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FAIR VALUE OF FINANCIAL INSTRUMENTS
 6 Months Ended
Jun. 30, 2011
FAIR VALUE OF FINANCIAL INSTRUMENTS

NOTE 7 – FAIR VALUE OF FINANCIAL INSTRUMENTS

USBO values its investments in accordance with Accounting Standards Codification 820 – Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurement. The changes to past practice resulting from the application of ASC 820 relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurement. ASC 820 establishes a fair value hierarchy that distinguishes between: (1) market participant assumptions developed based on market data obtained from sources independent of USBO (observable inputs) and (2) USBO’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 within different levels of the fair value hierarchy. The level in the fair value hierarchy within which the fair value measurement in its entirety falls shall be determined based on the lowest input level that is significant to the fair value measurement in its entirety.

The following table summarizes the valuation of USBO’s securities at December 31, 2010 using the fair value hierarchy:

 

At December 31, 2010    Total     Level I     Level II      Level III  

Short-Term Investments

    $ 8,002,935      $ 8,002,935      $ —         $ —     

Exchange-Traded Futures Contracts
Foreign Contracts

      322,660        322,660        —           —     

During the year ended December 31, 2010, there were no significant transfers between Level I and Level II.

   

The following table summarizes the valuation of USBO’s securities at June 30, 2011 using the fair value hierarchy:

   
At June 30, 2011    Total     Level I     Level II      Level III  

Short-Term Investments

    $ 43,005,138        43,005,138      $ —         $ —     

Exchange-Traded Futures Contracts
Foreign Contracts

      (614,110 )      (614,110 )      —           —     

During the six months ended June 30, 2011, there were no significant transfers between Level I and Level II.

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

Fair Value of Derivative Instruments

 

of Financial Condition of Financial Condition of Financial Condition

Derivatives not

Accounted for as

Hedging

Instruments

    Condensed Statement
of Financial  Condition
Location		    Fair Value
At June  30, 2011		     Fair Value
At December  31, 2010		  

Futures -

Commodity Contracts

    Assets    $ (614,110 )    $ 322,660   

 

The Effect of Derivative Instruments on the Condensed Statements of Operations

 

          For the six months  ended
June 30, 2011		      For the six months ended
June 30, 2010		  

Derivatives not

Accounted for as

Hedging

Instruments

   

Location of Gain

or (Loss)

on Derivatives

Recognized in

Income

    Realized
Gain or  (Loss) on
Derivatives
Recognized
in  Income		      Change  in
Unrealized
Gain or  (Loss)
Recognized in
Income		      Realized
Gain or  (Loss) on
Derivatives
Recognized
in  Income		      Change  in
Unrealized
Gain or  (Loss)
Recognized in
Income		  

Futures – Commodity Contracts

    Realized gain on closed positions    $  5,967,540          $  107,120      
   Change in unrealized gain (loss) on open positions       $  (936,770)          $  95,980