EX-99.1 2 v179055_ex99-1.htm Unassociated Document
 
UNITED STATES COMMODITY FUNDS LLC
General Partner of the United States 12 Month Oil Fund, LP

March 26, 2010
 
Dear United States 12 Month Oil Fund, LP Investor,
 
Enclosed with this letter is your copy of the 2009 financial statements for the United States 12 Month Oil Fund, LP (ticker symbol “USL”). We have mailed this statement to all investors in USL who held shares as of December 31, 2009 to satisfy our annual reporting requirement under federal commodities laws.  In addition, we have enclosed a copy of the current USL Privacy Policy.  Additional information concerning USL's 2009 results may be found by referring to the Annual Report on Form 10-K (“Form 10-K”), which has been filed with the U.S. Securities and Exchange Commission (the “SEC”). You may obtain a copy of the Form 10-K by going to the SEC’s website at www.sec.gov, or by going to USL’s own website at www.unitedstates12monthoilfund.com. You may also call USL at 1-800-920-0259 to speak to a representative and request additional material, including a current USL Prospectus.
 
United States Commodity Funds LLC is the general partner of USL. United States Commodity Funds LLC is also the general partner and manager of several other commodity based exchange traded security funds that are structured like USL. These other funds are referred to in the attached financial statements and include:
 
United States Oil Fund, LP
  
(ticker symbol: USO)
United States Natural Gas Fund, LP
  
(ticker symbol: UNG)
United States Gasoline Fund, LP
  
(ticker symbol: UGA)
United States Heating Oil Fund, LP
  
(ticker symbol: UHN)
United States Short Oil Fund, LP
  
(ticker symbol: DNO)
United States 12 Month Natural Gas Fund, LP
       
(ticker symbol: UNL)
 
Information about these other funds is contained within the Annual Report as well as in the current USL Prospectus. Investors in USL who wish to receive additional information about these other funds may do so by going to their respective websites.* The websites may be found at:
 
www.unitedstatesoilfund.com
www.unitedstatesnaturalgasfund.com
www.unitedstatesgasolinefund.com
www.unitedstatesheatingoilfund.com
www.unitedstatesshortoilfund.com
www.unitedstates12monthnaturalgasfund.com
 
You may also call United States Commodity Funds LLC at 1-800-920-0259 to request additional information.
 
Thank you for your continued interest in USL.
 
Regards,
 
/s/ Nicholas Gerber
Nicholas Gerber
President and CEO
United States Commodity Funds LLC
 
* This letter is not an offer to buy or sell securities. Investment in any of these other funds is only made by prospectus. Please consult the relevant prospectus for a description of the risks and expenses involved in any such investment.

 
 
 
 
PRIVACY POLICY
UNITED STATES COMMODITY FUNDS LLC
 
This privacy policy explains the policies of United States Commodity Funds LLC (the “General Partner”), a commodity pool operator registered with the Commodity Futures Trading Commission, and each commodity pool for which it serves as the general partner, including the United States Oil Fund, LP, United States 12 Month Oil Fund, LP, United States Natural Gas Fund, LP, United States Heating Oil Fund, LP, United States Gasoline Fund, LP, United States 12 Month Natural Gas Fund, LP, United States Short Oil Fund, LP, United States Brent Oil Fund, LP and United States Short Natural Gas Fund, LP (collectively, the “Funds”), relating to the collection, maintenance and use of nonpublic personal information about the Funds’ investors, as required under Federal legislation.  This privacy policy applies to the nonpublic personal information of investors who are individuals and who obtain financial products or services primarily for personal, family or household purposes.
 
Collection of Investor Information
 
Units of the Funds are registered in the name of Cede & Co., as nominee for the Depository Trust Company.  However, the General Partner may collect or have access to personal information about Fund investors for certain purposes relating to the operation of the Funds, including for the distribution of certain required tax reports to investors.  This information may include information received from investors and information about investors’ holdings and transactions in units of the Funds.
 
Disclosure of Nonpublic Personal Information
 
The General Partner does not sell or rent investor information.  The General Partner does not disclose nonpublic personal information about Fund investors, except as required by law or as described below.  Specifically, the General Partner may share nonpublic personal information in the following situations:
 
·
To service providers in connection with the administration and servicing of the Funds, which may include attorneys, accountants, auditors and other professionals.  The General Partner may also share information in connection with the servicing or processing of Fund transactions.

·
To respond to subpoenas, court orders, judicial process or regulatory authorities;

·
To protect against fraud, unauthorized transactions (such as money laundering), claims or other liabilities; and

·
Upon consent of an investor to release such information, including authorization to disclose such information to persons acting in a fiduciary or representative capacity on behalf of the investor.
 
Fund investors have no right to opt out of the General Partner’s disclosure of non-public personal information under the circumstances described above.
 
Protection of Investor Information
 
The General Partner holds Fund investor information in the strictest confidence.  Accordingly, the General Partner’s policy is to require that all employees, financial professionals and companies providing services on its behalf keep client information confidential.
 
The General Partner maintains safeguards that comply with federal standards to protect investor information.  The General Partner restricts access to the personal and account information of investors to those employees who need to know that information in the course of their job responsibilities.  Third parties with whom the General Partner shares investor information must agree to follow appropriate standards of security and confidentiality, which includes safeguarding such information physically, electronically and procedurally.
 
The General Partner’s privacy policy applies to both current and former investors.  The General Partner will only disclose nonpublic personal information about a former investor to the same extent as for a current investor.
 
Changes to Privacy Policy
 
The General Partner may make changes to its privacy policy in the future.  The General Partner will not make any change affecting Fund investors without first sending investors a revised privacy policy describing the change.  In any case, the General Partner will send Fund investors a current privacy policy at least once a year as long as they continue to be Fund investors.

 
 
 
UNITED STATES 12 MONTH OIL FUND, LP
A Delaware Limited Partnership
 
FINANCIAL STATEMENTS
 
For the years ended December 31, 2009 and 2008 and the period from June 27, 2007 (inception) to December 31, 2007
 
AFFIRMATION OF THE COMMODITY POOL OPERATOR
 
To the Unitholders of the United States 12 Month Oil Fund, LP:
 
Pursuant to Rule 4.22(h) under the Commodity Exchange Act, the undersigned represents that, to the best his knowledge and belief, the information contained in this Annual Report for the years ended December 31, 2009 and 2008 and the period from June 27, 2007 (inception) to December 31, 2007 is accurate and complete.
 
By:
/s/ Nicholas Gerber
  
Nicholas Gerber
United States 12 Month Oil Fund, LP
President & CEO of United States Commodity Funds LLC
(General Partner of the United States 12 Month Oil Fund, LP)
 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Partners of
United States 12 Month Oil Fund, LP
 
We have audited the accompanying statements of financial condition of United States 12 Month Oil Fund, LP, (the “Fund”) as of December 31, 2009 and 2008, including the schedule of investments as of December 31, 2009 and 2008, and the related statements of operations, changes in partners’ capital and cash flows for the years ended December 31, 2009 and 2008 and the period from June 27, 2007 (inception) to December 31, 2007. These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of United States 12 Month Oil Fund, LP as of December 31, 2009 and 2008, and the results of its operations and its cash flows for the years ended December 31, 2009 and 2008 and the period from June 27, 2007 (inception) to December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.
 
We also have audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the Fund's internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 16, 2010 expressed an unqualified opinion on the Fund's internal control over financial reporting.
 
Greenwood Village, Colorado
March 16, 2010

 
 
 
United States 12 Month Oil Fund, LP
Statements of Financial Condition
At December 31, 2008 and 2009

   
2009
    
2008
  
Assets
            
Cash and cash equivalents
  
$
141,666,539
    
$
4,012,323
  
Equity in UBS Securities LLC trading accounts:
                
Cash
    
3,408,951
      
4,993,212
  
Unrealized gain (loss) on open commodity futures contracts
    
20,802,090
      
(2,754,630
)
Interest receivable
    
6,219
      
2,343
  
Receivable from General Partner
    
-
      
97,019
  
Other assets
    
145,723
      
-
  
                 
Total assets
  
$
166,029,522
    
$
6,350,267
  
                 
Liabilities and Partners' Capital
                
General Partner management fees payable (Note 3)
  
$
78,963
    
$
2,151
  
Professional fees payable
    
405,399
      
99,399
  
Brokerage commission fees payable
    
10,532
      
650
  
License fees payable
    
9,318
      
326
  
Directors' fees payable
    
2,001
      
163
  
                 
Total liabilities
    
506,213
      
102,689
  
                 
Commitments and Contingencies (Notes 3, 4 and 5)
                
                 
Partners' Capital
                
General Partner
    
-
      
-
  
Limited Partners
    
165,523,309
      
6,247,578
  
Total Partners' Capital
    
165,523,309
      
6,247,578
  
                 
Total liabilities and partners' capital
  
$
166,029,522
    
$
6,350,267
  
                 
Limited Partners' units outstanding
    
4,100,000
      
200,000
  
Net asset value per unit
  
$
40.37
    
$
31.24
  
Market value per unit
  
$
40.46
    
$
29.89
  

See accompanying notes to financial statements.

 
 
 
United States 12 Month Oil Fund, LP
Schedule of Investments
At December 31, 2009
 
         
Gain on Open
    
% of
  
   
Number of
    
Commodity
    
Partners'
  
   
Contracts
    
Contracts
    
Capital
  
Open Futures Contracts
                  
United States Contracts
                  
NYMEX Crude Oil Futures CL contracts, expire February 2010
    
168
    
$
3,502,370
      
2.12
  
NYMEX Crude Oil Futures CL contracts, expire March 2010
    
168
      
3,474,710
      
2.10
  
NYMEX Crude Oil Futures CL contracts, expire April 2010
    
168
      
3,393,500
      
2.05
  
NYMEX Crude Oil Futures CL contracts, expire May 2010
    
168
      
2,339,230
      
1.41
  
NYMEX Crude Oil Futures CL contracts, expire June 2010
    
168
      
2,327,770
      
1.41
  
NYMEX Crude Oil Futures CL contracts, expire July 2010
    
168
      
883,420
      
0.53
  
NYMEX Crude Oil Futures CL contracts, expire August 2010
    
168
      
1,801,700
      
1.09
  
NYMEX Crude Oil Futures CL contracts, expire September 2010
    
168
      
402,380
      
0.24
  
NYMEX Crude Oil Futures CL contracts, expire October 2010
    
168
      
1,161,910
      
0.70
  
NYMEX Crude Oil Futures CL contracts, expire November 2010
    
168
      
1,261,390
      
0.76
  
NYMEX Crude Oil Futures CL contracts, expire December 2010
    
168
      
188,340
      
0.11
  
NYMEX Crude Oil Futures CL contracts, expire January 2011
    
168
      
65,370
      
0.04
  
Total Open Futures Contracts
    
2,016
    
$
20,802,090
      
12.56
  
                         
   
Principal Amount
    
Market Value
          
Cash Equivalents
                        
United States - Money Market Funds
                        
Fidelity Institutional Government Portfolio - Class I
  
$
75,104,469
    
$
75,104,469
      
45.38
  
Goldman Sachs Financial Square Funds - Government Fund - Class SL
    
42,428,043
      
42,428,043
      
25.63
  
Total Cash Equivalents
          
$
117,532,512
      
71.01
  
 
United States 12 Month Oil Fund, LP
Schedule of Investments
At December 31, 2008

  
          
Gain (Loss)
          
  
          
on Open
    
% of
  
  
  
Number of
    
Commodity
    
Partners'
  
   
Contracts
    
Contracts
    
Capital
  
Open Futures Contracts
                        
United States Contracts
                        
NYMEX Crude Oil Futures CL contracts, expire February 2009
    
10
    
$
(246,750
)
    
(3.95
)
NYMEX Crude Oil Futures CL contracts, expire March 2009
    
10
      
(189,900
)
    
(3.04
)
NYMEX Crude Oil Futures CL contracts, expire April 2009
    
10
      
(248,520
)
    
(3.98
)
NYMEX Crude Oil Futures CL contracts, expire May 2009
    
9
      
(200,760
)
    
(3.21
)
NYMEX Crude Oil Futures CL contracts, expire June 2009
    
10
      
(314,350
)
    
(5.03
)
NYMEX Crude Oil Futures CL contracts, expire July 2009
    
10
      
(405,450
)
    
(6.49
)
NYMEX Crude Oil Futures CL contracts, expire August 2009
    
9
      
(413,310
)
    
(6.62
)
NYMEX Crude Oil Futures CL contracts, expire September 2009
    
10
      
(305,000
)
    
(4.88
)
NYMEX Crude Oil Futures CL contracts, expire October 2009
    
9
      
(257,730
)
    
(4.13
)
NYMEX Crude Oil Futures CL contracts, expire November 2009
    
10
      
(159,100
)
    
(2.55
)
NYMEX Crude Oil Futures CL contracts, expire December 2009
    
9
      
(43,060
)
    
(0.69
)
NYMEX Crude Oil Futures CL contracts, expire January 2010
    
10
      
29,300
      
0.47
  
Total Open Futures Contracts
    
116
    
$
(2,754,630
)
    
(44.09
)
                         
   
Principal Amount
    
Market Value
          
Cash Equivalents
                        
United States - Money Market Fund
                        
Goldman Sachs Financial Square Funds - Government Fund - Class SL
  
$
2,357,439
    
$
2,357,439
      
37.73
  
Total Cash Equivalents
          
$
2,357,439
      
37.73
  
 
See accompanying notes to financial statements.

 
 
 
United States 12 Month Oil Fund, LP
Statements of Operations
For the years ended December 31, 2009 and 2008 and the period from June 27, 2007 (inception) to December 31, 2007

   
Year ended
    
Year ended
    
Period from
  
  
  
December 31,
    
December 31,
    
June 27, 2007 to
  
   
2009
    
2008
    
December 31, 2007
  
Income
                  
Gain (loss) on trading of commodity futures contracts:
                  
Realized gain on closed positions
  
$
49,183,430
    
$
1,889,260
    
$
-
  
Change in unrealized gain (loss) on open positions
    
23,556,720
      
(4,280,000
)
    
1,525,370
  
Interest income
    
195,614
      
151,396
      
49,954
  
Other income
    
32,000
      
4,000
      
2,000
  
                         
Total income (loss)
    
72,967,764
      
(2,235,344
)
    
1,577,324
  
                         
Expenses
                        
General Partner management fees (Note 3)
    
864,557
      
49,187
      
8,790
  
Professional fees
    
524,564
      
110,918
      
2,600
  
Brokerage commission fees
    
49,573
      
2,325
      
892
  
License fees
    
33,993
      
2,854
      
540
  
Registration fees
    
107,883
      
-
      
-
  
Directors' fees
    
8,535
      
1,781
      
339
  
Other expenses
    
4,770
      
-
      
-
  
                         
Total expenses
    
1,593,875
      
167,065
      
13,161
  
                         
Expense waiver (Note 3)
    
(11,227
)
    
(97,019
)
    
-
  
                         
Net expenses
    
1,582,648
      
70,046
      
13,161
  
                         
Net income (loss)
  
$
71,385,116
    
$
(2,305,390
)
  
$
1,564,163
  
Net income (loss) per limited partnership unit
  
$
9.13
    
$
(22.99
)
  
$
4.23
  
Net income (loss) per weighted average limited partnership unit
  
$
17.59
    
$
(16.23
)
  
$
3.98
  
Weighted average limited partnership units outstanding
    
4,058,356
      
142,077
      
392,593
  

See accompanying notes to financial statements.

 
 
 
United States 12 Month Oil Fund, LP
Statements of Changes in Partners' Capital
For the years ended December 31, 2009 and 2008 and the period from June 27, 2007 (inception) to December 31, 2007

  
  
General Partner
    
Limited Partners
    
Total
  
                   
Balances, at Inception
  
$
-
    
$
-
    
$
-
  
Initial contribution of capital
    
20
      
980
      
1,000
  
Addition of 400,000 partnership units
    
-
      
20,127,316
      
20,127,316
  
Redemption of 0 partnership units
    
(20
)
    
(980
)
    
(1,000
)
Net income
    
-
      
1,564,163
      
1,564,163
  
                         
Balances, at December 31, 2007
    
-
      
21,691,479
      
21,691,479
  
Addition of 100,000 partnership units
    
-
      
3,105,118
      
3,105,118
  
Redemption of 300,000 partnership units
    
-
      
(16,243,629
)
    
(16,243,629
)
Net loss
    
-
      
(2,305,390
)
    
(2,305,390
)
                         
Balances, at December 31, 2008
    
-
      
6,247,578
      
6,247,578
  
Addition of 7,000,000 partnership units
    
-
      
200,837,381
      
200,837,381
  
Redemption of 3,100,000 partnership units
    
-
      
(112,946,766
)
    
(112,946,766
)
Net income
    
-
      
71,385,116
      
71,385,116
  
                         
Balances, at December 31, 2009
  
$
-
    
$
165,523,309
    
$
165,523,309
  
                         
Net Asset Value Per Unit
                        
At December 6, 2007 (commencement of operations)
  
$
50.00
                  
At December 31, 2007
  
$
54.23
                  
At December 31, 2008
  
$
31.24
                  
At December 31, 2009
  
$
40.37
                  

See accompanying notes to financial statements.

 
 
 
United States 12 Month Oil Fund, LP
Statements of Cash Flows
For the years ended December 31, 2009 and 2008 and the period from June 27, 2007 (inception) to December 31, 2007

   
Year ended
    
Year ended
    
Period from
  
   
December 31,
    
December 31,
    
June 27, 2007 to
  
   
2009
    
2008
    
December 31, 2007
  
Cash Flows from Operating Activities:
                  
Net income (loss)
  
$
71,385,116
    
$
(2,305,390
)
  
$
1,564,163
  
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
                        
     (Increase) decrease in commodity futures trading account - cash
    
1,584,261
      
(2,994,104
)
    
(1,999,108
)
     Unrealized (gain) loss on futures contracts
    
(23,556,720
)
    
4,280,000
      
(1,525,370
)
     (Increase) decrease in interest receivable
    
(3,876
)
    
2,652
      
(4,994
)
     (Increase) decrease in receivable from General Partner
    
97,019
      
(97,020
)
    
-
  
     Increase in other assets
    
(145,723
)
    
-
      
-
  
     Increase (decrease) in management fees payable
    
76,812
      
(6,639
)
    
8,790
  
     Increase in professional fees payable
    
306,000
      
96,799
      
2,600
  
     Increase in brokerage commission fees payable
    
9,882
      
650
      
-
  
     Increase (decrease) in license fees payable
    
8,992
      
(214
)
    
-
  
     Increase (decrease) in directors' fees payable
    
1,838
      
(176
)
    
339
  
     Increase in other liabilities
    
-
      
-
      
540
  
Net cash provided by (used in) operating activities
    
49,763,601
      
(1,023,442
)
    
(1,953,040
)
                         
Cash Flows from Financing Activities:
                        
Subscription of partnership units
    
200,837,381
      
3,105,118
      
20,128,316
  
Redemption of partnership units
    
(112,946,766
)
    
(16,243,629
)
    
(1,000
)
                         
Net cash provided by (used in) financing activities
    
87,890,615
      
(13,138,511
)
    
20,127,316
  
                         
Net Increase (Decrease) in Cash and Cash Equivalents
    
137,654,216
      
(14,161,953
)
    
18,174,276
  
                         
Cash and Cash Equivalents, beginning of period
    
4,012,323
      
18,174,276
      
-
  
Cash and Cash Equivalents, end of period
  
$
141,666,539
    
$
4,012,323
    
$
18,174,276
  

See accompanying notes to financial statements.

 
 
 
Notes to Financial Statements
For the years ended December 31, 2009 and 2008 and the period ended December 31, 2007
 
NOTE 1 - ORGANIZATION AND BUSINESS
 
The United States 12 Month Oil Fund, LP (“US12OF”) was organized as a limited partnership under the laws of the state of Delaware on June 27, 2007.  US12OF is a commodity pool that issues limited partnership units (“units”) that may be purchased and sold on the NYSE Arca, Inc. (the “NYSE Arca”). Prior to November 25, 2008, US12OF’s units traded on the American Stock Exchange (the “AMEX”). US12OF will continue in perpetuity, unless terminated sooner upon the occurrence of one or more events as described in its Amended and Restated Agreement of Limited Partnership dated as of December 4, 2007 (the “LP Agreement”). The investment objective of US12OF is for the changes in percentage terms of its units’ net asset value to reflect the changes in percentage terms of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by the changes in the average of the prices of the 12 futures contracts on light, sweet crude oil as traded on the New York Mercantile Exchange (the “NYMEX”), consisting of the near month contract to expire and the contracts for the following 11 months for a total of 12 consecutive months’ contracts, except when the near month contract is within two weeks of expiration, in which case it will be measured by the futures contracts that are the next month contract to expire and the contracts for the following 11 consecutive months, less US12OF’s expenses. US12OF accomplishes its objective through investments in futures contracts for light, sweet crude oil, and other types of crude oil, heating oil, gasoline, natural gas and other petroleum-based fuels that are traded on the NYMEX, ICE Futures or other U.S. and foreign exchanges (collectively, “Futures Contracts”) and other oil-related investments such as cash-settled options on oil Futures Contracts, forward contracts for oil and over-the-counter transactions that are based on the price of crude oil, heating oil, gasoline, natural gas and other petroleum-based fuels, oil Futures Contracts and indices based on the foregoing (collectively, “Other Crude Oil-Related Investments”). As of December 31, 2009, US12OF held 2,016 Futures Contracts traded on the NYMEX.
 
US12OF commenced investment operations on December 6, 2007 and has a fiscal year ending on December 31. United States Commodity Funds LLC (formerly known as Victoria Bay Asset Management, LLC) (the “General Partner”) is responsible for the management of US12OF. The General Partner is a member of the National Futures Association (the “NFA”) and became a commodity pool operator registered with the Commodity Futures Trading Commission effective December 1, 2005. The General Partner is also the general partner of the United States Oil Fund, LP (“USOF”), the United States Natural Gas Fund, LP (“USNG”), the United States Gasoline Fund, LP (“UGA”) and the United States Heating Oil Fund, LP (“USHO”), which listed their limited partnership units on the AMEX under the ticker symbols “USO” on April 10, 2006, “UNG” on April 18, 2007, “UGA” on February 26, 2008 and “UHN” on April 9, 2008, respectively. As a result of the acquisition of the AMEX by NYSE Euronext, each of USOF’s, USNG’s, UGA’s and USHO’s units commenced trading on the NYSE Arca on November 25, 2008.  The General Partner is also the general partner of the United States Short Oil Fund, LP (“USSO”) and the United States 12 Month Natural Gas Fund, LP, which listed their limited partnership units on the NYSE Arca on September 24, 2009 and November 18, 2009, respectively. The General Partner has also filed registration statements to register units of the United States Brent Oil Fund, LP (“USBO”) and the United States Commodity Index Funds Trust (“USCI”).
 
US12OF issues units to certain authorized purchasers (“Authorized Purchasers”) by offering baskets consisting of 100,000 units (“Creation Baskets”) through ALPS Distributors, Inc. (the “Marketing Agent”). The purchase price for a Creation Basket is based upon the net asset value of a unit calculated shortly after the close of the core trading session on the NYSE Arca on the day the order to create the basket is properly received.
 
In addition, Authorized Purchasers pay US12OF a $1,000 fee for each order placed to create one or more Creation Baskets or redeem one or more baskets consisting of 100,000 units (“Redemption Baskets”). Units may be purchased or sold on a nationally recognized securities exchange in smaller increments than a Creation Basket or Redemption Basket. Units purchased or sold on a nationally recognized securities exchange are not purchased or sold at the net asset value of US12OF but rather at market prices quoted on such exchange.
 
 
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Revenue Recognition
 
Commodity futures contracts, forward contracts, physical commodities, and related options are recorded on the trade date. All such transactions are recorded on the identified cost basis and marked to market daily. Unrealized gains or losses on open contracts are reflected in the statement of financial condition and in the difference between the original contract amount and the market value (as determined by exchange settlement prices for futures contracts and related options and cash dealer prices at a predetermined time for forward contracts, physical commodities, and their related options) as of the last business day of the year or as of the last date of the financial statements. Changes in the unrealized gains or losses between periods are reflected in the statement of operations. US12OF earns interest on its assets denominated in U.S. dollars on deposit with the futures commission merchant at the 90-day Treasury bill rate. In addition, US12OF earns interest on funds held at the custodian at prevailing market rates earned on such investments.
 
Brokerage Commissions
 
Brokerage commissions on all open commodity futures contracts are accrued on a full-turn basis.
 
Income Taxes
 
US12OF is not subject to federal income taxes; each partner reports his/her allocable share of income, gain, loss deductions or credits on his/her own income tax return.

 
 

Additions and Redemptions
 
Authorized Purchasers may purchase Creation Baskets or redeem Redemption Baskets only in blocks of 100,000 units equal to the net asset value of the units calculated shortly after the close of the core trading session on the NYSE Arca on the day the order is placed.
 
US12OF receives or pays the proceeds from units sold or redeemed within three business days after the trade date of the purchase or redemption. The amounts due from Authorized Purchasers are reflected in US12OF’s statement of financial condition as receivable for units sold, and amounts payable to Authorized Purchasers upon redemption are reflected as payable for units redeemed.
 
Partnership Capital and Allocation of Partnership Income and Losses
 
Profit or loss shall be allocated among the partners of US12OF in proportion to the number of units each partner holds as of the close of each month. The General Partner may revise, alter or otherwise modify this method of allocation as described in the LP Agreement.
 
Calculation of Net Asset Value
 
US12OF’s net asset value is calculated on each NYSE Arca trading day by taking the current market value of its total assets, subtracting any liabilities and dividing the amount by the total number of units issued and outstanding. US12OF uses the closing price for the contracts on the relevant exchange on that day to determine the value of contracts held on such exchange.
 
Net Income (Loss) per Unit
 
Net income (loss) per unit is the difference between the net asset value per unit at the beginning of each period and at the end of each period. The weighted average number of units outstanding was computed for purposes of disclosing net income (loss) per weighted average unit. The weighted average units are equal to the number of units outstanding at the end of the period, adjusted proportionately for units redeemed based on the amount of time the units were outstanding during such period. There were no units held by the General Partner at December 31, 2009.
 
Offering Costs
 
Offering costs incurred in connection with the registration of additional units after the initial registration of units are borne by US12OF. These costs include registration fees paid to regulatory agencies and all legal, accounting, printing and other expenses associated with such offerings. These costs will be accounted for as a deferred charge and thereafter amortized to expense over twelve months on a straight line basis or a shorter period if warranted. 
 
Cash Equivalents
 
Cash equivalents include money market funds and overnight deposits or time deposits with original maturity dates of three months or less.
 
Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires US12OF’s management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of the revenue and expenses during the reporting period. Actual results could differ from those estimates and assumptions.
 
NOTE 3 - FEES PAID BY THE FUND AND RELATED PARTY TRANSACTIONS
 
General Partner Management Fee
 
Under the LP Agreement, the General Partner is responsible for investing the assets of US12OF in accordance with the objectives and policies of US12OF. In addition, the General Partner has arranged for one or more third parties to provide administrative, custody, accounting, transfer agency and other necessary services to US12OF. For these services, US12OF is contractually obligated to pay the General Partner a fee, which is paid monthly, that is equal to 0.60% per annum of average daily net assets.
 
Ongoing Registration Fees and Other Offering Expenses
 
US12OF pays all costs and expenses associated with the ongoing registration of its units subsequent to the initial offering. These costs include registration or other fees paid to regulatory agencies in connection with the offer and sale of units, and all legal, accounting, printing and other expenses associated with such offer and sale. For the years ended December 31, 2009 and 2008 and the period ended December 31, 2007, US12OF incurred $107,883, $0 and $0, respectively, in registration fees and other offering expenses.
 
Directors’ Fees and Expenses
 
US12OF is responsible for paying its portion of the directors’ and officers’ liability insurance of the General Partner and the fees and expenses of the independent directors of the General Partner who are also the General Partner’s audit committee members. US12OF shares these fees and expenses with USOF, USNG, UGA, USHO, USSO and US12NG based on the relative assets of each fund, computed on a daily basis. These fees and expenses for the calendar year 2009 amounted to a total of $433,046 for all funds and US12OF’s portion of such fees and expenses was $12,326.  For the calendar years 2008 and 2007, these fees and expenses were $282,000 and $286,000, respectively, and US12OF’s portion of such fees and expenses was $1,762 and $350, respectively.
 
Licensing Fees
 
As discussed in Note 4, US12OF entered into a licensing agreement with the NYMEX on January 16, 2008. Pursuant to the agreement, US12OF and the affiliated funds managed by the General Partner pay a licensing fee that is equal to 0.04% for the first $1,000,000,000 of combined assets of the funds and 0.02% for combined assets above $1,000,000,000. During the years ended December 31, 2009 and 2008 and the period ended December 31, 2007, USO12F incurred $33,993, $2,854 and $540, respectively, under this arrangement.
 
Investor Tax Reporting Cost
 
The fees and expenses associated with US12OF’s audit expenses and tax accounting and reporting requirements are paid by US12OF. These costs are approximately $315,000 for the year ended December 31, 2009.

 
 

Other Expenses and Fees and Expense Waivers
 
In addition to the fees described above, US12OF pays all brokerage fees and other expenses in connection with the operation of US12OF, excluding costs and expenses paid by the General Partner as outlined in Note 4. The General Partner, though under no obligation to do so, agreed to pay certain expenses, to the extent that such expenses exceed 0.15% (15 basis points) of US12OF’s NAV, on an annualized basis, through March 31, 2009 after which date such payments were no longer necessary.  The General Partner has no obligation to make such payment into subsequent periods.
 
NOTE 4 - CONTRACTS AND AGREEMENTS
 
US12OF is party to a marketing agent agreement, dated as of November 13, 2007, with the Marketing Agent and the General Partner, whereby the Marketing Agent provides certain marketing services for US12OF as outlined in the agreement. The fee of the Marketing Agent, which is borne by the General Partner, is equal to 0.06% on US12OF’s assets up to $3 billion; and 0.04% on US12OF’s assets in excess of $3 billion.
 
The above fees do not include the following expenses, which are also borne by the General Partner: the cost of placing advertisements in various periodicals; web construction and development; or the printing and production of various marketing materials.
 
US12OF is also party to a custodian agreement, dated October 5, 2007, with Brown Brothers Harriman & Co. (“BBH&Co.”) and the General Partner, whereby BBH&Co. holds investments on behalf of US12OF. The General Partner pays the fees of the custodian, which are determined by the parties from time to time. In addition, US12OF is party to an administrative agency agreement, dated October 5, 2007, with the General Partner and BBH&Co., whereby BBH&Co. acts as the administrative agent, transfer agent and registrar for US12OF. The General Partner also pays the fees of BBH&Co. for its services under this agreement and such fees are determined by the parties from time to time.
 
Currently, the General Partner pays BBH&Co. for its services, in the foregoing capacities, a minimum amount of $75,000 annually for its custody, fund accounting and fund administration services rendered to US12OF and each of the affiliated funds managed by the General Partner, as well as a $20,000 annual fee for its transfer agency services. In addition, the General Partner pays BBH&Co. an asset-based charge of (a) 0.06% for the first $500 million of US12OF’s, USOF’s, USNG’s, UGA’s, USHO’s, USSO’s and US12NG’s combined net assets, (b) 0.0465% for US12OF’s, USOF’s, USNG’s, UGA’s, USHO’s, USSO’s and US12NG’s combined net assets greater than $500 million but less than $1 billion, and (c) 0.035% once US12OF’s, USOF’s, USNG’s, UGA’s, USHO’s, USSO’s and US12NG’s combined net assets exceed $1 billion. The annual minimum amount will not apply if the asset-based charge for all accounts in the aggregate exceeds $75,000. The General Partner also pays transaction fees ranging from $7.00 to $15.00 per transaction.
 
US12OF has entered into a brokerage agreement with UBS Securities LLC (“UBS Securities”). The agreement requires UBS Securities to provide services to US12OF in connection with the purchase and sale of Futures Contracts and Other Crude Oil-Related Investments that may be purchased and sold by or through UBS Securities for US12OF’s account. The agreement provides that UBS Securities charge US12OF commissions of approximately $7 per round-turn trade, plus applicable exchange and NFA fees for Futures Contracts and options on Futures Contracts.
 
On January 16, 2008, US12OF and the NYMEX entered into a licensing agreement whereby US12OF was granted a non-exclusive license to use certain of the NYMEX’s settlement prices and service marks. The agreement has an effective date of December 4, 2007 with respect to US12OF. Under the licensing agreement, US12OF and the affiliated funds managed by the General Partner pay the NYMEX an asset-based fee for the license, the terms of which are described in Note 3.
 
US12OF expressly disclaims any association with the NYMEX or endorsement of US12OF by the NYMEX and acknowledges that “NYMEX” and “New York Mercantile Exchange” are registered trademarks of the NYMEX.
 
NOTE 5 - FINANCIAL INSTRUMENTS, OFF-BALANCE SHEET RISKS AND CONTINGENCIES
 
US12OF engages in the trading of futures contracts and options on futures contracts (collectively, “derivatives”). US12OF is exposed to both market risk, which is the risk arising from changes in the market value of the contracts, and credit risk, which is the risk of failure by another party to perform according to the terms of a contract.
 
US12OF may enter into futures contracts and options on futures contracts to gain exposure to changes in the value of an underlying commodity. A futures contract obligates the seller to deliver (and the purchaser to accept) the future delivery of a specified quantity and type of a commodity at a specified time and place. Some futures contracts may call for physical delivery of the asset, while others are settled in cash. The contractual obligations of a buyer or seller may generally be satisfied by taking or making physical delivery of the underlying commodity or by making an offsetting sale or purchase of an identical futures contract on the same or linked exchange before the designated date of delivery.
 
The purchase and sale of futures contracts and options on futures contracts require margin deposits with a futures commission merchant. Additional deposits may be necessary for any loss on contract value. The Commodity Exchange Act requires a futures commission merchant to segregate all customer transactions and assets from the futures commission merchant’s proprietary activities.
 
Futures contracts involve, to varying degrees, elements of market risk (specifically commodity price risk) and exposure to loss in excess of the amount of variation margin. The face or contract amounts reflect the extent of the total exposure US12OF has in the particular classes of instruments. Additional risks associated with the use of futures contracts are an imperfect correlation between movements in the price of the futures contracts and the market value of the underlying securities and the possibility of an illiquid market for a futures contract.
 
All of the futures contracts currently traded by US12OF are exchange-traded. The risks associated with exchange-traded contracts are generally perceived to be less than those associated with over-the-counter transactions since, in over-the-counter transactions, US12OF must rely solely on the credit of its respective individual counterparties. However, in the future, if US12OF were to enter into non-exchange traded contracts, it would be subject to the credit risk associated with counterparty non-performance. The credit risk from counterparty non-performance associated with such instruments is the net unrealized gain, if any. US12OF also has credit risk since the sole counterparty to all domestic and foreign futures contracts is the clearinghouse for the exchange on which the relevant contracts are traded. In addition, US12OF bears the risk of financial failure by the clearing broker.
 
US12OF’s cash and other property, such as U.S. Treasuries, deposited with a futures commission merchant are considered commingled with all other customer funds subject to the futures commission merchant’s segregation requirements. In the event of a futures commission merchant’s insolvency, recovery may be limited to a pro rata share of segregated funds available. It is possible that the recovered amount could be less than the total of cash and other property deposited. The insolvency of a futures commission merchant could result in the complete loss of US12OF’s assets posted with that futures commission merchant; however, the vast majority of US12OF’s assets are held in Treasuries, cash and/or cash equivalents with US12OF’s custodian and would not be impacted by the insolvency of a futures commission merchant. Also, the failure or insolvency of US12OF’s custodian could result in a substantial loss of US12OF’s assets.

 
 

US12OF invests a portion of its cash in money market funds that seek to maintain a stable net asset value. US12OF is exposed to any risk of loss associated with an investment in these money market funds. As of December 31, 2009 and 2008, US12OF had deposits in domestic and foreign financial institutions, including cash investments in money market funds, in the amounts of $145,075,490 and $9,005,535, respectively. This amount is subject to loss should these institutions cease operations.
 
For derivatives, risks arise from changes in the market value of the contracts. Theoretically, US12OF is exposed to a market risk equal to the value of futures contracts purchased and unlimited liability on such contracts sold short. As both a buyer and a seller of options, US12OF pays or receives a premium at the outset and then bears the risk of unfavorable changes in the price of the contract underlying the option.
 
US12OF’s policy is to continuously monitor its exposure to market and counterparty risk through the use of a variety of financial, position and credit exposure reporting controls and procedures. In addition, US12OF has a policy of requiring review of the credit standing of each broker or counterparty with which it conducts business.
 
The financial instruments held by US12OF are reported in its statement of financial condition at market or fair value, or at carrying amounts that approximate fair value, because of their highly liquid nature and short-term maturity.
 
NOTE 6 - FINANCIAL HIGHLIGHTS
 
The following table presents per unit performance data and other supplemental financial data for the years ended December 31, 2009 and 2008 and the period from June 27, 2007 (inception) to December 31, 2007. This information has been derived from information presented in the financial statements.
 
    
 
    
 
    
Period from
  
   
Year ended
         
Year ended
         
June 27, 2007 to
       
   
December 31, 2009
    
December 31, 2008
    
December 31, 2007
  
                   
Per Unit Operating Performance:
                  
                   
Net asset value, beginning of year
  
$
31.24
    
$
54.23
    
$
50.00
  
Total income (loss)
    
9.52
      
(21.81
)
    
4.26
  
Total expenses
    
(0.39
)
    
(1.18
)
    
(0.03
)
Net increase (decrease) in net asset value
    
9.13
      
(22.99
)
    
4.23
  
Net asset value, end of year
  
$
40.37
    
$
31.24
    
$
54.23
  
                         
Total Return
    
29.23
%
    
(42.39
)%
    
8.46
%
                         
Ratios to Average Net Assets
                        
Total income (loss)
    
50.64
%
    
(27.27
)%
    
107.67
%
Management fees
    
0.60
%
    
0.60
%
    
0.60
%*
Total expenses excluding management fees
    
0.51
%
    
1.44
%
    
0.30
%*
Expenses waived
    
(0.01
)%
    
1.18
%
    
-
%
Net expenses excluding management fees
    
0.50
%
    
0.26
%
    
0.30
%*
Net income (loss)
    
49.54
%
    
(28.12
)%
    
106.77
%
* Annualized
                        
 
Total returns are calculated based on the change in value during the period. An individual limited partner’s total return and ratio may vary from the above total returns and ratios based on the timing of contributions to and withdrawals from US12OF.
 
NOTE 7 - QUARTERLY FINANCIAL DATA (Unaudited)
 
The following summarized (unaudited) quarterly financial information presents the results of operations and other data for three-month periods ended March 31, June 30, September 30 and December 31, 2009 and 2008.
 
   
First
Quarter
    
Second
Quarter
    
Third
Quarter
    
Fourth
Quarter
  
   
2009
    
2009
    
2009
    
2009
  
Total Income (Loss) 
  
$
17,055,111
    
$
41,895,328
    
$
(3,906,773
)
  
$
17,924,098
  
Total Expenses 
    
177,366
      
415,793
      
486,704
      
514,012
  
Expense Waivers
    
(11,227
) 
    
-
      
-
      
-
  
Net Expenses
    
166,139
      
415,793
      
486,704
      
514,012
  
Net Income (Loss) 
  
$
16,888,972
    
$
41,479,535
    
$
(4,393,477
)
  
$
17,410,086
  
Net Income (Loss) per Unit 
  
$
(0.92
)
  
$
7.43
    
$
(0.97
)
  
$
3.59
  
 
   
First
Quarter
    
Second
Quarter
    
Third
Quarter
    
Fourth
Quarter
  
   
2008
    
2008
    
2008
    
2008
  
Total Income (Loss) 
  
$
241,297
    
$
2,762,450
    
$
(2,330,673
)
  
$
(2,908,418
)
Total Expenses  
    
35,973
      
98,087
      
59,678
      
(26,673
) 
Expense Waivers
    
-
      
(87,624
)
    
(45,330
) 
    
35,935
  
Net Expenses
    
35,973
      
10,463
      
14,348
      
9,262
  
Net Income (Loss)  
  
$
205,324
    
$
2,751,987
    
$
(2,345,021
)
  
$
(2,917,680
)
Net Income (Loss) per Unit 
  
$
4.08
    
$
25.74
    
$
(23.45
)
  
$
(29.36
)
 
 
 

NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS
 
Effective January 1, 2008, US12OF adopted Accounting Standards Codification 820 – Fair Value Measurements and Disclosures (“ASC 820”).  ASC 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurement.  The changes to past practice resulting from the application of ASC 820 relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurement. ASC 820 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from sources independent of US12OF (observable inputs) and (2) US12OF’s own assumptions about market participant assumptions developed based on the best information available under the circumstances (unobservable inputs).  The three levels defined by the ASC 820 hierarchy are as follows:
 
Level I – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
 
Level II – Inputs other than quoted prices included within Level I that are observable for the asset or liability, either directly or indirectly. Level II assets include the following: quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs).
 
Level III – Unobservable pricing input at the measurement date for the asset or liability. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available.
 
In some instances, the inputs used to measure fair value might fall in different levels of the fair value hierarchy. The level in the fair value hierarchy within which the fair value measurement in its entirety falls shall be determined based on the lowest input level that is significant to the fair value measurement in its entirety.
 
The following tables summarize the valuation of US12OF’s securities at December 31, 2009 and 2008 using the fair value hierarchy:
 
 
Total
    
Level I
    
Level II
    
Level III
  
                         
Short-Term Investments
  
$
117,532,512
    
$
117,532,512
    
$
-
    
$
-
  
Exchange-Traded Futures Contracts
                                
United States Contracts
    
20,802,090
      
20,802,090
      
-
      
-
  
 
At December 31, 2008
  
Total
    
Level I
    
Level II
    
Level III
  
                         
Short-Term Investments
  
$
2,357,439
    
$
2,357,439
    
$
-
    
$
-
  
Exchange-Traded Futures Contracts
                                
United States Contracts
    
(2,754,630
)
    
2,754,630
)
    
-
      
-
  

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

Fair Value of Derivative Instruments
 
  
    
At
    
At
  
     
December 31,
    
December 31,
  
     
2009
    
2008
  
Derivatives not 
Statement of
            
Accounted for as
Financial
            
for as Hedging
Condition
            
Instruments
Location
  
Fair Value
    
Fair Value
  
Futures -
Commodity Contracts
Assets
  
$
20,802,090
    
$
(2,754,630
)
 
The Effect of Derivative Instruments on the Statements of Operations
 
       
For the year ended
    
For the year ended
  
       
December 31, 2009
    
December 31, 2008
  
   
Location of
  
Realized
    
Change in
    
Realized
    
Change in
  
Derivatives not
  
Gain or (Loss)
  
Gain or (Loss)
    
Unrealized
    
Gain or (Loss)
    
Unrealized
  
Accounted for as
  
on Derivatives
  
on Derivatives
    
Gain or (Loss)
    
on Derivatives
    
Gain or (Loss)
  
for as Hedging
  
Recognized
  
Recognized
    
Recognized
    
Recognized
    
Recognized
  
Instruments
  
in Income
  
in Income
    
in Income
    
in Income
    
in Income
  
                             
Futures -
Commodity Contracts
  
Realized gain (loss) on closed futures contracts
   $ 49,183,430     $ -     $ 1,889,260     $ -  
                                     
   
Change in unrealized gain (loss) on open futures contracts
   $ -     $ 23,556,720     $ -     $ (4,280,000 )

 
 

NOTE 9 – RECENT ACCOUNTING PRONOUNCEMENTS
 
In March 2008, the Financial Accounting Standards Board released Accounting Standards Codification 815 – Derivatives and Hedging (“ASC 815”). ASC 815 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of, and gains and losses on, derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. US12OF adopted ASC 815 on January 1, 2009.
 
In January 2010, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements.” ASU No. 2010-06 clarifies existing disclosure and requires additional disclosures regarding fair value measurements. Effective for interim and annual reporting periods beginning after December 15, 2009, entities will be required to disclose significant transfers into and out of Level 1 and 2 measurements in the fair value hierarchy and the reasons for those transfers. Effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years, entities will need to disclose information about purchases, sales, issuances and settlements of Level 3 securities on a gross basis, rather than as a net number as currently required. The General Partner is currently evaluating the impact ASU No. 2010-06 will have on the financial statement disclosures.
 
NOTE 10 – SUBSEQUENT EVENTS
 
US12OF has performed an evaluation of subsequent events through March 16, 2010, which is the date the financial statements were available to be issued. This evaluation did not result in any subsequent events that necessitated disclosures and/or adjustments.