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FAIR VALUE OF FINANCIAL INSTRUMENTS
 12 Months Ended
Dec. 31, 2011
FAIR VALUE OF FINANCIAL INSTRUMENTS

NOTE 8 – 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, 2011 using the fair value hierarchy:

 

000,00,00,00 000,00,00,00 000,00,00,00 000,00,00,00
At December 31, 2011    Total     Level I     Level II      Level III  

Short-Term Investments

    $ 19,346,002      $ 19,346,002      $ —         $ —     

Exchange-Traded Futures Contracts

          

Foreign Contracts

      (916,570 )     (916,570 )      —           —     

During the year ended December 31, 2011, there were no significant transfers between Level I and Level II.

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

 

000,00,00,00 000,00,00,00 000,00,00,00 000,00,00,00
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.

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

Fair Value of Derivative Instruments

 

Derivatives not Accounted for as Hedging Instruments

    Statements  of
Financial
Condition
Location		    Fair Value
At
December 31,
2011		     Fair Value
At
December 31,
2010		  

Futures - Commodity Contracts

    Assets    $ (916,570 )    $ 322,660   

The Effect of Derivative Instruments on the Statements of Operations

 

        For the year  ended
December 31, 2011		     For the year  ended
December 31, 2010*		     For the period from September 2,
2009 to
December 31, 2009		  

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		     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   $ 8,052,950        $ 2,352,020        $ —       
  Change in unrealized gain (loss) on open positions     $ (1,239,230 )      $ 322,660        $ —     

 

*

The commencement of operations of the United States Brent Oil Fund, LP was June 2, 2010.