,460Total
      expenses
                
                
                5,478,198
                
                
                
                3,734,164OTHER
      INCOME:Dividend
      income
                
                
                14
                
                
                
                425Realized
      gains on investments
                
                
                -
                
                
                
                85,415Total other
      income
                
                
                14
                
                
                
                85,840NET
      INCOME
                
                
                3,153,699
                
                
                
                1,222,941OTHER
      COMPREHENSIVE INCOME:Unrealized
      loss on investments (Note 2)
                
                
                (88,820
                )
                
                
                (433,189
                )COMPREHENSIVE
      INCOME
                
                $
                3,064,879
                
                
                $
                789,752
  The
accompanying notes are an integral part of these statements.
  98
 
 UNITED
STATES COMMODITY FUNDS LLC AND SUBSIDIARIES
 (formerly
Victoria Bay Asset Management, LLC)
 
 CONSOLIDATED
STATEMENTS OF CHANGES IN MEMBER’S EQUITY (DEFICIT)
 
 BALANCE,December 31, 2006
                
                $
                (395,845
                )Contributions
      (Note 3)
                
                
                1,280,906Distributions
                
                
                (343,769
                )Other
      comprehensive income (Note 5)
                
                
                (433,189
                )Offering
      costs (Note 2)
                
                
                (1,501,996
                )Net
      income
                
                
                1,222,941BALANCE, December31,
      2007
                
                
                (170,952
                )Other
      comprehensive income (Note 5)
                
                
                (88,820
                )Offering
      costs (Note 2)
                
                
                (553,756
                )Distributions
                
                
                (1,869,598
                )Net
      income
                
                
                3,153,699BALANCE, December31,
      2008
                
                $
                470,573
 
 The
accompanying notes are an integral part of these statements.
 99
  UNITED
STATES COMMODITY FUNDS LLC AND SUBSIDIARIES
 (formerly
Victoria Bay Asset Management, LLC)
 
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 
 2008
                                
                                
                                2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net income
                                
                                $
                                3,153,699
                                
                                
                                $
                                1,222,941Adjustments
      to reconcile net income to net cash provided by (used in) operating
      activities:Realized gain from sales of
      securities
                                
                                
                                -
                                
                                
                                
                                (85,415
                                )Increase in management fees
      receivable
                                
                                
                                (392,983
                                )
                                
                                
                                (167,392
                                )Increase in deferred offering
      costs
                                
                                
                                (719,495
                                )
                                
                                
                                (897,197
                                )Decrease (increase) in other
      assets
                                
                                
                                980
                                
                                
                                
                                (2,940
                                )Increase in expense waiver
      payable
                                
                                
                                311,038
                                
                                
                                
                                -Decrease in accounts
      payable
                                
                                
                                (410,756
                                )
                                
                                
                                (572,357
                                )Net
      cash provided by (used in) operating activities
                                
                                
                                1,942,483
                                
                                
                                
                                (502,360
                                )CASH
      FLOWS FROM INVESTING ACTIVITIES:Proceeds from sales of
      securities
                                
                                
                                -
                                
                                
                                
                                464,985CASH
      FLOWS FROM FINANCING ACTIVITIES:Distributions
                                
                                
                                (1,869,598
                                )
                                
                                
                                -Increase
      (decrease):Minority interest in United
      States Heating Oil Fund, LP
                                
                                
                                (980
                                )
                                
                                
                                980Minority interest in United
      States Gasoline Fund, LP
                                
                                
                                (980
                                )
                                
                                
                                980Minority interest in United
      States Short Oil Fund, LP
                                
                                
                                980
                                
                                
                                
                                -Minority interest in
      United States 12 MonthNatural Gas Fund,
      LP
                                
                                
                                -
                                
                                
                                
                                980Net
      cash provided by (used in) financing activities
                                
                                
                                (1,870,578
                                )
                                
                                
                                2,940NET
      INCREASE (DECREASE) IN CASH
                                
                                
                                71,905
                                
                                
                                
                                (34,435
                                )CASH,
      beginning of year
                                
                                
                                53,910
                                
                                
                                
                                88,345CASH,
      end of year
                                
                                $
                                125,815
                                
                                
                                $
                                53,910SUPPLEMENTAL
      DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:Investments and offering costs
      contributed by member, net of liabilitiesassumed (Note
      3)
                                
                                $
                                -
                                
                                
                                $
                                800,313Distribution of investments to
      parent
                                
                                $
                                -
                                
                                
                                $
                                343,769
  The
accompanying notes are an integral part of these statements.
  100
 
 
 NOTE 1 -
ORGANIZATION AND OPERATION
 
 Victoria
Bay Asset Management, LLC was formed as a single-member limited liability
company in the State of Delaware on May 10, 2005. On June 13, 2008,
Victoria Bay Asset Management, LLC changed its name to United States Commodity
Funds LLC (the “Company”). The Company is the General Partner (the “General
Partner”) of United States Oil Fund, LP (“USOF”), United States Natural Gas
Fund, LP (“USNG”), United States Heating Oil Fund, LP (“USHO”) United States
Gasoline Fund, LP (“USG”), United States 12 Month Oil Fund, LP (“US12OF”),
United States 12 Month Natural Gas Fund, LP (“US12NG”) and United States Short
Oil Fund, LP (“USSO”). The Company is registered as a commodity pool operator
with the Commodity Futures Trading Commission (“CFTC”) and is a member of the
National Futures Association (“NFA”). USOF, USNG, USHO, USG and US12OF
(collectively, the “Funds”) are commodity pools registered with the CFTC and
members of the NFA that issue units that may be purchased and sold on the NYSE
Arca, Inc. (“NYSE Arca”) under the ticker symbols “USO”, “UNG”, “UHN”, “UGA” and
“USL”.
 
 USOF
began trading on April 10, 2006 by purchasing futures contracts for light, sweet
crude oil that are traded on the New York Mercantile Exchange (the “Exchange”).
The investment objective of USOF is for the changes in percentage terms of its
units’ net asset value to reflect the changes in percentage terms of the spot
price of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by
the changes in the price of the futures contract on light sweet crude oiltraded on the Exchange, that is the near month contract
to expire, except when the near month contract is within two weeks of
expiration, in which case it will be measured by the futures contract that is
the next month contract to expire, less USOF’s expenses. USOF seeks to
accomplish its objective through investments in futures contracts for light,
sweet crude oil, other types of crude oil, heating oil, gasoline, natural gas
and other petroleum-based fuels that are traded on the Exchange and other U.S.
and foreign exchanges and other oil interests such as cash-settled options on
listed oil futures contracts, forward contracts for crude oil, and
over-the-counter transactions that are based on the price of crude oil, heating
oil, gasoline, natural gas and other petroleum-based fuels.
 
 USNG
began trading on April 18, 2007 by purchasing futures contracts for natural gas
that are traded on the Exchange. The investment objective of USNG is for the
changes in percentage terms of its units’ net asset value to reflect the changes
in percentage terms of the price of natural gas delivered to the Henry Hub,
Louisiana as measured by the changes in the price of the futures contract on
natural gas traded on the Exchange that is the near month contract to expire,
except when the near month contract is within two weeks of expiration, in which
case it will be measured by the futures contract that is the next month contract
to expire, less USNG’s expenses.  USNG
seeks to accomplish its objective through investments in listed natural gas
futures contracts and other natural gas interests such as cash-settled options
on futures contracts, forward contracts for natural gas, and over-the-counter
transactions that are based on the price of natural gas, crude oil, heating oil,
gasoline and other petroleum-based fuels.
 
 US12OF
began trading on December 6, 2007 by purchasing futures contracts for light,
sweet crude oil that are traded on the Exchange. The investment objective of
US12OF is for the changes in percentage terms of its units’ net asset value to
reflect the changes in percentage terms of the price of light, sweet crude oil
delivered to Cushing, Oklahoma, as measured by the changes in the average of the
prices of 12 futures contracts on crude oil traded on the Exchange, consisting
of the near month contract to expire and the contracts for the following eleven
months, for a total of 12 consecutive months’ contracts, except when the near
month contract is within two weeks of expiration, in which case it will be
measured by the futures contracts that are the next month contract to expire and
the contracts for the following eleven consecutive months, less US12OF’s
expenses. When calculating the daily movement of the average price of the 12
contracts each contract month will be equally weighted.
   101
 
 US12OF seeks to accomplish its objective through
investments in futures contracts and other oil interests such as cash-settled
options on listed oil futures contracts, forward contracts for crude oil, and
over-the-counter transactions that are based on the price of crude oil, heating
oil, gasoline, natural gas and other petroleum-based
fuels.
 
 USG began
trading on the American Stock Exchange on February 26, 2008 by purchasing
futures contracts on gasoline that are traded on the Exchange. The investment
objective of USG is for the changes in percentage terms of its units’ net asset
value to reflect the changes in percentage terms of the price of unleaded
gasoline, as measured by the changes in the price of the futures contract on
gasoline traded on the Exchange that is the near month contract to expire,
except when the near month contract is within two weeks of expiration, in which
case it will be measured by the futures contract that is the next month contact
to expire, less USG’s expenses. USG seeks to accomplish its objective through
investments in listed gasoline futures contracts and other gasoline interests
such as cash-settled options on futures contracts, forward contracts for
gasoline and over-the-counter transactions that are based on the price of
gasoline, heating oil, natural gas, crude oil, and other petroleum-based
fuels.
 
 USHO
began trading on the American Stock Exchange on April 9, 2008 by purchasing
futures contracts on heating oil that are traded on the Exchange. 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 price of heating oil, as
measured by the changes in the price of the futures contract on heating oil
traded on the Exchange that is the near month contract to expire, except when
the near month contract is within two weeks of expiration, in which case it will
be measured by the futures contract that is the next month contact to expire,
less USHO’s expenses. USHO seeks to accomplish its objective through investments
in listed heating oil futures contracts and other heating oil interests such as
cash-settled options on futures contracts, forward contracts for heating oil and
over-the-counter transactions that are based on the price of heating oil,
natural gas, crude oil, gasoline and other petroleum-based fuels.
 
 As of
December 31, 2008, US12NG and USSO had not formally begun operations. US12NG and
USSO each have filed a registration statement on Form S-1 with the Securities
and Exchange Commission (the “SEC”) and the Company is in the process of filings
amendments to Form S-1 for USSO.
 
 The
Company is a wholly owned subsidiary of Wainwright Holdings, Inc.
(“Wainwright”), a Delaware corporation. Wainwright is a holding company that is
controlled by the president of the Company and served as the initial limited
partner of the Funds.
 
 As the
General Partner of the Funds, the Company is required to evaluate the credit
risk of the Funds to their futures commission merchant, oversee the purchases
and sales of the Funds’ units by certain “authorized purchasers,” review the
daily positions and margin requirements of the Funds, and manage the Funds’
investments. The Company also pays continuing service fees to the marketing
agent for communicating with the authorized purchasers.
 
 NOTE 2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Principles
of consolidation
 
 The
Company as General Partner of the Funds has included the accounts of the Funds
since their inception in the consolidated financial statements. The Company has
recorded a minority interest for the amount directly owned by the limited
partner (representing the limited partner interest owned by Wainwright).
Subsequent to the Funds going effective with the SEC, the Company and Wainwright
redeemed their partnership interests. Therefore, as of December 31, 2008, the
accounts of each of the Funds were no longer included in the accompanying
consolidated statement of financial condition. All intercompany accounts and
balances have been eliminated in consolidation.
 
 Revenue
recognition
 
 The
Company recognizes revenue in the period earned under the terms of its
management agreements with the Funds. These agreements provide for fees based
upon a percentage of the daily average net asset value of the Funds. In
connection with the Funds’ trading activities, commodity futures contracts,
forward contracts, physical commodities, and related options are recorded on the
trade-date basis. All such transactions are recorded on the identified cost
basis and marked to market daily. Unrealized gains and losses on open contracts
are reflected in the statement of financial condition and represent the
difference between original contract amount and market value (as determined by
exchange settlement prices for futures contracts and related options and cash
dealer prices at a predetermined time for forward contracts, physical
commodities, and their related options) as of the last business day of the year
or as of the last date of the financial statements. Changes in the unrealized
gains or losses between periods are reflected in the statement of
operations.
 102
  
 The
Company earns interest on its assets on deposit at the broker at the 90-day
Treasury bill rate for deposits denominated in U.S. dollars. In addition, the
Funds earn interest on funds held with their custodian at prevailing market
rates earned on such investments.
 
 General
Partner management fee
 
 Under the
Funds’ respective Limited Partnership Agreements, the Company is responsible for
investing the assets of the Funds in accordance with the objectives and policies
of the Funds. In addition, the Company has arranged for one or more third
parties to provide administrative, custody, accounting, transfer agency and
other necessary services to the Funds. For these services, the Funds are
contractually obligated to pay the Company a management fee, which is paid
monthly, based on the average daily net assets of the Funds. Through December
31, 2008 USOF paid a fee equal to 0.50% per annum on average daily net assets of
$1,000,000,000 or less and 0.20% of average daily net assets that are greater
than $1,000,000,000. Effective January 1, 2009, USOF pays a management fee of
0.45% per annum on its average daily net assets. USNG pays a fee equal to 0.60%
per annum on average daily net assets of $1,000,000,000 or less and 0.50% of
average daily net assets that are greater than $1,000,000,000. US12OF, USHO and
USG each pay a fee of 0.60% per annum on their average daily net
assets.
 
 The Funds
pay for all brokerage fees, taxes and other expenses, including licensing fees
for the use of intellectual property, registration or other fees paid to the
SEC, the Financial Industry Regulatory Authority (“FINRA”), formerly the
National Association of Securities Dealers, or any other regulatory agency in
connection with the offer and sale of subsequent units after their initial
registration and all legal, accounting, printing and other expenses associated
therewith. The Funds also pay the fees and expenses of the independent
directors.
 
 Investments
 
 The
Company’s investments in common stock are classified as
available-for-sale-securities and are considered to be held for an indefinite
period. Securities investments not classified as either held-to-maturity or
trading securities are classified as available-for-sale securities.
Available-for-sale-securities are recorded at fair value on the statement of
financial condition, with the change in fair value excluded from earnings and
recorded as a component of other comprehensive income included in member’s
equity. Unrealized holding losses on such securities, which were subtracted from
member’s equity were $(88,820) and $(443,189) for the years ended December 31,
2008 and 2007, respectively (Note 5).
 
 Realized
gains or losses are recorded upon disposition of investments calculated based
upon the difference between the proceeds and the cost basis determined using the
specific identification method.
 
 Brokerage
commissions
 
 Brokerage
commissions on all open commodity futures contracts are accrued on a full-turn
basis.
 
 Additions
and redemptions
 
 Authorized
purchasers may purchase creation baskets consisting of 100,000 units from the
Funds as of the beginning of each business day based upon the prior day’s net
asset value. Authorized purchasers may redeem units from the Funds only in
blocks of 100,000 units called “Redemption Baskets.” The amount of the
redemption proceeds for a Redemption Basket will be equal to the net asset value
of the Funds’ units in the Redemption Basket as of the end of each business
day.
 
 The Funds
receive or pay the proceeds from units sold or redeemed one business day after
the trade-date of the purchase or redemption. The amounts due from authorized
purchasers are reflected in the Funds’ statement of financial condition as
receivables for units sold, and amounts payable to authorized purchasers upon
redemption are reflected as payable for units redeemed.
 103
 
 Partnership
capital and allocation of partnership income and losses
 
 Profit or
loss shall be allocated among the partners of the Funds 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 Limited Partnership Agreements.
 
 Calculation
of net asset value
 
 The Funds
calculate their net asset value on each trading day by taking the current market
value of their total assets, subtracting any liabilities and dividing the amount
by the total number of units issued and outstanding. The Funds use the Exchange
closing price on that day for contracts traded on the
Exchange.
 
 Cash
equivalents
 
 Cash
equivalents are highly liquid investments with original maturity dates of three
months or less.
 
 Accounting
estimates
 
 The
preparation of the financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements. Actual results could differ
from those estimates.
 
 Income
taxes
 
 No
provision for federal income taxes has been made since, as a limited liability
company, the Company is not subject to income taxes. The Company’s income or
loss is reportable by its member on its tax return.
 
 Deferred
offering costs
 
 The
Company capitalizes all initial offering costs associated with the registration
of the Funds until such time as the registration process with the SEC is
complete. At this time, the Company charges the capitalized costs to member’s
equity. Deferred offering costs includes, but is not limited to, legal fees
pertaining to the Funds’ units offered for sale, SEC and state registration
fees, initial fees paid to be listed on an exchange and underwriting and other
similar costs.
 
 Recent
accounting pronouncements
 
 Effective
January 1, 2008, the Company adopted FASB Interpretation No. 48 (“FIN 48”),
“Accounting for Uncertainty in Income Taxes”, which establishes that a tax
position taken or expected to be taken in a tax return is to be recognized in
the consolidated financial statements when it is more likely than not, based on
the technical merits, that the position will be sustained upon examination. FIN
48 is effective for private companies for fiscal years beginning after December
15, 2007. The adoption of FIN 48 did not materially impact the Company’s
financial statements.
 
 Effective
January 1, 2008, the Company adopted FAS 157 - Fair Value Measurements (“FAS
157” or the “Statement”). FAS 157 defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles (“GAAP”),
and expands disclosures about fair value measurement. The changes to current
practice resulting from the application of the Statement relate to the
definition of fair value, the methods used to measure fair value, and the
expanded disclosures about fair value measurement. The Statement establishes a
fair value hierarchy that distinguishes between (1) market participant
assumptions developed based on market data obtained from sources independent of
each of the funds (observable inputs) and (2) the Company’s own assumptions
about market participant assumptions developed based on the best information
available under the circumstances (unobservable inputs). The three levels
defined by the FAS 157 hierarchy are as follows:
  Level I -
Quoted prices (unadjusted) in active markets for identical assets or
liabilities that the reporting entity has the ability to access at the
measurement date.
 104
 
 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 the Company’s investments at
December 31, 2008 and December 31, 2007 using the fair value
hierarchy:
  At December 31,
      2008:
                
                Total
                
                
                Level
      I
                
                
                Level
      II
                
                
                Level
      IIIInvestments
                
                $
                34,579
                
                
                $
                34,579
                
                
                $
                -
                
                
                $
                -At December 31,
      2007:
                
                Total
                
                
                Level
      I
                
                
                Level
      II
                
                
                Level
      IIIInvestments
                
                $
                123,398
                
                
                $
                123,398
                
                
                $
                -
                
                
                $
                -
  NOTE 3 -CAPITALIZATION AND RELATED PARTY
TRANSACTIONS
 
 During
the year ended December 31, 2008, the Company paid $1,869,598 in distributions
to its member. During the year ended December 31, 2007, Wainwright contributed
$1,280,906 in marketable securities in connection with its interest in the
Company. In addition, the Company and USOF have incurred offering and
organizational costs in the amount of $2,023,991 which are not included in the
accompanying consolidated financial statements at December 31, 2008. Wainwright
has provided funding for these costs, but is under no obligation to do so or
continue funding these costs. The Company and USOF are not required to reimburse
Wainwright or its affiliates for any such costs incurred. On June 1, 2007,
accounts payable of $480,593 relating to USOF’s offering costs incurred but
unpaid by Wainwright were assumed by the Company in connection with Wainwright’s
equity infusion of marketable securities as mentioned above. The effect of this
transaction increased investments by $1,280,906, offering costs by $480,593,
accounts payable by $480,593 and equity by $1,280,906. Included in deferred
offering costs at December 31, 2008 (for US12NG and USSO) and December 31, 2007
(for US12NG, USG and USHO) is $352,794 and $187,056 respectively, of initial
offering and organizational costs incurred by the Funds. These initial offering
and organization costs incurred by the Funds will be borne by the Company and
not be charged to the Funds. The Funds were each capitalized with $1,000, of
which the Company contributed $20 and Wainwright contributed $980. The Company
paid its parent distributions of $1,869,598 for the year ended December 31, 2008
and $343,769 for the year ended December 31, 2007.
 
 In
addition, the General Partner, through no obligation to do so, has agreed to pay
certain expenses, including those relating to audit expenses and tax accounting
and reporting requirements normally borne by USHO, USG and US12OF to the extent
that such expenses exceed 0.15% (15 basis points) of their NAV, on an annualized
basis, through December 31, 2008. The General Partner has no obligation to
continue such payments in subsequent years. The total amount of these costs to
be paid by the General Partner, USHO, USG and US12OF is estimated to be $360,000
for the year ended December 31, 2008.
   105
  NOTE
4 - CONTRACTS AND AGREEMENTS
 
 The
Company, together with each of the Funds, is a party to marketing agent
agreements with ALPS Distributors, Inc. (“ALPS”), a Colorado corporation,
whereby ALPS provides certain marketing services for the Funds as outlined in
their respective agreements. Under the agreement dated as of March 13, 2006, as
amended, whereby ALPS provides certain marketing services for USOF, the Company
pays ALPS a marketing fee of $425,000 per annum plus the following incentive
fee: 0.00% on USOF’s assets from $0 — $500 million; 0.04% on USOF’s assets from
$500 million — $4 billion; and 0.03% on USOF’s assets in excess of $4 billion.
Under the agreement dated as of April 17, 2007, whereby ALPS provides certain
marketing services for USNG, and the agreement dated as of November 13, 2007,
whereby ALPS provides certain marketing services for US12OF, the Company pays
ALPS fees equal to 0.06% on each of USNG’s and US12OF’s assets up to $3 billion
and 0.04% on each of USNG’s and US12OF’s assets in excess of $3 billion. Under
the agreement dated as of February 15, 2008, whereby ALPS provides certain
marketing services for USG, and the agreement dated March 10, 2008 whereby ALPS
provides certain marketing services for USHO, the Company pays ALPS fees equal
to fees equal to 0.06% on each of USG’s and USHO’s assets up to $3 billion and
0.04% on each of USG’s and USHO’s assets in excess of $3 billion.
 
 The above
fees do not include the following expenses, which are also borne by the Company,
the cost of placing advertisements in various periodicals, web construction and
development, and the printing and production of various marketing
materials.
 
 The
Company, with each of the Funds are also parties to custodian agreements with
Brown Brothers Harriman & Co. (“Brown Brothers”), whereby Brown Brothers
holds investments on behalf of the Funds. The Company pays the fees of the
custodian, which shall be determined by the parties from time to time. In
addition, the Company, with each of the Funds, are parties to administrative
agency agreements with Brown Brothers, whereby Brown Brothers acts as the
administrative agent, transfer agent and registrar for each of the Funds. The
Company also pays the fees of Brown Brothers for its services under these
agreements and such fees will be determined by the parties from time to
time.
 
 Currently,
the Company pays Brown Brothers for its services, in the foregoing capacities,
the greater of a minimum amount of $75,000 annually or an asset-based charge of
(a) 0.06% for the first $500 million of combined net assets, (b) 0.0465% for
combined net assets greater than $500 million but less than $1 billion, and (c)
0.035% of combined net assets in excess of $1 billion. The Company also pays a
$20,000 annual fee for transfer agency services and transaction fees ranging
from $7.00 to $15.00 per transaction.
 
 Each of
the Funds have entered into brokerage agreements with UBS Securities LLC as the
futures commission merchant (the “FCM”). The agreements provide that the FCM
will charge commissions of approximately $7 to $8 per round-turn trade plus
applicable exchange and NFA fees for futures contracts and options on futures
contracts.
 
 Each of
the Funds have invested primarily in futures contracts traded on the Exchange
since the commencement of their operations. On May 30, 2007, USOF and USNG
entered into a license agreement with the Exchange whereby the Funds were
granted a non-exclusive license to use certain of the Exchange’s settlement
prices and service marks. The agreement has an effective date of April 10, 2006.
Under the license agreement, the Funds pay the Exchange an asset-based fee for
the license. Pursuant to the agreement, the Funds 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. US12OF, USG and USHO entered
into the above license agreement on the same terms with an effective date of
December 4, 2007. Other funds managed by the Company will also be granted a
similar non-exclusive license on the same terms. The Funds expressly disclaim
any association with the Exchange or endorsement of the Funds by the Exchange
and acknowledge that “NYMEX” and “New York Mercantile Exchange” are registered
trademarks of such Exchange.
 
 The
Company has contracted an accounting firm to prepare each of the Funds’ yearly
income tax filings with the Internal Revenue Service. The yearly cost to the
Company for these services is estimated to be approximately $525,000. The cost
associated with any registered new fund is expected to be
comparable.
 
 NOTE
5 - ACCUMULATED COMPREHENSIVE LOSS
 
 Changes
in accumulated other comprehensive income as of December 31, 2008 and 2007 are
as follows:
 106
 
 Balance,
      December 31, 2006
                                    
                                    $
                                    -Unrealized
      holding losses on investments
                                    
                                    
                                    (443,189
                                    )Balance,
      December 31, 2007
                                    
                                    
                                    (443,189
                                    )Unrealized
      holding losses on investments
                                    
                                    
                                    (88,820
                                    )Balance,
      December 31, 2008
                                    
                                    $
                                    (532,009
                                    )
 
 NOTE
6 - OFF-BALANCE SHEET RISKS AND CONTINGENCIES
 
 The Funds
engage in the trading of U.S. futures contracts and options on U.S. contracts
(collectively “derivatives”). The Funds are exposed to both market risk, the
risk arising from changes in the market value of the contracts; and credit risk,
the risk of failure by another party to perform according to the terms of a
contract.
 
 All of
the contracts currently traded by the Funds 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; the Funds must rely solely on the credit of their
respective individual counterparties. However, in the future, if the Funds were
to enter into non-exchange traded contracts, they 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. The Funds also have credit risk since the sole
counterparty to all domestic futures contracts is the exchange clearing
corporation. In addition, the Funds bear the risk of financial failure by the
clearing broker.
 
 The
purchase and sale of futures and options on futures contracts require margin
deposits with an FCM. Additional deposits may be necessary for any loss on
contract value. The Commodity Exchange Act requires an FCM to segregate all
customer transactions and assets from the FCM’s proprietary
activities.
 
 A
customer’s cash and other property, such as U.S. Treasury Bills, deposited with
an FCM are considered commingled with all other customer funds subject to the
FCM’s segregation requirements. In the event of an FCM’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.
 
 For
derivatives, risks arise from changes in the market value of the contracts.
Theoretically, the Funds are exposed to market risk equal to the value of
futures and forward contracts purchased and unlimited liability on such
contracts sold short. As both buyers and sellers of options, the Funds pay or
receive a premium at the outset and then bear the risk of unfavorable changes in
the price of the contract underlying the option.
 
 The
Company’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 and control procedures. In addition, the Company has a policy
of reviewing the credit standing of each clearing broker or counter-party with
which it conducts business.
 
 The
financial instruments held by the Company are reported in the 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
maturities.
 
 The
Company has securities for its own account and may incur losses if the market
value of the securities decreases subsequent to December 31,
2008.


107




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




Not
applicable.




Item 9A.  Controls and Procedures.





Disclosure
Controls and Procedures




US12OF
maintains disclosure controls and procedures that are designed to ensure that
material information required to be disclosed in US12OF’s periodic reports
filed or submitted under the Exchange Act is recorded, processed, summarized and
reported within the time period specified in the SEC’s rules and
forms.




The duly
appointed officers of the General Partner, including its chief executive
officer and chief financial officer, who perform functions equivalent
to those of a principal executive officer and principal financial officer of
US12OF if US12OF had any officers, have evaluated the effectiveness of US12OF’s
disclosure controls and procedures and have concluded that the disclosure
controls and procedures of US12OF have been effective as of the end of the
period covered by this annual report on Form
10-K.





Management’s
Annual Report on Internal Control Over Financial Reporting




US12OF is
responsible for establishing and maintaining adequate internal control over
financial reporting. US12OF’s internal control system is designed to provide
reasonable assurance to its management and the board of directors of the General
Partner regarding the preparation and fair presentation of published financial
statements. All internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement
preparation and presentation. Management’s report on internal control over
financial reporting is set forth above under the heading, “Management’s Annual
Report on Internal Control Over Financial Reporting” in Item 8 of this annual
report on Form 10-K.




Change
in Internal Control Over Financial Reporting




There
were no changes in US12OF’s internal control over financial reporting during
US12OF’s last fiscal quarter that have materially affected, or are reasonably
likely to materially affect, US12OF’s internal control over financial
reporting.




Item 9B.  Other Information.




Monthly
Account Statements




Pursuant
to the requirement under Rule 4.22(h) under the CEA, each month US12OF publishes
an account statement for its unitholders, which includes a Statement of Income
(Loss) and a Statement of Changes in NAV. The account statement is filed with
the SEC on a current report on Form 8-K pursuant to Section 13 or 15(d) of the
Exchange Act and posted each month on US12OF’s website at
www.unitedstates12monthoilfund.com.





Part III





Item 10.  Directors, Executive Officers and Corporate
Governance.





Mr.
Nicholas Gerber and Mr. Howard Mah serve as executive officers of the General
Partner. US12OF has no executive officers. Its affairs are generally managed by
the General Partner. The following individuals serve as Management &
Directors of the General Partner.





Nicholas
Gerber has been the President and CEO of the General Partner since June
9, 2005 and a Management Director of the General Partner since May 10, 2005. He
maintains his main business office at 1320 Harbor Bay Parkway, Suite 145,
Alameda, California 94502. Mr. Gerber has acted as a portfolio manager for
US12OF since it commenced operations in December 2007 and the Related Public
Funds since April 2006. Mr. Gerber will act as a portfolio manager for USSO and
US12NG. He has been listed with the CFTC as a Principal of the General Partner
since November 29, 2005, and registered with the CFTC as an Associated Person of
the General Partner on December 1, 2005. Currently, Mr. Gerber manages US12OF
and the Related Public Funds. He will also manage USSO and US12NG. Mr. Gerber
has also served as Vice President/Chief Investment Officer of Lyon’s Gate
Reinsurance Company, Ltd. since June of 2003. Mr. Gerber has an extensive
background in securities portfolio management and in developing investment funds
that make use of indexing and futures contracts. He is also the founder of
Ameristock Corporation, a California-based investment adviser registered under
the Advisers Act, that has been sponsoring and providing portfolio management
services to mutual funds since March 1995. Since August 1995, Mr. Gerber has
been the portfolio manager of the Ameristock Mutual Fund, Inc. a mutual fund
registered under the Investment Company Act of 1940, focused on large cap U.S.
equities that, as of December 31, 2008, had approximately $188 million in
assets. He has also been a Trustee for the Ameristock ETF Trust since June 2006,
and served as a portfolio manager for the Ameristock/Ryan 1Year, 2 Year, 5 Year,
10 Year and 20 Year Treasury ETF from June 2007 to June 2008 when such funds
were liquidated. In these roles, Mr. Gerber has gained extensive experience in
evaluating and retaining third-party service providers, including custodians,
accountants, transfer agents, and distributors. Mr. Gerber has passed the Series
3 examination for associated persons. He holds an MBA in finance from the
University of San Francisco and a BA from Skidmore College. Mr. Gerber is 46
years old.




108




Howard Mah
has been a Management Director of the General Partner since May 10, 2005,
Secretary of the General Partner since June 9, 2005, and Chief Financial Officer
of the General Partner since May 23, 2006. He has been listed with the CFTC as a
Principal of the General Partner since November 29, 2005. In these roles, Mr.
Mah is currently involved in the management of US12OF and the Related Public
Funds and will be involved in the management of USSO and US12NG. Mr. Mah also
serves as the General Partner’s Chief Compliance Officer. He received a Bachelor
of Education from the University of Alberta, in 1986 and an MBA from the
University of San Francisco in 1988. He has been Secretary and Chief Compliance
Officer of the Ameristock ETF Trust since February 2007, Chief Compliance
Officer of Ameristock Corporation since January 2001; a tax & finance
consultant in private practice since January 1995, Secretary of Ameristock
Mutual Fund since June 1995 and Ameristock Focused Value Fund from December 2000
to January 2005; Chief Compliance Officer of Ameristock Mutual Fund since August
2004 and the Co-Portfolio Manager of the Ameristock Focused Value Fund from
December 2000 to January 2005. Mr. Mah is 44 years old.





Andrew F.
Ngim has been a Management Director of the General Partner since May 10,
2005 and Treasurer of the General Partner since June 9, 2005. He has been listed
with the CFTC as a Principal of the General Partner since November 29, 2005. As
Treasurer of the General Partner, Mr. Ngim is currently involved in the
management of US12OF and the Related Public Funds and will be involved in the
management of USSO and US12NG. He received a Bachelor of Arts from the
University of California at Berkeley in 1983. Mr. Ngim has been Ameristock
Corporation’s Managing Director since January 1999 and co-portfolio manager of
Ameristock Corporation since January 2000, Trustee of the Ameristock ETF Trust
since February 2007, and served as a portfolio manager for the Ameristock/Ryan 1
Year, 2 Year, 5 Year, 10 Year and 20 Year Treasury ETF from June 2007 to June
2008 when such funds were liquidated. Mr. Ngim is 48 years old.





Robert L.
Nguyen has been a Management Director of the General Partner since May
10, 2005. He has been listed with the CFTC as a Principal of the General Partner
since November 29, 2005 and registered with the CFTC as an Associated Person on
November 9, 2007. As a Management Director of the General Partner, Mr. Nguyen is
currently involved in the management of US12OF and the Related Public Funds and
will be involved in the management of USSO and US12NG. He received a Bachelor of
Science from California State University Sacramento in 1981. Mr. Nguyen has been
the Managing Principal of Ameristock Corporation since January 2000. Mr. Nguyen
is 49 years old.





The
following individuals provide significant services to US12OF but are employed by
the entities noted below.





John P.
Love has acted as the Portfolio Operations Manager for US12OF since it
commenced operations in December 2007 and the Related Public Funds since January
2006 and is expected to be the Portfolio Operations Manager for USSO and US12NG.
Mr. Love is also employed by the General Partner. He has been listed with the
CFTC as a Principal of the General Partner since January 17, 2006. Mr. Love also
served as the operations manager of Ameristock Corporation from October 2002 to
January 2007, where he was responsible for back office and marketing activities
for the Ameristock Mutual Fund and Ameristock Focused Value Fund and for the
firm in general. Mr. Love holds a Series 3 license and registered with the CFTC
as an Associated Person of the General Partner on December 1, 2005. He holds a
BFA in cinema-television from the University of Southern California. Mr. Love is
37 years old.




109




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





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





Peter M.
Robinson has been an Independent Director of the General Partner since
September 30, 2005 and, as such, serves on the board of directors of the General
Partner, which acts on behalf of US12OF, and the Related Public Funds and will
serve on behalf of USSO and US12NG, if such funds commence operations. He has
been listed with the CFTC as a Principal of the General Partner since November
2005. Mr. Robinson has been employed as a Research Fellow with the Hoover
Institution since 1993. Mr. Robinson graduated from Dartmouth College in 1979
and Oxford University in 1982. Mr. Robinson has also written three books
and has been published in the New York Times, Red Herring,
and Forbes ASAP and he
is the editor of Can Congress
Be Fixed?: Five Essays on Congressional Reform (Hoover Institution Press,
1995). Mr. Robinson is 51 years old.




Gordon L.
Ellis has been an Independent Director of the General Partner since
September 30, 2005 and, as such, serves on the board of directors of the General
Partner, which acts on behalf of US12OF, and the Related Public Funds and will
serve on behalf of USSO and US12NG, if such funds commence operations. He has
been listed with the CFTC as a Principal of the General Partner since November
2005. Mr. Ellis has been Chairman of International Absorbents, Inc., a holding
company of Absorption Corp., since July 1988, President and Chief Executive
Officer since November 1996 and a Class I Director of the company since July
1985. Mr. Ellis is also a director of Absorption Corp., International
Absorbents, Inc.’s wholly-owned subsidiary which is engaged in developing,
manufacturing and marketing a wide range of animal care and industrial absorbent
products. Mr. Ellis is a director/trustee of Polymer Solutions, Inc., a former
publicly-held company that sold all of its assets effective as of February 3,
2004 and is currently winding down its operations and liquidating following such
sale. Polymer Solutions, Inc. previously developed, manufactured and distributed
paints, coatings and adhesives. Mr. Ellis is a Professional Engineer, a
Certified Director, and holds an MBA in international finance. Mr. Ellis is 62
years old.




110




Malcolm R.
Fob es III has
been an Independent Director of the General Partner since September 30, 2005
and, as such, serves on the board of directors of the General Partner, which
acts on behalf of US12OF and the Related Public Funds and will serve on behalf
of USSO and US12NG, if such funds commence operations. He has been listed with
the CFTC as a Principal of the General Partners since November 2005. Mr. Fobes
is the founder, Chairman and Chief Executive Officer of Berkshire Capital
Holdings, Inc., a California-based investment adviser registered under the
Advisers Act, that has been sponsoring and providing portfolio management
services to mutual funds since 1997. Since 1997, Mr. Fobes has been the Chairman
and President of The Berkshire Funds, a mutual fund investment company
registered under the Investment Company Act of 1940. Mr. Fobes also serves as
portfolio manager of the Berkshire Focus Fund, a mutual fund registered under
the Investment Company Act of 1940, which concentrates its investments in the
electronic technology industry. From April 2000 to July 2006, Mr. Fobes also
served as co-portfolio manager of The Wireless Fund, a mutual fund registered
under the Investment Company Act of 1940, which concentrates its investments in
companies engaged in the development, production, or distribution of
wireless-related products or services. In these roles, Mr. Fobes has gained
extensive experience in evaluating and retaining third-party service providers,
including custodians, accountants, transfer agents, and distributors. Mr. Fobes
was also contributing editor of Start a Successful Mutual Fund: The Step-by-Step
Reference Guide to Make It Happen (JV Books, 1995). Mr. Fobes holds a B.S.
degree in Finance and Economics from San Jose State University in California.
Mr. Fobes is 44 years old.





The
following are individual Principals, as that term is defined in CFTC Rule 3.1,
for the General Partner: Melinda Gerber, the Gerber Family Trust, the Nicholas
and Melinda Gerber Trust, Howard Mah, Andrew Ngim, Robert Nguyen, Peter
Robinson, Gordon Ellis, Malcolm Fobes, John Love, John Hyland, Ray Allen and
Wainwright. These individuals are principals due to their positions, however,
Nicholas Gerber and Melinda Gerber are also principals due to their controlling
stake in Wainwright. None of the principals owns or has any other beneficial
interest in US12OF. Nicholas Gerber and John Hyland make trading and investment
decisions for US12OF. Nicholas Gerber, John Love, and John Hyland execute trades
on behalf of US12OF. In addition, Nicholas Gerber, John Love, John Hyland,
Robert Nguyen and Ray Allen are registered with the CFTC as Associated Persons
of the General Partner and are NFA Associate Members.




Audit
Committee





The Board
of the General Partner has an audit committee which is made up of the three
independent directors (Peter M. Robinson, Gordon L. Ellis, and Malcolm R. Fobes
III). The audit committee is governed by an audit committee charter that is
posted on US12OF’s website at www.unitedstates12monthoilfund.com. Any unitholder
of US12OF may also obtain a printed copy of the audit committee charter, free of
charge, by calling 1-800-920-0259. The Board has determined that each member of
the audit committee meets the financial literacy requirements of the NYSE Arca
and the audit committee charter. The Board has further determined that each of
Messrs. Ellis and Fobes have accounting or related financial management
expertise, as required by the NYSE Arca, such that each of them is considered an
“Audit Committee Financial Expert” as such term is defined in Item 407(d)(5) of
Regulation S-K.




Other
Committees





Since the
individuals who perform work on behalf of US12OF are not compensated by US12OF,
but instead by the General Partner, Ameristock or ALPS Distributors, Inc.,
US12OF does not have a compensation committee. Similarly, since the Directors
noted above serve on the board of directors of the General Partner, there is no
nominating committee of the board of directors that acts on behalf of
US12OF.





Corporate
Governance Policy





The Board
of the General Partner has adopted a Corporate Governance Policy that applies to
US12OF, USOF, USNG, UGA, USHO, USSO and US12NG. US12OF has posted the text of
the Corporate Governance Policy on its website at
www.unitedstates12monthoilfund.com. Any unitholder of US12OF may also
obtain a printed copy of the Corporate Governance Policy, free of charge, by
calling 1-800-920-0259.




111




Code
of Ethics





The
General Partner of US12OF has adopted a Code of Business Conduct and Ethics (the
“Code of Ethics”) that applies to its principal executive officer, principal
financial officer, principal accounting officer or controller, or persons
performing similar functions, and also to US12OF. US12OF has posted the
text of the Code of Ethics on its website at
www.unitedstates12monthoilfund.com. Any unitholder of US12OF may also
obtain a printed copy of the Code of Ethics, free of charge, by calling
1-800-920-0259. US12OF intends to disclose any amendments or waivers to the Code
of Ethics applicable to the General Partner’s principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions, on its website. A copy of the Code of
Ethics is filed as an exhibit to this annual report on Form 10-K.





Executive
Sessions of the Non-Management Directors





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





Other
Information





In
addition to the certifications of the Chief Executive Officer and Chief
Financial Officer of the General Partner filed or furnished with this annual
report on Form 10-K regarding the quality of US12OF’s public disclosure, US12OF
will submit, within 30 days after filing this annual report on Form 10-K, to the
NYSE Arca a certification of the Chief Executive Officer of the General Partner
certifying that he is not aware of any violation by US12OF of NYSE Arca
corporate governance listing standards.





Item 11.  Executive Compensation.




Compensation
to the General Partner and Other Compensation





US12OF
does not directly compensate any of the executive officers noted above. The
executive officers noted above are compensated by the General Partner for
the work they perform on behalf of US12OF and other entities controlled by the
General Partner. US12OF does not reimburse the General Partner for, nor does it
set the amount or form of any portion of, the compensation paid to the executive
officers by the General Partner. US12OF pays fees to the General Partner
pursuant to the LP Agreement, under which the fund is obligated to pay the
General Partner an annualized fee of 0.60% of NAV on all of its average net
assets. For 2008, US12OF paid the General Partner aggregate fees of
$49,187.




112


Director
Compensation





The
following table sets forth compensation earned during the year ended
December 31, 2008, by the Directors of the General Partner. US12OF's
portion of the aggregate fees paid to the Directors for the calendar year 2008
was $1,762.




Change
      inPensionValue
      andFees
                  
                  
                  
                  
                  
                  
                  
                  NonqualifiedEarned
      or
                  
                  
                  
                  
                  
                  Non-Equity
                  
                  DeferredPaid
      in
                  
                  Stock
                  
                  Option
                  
                  Incentive
      Plan
                  
                  Compensation
                  
                  All
      OtherName
                  
                  Cash
                  
                  Awards
                  
                  Awards
                  
                  Compensation
                  
                  Plan
                  
                  Compensation(1)
                  
                  TotalManagement
      DirectorsNicholas
      Gerber
                  
                  $
                  0
                  
                  
                  NA
                  
                  
                  NA
                  
                  
                  NA
                  
                  $
                  0
                  
                  $
                  0
                  
                  $
                  0Andrew
      F. Ngim
                  
                  $
                  0
                  
                  
                  NA
                  
                  
                  NA
                  
                  
                  NA
                  
                  $
                  0
                  
                  $
                  0
                  
                  $
                  0Howard
      Mah
                  
                  $
                  0
                  
                  
                  NA
                  
                  
                  NA
                  
                  
                  NA
                  
                  $
                  0
                  
                  $
                  0
                  
                  $
                  0Robert
      L. Nguyen
                  
                  $
                  0
                  
                  
                  NA
                  
                  
                  NA
                  
                  
                  NA
                  
                  $
                  0
                  
                  $
                  0
                  
                  $
                  0Independent
      DirectorsPeter
      M. Robinson
                  
                  $
                  52,000
                  
                  
                  NA
                  
                  
                  NA
                  
                  
                  NA
                  
                  $
                  0
                  
                  $
                  35,000
                  
                  $
                  87,000Gordon
      L. Ellis
                  
                  $
                  52,000
                  
                  
                  NA
                  
                  
                  NA
                  
                  
                  NA
                  
                  $
                  0
                  
                  $
                  35,000
                  
                  $
                  87,000Malcolm
      R. Fobes III
                  
                  $
                  73,000
                  
                  
                  NA
                  
                  
                  NA
                  
                  
                  NA
                  
                  $
                  0
                  
                  $
                  35,000
                  
                  $
                  108,000
  (1)Payments made under this
column represent cash payments made in lieu of directors’ and officers’
insurance coverage. Such payments were made only to the Independent Directors of
the General Partner for their service on the Board of the General Partner on
behalf of US12OF and the Related Public Funds.





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





None of
the directors or executive officers of the General Partner, nor the employees of
US12OF own any units of US12OF. In addition, US12OF is not aware of any 5%
holder of its units. The
following table sets forth information regarding the beneficial ownership of
US12OF’s units by each person or entity known to it to be the beneficial owner
of more than 5% of its outstanding units as of March 30, 2009. The
General Partner believes that each person that beneficially owns US12OF’s units
has sole voting and dispositive power with regard to such units.


Name of Beneficial Owner
                Number
      of Units
                  Beneficially Owned
                Percent
      of
                  All UnitsInternational
      Value Advisers, LLC(1)
                1,514,877(2)
                30.9%(3)
  (1) The
address of the beneficial owner is 645 Madison Avenue, 12th Floor,
New York, NY 10022.
 (2) International
Value Advisers, LLC filed a Schedule 13G with the SEC on March 9, 2009, to
disclose its ownership of units.
 (3) Based on
the total number of units outstanding for US12OF on March 19,
2009.


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




Certain
Relationships and Related Transactions




US12OF
has and will continue to have certain relationships with the General Partner and
its affiliates. However, there have been no direct financial transactions
between US12OF and the directors or officers of the General Partner that have
not been disclosed herein. See “Item 11. Executive Compensation” and “Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.” Any transaction with a related person that must be
disclosed in accordance with SEC Regulation S-K item 404(a), including financial
transactions by US12OF with directors or executive officers of the General
Partner or holders of beneficial interests in the General Partner or US12OF of
more than 5%, will be subject to the provisions regarding “Resolutions of
Conflicts of Interest; Standard of Care” as set forth in Section 7.7 of the LP
Agreement and will be reviewed and approved by the audit committee of the Board
of the General Partner.





Director
Independence





In March
2009, the Board undertook a review of the independence of the directors of the
General Partner and considered whether any director has a material relationship
or other arrangement with the General Partner, US12OF or the Related Public
Funds that could compromise his ability to exercise independent judgment in
carrying out his responsibilities. As a result of this review, the Board
determined that each of Messrs. Fobes, Ellis and Robinson is an “independent
director,” as defined under the rules of NYSE Arca.





Item 14.  Principal Accountant Fees and
Services.




The fees
for services billed to US12OF by its independent auditors for the last two
fiscal years are as follows:




2008
                                                
                                                
                                                2007Audit
      fees
                                                
                                                $
                                                25,000
                                                *
                                                
                                                $
                                                27,500Audit-related
      fees
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -Tax
      fees
                                                
                                                
                                                -
                                                
                                                
                                                
                                                6,300All
      other fees
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -$
                                                25,000
                                                
                                                
                                                $
                                                27,500* Amount expected to be
      billed for 2008 services.


113




Audit
fees consist of fees paid to Spicer Jeffries LLP for (i) the audit of
US12OF’s annual financial statements included in the annual report on Form 10-K,
and review of financial statements included in the quarterly reports on Form
10-Q and filed on US12OF’s current reports on Form 8-K; and (ii) services
that are normally provided by the Independent Registered Public Accountants in
connection with statutory and regulatory filings of registration
statements.





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




The audit
committee has established policies and procedures which are intended to control
the services provided by US12OF’s independent auditors and to monitor their
continuing independence.  Under these policies and procedures, no
audit or permitted non-audit services (including fees and terms thereof), except
for the de minimis
exceptions for non-audit services described in Section 10A(i)(1)(B) of the
Exchange Act, may be undertaken by US12OF’s independent auditors unless the
engagement is specifically pre-approved by the audit committee.  The
audit committee may form and delegate authority to subcommittees consisting of
one or more members when appropriate, including the authority to grant
pre-approvals of audit and permitted non-audit services, provided that decisions
of such subcommittee to grant pre-approvals must be presented to the full audit
committee at its next scheduled meeting.





Part IV





Item 15.  Exhibits and Financial Statement
Schedules.





1.
            See
      Index to Financial Statements on page 79.2.
            No
      financial statement schedules are filed herewith because (i) such
      schedules are not required or (ii) the information required has been
      presented in the aforementioned financial statements.3.
            Exhibits
      required to be filed by Item 601 of Regulation
  S-K.





Exhibit
Index




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





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




114




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





*
                  Incorporated
      by reference to Registrant’s Registration Statement on Form S-1 (File No.
      333-144348) filed on July 5, 2007.**
                  Incorporated
      by reference to Registrant’s Pre-Effective Amendment No. 2 to the
      Registration Statement on Form S-1 (File No. 333-144348) filed on November
      16, 2007.***
                  Incorporated
      by reference to Registrant’s Annual Report for the Year ended December 31,
      2007, filed on March 25, 2008.****
                  Filed
      herewith.




115




SIGNATURES




Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.







United
States 12 Month Oil Fund, LP (Registrant)


By:  United
States Commodity Funds LLC, its general partner


(formerly
known as Victoria Bay Asset Management, LLC)








By: /s/ Nicholas D. Gerber


Nicholas
D. Gerber


Chief
Executive Officer


(Principal
executive officer)




Date:  March
31, 2009




By: /s/ Howard
Mah


Howard
Mah


Chief
Financial Officer


(Principal
financial and accounting officer)




Date:  March
31, 2009





116




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




Signature
                              
                              Title
      (Capacity)
                              
                              Date/s/
      Nicholas D. Gerber
                              
                              Management
      Director
                              
                              March
      31, 2009Nicholas
      D. Gerber/s/ Howard
      Mah
                              
                              Management
      Director
                              
                              March
      31, 2009Howard
      Mah/s/ Andrew
      Ngim
                              
                              Management
      Director
                              
                              March
      31, 2009Andrew
      Ngim/s/
      Robert
      Nguyen
                              
                              Management
      Director
                              
                              March
      31, 2009Robert
      Nguyen/s/
      Peter
      M. Robinson
                              
                              Independent
      Director
                              
                              March
      31, 2009Peter
      M. Robinson/s/ Gordon
      L. Ellis
                              
                              Independent
      Director
                              
                              March
      31, 2009Gordon
      L. Ellis/s/
      Malcolm
      R. Fobes III
                              
                              Independent
      Director
                              
                              March
      31, 2009Malcolm
      R. Fobes III





117