S-1/A 1 v143844_s1a.htm

As filed with the Securities and Exchange Commission on May 19, 2009

Registration No. 333-152386

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



 

AMENDMENT NO. 4 TO

FORM S-1

REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933



 

UNITED STATES SHORT OIL FUND, LP

(Exact Name of Registrant as Specified in Its Charter)

   
Delaware   6770   26-2939256
(State or Other Jurisdiction of
Incorporation or Organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

 
United States Commodity Funds LLC
1320 Harbor Bay Parkway, Suite 145
Alameda, California 94502
510.522.3336
  Nicholas D. Gerber
1320 Harbor Bay Parkway, Suite 145
Alameda, California 94502
510.522.3336
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant’s Principal Executive Offices)
  (Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)


 

Copies to:

James M. Cain, Esq.
W. Thomas Conner, Esq.
Sutherland Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, DC 20004-2415
202.383.0100



 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. x

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. o

CALCULATION OF REGISTRATION FEE

       
Title of Each Class of Securities to Be Registered   Amount to Be
Registered
  Proposed Maximum
Offering Price
Per Unit(1)
  Proposed Maximum
Aggregate
Offering Price(1)
  Amount of
Registration Fee
United States Short Oil Fund, LP     25,000,000 Units     $ 50.00     $ 1,250,000,000     $ 49,125 (2) 

(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(d) under the Securities Act of 1933.
(2) $49,125 was previously paid in the initial filing of the registration statement on Form S-1, filed on July 17, 2008.


 

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 


 
 

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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the SEC is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 
PRELIMINARY PROSPECTUS   SUBJECT TO COMPLETION

United States Short Oil Fund, LP

25,000,000 Units

United States Short Oil Fund, LP, a Delaware limited partnership, is a commodity pool that will issue units that may be purchased and sold on the NYSE Arca. United States Short Oil Fund, LP is referred to as USSO throughout this document. The investment objective of USSO is to have the changes in percentage terms of the units’ net asset value inversely reflect the changes in percentage terms of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by the changes in the price of the futures contract on light, sweet crude oil as traded on the New York Mercantile Exchange that is the near month contract to expire, except when the near month contract is within two weeks of expiration, in which case the futures contract will be the next month contract to expire, less USSO’s expenses. This is a best efforts offering. USSO will continuously offer creation baskets consisting of 100,000 units to authorized purchasers through ALPS Distributors, Inc., which is the marketing agent. Deutsche Bank Securities Inc. is expected to be the initial authorized purchaser. Authorized purchasers will pay a transaction fee of $1,000 for each order to create one or more baskets. There are no arrangements to place funds in an escrow, trust, or similar account. This will be a continuous offering and will not terminate until all of the registered units have been sold.

It is anticipated that on the effective date (the date the Securities and Exchange Commission declares the registration statement relating to this prospectus effective), the initial authorized purchaser will, though it is under no obligation to do so, purchase one or more initial creation baskets of 100,000 units at a price per unit of $50.00. It is expected that the proceeds from that purchase will be invested on that day and that USSO’s initial per unit net asset value will be established as of 4:00 p.m. New York City time that day. The units are expected to begin trading on the NYSE Arca under the ticker symbol “DNO” on the day following the effective date. Units offered in creation baskets on any day after the effective date will be offered at the per unit net asset value as of the earlier of 4:00 p.m. New York time or the close of trading on the New York Stock Exchange.
Authorized purchasers will be the only persons that may place orders to create and redeem baskets. An authorized purchaser is under no obligation to create or redeem baskets, and an authorized purchaser is under no obligation to offer to the public units of any baskets it does create. Authorized purchasers that do offer to the public units from the baskets they create will do so at per-unit offering prices that are expected to reflect, among other factors, the trading price of the units on the NYSE Arca, the net asset value of USSO at the time the authorized purchaser purchased the creation basket and the net asset value at the time of the offer of the units to the public, the supply of and demand for units at the time of sale, and the liquidity of the crude oil futures contract market and the market for other crude oil-related investments. The prices of units offered by authorized purchasers are expected to fall between USSO’s net asset value and the trading price of the units on the NYSE Arca at the time of sale. The difference between the price paid by authorized purchasers as underwriters and the price paid to such authorized purchasers by investors will be deemed underwriting compensation. Units initially comprising the same basket but offered by authorized purchasers to the public at different times may have different offering prices. Units are expected to trade in the secondary market on the NYSE Arca. Units may trade in the secondary market at prices that are lower or higher relative to their net asset value per unit. The amount of the discount or premium in the trading price relative to the net asset value per unit may be influenced by various factors, including the number of investors who seek to purchase or sell units in the secondary market and the liquidity of the crude oil futures contract market and the market for other crude oil-related investments. Authorized purchasers will not be required to sell any specific number or dollar amount of units.

USSO is not a mutual fund registered under the Investment Company Act of 1940 and is not subject to regulation under such Act.

Some of the risks of investing in USSO include:

Investing inversely in crude oil interests subjects USSO to the risks of the crude oil industry which could result in large fluctuations in the price of USSO’s units.
If certain correlations do not exist, then investors may not be able to use USSO as a cost-effective way to invest inversely in crude oil or as a hedge against the risk of loss in crude oil-related transactions.
USSO does not expect to make cash distributions.
USSO and its general partner may have conflicts of interest, which may permit them to favor their own interests to your detriment.
USSO has no operating history so there is no performance history to serve as a basis for you to evaluate an investment in USSO.

Investing in USSO involves other significant risks. See “What Are the Risk Factors Involved with an Investment in USSO?” beginning on page 13.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION (“SEC”) NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES OFFERED IN THIS PROSPECTUS, OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

THE COMMODITY FUTURES TRADING COMMISSION (“CFTC”) HAS NOT PASSED UPON THE MERITS OF PARTICIPATING IN THIS POOL NOR HAS IT PASSED ON THE ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT.

This prospectus is in two parts: a disclosure document and a statement of additional information. These parts are bound together, and both contain important information.

   
  Per Unit   Per Basket
Price of the units in the first basket(s) sold   $ 50.00     $ 5,000,000.00  

The date of this prospectus is [  ], 2009.


 
 

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COMMODITY FUTURES TRADING COMMISSION
RISK DISCLOSURE STATEMENT

YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS YOU TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE AWARE THAT FUTURES AND OPTIONS TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS. SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL AND CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION, RESTRICTIONS ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE POOL.

FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR MANAGEMENT, ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE POOLS THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS A COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED THIS POOL BEGINNING ON PAGE 11 AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, ON PAGE 7.

THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL. THEREFORE, BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY POOL, YOU SHOULD CAREFULLY STUDY THIS DISCLOSURE DOCUMENT, INCLUDING THE DESCRIPTION OF THE PRINCIPAL RISK FACTORS OF THIS INVESTMENT, BEGINNING ON PAGE 13.

YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL MAY TRADE FOREIGN FUTURES OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE UNITED STATES, INCLUDING MARKETS FORMALLY LINKED TO A UNITED STATES MARKET, MAY BE SUBJECT TO REGULATIONS WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION TO THE POOL AND ITS PARTICIPANTS. FURTHER, UNITED STATES REGULATORY AUTHORITIES MAY BE UNABLE TO COMPEL THE ENFORCEMENT OF THE RULES OF REGULATORY AUTHORITIES OR MARKETS IN NON-UNITED STATES JURISDICTIONS WHERE TRANSACTIONS FOR THE POOL MAY BE EFFECTED.

AS OF THE DATE OF THIS PROSPECTUS THIS POOL HAS NOT COMMENCED TRADING
AND DOES NOT HAVE ANY PERFORMANCE HISTORY.


 
 

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UNITED STATES SHORT OIL FUND, LP

TABLE OF CONTENTS

 
  Page
Prospectus Summary     1  
Overview of USSO     1  
The Units     4  
USSO’s Investments in Crude Oil Interests     4  
Principal Investment Risks of an Investment in USSO     4  
Principal Offices of USSO and the General Partner     7  
Financial Condition of USSO     7  
Defined Terms     7  
Breakeven Analysis     7  
The Offering     9  
What Are the Risk Factors Involved with an Investment in USSO?     13  
Risks Associated with Investing Directly or Indirectly in Crude Oil     13  
USSO’s Operating Risks     18  
Risk of Leverage and Volatility     26  
Over-the-Counter Contract Risk     27  
Risk of Trading in International Markets     28  
Tax Risk     29  
The Offering     30  
What Is USSO?     30  
Who Is the General Partner?     30  
Contributions to the Limited Partner     34  
Compensation and Fees to the General Partner     34  
Prior Performance of the General Partner and Affiliates     34  
How Does USSO Operate?     44  
What Is USSO’s Investment Strategy?     47  
What Are Futures Contracts?     48  
What Is the Crude Oil Market and the Petroleum-Based Fuel Market?     51  
Why Does USSO Purchase and Sell Futures Contracts?     52  
What Is the Flow of Units?     57  
What Are the Trading Policies of USSO?     57  
Who Are the Service Providers?     59  
Form of Units     61  
Transfer of Units     62  
Withdrawal of Limited Partners     63  
What Is the Plan of Distribution?     63  
Calculating NAV     65  
Creation and Redemption of Units     66  
Use of Proceeds     70  
Management’s Discussion and Analysis of Financial Condition and Results of Operations     71  
Limited Partnership Agreement     73  
Fees of USSO     75  
The General Partner Has Conflicts of Interest     76  
The General Partner’s Responsibility and Remedies     77  
Liability and Indemnification     78  
Provisions of Law     79  

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  Page
Books and Records     79  
Analysis of Critical Accounting Policies     80  
Statements, Filings, and Reports     80  
Reports to Limited Partners     80  
Fiscal Year     81  
Governing Law; Consent to Delaware Jurisdiction     81  
Legal Matters     81  
Privacy Policy     81  
U.S. Federal Income Tax Considerations     82  
Other Tax Considerations     90  
Investment by ERISA Accounts     90  
Information You Should Know     93  
Statement Regarding Forward-Looking Statements     93  
Where You Can Find More Information     93  
Summary of Promotional and Sales Material     94  
Patent Application Pending     94  
Index to Financial Statements     F-1  
Appendix A:
    A-1  
Glossary of Defined Terms
        
Appendix B:
    B-1  
United States Short Oil Fund, LP Form of Amended and Restated Agreement of Limited Partnership
        
Statement of Additional Information     SAI-1  
The Commodity Interest Markets     SAI-3  
Potential Advantages of Investment     SAI-11  

Until [  ], 2009 (25 days after the date of this prospectus), all dealers effecting transactions in the offered units, whether or not participating in this distribution, may be required to deliver a prospectus. This requirement is in addition to the obligations of dealers to deliver a prospectus when acting as underwriters and with respect to unsold allotments or subscriptions.

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PROSPECTUS SUMMARY

This is only a summary of the prospectus and, while it contains material information about USSO and its units, it does not contain or summarize all of the information about USSO and the units contained in this prospectus that is material and/or which may be important to you. You should read this entire prospectus, including “What Are the Risk Factors Involved with an Investment in USSO?” beginning on page 13, before making an investment decision about the units.

Overview of USSO

United States Short Oil Fund, LP, a Delaware limited partnership (“USSO” or “Us” or “We”), is a commodity pool that will issue units that may be purchased and sold on the NYSE Arca. USSO was organized as a limited partnership under Delaware law on June 30, 2008 and is currently operating pursuant to the Amended and Restated Agreement of Limited Partnership dated January 6, 2009 (the “LP Agreement”) which is included as Appendix B. It is expected that the initial limited partner of USSO will be IMC-Chicago, LLC. It is managed and controlled by its general partner, United States Commodity Funds LLC (“General Partner”). The General Partner is a single member limited liability company formed in Delaware on May 10, 2005, that is registered as a commodity pool operator (“CPO”) with the Commodity Futures Trading Commission (“CFTC”) and is a member of the National Futures Association (“NFA”). Prior to June 13, 2008, the General Partner’s name was Victoria Bay Asset Management, LLC. USSO will pay the General Partner a management fee of 0.60% of NAV on its average net assets.

The net assets of USSO will consist primarily of investments in short positions in futures contracts for crude oil, heating oil, gasoline, natural gas and other petroleum-based fuels that are traded on the New York Mercantile Exchange (the “NYMEX”), the ICE Futures (formerly, the International Petroleum Exchange) or other U.S. and foreign exchanges (collectively, “Futures Contracts”). USSO may also take short positions in other crude oil-related investments such as cash-settled options on Futures Contracts, forward contracts for crude oil, and over-the-counter transactions that are based on the price of crude oil and other petroleum-based fuels, Futures Contracts and indices based on the foregoing (collectively, “Other Crude Oil-Related Investments”). For convenience and unless otherwise specified, Futures Contracts and Other Crude Oil-Related Investments collectively are referred to as “Crude Oil Interests” in this prospectus. The General Partner is authorized by USSO in its sole judgment to employ, establish the terms of employment for, and terminate commodity trading advisors or futures commission merchants.

USSO will take short positions in Crude Oil Interests to the fullest extent possible without being leveraged or unable to satisfy its current or potential margin or collateral obligations with respect to its investments in short positions in Futures Contracts and Other Crude Oil-Related Investments. The primary focus of the General Partner will be taking short positions in Futures Contracts and the management of investments in short-term obligations of the United States of two years or less (“Treasuries”), cash and/or cash equivalents for margining purposes and as collateral.

The investment objective of USSO is to have the changes in percentage terms of its units’ net asset value (“NAV”) inversely reflect the changes in percentage terms of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by the changes in the price of the futures contract on light, sweet crude oil as traded on the New York Mercantile Exchange that is the near month contract to expire, except when the near month contract is within two weeks of expiration, in which case the futures contract will be the next month contract to expire (the “Benchmark Futures Contract”), less USSO’s expenses. It is not the intent of USSO to be operated in a fashion such that its NAV will equal, in dollar terms, the dollar price of spot crude oil or any particular futures contract based on crude oil. USSO may invest in interests other than the Benchmark Futures Contract to comply with accountability levels and position limits. For a detailed discussion of accountability levels and position limits, see “What are Futures Contracts?”

To achieve its investment objective, USSO anticipates that it will need to maintain “short” positions in the Futures Contracts and Other Crude-Oil Related Investments in which it invests. A short position is one in which USSO will have sold the Futures Contract or Other Crude-Oil Related Investment and must buy it back or otherwise close out the position in the future. As a result, a drop in the market value of the Crude Oil Interest would lead to a potential gain for USSO, while an increase in the market value of the Crude Oil Interest would lead to a potential loss for USSO. Typically a short position will produce a result that is the

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inverse of buying the Futures Contract or Other Crude-Oil Related Investment (an approach referred to as being “long” the investment). The General Partner expects the performance of USSO to generally be inverse to the performance of the United States Oil Fund, LP (“USOF”), another commodity pool managed by the General Partner, which seeks to have the changes in percentage terms of its units NAV track the changes in percentage terms in the spot price of light, sweet crude oil as traded in the United States.

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

A is the average daily change in USSO’s NAV for any period of 30 successive valuation days, i.e., any trading day as of which USSO calculates its NAV, and
B is the inverse of the average daily change in the price of the Benchmark Futures Contract over the same period.

An investment in the units is intended to allow both retail and institutional investors to easily gain inverse or negative exposure to the crude oil market in a cost-effective manner. The units are also expected to provide additional means for diversifying an investor’s investments or hedging exposure to changes in crude oil prices.

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

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

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

The General Partner will employ a “neutral” investment strategy intended to inversely track the changes in the price of the Benchmark Futures Contract regardless of whether the price goes up or goes down. USSO’s “neutral” investment strategy is designed to permit investors generally to purchase and sell USSO’s units for the purpose of taking short positions indirectly in crude oil in a cost-effective manner, and/or to permit participants in the crude oil or other industries to hedge the risk of losses in their crude oil-related transactions. Accordingly, depending on the investment objective of an individual investor, the risks generally associated with taking short positions in crude oil and/or the risks involved in hedging may exist. In addition, an investment in USSO involves the risk that the changes in the price of USSO’s units will not accurately track the inverse of changes in the price of the Benchmark Futures Contract. For example, USSO will also invest in Treasuries and hold cash and/or cash equivalents to be used to meet its current or potential margin or collateral requirements with respect to its short positions in Futures Contracts and Other Crude Oil-Related Investments. USSO does not expect there to be any meaningful correlation between the performance of USSO’s investments in Treasuries/cash/cash equivalents and the changes in the price of crude oil. While the level of interest earned on or the market price of these investments may in some respect correlate to changes in the price of crude oil, this correlation is not anticipated as part of USSO’s efforts to meet its objectives.

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This and certain risk factors discussed in this prospectus may cause a lack of correlation between the changes in USSO’s NAV and the changes in the price of crude oil.

USSO will create and redeem units only in blocks of 100,000 units called Creation Baskets and Redemption Baskets, respectively. Only Authorized Purchasers may purchase or redeem Creation Baskets or Redemption Baskets. An Authorized Purchaser is under no obligation to create or redeem baskets, and an Authorized Purchaser is under no obligation to offer to the public units of any baskets it does create. It is expected that baskets will be created when there is sufficient demand for units that the market price per unit is at a premium to the NAV per unit. Authorized Purchasers will then sell such units, which will be listed on the NYSE Arca, to the public at per unit offering prices that are expected to reflect, among other factors, the trading price of the units on the NYSE Arca, the NAV of USSO at the time the Authorized Purchaser purchased the Creation Baskets and the NAV at the time of the offer of the units to the public, the supply of and demand for units at the time of sale, and the liquidity of the Futures Contracts market and the market for Other Crude Oil-Related Investments. The prices of units offered by Authorized Purchasers are expected to fall between USSO’s NAV and the trading price of the units on the NYSE Arca at the time of sale. Similarly, it is expected that baskets will be redeemed when the market price per unit is at a discount to the NAV per unit. Retail investors seeking to purchase or sell units on any day are expected to effect such transactions in the secondary market, on the NYSE Arca, at the market price per unit, rather than in connection with the creation or redemption of baskets.

The minimum number of Creation Baskets that must be sold is one. All proceeds from the sale of Creation Baskets will be invested as quickly as possible in the investments described in this prospectus. There will be no escrow or similar holding of funds that has a time period or other conditions. Investments will be held through USSO’s custodian, Brown Brothers Harriman & Co. (“Custodian”), or through accounts with USSO’s commodity futures brokers. There is no stated maximum time period for USSO’s operations and the fund will continue until all units are redeemed or the fund is liquidated pursuant to the terms of the LP Agreement.

There is no specified limit on the maximum amount of Creation Baskets that can be sold. At some point, accountability levels and position limits on certain of the Futures Contracts in which USSO intends to take short positions may practically limit the maximum amount of Creation Baskets that will be sold if the General Partner determines that the other investment alternatives available to USSO at that time will not enable it to meet its stated investment objective.

Units may also be purchased and sold by individuals and entities that are not Authorized Purchasers in smaller increments than Creation Baskets on the NYSE Arca. However, these transactions will be effected at bid and ask prices established by specialist firm(s). Like any listed security, units of USSO can be purchased and sold at any time a secondary market is open.

In managing USSO’s assets, the General Partner does not intend to use a technical trading system that issues buy and sell orders. The General Partner intends instead to employ quantitative methodologies whereby each time one or more baskets are purchased or redeemed, the General Partner will purchase or sell short positions in the Futures Contracts and Other Crude Oil-Related Investments with an aggregate market value that approximates the amount of Treasuries and/or cash received or paid upon the purchase or redemption of the basket(s).

Note to Secondary Market Investors:  The units can be directly purchased from or redeemed by USSO only in Creation Baskets or Redemption Baskets, respectively, and only by Authorized Purchasers. Each Creation Basket and Redemption Basket will consist of 100,000 units and may be worth millions of dollars. Individual investors, therefore, will not be able to directly purchase units from or redeem units with USSO. Some of the information contained in this prospectus, including information about buying and redeeming units directly from and to USSO is only relevant to Authorized Purchasers. Units will also be listed and traded on the NYSE Arca under the ticker symbol “DNO” and may be purchased and sold as individual units. Individuals interested in purchasing units in the secondary market should contact their broker. Units purchased or sold through a broker may be subject to commissions.

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Except when aggregated in Redemption Baskets, units will not be redeemable securities. There is no guarantee that units will trade at or near the per-unit NAV.

The Units

The units are registered as securities under the Securities Act of 1933 (“1933 Act”) and the Securities Exchange Act of 1934 (“Exchange Act”) and will not provide dividend rights or conversion rights and there will not be sinking funds. The units may only be redeemed when aggregated in Redemption Baskets as discussed under “Creation and Redemption of Units” and limited partners will have limited voting rights as discussed under “Who is the General Partner?” Cumulative voting will neither be permitted nor required and there will be no preemptive rights. As discussed in the LP Agreement, upon liquidation of USSO, its assets will be distributed pro rata to limited partners based upon the number of units held. Each limited partner will receive its share of the assets in cash or in kind, and the proportion of such share that is received in cash may vary from partner to partner, as the General Partner in its sole discretion may decide.

This will be a continuous offering under Rule 415 of the 1933 Act and will terminate when all of the registered units have been sold. It is anticipated that when all registered units have been sold pursuant to this registration statement, additional units will be registered in subsequent registration statements. As discussed above, the minimum purchase requirement for Authorized Purchasers is a Creation Basket, which will consist of 100,000 units. Under the plan of distribution, USSO does not require a minimum purchase amount for investors who purchase units from Authorized Purchasers. There are no arrangements to place funds in an escrow, trust, or similar account.

USSO’s Investments in Crude Oil Interests

A brief description of the principal types of Crude Oil Interests in which USSO may take short positions is set forth below.

A futures contract is a standardized contract traded on a futures exchange that calls for the future delivery of a specified quantity of a commodity at a specified time and place.
A forward contract is a supply contract between principals, not traded on an exchange, to buy or sell a specified quantity of a commodity on or before a specified date at a specified price.
A spot contract is a cash market transaction in which the buyer and seller agree to the immediate purchase and sale of a commodity, usually with a two-day settlement. Spot contracts are not uniform and are not exchange-traded.
An option on a futures contract, forward contract or a commodity on the spot market gives the buyer of the option the right, but not the obligation, to buy or sell a futures contract, forward contract or a commodity as applicable, at a specified price on or before a specified date. Options on futures contracts are standardized contracts traded on an exchange, while options on forward contracts and commodities on the spot market, referred to collectively in this prospectus as over-the-counter options, generally are individually negotiated, principal-to-principal contracts not traded on an exchange.
Over-the-counter contracts (such as swap contracts) generally involve an exchange of a stream of payments between the contracting parties. Over-the-counter contracts generally are not uniform and not exchange-traded.

A more detailed description of Crude Oil Interests and other aspects of the crude oil and crude oil interests markets can be found later in this prospectus.

As noted, USSO expects to take short positions primarily in Futures Contracts, including those traded on the New York Mercantile Exchange. USSO expressly disclaims any association with such Exchange or endorsement of USSO by such Exchange and acknowledges that “NYMEX” and “New York Mercantile Exchange” are registered trademarks of such Exchange.

Principal Investment Risks of an Investment in USSO

An investment in USSO involves a degree of risk. Some of the risks you may face are summarized below. A more extensive discussion of these risks appears beginning on page 12.

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Unlike mutual funds, commodity pools or other investment pools that actively manage their investments in an attempt to realize income and gains from their investing activities and distribute such income and gains to their investors, USSO generally does not expect to distribute cash to limited partners or other unitholders. You should not invest in USSO if you will need cash distributions from USSO to pay taxes on your share of income and gains of USSO, if any, or for any other reason.
There is the risk that the changes in the price of USSO’s units on the NYSE Arca will not closely track the inverse of changes in the price of crude oil. This could happen if the price of units traded on the NYSE Arca does not correlate closely with USSO’s NAV; the changes in USSO’s NAV do not closely inversely correlate with the changes in the price of the Benchmark Futures Contract; or the changes in the price of the Benchmark Futures Contract do not closely correlate with the changes in the cash or spot price of crude oil. This is a risk because if these correlations do not exist, then investors may not be able to use USSO as a cost-effective way to indirectly take short positions in crude oil or as a hedge against the risk of loss in crude oil-related transactions.
USSO seeks to have the changes in its units’ NAV in percentage terms inversely track changes in the price of crude oil in percentage terms rather than profit from speculative trading of Crude Oil Interests. The General Partner will therefore endeavor to manage USSO’s positions in Crude Oil Interests so that USSO’s assets are, unlike those of other commodity pools, not leveraged (i.e., so that the aggregate value of USSO’s unrealized losses from its investments in such Crude Oil Interests at any time will not exceed the value of USSO’s assets). There is no assurance that the General Partner will successfully implement this investment strategy. If the General Partner permits USSO to become leveraged, you could lose all or substantially all of your investment if USSO’s trading positions suddenly turn unprofitable. These movements in price may be the result of factors outside of the General Partner’s control and may not be anticipated by the General Partner.
USSO seeks to track the inverse of the total return movement of the Benchmark Futures Contract on a daily basis. However, due to the nature of compounding, even if USSO successfully tracks the inverse of the Benchmark Futures Contract’s daily return on a daily basis, USSO’s total return will not be the exact inverse of a similar long-only, or non-inverse, crude oil investment over the same time period. As such, USSO may not provide a perfect hedge to an investor seeking longer-term results that inversely mirror a similar long position in crude oil or crude oil futures contracts. For more information, see “USSO’s Operating Risks”.
USSO seeks to track the inverse of the total return movement of the Benchmark Futures Contract on a daily basis. As such the General Partner may need to re-balance the portfolio on a daily basis to maintain the proper ratio of Crude Oil Interests to total net assets. Such trading can lead to higher expenses for USSO in the form of trading commissions and other fees or expenses. For more information, see “USSO’s Operating Risks”.
The price relationship between the near month contract to expire and the next month contract to expire that compose the Benchmark Futures Contract will vary and may impact both the total return over time of USSO’s NAV, as well as the degree to which its total return tracks the inverse of the Benchmark Futures Contract. In the event of a crude oil futures market where near month contracts trade at a higher price than next month contracts to expire, a situation described as “backwardation” in the futures market, then, absent the impact of the overall movement in crude oil prices, the value of the Benchmark Futures Contract would tend to rise as it approaches expiration. As a result short positions in the Benchmark Futures Contract would tend to track lower. Conversely, in the event of a crude oil futures market where near month contracts trade at a lower price than next month contracts to expire, a situation described as “contango” in the futures market, then, absent the impact of the overall movement in crude oil prices, the value of the Benchmark Futures Contract would tend to decline as it approaches expiration. As a result, short positions in the Benchmark Futures Contract would tend to track higher. When compared to the total return of other price indices, such as the

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spot price of crude oil, the impact of backwardation and contango may lead the total return of USSO’s NAV to vary significantly. In the event of a prolonged period of backwardation, and absent the impact of rising or falling crude oil prices, this could have a significant negative impact on USSO’s NAV and total return.
Investors may choose to use USSO as a means of indirectly taking short positions in crude oil and there are risks involved in such investments. The risks and hazards that are inherent in the crude oil industry may cause the price of crude oil to widely fluctuate, for example, due to changes in supply and demand for crude oil as a result of refinery shutdowns or changes in the weather. The exploration and production of crude oil are uncertain processes with many risks. The cost of drilling, completing and operating wells for crude oil is often uncertain, and a number of factors can delay or prevent drilling operations or production of crude oil.
Investors, including those who directly participate in the crude oil industry, may choose to use USSO as a vehicle to hedge against the risk of loss associated with the rising cost of crude oil, and there are risks involved in hedging activities. While hedging can provide protection against an adverse movement in market prices, it can also preclude a hedger’s opportunity to benefit from a favorable market movement.
USSO takes short positions in Futures Contracts, and particularly in Futures Contracts traded on the New York Mercantile Exchange, which involves certain risks including that changes in its NAV may not inversely correlate with changes in the Benchmark Futures Contract.
USSO expects to take short positions primarily in Futures Contracts that are traded in the United States. However, a portion of USSO’s trades may take place in markets and on exchanges outside the United States. Some non-U.S. markets present risks because they are not subject to the same degree of regulation as their U.S. counterparts. In some of these non-U.S. markets, the performance on a contract is the responsibility of the counterparty and is not backed by an exchange or clearing corporation and therefore exposes USSO to credit risk. Trading in non-U.S. markets also leaves USSO susceptible to fluctuations in the value of the local currency against the U.S. dollar.
USSO may also take short positions in Other Crude Oil-Related Investments, many of which are negotiated contracts that are not as liquid as Futures Contracts and expose USSO to credit risk that its counterparty may not be able to satisfy its obligations to USSO.
USSO will pay fees and expenses that are incurred regardless of whether it is profitable.
You will have no rights to participate in the management of USSO and will have to rely on the duties and judgment of the General Partner to manage USSO.
The structure and operation of USSO may involve conflicts of interest. For example, a conflict may arise because the General Partner and its principals and affiliates may trade for themselves. In addition, the General Partner has sole current authority to manage the investments and operations of USSO, which may create a conflict with the unitholders’ best interests. The General Partner may also have a conflict to the extent that its trading decisions may be influenced by the effect they would have on the United States Oil Fund, LP (“USOF”), the United States Natural Gas Fund, LP (“USNG”), the United States 12 Month Oil Fund, LP (“US12OF”), the United States Gasoline Fund, LP (“UGA”), or the United States Heating Oil Fund, LP (“USHO”), other commodity pools that it manages, or any other commodity pool the General Partner may form and manage in the future. USOF, USNG, US12OF, UGA, and USHO are referred to herein as the “Related Public Funds.”
USSO is new and has no operating history. Therefore, you do not have the benefit of reviewing the past performance of USSO as a basis for you to evaluate an investment in USSO.

For additional risks, see “What Are the Risk Factors Involved with an Investment in USSO?”

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Principal Offices of USSO and the General Partner

USSO’s principal office is located at 1320 Harbor Bay Parkway, Suite 145, Alameda, California 94502. The telephone number is 510.522.3336. The General Partner’s principal office is also located at 1320 Harbor Bay Parkway, Suite 145, Alameda, California 94502.

Financial Condition of USSO

USSO will not calculate the NAV prior to the effective date. The initial NAV will be determined as of 4:00 p.m. New York time on the effective date.

Defined Terms

For a glossary of defined terms, see Appendix A.

Breakeven Analysis

The breakeven analysis below indicates the approximate dollar returns and percentage required for the redemption value of a hypothetical $50.00 initial investment in a single unit to equal the amount invested twelve months after the investment was made. This breakeven analysis refers to the redemption of baskets by Authorized Purchasers and is not related to any gains an individual investor would have to achieve in order to break even. The breakeven analysis is an approximation only.

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Assumed initial selling price per unit   $ 50.00  
Management Fee (0.60%)(1)   $ 0.30  
Creation Basket Fee(2)   $ (0.01 ) 
Estimated Brokerage Fee (0.19%)(3)   $ 0.10  
Interest Income (0.24%)(4)   $ (0.12 ) 
Registration Fees(5)   $ 0.21  
New York Mercantile Exchange Licensing Fee(6)   $ 0.02  
Independent Directors and Officers’ Fees(7)   $ 0.07  
Fees and expenses associated with tax accounting and reporting(8)   $ 0.25  
Amount of trading income (loss) required for the redemption value at the end of one year to equal the initial selling price of the unit   $ 0.72  
Percentage of initial selling price per unit     1.44 % 

(1) USSO is contractually obligated to pay the General Partner a management fee based on daily net assets and paid monthly of 0.60% per annum on average net assets.
(2) Authorized Purchasers are required to pay a Creation or Redemption Basket fee of $1,000 for each order they place to create or redeem one or more baskets. An order must be at least one basket, which is 100,000 units. This breakeven analysis assumes a hypothetical investment in a single unit so the Creation Basket fee is $.01 (1,000/100,000).
(3) USSO determined this estimate as follows. The breakeven analysis assumes an initial investment by an investor in one unit. Assuming the price of the unit is $50.00, USSO would receive $5,000,000 upon the sale of a Creation Basket (100,000 units multiplied by $50.00). Assuming no change in the settlement price of the contracts, USSO would be required to sell and purchase short positions in 101 futures contracts each month to support the Creation Basket ($5,000,000 divided by the total value of a crude oil contract of $49,410 (as of April 14, 2009, the settlement price for crude oil was $49.41)). Assuming futures commission merchants charge approximately $4.00 per crude oil contract for each buy or sale, the monthly futures commission merchant commission charge per contract would be approximately $8.00, and the annual futures commission merchant commission charge per contract would be approximately $96. Assuming no change in the settlement price of the contracts, USSO would sell and buy 101 crude oil contracts each month to support a Creation Basket, which means that USSO’s monthly commission charge per Creation Basket would be approximately $808, and the annual commission charge per Creation Basket would be approximately $9,696 (101 contracts bought and sold * approximately $8.00 per month * 12 months). As a percentage of the total investment of $5,000,000 to support the issuance of the Creation Basket, USSO’s annual commission expense would be approximately 0.19% ($9,696 divided by $5,000,000 per annum).
(4) USSO will earn interest on funds it will deposit with the futures commission merchant and the custodian and it estimates that the interest rate will be 0.24% based on the current interest rate on three-month Treasury Bills as of March 17, 2009. The actual rate may vary.
(5) The fee to register 25,000,000 units with the SEC and the Financial Industry Regulatory Authority (“FINRA”) is $124,625 (the SEC’s fee is $49,125 and FINRA’s fee is $75,500). An order must be at least one basket which is 100,000 units. The number in the break-even table assumes USSO has $30 million in assets.
(6) Assuming the aggregate assets of USSO and the Related Public Funds are $1,000,000,000 or less, the New York Mercantile Exchange licensing fee is 0.04%. For more information see “Fees of USSO.”
(7) The foregoing assumes that the assets of USSO are aggregated with those of the Related Public Funds, that the aggregate fees to be paid to the independent directors for 2008 equal $282,000, that the allocable portion of the fees borne by USSO will equal 15 percent of the aggregate assets of USSO and the Related Public Funds, or $42,300, and that USSO will have $30 million in assets.
(8) USSO assumed the aggregate costs attributable to tax accounting and reporting to be $150,000. This estimate is based on the experience of the General Partner in its management of similar funds. The number in the break-even table assumes USSO has $30 million in assets.

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THE OFFERING

Offering:    
    USSO will be offering Creation Baskets consisting of 100,000 units through ALPS Distributors, Inc. (“Marketing Agent”) as marketing agent to Authorized Purchasers. The initial Authorized Purchaser will purchase one or more initial Creation Baskets of 100,000 units at an initial offering price per unit equal to $50.00. The initial Authorized Purchaser intends to offer the units of the initial Creation Basket(s) publicly. The effective date will be the date on which the SEC declares the registration statement relating to this prospectus effective and is expected to be the date of the sale of the initial Creation Basket(s). However, the proceeds are not expected to be invested until the order for the first Creation Basket has settled and cash is received from the initial Authorized Purchaser. The units are expected to begin trading on the day following the purchase of the initial Creation Basket(s) by the initial Authorized Purchaser.
Use of Proceeds:    
    The General Partner will apply substantially all of USSO’s assets toward trading short positions in Futures Contracts and other Crude Oil-Related Investments and investing in Treasuries, cash and/or cash equivalents. The General Partner expects to deposit a portion of USSO’s net assets with the futures commission merchant, UBS Securities LLC, or other custodian to be used to meet its current or potential margin or collateral requirements in connection with its investment in short positions in Futures Contracts. USSO will use only Treasuries, cash and/or cash equivalents to satisfy these requirements. The General Partner expects that all entities that will hold or trade USSO’s assets will be based in the United States and will be subject to United States regulations. The General Partner believes that 5% to 10% of USSO’s assets will normally be committed as margin for its short positions in Futures Contracts. However, from time to time, the percentage of assets committed as margin may be substantially more, or less, than such range. The remaining portion of USSO’s assets, of which the General Partner expects to be the vast majority, will be held in Treasuries, cash and/or cash equivalents by its custodian, Brown Brothers Harriman & Co. (“Custodian”), or posted as collateral to support USSO’s investments in Crude Oil Interests. All interest income earned on these investments will be retained for USSO’s benefit.
NYSE Arca Symbol:    
    “DNO”
Creation and Redemption:    
    Authorized Purchasers will pay a $1,000 fee for each order to create or redeem one or more Creation Baskets or Redemption Baskets. Authorized Purchasers will not be required to sell any specific number or dollar amount of units. The per unit price of units offered in Creation Baskets on any day after the effective date of the registration statement relating to this prospectus will be the total

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    NAV of USSO calculated shortly after the close of the NYSE Arca on that day divided by the number of issued and outstanding units.
Withdrawal:    
    As discussed in the LP Agreement, if the General Partner gives at least fifteen (15) days’ written notice to a limited partner, then the General Partner may for any reason, in its sole discretion, require any such limited partner to withdraw entirely from the partnership or to withdraw a portion of its partner capital account. If the General Partner does not give at least fifteen (15) days’ written notice to a limited partner, then it may only require withdrawal of all or any portion of the capital account of any limited partner in the following circumstances: (i) the unitholder made a misrepresentation to the General Partner in connection with its purchase of units; or (ii) the limited partner’s ownership of units would result in the violation of any law or regulation applicable to the partnership or a partner.
Registration Clearance and Settlement:    
    Individual certificates will not be issued for the units. Instead, units will be represented by one or more global certificates, which will be deposited by the Custodian with the Depository Trust Company (“DTC”) and registered in the name of Cede & Co., as nominee for DTC. The global certificates evidence all of the units outstanding at any time. Unitholders are limited to (1) participants in DTC such as banks, brokers, dealers and trust companies (“DTC Participants”), (2) those who maintain, either directly or indirectly, a custodial relationship with a DTC Participant (“Indirect Participants”), and (3) those banks, brokers, dealers, trust companies and others who hold interests in the units through DTC Participants or Indirect Participants, in each case who satisfy the requirements for transfers of units. DTC Participants acting on behalf of investors holding units through such participants’ accounts in DTC will follow the delivery practice applicable to securities eligible for DTC’s Same-Day Funds Settlement System. Units will be credited to DTC Participants’ securities accounts following confirmation of receipt of payment.
   
    The administrator, Brown Brothers Harriman & Co. (“Administrator”), has been appointed registrar and transfer agent for the purpose of registering and transferring units. The General Partner will recognize transfer of units only if such transfer is done in accordance with the LP Agreement, including the delivery of a transfer application.
Net Asset Value:    
    The NAV is calculated by taking the current market value of USSO’s total assets and subtracting any liabilities. Under USSO’s current operational procedures, the Administrator calculates the NAV of USSO’s units as of the earlier of 4:00 p.m. New York time or the close of the

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    NYSE Arca each day. The NYSE Arca currently calculates an approximate net asset value every 15 seconds throughout each day USSO’s units are traded on the NYSE Arca for as long as the NYMEX’s main pricing mechanism is open.
Fund Expenses:    
    USSO will pay the General Partner a management fee of 0.60% of NAV on its average net assets. Brokerage fees for Treasuries, Futures Contracts, and Other Crude Oil-Related Investments are estimated to be 0.19% and will be paid to unaffiliated brokers. USSO also pays any licensing fees for the use of intellectual property. Registration fees paid to the SEC, FINRA, or other regulatory agency in connection with the initial offers and sales of the units and the legal, printing, accounting and other expenses associated with such registrations will be paid by the General Partner, but the fees and expenses associated with subsequent SEC registrations of units will be borne by USSO. The licensing fee paid to the NYMEX will be 0.04% of NAV for the first $1,000,000,000 of assets and 0.02% of NAV after the first $1,000,000,000 of assets. The assets of USSO are aggregated with those of the Related Public Funds and other funds formed or to be formed by the General Partner, for the purpose of calculating the NYMEX licensing fee. USSO also is responsible for the fees and expenses, which may include directors and officers liability insurance, of the independent directors of the General Partner in connection with their activities with respect to USSO. These director fees and expenses may be shared with other funds managed by the General Partner. These fees and expenses were $282,000 for 2008, though this amount may change in future years. The General Partner, and not USSO, is responsible for payment of the fees of USSO’s Marketing Agent, Administrator and Custodian. USSO and/or the General Partner may be required to indemnify the Marketing Agent, Administrator or Custodian under certain circumstances. USSO also pays the fees and expenses associated with its tax accounting and reporting requirements with the exception of certain initial implementation services fees and base services fees which will be paid by the General Partner. The General Partner paid approximately $525,000 on behalf of the Related Public Funds in 2008.
Termination Events:    
    USSO shall continue in effect from the date of its formation in perpetuity, unless sooner terminated upon the occurrence of any one or more of the following events: the death, adjudication of incompetence, bankruptcy, dissolution, withdrawal, or removal of a General Partner who is the sole remaining General Partner, unless a majority in interest of limited partners within ninety (90) days after such event elects to continue the partnership and appoints a successor general partner or the affirmative vote of a majority in interest of the limited

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    partners subject to certain conditions. Upon termination of the partnership, the affairs of the partnership shall be wound up and all of its debts and liabilities discharged or otherwise provided for in the order of priority as provided by law. The fair market value of the remaining assets of the partnership shall then be determined by the General Partner. Thereupon, the assets of the partnership shall be distributed pro rata to the partners in accordance with their units.
Authorized Purchasers:    
    We expect the initial Authorized Purchaser to be Deutsche Bank Securities Inc. We expect subsequent Authorized Purchasers to purchase or redeem Creation Baskets or Redemption Baskets, respectively, from or to USSO. A list of Authorized Purchasers will be available from the Marketing Agent. Authorized Purchasers must be (1) registered broker-dealers or other securities market participants, such as banks and other financial institutions, that are not required to register as broker-dealers to engage in securities transactions, and (2) DTC Participants. To become an Authorized Purchaser, a person must enter into an Authorized Purchaser Agreement with the General Partner.

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WHAT ARE THE RISK FACTORS INVOLVED WITH AN INVESTMENT IN USSO?

You should consider carefully the risks described below before making an investment decision. You should also refer to the other information included in this prospectus, including USSO’s financial statements and the related notes.

Risks Associated with Investing Directly or Indirectly in Crude Oil

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

USSO is subject to the risks and hazards of the crude oil industry because it intends to take short positions in Crude Oil Interests. The risks and hazards that are inherent in the crude oil industry may cause the price of crude oil to widely fluctuate. If USSO’s units accurately track the inverse of the percentage changes in the terms of the Benchmark Futures Contract or the spot price of crude oil, then the price of its units may also fluctuate. The exploration and production of crude oil are uncertain processes with many risks. The cost of drilling, completing and operating wells for crude oil is often uncertain, and a number of factors can delay or prevent drilling operations or production of crude oil, including:

unexpected drilling conditions;
pressure or irregularities in formations;
equipment failures or repairs;
fires or other accidents;
adverse weather conditions;
pipeline ruptures, spills or other supply disruptions; and
shortages or delays in the availability of drilling rigs and the delivery of equipment.

Crude oil transmission, distribution, gathering, and processing activities involve numerous risks that may affect the price of crude oil.

There are a variety of hazards inherent in crude oil transmission, distribution, gathering, and processing, such as leaks, explosions, pollution, release of toxic substances, adverse weather conditions (such as hurricanes and flooding), pipeline failure, abnormal pressures, uncontrollable flows of crude oil, scheduled and unscheduled maintenance, physical damage to the gathering or transportation system, and other hazards which could affect the price of crude oil. To the extent these hazards limit the supply or delivery of crude oil, crude oil prices will increase.

Changes in the political climate could have negative consequences for crude oil prices.

Tensions with Iran, the world’s fourth largest oil exporter, could put oil exports in jeopardy. Other global concerns include civil unrest and sabotage affecting the flow of oil from Nigeria, a large oil exporter. Meanwhile, friction continues between the governments of the United States and Venezuela, a major exporter of oil to the United States. Additionally, a series of production cuts by members of the Organization of Oil Exporting Countries (“OPEC”) followed by a refusal to subsequently increase oil production have tightened world oil markets.

Fluctuations in the reserve capacity of crude oil could impact future prices.

In the past, a supply disruption in one area of the world was softened by the ability of major oil-producing nations such as Saudi Arabia to increase output to make up the difference. In recent years much of that reserve capacity has been absorbed by increased demand. The current global economic downturn, however, has led to a decrease in the demand for oil that is expected to last through the end of 2009 and a corresponding increase in reserve capacities. According to the United States Government’s Energy Information Administration, global oil demand is expected to fall by almost 1.8 million barrels a day in 2009, compared with largely unchanged demand in 2008. Global demand for oil is expected to rise by 0.7 million barrels a day in 2010. Consumption of oil products continues to increase in certain parts of the world, especially in rapidly growing countries such as India and China, which is now the world’s second-largest energy user. The volatility of demand in the oil market makes it difficult to predict the availability of reserve capacities.

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

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

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

The General Partner will endeavor to invest USSO’s assets as fully as possible in Futures Contracts and Other Crude Oil-Related Investments so that changes in percentage terms in the NAV will closely inversely correlate with changes in percentage terms in the price of the Benchmark Futures Contract. However, changes in USSO’s NAV may not inversely correlate with changes in the price of the Benchmark Futures Contract for several reasons as set forth below:

USSO (i) may not be able to sell/buy the exact amount of short positions in Futures Contracts and Other Crude Oil-Related Investments to have a perfect inverse correlation with NAV; (ii) may not always be able to buy and sell Futures Contracts or Other Crude Oil-Related Investments at the market price; (iii) may not experience a perfect inverse correlation between the Benchmark Futures Contract and the underlying investments in Futures Contracts, Other Crude Oil-Related Investments and Treasuries, cash and cash equivalents; and (iv) is required to pay brokerage fees and the management fee, which will have an effect on the correlation.
Short-term supply and demand for crude oil may cause the changes in the market price of the Benchmark Futures Contract to vary inversely from changes in USSO’s NAV if USSO has fully invested in short positions in Futures Contracts that do not reflect such supply and demand and it is unable to replace such contracts with Futures Contracts that do reflect such supply and demand. In addition, there are also technical differences between the two markets, e.g., one is a physical market while the other is a futures market traded on exchanges, that may cause variations between the spot price of light, sweet crude oil and the prices of related futures contracts.
USSO plans to sell and buy only as many short positions in Futures Contracts and Other Crude Oil-Related Investments that it can to get the changes in percentage terms of the NAV as close as possible to the inverse of changes in percentage terms in the price of the Benchmark Futures Contract. The remainder of its assets will be invested in Treasuries, cash and/or cash equivalents and will be used to satisfy initial margin and additional margin requirements, if any, and to otherwise support its investments in short positions in Crude Oil Interests. Investments in Treasuries, cash and/or cash equivalents, both directly and as margin, will provide rates of return that will vary from inverse changes in the value of the spot price of light, sweet crude oil and the price of the Benchmark Futures Contract.
In addition, because USSO will incur certain expenses in connection with its investment activities, and will hold most of its assets in cash and/or more liquid short-term securities for margin and other liquidity purposes and for redemptions that may be necessary on an ongoing basis, the General Partner will not be able to fully invest USSO’s assets in short positions in Futures Contracts or Other Crude Oil-Related Investments and there cannot be perfect inverse correlation between changes in USSO’s NAV and changes in the price of the Benchmark Futures Contract.

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As USSO grows, there may be more or less correlation. For example, if USSO only has enough money to buy short positions in three Benchmark Futures Contracts and it needs to take short positions in four contracts to inversely track the price of crude oil then the inverse correlation will be lower, but if it takes short positions in 20,000 Benchmark Futures Contracts and it needs to take short positions in 20,001 contracts then the inverse correlation will be higher. At certain asset levels, USSO may be limited in its ability to sell or purchase short positions in the Benchmark Futures Contract or other Futures Contracts due to accountability levels imposed by the relevant exchanges. To the extent that USSO takes short positions in these other Futures Contracts or Other Crude Oil-Related Investments, the inverse correlation with the Benchmark Futures Contract may be lower. If USSO is required to take short positions in other Futures Contracts and Other Crude Oil-Related Investments that are less inversely correlated with the Benchmark Futures Contract, USSO would likely invest in over-the-counter contracts to increase the level of inverse correlation of USSO’s assets. Over-the-counter contracts entail certain risks described below under “Over-the-Counter Contract Risk.”
USSO may not be able to sell or buy the exact number of short positions in Futures Contracts and Other Crude Oil-Related Investments to have a perfect inverse correlation with the Benchmark Futures Contract if the purchase price of the short positions in Futures Contracts required to be fully invested in such contracts is higher than the proceeds received for the sale of a Creation Basket on the day the basket was sold. In such case, USSO could not invest the entire proceeds from the purchase of the Creation Basket in such short positions (for example, assume USSO receives $5,000,000 for the sale of a Creation Basket and assume that the value of the short position in a Futures Contract for crude oil is $49,410 based on a price of $49.41 per barrel, then USSO could only invest in only 101 short positions in such Futures Contracts with an aggregate value of $4,990,410), USSO would be required to invest a percentage of the proceeds in cash, Treasuries or other liquid securities to be deposited as margin with the futures commission merchant through which the contract was purchased. The remainder of the purchase price for the Creation Basket would remain invested in Treasuries, cash and/or cash equivalents or other liquid securities as determined by the General Partner from time to time based on factors such as potential calls for margin or anticipated redemptions. If the trading market for Futures Contracts is suspended or closed, USSO may not be able to sell or purchase these investments at the last reported price for such investments.

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

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

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

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

The value of Treasuries generally moves inversely with movements in interest rates. If USSO is required to sell Treasuries at a price lower than the price at which they were acquired, USSO will experience a loss.

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This loss may adversely impact the price of the units and may decrease the correlation between the price of the units, the price of USSO’s short positions in Futures Contracts and Other Crude Oil-Related Investments, and the spot price of crude oil.

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

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

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

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

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

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

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

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

The Benchmark Futures Contract is the near month contract to expire until the near month contract is within two weeks of expiration, when it is sold and near month contract is replaced with the next month contract to expire. In the event of a crude oil futures market where near month contracts trade at a higher price than next month contracts to expire, a situation described as “backwardation” in the futures market, then absent the impact of the overall movement in crude oil prices the value of the Benchmark Futures Contract would tend to rise as it approaches expiration. As a result short positions in the Benchmark Futures Contract would tend to track lower. Conversely, in the event of a crude oil futures market where near month contracts trade at a lower price than next month contracts to expire, a situation described as “contango” in the futures market, then absent the impact of the overall movement in crude oil prices the value of the Benchmark Futures Contract would tend to decline as it approaches expiration. As a result short positions in the Benchmark Futures Contract would tend to track higher. When compared to total return of other price indices, such as the spot price of crude oil, the impact of backwardation and contango may lead the total return of USSO’s NAV to vary significantly. In the event of a prolonged period of backwardation, and absent the impact of rising or falling crude oil prices, this could have a significant negative impact on USSO’s NAV and total return.

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

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

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

If you are investing in USSO for purposes of hedging, you might be subject to several risks including the possibility of losing the benefit of favorable market movement.

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

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

When using futures contracts as a hedging technique, at best, the correlation between changes in prices of futures contracts and of the items being hedged can be only approximate. The degree of imperfection of correlation depends upon circumstances such as: variations in speculative markets, demand for futures and for

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crude oil products, technical influences in futures trading, and differences between anticipated energy costs being hedged and the instruments underlying the standard futures contracts available for trading. Even a well-conceived hedge may be unsuccessful to some degree because of unexpected market behavior as well as the expenses associated with creating the hedge.

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

An investment in USSO may provide you little or no diversification benefits. Thus, in a declining market, USSO may have no gains to offset your losses from other investments, and you may suffer losses on your investment in USSO at the same time you incur losses with respect to other asset classes.

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

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

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

USSO’s Operating Risks

USSO is not a registered investment company so you do not have the protections of the Investment Company Act of 1940.

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

USSO has no operating history so there is no performance history to serve as a basis for you to evaluate an investment in USSO.

USSO is new and has no operating history. Therefore, you do not have the benefit of reviewing the past performance of USSO as a basis to evaluate an investment in USSO. The General Partner’s current experience involves managing the United States Oil Fund, LP (“USOF”), an exchange traded security that invests primarily in Futures Contracts for light, sweet crude oil, Treasuries, cash and/or cash equivalents; the United States Natural Gas Fund, LP (“USNG”), an exchange traded security that invests primarily in Futures Contracts for natural gas, Treasuries, cash and/or cash equivalents; the United States 12 Month Oil Fund, LP (“US12OF”), an exchange traded security that invests primarily in Futures Contracts for light, sweet crude oil, Treasuries, cash and/or cash equivalents; the United States Gasoline Fund, LP (“UGA”), an exchange traded security that invests primarily in Futures Contracts for gasoline, Treasuries, cash and/or cash equivalents; and the United

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States Heating Oil Fund, LP (“USHO”), an exchange traded security that invests primarily in Futures Contracts for heating oil, Treasuries, cash and/or cash equivalents. However, there are significant differences between operating funds which attempt to track the returns of crude oil, natural gas, gasoline or heating oil and operating a fund that is attempting to inversely track the crude oil futures market. The General Partner’s results with the crude oil, natural gas, gasoline and heating oil funds may not be representative of results that may be experienced with an inverse fund investing in crude oil futures.

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

In managing and directing the day-to-day activities and affairs of USSO, the General Partner relies heavily on Mr. Nicholas Gerber, Mr. Ray Allen and Mr. John Hyland. If Mr. Gerber, Mr. Allen or Mr. Hyland were to leave or be unable to carry out their present responsibilities, it may have an adverse effect on the management of USSO. Furthermore, Mr. Gerber and Mr. Hyland are involved in the management of the Related Public Funds and the General Partner is currently in the process of registering the units of another exchange traded commodity pool, the United States 12 Month Natural Gas Fund, LP (“US12NG”). In addition, Mr. Allen is involved in the management of UGA and USHO. Mr. Gerber is also employed by Ameristock Corporation, a registered investment adviser that manages a public mutual fund. It is estimated that Mr. Gerber will spend approximately 50% of his time on fund matters. Mr. Allen will spend approximately 100% of his time on fund matters and Mr. Hyland will spend approximately 85% of his time on fund matters. To the extent that the General Partner establishes additional funds, even greater demands will be placed on Mr. Gerber, Mr. Allen and Mr. Hyland, as well as the other officers of the General Partner, including Mr. Howard Mah, the Chief Financial Officer, and its Board of Directors.

USSO may not track the inverse of a similar long-only, or non-inverse, investment in crude oil futures over time even if USSO does successfully track on a daily basis the Benchmark Futures Contract, due to the impact of compounding.

USSO seeks to track the inverse of the total return movement of the Benchmark Futures Contract on a daily basis. However, due to the nature of compounding, even if USSO successfully tracks the inverse of the Benchmark Futures Contract’s daily return on a daily basis, USSO’s total return will not be the exact inverse of a similar long-only, or non-inverse, crude oil investment over the same time period. As such, USSO may not provide a perfect hedge to an investor seeking longer-term results that inversely mirror a similar long position in crude oil or crude oil futures contracts.

As an example, assume an investor starts with $1,000 in an inverse investment in crude oil similar to USSO. Also assume the investor has $1,000 invested in a long-only, or non-inverse, investment also invested in crude oil. For the purposes of this example, we will ignore the impact of fees, commissions, and other trading costs.

If on the first day the price of the Benchmark Futures Contract falls by 1%, then the long-only position would fall from $1,000 to $990, while the inverse investment would rise to $1,010. If on the second day, the price of the Benchmark Futures Contract falls again by 1%, then the long-only position would decline to $980.10, while the inverse investment would rise to $1,020.10. After five consecutive days of 1% declines, the long-only investment would be worth $950.99, while the inverse investment would be worth $1,051.01. Over this five day period, the long-only investment’s total return is -4.9%. Over the same time period, the inverse investment’s total return is +5.1%. The difference is attributable to the impact of compounding of returns over multiple days. Similarly, had the price of crude oil risen 1% each day for five days, the total return of the long-only position would be +5.1% while the total return of the inverse investment would be -4.9%.

The above is a simple example to illustrate the impact of compounding over time. The General Partner believes that in actual practice it is not possible to predict in advance how much impact compounding may have since it is dependent on each day’s total return. As a result, investors seeking to use USSO to hedge a position in a similar long-only investment may not be able to obtain results that perfectly hedge their long-only exposure, or may be forced to adjust their USSO hedge each day to compensate for the impact of compounding. Investors who adjust their hedge each day to address the impact of compounding may incur additional expenses or fees in doing so.

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USSO may incur higher trading costs as a result of the General Partner's attempt to re-balance the portfolio to achieve USSO’s investment objective.

USSO seeks to track the inverse of the total return movement of the Benchmark Futures Contract on a daily basis. As a result, the General Partner may need to re-balance the holdings of the portfolio as often as once a day depending on the price movements in the Benchmark Futures Contract as well as accommodating any unit creation or redemption activity. Such re-balancing activity can cause an increase in the fees and commissions that USSO pays with respect to the trading of Crude Oil Interests, even if the changes in the price of the Benchmark Futures Contract were largely unchanged over time.

For example, assume that the price of the Benchmark Futures Contract was to drop by $1.00 on the first day of the week. The General Partner might have to sell additional Futures Contracts in order to maintain the proper ratio of short Futures Contracts to USSO's total net assets. If the next day the price of the Benchmark Futures Contract was to rise $1.00, the General Partner might have to buy back some or all of the Futures Contracts it had sold the previous day to maintain the proper ratio of short Futures Contracts to USSO's total net assets. So even though in this example, the Benchmark Futures Contract remained unchanged over the two days, USSO may still have incurred trading costs as part of the effort to achieve its investment objective.

The General Partner does not believe it is possible to forecast in advance to what extent this potential additional trading might impact USSO's overall trading expenses as it is dependent on the future price movement of Benchmark Futures Contracts as well as any future creation and redemption activity of USSO.

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

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

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

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

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

USSO is not limiting the size of the offering and is committed to utilizing substantially all of its proceeds to purchase Futures Contracts and Other Crude Oil-Related Investments. If USSO encounters accountability levels, position limits, or price fluctuation limits for crude oil contracts on the New York Mercantile Exchange, it may then, if permitted under applicable regulatory requirements, purchase Futures Contracts on

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the ICE Futures or other exchanges that trade listed crude oil futures. The Futures Contracts available on the ICE Futures are comparable to the contracts on the NYMEX, but they may have different underlying commodities, sizes, deliveries, and prices. In addition, the Futures Contracts available on the ICE Futures may be subject to accountability levels and position limits.

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

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

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

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

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

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

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

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

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

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

The General Partner serves as the general partner to the Related Public Funds, as well as USSO, and will serve as the general partner for US12NG, if such fund offers securities to the public or begins operations. The General Partner may have a conflict to the extent that its trading decisions for USSO may be influenced by

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

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

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

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

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

USSO could terminate at any time and cause the liquidation and potential loss of your investment and could upset the overall maturity and timing of your investment portfolio.

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

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

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

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

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

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

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

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

USSO does not expect to make cash distributions.

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

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

USSO expects to pay brokerage charges of approximately 0.19% (including futures commission merchant fees of $4.00 per buy or sell), any licensing fees for the use of intellectual property, registration fees with the SEC, FINRA, or other regulatory agency in connection with offers and sales of the units subsequent to the initial offering of the units including the legal, printing, accounting and other expenses associated therewith. USSO also pays the fees and expenses, including directors and officers liability insurance, of the independent directors, management fees of 0.60% of NAV on its average net assets, tax accounting and reporting costs, and over-the-counter spreads and extraordinary expenses (i.e., expenses not in the ordinary course of business,

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including the indemnification of any person against liabilities and obligations to the extent permitted by law and required under the LP Agreement and under agreements entered into by the General Partner on USSO’s behalf and the bringing and defending of actions at law or in equity and otherwise engaging in the conduct of litigation and the incurring of legal expenses and the settlement of claims and litigation) that can not be quantified. These fees and expenses must be paid in all cases regardless of whether USSO’s activities are profitable. Accordingly, USSO must earn trading gains sufficient to compensate for these fees and expenses before it can earn any profit.

USSO, to date, has depended upon the General Partner to pay all its expenses. If this offering of units does not raise sufficient funds to pay USSO’s future expenses, the General Partner no longer pays such expenses and no other source of funding of expenses is found, USSO will terminate and investors may lose all or part of their investment.

To date, all of USSO’s expenses have been funded by the General Partner. If the General Partner and USSO are unsuccessful in raising sufficient funds to cover its expenses or in locating any other source of funding, USSO will terminate and investors may lose all or part of their investment.

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

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

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

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

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

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

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

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

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

Under CFTC regulations, a clearing broker maintains customers’ assets in a bulk segregated account. If a clearing broker fails to do so, or is unable to satisfy a substantial deficit in a customer account, its other customers may be subject to risk of a substantial loss of their funds in the event of that clearing broker’s

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bankruptcy. In that event, the clearing broker’s customers, such as USSO, are entitled to recover, even in respect of property specifically traceable to them, only a proportional share of all property available for distribution to all of that clearing broker’s customers. The bankruptcy of a clearing broker could result in the complete loss of USSO’s assets posted with the clearing broker; though, the vast majority of USSO’s assets are expected to be held in Treasuries, cash and/or cash equivalents with USSO’s custodian and would not be impacted by the bankruptcy of a clearing broker. USSO also may be subject to the risk of the failure of, or delay in performance by, any exchanges and markets and their clearing organizations, if any, on which commodity interest contracts are traded.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Risk of Leverage and Volatility

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

Commodity pools’ trading positions in futures contracts or other commodity interests are typically required to be secured by the deposit of margin funds that represent only a small percentage of a futures contract’s (or other commodity interests’) entire face value. This feature permits commodity pools to “leverage” their assets by purchasing or selling futures contracts (or other commodity interests) with an aggregate value in excess of the commodity pool’s assets. While this leverage can increase the pool’s profits,

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relatively small adverse movements in the price of the pool’s futures contracts can cause significant losses to the pool. While the General Partner does not currently intend to leverage USSO’s assets, it is not prohibited from doing so under the LP Agreement or otherwise.

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

Movements in the price of crude oil may be the result of factors outside of the General Partner’s control and may not be anticipated by the General Partner. Among the factors that can cause volatility in the price of crude oil are:

worldwide or regional demand for energy, which is affected by economic conditions;
the domestic and foreign supply and inventories of oil and gas;
weather conditions, including abnormally mild winter or summer weather, and abnormally harsh winter or summer weather;
availability and adequacy of pipeline and other transportation facilities;
domestic and foreign governmental regulations and taxes;
political conditions in gas or oil producing regions;
technological advances relating to energy usage or relating to technology for exploration, production, refining and petrochemical manufacturing;
the ability of members of the Organization of Petroleum Exporting Countries (“OPEC”) to agree upon and maintain oil prices and production levels;
the price and availability of alternative fuels; and
the impact of energy conservation efforts.

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

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

The limited method for transporting and storing crude oil may cause the price of crude oil to increase.

Crude oil is transported throughout the United States by way of pipelines, barges, tankers, trucks and rail cars and is stored in aboveground and underground storage facilities. These systems may not be adequate to meet demand, especially in times of peak demand or in areas of the United States where crude oil service is already limited due to minimal pipeline and storage infrastructure. As a result of the limited method for transporting and storing crude oil, the price of crude oil may increase.

Over-the-Counter Contract Risk

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

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

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

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

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

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

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

Risk of Trading in International Markets

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

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

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

International trading activities subject USSO to foreign exchange risk.

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

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

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

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Tax Risk

Please refer to “U.S. Federal Income Tax Considerations” for information regarding the U.S. federal income tax consequences of the purchase, ownership and disposition of units.

Your tax liability may exceed the amount of distributions, if any, on your units.

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

Your allocable share of taxable income or loss may differ from your economic income or loss on your units.

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

Items of income, gain, deduction, loss and credit with respect to units could be reallocated if the U.S. Internal Revenue Service does not accept the assumptions and conventions applied by USSO in allocating those items, with potential adverse consequences for you.

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

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

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

PROSPECTIVE INVESTORS ARE STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE POSSIBLE TAX CONSEQUENCES TO THEM OF AN INVESTMENT IN UNITS; SUCH TAX CONSEQUENCES MAY DIFFER IN RESPECT OF DIFFERENT INVESTORS.

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THE OFFERING

What Is USSO?

USSO is a Delaware limited partnership organized on June 30, 2008. USSO maintains its main business office at 1320 Harbor Bay Parkway, Suite 145, Alameda, California 94502. USSO is a commodity pool. It operates pursuant to the terms of the LP Agreement, which grants full management control to the General Partner.

THIS POOL HAS NOT COMMENCED TRADING AND
DOES NOT HAVE ANY PERFORMANCE HISTORY.

Who Is the General Partner?

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

The General Partner is also currently the general partner of the Related Public Funds, as well as USSO and another fund that has yet to offer securities to the public. USOF is a publicly traded limited partnership which seeks to have the changes in percentage terms of its units’ NAV track the changes in percentage terms in the spot price of light, sweet crude oil as traded in the United States. USOF invests in a mixture of listed crude oil futures contracts, other non-listed oil related investments, Treasuries, cash and cash equivalents. USOF began trading on April 10, 2006. As of March 31, 2009, USOF had total net assets of $2,912,849,108 and had outstanding units of 99.2 million. USOF employs an investment strategy in its operations that is similar to the investment strategy of USSO, except that its benchmark is the near month contract for light, sweet crude oil delivered to Cushing, Oklahoma on a long basis.

USNG is a publicly traded limited partnership which seeks to have the changes in percentage terms of its units’ NAV track the changes in percentage terms of the price of natural gas as traded in the United States. USNG invests in a mixture of listed natural gas futures contracts, other non-listed natural gas related investments, Treasuries, cash and cash equivalents. USNG began trading on April 18, 2007. As of March 31, 2009, USNG had total net assets of $819,361,217 and had outstanding units of 53.8 million. USNG employs an investment strategy in its operations that is similar to the investment strategy of USSO, except its benchmark is the near month contract for natural gas delivered at the Henry Hub, Louisiana.

US12OF is a publicly traded limited partnership which seeks to have the changes in percentage terms of its units’ NAV track the changes in percentage terms in the price of light, sweet crude oil as traded in the United States. US12OF invests in a mixture of listed crude oil futures contracts, other non-listed oil related investments, Treasuries, cash and cash equivalents. US12OF began trading on December 6, 2007. As of March 31, 2009, US12OF had total net assets of $148,545,204 and had outstanding units of 4.9 million. US12OF employs an investment strategy in its operations that is similar to the investment strategy of USSO, except that its benchmark is the average of the prices of the near month contract to expire and the following eleven months contracts for light, sweet crude oil delivered to Cushing, Oklahoma.

UGA is a publicly traded limited partnership which seeks to have the changes in percentage terms of its units’ NAV track the changes in percentage terms in the price of unleaded gasoline as traded in the United States. UGA invests in a mixture of listed gasoline futures contracts, other non-listed gasoline related investments, Treasuries, cash and cash equivalents. UGA began trading on February 26, 2008. As of March 31, 2009, UGA had total net assets of $65,239,661 and had outstanding units of 2.7 million. UGA employs an investment strategy in its operations that is similar to the investment strategy of USSO except that its benchmark is the near month contract for unleaded gasoline delivered at the New York harbor.

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USHO is a publicly traded limited partnership which seeks to have the changes in percentage terms of its units’ NAV track the changes in percentage terms in the price of heating oil as traded in the United States. USHO invests in a mixture of listed heating oil futures contracts, other non-listed heating oil related investments, Treasuries, cash and cash equivalents. USHO began trading on April 8, 2008. As of March 31, 2009, USHO had total net assets of $6,231,425 and had outstanding units of 300,000. USHO employs an investment strategy in its operations that is similar to the investment strategy of USSO except that its benchmark is the near month contract for heating oil (also known as No. 2 fuel) delivered at the New York harbor.

See “Prior Performance of the General Partner and Affiliates.”

The General Partner is currently in the process of registering the units of another exchange traded commodity pool, US12NG. US12NG will be a publicly traded limited partnership which seeks to have the changes in percentage terms of its units’ NAV track the changes in percentage terms of the price of natural gas as traded in the United States. US12NG will invest in a mixture of listed natural gas futures contracts, other non-listed natural gas related investments, Treasuries, cash and cash equivalents. US12NG will employ an investment strategy in its operations that is similar to the investment strategy of USSO, except that its benchmark is average of the prices of the near month contract to expire and the following eleven months contracts for natural gas delivered at the Henry Hub, Louisiana. US12NG has not offered securities to the public or commenced operations.

The General Partner is required to evaluate the credit risk of USSO to the futures commission merchant, oversee the purchase and sale of USSO’s units by certain Authorized Purchasers, review daily positions and margin requirements of USSO, and manage USSO’s investments. The General Partner also pays the fees of the Marketing Agent, the Administrator, and the Custodian and, in connection with the initial public offering of the units, registration fees paid to the SEC, FINRA, or any other regulatory agency, including the legal, printing, accounting and other expenses associated therewith.

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

The business and affairs of our General Partner are managed by a board of directors, which is comprised of four management directors some of whom are also its executive officers (the “Management Directors”) and three independent directors who meet the independent director requirements established by the NYSE Arca Equities Rules and the Sarbanes-Oxley Act of 2002. Notwithstanding the foregoing, the Management Directors have the authority to manage the General Partner pursuant to its Limited Liability Company Agreement. The General Partner has an audit committee which is made up of the three independent directors (Peter M. Robinson, Gordon L. Ellis, and Malcolm R. Fobes III). The audit committee is governed by an audit committee charter that is posted on USSO’s website. The board of directors has determined that each member of the audit committee meets the financial literacy requirements of the NYSE Arca and the audit committee charter. The board of directors has further determined that each of Messrs. Ellis and Fobes have accounting or related financial management expertise, as required by the NYSE Arca, such that each of them is considered an “Audit Committee Financial Expert” as such term is defined in Item 407(d)(5) of Regulation S-K.

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

Nicholas Gerber has been the President and CEO of the General Partner since June 9, 2005 and a Management Director of the General Partner since May 10, 2005. He maintains his main business office at 1320 Harbor Bay Parkway, Suite 145, Alameda, California 94502. Mr. Gerber has acted as a portfolio manager for the Related Public Funds since April 2006 and USSO since June 2008. Mr. Gerber will act as a portfolio manager for US12NG. He is listed with the CFTC as a Principal of the General Partner on November 29, 2005, and registered with the CFTC as an Associated Person of the General Partner on December 1,

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2005. Currently, Mr. Gerber manages USSO and the Related Public Funds. He will also manage US12NG. Mr. Gerber has also served as Vice President/Chief Investment Officer of Lyon’s Gate Reinsurance Company, Ltd. since June of 2003. Mr. Gerber has an extensive background in securities portfolio management and in developing investment funds that make use of indexing and futures contracts. He is also the founder of Ameristock Corporation, a California-based investment adviser registered under the Investment Advisers Act of 1940, that has been sponsoring and providing portfolio management services to mutual funds since March 1995. Since August 1995, Mr. Gerber has been the portfolio manager of the Ameristock Mutual Fund, Inc. a mutual fund registered under the Investment Company Act of 1940, focused on large cap U.S. equities that, as of March 31, 2009, had approximately $162 million in assets. He has also been a Trustee for the Ameristock ETF Trust since June 2006, and served as a portfolio manager for the Ameristock/Ryan 1 Year, 2 Year, 5 Year, 10 Year and 20 Year Treasury ETF from June 2007 to June 2008 when such funds were liquidated. In these roles, Mr. Gerber has gained extensive experience in evaluating and retaining third-party service providers, including custodians, accountants, transfer agents, and distributors. Mr. Gerber has passed the Series 3 examination for associated persons. He holds an MBA in finance from the University of San Francisco and a BA from Skidmore College. Mr. Gerber is 46 years old.

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

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

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

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

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

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December 1, 2005 through April 16, 2009. He holds a BFA in cinema-television from the University of Southern California. Mr. Love is 37 years old.

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

Ray W. Allen acts as a Portfolio Operations Manager for UGA and USHO and is expected to be a Portfolio Operations Manager for USSO. He was hired by the General Partner in October 2007 and has been employed by the General Partner since January 14, 2008. He holds a Series 3 license and is registered with the CFTC as an Associated Person of the General Partner on January 21, 2008. Mr. Allen’s responsibilities include daily trading and operations for UGA and USHO. In addition, from February 2002 – October 2007, Mr. Allen was responsible for analyzing and evaluating the creditworthiness of client companies at Marble Bridge Funding Group Inc., in Walnut Creek, CA. Marble Bridge Funding Group Inc. is a commercial finance company providing capital to entrepreneurial companies. Mr. Allen received a BA in Economics from the University of California at Berkeley in 1980. Mr. Allen is 52 years old.

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

Peter M. Robinson has been an Independent Director of the General Partner since September 30, 2005 and, as such, serves on the board of directors of the General Partner, which acts on behalf of USSO and the Related Public Funds and will serve on behalf of US12NG, if such fund commences operations. He has been listed with the CFTC as a Principal of the General Partner since December 2005. Mr. Robinson has been employed as a Research Fellow writing about business and politics with the Hoover Institution since April 1993. The Hoover Institution is a public policy think tank located on the campus of Stanford University. Mr. Robinson graduated from Dartmouth College in 1979 and Oxford University in 1982. Mr. Robinson received an MBA from the Stanford University Graduate School of Business. Mr. Robinson has also written three books and has been published in the New York Times, Red Herring, and Forbes ASAP and he is the editor of Can Congress Be Fixed?: Five Essays on Congressional Reform (Hoover Institution Press, 1995). Mr. Robinson is 51 years old.

Gordon L. Ellis has been an Independent Director of the General Partner since September 30, 2005 and, as such, serves on the board of directors of the General Partner, which acts on behalf of USSO and the Related Public Funds and will serve on behalf of US12NG, if such fund commences operations. He has been listed with the CFTC as a Principal of the General Partner since November 2005. Mr. Ellis has been Chairman of International Absorbents, Inc., a holding company of Absorption Corp., since July 1988, President and Chief Executive Officer since November 1996 and a Class I Director of the company since July 1985. Mr. Ellis is also a director of Absorption Corp., International Absorbents, Inc.’s wholly-owned subsidiary which is engaged in developing, manufacturing and marketing a wide range of animal care and industrial absorbent products. Mr. Ellis is a director/trustee of Polymer Solutions, Inc., a former publicly-held company that sold

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all of its assets effective as of February 3, 2004 and is currently winding down its operations and liquidating following such sale. Mr. Ellis is a professional engineer with an MBA in international finance. Mr. Ellis is 62 years old.

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

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

Contributions to the Limited Partner

Currently, the General Partner contributed $20 and Wainwright contributed $980 to USSO for their limited partnership interests. However, following the commencement of the offering, neither the General Partner nor its affiliates will have any beneficial interest in the pool because USSO will redeem out the General Partner and Wainwright’s initial limited partnership interests.

Compensation and Fees to the General Partner

USSO is contractually obligated to pay the General Partner a management fee based on daily net assets and paid monthly of 0.60% per annum on average net assets.

Prior Performance of the General Partner and Affiliates

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

USOF’s units began trading on the American Stock Exchange on April 10, 2006 and are offered on a continuous basis. As a result of the acquisition of the American Stock Exchange by NYSE Euronext, USOF’s units commenced trading on the NYSE Arca on November 25, 2008. As of March 31, 2009, the total amount of money raised by USOF from its authorized purchasers was $21,769,574,799; the total number of authorized purchasers of USOF was 15; the number of baskets purchased by authorized purchasers of USOF was 4,042; and the aggregate amount of units purchased was 404,200,000.

Since the offering of USOF units to the public on April 10, 2006 to March 31, 2009, the simple average daily change in its benchmark oil futures contract was -0.080%, while the simple average daily change in the NAV of

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USOF over the same time period was -0.073%. The average daily difference was 0.007% (or 0.7 basis points, where 1 basis point equals 1/100 of 1%). As a percentage of the daily movement of the benchmark oil futures contract, the average error in daily tracking by the NAV was 2.148%, meaning that over this time period USOF's tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

USNG’s units began trading on the American Stock Exchange on April 18, 2007 and are offered on a continuous basis. As a result of the acquisition of the American Stock Exchange by NYSE Euronext, USNG’s units commenced trading on the NYSE Arca on November 25, 2008. As of March 31, 2009, the total amount of money raised by USNG from its authorized purchasers was $4,649,415,003; the total number of authorized purchasers of USNG was 7; the number of baskets purchased by authorized purchasers of USNG was 1,358; and the aggregate amount of units purchased was 135,800,000.

Since the offering of USNG units to the public on April 18, 2007 to March 31, 2009, the simple average daily change in its benchmark futures contract was -0.203%, while the simple average daily change in the NAV of USNG over the same time period was -0.198%. The average daily difference was 0.005% (or 0.5 basis points, where 1 basis point equals 1/100 of 1%). As a percentage of the daily movement of the benchmark futures contract, the average error in daily tracking by the NAV was 0.823%, meaning that over this time period USNG's tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

US12OF’s units began trading on the American Stock Exchange on December 6, 2007 and are offered on a continuous basis. As a result of the acquisition of the American Stock Exchange by NYSE Euronext, US12OF’s units commenced trading on the NYSE Arca on November 25, 2008. As of March 31, 2009, the total amount of money raised by US12OF from its authorized purchasers was $165,142,986; the total number of authorized purchasers of US12OF was 3; the number of baskets purchased by authorized purchasers of US12OF was 58; and the aggregate amount of units purchased was 5,800,000.

Since the offering of US12OF units to the public on December 6, 2007 to March 31, 2009, the simple average daily change in its benchmark oil futures contracts was -0.106%, while the simple average daily change in the NAV of US12OF over the same time period was -0.102%. The average daily difference was 0.004% (or 0.4 basis points, where 1 basis point equals 1/100 of 1%). As a percentage of the daily movement of the benchmark oil futures contracts, the average error in daily tracking by the NAV was 0.158%, meaning that over this time period US12OF's tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

UGA’s units began trading on the American Stock Exchange on February 26, 2008 and are offered on a continuous basis. As a result of the acquisition of the American Stock Exchange by NYSE Euronext, UGA’s units commenced trading on the NYSE Arca on November 25, 2008. As of March 31, 2009, the total amount of money raised by UGA from its authorized purchasers was $116,076,878; the total number of authorized purchasers of UGA was 4; the number of baskets purchased by Authorized Purchasers of UGA was 25; and the aggregate amount of units purchased was 2,500,000.

Since the offering of UGA units to the public on February 26, 2008 to March 31, 2009, the simple average daily change in its benchmark futures contract was -0.188%, while the simple average daily change in the NAV of UGA over the same time period was -0.187%. The average daily difference was 0.001% (or 0.1 basis points, where 1 basis point equals 1/100 of 1%). As a percentage of the daily movement of the benchmark futures contract, the average error in daily tracking by the NAV was 0.269%, meaning that over this time period UGA's tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

USHO’s units began trading on the American Stock Exchange on April 9, 2008 and are offered on a continuous basis. As a result of the acquisition of the American Stock Exchange by NYSE Euronext, USHO’s units commenced trading on the NYSE Arca on November 25, 2008. As of March 31, 2009, the total amount of money raised by USHO from its authorized purchasers was $19,744,061; the total number of authorized purchasers of USHO was 4; the number of baskets purchased by authorized purchasers of USHO was 5; and the aggregate amount of units purchased was 500,000.

Since the offering of USHO units to the public on April 9, 2008 to March 31, 2009, the simple average daily change in its benchmark futures contract was -0.302%, while the simple average daily change in the NAV of USHO over the same time period was -0.299%. The average daily difference was 0.003% (or 0.3 basis points, where 1 basis point equals 1/100 of 1%). As a percentage of the daily movement of the Benchmark Futures Contract, the

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average error in daily tracking by the NAV was 0.161%, meaning that over this time period USHO's tracking error was within the plus or minus 10% range established as its benchmark tracking goal.

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

Performance of the Related Public Funds

USOF:

Experience in Raising and Investing in Funds Through March 31, 2009

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 
Dollar Amount Offered in USOF Offering*   $ 32,567,630,000  
Dollar Amount Raised in USOF Offering   $ 21,769,574,799  
Organizational and Offering Expenses in USOF Offering:**
        
SEC registration fee   $ 2,480,174  
FINRA registration fee   $ 603,000  
Listing fee   $ 5,000  
Auditor’s fees and expenses   $ 328,350  
Legal fees and expenses   $ 1,546,195  
Printing expenses   $ 273,196  
Length of USOF offering     Continuous  

* Reflects the offering price per unit set forth on the cover page of the registration statement registering such units filed with the SEC.
** Through December 31, 2006, these expenses were paid for by an affiliate of the General Partner in connection with the initial public offering. Following December 31, 2006, USOF has recorded these expenses.

Compensation to the General Partner and Other Compensation USOF:

Expenses Paid by USOF Through March 31, 2009 in Dollar Terms:

 
Expense   Amount in
Dollar Terms
Amount Paid to General Partner in USOF Offering   $ 12,717,747  
Amount Paid in Portfolio Brokerage Commissions in USOF Offering   $ 5,063,441  
Other Amounts Paid in USOF Offering   $ 4,996,961  
Total Expenses Paid in USOF Offering   $ 22,778,149  

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Expenses Paid by USOF Through March 31, 2009 in Dollar Terms:

 
Expenses in USOF Offering   Amount As a Percentage of
Average Daily Net Assets
General Partner     0.47% annualized  
Portfolio Brokerage Commissions     0.19% annualized  
Other Amounts Paid in USOF Offering     0.18% annualized  
Total Expenses Paid in USOF Offering     0.84% annualized  
USOF Performance:
        
Name of Commodity Pool     USOF  
Type of Commodity Pool     Exchange traded security  
Inception of Trading     April 10, 2006  
Aggregate Subscriptions (from inception through March 31, 2009)   $ 21,769,574,799  
Total Net Assets as of March 31, 2009   $ 2,912,849,108  
Initial NAV per Unit as of Inception   $ 67.39  
NAV per Unit as of March 31, 2009   $ 29.36  
Worst Monthly Percentage Draw-down     Oct 2008 (31.57)%  
Worst Peak-to-Valley Draw-down     Jun 08 – Feb 09 (75.84)%  

COMPOSITE PERFORMANCE DATA FOR USOF
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

       
  Rates of Return
Month   2006   2007   2008   2009
January              (6.55 )%      (3.98 )%      (14.60 )% 
February              5.63 %      11.03 %      (6.55 )% 
March              4.61 %      0.63 %      7.23 % 
April     3.47%*       (4.26 )%      12.38 %       
May     (2.91 )%      (4.91 )%      12.80 %       
June     3.16 %      9.06 %      9.90 %       
July     (0.50 )%      10.55 %      (11.72 )%       
August     (6.97 )%      (4.93 )%      (6.75 )%       
September     (11.71 )%      12.11 %      (12.97 )%       
October     (8.46 )%      16.98 %      (31.57 )%       
November     4.73 %      (4.82 )%      (20.65 )%       
December     (5.21 )%      8.66 %      (22.16 )%       
Annual Rate of Return     (23.03 )%      46.15 %      (54.75 )%      (14.43)%**  

* Partial from April 10, 2006.
** Through March 31, 2009.

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

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

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

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continuing and to be $3 in amount, whereas if the NAV per unit had increased by $2 in March, the January-February drawdown would have ended as of the end of February at the $2 level.

USNG:

Experience in Raising and Investing in Funds Through March 31, 2009

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 
Dollar Amount Offered in USNG Offering*   $ 7,631,500,000  
Dollar Amount Raised in USNG Offering   $ 4,649,415,003  
Organizational and Offering Expenses in USNG Offering:**
        
SEC registration fee   $ 595,508  
FINRA registration fee   $ 302,000  
Listing fee   $ 5,000  
Auditor’s fees and expenses   $ 266,850  
Legal fees and expenses   $ 688,437  
Printing expenses   $ 56,322  
Length of USNG offering     Continuous  

* Reflects the offering price per unit set forth on the cover page of the registration statement registering such units filed with the SEC.
** Amounts are for organizational and offering expenses incurred in connection with offerings from April 18, 2007 through December 31, 2008. Through April 18, 2007, these expenses were paid for by the General Partner. Following April 18, 2007, USNG has borne the expenses related to the offering of its units.

Compensation to the General Partner and Other Compensation USNG

Expenses Paid by USNG Through March 31, 2009 in Dollar Terms:

 
Expense   Amount in
Dollar Terms
Amount Paid to General Partner in USNG Offering   $ 6,641,853  
Amount Paid in Portfolio Brokerage Commissions in USNG Offering   $ 1,591,437  
Other Amounts Paid in USNG Offering   $ 2,568,324  
Total Expenses Paid in USNG Offering   $ 10,801,615  

Expenses Paid by USNG Through March 31, 2009 as a Percentage of Average Daily Net Assets:

 
Expenses in USNG Offering   Amount As a Percentage of
Average Daily Net Assets
General Partner     0.60% annualized  
Portfolio Brokerage Commissions     0.14% annualized  
Other Amounts Paid in USNG Offering     0.23% annualized  
Total Expense Ratio     0.97% annualized  
USNG Performance:
        
Name of Commodity Pool     USNG  
Type of Commodity Pool     Exchange traded security  
Inception of Trading     April 18, 2007  
Aggregate Subscriptions
(from inception through March 31, 2009)
    $4,649,415,003  
Total Net Assets as of March 31, 2009     $819,361,217  
Initial NAV per Unit as of Inception     $50.00  
NAV per Unit as of March 31, 2009     $15.23  
Worst Monthly Percentage Draw-down     Jul 08 (32.13)%  
Worst Peak-to-Valley Draw-down     Jun 08 – Mar 09 (75.69)%  

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COMPOSITE PERFORMANCE DATA FOR USNG
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

     
     Rates of Return
Month   2007   2008   2009
January              8.87 %      (21.49 )% 
February              15.87 %      (5.47 )% 
March              6.90 %      (11.81 )% 
April     4.30%*       6.42 %       
May     (0.84 )%      6.53 %       
June     (15.90 )%      13.29 %       
July     (9.68 )%      (32.13 )%       
August     (13.37 )%      (13.92 )%       
September     12.28 %      (9.67 )%       
October     12.09 %      (12.34 )%       
November     (16.16 )%      (6.31 )%       
December     0.75 %      (14.32 )%          
Annual Rate of Return     (27.64 )%      (35.68 )%      (34.55)%**  

* Partial from April 17, 2007.
** Through March 31, 2009.

For a definition of draw-down, please see text below “Composite Performance Data for USOF.”

US12OF:

Experience in Raising and Investing in Funds Through March 31, 2009

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 
Dollar Amount Offered in US12OF Offering*   $ 550,000,000  
Dollar Amount Raised in US12OF Offering   $ 165,142,986  
Organizational and Offering Expenses in US12OF Offering:**
                 
SEC registration fee   $ 126,746  
FINRA registration fee   $ 151,000  
Listing fee   $ 5,000  
Auditor’s fees and expenses   $ 60,700  
Legal fees and expenses   $ 213,235  
Printing expenses   $ 23,755  
Length of US12OF offering     Continuous  

* Reflects the offering price per unit set forth on the cover page of the registration statement registering such units filed with the SEC.
** Amounts are for organizational and offering expenses incurred in connection with the offerings from December 6, 2007 through March 31, 2009. Through March 31, 2009, these expenses were paid for by an affiliate of the General Partner in connection with the initial public offering. Following March 31, 2009, US12OF will bear the expenses related to the offering of its units.

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Compensation to the General Partner and Other Compensation US12OF:

Expenses Paid by US12OF Through March 31, 2009 in Dollar Terms:

 
Expense   Amount in
Dollar Terms
Amount Paid to General Partner in US12OF Offering   $ 155,241  
Amount Paid in Portfolio Brokerage Commissions in US12OF Offering   $ 31,983  
Other Amounts Paid in US12OF Offering   $ 62,124  
Total Expenses Paid in US12OF Offering   $ 249,349  

Expenses Paid by US12OF Through March 31, 2009 as a Percentage of Average Daily Net Assets:

 
Expenses in US12OF Offering   Amount As a Percentage of
Average Daily Net Assets
General Partner     0.60% annualized  
Portfolio Brokerage Commissions     0.12% annualized  
Other Amounts Paid in US12OF Offering     0.24% annualized  
Total Expense Ratio     0.96% annualized  
US12OF Performance:
        
Name of Commodity Pool     US12OF  
Type of Commodity Pool     Exchange traded security  
Inception of Trading     December 6, 2007  
Aggregate Subscriptions
(from inception through March 31, 2009)
    $165,142,986  
Total Net Assets as of March 31, 2009     $148,545,204  
Initial NAV per Unit as of Inception     $50.00  
NAV per Unit as of March 31, 2009     $30.32  
Worst Monthly Percentage Draw-down     Oct 2008 (29.59)%  
Worst Peak-to-Valley Draw-down     Jun 08 – Feb 09 (66.97)%  

COMPOSITE PERFORMANCE DATA FOR US12OF
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

     
     Rates of Return
Month   2007   2008   2009
January              (2.01 )%      (7.11 )% 
February              10.48 %      (4.34 )% 
March              (0.66 )%      9.22 % 
April              11.87 %       
May              15.47 %       
June              11.59 %       
July              (11.39 )%       
August              (6.35 )%       
September              (13.12 )%       
October              (29.59 )%       
November              (16.17 )%       
December     8.44%*       (12.66 )%          
Annual Rate of Return     8.44 %      (42.39 )%      (2.94)%**  

* Partial from December 6, 2007.
** Through March 31, 2009.

For a definition of draw-down, please see text below “Composite Performance Data for USOF.”

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UGA:

Experience in Raising and Investing in Funds Through March 31, 2009

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
  

 
Dollar Amount Offered in UGA Offering*   $ 1,500,000,000  
Dollar Amount Raised in UGA Offering   $ 116,076,878  
Organizational and Offering Expenses in UGA Offering:**
                 
SEC registration fee   $ 58,520  
FINRA registration fee   $ 75,500  
Listing fee   $ 5,000  
Auditor’s fees and expenses   $ 27,500  
Legal fees and expenses   $ 117,891  
Printing expenses   $ 31,867  
Length of UGA offering     Continuous  

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

Compensation to the General Partner and Other Compensation UGA:

Expenses Paid by UGA Through March 31, 2009 in Dollar Terms:

 
Expense   Amount in
Dollar Terms
Amount Paid to General Partner in UGA Offering   $ 145,937  
Amount Paid in Portfolio Brokerage Commissions in UGA Offering   $ 32,873  
Other Amounts Paid in UGA Offering   $ 68,712  
Total Expenses Paid in UGA Offering   $ 247,521  

Expenses Paid by UGA Through March 31, 2009 as a Percentage of Average Daily Net Assets:

 
Expenses in UGA Offering   Amount As a Percentage of
Average Daily Net Assets
General Partner     0.60% annualized  
Portfolio Brokerage Commissions     0.14% annualized  
Other Amounts Paid in UGA Offering     0.19% annualized  
Total Expense Ratio     0.92% annualized  
UGA Performance:
        
Name of Commodity Pool     UGA  
Type of Commodity Pool     Exchange traded security  
Inception of Trading     February 26, 2008  
Aggregate Subscriptions
(from inception through March 31, 2009)
    $116,073,878  
Total Net Assets as of March 31, 2009     $65,239,661  
Initial NAV per Unit as of Inception     $50.00  
NAV per Unit as of March 31, 2009     $24.16  
Worst Monthly Percentage Draw-down     Oct 2008 (38.48)%  
Worst Peak-to-Valley Draw-down     Jun 08 – Dec 08 (69.02)%  

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COMPOSITE PERFORMANCE DATA FOR UGA
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

   
     Rates of Return
Month   2008   2009
January           16.23 % 
February     (0.56)%*       0.26 % 
March     (2.39 )%      2.59 % 
April     10.94 %       
May     15.60 %       
June     4.79 %       
July     (12.79 )%       
August     (3.88 )%       
September     (9.36 )%       
October     (38.48 )%       
November     (21.35 )%       
December     (15.72 )%       
Annual Rate of Return     (59.58 )%      19.54%**  

* Partial from February 26, 2008.
** Through March 31, 2009.

For a definition of draw-down, please see text below “Composite Performance Data for USOF.”

USHO:

Experience in Raising and Investing in Funds Through March 31, 2009

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
  

 
Dollar Amount Offered in USHO Offering*   $ 500,000,000  
Dollar Amount Raised in USHO Offering   $ 19,744,061  
Organizational and Offering Expenses in USHO Offering:**
                 
SEC registration fee   $ 19,220  
FINRA registration fee   $ 50,500  
Listing fee   $ 5,000  
Auditor’s fees and expenses   $ 27,500  
Legal fees and expenses   $ 126,859  
Printing expenses   $ 21,255  
Length of USHO offering     Continuous  

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

Compensation to the General Partner and Other Compensation USHO:

Expenses Paid by USHO Through March 31, 2009 in Dollar Terms:

 
Expense   Amount in
Dollar Terms
Amount Paid to General Partner in USHO Offering   $ 58,940  
Amount Paid in Portfolio Brokerage Commissions in USHO Offering   $ 9,331  
Other Amounts Paid in USHO Offering   $ 22,631  
Total Expenses Paid in USHO Offering   $ 90,902  

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Expenses Paid by USHO Through March 31, 2009 as a Percentage of Average Daily Net Assets:

 
Expenses in USHO Offering   Amount As a Percentage of
Average Daily Net Assets
General Partner     0.60% annualized  
Portfolio Brokerage Commissions     0.10% annualized  
Other Amounts Paid in USHO Offering     0.23% annualized  
Total Expense Ratio     0.93% annualized  
USHO Performance:
        
Name of Commodity Pool     USHO  
Type of Commodity Pool     Exchange traded security  
Inception of Trading     April 9, 2008  
Aggregate Subscriptions
(from inception through March 31, 2009)
    $19,744,061  
Total Net Assets as of March 31, 2009     $6,231,425  
Initial NAV per Unit as of Inception     $50.00  
NAV per Unit as of March 31, 2009     $20.77  
Worst Monthly Percentage Draw-down     Oct 08 (28.63)%  
Worst Peak-to-Valley Draw-down     Jun 08 – Dec 08 (65.25)%  

COMPOSITE PERFORMANCE DATA FOR USHO
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

   
     Rates of Return
Month   2008   2009
January           0.05 % 
February           (11.34 )% 
March           6.73 % 
April     2.84%*        
May     15.93 %       
June     5.91 %       
July     (12.18 )%       
August     (8.41 )%       
September     (9.77 )%       
October     (28.63 )%       
November     (18.38 )%       
December     (17.80 )%       
Annual Rate of Return     (56.12 )%      (5.33)%**  

* Partial from April 9, 2008.
** Through March 31, 2009.

For a definition of draw-down, please see text below “Composite Performance Data for USOF.”

Other Related Commodity Trading and Investment Management Experience

Ameristock Corporation is an affiliate of the General Partner and it is a California-based registered investment advisor registered under the Investment Advisors Act of 1940, as amended, that has been sponsoring and providing portfolio management services to mutual funds since 1995. Ameristock Corporation is the investment adviser to the Ameristock Mutual Fund, Inc., a mutual fund registered under the Investment Company Act of 1940 that focuses on large cap U.S. equities that had approximately $162 million in assets as of March 31, 2009. Ameristock Corporation is also the investment advisor to the Ameristock ETF Trust, an open-end management investment company registered under the 1940 Act that seeks investment results that correspond to the performance of U.S. Treasury indices owned and compiled by Ryan Holdings LLC and Ryan ALM, Inc.

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How Does USSO Operate?

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

USSO will take short positions in Crude Oil Interests to the fullest extent possible without being leveraged or unable to satisfy its current or potential margin or collateral obligations with respect to its short positions in Futures Contracts and Other Crude Oil-Related Investments. The primary focus of the General Partner will be taking short positions in Futures Contracts and the management of investments in short-term obligations of the United States of two years or less (“Treasuries”), cash and/or cash equivalents for margining purposes and as collateral.

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

To achieve its investment objective, USSO anticipates that it will need to maintain “short” positions in the Futures Contracts and Other Crude-Oil Related Investments in which it invests. A short position is one in which USSO will have sold the Futures Contract or Other Crude-Oil Related Investment and must buy it back or otherwise close out the position in the future. As a result, a drop in the market value of the investment would lead to a potential gain for USSO, while an increase in the market value of the investment would lead to a potential loss for USSO. Typically a short position will produce a result that is the inverse of buying the Futures Contract or Other Crude-Oil Related Investment (an approach referred to as being “long” the investment). The General Partner expects the performance of USSO to generally be inverse to the performance of the United States Oil Fund, LP (“USOF”), another commodity pool managed by the General Partner, which seeks to have the changes in percentage terms of its units NAV track the changes in percentage terms in the spot price of light, sweet crude oil as traded in the United States.

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

A is the average daily change in USSO’s NAV for any period of 30 successive valuation days, i.e., any trading day as of which USSO calculates its NAV, and
B is the inverse of the average daily change in the price of the Benchmark Futures Contract over the same period.

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

The Benchmark Futures Contract will be changed from the near month contract to the next month contract over a four-day period. Each month, the Benchmark Futures Contract will change starting at the end of the day on the date two weeks prior to expiration of the near month contract for that month. During the first three days of the period, the applicable value of the Benchmark Futures Contract will be based on a combination of the near month contract and the next month contract as follows: (1) day 1 will consist of 75% of the then near month contract’s total return for the day, plus 25% of the total return for the day of the next month

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contract, (2) day 2 will consist of 50% of the then near month contract’s total return for the day, plus 50% of the total return for the day of the next month contract, and (3) day 3 will consist of 25% of the then near month contract’s total return for the day, plus 75% of the total return for the day of the next month contract. On day 4, the Benchmark Futures Contract will be the next month contract to expire at that time and that contract will remain the Benchmark Futures Contract until the beginning of following month’s change in the Benchmark Futures Contract over a four-day period.

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

The anticipated dates that the monthly period will commence for 2009 will be posted on USSO’s website at www.unitedstatesshortoilfund.com, and will be subject to change without notice.

The General Partner believes that market arbitrage opportunities will cause changes in USSO’s unit price on the NYSE Arca to closely track changes in USSO’s NAV. The General Partner believes that changes in USSO’s NAV in percentage terms will closely track the changes in percentage terms in the Benchmark Futures Contract in, less USSO’s expenses.

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

[GRAPHIC MISSING]

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

USSO’s total portfolio composition will be disclosed each business day that the NYSE Arca is open for trading, on USSO’s website at www.unitedstatesshortoilfund.com. The website disclosure of portfolio holdings

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will be made daily and will include, as applicable, the name and value of each Crude Oil Interest, the specific types of Other Crude Oil-Related Investments and characteristics of such Other Crude Oil-Related Investments, Treasuries, and the amount of cash and/or cash equivalents held in USSO’s portfolio. USSO’s website is publicly accessible at no charge. USSO’s assets will be held in segregated accounts pursuant to the Commodity Exchange Act and CFTC regulations.

USSO will create and redeem units only in blocks of 100,000 units called Creation Baskets and Redemption Baskets, respectively. Only Authorized Purchasers may purchase or redeem Creation Baskets or Redemption Baskets. An Authorized Purchaser is under no obligation to create or redeem baskets, and an Authorized Purchaser is under no obligation to offer to the public units of any baskets it does create. It is expected that baskets will be created when there is sufficient demand for units that the market price per unit is at a premium to the NAV per unit. Authorized Purchasers will then sell such units, which will be listed on the NYSE Arca, to the public at per-unit offering prices that are expected to reflect, among other factors, the trading price of the units on the NYSE Arca, the NAV of USSO at the time the Authorized Purchaser purchased the Creation Baskets and the NAV at the time of the offer of the units to the public, the supply of and demand for units at the time of sale, and the liquidity of the Futures Contracts market and the market for Other Crude Oil-Related Investments. The prices of units offered by Authorized Purchasers are expected to fall between USSO’s NAV and the trading price of the units on the NYSE Arca at the time of sale. Similarly, it is expected that baskets will be redeemed when the market price per unit is at a discount to the NAV per unit. Retail investors seeking to purchase or sell units on any day are expected to effect such transactions in the secondary market, on the NYSE Arca, at the market price per unit, rather than in connection with the creation or redemption of baskets.

The minimum number of Creation Baskets that must be sold is one. All proceeds from the sale of Creation Baskets will be invested as quickly as possible in the investments described in this prospectus. There will be no escrow or similar holding of funds that has a time period or other conditions. Investments will be held through the Custodian or through accounts with USSO’s commodity futures brokers. There is no stated maximum time period for USSO’s operations and the fund will continue until all units are redeemed or the fund is liquidated pursuant to the terms of the LP Agreement.

There is no specified limit on the maximum amount of Creation Baskets that can be sold. At some point, accountability levels on certain of the Futures Contracts in which USSO intends to take short positions may practically limit the maximum amount of Creation Baskets that will be sold if the General Partner determines that the other investment alternatives available to USSO at that time will not enable it to meet its stated investment objective.

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

The chart below illustrates the historical correlation between the Benchmark Futures Contract and certain other fuel-based commodity futures contracts in which USSO may invest. These correlations are relevant because the General Partner endeavors to invest USSO’s assets in Futures Contracts and Other Oil Interests so that daily changes in USSO’s NAV correlate as closely as possible with daily changes in the price of the Benchmark Futures Contract. If certain other fuel-based commodity futures contracts do not closely correlate with the Futures Contracts then their use could lead to greater tracking error. As noted, the General Partner also believes that the changes in the price of the Benchmark Futures Contract will closely correlate with changes in the spot price of light, sweet crude oil. Assuming that the units’ value tracks the Benchmark Futures Contract as intended, the stated objective of USSO for the units’ NAV to reflect the performance of the spot price of light, sweet crude oil would be met if the trend reflected over the past ten years were to continue. However, there is no guarantee that such trend will continue.

The degree of correlation varies both among the different commodities and also varies over time. As such, the use of an energy related commodity to hedge a different energy commodity can only produce, at best, an imperfect hedge. The following price graph is scaled so all contracts start at the same level at year end 1995, except for the current gasoline futures contract, whose price series began in 2005. To obtain the

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monthly average prices presented below, USSO added the closing prices for every day in each month and then divided that number by the total number of days in that month.

[GRAPHIC MISSING]

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

What Is USSO’s Investment Strategy?

In managing USSO’s assets the General Partner does not intend to use a technical trading system that issues buy and sell orders. The General Partner does intend to employ a quantitative methodology whereby each time a Creation Basket is sold, the General Partner will take corresponding short positions in Crude Oil Interests, such as the Benchmark Futures Contract, that have an aggregate market value that approximates the amount of Treasuries and/or cash received from the sale of the Creation Basket.

As an example, assume that a Creation Basket is sold by USSO, and that USSO’s closing NAV per unit is $50.00. In that case, USSO would receive $5,000,000 in proceeds from the sale of the Creation Basket ($50 NAV per unit multiplied by 100,000 units, and ignoring the Creation Basket fee of $1,000). If one were to assume further that the General Partner wants to invest the entire proceeds from the Creation Basket in short positions in the Benchmark Futures Contract and that the market value of the Benchmark Futures Contract is $141,370, USSO would be unable to sell the exact number of Benchmark Futures Contracts with an aggregate market value equal to $5,000,000. Instead, USSO would be able to sell 35 Benchmark Futures Contracts with an aggregate face amount of $4,947,750. Assuming a margin requirement equal to 10% of the value of the Benchmark Futures Contract, USSO would be required to deposit $494,775 in Treasuries and cash with the futures commission merchant through which the Benchmark Futures Contracts were sold. The remainder of the proceeds from the sale of the Creation Basket would remain invested in cash, cash equivalents, and Treasuries as determined by the General Partner from time to time based on factors such as potential calls for margin or anticipated redemptions.

The specific Futures Contracts to be sold will depend on various factors, including a judgment by the General Partner as to the appropriate diversification of USSO’s investments in futures contracts with respect to the month of expiration, and the prevailing price volatility of particular contracts. While the General Partner anticipates significant investments in NYMEX futures contracts, as USSO reaches certain position limits on the NYMEX, or for other reasons, it will invest in Futures Contracts traded on other exchanges or invest in Other Crude Oil-Related Investments such as contracts in the “over-the-counter” market.

The General Partner does not anticipate letting its Futures Contracts expire and making delivery of the underlying crude oil. Instead, the General Partner will close existing positions e.g., when it changes the Benchmark Futures Contract or it otherwise determines it would be appropriate to do so and reinvest the

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proceeds in new Futures Contracts. Positions may also be closed out to meet orders for Redemption Baskets and in such case proceeds for such baskets will not be reinvested.

By remaining invested as fully as possible in short positions in Futures Contracts or Other Crude Oil-Related Investments, the General Partner believes that the changes in percentage terms in USSO’s NAV will closely inversely track the changes in percentage terms in the prices of the futures contracts in which USSO invests. The General Partner believes that certain arbitrage opportunities will result in the price of the units traded on the NYSE Arca closely tracking the NAV of USSO. Additionally, as discussed above, the General Partner has conducted research that indicates that Futures Contracts traded on the NYMEX have closely tracked the spot price of the underlying oil. Based on these expected interrelationships, the General Partner believes that the changes in the price of USSO’s units as traded on the NYSE Arca will closely track the inverse of the changes in the spot price of light, sweet crude oil.

What Are Futures Contracts?

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

To achieve its investment objective, USSO anticipates that it will need to maintain “short” positions in the Futures Contracts and Other Crude Oil-Related Investments in which it invests. A short position is one in which USSO will have sold the Futures Contract or Other Crude-Oil Related Investment and must buy it back or otherwise close out the position in the future. As a result, a drop in the market value of the investment would lead to a potential gain for USSO, while an increase in the market value of the investment would lead to a potential loss for USSO. Typically a short position will produce a result that is the inverse of buying the Futures Contract or Other Crude-Oil Related Investment (an approach referred to as being “long” the investment).

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

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

The accountability levels for the Benchmark Futures Contract and other Futures Contracts traded on the NYMEX are not a fixed ceiling, but rather a threshold above which the NYMEX may exercise greater scrutiny and control over an investor’s positions. The current accountability level for net long or short positions at any one time in crude oil Futures Contracts (including investments in the Benchmark Futures Contract) is 20,000 contracts. If USSO exceeds this accountability level for short positions in crude oil Futures Contracts, the NYMEX will monitor USSO’s exposure and ask for further information on USSO’s activities including the total size of all positions, investment and trading strategy, and the extent of USSO’s liquidity resources. If deemed necessary by the New York Mercantile Exchange, it could also order USSO to reduce its position back to the accountability level.

If the NYMEX orders USSO to reduce its position back to the accountability level, or to an accountability level that the NYMEX deems appropriate for USSO, such an accountability level may impact the mix of

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short positions in Crude Oil Interests made by USSO. To illustrate, assume that the Benchmark Futures Contract and the unit price of USSO are each $100, and that the NYMEX has determined that USSO may not be short more than 20,000 contracts in crude oil Futures Contracts. In such case, USSO could take short positions up to $2 billion of its daily net assets in the Benchmark Futures Contract (i.e., $100 per contract multiplied by 1,000 (a Benchmark Futures Contract is a contract for 1,000 barrels) multiplied by 20,000 contracts) before reaching the accountability level imposed by the NYMEX. Once the daily net assets of the portfolio exceed $2 billion in the Benchmark Futures Contract, the portfolio may not be able to take any further short positions in the Benchmark Futures Contract, depending on whether the NYMEX imposes limits. If the NYMEX does impose limits at the $2 billion level (or another level), USSO anticipates that it will invest the majority of its assets above that level in a mix of other Futures Contracts or Other Crude Oil-Related Investments.

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

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

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

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

Futures Contract Position Limits Chart

   
Futures Contract   Position Accountability
Levels and Limits
  Maximum Daily
Price Fluctuation
NYMEX Light, Sweet Crude Oil (physically settled)   Any one month: 10,000 net futures / all months: 20,000 net futures, but not to exceed 3,000 contracts in the last three days of trading in the spot month.   $10.00 per barrel ($10,000 per contract) for all months. If any contract is traded, bid, or offered at the limit for five minutes, trading is halted for five minutes. When trading resumes, the limit is expanded by $10.00 per barrel in either direction. If another halt were triggered, the market would continue to be expanded by $10.00 per barrel in either direction after each successive five-minute trading halt. There will be no maximum price fluctuation limits during any one trading session.
NYMEX Light, Sweet Crude Oil (financially settled)   Any one month: 20,000 net futures / all months: 20,000 net futures, but not to exceed 2,000 contracts in the last three days of trading in the spot month.   There is no maximum daily price fluctuation limit.

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

Price Volatility.  Despite daily price limits, the price volatility of Futures Contracts generally has been historically greater than that for traditional securities such as stocks and bonds. Price volatility often is greater day-to-day as opposed to intra-day. Futures Contracts tend to be more volatile than stocks and bonds because price movements of crude oil and other energy products are more currently and directly influenced by economic factors for which current data is available and are traded by crude oil futures traders throughout the day. These economic factors include changes in interest rates; governmental, agricultural, trade, fiscal, monetary and exchange control programs and policies; weather and climate conditions; changing supply and demand relationships; changes in balances of payments and trade; U.S. and international rates of inflation; currency devaluations and revaluations; U.S. and international political and economic events; and changes in

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philosophies and emotions of market participants. Because USSO will invest a significant portion of its assets in short positions in Futures Contracts, the assets of USSO, and therefore the prices of USSO units, may be subject to greater volatility than traditional securities.

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

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

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

Light, Sweet Crude Oil.  Crude oil is the world’s most actively traded commodity. The Futures Contracts for light, sweet crude oil that are traded on the New York Mercantile Exchange are the world’s most liquid forum for crude oil trading, as well as the world’s largest volume futures contract trading on a physical commodity. Due to the liquidity and price transparency of light, sweet crude oil Futures Contracts, they are used as a principal international pricing benchmark. The Futures Contracts for light, sweet crude oil trade on the New York Mercantile Exchange in units of 1,000 U.S. barrels and, if not closed out before maturity, will result in delivery of oil to Cushing, Oklahoma, which is also accessible to the international spot markets by two major interstate petroleum pipeline systems.

The price of crude oil is established by the supply and demand conditions in the global market overall, and more particularly, in the main refining centers of Singapore, Northwest Europe, and the U.S. Gulf Coast. Demand for petroleum products by consumers, as well as agricultural, manufacturing and transportation industries, determines demand for crude oil by refiners. Since the precursors of product demand are linked to economic activity, crude oil demand will tend to reflect economic conditions. However, other factors such as weather also influence product and crude oil demand.

The price of light, sweet crude oil has historically exhibited periods of significant volatility.

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

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

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

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Why Does USSO Purchase and Sell Futures Contracts?

The investment objective of USSO is to have the changes in percentage terms of its units’ NAV inversely reflect the changes in percentage terms of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by the changes in the price of the futures contract on light, sweet crude oil as traded on the NYMEX that is the near month contract to expire, except when the near month contract is within two weeks of expiration, in which case the futures contract will be the next month contract to expire, less USSO’s expenses. USSO seeks to have its aggregate NAV approximate at all times the aggregate market value of the Futures Contracts and Other Crude Oil-Related Investments it holds.

To achieve its investment objective, USSO anticipates that it will need to maintain “short” positions in the Futures Contracts and Other Crude-Oil Related Investments in which it invests. A short position is one in which USSO will have sold the Futures Contract or Other Crude-Oil Related Investment and must buy it back or otherwise close out the position in the future. As a result, a drop in the market value of the investment would lead to a potential gain for USSO, while an increase in the market value of the investment would lead to a potential loss for USSO. Typically a short position will produce a result that is the inverse of buying the Futures Contract or Other Crude-Oil Related Investment (an approach referred to as being “long” the investment). The General Partner expects the performance of USSO to generally be inverse to the performance of USOF, another commodity pool managed by the General Partner, which seeks to have the changes in percentage terms of its units NAV track the changes in percentage terms in the spot price of light, sweet crude oil as traded in the United States.

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

As a result of the foregoing, USSO expects that 5% to 10% of its assets will be held as margin in segregated accounts with a futures commission merchant. In addition to the Treasuries and cash it posts with the futures commission merchant for the Futures Contracts it owns, USSO will hold through the Custodian, Treasuries, cash and/or cash equivalents that can be posted as margin or as collateral to support its over-the-counter contracts. USSO intends to earn interest income from the Treasuries and/or cash equivalents that it will purchase, and on the cash it holds through the Custodian. It anticipates that the earned interest income will increase the NAV and limited partners’ capital contribution accounts. USSO plans to reinvest the earned interest income, hold it in cash, or use it to pay its expenses. If USSO reinvests the earned interest income, it will make investments that are consistent with its investment objectives.

Hypothetical Total Return of a Short Position in Crude Oil

The chart below compares the three year movement (2005-2007) of the price of the near month light, sweet crude oil contract as traded on the NYMEX, versus a hypothetical total return from holding an unlevered short position in the same contract and assuming that an investor rolls that short position forward each month.

Please note the price movement of the near month contract is not a total return calculation and merely shows what the near month contract price was, in nominal terms, during this time period. The near month price graph in the table below ignores the potential costs of buying such contracts or the impact of the futures price curve (as a result of backwardation or contango, for example), on making such investments. The short position graph does, however, reflect the impact of the futures price curve (backwardation and contango) on the returns of holding such a position. The short position graph in the table below also does not include the potential impact of the yield on the short position’s collateral, the impact of futures trading commissions, or any other potential expenses.

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The closing price of the front month crude oil contract on December 30, 2004 was $43.45. The closing price of the oil contract on 12/31/2008 was $44.60. During this period the price of the oil contract fluctuated but the ending price was up only a small amount, approximately 2.6% compared to the starting price.

[GRAPHIC MISSING]

*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

During the same time period, the total return of a short position in the front month contract, indexed to a nominal value of 100 as of 12/30/04, would have fallen almost 23% to 77.42 as of 12/31/08.

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WLL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.

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

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

If the futures market is in backwardation, e.g., when the expected price of 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 interest earned on Treasuries, cash and/or cash equivalents), the value of the next month contract would rise as it approaches expiration and becomes the new near month contract. In this example, the value of the $50 investment would tend to rise faster than the spot price of crude oil, or fall slower. As a result, it would be possible in this hypothetical example for the price of spot crude oil to have risen to $60 after some period of time, while the value of the investment in the futures contract would have risen to $65, assuming backwardation is large enough or enough time has elapsed. Similarly, the spot price of crude oil could have fallen to $40 while the value of an investment in the futures contract could have fallen to only $45. Over time, if backwardation remained constant, the difference would continue to increase. In the event of a prolonged period of backwardation, and absent the impact of rising or falling crude oil prices, this could have a significant negative impact on USSO’s NAV and total return.

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

Historically, the oil futures markets have experienced periods of contango and backwardation, with backwardation being in place more often than contango. During the previous two years, including 2006 and the first half of 2007, these markets have experienced contango. However, starting early in the third quarter of 2007, the crude oil futures market moved into backwardation and remained in that condition for the rest of the year. The crude oil markets remained in backwardation for all of the first quarter of 2008. The chart below compares the price of the near month contract to the average price of the first 12 months over the last 10 years (1998-2007). When the price of the near month contract is higher than the average price of the front 12 month contracts, the market would be described as being in backwardation. When the price of the near month contract is lower than the average price of the front 12 month contracts, the market would be described as being in contango. Although the prices of the near month contract and the average price of the front 12 month contracts do tend to move up or down together, it can be seen that at times the near month prices are clearly higher than the average price of the 12 month contracts (backwardation), and other times they are below the average price of the front 12 month contracts (contango).

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[GRAPHIC MISSING]

*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

An alternative way to view the same data is to subtract from the dollar price of the near month contract the average dollar price of the front 12 month contracts. If the resulting number is a positive number, then the near month price is higher than the average price of the front 12 months and the market could be described as being in backwardation. If the resulting number is a negative number, then the near month price is lower than the average price of the front 12 months and the market could be described as being in contango. The chart below shows the results from subtracting from the near month price the average price of the front 12 month contracts for the 10 year period between 1998 and 2007.

[GRAPHIC MISSING]

*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

An investment in a portfolio that involved owning only the near month contract would likely produce a different result than an investment in a portfolio that owned an equal number of each of the front 12 month’s worth of contracts. Generally speaking, when the crude oil futures market is in backwardation, the near month

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

[GRAPHIC MISSING]

*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

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

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What Is the Flow of Units?

[GRAPHIC MISSING]

What Are the Trading Policies of USSO?

Liquidity

USSO will invest only in Futures Contracts and Other Crude Oil-Related Investments that are traded in sufficient volume to permit, in the opinion of the General Partner, ease of taking and liquidating positions in these financial interests.

Spot Commodities

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

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Leverage

While USSO expects its ratio of margin to total assets to generally range from 5% to 10%, the General Partner endeavors to have the value of USSO’s Treasuries, cash and cash equivalents, whether held by USSO or posted as margin or collateral, at all times approximate the aggregate market value of USSO’s obligations under its Futures Contracts and Other Crude Oil-Related Investments.

Borrowings

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

Over-the-Counter Derivatives (Including Spreads and Straddles)

In addition to Futures Contracts, there are also a number of listed options on the Futures Contracts on the principal futures exchanges. These contracts offer investors and hedgers another set of financial vehicles to use in managing exposure to the crude oil market. Consequently, USSO may purchase options on crude oil Futures Contracts on these exchanges in pursuing its investment objective.

In addition to the Futures Contracts and options on the Futures Contracts, there also exists an active non-exchange-traded market in derivatives tied to crude oil. These derivatives transactions (also known as over-the-counter contracts) are usually entered into between two parties. Unlike most of the exchange-traded Futures Contracts or exchange-traded options on the Futures Contracts, each party to such contract bears the credit risk that the other party may not be able to perform its obligations under its contract.

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

To protect itself from the credit risk that arises in connection with such contracts, USSO will enter into agreements with each counterparty that provide for the netting of its overall exposure to its counterparty, such as the agreements published by the International Swaps and Derivatives Association, Inc. USSO will also require that the counterparty be highly rated and/or provide collateral or other credit support to address USSO’s exposure to the counterparty.

The creditworthiness of each potential counterparty will be assessed by the General Partner. The General Partner will assess or review, as appropriate, the creditworthiness of each potential or existing counterparty to an over-the-counter contract pursuant to guidelines approved by the General Partner’s Board of Directors. Furthermore, the General Partner on behalf of USSO will only enter into over-the-counter contracts with counterparties who are, or 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, and (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 General Partner’s Board of Directors after consultation with its legal counsel. Existing counterparties are also reviewed periodically by the General Partner.

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

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USSO may employ spreads or straddles in its trading to mitigate the differences in its investment portfolio and its goal of tracking the price of the Benchmark Futures Contract. USSO 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 USSO to changes in the price relationship between futures contracts which will expire sooner and those that will expire later. USSO 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 USSO, 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 crude oil prices.

USSO 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. USSO 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 USSO or if it would lead to an overall lower cost of trading to achieve a given level of economic exposure to movements in crude oil prices.

Pyramiding

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

Who Are the Service Providers?

Brown Brothers Harriman & Co. is anticipated to be the registrar and transfer agent for the units. Brown Brothers Harriman & Co. is also anticipated to be the Custodian for USSO. In this capacity, Brown Brothers Harriman & Co. will hold USSO’s Treasuries, cash and cash equivalents pursuant to a custodial agreement. In addition, Brown Brothers Harriman & Co. will perform certain administrative and accounting services for USSO and will prepare certain SEC and CFTC reports on behalf of USSO. The General Partner will pay Brown Brothers Harriman & Co.’s fees.

USSO also plans to employ ALPS Distributors, Inc. as the Marketing Agent, which is further discussed under “What is the Plan of Distribution?” The General Partner will pay the Marketing Agent’s fees.

USSO and the futures commission merchant, UBS Securities LLC (“UBS Securities”), will enter into an Institutional Futures Client Account Agreement. This Agreement requires UBS Securities to provide services to USSO in connection with the purchase and sale of Crude Oil Interests that may be purchased or sold by or through UBS Securities for USSO’s account. USSO will pay the futures commission merchant fees.

UBS Securities is not affiliated with us or our General Partner. Therefore, we do not believe that we have any conflicts of interest with them or their trading principals arising from their acting as our futures commission merchant.

UBS Securities’ principal business address is 677 Washington Blvd, Stamford, CT 06901. UBS Securities is a futures clearing broker for USSO. UBS Securities is registered in the US with FINRA as a Broker-Dealer and with the CFTC as a Futures Commission Merchant. UBS Securities is a member of various US futures and securities exchanges.

UBS Securities is the defendant in two purported securities class actions pending in District Court of the Northern District of Alabama, brought by holders of stocks and bonds of HealthSouth, captioned In re HealthSouth Corporation Stockholder, No. CV-03-BE-1501-S and In re HealthSouth Corporation Bondholder Litigation, No. CV-03-BE-1502-S. Both complaints assert liability under the Securities Act of 1934.

On June 27, 2007, the Securities Division of the Secretary of the Commonwealth of Massachusetts (“Massachusetts Securities Division”) filed an administrative complaint (the “Complaint”) and notice of adjudicatory proceeding against UBS Securities LLC, captioned In The Matter of UBS Securities, LLC, Docket No. E-2007-0049, which alleges, in sum and substance, that UBS Securities has been violating the Massachusetts Uniform Securities Act (the “Act”) and related regulations by providing the advisers for certain hedge funds with gifts and gratuities in the form of below market office rents, personal loans with below

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market interest rates, event tickets, and other perks, in order to induce those hedge fund advisers to increase or retain their level of prime brokerage fees paid to UBS Securities. The Complaint seeks a cease and desist order from conduct that violates the Act and regulations, to censure UBS Securities, to require UBS Securities to pay an administrative fine of an unspecified amount, and to find as fact the allegations of the Complaint.

On June 26, 2008, the Massachusetts Securities Division filed an administrative complaint and notice of adjudicatory proceeding against UBS Securities and UBS Financial Services, Inc. (“UBS Financial”), captioned In the Matter of UBS Securities, LLC and UBS Financial Services, Inc., Docket No. 2008-0045, which alleged that UBS Securities and UBS Financial violated the Act in connection with the marketing and sale of auction rate securities.

On July 22, 2008, the Texas State Securities board filed an administrative proceeding against UBS Securities and UBS Financial captioned the Matter of the Dealer Registrations of UBS Financial Services, Inc. and UBS Securities LLC, SOAH Docket No. 312-08-3918, SSB Docket No. 08-IC04, alleging violations of the anti-fraud provision of the Texas Securities Act in connection with the marketing and sale of auction rate securities.

On July 24, 2008 the New York Attorney General (“NYAG”) filed a complaint in Supreme Court of the State of New York against UBS Securities and UBS Financial captioned State of New York v. UBS Securities LLC and UBS Financial Services, Inc., No. 650262/2008, in connection with UBS’s marketing and sale of auction rate securities. The complaint alleges violations of the anti-fraud provisions of New York state statutes and seeks a judgment ordering that the firm buy back auction rate securities from investors at par, disgorgement, restitution and other remedies.

On August 8, 2008, UBS Securities and UBS Financial reached agreements in principle with the SEC, the NYAG, the Massachusetts Securities Division and other state regulatory agencies represented by the North American Securities Administrators Association (“NASAA”) to restore liquidity to all remaining client’s holdings of auction rate securities by June 30, 2012. On August 20, 2008, the Texas proceeding was dismissed and withdrawn. On October 2, 2008, UBS Securities and UBS Financial entered into a final consent agreement with the Massachusetts Securities Division settling all allegations in the Massachusetts Securities Division’s administrative proceeding against UBS Securities and UBS Financial with regards to the auction rate securities matter. On December 11, 2008, UBS Securities and UBS Financial executed an Assurance of Discontinuance in the auction rate securities settlement with the NYAG. On the same day, UBS Securities and UBS Financial finalized settlements with the SEC.

On August 14, 2008 the New Hampshire Bureau of Securities Regulation filed an administrative action against UBS Securities relating to a student loan issuer, the New Hampshire Higher Education Loan Corp. (NHHELCO). The complaint alleges fraudulent and unethical conduct in violation of New Hampshire state statues. The complaint seeks an administrative fine, a cease and desist order, and restitution to NHHELCO. The claim does not impact the global settlement with the SEC, NYAG and NASAA relating to the marketing and sale of ARS to investors.

Further, UBS Securities, like most full service investment banks and broker-dealers, receives inquiries and is sometimes involved in investigations by the SEC, FINRA, NYSE and various other regulatory organizations, exchanges and government agencies. UBS Securities fully cooperates with the authorities in all such requests. UBS Securities regularly discloses to the FINRA arbitration awards, disciplinary action and regulatory events. These disclosures are publicly available on the FINRA’s website at www.finra.org. Actions with respect to UBS Securities’ futures commission merchant business are publicly available on the website of the National Futures Association (http://www.nfa.futures.org/).

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

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

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

* The annual minimum amount will not apply if the asset-based charge for all accounts in the aggregate exceeds $125,000. The General Partner also will pay transaction charge fees to Brown Brothers Harriman & Co., ranging from $7.00 to $15.00 per transaction for the funds.
** The General Partner pays this compensation.

 
Service Provider   Compensation Paid by USSO
Non-Affiliated Brokers   Approximately 0.19% of assets (including futures commission merchant fees of approximately $4.00 per buy or sell).***

*** USSO pays this compensation.

New York Mercantile Exchange Licensing Fee

 
Assets   Licensing Fee
First $1,000,000,000   0.04% of NAV
After the first $1,000,000,000   0.02% of NAV

Assets of USSO are aggregated with those of the Related Public Funds. USSO pays its pro rata share of this fee.

Fees are calculated on a daily basis (accrued at 1/365 of the applicable percentage of NAV on that day) and paid on a monthly basis.

Form of Units

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

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

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

Transfer of Units

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

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

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

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

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

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

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

be an assignee until admitted as a substituted limited partner upon the consent and sole discretion of the General Partner and the recording of the assignment on the books and records of the partnership;
automatically request admission as a substituted limited partner;
agree to be bound by the terms and conditions of, and execute, our LP Agreement;
represent that such transferee has the capacity and authority to enter into our LP Agreement;
grant powers of attorney to our General Partner and any liquidator of us; and
make the consents and waivers contained in our LP Agreement.

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

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

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

Withdrawal of Limited Partners

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

What Is the Plan of Distribution?

Buying and Selling Units

Most investors will buy and sell units of USSO in secondary market transactions through brokers. Units will trade on the NYSE Arca under the ticker symbol “DNO”. Units will be bought and sold throughout the trading day like other publicly traded securities. When buying or selling units through a broker, most investors will incur customary brokerage commissions and charges. Investors are encouraged to review the terms of their brokerage account for details on applicable charges.

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Marketing Agent and Authorized Purchasers

The offering of USSO’s units is a best efforts offering. USSO will continuously offer Creation Baskets consisting of 100,000 units through the Marketing Agent, to Authorized Purchasers. Deutsche Bank Securities Inc. is expected to be the initial Authorized Purchaser. It is expected that on the effective date, the initial Authorized Purchaser will, subject to conditions, purchase one or more initial Creation Baskets of 100,000 units at a price per unit equal to $50. It is expected that the proceeds from that purchase will be invested on that day and that USSO’s initial per unit net asset value will be established as of 4:00 p.m. New York City time that day. Authorized Purchasers will pay a $1,000 fee for each order to create one or more Creation Baskets. The Marketing Agent will receive, for its services as marketing agent to USSO, a marketing fee of 0.06% on assets up to the first $3 billion and 0.04% on assets in excess of $3 billion, provided, however, that in no event may the aggregate compensation paid to the Marketing Agent and any affiliate of the General Partner for distribution-related services in connection with this offering of units exceed ten percent (10%) of the gross proceeds of this offering.

The initial Authorized Purchaser proposes to offer to the public these 100,000 units at per-unit offering prices that are expected to reflect, among other factors, the trading price of the units on the NYSE Arca, the NAV of USSO at the time the Authorized Purchaser purchased the Creation Basket and the NAV of the units at the time of the offer of the units to the public, the supply of and demand for units at the time of sale, and the liquidity of the Futures Contract market and the market for Other Crude Oil-Related Investments and the offering prices are expected to fall between USSO’s NAV and the trading price of the units on the NYSE Arca at the time of sale. Units offered by the initial Authorized Purchaser at different times may have different offering prices. The initial Authorized Purchaser will not receive from USSO, the General Partner or any of their affiliates, any fee or other compensation in connection with the sale of the units. USSO will not bear any expenses in connection with the offering or sales of the initial Creation Basket of units.

The offering of baskets is being made in compliance with Conduct Rule 2810 of FINRA. Accordingly, the initial Authorized Purchaser will not make any sales to any account over which it has discretionary authority without the prior written approval of a purchaser of units.

The per unit price of units offered in Creation Baskets on any subsequent day will be the total NAV of USSO calculated shortly after the close of the NYSE Arca on that day divided by the number of issued and outstanding units. An Authorized Purchaser is not required to sell any specific number or dollar amount of units.

By executing an Authorized Purchaser Agreement, the Authorized Purchaser becomes part of the group of parties eligible to purchase baskets from, and put baskets for redemption to, USSO. An Authorized Purchaser is under no obligation to create or redeem baskets, and an Authorized Purchaser is under no obligation to offer to the public units of any baskets it does create.

As of the date of this prospectus, Deutsche Bank Securities Inc. is the only expected Authorized Purchaser. Because new units can be created and issued on an ongoing basis, at any point during the life of USSO, a “distribution”, as such term is used in the 1933 Act, will be occurring. Authorized Purchasers, including the initial Authorized Purchaser, other broker-dealers and other persons are cautioned that some of their activities may result in their being deemed participants in a distribution in a manner that would render them statutory underwriters and subject them to the prospectus-delivery and liability provisions of the 1933 Act. For example, the initial Authorized Purchaser will be a statutory underwriter with respect to its initial purchase of Creation Baskets.

Authorized Purchasers will comply with the prospectus-delivery requirements in connection with the sale of units to customers. For example, an Authorized Purchaser, other broker-dealer firm or its client will be deemed a statutory underwriter if it purchases a basket from USSO, breaks the basket down into the constituent units and sells the units to its customers; or if it chooses to couple the creation of a supply of new units with an active selling effort involving solicitation of secondary market demand for the units. Authorized Purchasers may also engage in secondary market transactions in units that would not be deemed “underwriting”. For example, an Authorized Purchaser may act in the capacity of a broker or dealer with respect to units that were previously distributed by other Authorized Purchasers. A determination of whether a particular market participant is an underwriter must take into account all the facts and circumstances pertaining to the

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activities of the broker-dealer or its client in the particular case, and the examples mentioned above should not be considered a complete description of all the activities that would lead to designation as an underwriter and subject them to the prospectus-delivery and liability provisions of the 1933 Act.

Dealers who are neither Authorized Purchasers nor “underwriters” but are nonetheless participating in a distribution (as contrasted to ordinary secondary trading transactions), and thus dealing with units that are part of an “unsold allotment” within the meaning of Section 4(3)(C) of the 1933 Act, would be unable to take advantage of the prospectus-delivery exemption provided by Section 4(3) of the 1933 Act.

The General Partner may qualify the units in states selected by the General Partner and intends that sales be made through broker-dealers who are members of FINRA. Investors intending to create or redeem baskets through Authorized Purchasers in transactions not involving a broker-dealer registered in such investor’s state of domicile or residence should consult their legal advisor regarding applicable broker-dealer or securities regulatory requirements under the state securities laws prior to such creation or redemption.

While the Authorized Purchasers may be indemnified by the General Partner, they will not be entitled to receive a discount or commission from USSO for their purchases of Creation Baskets. The difference between the price paid by Authorized Purchasers as underwriters and the price paid to such Authorized Purchasers by investors will be deemed underwriting compensation.

Calculating NAV

USSO’s NAV Is Calculated by:

Taking the current market value of its total assets
Subtracting any liabilities

Brown Brothers Harriman & Co., Inc, the Administrator, will calculate the NAV of USSO once each trading day. The NAV for a particular trading day will be released after 4:15 p.m. New York time. It will calculate NAV as of the earlier of the close of trading on the NYSE Arca or 4:00 p.m. New York time. Trading on the NYSE Arca typically closes at 4:15 p.m. New York time. The Administrator will use the NYMEX closing price (determined at the earlier of the close of that Exchange or 2:30 p.m. New York time) for the contracts traded on the NYMEX, but will calculate or determine the value of all other USSO investments as of the earlier of the close of the NYSE Arca or 4:00 p.m. New York time in accordance with the current Administrative Agency Agreement among Brown Brothers Harriman & Co., USSO and the General Partner.

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

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

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

Dissemination of the indicative fund value provides additional information that is not otherwise available to the public and is useful to investors and market professionals in connection with the trading of USSO units

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on the NYSE Arca. Investors and market professionals will be able through out the trading day to compare the market price of USSO and the indicative fund value. If the market price of USSO units diverges significantly from the indicative fund value, market professionals will have an incentive to execute arbitrage trades. For example, if USSO appears to be trading at a discount compared to the indicative fund value, a market professional could buy USSO units on the NYSE Arca and sell short futures contracts. Such arbitrage trades can tighten the tracking between the market price of USSO and the indicative fund value and thus can be beneficial to all market participants.

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

Creation and Redemption of Units

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

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

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

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

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

The following description of the procedures for the creation and redemption of baskets is only a summary and an investor should refer to the relevant provisions of the LP Agreement and the form of Authorized

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Purchaser Agreement for more detail, each of which is attached as an exhibit to the registration statement of which this prospectus is a part. See “Where You Can Find More Information” for information about where you can obtain the registration statement.

Creation Procedures

On any business day, an Authorized Purchaser may place an order with the Marketing Agent to create one or more baskets. For purposes of processing purchase and redemption orders, a “business day” means any day other than a day when any of the NYSE Arca, the NYMEX or the New York Stock Exchange is closed for regular trading. Purchase orders must be placed by 12:00 p.m. New York time or the close of regular trading on the NYSE Arca, whichever is earlier; except in the case of the initial Authorized Purchaser’s or any other Authorized Purchaser’s initial order to purchase one or more Creation Baskets on the first day the baskets are to be offered and sold, when such orders shall be placed by 9:00 a.m. New York time on the day agreed to by the General Partner and the initial Authorized Purchaser. The day on which the Marketing Agent receives a valid purchase order is the purchase order date.

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

The manner by which creations are made is dictated by the terms of the Authorized Purchaser Agreement. By placing a purchase order, an Authorized Purchaser agrees to (1) deposit Treasuries, cash, or a combination of Treasuries and cash with the Custodian of USSO, and (2) if required by the General Partner in its sole discretion, enter into or arrange for a block trade, an exchange for physical or exchange for swap, or any other over-the-counter energy transaction (through itself or a designated acceptable broker) with the fund for the purchase of a number and type of futures contracts at the closing settlement price for such contracts on the purchase order date. If an Authorized Purchaser fails to consummate (1) and (2), the order shall be cancelled. The number and type of contracts specified shall be determined by the General Partner, in its sole discretion, to meet USSO’s investment objective and shall be purchased as a result of the Authorized Purchaser’s purchase of units.

Determination of Required Deposits

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

Delivery of Required Deposits

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

Because orders to purchase baskets must be placed by 12:00 p.m., New York time (except in the case of the initial Authorized Purchaser’s or any other Authorized Purchaser’s initial order to purchase one or more Creation Baskets on the first day the baskets are to be offered and sold, when such orders shall be placed by

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9:00 a.m. New York time on the day agreed to by the General Partner and the initial Authorized Purchaser), but the total payment required to create a basket during the continuous offering period will not be determined until 4:00 p.m., New York time, on the date the purchase order is received, Authorized Purchasers will not know the total amount of the payment required to create a basket at the time they submit an irrevocable purchase order for the basket. USSO’s NAV and the total amount of the payment required to create a basket could rise or fall substantially between the time an irrevocable purchase order is submitted and the time the amount of the purchase price in respect thereof is determined.

Rejection of Purchase Orders

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

it determines that the investment alternative available to USSO at that time will not enable it to meet its investment objective;
it determines that the purchase order or the Creation Basket Deposit is not in proper form;
it believes that the purchase order or the Creation Basket Deposit would have adverse tax consequences to USSO or its unitholders;
the acceptance or receipt of the Creation Basket Deposit would, in the opinion of counsel to the General Partner, be unlawful; or
circumstances outside the control of the General Partner, Marketing Agent or Custodian make it, for all practical purposes, not feasible to process creations of baskets.

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

Redemption Procedures

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

The manner by which redemptions are made is dictated by the terms of the Authorized Purchaser Agreement. By placing a redemption order, an Authorized Purchaser agrees to (1) deliver the Redemption Basket to be redeemed through DTC’s book-entry system to USSO’s account with the Custodian not later than 3:00 p.m. New York time on the third business day following the effective date of the redemption order (“Redemption Distribution Date”), and (2) if required by the General Partner in its sole discretion, enter into or arrange for a block trade, an exchange for physical or exchange for swap, or any other over-the-counter energy transaction (through itself or a designated acceptable broker) with the fund for the sale of a number and type of futures contracts at the closing settlement price for such contracts on the Redemption Order Date. If an Authorized Purchaser fails to consummate (1) and (2) above, the order shall be cancelled. The number and type of contracts specified shall be determined by the General Partner, in its sole discretion, to meet USSO’s investment objective and shall be sold as a result of the Authorized Purchaser’s sale of units. Prior to the delivery of the redemption distribution for a redemption order, the Authorized Purchaser must also have wired to USSO’s account at the Custodian the non-refundable transaction fee due for the redemption order.

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Determination of Redemption Distribution

The redemption distribution from USSO will consist of a transfer to the redeeming Authorized Purchaser of an amount of Treasuries and cash that is in the same proportion to the total assets of USSO (net of estimated accrued but unpaid fees, expenses and other liabilities) on the date the order to redeem is properly received as the number of units to be redeemed under the redemption order is in proportion to the total number of units outstanding on the date the order is received. The General Partner, directly or in consultation with the Administrator, determines the requirements for Treasuries and the amounts of cash, including the maximum permitted remaining maturity of a Treasury, and the proportions of Treasuries and cash that may be included in distributions to redeem baskets. The Marketing Agent will publish such requirements as of 4:00 p.m. New York time on the redemption order date.

Delivery of Redemption Distribution

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

Suspension or Rejection of Redemption Orders

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

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

Creation and Redemption Transaction Fee

To compensate USSO for its expenses in connection with the creation and redemption of baskets, an Authorized Purchaser is required to pay a transaction fee to USSO of $1,000 per order to create or redeem baskets. An order may include multiple baskets. The transaction fee may be reduced, increased or otherwise

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changed by the General Partner. The General Partner shall notify DTC of any change in the transaction fee and will not implement any increase in the fee for the redemption of baskets until 30 days after the date of the notice.

Tax Responsibility

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

Secondary Market Transactions

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

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

Use of Proceeds

The General Partner will initially apply substantially all of USSO’s assets toward taking short positions in Futures Contracts and Other Crude Oil-Related Investments and investing in Treasuries, cash and/or cash equivalents. The General Partner has sole authority to determine the percentage of assets that will be:

held on deposit with the futures commission merchant or other custodian,
used for other investments, and
held in bank accounts to pay current obligations and as reserves.

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The General Partner expects to deposit a majority of USSO’s net assets with the Custodian or other custodian. When USSO sells or purchases a Futures Contract and certain exchange traded Other Crude Oil-Related Investments, USSO is required to deposit with the futures commission merchant on behalf of the exchange a portion of the value of the contract or other interest as security to ensure payment for the obligation under Crude Oil Interests at maturity. This deposit is known as “margin.” USSO will invest the remainder of its assets equal to the difference between the margin deposited and the market value of the short position in the Futures Contract in Treasuries, cash and/or cash equivalents.

The General Partner expects that all entities that will hold or trade USSO’s assets will be based in the United States and will be subject to United States regulations.

The General Partner believes that 5% to 10% of USSO’s assets will normally be committed as margin for its short positions in Futures Contracts. However, from time to time, the percentage of assets committed as margin may be substantially more, or less, than such range. The General Partner intends to invest the balance of USSO’s assets not invested in Crude Oil Interests or held in margin as reserves to be available for changes in margin. All interest income will be used for USSO’s benefit.

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

USSO’s assets will be held in segregated accounts pursuant to the Commodity Exchange Act and CFTC regulations.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Critical Accounting Policies

Preparation of the financial statements and related disclosures in compliance with accounting principles generally accepted in the United States of America requires the application of appropriate accounting rules and guidance, as well as the use of estimates. USSO’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 will make in preparing USSO’s financial statements and related disclosures once USSO commences trading operations and has determined that the valuation of its investments which are not traded on a U.S. or internationally recognized futures exchange (such as forward contracts and over-the-counter contracts) involves a critical accounting policy. While not currently applicable given the fact that USSO is not currently involved in trading activities, the values which will be used by USSO for its forward contracts will be provided by its commodity broker who will use market prices when available, while over-the-counter contracts will be 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 will be valued on a daily basis.

Liquidity and Capital Resources

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

USSO will generate cash primarily from (i) the sale of Creation Baskets and (ii) interest earned on cash, cash equivalents and its investments in Treasuries. USSO has not begun trading activities. Once USSO begins trading activities, it is anticipated that all of its net assets will be allocated to trading in Crude Oil Interests. Most of USSO’s assets will be held in Treasuries, cash and/or cash equivalents that could or will be used as margin for USSO’s trading in Crude Oil Interests. The percentage that Treasuries will bear to the total net assets will vary from period to period as the market values of the Crude Oil Interests change. The balance of the net assets will be held in USSO’s Futures Contracts and Other Crude Oil-Related Investments trading account. Interest earned on USSO’s interest bearing-funds will be paid to USSO.

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USSO’s investment in Crude Oil Interests will 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 or liquidated unless the traders are willing to effect trades at or within the limit. Such market conditions could prevent USSO from promptly liquidating its positions in Futures Contracts.

To date, all of USSO’s expenses have been funded by the General Partner. If the General Partner and USSO are unsuccessful in raising sufficient funds to cover its expenses or in locating any other source of funding, USSO will terminate and investors may lose all or part of their investment.

Market Risk

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

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

Credit Risk

When USSO enters into Futures Contracts and Other Crude Oil-Related Investments, it will be exposed to the credit risk that its counterparty will not be able to meet its obligations. The counterparty for the Futures Contracts traded on the New York Mercantile Exchange and on most other foreign futures exchanges is the clearinghouse associated with the particular exchange. In general, clearinghouses are backed by their members who may be required to share in the financial burden resulting from the nonperformance of one of their members that 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, clearing house, or their financial backers will satisfy their obligations to USSO.

The General Partner will attempt to manage the credit risk of USSO by following various trading limitations and policies. In particular, USSO intends to post margin and/or hold liquid assets that will be approximately equal to the face amount of its obligations to counterparties under the Futures Contracts and Other Crude Oil-Related Investments it holds. The General Partner will implement procedures that will include, but will not be 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 USSO to limit its credit exposure.

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

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Off Balance Sheet Financing

As of the date of this prospectus, USSO 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 service providers undertake in performing services which are in the best interests of USSO. While USSO’s exposure under these indemnification provisions cannot be estimated, they are not expected to have a material impact on USSO’s financial position.

Redemption Basket Obligation

Other than as necessary to meet its investment objective and pay its contractual obligations described below, USSO will require liquidity to redeem Redemption Baskets. USSO intends to satisfy this obligation through the transfer of its Treasuries and/or cash in an amount of proportionate to the number of units being redeemed, as described above under “Determination of Redemption Distribution.”

Contractual Obligations

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

The General Partner has agreed to pay the start-up costs associated with the formation of USSO, primarily its legal, accounting and other costs in connection with its contracts with service providers and its registration with the SEC and other regulatory filings in connection with the initial public offering of the units, and the registration fees paid to the SEC, FINRA and the NYSE Arca in connection with such offering. The General Partner has agreed to pay the fees of the Custodian and transfer agent, Brown Brothers Harriman & Co., as well as Brown Brothers Harriman & Co.’s fees for performing administrative services, including in connection with USSO’s preparation of its financial statements and its SEC and CFTC reports. The General Partner will also pay the fees of USSO’s accountants in connection with its SEC and CFTC reporting, as well as those of its Marketing Agent.

In addition to the General Partner’s management fee, USSO pays its brokerage fees (including fees to the futures commission merchant), over-the-counter dealer spreads, any licensing fees for the use of intellectual property, registration and, subsequent to the initial offering, the fees paid to the SEC, FINRA, or other regulatory agency in connection with the offer and sale of the units, tax accounting and reporting fees, as well as the legal, printing, accounting, and other expenses associated therewith, and extraordinary expenses. The latter are expenses not in the ordinary course of its business, including 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 the futures commission merchant are on a contract-by-contract, or round turn, basis.

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

Limited Partnership Agreement

The following paragraphs are a summary of certain provisions of our LP Agreement. It is expected that the initial limited partner of USSO will be IMC-Chicago, LLC. The following discussion is qualified in its entirety by reference to our LP Agreement.

Authority of the General Partner

Our General Partner is generally authorized to perform all acts deemed necessary to carry out the purposes of the limited partnership and to conduct our business. Our partnership existence will continue into perpetuity, until terminated in accordance with our LP Agreement. Our General Partner has a power of attorney to take certain actions, including the execution and filing of documents, on our behalf and with respect to our LP Agreement. However, our partnership agreement limits the authority of our General Partner as follows:

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Other than in connection with the issuance or redemption of units, or upon termination of the partnership as contemplated by the LP Agreement, the General Partner may not sell, exchange or otherwise dispose of all or substantially all of the partnership’s assets in a single transaction or a series of related transactions (including by way of merger, consolidation or other combination with any other person) or approve on behalf of the partnership, the sale, exchange or other disposition of all or substantially all of the assets of all of the partnership, taken as a whole, without the approval of at least a majority of the limited partners; provided, however, that this provision shall not preclude or limit the General Partner’s ability to mortgage, pledge, hypothecate or grant a security interest in all or substantially all of the partnership’s assets and shall not apply to any forced sale of any or all of the partnership’s assets pursuant to the foreclosure of, or other realization upon, any such encumbrance.
The General Partner is not authorized to institute or initiate on behalf of, or otherwise cause, the partnership to (a) make a general assignment for the benefit of creditors; (b) file a voluntary bankruptcy petition; or (c) file a petition seeking for the partnership a reorganization, arrangement, composition, readjustment liquidation, dissolution or similar relief under any law.
The General Partner may not, without written approval of the specific act by all of the limited partners or by other written instrument executed and delivered by all of the limited partners subsequent to the date of the LP Agreement, take any action in contravention of the LP Agreement, including, without limitation, (i) any act that would make it impossible to carry on the ordinary business of the partnership, except as otherwise provided in the LP Agreement; (ii) possess partnership property, or assign any rights in specific partnership property, for other than a partnership purpose; (iii) admit a person as a partner, except as otherwise provided in the LP Agreement; (iv) amend the LP Agreement in any manner, except as otherwise provided in the LP Agreement or applicable law; or (v) transfer its interest as General Partner of the partnership, except as otherwise provided in the LP Agreement.
In general, unless approved by a majority of the limited partners, our General Partner shall not take any action, or refuse to take any reasonable action, the effect of which would be to cause us, to the extent it would materially and adversely affect limited partners, to be taxable as a corporation or to be treated as an association taxable as a corporation for federal income tax purposes.

Withdrawal or Removal of Our General Partner

The General Partner shall be deemed to have withdrawn from the partnership upon the occurrence of any one of the following events:

the General Partner voluntarily withdraws from the partnership by giving written notice to the other partners;
the General Partner transfers all of its rights as General Partner;
the General Partner is removed;
the General Partner (A) makes a general assignment for the benefit of creditors; (B) files a voluntary bankruptcy petition; (C) files a petition or answer seeking for itself a reorganization, arrangement, composition, readjustment liquidation, dissolution or similar relief under any law; (D) files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against the General Partner in a proceeding of the type described in clauses (A) – (C) of this sentence; or (E) seeks, consents to or acquiesces in the appointment of a trustee, receiver or liquidator of the General Partner or of all or any substantial part of its properties;
a final and non-appealable judgment is entered by a court with appropriate jurisdiction ruling that the General Partner is bankrupt or insolvent or a final and non-appealable order for relief is entered by a court with appropriate jurisdiction against the General Partner, in each case under any federal or state bankruptcy or insolvency laws as now or hereafter in effect; or

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a certificate of dissolution or its equivalent is filed for the General Partner, or 90 days expire after the date of notice to the General Partner of revocation of its charter without a reinstatement of its charter, under the laws of its state of incorporation.

The General Partner may be removed with or without cause if such removal is approved by the holders of at least 66 2/3% of the outstanding units (excluding for this purpose units held by the General Partner and its affiliates).

Meetings

All acts of the limited partners should be done in accordance with the Delaware Revised Uniform Limited Partnership Act (“DRULPA”). Upon the written request of 20% or more in interest of the limited partners, the General Partner may, but is not required to, call a meeting of the limited partners. Notice of such meeting shall be given within 30 days after, and the meeting shall be held within 60 days after, receipt of such request. The General Partner may also call a meeting not less than 20 and not more than 60 days prior to the meeting. Any such notice shall state briefly the purpose of the meeting, which shall be held at a reasonable time and place. Any limited partner may obtain a list of names, addresses, and interests of the limited partners upon written request to the General Partner.

Limited Liability

Assuming that a limited partner does not take part in the control of our business, and that he otherwise acts in conformity with the provisions of our LP Agreement, his liability under Delaware law will be limited, subject to certain possible exceptions, generally to the amount of capital he is obligated to contribute to us in respect of his units or other limited partner interests plus his share of any of our undistributed profits and assets. In light of the fact that a limited partner’s liability may extend beyond his capital contributions, a limited partner may lose more money than he contributed.

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

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

Fees of USSO

Management Fees

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

Brokerage Fees

 
Brokerage fees     Approximately 0.19 % 

Fees are calculated on a daily basis (based on a percentage of the value of the transaction) and paid on a monthly basis. These fees, including the brokerage fee for Futures Contracts based upon the futures commission merchant’s fees shown below, are estimated on an annualized percentage basis.

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Futures Commission Merchant Fee

 
Futures Commission Merchant fee     Approximately $4.00 per buy or sell  

Fees are calculated on a daily basis for each buy or sell and paid on a monthly basis. These are the basis for and not in addition to the brokerage fee for Futures Contracts included in the brokerage fees shown above.

New York Mercantile Exchange Licensing Fee

 
Assets   Licensing Fee
First $1,000,000,000     0.04% of NAV  
After the first $1,000,000,000     0.02% of NAV  

Assets of USSO are aggregated with those of the Related Public Funds. USSO pays its pro rata share of this fee.

Fees are calculated on a daily basis (accrued at 1/365 of the applicable percentage of NAV on that day) and paid on a monthly basis.

The General Partner Has Conflicts of Interest

There are present and potential future conflicts of interest in USSO’s structure and operation you should consider before you purchase units. The General Partner will use this notice of conflicts as a defense against any claim or other proceeding made. If the General Partner is not able to resolve these conflicts of interest adequately, it may impact USSO’s and the Related Public Funds’ ability to achieve their investment objectives.

The General Partner’s officers, directors and employees, do not devote their time exclusively to USSO. These persons are directors, officers or employees of other entities which may compete with USSO for their services. They could have a conflict between their responsibilities to USSO and to those other entities. The General Partner believes that it has sufficient personnel, time, and working capital to discharge its responsibilities in a fair manner and that these persons’ conflicts should not impair their ability to provide services to USSO.

The General Partner and the General Partner’s principals, officers, directors and employees may trade futures and related contracts for their own account. Limited partners and other unitholders will not be permitted to inspect the trading records or any written policies related to such trading of the General Partner and its principals, officers, directors, and employees. A conflict of interest may exist if their trades are in the same markets and at the same time as USSO trades using the clearing broker to be used by USSO. A potential conflict also may occur when the General Partner’s principals trade their accounts more aggressively or take positions in their accounts which are opposite, or ahead of, the positions taken by USSO. The General Partner has adopted a Code of Business Conduct and Ethics to ensure that the officers, directors, and employees of the General Partner and its affiliates do not engage in trades that will harm the fund or the unitholders. The General Partner has also adopted Corporate Governance Guidelines. If these provisions are not successful, unitholders may be harmed in that such trades could affect the prices of the futures contracts purchased by USSO which could affect USSO’s ability to track the inverse of the Benchmark Futures Contract.

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

The General Partner serves as the general partner to USSO and the Related Public Funds, as well as US12NG, which has yet to offer securities to the public or begin operations. The General Partner may have a conflict to the extent that its trading decisions for USSO may be influenced by the effect they would have on the other funds it manages. By way of example, if, as a result of reaching position limits imposed by NYMEX, USOF purchased gasoline futures contracts, this decision could impact UGA’s ability to purchase

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additional gasoline futures contracts if the number of contracts held by funds managed by the General Partner reached the maximum allowed by NYMEX. Similar situations could adversely affect the ability of any fund to track its Benchmark Futures Contract.

In addition, the General Partner is required to indemnify the officers and directors of the other funds, if the need for indemnification arises. This potential indemnification will cause the General Partner’s assets to decrease. If the General Partner’s other sources of income are not sufficient to compensate for the indemnification, then the General Partner may terminate and you could lose your investment.

No Resolution of Conflicts Procedures

Whenever a conflict of interest exists or arises between the General Partner on the one hand, and the partnership or any limited partner, on the other hand, any resolution or course of action by the General Partner in respect of such conflict of interest shall be permitted and deemed approved by all partners and shall not constitute a breach of the LP Agreement or of any agreement contemplated hereby or of a duty stated or implied by law or equity, if the resolution or course of action is, or by operation of the LP Agreement is deemed to be, fair and reasonable to the partnership. If a dispute arises, under the LP Agreement it will be resolved either through negotiations with the General Partner or by courts located in the State of Delaware.

Under the LP Agreement, any resolution is deemed to be fair and reasonable to the partnership if the resolution is:

approved by the audit committee, although no party is obligated to seek approval and the General Partner may adopt a resolution or course of action that has not received approval;
on terms no less favorable to the limited partners than those generally being provided to or available from unrelated third parties; or
fair to the limited partners, taking into account the totality of the relationships of the parties involved including other transactions that may be particularly favorable or advantageous to the limited partners.

The previous risk factors and conflicts of interest are complete as of the date of this prospectus; however, additional risks and conflicts may occur which are not presently foreseen by the General Partner. You may not construe this prospectus as legal or tax advice. Before making an investment in this fund, you should read this entire prospectus, including the LP Agreement (Appendix B). You should also consult with your personal legal, tax, and other professional advisors.

Interests of Named Experts and Counsel

The General Partner has employed Sutherland Asbill & Brennan LLP to prepare this prospectus. Neither the law firm nor any other expert hired by USSO to give advice on the preparation of this offering document has been hired on a contingent fee basis. Nor does any of them have any present or future expectation of interest in the General Partner, Marketing Agent, Authorized Purchasers, Custodian, Administrator or other service providers to USSO.

The General Partner’s Responsibility and Remedies

Pursuant to the DRULPA, parties may contractually modify or even eliminate fiduciary duties in a partnership agreement to the limited partnership itself, or to another partner or person otherwise bound by the partnership agreement. Parties may not, however, eliminate the implied covenant of good faith and fair dealing. Where parties unambiguously provide for fiduciary duties in a partnership agreement, those expressed duties become the standard courts will use to determine whether such duties were breached. For this reason, USSO’s limited partnership agreement does not explicitly provide for any fiduciary duties so that common law fiduciary duty principles will apply to measure the General Partner’s conduct.

A prospective investor should be aware that the General Partner has a responsibility to limited partners of USSO to exercise good faith and fairness in all dealings. The fiduciary responsibility of a general partner to limited partners is a developing and changing area of the law and limited partners who have questions concerning the duties of the General Partner should consult with their counsel. In the event that a limited partner

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of USSO believes that the General Partner has violated its fiduciary duty to the limited partners, he may seek legal relief individually or on behalf of USSO under applicable laws, including under DRULPA and under commodities laws, to recover damages from or require an accounting by the General Partner. Limited partners may also have the right, subject to applicable procedural and jurisdictional requirements, to bring class actions in federal court to enforce their rights under the federal securities laws and the rules and regulations promulgated thereunder by the SEC. Limited partners who have suffered losses in connection with the purchase or sale of the units may be able to recover such losses from the General Partner where the losses result from a violation by the General Partner of the federal securities laws. State securities laws may also provide certain remedies to limited partners. Limited partners should be aware that performance by the General Partner of its fiduciary duty to is measured by the terms of the LP Agreement as well as applicable law. Limited partners are afforded certain rights to institute reparations proceedings under the Commodity Exchange Act for violations of the Commodity Exchange Act or of any rule, regulation or order of the CFTC by the General Partner.

Liability and Indemnification

Under the LP Agreement, neither a General Partner nor any employee or other agent of USSO nor any officer, director, stockholder, partner, employee or agent of a General Partner (a “Protected Person”) shall be liable to any partner or USSO for any mistake of judgment or for any action or inaction taken, nor for any losses due to any mistake of judgment or to any action or inaction or to the negligence, dishonesty or bad faith of any officer, director, stockholder, partner, employee, agent of USSO or any officer, director, stockholder, partner, employee or agent of such General Partner, provided that such officer, director, stockholder, partner, employee, or agent of the partner or officer, director, stockholder, partner, employee or agent of such General Partner was selected, engaged or retained by such General Partner with reasonable care, except with respect to any matter as to which such General Partner shall have been finally adjudicated in any action, suit or other proceeding not to have acted in good faith in the reasonable belief that such Protected Person’s action was in the best interests of USSO and except that no Protected Person shall be relieved of any liability to which such Protected Person would otherwise be subject by reason of willful misfeasance, gross negligence or reckless disregard of the duties involved in the conduct of the Protected Person’s office.

USSO shall, to the fullest extent permitted by law, but only out of USSO assets, indemnify and hold harmless a General Partner and each officer, director, stockholder, partner, employee or agent thereof (including persons who serve at USSO’s request as directors, officers or trustees of another organization in which USSO has an interest as a unitholder, creditor or otherwise) and their respective Legal Representatives and successors (hereinafter referred to as a “Covered Person” against all liabilities and expenses, including but not limited to amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and counsel fees reasonably incurred by any Covered Person in connection with the defense or disposition of any action, suit or other proceedings, whether civil or criminal, before any court or administrative or legislative body, in which such Covered Person may be or may have been involved as a party or otherwise or with which such person may be or may have been threatened, while in office or thereafter, by reason of an alleged act or omission as a General Partner or director or officer thereof, or by reason of its being or having been such a General Partner, director or officer, except with respect to any matter as to which such Covered Person shall have been finally adjudicated in any such action, suit or other proceeding not to have acted in good faith in the reasonable belief that such Covered Person’s action was in the best interest of USSO, and except that no Covered Person shall be indemnified against any liability to USSO or limited partners to which such Covered Person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Covered Person’s office. Expenses, including counsel fees so incurred by any such Covered Person, may be paid from time to time by USSO in advance of the final disposition of any such action, suit or proceeding on the condition that the amounts so paid shall be repaid to USSO if it is ultimately determined that the indemnification of such expenses is not authorized hereunder.

The General Partner and the initial limited partner under the LP Agreement intend to enter into a separate Indemnification Agreement (the “Indemnification Agreement”). The following summary of the key terms of the agreement is qualified in its entirety by reference to the Indemnification Agreement. The General Partner will indemnify the initial limited partner, its partners, stockholders, members, directors, managers, officers, employees, affiliates, agents and control persons from liability or claims under securities or commodities laws arising from any untrue statement or alleged untrue statement of a material fact contained in the registration

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statement, prospectus or other offering document; the failure by the General Partner, USSO or their respective agents to comply with applicable laws, rules and regulations; or the limited partner's role as a limited partner under the LP Agreement.

Under the Indemnification Agreement, the limited partner also will indemnify USSO, the General Partner and its partners, stockholders, members, directors, officers, employees and control persons from liability or claims under securities or commodities laws arising from any untrue statement or alleged untrue statement of a material fact contained in the registration statement, prospectus or other offering document to the extent it was made in reliance upon and in conformity with information concerning the limited partner furnished in writing by or on behalf of the limited partner to the General Partner expressly for use therein; or the failure by the limited partner or its respective agents to comply with applicable laws, rules and regulations. In addition, neither the General Partner nor the limited partner will be entitled to indemnification to the extent the liability or claim arises as a result of the willful misconduct, bad faith or gross negligence in the performance of such partner's duties and obligations under the LP Agreement.

Provisions of Law

According to applicable law, indemnification of the General Partner is payable only if the General Partner determined, in good faith, that the act, omission or conduct that gave rise to the claim for indemnification was in the best interest of USSO and the act, omission or activity that was the basis for such loss, liability, damage, cost or expense was not the result of negligence or misconduct and such liability or loss was not the result of negligence or misconduct by the General Partner, and such indemnification or agreement to hold harmless is recoverable only out of the assets of USSO and not from the members, individually.

Provisions of Federal and State Securities Laws

This offering is made pursuant to federal and state securities laws. If any indemnification of the General Partner arises out of an alleged violation of such laws, it is subject to certain legal conditions.

Those conditions require that no indemnification may be made in respect of any losses, liabilities or expenses arising from or out of an alleged violation of federal or state securities laws unless: there has been a successful adjudication on the merits of each count involving alleged securities law violations as to the General Partner or other particular indemnitee, or such claim has been dismissed with prejudice on the merits by a court of competent jurisdiction as to the General Partner or other particular indemnitee, or a court of competent jurisdiction approves a settlement of the claims against the General Partner or other agent of USSO and finds that indemnification of the settlement and related costs should be made, provided, before seeking such approval, the General Partner or other indemnitee must apprise the court of the position held by regulatory agencies against such indemnification. These agencies are the SEC and the securities administrator of the State or States in which the plaintiffs claim they were offered or sold membership interests.

Provisions of the Securities Act of 1933 and NASAA Guidelines

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to the General Partner or its directors, officers, or persons controlling USSO, USSO has been informed that SEC and the various State administrators believe that such indemnification is against public policy as expressed in the Securities Act of 1933 and the North American Securities Administrators Association, Inc. (“NASAA”) commodity pool guidelines and is therefore unenforceable.

Books and Records

USSO keeps its books of record and account at its office located at 1320 Harbor Bay Parkway, Suite 145, Alameda, California 94502 or at the offices of the Administrator at its office located at 40 Water Street, Boston, Massachusetts, 02109, or such office, including of an administrative agent, as it may subsequently designate upon notice. These books and records are open to inspection by any person who establishes to USSO’s satisfaction that such person is a limited partner upon reasonable advance notice at all reasonable times during the usual business hours of USSO.

USSO keeps a copy of USSO’s LP Agreement on file in its office which is available for inspection on reasonable advance notice at all reasonable times during its usual business hours by any limited partner.

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Analysis of Critical Accounting Policies

USSO’s critical accounting policies are set forth in the financial statements in this prospectus prepared in accordance with accounting principles generally accepted in the United States of America, which require the use of certain accounting policies that affect the amounts reported in these financial statements, including the following: USSO trades are accounted for on a trade-date basis and marked to market on a daily basis. The difference between their cost and market value is recorded as “change in unrealized profit/loss” for open (unrealized) contracts, and recorded as “realized profit/loss” when open positions are closed out; the sum of these amounts constitutes USSO’s trading revenues. Earned interest income revenue, as well as management fee, and brokerage fee expenses of USSO are recorded on an accrual basis. The General Partner believes that all relevant accounting assumptions and policies have been considered.

Statements, Filings, and Reports

At the end of each fiscal year, USSO will furnish to DTC Participants for distribution to each person who is a unitholder at the end of the fiscal year an annual report containing USSO’s audited financial statements and other information about USSO. The General Partner is responsible for the registration and qualification of the units under the federal securities laws and federal commodities laws and any other securities and blue sky laws of the United States or any other jurisdiction as the General Partner may select. The General Partner is responsible for preparing all reports required by the SEC and the CFTC, but has entered into an agreement with the Administrator to prepare these reports as required by the SEC, CFTC and the NYSE Arca on USSO’s behalf.

The financial statements of USSO will be audited, as required by law and as may be directed by the General Partner, by an independent registered public accounting firm designated from time to time by the General Partner. The accountants report will be furnished by USSO to unitholders upon request. USSO will make such elections, file such tax returns, and prepare, disseminate and file such tax reports, as it is advised by its counsel or accountants are from time to time required by any applicable statute, rule or regulation.

Reports to Limited Partners

As provided in the LP Agreement, the following reports will be provided to limited partners: