UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-Q




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


OR


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




Commission
File Number: 001-33859




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)
522-9600


(Registrant’s
telephone number, including area code)




N/A


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




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




x
Yes     ̈ No




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




 ̈
Yes     ̈ No





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




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





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




 ̈
Yes    x No







UNITED
STATES 12 MONTH OIL FUND, LP


Table
of Contents





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







Part
I.    FINANCIAL
INFORMATION





Item
1. Condensed Financial Statements.





Index
to Condensed Financial Statements




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




1


United
States 12 Month Oil Fund, LP


Condensed
Statements of Financial Condition


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





September 30, 2010
                
                
                December 31, 2009AssetsCash
      and cash equivalents (Note 5)
                
                $
                129,597,828
                
                
                $
                141,666,539Equity
      in UBS Securities LLC trading accounts:Cash
                
                
                19,638,121
                
                
                
                3,408,951Unrealized
      gain on open commodity futures contracts
                
                
                1,640,920
                
                
                
                20,802,090Dividend
      receivable
                
                
                6,461
                
                
                
                6,219Other
      assets
                
                
                143,162
                
                
                
                145,723Total
      assets
                
                $
                151,026,492
                
                
                $
                166,029,522Liabilities
      and Partners' CapitalProfessional
      fees payable
                
                $
                448,155
                
                
                $
                405,399General
      Partner management fees payable (Note 3)
                
                
                72,794
                
                
                
                78,963Brokerage
      commission fees payable
                
                
                6,282
                
                
                
                10,532Other
      liabilities
                
                
                12,273
                
                
                
                11,319Total
      liabilities
                
                
                539,504
                
                
                
                506,213Commitments and Contingencies(Notes 3, 4 and 5)Partners'
      CapitalGeneral
      Partner
                
                
                -
                
                
                
                -Limited
      Partners
                
                
                150,486,988
                
                
                
                165,523,309Total
      Partners' Capital
                
                
                150,486,988
                
                
                
                165,523,309Total
      liabilities and partners' capital
                
                $
                151,026,492
                
                
                $
                166,029,522Limited
      Partners' units outstanding
                
                
                3,900,000
                
                
                
                4,100,000Net
      asset value per unit
                
                $
                38.59
                
                
                $
                40.37Market
      value per unit
                
                $
                38.49
                
                
                $
                40.46





See
accompanying notes to condensed financial statements.




2





United
States 12 Month Oil Fund, LP


Condensed
Schedule of Investments (Unaudited)


At
September 30, 2010





Gain
      (Loss) onNumber
      of
                          
                          
                          Open
                            Commodity
                          
                          
                          %
      of
                            Partners'Contracts
                          
                          
                          Contracts
                          
                          
                          CapitalOpen
      Futures Contracts - LongUnited
      States ContractsNYMEX
      Crude Oil Futures CL contracts, expire November 2010
                          
                          
                          150
                          
                          
                          $
                          547,130
                          
                          
                          
                          0.36NYMEX
      Crude Oil Futures CL contracts, expire December 2010
                          
                          
                          150
                          
                          
                          
                          (208,040
                          )
                          
                          
                          (0.14
                          )NYMEX
      Crude Oil Futures CL contracts, expire January 2011
                          
                          
                          151
                          
                          
                          
                          (223,020
                          )
                          
                          
                          (0.15
                          )NYMEX
      Crude Oil Futures CL contracts, expire February 2011
                          
                          
                          150
                          
                          
                          
                          (720,140
                          )
                          
                          
                          (0.48
                          )NYMEX
      Crude Oil Futures CL contracts, expire March 2011
                          
                          
                          150
                          
                          
                          
                          906,930
                          
                          
                          
                          0.60NYMEX
      Crude Oil Futures CL contracts, expire April 2011
                          
                          
                          150
                          
                          
                          
                          (177,340
                          )
                          
                          
                          (0.12
                          )NYMEX
      Crude Oil Futures CL contracts, expire May 2011
                          
                          
                          151
                          
                          
                          
                          (661,190
                          )
                          
                          
                          (0.44
                          )NYMEX
      Crude Oil Futures CL contracts, expire June 2011
                          
                          
                          150
                          
                          
                          
                          (112,440
                          )
                          
                          
                          (0.07
                          )NYMEX
      Crude Oil Futures CL contracts, expire July 2011
                          
                          
                          151
                          
                          
                          
                          779,720
                          
                          
                          
                          0.52NYMEX
      Crude Oil Futures CL contracts, expire August 2011
                          
                          
                          150
                          
                          
                          
                          1,166,650
                          
                          
                          
                          0.78NYMEX
      Crude Oil Futures CL contracts, expire September 2011
                          
                          
                          151
                          
                          
                          
                          (73,400
                          )
                          
                          
                          (0.05
                          )NYMEX
      Crude Oil Futures CL contracts, expire October 2011
                          
                          
                          150
                          
                          
                          
                          416,060
                          
                          
                          
                          0.28Total
      Open Futures Contracts
                          
                          
                          1,804
                          
                          
                          $
                          1,640,920
                          
                          
                          
                          1.09Principal Amount
                          
                          
                          Market ValueCash
      EquivalentsUnited
      States - Money Market FundsFidelity
      Institutional Government Portfolio - Class
I
                          
                          $
                          75,135,816
                          
                          
                          $
                          75,135,816
                          
                          
                          
                          49.93Goldman
      Sachs Financial Square Funds - Government Fund - Class SL
                          
                          
                          42,443,448
                          
                          
                          
                          42,443,448
                          
                          
                          
                          28.20Morgan
      Stanley Institutional Liquidity Fund - Government
      Portfolio
                          
                          
                          10,001,985
                          
                          
                          
                          10,001,985
                          
                          
                          
                          6.65Total
      Cash Equivalents
                          
                          
                          
                          
                          
                          $
                          127,581,249
                          
                          
                          
                          84.78





See
accompanying notes to condensed financial statements.




3


United
States 12 Month Oil Fund, LP


Condensed
Statements of Operations (Unaudited)


For
the three and nine months ended September 30, 2010  and
2009





Three months
                  ended
                  September 30,
                  2010
                
                
                Three months
                  ended
                  September 30,
                  2009
                
                
                Nine months
                  ended
                  September 30,
                  2010
                
                
                Nine months
                  ended
                  September 30,
                  2009IncomeGain
      (loss) on trading of commodity futures contracts:Realized
      gain (loss) on closed positions
                
                $
                (291,690
                )
                
                $
                17,518,080
                
                
                $
                14,251,490
                
                
                $
                30,743,940Change
      in unrealized gain (loss) on open positions
                
                
                8,114,980
                
                
                
                (21,479,560
                )
                
                
                (19,161,170
                )
                
                
                24,098,430Dividend
      income
                
                
                23,287
                
                
                
                47,388
                
                
                
                46,763
                
                
                
                159,668Interest
      income
                
                
                386
                
                
                
                3,319
                
                
                
                3,203
                
                
                
                14,628Other
      income
                
                
                2,000
                
                
                
                4,000
                
                
                
                5,000
                
                
                
                27,000Total
      income (loss)
                
                
                7,848,963
                
                
                
                (3,906,773
                )
                
                
                (4,854,714
                )
                
                
                55,043,666ExpensesGeneral
      Partner management fees (Note 3)
                
                
                228,990
                
                
                
                258,799
                
                
                
                698,588
                
                
                
                622,542Professional
      fees
                
                
                18,941
                
                
                
                179,140
                
                
                
                262,856
                
                
                
                281,837Brokerage
      commission fees
                
                
                3,981
                
                
                
                5,521
                
                
                
                8,070
                
                
                
                44,530Other
      expenses
                
                
                13,620
                
                
                
                43,244
                
                
                
                64,915
                
                
                
                130,954Total
      expenses
                
                
                265,532
                
                
                
                486,704
                
                
                
                1,034,429
                
                
                
                1,079,863Expense
      waiver (Note 3)
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (11,227
                )Net
      expenses
                
                
                265,532
                
                
                
                486,704
                
                
                
                1,034,429
                
                
                
                1,068,636Net
      income (loss)
                
                $
                7,583,431
                
                
                $
                (4,393,477
                )
                
                $
                (5,889,143
                )
                
                $
                53,975,030Net
      income (loss) per limited partnership unit
                
                $
                1.79
                
                
                $
                (0.97
                )
                
                $
                (1.78
                )
                
                $
                5.54Net
      income (loss) per weighted average limitedpartnership
      unit
                
                $
                1.86
                
                
                $
                (0.95
                )
                
                $
                (1.46
                )
                
                $
                13.28Weighted
      average limited partnership units outstanding
                
                
                4,070,652
                
                
                
                4,632,609
                
                
                
                4,023,077
                
                
                
                4,063,736





See
accompanying notes to condensed financial statements.




4


United
States 12 Month Oil Fund, LP


Condensed
Statement of Changes in Partners’ Capital (Unaudited)


For
the nine months ended September 30, 2010





General Partner
                      
                      
                      Limited Partners
                      
                      
                      TotalBalances,
      at December 31, 2009
                      
                      $
                      -
                      
                      
                      $
                      165,523,309
                      
                      
                      $
                      165,523,309Addition
      of 400,000 partnership units
                      
                      
                      -
                      
                      
                      
                      14,577,236
                      
                      
                      
                      14,577,236Redemption
      of 600,000 partnership units
                      
                      
                      -
                      
                      
                      
                      (23,724,414
                      )
                      
                      
                      (23,724,414
                      )Net
      loss
                      
                      
                      -
                      
                      
                      
                      (5,889,143
                      )
                      
                      
                      (5,889,143
                      )Balances,
      at September 30, 2010
                      
                      $
                      -
                      
                      
                      $
                      150,486,988
                      
                      
                      $
                      150,486,988Net
      Asset Value Per Unit:At
      December 31, 2009
                      
                      $
                      40.37At
      September 30, 2010
                      
                      $
                      38.59





See
accompanying notes to condensed financial statements.




5


United
States 12 Month Oil Fund, LP


Condensed
Statements of Cash Flows (Unaudited)


For
the nine months ended September 30, 2010 and 2009





Nine months ended
                
                
                Nine months endedSeptember 30, 2010
                
                
                September 30, 2009Cash
      Flows from Operating Activities:Net
      income (loss)
                
                $
                (5,889,143
                )
                
                $
                53,975,030Adjustments
      to reconcile net income (loss) to net cash provided by (used in) operating
      activities:Decrease
      (increase) in commodity futures trading account
      –  cash
                
                
                (16,229,170
                )
                
                
                5,015,708Unrealized
      (gain) loss on futures contracts
                
                
                19,161,170
                
                
                
                (24,098,430
                )Decrease
      in receivable from General Partner
                
                
                -
                
                
                
                97,019Decrease
      (increase) in dividend receivable and other assets
                
                
                2,319
                
                
                
                (168,044
                )Increase
      (decrease) in General Partner management fees payable
                
                
                (6,169
                )
                
                
                76,868Increase
      in professional fees payable
                
                
                42,756
                
                
                
                127,725Increase
      (decrease) in brokerage commission fees payable
                
                
                (4,250
                )
                
                
                12,882Increase
      in other liabilities
                
                
                954
                
                
                
                11,711Net
      cash provided by (used in) operating activities
                
                
                (2,921,533
                )
                
                
                35,050,469Cash
      Flows from Financing Activities:Addition
      of partnership units
                
                
                14,577,236
                
                
                
                177,719,127Redemption
      of partnership units
                
                
                (23,724,414
                )
                
                
                (76,114,909
                )Net
      cash provided by (used in) financing activities
                
                
                (9,147,178
                )
                
                
                101,604,218Net
      Increase (Decrease) in Cash and Cash Equivalents
                
                
                (12,068,711
                )
                
                
                136,654,687Cash and Cash
      Equivalents, beginning of period
                
                
                141,666,539
                
                
                
                4,012,323Cash and Cash
      Equivalents, end of period
                
                $
                129,597,828
                
                
                $
                140,667,010





See
accompanying notes to condensed financial statements.




6




United
States 12 Month Oil Fund, LP


Notes
to Condensed Financial Statements


For
the period ended September 30, 2010 (Unaudited)




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 limited partnership
units (“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 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 average of
the prices of the 12 futures contracts for 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, 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 and the contracts for
the following 11 consecutive months, less US12OF’s expenses. US12OF
accomplishes its objective through investments in futures contracts for light,
sweet crude oil and other types of crude oil, heating oil, gasoline, natural gas
and other petroleum-based fuels that are traded on the NYMEX, ICE Futures or
other U.S. and foreign exchanges (collectively, “Oil Futures Contracts”) and
other oil related investments such as cash-settled options on Oil Futures
Contracts, forward contracts for oil, cleared swap contracts and
over-the-counter transactions that are based on the price of crude oil, heating
oil, gasoline, natural gas and other petroleum-based fuels, Oil Futures
Contracts and indices based on the foregoing (collectively, “Other Oil
Interests”). As of September 30, 2010, US12OF held 1,804 Oil Futures
Contracts for light, sweet crude oil 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 (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 registered with the Commodity Futures Trading Commission
(the “CFTC”) effective December 1, 2005. The General Partner is also the general
partner of the United States Oil Fund, LP (“USOF”), the United States
Natural Gas Fund, LP (“USNG”), the United States 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.  The General Partner is also the general
partner of the United States Short Oil Fund, LP (“USSO”), the United States 12
Month Natural Gas Fund, LP (“US12NG”) and the United States Brent Oil Fund, LP
(“USBO”), which listed their limited partnership units on the NYSE Arca under
the ticker symbols “DNO” on September 24, 2009, “UNL” on November 18, 2009 and
“BNO” on June 2, 2010, respectively.  The General Partner is also the
sponsor of the United States Commodity Index Fund (“USCI”) which listed its
units on the NYSE Arca under the ticker symbol “USCI” on August 10,
2010.





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




US12OF issues
units to certain authorized purchasers (“Authorized Purchasers”) by offering
baskets consisting of 100,000 units (“Creation Baskets”) through ALPS
Distributors, Inc., as the marketing agent (the “Marketing Agent”). The purchase
price for a Creation Basket is based upon the net asset value of a unit
calculated shortly after the close of the core trading session on the NYSE Arca
on the day the order to create the basket is properly received.


7





In
addition, Authorized Purchasers pay US12OF a $1,000 fee for each order
placed to create one or more Creation Baskets or to redeem one or more
baskets consisting of 100,000 units (“Redemption Baskets”). Units may be
purchased or sold on a nationally recognized securities exchange in smaller
increments than a Creation Basket or Redemption Basket. Units purchased or sold
on a nationally recognized securities exchange are not purchased or sold at the
net asset value of US12OF but rather at market prices quoted on such
exchange.





On
December 4, 2008, US12OF initially registered 11,000,000 units on Form S-1 with
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 $15,001,000.  US12OF also commenced investment operations
on December 6, 2007, by purchasing Oil Futures Contracts traded on the NYMEX
based on light, sweet crude oil.  As of September 30, 2010, US12OF had
registered a total of 111,000,000 units.




NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Revenue
Recognition





Commodity
futures contracts, forward contracts, physical commodities, and related options
are recorded on the trade date. All such transactions are recorded on the
identified cost basis and marked to market daily. Unrealized gains or losses on
open contracts are reflected in the condensed statement of financial
condition and represent the difference between the original contract amount and
the market value (as determined by exchange settlement prices for futures
contracts and related options and cash dealer prices at a predetermined time for
forward contracts, physical commodities, and their related options) as of the
last business day of the year or as of the last date of the condensed
financial statements. Changes in the unrealized gains or losses between periods
are reflected in the condensed statement of operations. 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 income on funds held at the custodian at prevailing market rates
earned on such investments.





Brokerage
Commissions





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




Income
Taxes





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.





In
accordance with GAAP, US12OF is required to determine whether a tax position is
more likely than not to be sustained upon examination by the applicable taxing
authority, including resolution of any tax related appeals or litigation
processes, based on the technical merits of the position.  US12OF
files an income tax return in the U.S. federal jurisdiction, and may file income
tax returns in various U.S. states.  US12OF is not subject to income
tax return examinations by major taxing authorities for years before 2007 (year
of inception).  The tax benefit recognized is measured as the largest
amount of benefit that has a greater than fifty percent likelihood of being
realized upon ultimate settlement.  De-recognition of a tax benefit
previously recognized results in US12OF recording a tax liability that reduces
net assets.  However, US12OF’s conclusions regarding this policy may
be subject to review and adjustment at a later date based on factors including,
but not limited to, on-going analyses of and changes to tax laws, regulations
and interpretations thereof.  US12OF recognizes interest accrued
related to unrecognized tax benefits and penalties related to unrecognized tax
benefits in income tax fees payable, if assessed.  No interest expense
or penalties have been recognized as of and for the period ended September 30,
2010.




Creations
and Redemptions





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


8





US12OF
receives or pays the proceeds from units sold or redeemed within three business
days after the trade date of the purchase or redemption. The amounts due from
Authorized Purchasers are reflected in US12OF’s condensed statement of
financial condition as receivable for units sold, and amounts payable to
Authorized Purchasers upon redemption are reflected as payable for units
redeemed.





Partnership
Capital and Allocation of Partnership Income and Losses





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





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 with such offerings. These costs are
accounted for as a deferred charge and thereafter amortized to expense over
twelve months on a straight-line basis or a shorter period if
warranted.





Cash
Equivalents





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





Reclassification





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





Use
of Estimates





The
preparation of condensed financial statements in conformity with GAAP
requires 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 condensed financial statements, and the
reported amounts of the revenue and expenses during the reporting period. Actual
results may 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, equal to 0.60% per annum of
average daily net assets.


9




Ongoing
Registration Fees and Other Offering Expenses





US12OF
pays all costs and expenses associated with the
ongoing registration of its units subsequent to the initial offering.
These costs include registration or other fees paid to regulatory agencies in
connection with the offer and sale of units, and all legal, accounting, printing
and other expenses associated with such offer and sale. For the nine
months ended September 30, 2010 and 2009, US12OF incurred $7,700 and
$96,250, respectively, in registration fees and other offering
expenses.




Directors’
Fees and Expenses




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





Licensing
Fees





As
discussed in Note 4 below, US12OF entered into a licensing agreement with
the NYMEX on January 16, 2008. Pursuant to the agreement, US12OF and the
affiliated funds managed by the General Partner, other than USBO and USCI, 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 nine months ended September 30, 2010 and
2009, US12OF incurred $27,656 and $24,679, respectively, under this
arrangement.





Investor
Tax Reporting Cost





US12OF
pays the fees and expenses associated with its audit expenses and tax
accounting and reporting requirements.  These costs are estimated to
be $275,000 for the calendar year 2010.





Other
Expenses and Fees




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





NOTE
4 - CONTRACTS AND AGREEMENTS





US12OF is
party to a marketing agent agreement, dated as of November 13, 2007, as
amended from time to time, with the Marketing Agent and the General
Partner, 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
fee does not include the following expenses, which are also borne by the General
Partner: the cost of placing advertisements in various periodicals; web
construction and development; or the printing and production of various
marketing materials.




10


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





Currently,
the General Partner pays BBH&Co. for its services, in the foregoing
capacities, a minimum amount of $75,000 annually for its custody, fund
accounting and fund administration services rendered to US12OF and each of the
affiliated funds managed by the General Partner, as well as a $20,000 annual fee
for its transfer agency services. In addition, the General Partner pays
BBH&Co. an asset-based charge of (a) 0.06% for the first $500 million of
US12OF’s, USOF’s, USNG’s, UGA’s, USHO’s, USSO’s, US12NG’s, USBO’s and USCI’s
combined net assets, (b) 0.0465% for US12OF’s, USOF’s, USNG’s, UGA’s, USHO’s,
USSO’s, US12NG’s, USBO’s and USCI’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, USHO’s, USSO’s, US12NG’s, USBO’s and USCI’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 Oil Futures Contracts
and Other Oil Interests that may be purchased and sold by or through UBS
Securities for US12OF’s account. In accordance with the agreement, UBS
Securities charges US12OF commissions of approximately $7 per round-turn trade,
including applicable exchange and NFA fees for Oil Futures Contracts and
options on Oil Futures Contracts.





On
January 16, 2008, US12OF and the NYMEX entered into a licensing 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 licensing
agreement, US12OF and the affiliated funds managed by the General Partner, other
than USBO and USCI, 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.





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





US12OF engages
in the 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.





US12OF
may enter into futures contracts and options on futures contracts to gain
exposure to changes in the value of an underlying commodity. A futures contract
obligates the seller to deliver (and the purchaser to accept) the future
delivery of a specified quantity and type of a commodity at a specified time and
place. Some futures contracts may call for physical delivery of the asset, while
others are settled in cash. The contractual obligations of a buyer or seller may
generally be satisfied by taking or making physical delivery of the underlying
commodity or by making an offsetting sale or purchase of an identical futures
contract on the same or linked exchange before the designated date of
delivery.





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





Futures
contracts involve, to varying degrees, elements of market risk (specifically
commodity price risk) and exposure to loss in excess of the amount of variation
margin. The face or contract amounts reflect the extent of the total exposure
US12OF has in the particular classes of instruments. Additional risks associated
with the use of futures contracts are an imperfect correlation between movements
in the price of the futures contracts and the market value of the underlying
securities and the possibility of an illiquid market for a futures
contract.


11




Through
September 30, 2010, all of the futures contracts held by US12OF were
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, a party 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, on the transaction.
US12OF has credit risk under its futures contracts since the sole counterparty
to all domestic and foreign futures contracts is the clearinghouse for the
exchange on which the relevant contracts are traded. In addition, US12OF bears
the risk of financial failure by the clearing broker.





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 U.S. 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.





The
General Partner invests a portion of US12OF’s 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 September 30,
2010 and December 31, 2009, US12OF had deposits in domestic and foreign
financial institutions, including cash investments in money market funds, in the
amounts of $149,235,949 and $145,075,490, 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 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 condensed
statement of financial condition at market or fair value, or at carrying amounts
that approximate fair value, because of their highly liquid nature and
short-term maturity.





NOTE 6
– FAIR VALUE OF FINANCIAL INSTRUMENTS




US12OF
values its investments in accordance with Accounting Standards Codification 820
– Fair Value Measurements and Disclosures (“ASC 820”).  ASC 820
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurement. The changes to past practice resulting from the application
of ASC 820 relate to the definition of fair value, the methods used to measure
fair value, and the expanded disclosures about fair value measurement. ASC 820
establishes a fair value hierarchy that distinguishes between (1) market
participant assumptions developed based on market data obtained from sources
independent of 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
ASC 820 hierarchy are as follows:




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




12




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




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




In some
instances, the inputs used to measure fair value might fall within 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,
2009 using the fair value hierarchy:




At
      December 31, 2009
                
                Total
                
                
                Level I
                
                
                Level II
                
                
                Level IIIShort-Term
      Investments
                
                $
                117,532,512
                
                
                $
                117,532,512
                
                
                $
                -
                
                
                $
                -Exchange-Traded
      Futures ContractsUnited
      States Contracts
                
                
                20,802,090
                
                
                
                20,802,090
                
                
                
                -
                
                
                
                -





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




The
following table summarizes the valuation of US12OF’s securities at September 30,
2010 using the fair value hierarchy:




At
      September 30, 2010
                
                Total
                
                
                Level I
                
                
                Level II
                
                
                Level IIIShort-Term
      Investments
                
                $
                127,581,249
                
                
                $
                127,581,249
                
                
                $
                -
                
                
                $
                -Exchange-Traded
      Futures ContractsUnited
      States Contracts
                
                
                1,640,920
                
                
                
                1,640,920
                
                
                
                -
                
                
                
                -





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





Effective
January 1, 2009, US12OF adopted the provisions of Accounting Standards
Codification 815 – Derivatives and Hedging, which require presentation of
qualitative disclosures about objectives and strategies for using derivatives,
quantitative disclosures about fair value amounts and gains and losses on
derivatives.





Fair
Value of Derivative Instruments





Derivatives not Accounted
                          for as Hedging Instruments
                        
                        Statement of Financial
                          Condition Location
                        
                        Fair Value
                          At September 30, 2010
                        
                        
                        Fair Value
                          At December 31, 2009Futures
      -Commodity
      Contracts
                        
                        Assets
                        
                        $
                        1,640,920
                        
                        
                        $
                        20,802,090




13


The
Effect of Derivative Instruments on the Statements of Operations





For the nine months
                                ended September 30, 2010
                              
                              
                              For the nine months
                                ended September 30, 2009Derivatives not Accounted
                                for as
                                Hedging Instruments
                              
                              Location of Gain
                                or (Loss) on
                                Derivatives
                                Recognized in
                                Income
                              
                              Realized Gain
                                or (Loss) on
                                Derivatives
                                Recognized in
                                Income
                              
                              
                              Change in
                                Unrealized
                                Gain or (Loss)
                                Recognized in
                                Income
                              
                              
                              Realized Gain
                                or (Loss) on
                                Derivatives
                                Recognized in
                                Income
                              
                              
                              Change in
                                Unrealized
                                Gain or (Loss)
                                Recognized in
                                IncomeFutures
      -
                              
                              Realized
      gainCommodity
      Contracts
                              
                              (loss)
      on closedfutures
      contracts
                              
                              $
                              14,251,490
                              
                              
                              
                              
                              
                              $
                              30,743,940Change
      in unrealized gain (loss) on open futures contracts
                              
                              
                              
                              
                              
                              $
                              (19,161,170
                              )
                              
                              
                              
                              
                              
                              $
                              24,098,430





NOTE 7
- FINANCIAL HIGHLIGHTS





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





For the nine
                            months ended
                          
                          
                          For the nine
                            months endedSeptember
      30, 2010
                          
                          
                          September
      30, 2009(Unaudited)
                          
                          
                          (Unaudited)Per Unit Operating
    Performance:Net
      asset value, beginning of period
                          
                          $
                          40.37
                          
                          
                          $
                          31.24Total
      income (loss)
                          
                          
                          (1.52
                          )
                          
                          
                          5.80Net
      expenses
                          
                          
                          (0.26
                          )
                          
                          
                          (0.26
                          )Net
      increase (decrease) in net asset value
                          
                          
                          (1.78
                          )
                          
                          
                          5.54Net
      asset value, end of period
                          
                          $
                          38.59
                          
                          
                          $
                          36.78Total
      Return
                          
                          
                          (4.41
                          )%
                          
                          
                          17.73
                          %Ratios
      to Average Net AssetsTotal
      income (loss)
                          
                          
                          (3.12
                          )%
                          
                          
                          39.68
                          %Management
      fees*
                          
                          
                          0.60
                          %
                          
                          
                          0.60
                          %Total
      expenses excluding management fees*
                          
                          
                          0.29
                          %
                          
                          
                          0.44
                          %Expenses
      waived*
                          
                          
                          -
                          %
                          
                          
                          (0.01
                          )%Net
      expenses excluding management fees*
                          
                          
                          0.29
                          %
                          
                          
                          0.43
                          %Net
      income (loss)
                          
                          
                          (3.78
                          )%
                          
                          
                          38.91
                          %*Annualized





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


14




NOTE
8 – RECENT ACCOUNTING PRONOUNCEMENTS





In
January 2010, the Financial Accounting Standards Board issued Accounting
Standards Update (“ASU”)No. 2010-06 “Improving
Disclosures about Fair Value Measurements.” ASU No. 2010-06 clarifies existing
disclosure andrequires additional
disclosures regarding fair value measurements. Effective for fiscal years
beginningafter
December 15, 2010, and for interim periods within those fiscal years, entities
will need to disclose informationabout purchases, sales,
issuances and settlements of Level 3 securities on a gross basis, rather than as
a net number as currently required. The implementation of ASU No. 2010-06 is not
expected to have a material impact on US12OF’s financial statement
disclosures.





NOTE 9 – SUBSEQUENT
EVENTS





US12OF
has performed an evaluation of subsequent events through the date the financial
statements were issued. This evaluation did not result in any subsequent events
that necessitated disclosures and/or adjustments.


15


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




The
following discussion should be read in conjunction with the condensed financial
statements and the notes thereto of the United States 12 Month Oil Fund, LP
(“US12OF”) included elsewhere in this quarterly report on Form
10-Q.




Forward-Looking
Information





This
quarterly report on Form 10-Q, including this “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” contains
forward-looking statements regarding the plans and objectives of management for
future operations. This information may involve known and unknown risks,
uncertainties and other factors that may cause 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 the 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 quarterly report on
Form 10-Q on information available to it on the date of this quarterly
report on Form 10-Q, 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 U.S. Securities and
Exchange Commission (the “SEC”), including annual reports on Form 10-K,
quarterly reports on Form 10-Q and current reports on Form 8-K.





Introduction





US12OF, a
Delaware limited partnership, is a commodity pool that issues units that may be
purchased and sold on the NYSE Arca, Inc. (the “NYSE Arca”). The investment
objective of US12OF is for the changes in percentage terms of its units’ net
asset value (“NAV”) to reflect the changes in percentage terms of the spot price
of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by the
changes in the average of the prices of 12 futures contracts for 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, 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 and the contracts
for the following 11 consecutive months (the “Benchmark Futures Contracts”),
less US12OF’s expenses.





US12OF
invests 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 NYMEX, ICE Futures or other U.S. and foreign exchanges
(collectively, “Oil Futures Contracts”) and other oil interests such as
cash-settled options on Oil Futures Contracts, forward contracts for oil,
cleared swap contracts and over-the-counter transactions that are based on the
price of crude oil, other petroleum-based fuels, Oil Futures Contracts and
indices based on the foregoing (collectively, “Other Oil Interests”). For
convenience and unless otherwise specified, Oil Futures Contracts and Other Oil
Interests collectively are referred to as “Oil Interests” in this quarterly
report on Form 10-Q.





US12OF
seeks to achieve its investment objective by investing in a combination of Oil
Futures Contracts and Other Oil Interests such that changes in its NAV, measured
in percentage terms, will closely track the changes in the average of the prices
of the Benchmark Futures Contracts, also measured in percentage terms. US12OF’s
general partner believes the daily changes in the average of the prices of the
Benchmark Futures Contracts have historically exhibited a close correlation with
the daily changes in 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 Oil Futures Contracts and Other Oil
Interests.


16




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 is within two weeks of expiration, 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.





The
regulation of commodity interests in the United States is a rapidly changing
area of law and is subject to ongoing modification by governmental and judicial
action.  On July 21, 2010, a broad financial regulatory reform bill,
“The Dodd-Frank Wall Street Reform and Consumer Protection Act,” was signed into
law that includes provisions altering the regulation of commodity
interests.  Provisions in the new law include the requirement that
position limits on energy-based commodity futures contracts be established; new
registration, recordkeeping, capital and margin requirements for “swap dealers”
and “major swap participants” as determined by the new law and applicable
regulations; and the forced use of clearinghouse mechanisms for most
over-the-counter transactions. Additionally, the new law requires the
aggregation, for purposes of position limits, of all positions in energy futures
held by a single entity and its affiliates, whether such positions exist on U.S.
futures exchanges, non-U.S. futures exchanges, or in over-the-counter contracts.
The U.S. Commodity Futures Trading Commission (the “CFTC”), along with the SEC
and other federal regulators, has been tasked with developing the rules and
regulations enacting the provisions noted above.  The new law and the
rules to be promulgated may negatively impact US12OF’s ability to meet its
investment objective either through limits or requirements imposed on it or upon
its counterparties.  In particular, new position limits imposed on
US12OF or its counterparties may impact US12OF’s ability to invest in a manner
that most efficiently meets its investment objective, and new requirements,
including capital and mandatory clearing, may increase the cost of US12OF’s
investments and doing business, which could adversely affect US12OF’s
investors.





The
general partner of US12OF, United States Commodity Funds LLC (the “General
Partner”), which is registered as a commodity pool operator (“CPO”) with
the CFTC, is authorized by the Amended and Restated Agreement of Limited
Partnership of US12OF (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.





Price
Movements





Crude oil
futures prices were volatile during the nine months ended September 30, 2010 and
exhibited moderate daily swings along with an uneven upward trend between
January and late March and a downward trend from April to late September
2010.  The average price of the Benchmark Futures Contracts started
the period at $82.15 per barrel. Average prices hit a peak on May 3,
2010 of $92.05 per barrel. The low of the period was on May 25,
2010 when prices reached $72.75 per barrel. The period ended with the
average price of the Benchmark Futures Contracts at $83.42 per barrel, up
approximately 1.55% over the period.  Similarly, US12OF’s NAV started
the period at $40.37 per unit.  US12OF’s NAV reached its high for the
period on May 3, 2010 at $44.30 per unit and reached its low for the period on
May 25, 2010 at $34.69 per unit.  The NAV on September 30, 2010 was
$38.59, down approximately 4.41% over the period. The average Benchmark Futures
Contract prices listed above began with the February 2010 to January 2011
contracts and ended with the November 2010 to October 2011 contracts. The return
of approximately 1.55% on the average price of the Benchmark Futures Contracts
listed above is a hypothetical return only and could not actually be achieved by
an investor holding Futures Contracts. An investment in Oil Futures Contracts
would need to be rolled forward during the time period described in order to
achieve such a result. Furthermore, the change in the nominal price of these
differing crude Oil Futures Contracts, measured from the start of the period to
the end of the period, does not represent the actual benchmark results that
US12OF seeks to track, which are more fully described below in the section
titled “Tracking US12OF’s Benchmark”.




17


During
the nine months ended September 30, 2010, the level of contango remained mildly
steep, meaning that the price of the near month crude oil Futures Contract was
less than the price of the next month crude oil Futures Contract, or contracts
further away from expiration. Crude oil inventories, which reached historic
levels in January 2009 and February 2009 and which appeared to be the primary
cause of the steep level of contango, began to drop in March 2009 and continued
to drop for the remainder of 2009 and the beginning of 2010.  During
the nine months ended September 30, 2010, crude oil inventories began to climb
higher, which contributed to the crude oil futures market remaining in contango
through the end of September 2010. 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’s units is calculated once each NYSE Arca trading day. The NAV for a
particular trading day is released after 4:00 p.m. New York time. Trading
during the core trading session on the NYSE Arca typically closes at
4:00 p.m. New York time. US12OF’s administrator uses the NYMEX closing
price (determined at the earlier of the close of the NYMEX or 2:30 p.m. New
York time) for the contracts held on the NYMEX, but calculates or determines the
value of all other US12OF investments, including ICE Futures contracts or other
futures contracts, as of the earlier of the close of the NYSE Arca or
4:00 p.m. New York time.




Results
of Operations and the Crude Oil Market





Results of
Operations. On December 6, 2007, US12OF listed its units on the
American Stock Exchange (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 $15,001,000 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.





Since its
initial offering of 11,000,000 units, US12OF has registered one subsequent
offering of its units: 100,000,000 units which were registered with the SEC
on March 31, 2009.  As of September 30, 2010, US12OF had issued
7,900,000 units and had 3,900,000 units outstanding. As of September 30, 2010,
there were 103,100,000 units registered but not yet issued.





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





For the Nine Months Ended
September 30, 2010 Compared to the Nine Months Ended September 30,
2009





As of
September 30, 2010, the total unrealized gain on Oil Futures Contracts
owned or held on that day was $1,640,920, and US12OF established cash
deposits, including cash investments in money market funds, that were equal to
$149,235,949. US12OF held 86.84% of its cash assets in overnight deposits and
money market funds at its custodian bank, while 13.16% of the cash balance was
held as margin deposits for the Oil Futures Contracts purchased.  The
ending per unit NAV on September 30, 2010 was $38.59.





By
comparison, as of September 30, 2009, the total unrealized gain on Oil Futures
Contracts owned or held on that day was $21,343,800 and US12OF established cash
deposits, including cash investments in money market funds, that were equal to
$140,644,514.  US12OF held 100.02% of its cash assets in overnight
deposits and money market funds at its custodian bank, while -0.02% of the cash
balance was held as margin deposits for the Oil Futures Contracts purchased.
Margin requirements at this time were satisfied by unrealized appreciation on
investments held at the futures commission merchant, including a forward funding
excess of $8,690,704 in open equity over the required margin deposit amount. The
ending per unit NAV on September 30, 2009 was $36.78. The increase in the
per unit NAV for September 30, 2010 as compared to September 30, 2009 was
primarily a result of higher prices for crude oil and the related increase in
the value of the Oil Futures Contracts that US12OF had invested in between the
period ended September 30, 2009 and the period ended September 30,
2010.





Portfolio Expenses. US12OF’s
expenses consist of investment management fees, brokerage
fees and commissions, certain offering costs, licensing fees, the fees and
expenses of the independent directors of the General Partner and expenses
relating to tax accounting and reporting requirements.  The management
fee that US12OF pays to the General Partner is calculated as a percentage of the
total net assets of US12OF.  US12OF pays the General Partner a
management fee of 0.60% of its average net assets. The fee is accrued daily
and paid monthly.


18




During
the nine months ended September 30, 2010, the daily average total net assets
of US12OF were $155,668,274. The management fee incurred by US12OF during
the period amounted to $698,588. By comparison, during the nine months ended
September 30, 2009, the daily average total net assets of US12OF
were $138,722,810.  During the nine months ended September 30,
2009, the management fee paid by US12OF amounted to $622,542.





In
addition to the management fee, US12OF pays all brokerage fees and other
expenses, including certain tax reporting costs, licensing fees for the use of
intellectual property, ongoing registration or other fees paid to the
SEC, the Financial Industry Regulatory Authority (“FINRA”) and any
other regulatory agency in connection with offers and sales of its units
subsequent to the initial offering and all legal, accounting, printing and other
expenses associated therewith. The total of these fees and expenses for the nine
months ended September 30, 2010 was $335,841, as compared to $457,321 for the
nine months ended September 30, 2009. The decrease in expenses for the nine
months ended September 30, 2010 as compared to the nine months ended September
30, 2009 was primarily due to a decrease in registration fees during the nine
months ended September 30, 2010.  For the nine months ended September
30, 2010, US12OF incurred $7,700 in ongoing registration fees and other
expenses relating to the registration and offering of additional units. By
comparison, for the nine months ended September 30, 2009, US12OF incurred
$96,250 in ongoing registration fees and other expenses relating to the
registration and offering of additional units.




US12OF is
responsible for paying its portion of the directors’ and officers’ liability
insurance of the General Partner and the fees and expenses of the independent
directors of the General Partner who are also the General Partner’s audit
committee members. US12OF shares these fees and expenses with the
United States Oil Fund, LP (“USOF”), the United States Natural Gas Fund, LP
(“USNG”), the United States Gasoline Fund, LP (“UGA”), the United States
Heating Oil Fund, LP (“USHO”), the United States Short Oil Fund, LP (“USSO”),
the United States 12 Month Natural Gas Fund, LP (“US12NG”) and the United States
Brent Oil Fund, LP (“USBO”) based on the relative assets of each fund computed
on a daily basis. These fees and expenses for the calendar year 2010 are
estimated to be a total of $1,178,870 for all funds. By comparison, for the year
ended December 31, 2009, these fees and expenses amounted to a total of $433,046
for all funds, and US12OF’s portion of such fees and expenses was
$12,326.  Directors’ expenses are expected to increase in 2010 due to
an increase in the amount of directors’ and officers’ liability insurance
coverage and the incurrence of the independent directors’ deferred compensation
expense.  Effective as of March 3, 2009, the General Partner obtained
directors’ and officers’ liability insurance covering all of the directors and
officers of the General Partner. Previously, the General Partner did not have
liability insurance for its directors and officers; instead, the independent
directors received a payment in lieu of directors’ and officers’ liability
insurance coverage. Effective as of April 1, 2010, US12OF is also responsible
for paying its portion of any payments that may become due to the independent
directors pursuant to the deferred compensation agreements entered into between
the independent directors, the General Partner and US12OF, USOF, USNG, UGA,
USHO, USSO, US12NG and USBO.





US12OF
also incurs commissions to brokers for the purchase and sale of Oil Futures
Contracts, Other Oil Interests or short-term obligations of the United
States of two years or less (“Treasuries”). During the nine months ended
September 30, 2010, total commissions paid to brokers amounted to
$8,070.  By comparison, during the nine months ended September 30,
2009, total commissions paid to brokers amounted to $44,530.  The
decrease in the total commissions paid to brokers for the nine months ended
September 30, 2010 as compared to the nine months ended September 30, 2009 was
primarily a function of the decrease in creations and redemptions of units
during the nine months ended September 30, 2010.  The decrease in
creation and redemption activity required US12OF to purchase fewer Oil Futures
Contracts and incur a lower amount of broker commissions.  As an
annualized percentage of total net assets, the figure for the nine months
ended September 30, 2010 represents approximately 0.01% of total net assets. By
comparison, the figure for the nine months ended September 30, 2009 represented
approximately 0.04% of total net assets. However, there can be no assurance that
commission costs and portfolio turnover will not cause commission expenses to
rise in future quarters.





US12OF pays
the fees and expenses associated with its audit expenses and tax accounting
and reporting requirements.  These costs are estimated to be $275,000
for the calendar year 2010.


19





Dividend and Interest
Income.  US12OF seeks to invest its assets such that it
holds Oil Futures Contracts and Other Oil Interests in an amount equal to
the total net assets of its 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 bank. The
Treasuries, cash and/or cash equivalents earn income that accrues on a daily
basis. For the nine months ended September 30, 2010, US12OF earned $49,966 in
dividend and interest income on such cash and/or cash
equivalents.  Based on US12OF’s average daily total net assets, this
was equivalent to an annualized yield of 0.04%.  US12OF did not
purchase Treasuries during the nine months ended September 30, 2010 and
held only cash and/or cash equivalents during this time period.  By
comparison, for the nine months ended September 30, 2009, US12OF earned $174,296
in dividend and interest income on such cash and/or cash
equivalents.  Based on US12OF’s average daily total net assets, this
was equivalent to an annualized yield of 0.17%. US12OF did not
purchase Treasuries during the nine months ended September 30, 2009 and
held only cash and/or cash equivalents during this time period. Interest rates
on short-term investments, including cash, cash equivalents and Treasuries, were
lower during the nine months ended September 30, 2010 compared to the same time
period in 2009. As a result, the amount of income earned by US12OF as a
percentage of total net assets was lower during the nine months ended September
30, 2010 compared to the nine months ended September 30, 2009.





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





Portfolio
Expenses.  During the three months ended September 30, 2010,
the daily average total net assets of US12OF were $151,415,173. The
management fee incurred by US12OF during the period amounted to $228,990. By
comparison, during the three months ended September 30, 2009, the daily average
total net assets of US12OF were $171,126,467. During the three months
ended September 30, 2009, the management fee paid by US12OF amounted to
$258,799.





In
addition to the management fee, US12OF pays all brokerage fees and other
expenses, including certain tax reporting costs, licensing fees for the use of
intellectual property, ongoing registration or other fees paid to the
SEC, FINRA and any other regulatory agency in connection
with offers and sales of its units subsequent to the initial offering and
all legal, accounting, printing and other expenses associated therewith. The
total of these fees and expenses for the three months ended September 30, 2010
was $36,542, as compared to $227,905 for the three months ended September 30,
2009.  The decrease in expenses for the three months ended September
30, 2010 as compared to the three months ended September 30, 2009 was primarily
due to decreased commissions, fewer creations and redemptions, and lower
registration and offering costs during the three months ended September 30,
2010.  For the three months ended September 30, 2010,
US12OF incurred $1,840 in ongoing registration fees and other expenses
relating to the registration and offering of additional units. By comparison,
for the three months ended September 30, 2009, US12OF incurred $29,750 in
ongoing registration fees and other expenses relating to the registration and
offering of additional units.




US12OF is
responsible for paying its portion of the directors’ and officers’ liability
insurance of the General Partner and the fees and expenses of the independent
directors of the General Partner who are also the General Partner’s audit
committee members. US12OF shares these fees and expenses with USOF,
USNG, UGA, USHO, USSO, US12NG and USBO based on the relative assets of each
fund computed on a daily basis. These fees and expenses for the calendar year
2010 are estimated to be a total of $1,178,870 for all funds. By comparison, for
the year ended December 31, 2009, these fees and expenses amounted to a total of
$433,046 for all funds, and US12OF’s portion of such fees and expenses was
$12,326. Directors’ expenses are expected to increase in 2010 due to an increase
in the amount of directors’ and officers’ liability insurance coverage and the
incurrence of the independent directors’ deferred compensation expense.
 Effective as of March 3, 2009, the General Partner obtained directors’ and
officers’ liability insurance covering all of the directors and officers of the
General Partner. Previously, the General Partner did not have liability
insurance for its directors and officers; instead, the independent directors
received a payment in lieu of directors’ and officers’ liability insurance
coverage. Effective as of April 1, 2010, US12OF is also responsible for paying
its portion of any payments that may become due to the independent directors
pursuant to the deferred compensation agreements entered into between the
independent directors, the General Partner and US12OF, USOF, USNG, UGA, USHO,
USSO, US12NG and USBO.


20




US12OF
also incurs commissions to brokers for the purchase and sale of Oil Futures
Contracts, Other Oil Interests or Treasuries. During the three months ended
September 30, 2010, total commissions paid to brokers amounted to
$3,981.  By comparison, during the three months ended September 30,
2009, total commissions paid to brokers amounted to $5,521.  The
decrease in the total commissions paid to brokers for the three months ended
September 30, 2010 as compared to the three months ended September 30, 2009 was
primarily a function of the decrease in creations and redemptions of units
during the three months ended September 30, 2010.  The decrease in
creation and redemption activity required US12OF to purchase fewer futures
contracts and incur a lower amount of commissions. As an annualized percentage
of total net assets, the figure for the three months ended September 30,
2010 represents approximately 0.01% of total net assets. By comparison, the
figure for the three months ended September 30, 2009 represented approximately
0.01% of total net assets. However, there can be no assurance that commission
costs and portfolio turnover will not cause commission expenses to rise in
future quarters.





US12OF
pays the fees and expenses associated with its audit expenses and tax
accounting and reporting requirements.  These costs are estimated to
be $275,000 for the calendar year 2010.





Dividend and Interest
Income.  US12OF seeks to invest its assets such that it
holds Oil Futures Contracts and Other Oil Interests in an amount equal to
the total net assets of its 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 bank. The
Treasuries, cash and/or cash equivalents earn income that accrues on a daily
basis. For the three months ended September 30, 2010, US12OF earned $23,673 in
dividend and interest income on such cash and/or cash
equivalents.  Based on US12OF’s average daily total net assets, this
was equivalent to an annualized yield of 0.06%.  US12OF did not
purchase Treasuries during the three months ended September 30, 2010 and
held only cash and/or cash equivalents during this time period.  By
comparison, for the three months ended September 30, 2009, US12OF earned $50,707
in dividend and interest income on such cash and/or cash
equivalents.  Based on US12OF’s average daily total net assets, this
was equivalent to an annualized yield of 0.12%. US12OF did not
purchase Treasuries during the three months ended September 30, 2009 and
held only cash and/or cash equivalents during this time
period.  Interest rates on short-term investments, including cash,
cash equivalents, and Treasuries, were lower during the three months ended
September 30, 2010 compared to the same time period in 2009. As a result, the
amount of income earned by US12OF as a percentage of total net assets was lower
during the three months ended September 30, 2010 compared to the three months
ended September 30, 2009.





Tracking
US12OF’s Benchmark





US12OF’s
management seeks to manage US12OF’s portfolio such that changes in its average
daily NAV, on a percentage basis, closely track the changes in the average of
the daily prices of the Benchmark Futures Contracts, also on a percentage basis.
Specifically, US12OF’s management seeks to manage the portfolio such that over
any rolling period of 30 valuation days, the average daily change in US12OF’s
NAV is within a range of 90% to 110% (0.9 to 1.1) of the average daily change in
the prices 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-valuation 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 light, sweet crude oil. Management believes that it is not practical to
manage the portfolio to achieve such an investment goal when investing in listed
Oil Futures Contracts.





For the
30 valuation days ended September 30, 2010, the simple average daily change in
the Benchmark Futures Contracts was 0.156%, while the simple average daily
change in the NAV of US12OF over the same time period was 0.154%. 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
Contracts, the average error in daily tracking by the NAV was 0.646%, meaning
that over this time period US12OF’s tracking error was within the plus or minus
10% range established as its benchmark tracking goal.  A significant
portion of the level of US12OF’s relative tracking error as a percentage of the
benchmark was due to periods of flat price returns.  The first chart
below shows the daily movement of US12OF’s NAV versus the daily movement of the
Benchmark Futures Contracts for the 30-valuation day period ended September 30,
2010.  The second chart below shows the monthly total returns of
US12OF as compared to the monthly value of the Benchmark Futures Contracts since
inception.


Since the commencement of the offering
of US12OF units to the public on December 6, 2007 to September 30, 2010,
the simple average daily change in the Benchmark Futures Contracts was
0.005%, while the simple average daily change in the NAV of US12OF over the same
time period was 0.005%.  The average daily difference was 0.000% (or
0.0 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 0.119%, meaning that over this time period
US12OF’s tracking error was within the plus or minus 10% range established as
its benchmark tracking goal.


21










*PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS




22




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 its Benchmark Futures Contracts.
 
 For the
nine months ended September 30, 2010, the actual total return of US12OF as
measured by changes in its NAV was -4.41%. This is based on an initial
NAV of $40.37 on December 31, 2009 and an ending NAV as of September
30, 2010 of $38.59. 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 had an estimated NAV of $38.64 as of September 30, 2010, for a
total return over the relevant time period of -4.28%.  The difference
between the actual NAV total return of US12OF of -4.41% and the expected total
return based on the Benchmark Futures Contracts of -4.28% was an error over the
time period of -0.13%, which is to say that US12OF’s actual total return
underperformed the benchmark result by that percentage. Management believes that
a portion of the difference between the actual return and the expected benchmark
return can be attributed to the net impact of the expenses that US12OF pays
offset in part by the income that US12OF collects on its cash and cash
equivalent holdings.  During the nine months ended September 30, 2010,
US12OF received dividend and interest income of $49,966, which is equivalent to
a weighted average income rate of 0.04% for such period. In addition, during the
nine months ended September 30, 2010, US12OF also collected $5,000 from its
Authorized Purchasers for creating or redeeming baskets of
units.  This income also contributed to US12OF’s actual
return.  During the nine months ended September 30, 2010, US12OF
incurred total expenses of $1,034,429. Expenses net of income from dividends and
interest and Authorized Purchaser collections was $(979,463), which is
equivalent to an annualized weighted average net income rate of (0.84)% for the
nine months ended September 30, 2010.  These net expenses also
contributed to US12OF’s actual return underperforming the benchmark
results.
  By
comparison, for the nine months ended September 30, 2009, the actual total
return of US12OF as measured by changes in its NAV was 17.73%. This was based on
an initial NAV of $31.24 on December 31, 2008 and an ending NAV as of
September 30, 2009 of $36.78. 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 had an estimated NAV of $36.95 as of
September 30, 2009, for a total return over the relevant time period of 18.28%.
The difference between the actual NAV total return of US12OF of 17.73% and the
expected total return based on the Benchmark Futures Contracts of 18.28% was an
error over the time period of 0.55%, which is to say that US12OF’s actual total
return underperformed the benchmark result by that percentage. Management
believes that a portion of the difference between the actual return and the
expected benchmark return can be attributed to the net impact of the expenses
that US12OF paid offset in part by the income that US12OF collected on its cash
and cash equivalent holdings. During the nine months ended September 30, 2009,
US12OF received dividend and interest income of $174,296, which is equivalent to
a weighted average income rate of 0.17% for such period.  In addition,
during the nine months ended September 30, 2009, US12OF also collected
$27,000 from its Authorized Purchasers for creating or redeeming baskets of
units. This income also contributed to US12OF’s actual return. During the nine
months ended September 30, 2009, US12OF incurred net expenses of
$1,068,636.  Expenses net of dividends and interest income and
Authorized Purchaser collections was $(867,340), which is equivalent to an
annualized weighted average net income rate of (0.84)% for the nine months ended
September 30, 2009.  These net expenses also contributed to US12OF’s
actual return underperforming the benchmark results.





*PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS





23





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 during 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. During the nine months ended September 30, 2010, 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 dividend and interest income on its cash and cash equivalents.
US12OF is not required to distribute any portion of its income to its
unitholders and did not make any distributions to unitholders during the nine
months ended September 30, 2010. 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 the nine
months ended September 30, 2010, US12OF earned, on an annualized basis,
approximately 0.04% on its cash holdings. It also incurred cash expenses on an
annualized basis of 0.60% for management fees and approximately 0.01% in
brokerage commission costs related to the purchase and sale of futures
contracts, and 0.28% for other expenses. The foregoing fees and expenses
resulted in a net yield on an annualized basis of approximately -0.85% 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
decrease. Conversely, if short-term interest rates were to decline, the amount
of error created by the yield would increase. When short-term yields drop to a
level lower than the combined expenses of the management fee and the brokerage
commissions, then the tracking error becomes a negative number and would tend to
cause the daily returns of the NAV to underperform the daily returns of the
Benchmark Futures Contracts.




24




Third,
US12OF may hold Other Oil Interests 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
the nine months ended September 30, 2010, US12OF did not hold any Other Oil
Interests. If US12OF increases in size, and due to its obligations to comply
with regulatory limits, US12OF may invest in Other Oil Interests which may have
the effect of increasing transaction related expenses and may result in
increased tracking error.





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




As an
example, assume that the price of crude oil for immediate delivery (the “spot”
price), was $50 per barrel, and the value of a position in the near month crude
oil 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 position in a near month contract 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 crude 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
income earned on cash and/or cash equivalents), the value of the next month
contract would rise as it approaches expiration and becomes the new near month
contract. In this example, the value of the $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 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 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
income earned on cash and/or cash equivalents), the value of the next month
contract would fall as it approaches expiration and becomes the new near month
contract. In this example, it would mean that the value of the $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
near 12 month contracts over the last 10 years (2000-2009) for light, sweet
crude oil. When the price of the near month contract is higher than the average
price of the near 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 near 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 near 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 near 12 month contracts (backwardation), and other
times they are below the average price of the near 12 month contracts
(contango).


25










*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
average dollar price of the near 12 month contracts for light, sweet crude oil
from the dollar price of the near month contract for light, sweet crude oil. If
the resulting number is a positive number, then the near month price is higher
than the average price of the near 12 months and the market could be described
as being in backwardation. If the resulting number is a negative number, then
the near month price is lower than the average price of the near 12 months and
the market could be described as being in contango. The chart below shows the
results from subtracting the average dollar price of the near 12 month contracts
from the near month price for the 10 year period between 2000 and
2009.


26










*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 near 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 annual results of
owning a portfolio consisting of the near month contract and a portfolio
containing the near 12 months’ worth of contracts. In addition, the chart shows
the annual change in the spot price of light, sweet crude oil. 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 near 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.




27










*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 early in the third quarter of 2007, the crude oil futures
market moved into backwardation. The crude oil markets remained in backwardation
until late in the second quarter of 2008 when they moved into contango. The
crude oil markets remained in contango until late in the third quarter of 2008,
when the markets moved into backwardation. Early in the fourth quarter of 2008,
the crude oil market moved back into contango and remained in contango for the
balance of 2008. Throughout 2009, the crude oil market remained in
contango.  During parts of January and February 2009, the level of
contango was unusually steep. Crude oil inventories, which reached historic
levels in January and February 2009 and which appeared to be the primary cause
of the steep level of contango, began to drop in March 2009 and continued to
drop for the balance of 2009 and the beginning of 2010. The crude oil futures
market remained in contango through September 30, 2010.




28


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.





Periods
of contango or backwardation do not materially impact US12OF’s investment
objective of having the percentage changes in its per unit NAV track the
percentage changes in the average of the prices of the Benchmark Futures
Contracts since the impact of backwardation and contango tend 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
nine months ended September 30, 2010, crude oil prices were impacted by several
factors. On the consumption side, demand increased inside and outside the United
States as global economic growth, including emerging economies such as China and
India, improved for the third quarter of the year. On the supply side, efforts
to reduce production by the Organization of the Petroleum Exporting Countries to
more closely match global consumption were partially successful. Crude oil
prices finished the third quarter of 2010 approximately 1% higher than at the
beginning of the year, though investors looked forward to continued improvements
in the global economy. Management believes, however, that should the global
economic situation cease to improve, or decline, there is a meaningful
possibility that crude oil prices could further retreat from their current
levels.





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 2000 and 2009, the chart below compares the monthly
movements of crude oil prices versus the monthly movements of the prices of
several other energy commodities, such as 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.


29





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





PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS




The chart
below covers a more recent, but much shorter, range of dates than the above
chart. Over the one year period ended September 30, 2010, crude oil continued to
have a strong positive correlation with heating oil and unleaded gasoline.
During this period, it had no positive or negative correlation with the
movements of natural gas compared to what it had displayed over the ten year
period ended December 31, 2009. Notably, the correlation between crude oil and
both large cap U.S. equities and global equities, which had been essentially
non-correlated over the ten year period ended December 31, 2009, displayed
results that indicated that they had a mildly positive correlation over this
shorter time period, 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 ten year period ended December
31, 2009, were weakly negatively correlated over this more recent time
period.





Correlation Matrix 12
                                              months ended
                                              September 30, 2010
                                            
                                            Large
                                              Cap
                                              U.S.
                                              Equities
                                              (S&P
                                              500)
                                            
                                            
                                            U.S.
                                              Gov't.
                                              Bonds
                                              (EFFAS
                                              U.S.
                                              Gov’t.
                                              Bond
                                              Index)
                                            
                                            
                                            Global
                                              Equities
                                              (FTSE
                                              World
                                              Index)
                                            
                                            
                                            Unleaded
                                              Gasoline
                                            
                                            
                                            Heating
                                              Oil
                                            
                                            
                                            Natural
                                              Gas
                                            
                                            
                                            Crude
                                              OilLarge
      Cap U.S. Equities (S&P 500)
                                            
                                            
                                            1.000
                                            
                                            
                                            
                                            -0.504
                                            
                                            
                                            
                                            0.973
                                            
                                            
                                            
                                            0.676
                                            
                                            
                                            
                                            0.717
                                            
                                            
                                            
                                            -0.075
                                            
                                            
                                            
                                            0.715U.S.
      Gov't. Bonds (EFFAS U.S. Gov’t. Bond Index)
                                            
                                            
                                            
                                            
                                            
                                            
                                            1.000
                                            
                                            
                                            
                                            -0.504
                                            
                                            
                                            
                                            -0.569
                                            
                                            
                                            
                                            -0.587
                                            
                                            
                                            
                                            -0.282
                                            
                                            
                                            
                                            -0.559Global
      Equities (FTSE World Index)
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            1.000
                                            
                                            
                                            
                                            0.687
                                            
                                            
                                            
                                            0.748
                                            
                                            
                                            
                                            -0.074
                                            
                                            
                                            
                                            0.743Unleaded
      Gasoline
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            1.000
                                            
                                            
                                            
                                            0.914
                                            
                                            
                                            
                                            -0.004
                                            
                                            
                                            
                                            0.958Heating
      Oil
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            1.000
                                            
                                            
                                            
                                            0.003
                                            
                                            
                                            
                                            0.943Natural
      Gas
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            1.000
                                            
                                            
                                            
                                            0.115Crude
      Oil
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            1.000Source:
      Bloomberg, NYMEX




PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS




30




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





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





Critical
Accounting Policies





Preparation
of the condensed financial statements and related disclosures in compliance with
accounting principles generally accepted in the United States of America
requires the application of appropriate accounting rules and guidance, as well
as the use of estimates. 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 condensed financial statements and related
disclosures and has determined that the valuation of its investments which
are not traded on a United States or internationally recognized futures exchange
(such as forward contracts and over-the-counter contracts) involves a critical
accounting policy. The values which are used by US12OF for its Futures Contracts
are provided by its commodity broker who uses market prices when available,
while over-the-counter contracts are valued based on the present value of
estimated future cash flows that would be received from or paid to a third party
in settlement of these derivative contracts prior to their delivery date and
valued on a daily basis. In addition, US12OF estimates interest and dividend
income on a daily basis using prevailing rates earned on its cash and cash
equivalents. These estimates are adjusted to the actual amount received on a
monthly basis and the difference, if any, is not considered
material.




Liquidity
and Capital Resources





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 Oil Futures
Contracts and posting collateral for its over-the-counter contracts, if
applicable, and payment of its expenses, summarized below under “Contractual
Obligations.”





US12OF
currently generates cash primarily from (i) the sale of baskets consisting of
100,000 units (“Creation Baskets”) and (ii) income earned on cash and/or cash
equivalents. US12OF has allocated substantially all of its net assets to trading
in Oil Interests. US12OF invests in Oil Interests to the fullest extent possible
without being leveraged or unable to satisfy its current or potential margin or
collateral obligations with respect to its investments in Oil Futures Contracts
and Other Oil Interests. A significant portion of US12OF’s NAV is held in cash
and cash equivalents that are used as margin and as collateral for its
trading in Oil Interests. The balance of the net assets is held in US12OF’s
account at its custodian bank. Income received from US12OF’s money market funds
is paid to US12OF. In prior periods, the amount of cash earned by US12OF from
the sale of Creation Baskets and from income earned has exceeded the amount of
cash required to pay US12OF’s expenses.  However, during the nine
months ended September 30, 2010, US12OF’s expenses exceeded the income US12OF
earned and the cash earned from the sale of Creation Baskets.  During
the nine months ended September 30, 2010, US12OF was forced to use other assets
to pay cash expenses, which could cause a drop in US12OF’s NAV over time. To the
extent expenses exceed income, US12OF’s NAV will be negatively
impacted.


31




US12OF’s
investments in Oil Interests may be subject to periods of illiquidity because of
market conditions, regulatory considerations and other reasons. For example,
most commodity exchanges limit the fluctuations in futures contracts prices
during a single day by regulations referred to as “daily limits.” During a
single day, no trades may be executed at prices beyond the daily limit. Once the
price of a futures contract has increased or decreased by an amount equal to the
daily limit, positions in the contracts can neither be taken nor liquidated
unless the traders are willing to effect trades at or within the specified daily
limit. Such market conditions could prevent US12OF from promptly liquidating its
positions in Oil Futures Contracts.  During the nine months ended
September 30, 2010, 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.  Since the initial offering of units, US12OF has been
responsible for expenses relating to (i) management fees, (ii) brokerage
fees and commissions, (iii) licensing fees for the use of intellectual
property, (iv) ongoing registration expenses in connection with offers and
sales of its units subsequent to the initial offering, (v) other expenses,
including certain tax reporting costs, (vi) fees and expenses of the independent
directors of the General Partner and (vii) other extraordinary expenses not in
the ordinary course of business, while the General Partner has been responsible
for expenses relating to the fees of US12OF’s marketing agent, administrator and
custodian and registration expenses relating to the initial offering of units.
If the General Partner and US12OF are unsuccessful in raising sufficient
funds to cover these respective expenses or in locating any other source of
funding, US12OF will terminate and investors may lose all or part of their
investment.





Market
Risk





Trading
in Oil Futures Contracts and Other Oil Interests, 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 Oil Futures Contracts and Other Oil Interests markets
and the relationships among the contracts held by US12OF.  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 Oil Futures Contracts and Other Oil Interests, it is
exposed to the credit risk that the counterparty will not be able to meet its
obligations. The counterparty for the Oil Futures Contracts traded on the
NYMEX and on most other futures exchanges is the clearinghouse associated
with the particular exchange. In general, in addition to margin required to be
posted by the exchange or clearinghouse in connection with trades on the
exchange or through the clearinghouse, clearinghouses are backed by their
members who may be required to share in the financial burden resulting from the
nonperformance of one of their members and, therefore, this additional member
support should significantly reduce credit risk.  Some foreign
exchanges are not backed by their clearinghouse members but may be backed by a
consortium of banks or other financial institutions. There can be no assurance
that any counterparty, clearinghouse, or their members or their financial
backers will satisfy their obligations to US12OF in such
circumstances.


32




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 Oil
Futures Contracts and Other Oil Interests it holds. The General Partner has
implemented procedures that include, but are not limited to, executing and
clearing trades only with creditworthy parties and/or requiring the posting of
collateral or margin by such parties for the benefit of 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 Oil 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 Oil Futures Contracts trading. These futures
commission merchants are not allowed to commingle US12OF’s assets with their
other assets. In addition, the CFTC requires commodity brokers to hold in a
secure account US12OF’s assets related to foreign Oil Futures Contracts
trading.





If, in
the future, US12OF purchases over-the-counter contracts, see “Item 3.
Quantitative and Qualitative Disclosures About Market Risk” of this quarterly
report on Form 10-Q for a discussion of over-the-counter contracts.





As of
September 30, 2010, US12OF had deposits in domestic and foreign financial
institutions, including cash investments in money market funds, in the amount of
$149,235,949. This amount is subject to loss should these institutions cease
operations.





Off
Balance Sheet Financing





As of
September 30, 2010, 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 monthly
as a fixed percentage of US12OF’s NAV, currently 0.60% of NAV on its average
daily net assets.




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





The
General Partner pays the fees of US12OF’s marketing agent, ALPS
Distributors, Inc., and the fees of the custodian and transfer agent, Brown
Brothers Harriman & Co. (“BBH&Co.”), as well as BBH&Co.’s fees for
performing administrative services, including those in connection with the
preparation of US12OF’s condensed 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, other than USBO, pay a licensing fee to
the NYMEX. US12OF also pays the fees and expenses associated with its tax
accounting and reporting requirements with the exception of certain initial
implementation service fees and base service fees which are borne by the General
Partner.


33




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 Condensed
Financial Statements (Unaudited).





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.





As of
September 30, 2010, US12OF’s portfolio consisted of 1,804 Crude Oil Futures CL
Contracts traded on the NYMEX.  For a list of US12OF’s current
holdings, please see US12OF’s website at
www.unitedstates12monthoilfund.com.





Item 3.  Quantitative
and Qualitative Disclosures About Market Risk.





Over-the-Counter
Derivatives




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





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




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 transactions under the agreement through an established
futures clearinghouse such as those connected to the NYMEX or the ICE Futures.
In that event, US12OF would no longer bear the 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 and would be
required to deposit margin to secure the clearinghouses’s exposure to
US12OF.


34





The
creditworthiness of each potential counterparty is assessed by the General
Partner. The General Partner assesses or reviews, as appropriate, the
creditworthiness of each potential or existing counterparty to an
over-the-counter contract pursuant to guidelines approved by the General
Partner's board of directors (the “Board”). Furthermore, the General Partner on
behalf of US12OF only enters into over-the-counter contracts with counterparties
who are, or are affiliates of, (a) banks regulated by a United States federal
bank regulator, (b) broker-dealers regulated by the SEC, (c) insurance companies
domiciled in the United States, or (d) producers, users or traders of energy,
whether or not regulated by the CFTC. Any entity acting as a counterparty shall
be regulated in either the United States or the United Kingdom unless otherwise
approved by the Board after consultation with its legal counsel. Existing
counterparties are also reviewed periodically by the General
Partner.





US12OF
anticipates that the use of Other Oil Interests together with its investments in
Oil Futures Contracts will produce price and total return results that closely
track the investment goals of US12OF.  However, there can be no
assurance of this. Over-the-counter contracts may result in higher
transaction-related expenses than the brokerage commissions paid in connection
with the purchase of Oil Futures Contracts, which may impact US12OF’s ability to
successfully track the Benchmark Futures Contracts.





US12OF
may employ spreads or straddles in its trading to mitigate the differences in
its investment portfolio and its goal of tracking the price of the
Benchmark Futures Contracts. 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 nine months ended September 30, 2010, US12OF did not employ any hedging
methods such as those described above since all of its investments were made
over an exchange. Therefore, during such period, US12OF was not exposed to
counterparty risk.





Item 4.  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 Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the time period specified in
the SEC’s rules and forms.




The duly
appointed officers of the General Partner, including its chief executive
officer and chief financial officer, who perform functions equivalent
to those of a principal executive officer and principal financial officer of
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 quarterly report on Form
10-Q.





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.


35


Part II. OTHER INFORMATION





Item
1.  Legal Proceedings.





Not applicable.





Item
1A.  Risk Factors.




There has
not been a material change from the risk factors previously disclosed in
US12OF’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009,
filed on March 16, 2010, and US12OF’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2010, filed on August 9, 2010.





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





Not applicable.





Item
3.  Defaults Upon Senior Securities.





Not applicable.





Item
4.Reserved.





Item 5.  Other
Information.




Monthly
Account Statements




Pursuant
to the requirement under Rule 4.22 under the Commodity Exchange Act, each month
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 furnished to the SEC on a current report on Form 8-K pursuant to
Section 13 or 15(d) of the Exchange Act and posted each month on US12OF’s
website at www.unitedstates12monthoilfund.com.




Item 6. Exhibits.





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





ExhibitNumber
              
              DescriptionofDocument31.1*
              
              Certification
      by Principal Executive Officer Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2*
              
              Certification
      by Principal Financial Officer Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1*
              
              Certification
      by Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as
      Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.32.2*
              
              Certification
      by Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as
      Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.





*           Filed
herewith.




36


SIGNATURES




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





United
States 12 Month Oil Fund, LP (Registrant)


By:
United States Commodity Funds LLC, its general partner





By:
            /s/
      Nicholas D. GerberNicholas
      D. GerberPresident
      and Chief Executive Officer(Principal
      executive officer)Date:  November
      9, 2010By:
            /s/
      Howard MahHoward
      MahChief
      Financial Officer(Principal
      financial and accounting officer)Date:  November
      9, 2010




37