As filed with
the Securities and Exchange Commission on June 4, 2020
Registration
No. 333-237750
UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 6
TO
FORM
S-3
REGISTRATION
STATEMENT
UNDER
THE SECURITIES
ACT OF 1933
UNITED STATES
OIL FUND, LP
(Exact Name
of Registrant as Specified in Its Charter)
Delaware
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6770
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20-2830691
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(State
or Other Jurisdiction of
Incorporation
or Organization)
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(Primary
Standard Industrial
Classification
Code Number)
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(I.R.S.
Employer
Identification
Number)
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United
States Oil Fund, LP
1850
Mt. Diablo Boulevard, Suite 640
Walnut
Creek, California 94596
510.522.9600
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Daphne
G. Frydman
1850
Mt. Diablo Boulevard, Suite 640
Walnut
Creek, California 94596
510.522.9600
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(Address,
Including Zip Code, and Telephone Number,
Including
Area Code, of Registrant’s Principal Executive Offices)
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(Name,
Address, Including Zip Code, and Telephone Number,
Including
Area Code, of Agent for Service)
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Copies
to:
James M. Cain,
Esq.
Eversheds
Sutherland (US) LLP
700 Sixth
Street, N.W., Suite 700
Washington,
DC 20001-3980
202.383.0100
Approximate
date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.
If the only securities
being registered on this form are being offered pursuant to dividend or interest reinvestment plans, check the following box. o
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, other than securities offered only in connection with dividend or interest reinvestment plans, check the following
box. o
If this Form
is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, 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, 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 registration statement pursuant to General Instruction I.D. or a post-effective amendment thereto that shall become effective
upon filing with the Commission pursuant to Rule 462(e) under the Securities Act, check the following box. o
If this Form
is a post-effective amendment to a registration statement filed pursuant to General Instruction I.D. filed to register additional
securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following box. o
Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company
or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
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Large accelerated filer x
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Accelerated filer
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o
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Non-accelerated filer o
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Smaller reporting company
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o
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Emerging growth company
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o
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If an emerging
growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. o
CALCULATION
OF REGISTRATION FEE
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Title of Each Class of Securities to be Registered
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Amount
to be
Registered(1)
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Proposed
Maximum
Offering Price
Per Share(1)
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Proposed
Maximum
Aggregate
Offering Price(1)
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Amount of
Registration Fee(1)
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Shares of United States Oil Fund, LP
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1,000,000,000
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$
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16.48
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$
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16,480,000,000
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$
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2,139,104
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(1)
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Estimated solely for the purpose
of calculating the registration fee pursuant to Rule 457(d) under the Securities Act of 1933 based on a net asset value per
share of $16.48. The net asset value per share of $16.48 is based on our actual net asset value per share of $2.06 as of
April 21, 2020, adjusted for our recent 1-for-8 reverse stock split. Registration fees were previously paid in connection
with the filing of the Registration Statement filed on April 20, 2020 on Form S-3 File No. 333-237750.
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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 Commission, acting pursuant to said Section 8(a), may determine.
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 Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is
not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject
to Completion, dated June 4, 2020
PRELIMINARY PROSPECTUS
United
States Oil Fund, LP®*
1,000,000,000
Shares
*Principal
U.S. Listing Exchange: NYSE Arca, Inc.
The United
States Oil Fund, LP (“USO”) is an exchange traded fund organized as a limited partnership that issues shares that
trade on the NYSE Arca stock exchange (“NYSE Arca”). USO’s investment objective is to track a benchmark of short-term
oil futures contracts. USO pays its general partner, United States Commodity Funds LLC (“USCF”), a limited liability
company, a management fee and incurs operating costs. Both USO and USCF are located at 1850 Mt. Diablo Boulevard, Suite 640, Walnut
Creek, California 94596. The telephone number for both USO and USCF is 510.522.9600. In order for a hypothetical investment in
shares to break even over the next 12 months, assuming a selling price of $25.94 per share (the net asset value as of May
31, 2020, adjusted to give effect to a reverse share split of 1-for-8 executed on April 28, 2020), the investment would have
to generate a 0.790% or $0.205 return, rounded to $0.21.
USO is
an exchange traded fund. This means that most investors who decide to buy or sell shares of USO shares place their trade orders
through their brokers and may incur customary brokerage commissions and charges. Shares trade on the NYSE Arca under the ticker
symbol “USO” and are bought and sold throughout the trading day at bid and ask prices like other publicly traded securities.
Shares
trade on the NYSE Arca after they are initially purchased by “Authorized Participants,” institutional firms that purchase
shares in blocks of 100,000 shares called “baskets” through USO’s marketing agent, ALPS Distributors, Inc. (the
“Marketing Agent”). The price of a basket is equal to the net asset value (“NAV”) of 100,000 shares on
the day that the order to purchase the basket is accepted by the Marketing Agent. The NAV per share is calculated by taking the
current market value of USO’s total assets (after close of NYSE Arca) subtracting any liabilities and dividing that total
by the total number of outstanding shares. The offering of USO’s shares is a “best efforts” offering, which
means that neither the Marketing Agent nor any Authorized Participant is required to purchase a specific number or dollar amount
of shares. USCF pays the Marketing Agent a marketing fee consisting of a fixed annual amount plus an incentive fee based on the
amount of shares sold. Authorized Participants will not receive from USO, USCF or any of their affiliates any fee or other compensation
in connection with the sale of shares. Aggregate compensation paid to the Marketing Agent and any affiliate of USCF for distribution-related
services in connection with this offering of shares will not exceed ten percent (10%) of the gross proceeds of the offering.
Investors
who buy or sell shares during the day from their broker may do so at a premium or discount relative to the market value of the
underlying oil futures contracts in which USO invests due to supply and demand forces at work in the secondary trading market
for shares that are closely related to, but not identical to, the same forces influencing the prices of crude oil and the oil
futures contracts that serve as USO’s investment benchmark. INVESTING IN USO INVOLVES RISKS SIMILAR TO THOSE INVOLVED
WITH AN INVESTMENT DIRECTLY IN THE OIL MARKET, BUT IT IS NOT A PROXY FOR TRADING DIRECTLY IN THE OIL MARKETS. Investing
in USO also involves the correlation risk described below and other significant risks. Recent and unprecedented volatility
in the crude oil markets in 2020 demonstrates that these risks are real. You should consider carefully the risks described below
before making an investment decision. See “Risk Factors Involved with an Investment in USO” beginning on
page 11.
The offering
of USO’s shares is registered with the Securities and Exchange Commission (“SEC”) in accordance with the Securities
Act of 1933 (the “1933 Act”). The offering is intended to be a continuous offering and is not expected to terminate
until all of the registered shares have been sold or three years from the date of the original offering, whichever is earlier,
unless extended as permitted under the rules under the 1933 Act, although the offering may be temporarily suspended if and when
no suitable investments for USO are available or practicable. USO is not a mutual fund registered under the Investment Company
Act of 1940 (“1940 Act”) and is not subject to regulation under the 1940 Act.
NEITHER
THE 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.
USO is
a commodity pool and USCF is a commodity pool operator subject to regulation by the Commodity Futures Trading Commission and the
National Futures Association under the Commodity Exchange Act (“CEA”).
THE
COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF PARTICIPATING IN THIS POOL NOR HAS THE COMMISSION PASSED
ON THE ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT.
The date of
this prospectus is June [ ], 2020
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 COMMODITY INTEREST 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, AND 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 AT PAGE 52 AND A STATEMENT
OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 53.
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, AT PAGE 11.
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.
SWAPS
TRANSACTIONS, LIKE OTHER FINANCIAL TRANSACTIONS, INVOLVE A VARIETY OF SIGNIFICANT RISKS. THE SPECIFIC RISKS PRESENTED BY A PARTICULAR
SWAP TRANSACTION NECESSARILY DEPEND UPON THE TERMS OF THE TRANSACTION AND YOUR CIRCUMSTANCES. IN GENERAL, HOWEVER, ALL SWAPS TRANSACTIONS
INVOLVE SOME COMBINATION OF MARKET RISK, CREDIT RISK, COUNTERPARTY CREDIT RISK, FUNDING RISK, LIQUIDITY RISK, AND OPERATIONAL
RISK.
HIGHLY
CUSTOMIZED SWAPS TRANSACTIONS IN PARTICULAR MAY INCREASE LIQUIDITY RISK, WHICH MAY RESULT IN A SUSPENSION OF REDEMPTIONS. HIGHLY
LEVERAGED TRANSACTIONS MAY EXPERIENCE SUBSTANTIAL GAINS OR LOSSES IN VALUE AS A RESULT OF RELATIVELY SMALL CHANGES IN THE VALUE
OR LEVEL OF AN UNDERLYING OR RELATED MARKET FACTOR.
IN
EVALUATING THE RISKS AND CONTRACTUAL OBLIGATIONS ASSOCIATED WITH A PARTICULAR SWAP TRANSACTION, IT IS IMPORTANT TO CONSIDER THAT
A SWAP TRANSACTION MAY BE MODIFIED OR TERMINATED ONLY BY MUTUAL CONSENT OF THE ORIGINAL PARTIES AND SUBJECT TO AGREEMENT ON INDIVIDUALLY
NEGOTIATED TERMS. THEREFORE, IT MAY NOT BE POSSIBLE FOR THE COMMODITY POOL OPERATOR TO MODIFY, TERMINATE, OR OFFSET THE POOL’S
OBLIGATIONS OR THE POOL’S EXPOSURE TO THE RISKS ASSOCIATED WITH A TRANSACTION PRIOR TO ITS SCHEDULED TERMINATION DATE.
TABLE
OF CONTENTS
PROSPECTUS
SUMMARY
This
is only a summary of the prospectus and, while it contains material information about USO and its shares, it does not contain
or summarize all of the information about USO and the shares contained in this prospectus that is material and/or which may be
important to you. You should read this entire prospectus, including “Risk Factors Involved with an Investment in USO”
beginning on page 11, before making an investment decision about the shares. For a glossary of defined terms, see Appendix
A.
United
States Oil Fund, LP (“USO”), a Delaware limited partnership, is a commodity pool that continuously issues common shares
of beneficial interest that may be purchased and sold on the NYSE Arca stock exchange (“NYSE Arca”). USO is managed
and controlled by United States Commodity Funds LLC (“USCF”), a Delaware limited liability company. USCF 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”).
USO’s Investment
Objective and Strategy
The investment
objective of USO is for the daily changes in percentage terms of its shares’ per share net asset value (“NAV”)
to reflect the daily changes in percentage terms of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma, as
measured by the daily changes in the price of a specified short-term futures contract on light, sweet crude oil called the “Benchmark
Oil Futures Contract,” plus interest earned on USO’s collateral holdings, less USO’s expenses. As noted below,
USO is currently unable to pursue its investment objective with the same high degree of success that it has in the past due to
its inability to invest in the Benchmark Oil Futures Contract and certain other Oil Futures Contracts, as defined below, to the
extent it was able to before the market conditions described herein arose. As a result of such market conditions, the regulatory
limitations imposed on USO and the risk mitigation measures described below, there is considerable uncertainty as to whether USO
will be able to achieve the same level of success as before in meeting its investment objective.
USO
seeks to achieve its investment objective by investing so that the average daily percentage change in USO’s NAV for any
period of 30 successive valuation days will be within plus/minus ten percent (10%) of the average daily percentage change in the
price of the Benchmark Oil Futures Contract over the same period.
As a result
of market and regulatory conditions, including significant market volatility, large numbers of USO shares purchased during a short
period of time, and applicable regulatory accountability levels and position limits on oil futures contracts that were imposed
on USO in 2020, including as a result of the COVID-19 pandemic and the state of crude oil markets, USO has invested in Oil Futures
Contracts (as defined below) in months other than the Benchmark Oil Futures Contract. The foregoing has impacted the performance
of USO and its ability meet its investment objective within as narrow a percentage difference between the average daily percentage
change in USO’s NAV for any period of 30 successive valuation days and the average daily percentage change in the price
of the Benchmark Oil Futures Contract as it typically has in the past. For example, while the average percentage difference
for the 30-day period ending March 31, 2020 was -0.004%, for the 30-day period ending April 30, 2020, it was -1.364% and
for the 30-day period ending May 31, 2020, it was -2.247%.
USO’s
investment in Oil Futures Contracts in months other than the Benchmark Oil Futures Contract, other Oil Futures Contracts and Other-Oil
Related Interests (as defined below), is intended to be temporary but may continue indefinitely if the aforementioned market and
regulatory conditions do not abate. Until such time as USO is able to return to investing in the Benchmark Oil Futures Contract,
its performance and ability to meet its investment objective will continue to be impacted.
See, Recent Developments Impacting the Ability of USO to Achieve Its Investment Objective and Strategy,
below.
What Is the “Benchmark
Oil Futures Contract”?
The Benchmark
Oil Futures Contract is the futures contract on light, sweet crude oil as traded on the New York Mercantile Exchange (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
it will be measured by the futures contract that is the next month contract to expire.
USO seeks
to achieve its investment objective by investing primarily in futures contracts for light, sweet crude oil, other types of crude
oil, diesel-heating oil, gasoline, natural gas, and other petroleum-based fuels that are traded on the NYMEX, ICE Futures Europe
and ICE Futures U.S. (together, “ICE Futures”) or other U.S. and foreign exchanges (collectively, “Oil Futures
Contracts”) and to a lesser extent, in order to comply with regulatory requirements or in view of market conditions, other
oil-related investments such as cash-settled options on Oil Futures Contracts, forward contracts for oil, cleared swap contracts
and non-exchange traded (“over-the-counter” or “OTC”) transactions that are based on the price of oil,
other petroleum-based fuels, Oil Futures Contracts and indices based on the foregoing (collectively, “Other Oil-Related
Investments”). Market conditions that USCF currently anticipates could cause USO to invest in Other Oil-Related Investments
include those allowing USO to obtain greater liquidity or to execute transactions with more favorable pricing. (For convenience
and unless otherwise specified, Oil Futures Contracts and Other Oil-Related Investments collectively are referred to as “Oil
Interests” in this prospectus.)
In addition,
USCF believes that market arbitrage opportunities will cause daily changes in USO’s share price on the NYSE Arca on a percentage
basis to closely track daily changes in USO’s per share NAV on a percentage basis. USCF further believes that daily changes
in prices of the Benchmark Oil Futures Contract have historically closely tracked the daily changes in spot prices of light, sweet
crude oil. USCF believes that the net effect of these relationships will be that the daily changes in the price of USO’s
shares on the NYSE Arca on a percentage basis will closely track, the daily changes in the spot price of a barrel of light, sweet
crude oil on a percentage basis, less USO’s expenses. However, USO is unable to meet its investment objective as favorably
as in the past due to the factors described above. In addition, changes in the price of USO’s shares on the NYSE Arca on
a percentage basis are not tracking the daily changes in the spot price of crude oil on a percentage basis as closely as they
were tracking before the occurrence of the COVID-19 pandemic and the significant market volatility that has occurred and is continuing
in the crude oil markets and the oil futures markets.
Specifically,
USO seeks to achieve its investment objective by investing so that the average daily percentage change in USO’s NAV for
any period of 30 successive valuation days will be within plus/minus ten percent (10%) of the average daily percentage change
in the price of the Benchmark Oil Futures Contract over the same period.
Investors
should be aware that USO’s investment objective is not for its NAV or market price of shares to equal, in dollar
terms, the spot price of light, sweet crude oil or any particular futures contract based on light, sweet crude oil, nor
is USO’s investment objective for the percentage change in its NAV to reflect the percentage change of the price of any
particular futures contract as measured over a time period greater than one day. This is because natural market forces
called contango and backwardation have impacted the total return on an investment in USO’s shares during the past year relative
to a hypothetical direct investment in crude oil and, in the future, it is likely that the relationship between the market price
of USO’s shares and changes in the spot prices of light, sweet crude oil will continue to be so impacted by contango and
backwardation. (It is important to note that the disclosure above ignores the potential costs associated with physically owning
and storing crude oil, which could be substantial.)
Recent Developments
Impacting the Ability of USO to Achieve Its Investment Objective and Strategy
Historically,
USO has achieved its investment objective by primarily investing in the Benchmark Futures Contract and Oil Futures Contracts for
light, sweet crude oil traded on NYMEX and ICE Futures with the same maturity month as the Benchmark Futures Contract. Certain
circumstances could cause and have caused, as discussed below, USO to invest in Oil Futures Contracts other than the Benchmark
Oil Futures Contract and may cause USO to invest in Other Oil-Related Investments. Such circumstances include:
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The
need to comply with regulatory requirements (including, but not limited to, exchange
accountability levels and position limits imposed by NYMEX discussed below);
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Market conditions (including
but not limited to those allowing USO to obtain greater liquidity or to execute transactions with more favorable pricing); and
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Risk
mitigation measures taken by USO’s futures commission merchants (“FCM”)
RBC Capital Markets, LLC (“RBC Capital” or “RBC”) and other FCMs
that further limit USO and other market participants from investing in particular crude
oil futures contracts.
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As of the date of this prospectus,
significant market volatility has occurred and is continuing in the crude oil markets and the oil futures markets. Such volatility
is attributable to the COVID-19 pandemic, disputes among oil-producing countries over the potential limits
on the production of crude oil, a corresponding collapse in demand for crude oil and a lack of on-land storage for
crude oil. These conditions have severely limited USO’s ability to have a substantial portion of its assets invested
in the Benchmark Oil Futures Contract and certain other Oil Futures Contracts of the same month, such as cash-settled,
but substantially similar, oil futures contracts traded on ICE Futures (the “ICE WTI Contract”). Specifically:
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NYMEX
and ICE Futures have imposed accountability levels and position limits on USO’s
investments in the Benchmark Oil Futures Contract and the ICE WTI Contract, respectively.
As described in more detail below, the NYMEX ordered USCF, USO and the Related Public
Funds (as defined herein) not to assume a position in the light sweet crude oil
futures contract for June 2020 in excess of 15,000 long futures contracts, for July 2020
in excess of 78,000 long futures contracts, for August 2020 in excess of 50,000 long
futures contracts, for September 2020 in excess of 35,000 long futures contracts.
In addition, the ICE WTI Contract is subject to spot month and all-months-combined position
limits established under the European Union’s Market in Financial Instruments Directive,
as implemented by the Financial Conduct Authority in the United Kingdom. ICE Futures
also imposes accountability levels and position limits on the ICE WTI Contract. It can
be anticipated that under current market conditions that the foregoing accountability
levels and position limits imposed will remain in place and could involve additional
Oil Futures Contracts for later months, e.g., those expiring after September of 2020.
See, RISK FACTORS INVOLVED WITH AN INVESTMENT IN USO—Accountability levels,
position limits, and daily price fluctuation limits set by the exchanges have the potential
to cause tracking error, by limiting USO’s investments, including its ability to
fully invest in the Benchmark Futures Contract, which could cause the price of shares
to substantially vary from the price of the Benchmark Oil Futures Contract.
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RBC
has taken risk mitigation measures that constrain USO’s ability to invest in the
Benchmark Oil Futures Contract and other Oil Futures Contracts. RBC, which at the
time was USO’s only FCM, expressly informed USO that USO may not hold positions
in the June Benchmark Oil Futures Contract expiring on May 19, 2020. At the time
it imposed this restriction, RBC continued to trade and clear other Oil Futures Contracts
for USO, including in connection with rolls and rebalances of its portfolio. RBC advised
USO that, going forward, through RBC it
may only purchase additional Benchmark Oil Futures Contracts and other Oil Futures Contracts for
rolls and rebalances of USO’s portfolio and not as investments for the proceeds
of new Creation Baskets. The limits on positions imposed by RBC on holdings
in USO’s portfolio apply regardless of whether the Oil Futures Contracts purchased
would be within the accountability levels and position limits permitted by NYMEX and
ICE. RBC has indicated that the foregoing limitations on USO are solely as a result of
RBC’s own internal risk management requirements.
On May 28, 2020, USO entered into an agreement with RCG Division of Marex Spectron (“RCG”),
to become an additional FCM. RCG has not precluded USO from purchasing, holding,
or reinvesting the proceeds from the purchases of Creation Baskets in Oil Futures Contracts,
including the Benchmark Oil Futures Contract. However, limits could be imposed by any
FCM that, coupled with the risk measures already taken by RBC, would continue to limit
USO’s ability to have a substantial portion of its assets invested in the Benchmark
Oil Futures Contract. USO cannot predict with any certainty when and whether RBC
will remove its limitations on holding certain positions in Oil Future Contracts,
or whether, or to what extent, any such limits may be imposed by any other FCM in the
future. USO is in ongoing discussions with other FCMs and it cannot predict when
it will enter into such agreements.
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A
large number of USO shares have been purchased during a relatively short period
of time.
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These events have severely limited USO’s
current ability to have a substantial portion of its assets invested in the Benchmark Oil Futures Contract and other Oil Futures
Contracts. Accordingly, and because such factors have continued to evolve, USO has had to invest in other permitted Oil Futures
Contracts and has had to more frequently rebalance and adjust the types of holdings in its portfolio than in the past. In addition,
the current limitations being imposed by the exchanges and RBC will limit USO’s ability to invest the proceeds
of the purchases of Creation Baskets in Oil Futures Contracts. As a result, when USO offers to sell Creation Baskets, USO
may be limited in its ability to invest in Oil Futures Contracts, including the Benchmark Oil Futures Contract, and may be required
to invest in other permitted investments including Other Oil-Related Interests, and may hold larger amounts of Treasuries,
cash and cash equivalents, which will further impair USO’s ability to meet its investment objective.
USO
has had the ability to invest in Oil Futures Contracts beyond the Benchmark Oil Futures
Contract and in Other Oil-Related Investments but, until recently, USO’s
need to exercise its discretion in making such investments has been limited. Current
circumstances, including market conditions and evolving regulatory requirements and evolving
FCM risk mitigation measures, require USO to exercise greater discretion in investing
than in the past. The parameters for the decision-making regarding the permitted
investments USO will hold and the intended order of priority it will consider
in selecting investments to be held in USO’s portfolio are set forth and discussed
in greater detail below. The application of the below parameters requires
USO to exercise its discretion. If, due to regulatory requirements, risk mitigation measures,
market conditions, liquidity requirements or other factors, USO is not able to invest
in accordance with such parameters and the intended order of priority, such methodology
may change.
Accordingly, for the foreseeable
future, to address and comply with the market conditions, regulatory requirements and other factors that have influenced, and
will continue to influence, its investment decisions, USO intends to buy or sell the following permitted investments taking into
account the order, or waterfall, set forth below when USO increases or decreases either its portfolio overall or its holdings
of particular investments:
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1.
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The
current or front month (“first month”) Oil Futures Contracts based on the
price of the light, sweet crude oil known as West Texas Intermediate (“WTI”)
or, which are priced off of the oil futures contracts based on WTI as traded on the NYMEX
including the Benchmark Oil Futures Contracts and the ICE WTI Contract (“WTI Oil
Futures Contracts”); then
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The first month, the next or following month (“second month”, with months thereafter 2. being numerically designated,
i.e., the third month, the fourth month, the fifth month, etc.) and the third month WTI Oil Futures Contracts; then
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3.
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The
first through the sixth month WTI Oil Futures Contracts, plus the next nearest June WTI
Oil Futures Contracts or the next nearest December WTI Oil Futures Contracts that is
not included in the first through sixth months ; then
|
|
|
|
|
4.
|
The
first through the twelfth month WTI Oil Futures Contracts; then
|
|
|
|
|
5.
|
The
first through the twelfth month WTI Oil Futures Contracts plus the second through thirteenth
month Oil Futures Contracts based on Brent Crude Oil traded on ICE Futures (“Brent
Oil Futures Contracts”); then
|
|
|
|
|
6.
|
The
first through the twelfth month WTI Oil Futures Contracts Months plus the second through
thirteenth month Brent Oil Futures Contracts plus the first through the twelfth month
Oil Futures Contracts based on Ultra Low Sulfur Diesel Oil Futures Contract traded on
NYMEX (“USDL Oil Futures Contract”); then
|
|
|
|
|
7.
|
The
first through the twelfth month WTI Oil Futures Contracts plus the second through thirteenth
month Brent Oil Futures Contracts plus the first through the twelfth month USDL Oil Futures
Contracts plus the first through the twelfth month RBOB Gasoline Oil Futures Contracts
(“Gasoline Futures Contract”); then
|
|
|
|
|
8.
|
USO
may also utilize the Oil Futures Contracts based on WTI, WTI Oil Futures Contacts or
other types of crude oil traded on the Dubai, Singapore, and Houston exchanges, if and
when these contracts reach sufficient scale and liquidity to meaningfully contribute
to USO’s investment objective, in addition to the foregoing investments; then,
finally,
|
|
|
|
|
9.
|
Other
Oil-Related Investments, in addition to the foregoing investments.
|
If,
due to regulatory requirements, risk mitigation measures, market conditions, liquidity requirements or other factors, USO is not
available to invest in a particular month contract described above, then it will adjust the methodology incrementally beginning
from the nearest month contract available to it that it is reasonable or feasible to hold in light of such factors.
If USO uses over-the counter (“OTC”)
swaps or other instruments, those OTC swaps or instruments would also provide exposure to one or more of the same above-described
permitted investments in varying months or contracts. USO also anticipates that to the extent it invests in Oil Futures Contracts
other than WTI Oil Futures Contacts) and Other Oil- Related Investments, it may enter into various non-exchange-traded derivative
contracts to hedge the short-term price movements of such Oil Futures Contracts and Other Oil-Related Investments against the
current Benchmark Oil Futures Contract.
The progression from one stage of
permitted investments described in the above waterfall to the next stage, including the specific target weights for the particular
portfolio investments to be held by USO, will take into account, to the extent applicable, the relative levels of open interest,
position limits, and other factors. The specific permitted investments and the identified target weights for such investments,
consistent with progression from one stage of the above described waterfall to the next stage, will be published on the website
the day before the start of (i) any monthly roll/rebalance period for the end of such roll/rebalance period, and (ii) any rebalancing
to be done outside of the monthly roll period due to market conditions, regulatory requirements and other factors described herein.
In extreme circumstances, changes may need to be made intraday. In such circumstances, the changes will be published on the website
at the end of the day. USO will attempt to execute rebalances required over several days to minimize market impact. However, it
may be necessary to execute these risk measures rapidly and with minimal notice. Published portfolio changes will be implemented
by USO over the course of the roll/rebalance period as indicated on the website or over the course of another day or period with
respect to a particular change outside of the roll.
USO will progress through the stages
of the above describe waterfall of permitted investments as it approaches regulatory or other limits or as necessary to address
market conditions, or other factors, including additional investments in USO, requiring consideration of particular levels of
the waterfall. Generally, USO will invest in each stage of the waterfall in the order described above. However, USO, in its sole
discretion, may proceed to invest in a further stage of the waterfall (i.e., skipping over a particular stage) if it determines
it may exceed position limits in the immediately following stage of the above waterfall within the next month.
The investment intention announced
by USO could change as a result of any or all of the following: evolving market conditions, a change in regulator accountability
levels and position limits imposed on USO with respect to its investment in Oil Futures Contracts, additional or different risk
mitigation measures taken by market participants, generally, including USO, with respect to USO acquiring additional Oil Futures
contracts, or USO selling additional shares USO’s ability to invest in the Benchmark Oil Futures Contract could be limited
by any of these occurrences. In addition, while determining the appropriate investments for USO’s portfolio in accordance
with its current intention, or to address the foregoing changes in market conditions, regulatory requirements or risk mitigation
measures, USO may need to hold significant portions of its portfolio in cash beyond what it has historically held in order to
satisfy potential margin requirements.
USCF may not be able to fully invest
USO’s assets in Benchmark Oil Futures Contracts having an aggregate notional amount exactly equal to USO’s NAV. For
example, as standardized contracts, the Benchmark Oil Futures Contracts are for a specified amount of a particular commodity,
and USO’s NAV and the proceeds from the sale of a Creation Basket are unlikely to be an exact multiple of the amounts of
those contracts. As a result, in such circumstances, USO may be better able to achieve the exact amount of exposure to changes
in price of the Benchmark Oil Futures Contract through the use of Other Oil-Related Investments, such as OTC contracts that have
better correlation with changes in price of the Benchmark Oil Futures Contract.
USCF does not anticipate letting
USO’s Oil Futures Contracts expire and taking delivery of the underlying commodity. Instead, USCF will close existing positions,
e.g., when it changes the Benchmark Oil Futures Contracts or Other Oil-Related Investments or it otherwise determines it would
be appropriate to do so and reinvests the proceeds in new Oil Futures Contracts or Other Oil-Related Investments. Positions may
also be closed out to meet orders for Redemption Baskets and in such case proceeds for such baskets will not be reinvested.
While
it is USO’s expectation that at some point in the future it will be able to return
to primarily investing in the Benchmark Oil Futures Contract, there can be no guarantee
of when, if ever, that will occur. In addition, because of the limitations being imposed
on USO by its regulators and its FCMs, USO may be limited in investing in other
Oil futures Contracts in addition to the Benchmark Oil Futures Contract. These limitations
would apply even if USO were to receive and accept request for Redemption Baskets lowering
its current holdings in Oil Futures Contracts below the limits now being imposed on it.
The foregoing could limit the ability of USO (i) to reallocate its investments to more
favorably meet its investment objective or (ii) in connection with the purchase
of Creation Baskets, to invest the proceeds of such purchases in Oil Futures Contracts.
As a result, investors in USO should expect USO’s ability to invest in
the Benchmark Oil Futures Contract and other Oil Futures Contracts to continue
to be limited and USO may be required to invest in Other Oil-Related Interests.
As a result, there will be continued wider deviations between the performance of
USO’s investments and the Benchmark Oil Futures Contract, and that changes in USO’s
share price may not be able to track changes in the price of the Benchmark Oil Futures
Contract at the same favorable levels as before or within the range of its investment
objective. The inability to closely track the Benchmark Oil Futures Contract and, as
described below and elsewhere in this prospectus, the changes in its portfolio of investments
and the impact of higher levels of contango, will impact the performance of USO and the
value of its shares.
Commencement of investing in other
than the Benchmark Oil Futures Contract. In light of the volatility and the resulting events described above that limited
USO’s ability to invest in the Benchmark Oil Futures Contract, on April 17, 2020, USO announced its intention to invest
in Oil Futures Contracts other than the Benchmark Oil Futures Contract. USO also indicated that it could, if it determined
it appropriate in light of market conditions and regulatory requirements, invest in Other Oil-Related Interests. As of the date
of this prospectus, it is likely that the factors limiting USO’s investments in the Benchmark Oil Futures Contract will
continue, including as a result of the COVID-19 pandemic and the state of the crude oil markets, and that USO’s need to
invest in other Oil Futures Contracts and, potentially other permitted investments, will continue.
Investments
intended to meet USO’s investment objective, other than investments in the Benchmark Futures Contract, may impact the performance
of USO and can make it difficult for USO to track the Benchmark Futures Contract or meet its investment objective. The changes
to USO’s portfolio holdings have resulted in significant deviations from USO’s intended investment objective, which
is for the daily percentage changes in the net asset value (“NAV”) per share to reflect the daily percentage changes
of the spot price of light, sweet crude oil, as measured by the daily percentage changes in the price of the Benchmark Oil Futures
Contract, plus interest earned on USO’s collateral holdings, less USO’s expenses.
Although
USO seeks to achieve its investment objective by investing so that the average daily percentage change in USO’s NAV for
any period of 30 successive valuation days will be within plus/minus ten percent (10%) of the average daily percentage change
in the price of the Benchmark Oil Futures Contract over the same period, the price of the Benchmark Oil Futures Contract could,
in the future, and has, in the past, exceeded plus/minus 10%. Recently, in April 2020, the NAV of USO deviated from the price
of the Benchmark Oil Futures Contract by -16.527%. If such deviations were to continue over a period of thirty (30) successive
valuation days, USO would not meet its stated investment objective.
Increased transparency into USO’s
investment intentions. In addition to disclosing USO’s end of day portfolio of investments,
as of May 1, 2020, USO discloses any changes to its investment intentions with respect to the type and percentage
of investments in USO’s portfolio. In this prospectus, USO has disclosed the parameters for making decisions regarding the
permitted investments USO holds, including the intended order of priority or waterfall it considers in selecting
investments and the type of investments to be held in its portfolio. Such parameters and order of priority are discretionary to
USO and, as described below, can be changed by USO due to regulatory requirements, risk mitigation measures, market conditions,
liquidity requirements or other factors. Further, the type and percentages of investments to be held by USO at the end of the
monthly roll period as well as going forward, including for any rebalances, is published on its website www.uscfinvestments.com.
Accordingly, for the foreseeable future, to address and comply with the market conditions, regulatory requirements and other factors
that have influenced, and will continue to influence, its investment decisions, USO intends to buy or sell its permitted investments
when USO increases or decreases either its portfolio overall or its holdings of particular investments. Commencing with the monthly
roll that occurred in May 2020, USO’s positions in Oil Futures Contracts and Other Oil Related Investments roll over
a ten-day period, as described below, whereas previously USO’s positions would roll over a four-day period.
See, What are the Trading Policies of USO? below.
The investment intention announced
by USO on its website as described above could change as a result of any or all of the following:
|
·
|
Evolving market conditions
|
|
|
|
|
·
|
A
change in regulatory accountability levels and position limits imposed on USO with respect
to its investment in Oil Futures Contracts
|
|
|
|
|
·
|
Risk
mitigation measures taken by market participants generally, including USO, with respect
to USO acquiring additional Oil Futures contracts, or USO selling additional shares.
|
USO’s ability to invest in the Benchmark
Oil Futures Contract could be limited by any of these occurrences. In addition, while determining the appropriate investments
for USO’s portfolio in accordance with its current intention, or to address the foregoing changes in market conditions,
regulatory requirements or risk mitigation measures, USO may need to hold significant portions of its portfolio in cash beyond
what it has historically held in order to satisfy potential margin requirements.
USO is not leveraged.
USO has not leveraged, and does not intend to leverage, its assets through borrowings or otherwise, and makes its investments
accordingly. Consistent with the foregoing, USO’s announced investment intentions, and any changes thereto, will take into
account the need for USO to make permitted investments that also allow it to maintain adequate liquidity to meet its margin and
collateral requirements and to avoid, to the extent reasonably possible, USO becoming leveraged. If market conditions require
it, these risk reduction procedures may occur on short notice if they occur other than during a roll or rebalance period.
USO may temporarily limit the
offering of Creation Baskets. USO may determine to limit the issuance of its shares through the offering of Creation
Baskets to its Authorized Purchasers in order to allow it to reinvest the proceeds from sales of its Creation Baskets in currently
permitted assets in a manner that meets its investment objective.
USO will announce to the market through
the filing of a Current Report on Form 8-K if it intends to limit the offering of Creation Baskets to allow it to better reinvest
the proceeds from sales of its Creation Baskets in currently available permitted assets in a manner that meets its investment
objective. In making such an announcement, USO will indicate that it will announce on its website each day prior to the
opening of trading on the NYSE Arca the number of Creation Baskets to be offered that day. Orders for Creation Baskets will be
considered for acceptance in the order they are received by USO. USO will continue to accept requests for redemption of its shares
from Authorized Purchasers through Redemption Baskets during the period of the limited offering of Creation Baskets. During this
period of time, USO will continue to make investments in accordance with the parameters as disclosed herein. If USO determines
that USO’s investment objective cannot be reasonably met by investing in Oil Futures Contracts and Other Oil-Related Investments,
it may continue to limit requests for the issuance of additional shares in the fund until such time as it determines that appropriate
investments are available. See, RISK FACTORS INVOLVED WITH AN INVESTMENT IN USO—may determine that to allow it
to reinvest the proceeds from sales of its Creation Baskets in currently permitted assets in a manner that meets its investment
objective it may limit or suspend its offers of Creation Baskets.
Recent Reverse Stock
Split
On
April 28, 2020 after the close of trading on NYSE Arca, Inc., USO effected a one-for-eight reverse share split, and post-split
shares of USO began trading on April 29, 2020. USO previously announced the reverse share split in its press release dated April
22, 2020. As a result of the reverse share split, every eight pre-split shares of the Fund were automatically exchanged for one
post-split share. Immediately prior to the reverse share split there were 1,482,900,000 shares of the Fund issued and outstanding,
each representing an NAV of $2.04. Immediately after the reverse share split and pre-settlement, the number of issued and outstanding
shares of the Fund decreased to 185,362,500, not accounting for the treatment of fractional shares, and the NAV relating to each
share increased to $16.35.
Principal Investment Risks
of an Investment in USO
An investment
in USO 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 11.
Investment Risk
Investors
may choose to use USO as a means of investing indirectly in crude oil. INVESTING IN USO INVOLVES RISKS SIMILAR TO THOSE
INVOLVED WITH AN INVESTMENT DIRECTLY IN THE OIL MARKET, BUT IT IS NOT A PROXY FOR TRADING DIRECTLY IN THE OIL MARKETS. Investing
in USO also involves the correlation risk described below and other significant risks. There are significant risks and hazards
inherent in the crude oil industry that may cause the price of crude oil to widely fluctuate. Recent and unprecedented volatility
in the crude oil markets in 2020 demonstrates that these risks are real.
Correlation Risk
To the
extent that investors use USO as a means of indirectly investing in crude oil, there is the risk that the daily changes in the
price of USO’s shares on the NYSE Arca on a percentage basis, will not closely track the daily changes in the spot price
of light, sweet crude oil on a percentage basis. This could happen if the price of shares traded on the NYSE Arca does not correlate
closely with the value of USO’s NAV; the changes in USO’s NAV do not correlate closely with the changes in the price
of the Benchmark Oil Futures Contract; or the changes in the price of the Benchmark Oil 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 USO as a cost-effective way to indirectly invest in crude oil or as a hedge against the risk of loss in
crude oil-related transactions.
The price
relationship between the near month contract to expire and the next month contract to expire that compose the Benchmark Oil Futures
Contract will vary and may impact both the total return over time of USO’s NAV, as well as the degree to which its total
return tracks other crude oil price indices’ total returns. In cases in which the near month contract’s price is lower
than the next month contract’s price (a situation known as “contango” in the futures markets), then absent the
impact of the overall movement in crude oil prices the value of the benchmark contract would tend to decline as it approaches
expiration. In cases in which the near month contract’s price is higher than the next month contract’s price (a situation
known as “backwardation” in the futures markets), then absent the impact of the overall movement in crude oil prices
the value of the benchmark contract would tend to rise as it approaches expiration. Contango and backwardation can exist and
be amplified to the extent the subsequent month is one or more months beyond the next month and under certain market conditions.
In 2020, in the context of the COVID-19
pandemic and disputes among oil-producing countries regarding potential limits on the production of crude oil, significant
market volatility occurred and is continuing in the crude oil markets as well as the oil futures markets. As a result of market
and regulatory conditions, including significant market volatility, large numbers of USO shares purchased during a short period
of time, and applicable regulatory accountability levels and position limits on oil futures contracts that were imposed on USO,
USO invested in Oil Futures Contracts in months other than the Benchmark Oil Futures Contracts. The foregoing impacted the performance
of USO and made it difficult for USO to track the Benchmark Futures Contract or meet its investment objective, which is for the
daily percentage changes in the NAV per share to reflect the daily percentage changes of the spot price of light, sweet crude
oil, as measured by the daily percentage changes in the price of Benchmark Oil Futures Contract, plus interest earned on USO’s
collateral holdings, less USO’s expenses.
USO
intends to attempt to continue tracking the Benchmark Futures Contract as closely as
possible, however, in the current market and regulatory environment, significant tracking
deviations can be anticipated to occur above and beyond the differences that historically
occurred when the primary investment was the Benchmark Futures Contract and light sweet
crude oil futures contracts of the same month traded on ICE Futures. In addition, the
types of permitted investments that USO invests in as a result of regulatory requirements
and limits imposed by its FCMs and its OTC counterparties in trying to approximate its
investment objective such as later months in the Oil Futures Contracts than the tenor
of the Benchmark Futures Contract will typically cause USO to experience lesser effects
from contango and backwardation than would be the case if USO’s holdings were primarily
in oil futures contracts in the first month or second month. While it is USO’s
expectation that at some point in the future it will return to primarily investing
in the Benchmark Futures Contract and related ICE Futures contracts or other similar
futures contracts of the same tenor based on light, sweet crude oil, there can be no
guarantee of when, if ever, that will occur. As a result, investors in USO should expect
that there will be continued deviations between the performance of USO’s investments
and the Benchmark Futures Contract and that USO may not be able to track the Benchmark
Futures Contract or meet its investment objective.
Tax Risk
USO is
organized and operated as a limited partnership in accordance with the provisions of its limited partnership agreement and applicable
state law, and therefore, has a more complex tax treatment than conventional mutual funds.
Over-the-Counter (‘OTC)
Contract Risk
USO may
also invest in Other Oil-Related Investments, many of which are negotiated or OTC contracts that are not as liquid as Oil Futures
Contracts and expose USO to credit risk that its counterparty may not be able to satisfy its obligations to USO.
Other Risks
USO pays
fees and expenses that are incurred regardless of whether it is profitable.
Unlike
mutual funds, commodity pools or other investment pools that manage their investments in an attempt to realize income and gains
and distribute such income and gains to their investors, USO generally does not distribute cash to limited partners or other shareholders.
You should not invest in USO if you will need cash distributions from USO to pay taxes on your share of income and gains of USO,
if any, or for any other reason.
You will
have no rights to participate in the management of USO and will have to rely on the duties and judgment of USCF to manage USO.
USO is subject
to actual and potential inherent conflicts involving USCF, various commodity futures brokers and “Authorized Participants,”
the institutional firms that directly purchase and redeem shares in baskets. USCF’s officers, directors and employees do
not devote their time exclusively to USO. USCF’s persons are directors, officers or employees of other entities that may
compete with USO for their services, including the other commodity pools (the Related Public Funds) that USCF manages.
USCF could have a conflict between its responsibilities to USO and to those other entities. As a result of these and other relationships,
parties involved with USO have a financial incentive to act in a manner other than in the best interests of USO and the shareholders.
USO’s Fees and Expenses
This
table describes the fees and expenses that you may pay if you buy and hold shares of USO. You should note that you may pay brokerage
commissions on purchases and sales of USO’s shares, which are not reflected in the table. Authorized Participants will pay
applicable creation and redemption fees. See “Creation and Redemption of Shares—Creation and Redemption
Transaction Fee,” page 80.
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)(1)
Management Fees
|
|
|
0.45
|
%
|
Distribution Fees
|
|
|
None
|
|
Other Fund Expenses
|
|
|
0.34
|
%
|
Total Annual Fund Expenses
|
|
|
0.79
|
%
|
|
|
|
|
|
|
(1)
|
Based
on amounts for the year ended December 31, 2019. The individual expense amounts in dollar
terms are shown in the table below. As used in this table, (i) Professional Expenses
include expenses for legal, audit, tax accounting and printing; and (ii) Independent
Director and Officer Expenses include amounts paid to independent directors and for officers’
liability insurance.
|
Management fees
|
|
$
|
6,461,273
|
|
Professional Expenses
|
|
$
|
1,440,997
|
|
Brokerage commissions
|
|
$
|
2,423,017
|
|
Licensing fees
|
|
$
|
215,376
|
|
Registration fees
|
|
$
|
504,876
|
|
Independent Directors and Officer Expenses
|
|
$
|
333,741
|
|
RISK
FACTORS INVOLVED WITH AN INVESTMENT IN USO
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 as well as information found in our periodic reports, which include USO’s financial statements
and the related notes, that are incorporated by reference. See “Incorporation By Reference of Certain Information”,
page 83.
USO’s
investment objective is for the daily percentage changes in the NAV per share to reflect the daily percentage changes of the spot
price of light, sweet crude oil, as measured by the daily percentage changes in the price of Benchmark Oil Futures Contract, plus
interest earned on USO’s collateral holdings, less USO’s expenses. USO seeks to achieve its investment objective by
investing so that the average daily percentage change in USO’s NAV for any period of 30 successive valuation days will be
within plus/minus ten percent (10%) of the average daily percentage change in the price of the Benchmark Oil Futures Contract
over the same period. USO’s investment strategy is designed to provide investors with a cost-effective way to invest indirectly
in crude oil and to hedge against movements in the spot price of light, sweet crude oil.
As a result of market and regulatory
conditions arising during the COVID-19 pandemic and the state of the crude oil markets, including significant market volatility,
large numbers of USO shares purchased during a short period of time, and applicable regulatory accountability levels and position
limits on oil futures contracts that were imposed on USO in 2020, USO has invested in Oil Futures Contracts in months other than
the Benchmark Oil Futures Contract. The foregoing has impacted the performance of USO and its ability meet its investment objective,
including that USO has not been able to meet its investment objective as favorably as it has in the past. USO’s limited
ability to invest in the Benchmark Oil Futures Contract and its need to investment in other Oil Futures Contracts is
intended to be temporary but may continue indefinitely if the aforementioned market and regulatory conditions do not abate.
An investment
in USO involves investment risk similar to a direct investment in Oil Futures Contracts and Other Oil-Related Investments, and
but it is not a proxy for investing in the oil markets. Investing in USO also involves correlation risk, or the risk that
investors purchasing shares to hedge against movements in the price of crude oil will have an efficient hedge only if the price
they pay for their shares closely correlates with the price of crude oil. In addition to investment risk and correlation risk,
an investment in USO involves tax risks, OTC risks, and other risks.
Investment Risk
The
NAV of USO’s shares relates directly to the value of the Benchmark Oil Futures Contracts and other assets held by USO and
fluctuations in the prices of these assets could materially adversely affect an investment in USO’s shares. Past performance
is not necessarily indicative of future results; all or substantially all of an investment in USO could be lost.
The net
assets of USO consist primarily of investments in Oil Futures Contracts and, to a lesser extent, in Other Oil-Related Investments.
The NAV of USO’s shares relates directly to the value of these assets (less liabilities, including accrued but unpaid expenses),
which in turn relates to the price of light, sweet crude oil in the marketplace. Crude oil prices depend on local, regional and
global events or conditions that affect supply and demand for oil.
Economic
conditions impacting crude oil. The demand for crude oil correlates closely with general economic growth rates. The occurrence
of recessions or other periods of low or negative economic growth will typically have a direct adverse impact on crude oil prices.
Other factors that affect general economic conditions in the world or in a major region, such as changes in population growth
rates, periods of civil unrest, pandemics (e.g. COVID-19) government austerity programs, or currency exchange rate fluctuations,
can also impact the demand for crude oil. Sovereign debt downgrades, defaults, inability to access debt markets due to credit
or legal constraints, liquidity crises, the breakup or restructuring of fiscal, monetary, or political systems such as the European
Union, and other events or conditions (e.g. pandemics such as COVID-19), that impair the functioning of financial markets and
institutions also may adversely impact the demand for crude oil.
Other
crude oil demand-related factors. Other factors that may affect the demand for crude oil and therefore its price, include
technological improvements in energy efficiency; seasonal weather patterns, which affect the demand for crude oil associated with
heating and cooling; increased competitiveness of alternative energy sources that have so far generally not been competitive with
oil without the benefit of government subsidies or mandates; and changes in technology or consumer preferences that alter fuel
choices, such as toward alternative fueled vehicles.
Other
crude oil supply-related factors. Crude oil prices also vary depending on a number of factors affecting supply. For example,
increased supply from the development of new oil supply sources and technologies to enhance recovery from existing sources tends
to reduce crude oil prices to the extent such supply increases are not offset by commensurate growth in demand. Similarly, increases
in industry refining or petrochemical manufacturing capacity may impact the supply of crude oil. World oil supply levels can also
be affected by factors that reduce available supplies, such as adherence by member countries to the Organization of the Petroleum
Exporting Countries (“OPEC”) production quotas and the occurrence of wars, hostile actions, natural disasters, disruptions
in competitors’ operations, or unexpected unavailability of distribution channels that may disrupt supplies. Technological
change can also alter the relative costs for companies in the petroleum industry to find, produce, and refine oil and to manufacture
petrochemicals, which in turn may affect the supply of and demand for oil.
Other
factors impacting the crude oil market. The supply of and demand for crude oil may also be impacted by changes in interest
rates, inflation, and other local or regional market conditions, as well as by the development of alternative energy sources.
Price
Volatility May Possibly Cause the Total Loss of Your Investment. Futures contracts have a high degree of price variability
and are subject to occasional rapid and substantial changes. Consequently, you could lose all or substantially all of your investment
in USO. In 2020, in the context of the COVID-19 pandemic and disputes among oil-producing countries regarding potential
limits on the production of crude oil, significant market volatility occurred and is continuing in the crude oil markets as well
as the oil futures markets. As a result of this significant market volatility in the oil futures markets, the market price of
the front month futures contract fell below zero for a period of time. If USO had been fully invested in that contract during
this time, USO’s per share NAV would have fallen below zero.
Changes
to U.S. tariff and import/export regulations may have a negative effect on USO’s developments. There has been ongoing
discussion and commentary regarding potential significant changes to U.S. trade policies, treaties and tariffs. The current U.S.
presidential administration, along with the U.S. Congress, has created significant uncertainty about the future relationship between
the United States and other countries with respect to trade policies, treaties and tariffs. These developments, or the perception
that any of them could occur, may have a material adverse effect on global economic conditions and the stability of global crude
oil, generally. Any of these factors could depress economic activity and could have a material adverse effect on USO’s business,
financial condition and results of operations, which in turn would negatively impact USO and its shareholders.
Uncertainty
about presidential administration initiatives could negatively impact USO’s business, financial condition and results of
operations. The current presidential administration has called for significant changes to U.S. trade, healthcare, immigration,
foreign and government regulatory policy. Accordingly, there is significant uncertainty with respect to legislation, regulation
and government policy at the federal level, as well as the state and local levels. Recent events have created heightened uncertainty
and introduced new and difficult-to-quantify macroeconomic and political risks. There has been a corresponding increase in the
uncertainty surrounding interest rates, inflation, foreign exchange rates, trade volumes and fiscal and monetary policy. To the
extent the U.S. Congress or the current presidential administration implements changes to U.S. policy, those changes may impact,
among other things, the U.S. and global economy, international trade and relations, unemployment, immigration, corporate taxes,
healthcare, the U.S. regulatory environment, inflation, supply and demand for commodities (including crude oil), and other areas.
Although USO cannot predict the impact, if any, of these changes to USO’s business, they could adversely affect USO’s
business, financial condition, operating results and cash flows.
Economic
impacts due to Brexit. In June 2016, the United Kingdom held a referendum in which voters approved an exit from the European
Union (“Brexit”) and, following the House of Commons having passed a Brexit deal on December 20, 2019, the U.K. formally
left the European Union on January 31, 2020. The U.K. is currently in a transition period until December 31, 2020, when agreements
surrounding trade and other aspects of the U.K.’s future relationship with the European Union will need to be finalized.
Until such agreements are finalized, there will be political and economic uncertainty in the United Kingdom and the European Union.
In addition, the fiscal and monetary policies of foreign nations, such as Russia and China, may have a severe impact on the worldwide
and U.S. crude oil markets. Such disruptions or changes could adversely impact the value of USO’s crude oil investments.
COVID-19
Risk.
An outbreak of
infectious respiratory illness caused by a novel coronavirus known as COVID-19 was first detected in China in December 2019 and
has now been detected globally. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. COVID-19
has resulted in numerous deaths, travel restrictions, closed international borders, enhanced health screenings at ports of entry
and elsewhere, disruption of and delays in healthcare service preparation and delivery, prolonged quarantines and the imposition
of both local and more widespread “work from home” measures, cancellations, supply chain disruptions, and lower consumer
demand, as well as general concern and uncertainty. The ongoing spread of COVID-19 has had, and is expected to continue to have,
a material adverse impact on local economies in the affected jurisdictions and also on the global economy, as cross border commercial
activity and market sentiment are increasingly impacted by the outbreak and government and other measures seeking to contain its
spread. COVID-19 has had, and is expected to continue to have, a material adverse impact on the crude oil markets and oil futures
markets to the extent economic activity and the use of crude oil continues to be curtailed, which in turn has had a significant
adverse effect on the prices of Oil Futures Contracts, including the Benchmark Oil Futures Contract, and Other Oil-Related Interests.
The impact of COVID-19, and other infectious illness outbreaks that may arise in the future, could adversely affect individual
issuers and capital markets in ways that cannot necessarily be foreseen. In addition, actions taken by government and quasi-governmental
authorities and regulators throughout the world in response to the COVID-19 outbreak, including significant fiscal and monetary
policy changes, may affect the value, volatility, pricing and liquidity of some investments or other assets, including those held
by or invested in by USO. Public health crises caused by the COVID-19 outbreak may exacerbate other pre-existing political, social
and economic risks in certain countries or globally. The duration of the COVID-19 outbreak and its ultimate impact on USO and,
on the global economy, cannot be determined with certainty. The COVID-19 pandemic and its effects may last for an extended period
of time, and could result in significant and continued market volatility, exchange trading suspensions and closures, declines
in global financial markets, higher default rates, and a substantial economic downturn or recession. The foregoing could impair
USO’s ability to maintain operational standards (such as with respect to satisfying redemption requests), disrupt the
operations of USO’s service providers, adversely affect the value and liquidity of USO’s investments, and negatively
impact USO’s performance and your investment in USO. The extent to which COVID-19 will affect USO and USO’s
service providers and portfolio investments will depend on future developments, which are highly uncertain and cannot be predicted,
including new information that may emerge concerning the severity of COVID-19 and the actions taken to contain COVID-19. Given
the significant economic and financial market disruptions associated with the COVID-19 pandemic, the valuation and performance
of USO’s investments could be impacted adversely.
An
investment in USO may provide little or no diversification benefits. Thus, in a declining market, USO may have no gains to offset
losses from other investments, and an investor may suffer losses on an investment in USO while incurring losses with respect to
other asset classes.
Historically,
Oil Futures Contracts and Other 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, USO’s
performance were to move in the same general direction as the financial markets, investors will obtain little or no diversification
benefits from an investment in USO’s shares. In such a case, USO may have no gains to offset losses from other investments,
and investors may suffer losses on their investment in USO at the same time they incur losses with respect to other investments.
Variables
such as drought, floods, weather, pandemics, embargoes, tariffs and other political events may have a larger impact on crude oil
prices and crude oil-linked instruments, including Oil Futures Contracts and Other Oil-Related Investments, than on traditional
securities. These additional variables may create additional investment risks that subject USO’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 historical 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, USO cannot be expected to be automatically profitable during
unfavorable periods for the stock market, or vice versa.
Historical
performance of USO and the Benchmark Futures Contract is not indicative of future performance.
Past performance
of USO or the Benchmark Futures Contract is not necessarily indicative of future results. Therefore, past performance of USO or
the Benchmark Futures Contract should not be relied upon in deciding whether to buy shares of USO.
Correlation Risk
Investors
purchasing shares to hedge against movements in the price of crude oil will have an efficient hedge only if the price investors
pay for their shares closely correlates with the price of crude oil. Investing in USO’s shares for hedging purposes involves
the following risks:
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The
market price at which the investor buys or sells shares may be significantly less or
more than NAV.
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Daily
percentage changes in NAV may not closely correlate with daily percentage changes in
the price of the Benchmark Oil Futures Contract.
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Daily
percentage changes in the price of the Benchmark Oil Futures Contract may not closely
correlate with daily percentage changes in the price of light, sweet crude oil.
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As of the date of this prospectus,
significant market volatility has occurred and is continuing in the crude oil markets and the oil futures markets. Such volatility
is attributable to the COVID-19 pandemic, disputes among oil-producing companies over the potential limits on the production of
crude oil, a corresponding collapse in demand for crude oil and a lack of on-land storage for crude oil. These events have severely
limited USO’s ability to have a substantial portion of its assets invested in the Benchmark Oil Futures Contract and the
ICE WTI Contract. In light of this, USO has invested in Oil Futures Contracts other than the Benchmark Oil Future Contract. Also,
USO could, if it determined it appropriate in light of market conditions and regulatory requirements, invest in Other Oil-Related
Interests.
In addition to disclosing USO’s
end of day portfolio of investments, USO’s investment intentions with respect to the type and percentage of investments
in USO’s portfolio will be disclosed on its website, www.uscfinvestments.com.
For more information about the aforementioned
market volatility and events, see PROSPECTUS SUMMARY – Recent Developments Impacting the Ability of USO to Achieve Its
Investment Objective and Strategy.
The
market price at which investors buy or sell shares may be significantly less or more than NAV.
USO’s
NAV per share will change throughout the day as fluctuations occur in the market value of USO’s portfolio investments. The
public trading price at which an investor buys or sells shares during the day from their broker may be different from the NAV
of the shares, which is also the price shares can be redeemed with USO by Authorized Participants in Redemption Baskets.
USCF expects that exploitation of certain arbitrage opportunities by Authorized Participants and their clients and customers will
tend to cause the public trading price to track NAV per share closely over time, but there can be no assurance of that.
Price
differences may relate primarily to supply and demand forces at work in the secondary trading market for shares that are closely
related to, but not identical to, the same forces influencing the prices of the light, sweet crude oil and the Benchmark Oil Futures
Contract at any point in time. For example, a shortage of USO shares in the market and other factors could cause USO’s shares
to trade at a premium. Investors should be aware that such premiums can be transitory. See the risk factor, An unanticipated
number of creation requests during a short period of time could result in a shortage of shares, below.
An
unanticipated number of creation requests during a short period of time could result in a shortage of shares.
The NAV
of USO’s shares may also be influenced by non-concurrent trading hours between the NYSE Arca and the various futures exchanges
on which crude oil is traded. While the shares trade on the NYSE Arca from 9:30 a.m. to 4:00 p.m. Eastern Time, the trading hours
for the futures exchanges on which light, sweet crude oil trade may not necessarily coincide during all of this time. For example,
while the shares trade on the NYSE Arca until 4:00 p.m. Eastern Time, liquidity in the global light sweet crude market will be
reduced after the close of the NYMEX at 2:30 p.m. Eastern Time. As a result, during periods when the NYSE Arca is open and the
futures exchanges on which light, sweet crude oil is traded are closed, trading spreads and the resulting premium or discount
on the shares may widen and, therefore, increase the difference between the price of the shares and the NAV of the shares.
Daily
percentage changes in USO’s NAV may not correlate with daily percentage changes in the price of the Benchmark Oil Futures
Contract.
It is
possible that the daily percentage changes in USO’s NAV per share may not closely correlate to daily percentage changes
in the price of the Benchmark Oil Futures Contract. Non-correlation may be attributable to disruptions in the market for light,
sweet crude oil, the imposition of position or accountability limits by regulators or exchanges, or other extraordinary circumstances.
As USO approaches or reaches position limits with respect to the Benchmark Oil Futures Contract and other Oil Futures Contracts
or in view of market conditions, USO may invest in Oil Futures Contracts other than the Benchmark Futures Contact and Other
Oil-Related Investments.
In 2020,
in the context of the COVID-19 pandemic and disputes among oil-producing countries regarding potential limits on the production
of crude oil, significant market volatility occurred and is continuing in the crude oil markets as well as the oil futures markets.
As a result of these market conditions and the regulatory response, large numbers of USO shares that were purchased during a short
period of time, and regulatory accountability levels and position limits on oil futures contracts that were imposed on USO, USO
invested in Oil Futures Contracts in months other than the Benchmark Oil Futures Contracts. The foregoing impacted the performance
of USO and made it difficult for USO to meet its investment objective, which is for the daily percentage changes in the NAV per
share to reflect the daily percentage changes of the spot price of light, sweet crude oil, as measured by the daily percentage
changes in the price of Benchmark Oil Futures Contract, plus interest earned on USO’s collateral holdings, less USO’s
expenses.
In addition, USO is not able to replicate exactly the changes in the price
of the Benchmark Oil Futures Contract because the total return generated by USO is reduced by expenses and transaction costs,
including those incurred in connection with USO’s trading activities, and increased by interest income from USO’s
holdings of Treasuries (defined below). Tracking the Benchmark Oil Futures Contract requires trading of USO’s portfolio
with a view to tracking the Benchmark Oil Futures Contract over time and is dependent upon the skills of USCF and its trading
principals, among other factors.
An
investment in USO is not a proxy for investing in the oil markets, and the daily
percentage changes in the price of the Benchmark Oil Futures Contract, or the NAV of USO, may not correlate with daily
percentage changes in the spot price of light, sweet crude oil.
An investment in USO is not a proxy
for investing in the oil markets. To the extent that investors use USO as a means of indirectly investing in crude oil, there
is the risk that the daily changes in the price of USO’s shares on the NYSE Arca, on a percentage basis, will not closely
track the daily changes in the spot price of light, sweet crude oil on a percentage basis. This could happen if the price of shares
traded on the NYSE Arca does not correlate closely with the value of USO’s NAV; the changes in USO’s NAV do not correlate
closely with the changes in the price of the Benchmark Oil Futures Contract; or the changes in the price of the Benchmark Oil
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 USO as a cost-effective way to indirectly invest in crude oil
or as a hedge against the risk of loss in crude oil-related transactions. The degree of correlation among USO’s share price,
the price of the Benchmark Oil Futures Contract and the spot price of crude oil depends upon circumstances such as
variations in the speculative oil market, supply of and demand for Oil Futures Contracts (including the Benchmark Oil Futures
Contract) and Other Oil-Related Investments, and technical influences on trading oil futures contracts. Investors who are not
experienced in investing in oil futures contracts or the factors that influence that market or speculative trading in the crude
oil markets and may not have the background or ready access to the types of information that investors familiar with these markets
may have and, as a result, may be at greater risk of incurring losses from trading in USO shares than such other investors with
such experience and resources.
Natural
forces in the oil futures market known as “backwardation” and “contango” may increase USO’s tracking
error and/or negatively impact total return.
The design of
USO’s Benchmark Oil Futures Contract is such that every month it begins by using the near month contract to expire until
the near month contract is within two weeks of expiration, when, over a four day period, it transitions to the next month contract
to expire as its benchmark contract and keeps that contract as its benchmark until it becomes the near month contract and close
to expiration. In the event of a crude oil futures market where near month contracts trade at a higher price than next month to
expire contracts, 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 contract would tend to rise as it approaches expiration. Conversely, in
the event of a crude oil futures market where near month contracts trade at a lower price than next month contracts, 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 contract would tend to decline as it approaches expiration.
While contango and backwardation are
consistently present in trading in the futures markets, such conditions can be exacerbated by market forces. For example, extraordinary
market conditions in the crude oil markets, including “super contango” (a higher level of contango arising from the
overabundance of oil being produced and the limited availability of storage for such excess supply), occurred, and may continue
to occur for an unknown duration, in the crude oil futures markets due to over-supply of crude oil in the face of weak demand
during the COVID-19 pandemic when disputes among oil-producing countries regarding limitations on the production of oil also were
occurring.
As a result
of market and regulatory conditions, including significant market volatility, large numbers of USO shares purchased during a short
period of time, and applicable regulatory accountability levels and position limits on oil futures contracts that were imposed
on USO, USO invested in Oil Futures Contracts with expiration dates for months later than that of the Benchmark Futures Contract.
Continued holdings in these later month contracts will typically cause USO to experience lesser effects from contango and backwardation
than would be the case if USO’s holdings were primarily in oil futures contracts in the first month or second month.
When compared
to total return of other price indices, such as the spot price of crude oil, the impact of backwardation and contango may cause
the total return of USO’s per share NAV to vary significantly. Moreover, absent the impact of rising or falling oil prices,
a prolonged period of contango could have a significant negative impact on USO’s per share NAV and total return and investors
could lose part or all of their investment. See “Additional Information about USO, its Investment Objective and Investments”
for a discussion of the potential effects of contango and backwardation.
Accountability
levels, position limits, and daily price fluctuation limits set by the exchanges have the potential to cause tracking error, by
limiting USO’s investments, including its ability to fully invest in the Benchmark Futures Contract, which could cause
the price of shares to substantially vary from the price of the Benchmark Oil Futures Contract.
Designated
contract markets, such as the NYMEX and ICE Futures, 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 USO is not) may hold, own or control. These levels and position limits apply to
the futures contracts that USO invests in to meet its investment objective. In addition to accountability levels and position
limits, the NYMEX and ICE Futures also set daily price limits on futures contracts. The daily price fluctuation limit establishes
the maximum amount that the price of a futures contract 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.
The accountability
levels for the Benchmark Oil Futures Contract and other Oil Futures Contracts traded on U.S.-based futures exchanges, are not
a fixed ceiling, but rather a threshold above which the exchange may exercise greater scrutiny and control over an investor’s
positions. The NYMEX current accountability level for investments for any one month in the Benchmark Oil Futures Contract is 10,000
contracts. In addition, the NYMEX imposes an accountability level for all months of 20,000 net futures contracts for light, sweet
crude oil. In addition, the ICE Futures Europe maintains the same accountability levels, position limits and monitoring authority
for its light, sweet crude oil contract as the NYMEX. If USO and the Related Public Funds exceed these accountability levels for
investments in the futures contracts for light, sweet crude oil, the NYMEX and ICE Futures Europe will monitor such exposure and
may ask for further information on their activities including the total size of all positions, investment and trading strategy,
and the extent of liquidity resources of USO and the Related Public Funds. If deemed necessary by the NYMEX and/or ICE Futures
Europe, USO could be ordered to reduce or maintain the level of its futures contracts traded on such exchanges to below
the 10,000 single month and/or 20,000 all month accountability level.
Position
limits differ from accountability levels in that they represent fixed limits on the maximum number of futures contracts that any
person may hold and cannot allow such limits to be exceeded without express CFTC authority to do so. In addition to accountability
levels and position limits that may apply at any time, the NYMEX and ICE Futures impose position limits on contracts held in the
last few days of trading in the near month contract to expire.
As of
the date of this prospectus, circumstances had occurred that caused the NYMEX to impose new accountability levels and position
limits. As discussed above, the COVID-19 pandemic, disputes among oil-producing countries regarding potential limits
on the production of crude oil, a corresponding collapse in demand for crude oil, a lack of on-land storage for crude oil,
significant market volatility occurred and is continuing in the crude oil markets as well as the oil futures markets. As a result,
several factors including these market conditions, resulted in the purchase from USO of large numbers of its shares during a relatively
short period of time which in turn caused USO to invest the proceeds from such sales in the Benchmark Oil Futures Contract and
certain of the other Oil Futures Contracts of the same month such as the cash-settled, but substantially similar, oil futures
contract traded on ICE Futures (the “ICE WTI Contract”).
In the midst of the foregoing factors,
continued market volatility and the increasing and relatively large size of USO’s positions in the foregoing contracts,
the NYMEX imposed accountability levels and position limits on USO in two stages. More specifically, United States Commodity Funds,
LLC (“USCF”) received letters from the CME on behalf of the NYMEX on April 16, 2020 (the “April 16 CME Letter”)
and on April 23, 2020 (the “April 23 CME Letter”, and together with the April 16 CME Letter, the “CME
Letters”). The CME Letters ordered USCF, USO and the Related Public Funds advised by USCF not to exceed accountability levels
in the light sweet crude oil futures contract for June 2020 in excess of 10,000 futures contracts. In addition, the April 16 CME
Letter provided that USCF, USO and the Related Public Funds could not assume a position in light sweet crude oil futures contract
for June 2020 in excess of the established position limit of 150,000 long futures contracts. The April 23 CME Letter
ordered USCF, USO and the Related Public Funds not to assume a position in the light sweet crude oil futures
contract for June 2020 in excess of 15,000 long futures contracts, for July 2020 in 78,000 long futures contracts, for August
2020 in 50,000 long futures contracts, for September 2020 in 35,000 long futures contracts. USCF, USO and the Related Public
Funds did not exceed those position limits and maintained positions that were below the position limits as required by the April
23 CME Letter. The current accountability levels and position limits for USO are set forth in the April 23 CME Letter which superseded
the April 16 CME Letter. Investors should note that the foregoing accountability levels and position limits are subject to change,
which in turn could change the amount and type of permitted investments in which USO invests.
The CFTC
has proposed to adopt limits on speculative positions in 25 physical commodity futures and option contracts as well as swaps that
are economically equivalent to such contracts in the agriculture, energy and metals markets, which rules were recently re-proposed
in January 2020 (the “Position Limit Rules”). The Position Limit Rules would apply to the Benchmark Oil Futures
Contract and the ICE WTI Contract. If adopted, the Position Limit Rules would, among other things: identify which contracts
are subject to speculative position limits; set thresholds that restrict the size of speculative positions that a person may hold
in the spot month, other individual months, and all months combined; create an exemption for positions that constitute bona fide
hedging transactions; impose responsibilities on designated contract markets (“DCMs”) and swap execution facilities
(“SEFs”) to establish position limits or, in some cases, position accountability rules; and apply to both futures
and swaps across four relevant venues: OTC, DCMs, SEFs as well as certain non-U.S. located platforms. At this time, it is unclear
how the Position Limit Rules may affect USO, but the effect may be substantial and adverse. By way of example, the Position Limit
Rules may negatively impact the ability of USO to meet its investment objectives through limits that may inhibit USCF’s
ability to effectively invest the proceeds from sales of Creation Baskets of USO in particular amounts and types of
its permitted investments to meet its investment objective.
Until such
time as the Position Limit Rules are adopted, the regulatory architecture in effect prior to the adoption of the Position Limit
Rules will govern transactions in commodities and related derivatives. Under that system, the CFTC enforces federal limits on
speculation in nine agricultural products (e.g., corn, wheat and soy), while futures exchanges establish and enforce position
limits and accountability levels for other agricultural products and certain energy products (e.g., oil and natural gas).
Under existing
and recently adopted CFTC regulations, for the purpose of position limits, a market participant is generally required, subject
to certain narrow exceptions, to aggregate all positions for which that participant controls the trading decisions with all positions
for which that participant has a 10 percent or greater ownership interest in an account or position, as well as the positions
of two or more persons acting pursuant to an express or implied agreement or understanding with that market participant (the “Aggregation
Rules”). The Aggregation Rules will also apply with respect to the Position Limit Rules if and when such Position Limit
Rules are adopted.
Risk mitigation measures imposed
by USO’s FCMs have the potential to cause tracking error by limiting USO’s investments, including its ability
to fully invest in the Benchmark Futures Contract and other Oil Futures Contracts, which could cause the price of USO’s
shares to substantially vary from the price of the Benchmark Oil Futures Contract.
USO’s
FCMs have imposed and may impose limits on the positions that USO may hold in the Benchmark Futures Contracts as well as certain
other months that constrain USO’s ability to invest in the Benchmark Oil
Futures Contract and other Oil Futures Contracts. In particular, RBC expressly informed USO that USO may not hold positions
in the June Benchmark Oil Futures Contract expiring on May 19, 2020. At the time it imposed this restriction, RBC continued
to trade and clear other Oil Futures Contracts for USO, including in connection with rolls and rebalances of its portfolio. RBC
advised USO that, going forward, through RBC it may only purchase additional
Benchmark Oil Futures Contracts and other Oil Futures Contracts for rolls and
rebalances of USO’s portfolio and not as investments for the proceeds of new Creation Baskets. The limits imposed
by RBC on holdings in USO’s portfolio apply regardless of whether the Oil Futures Contracts purchased would be within the
accountability levels and position limits permitted by NYMEX and ICE. RBC has indicated that the foregoing limitations on USO
are solely as a result of RBC’s own internal risk management requirements.
On
May 28, 2020, USO entered into an agreement with RCG to become an additional FCM. While RCG does not preclude USO from
purchasing, holding, or reinvesting the proceeds from the purchases of Creation Baskets in, Oil Futures Contracts, including
the Benchmark Oil Futures Contract. However, any FCM could limit such purchases, holdings or reinvestment in the future. Such
limits, if imposed, coupled with the risk measures already taken by RBC, could limit USO’s ability to have a
substantial portion of its assets invested in the Benchmark Oil Futures Contract.
USO cannot predict with any certainty when and whether RBC will remove these limitations and whether and to what extent
any other FCM would impose such limits. USO is in ongoing discussions with other FCMs and it cannot predict when it will
enter into such agreements with such FCMs or the limits such FCMs may impose, if any.
The
risk mitigation measures imposed to date by FCMs and other market participants have severely limited USO’s current ability to have a substantial portion of its assets invested in the Benchmark Oil Futures Contract and other
Oil Futures Contracts. Accordingly, and because such factors have continued to evolve, USO has had to invest in other Oil Futures
Contracts and has had to more frequently rebalance and adjust the types of holdings in its portfolio than in the past. The foregoing
will continue to inhibit USO from pursuing its investment objective in the same manner.
In
addition, when offering Creation Baskets for purchase, limitations imposed by the exchanges and any FCM could limit
USO’s ability to invest the proceeds of the purchases of Creation Baskets in Benchmark Oil Futures Contracts and other
Oil Futures Contracts. If this were the case, when selling Creation Baskets, USO may invest in
other permitted investments, including Other Oil-Related Interests, and may hold larger amounts of Treasuries, cash and cash equivalents,
which will further impair USO’s ability to meet its investment objective.
Tax Risk
An
investor’s tax liability may exceed the amount of distributions, if any, on its shares.
Cash or
property will be distributed at the sole discretion of USCF. USCF has not and does not currently intend to make cash or other
distributions with respect to shares. Investors will be required to pay U.S. federal income tax and, in some cases, state, local,
or foreign income tax, on their allocable share of USO’s taxable income, without regard to whether they receive distributions
or the amount of any distributions. Therefore, the tax liability of an investor with respect to its shares may exceed the amount
of cash or value of property (if any) distributed.
An
investor’s allocable share of taxable income or loss may differ from its economic income or loss on its shares.
Due to
the application of the assumptions and conventions applied by USO in making allocations for tax purposes and other factors, an
investor’s allocable share of USO’s income, gain, deduction or loss may be different than its economic profit or loss
from its shares for a taxable year. This difference could be temporary or permanent and, if permanent, could result in it being
taxed on amounts in excess of its economic income.
Items
of income, gain, deduction, loss and credit with respect to shares could be reallocated, USO could be liable for U.S. Federal
income tax, if the U.S. Internal Revenue Service (“IRS”) does not accept the assumptions and conventions applied by
USO in allocating those items, with potential adverse consequences for an investor.
The U.S.
tax rules pertaining to partnerships are complex and their application to large, publicly traded partnerships such as USO is in
many respects uncertain. USO applies 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 shareholders’
economic gains and losses. These assumptions and conventions may not fully comply with all aspects of the Internal Revenue Code
(the “Code”) and applicable Treasury Regulations, however, and it is possible that the IRS will successfully challenge
USO’s allocation methods and require USO to reallocate items of income, gain, deduction, loss or credit in a manner that
adversely affects investors.
USO may
be liable for U.S. federal income tax on any “imputed understatement” of tax resulting from an adjustment as a result
of an IRS audit. The amount of the imputed understatement generally includes increases in allocations of items of income or gains
to any investor and decreases in allocations of items of deduction, loss, or credit to any investor without any offset for any
corresponding reductions in allocations of items of income or gain to any investor or increases in allocations of items of deduction,
loss, or credit to any investor. If USO is required to pay any U.S. federal income taxes on any imputed understatement, the resulting
tax liability would reduce the net assets of USO and would likely have an adverse impact on the value of the shares. Under certain
circumstances, USO may be eligible to make an election to cause the investors to take into account the amount of any imputed understatement,
including any interest and penalties. The ability of a publicly traded partnership such as USO to make this election is uncertain.
If the election is made, USO would be required to provide investors who owned beneficial interests in the shares in the year to
which the adjusted allocations relate with a statement setting forth their proportionate shares of the adjustment (“Adjusted
K-1s”). The investors would be required to take the adjustment into account in the taxable year in which the Adjusted K-1s
are issued.
USO
could be treated as a corporation for federal income tax purposes, which may substantially reduce the value of the shares.
USO has
received an opinion of counsel that, under current U.S. federal income tax laws, USO 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 USO’s annual
gross income will be derived from (a) income and gains from commodities (not held as inventory) or futures, forwards, options,
swaps and other notional principal contracts with respect to commodities, and (b) interest income, (ii) USO is organized and operated
in accordance with its governing agreements and applicable law and (iii) USO does not elect to be taxed as a corporation for federal
income tax purposes. Although USCF anticipates that USO has satisfied and will continue to satisfy the “qualifying income”
requirement for all of its taxable years, that result cannot be assured. USO 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 USO 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 shareholders, USO would be subject to
tax on its net income for the year at corporate tax rates. In addition, although USCF does not currently intend to make distributions
with respect to shares, any distributions would be taxable to shareholders as dividend income. Taxation of USO as a corporation
could materially reduce the after-tax return on an investment in shares and could substantially reduce the value of the shares.
USO
is organized and operated as a limited partnership in accordance with the provisions of the LP Agreement and applicable state
law, and therefore, USO has a more complex tax treatment than traditional mutual funds.
USO is
organized and operated as a limited partnership in accordance with the provisions of the LP Agreement and applicable state law.
No U.S. federal income tax is paid by USO on its income. Instead, USO will furnish shareholders each year with tax information
on IRS Schedule K-1 (Form 1065) and each U.S. shareholder is required to report on its U.S. federal income tax return its allocable
share of the income, gain, loss and deduction of USO.
This must
be reported without regard to the amount (if any) of cash or property the shareholder receives as a distribution from USO during
the taxable year. A shareholder, therefore, may be allocated income or gain by USO but receive no cash distribution with which
to pay the tax liability resulting from the allocation, or may receive a distribution that is insufficient to pay such liability.
In addition
to federal income taxes, shareholders may be subject to other taxes, such as state and local income taxes, unincorporated business
taxes, business franchise taxes and estate, inheritance or intangible taxes that may be imposed by the various jurisdictions in
which USO does business or owns property or where the shareholders reside. Although an analysis of those various taxes is not
presented here, each prospective shareholder should consider their potential impact on its investment in USO. It is each shareholder’s
responsibility to file the appropriate U.S. federal, state, local and foreign tax returns.
If
USO is required to withhold tax with respect to any Non-U.S. shareholders, the cost of such withholding may be borne by all shareholders.
Under
certain circumstances, USO may be required to pay withholding tax with respect to allocations to Non-U.S. shareholders. Although
the LP Agreement provides that any such withholding will be treated as being distributed to the Non-U.S. shareholder, USO may
not be able to cause the economic cost of such withholding to be borne by the Non-U.S. shareholder on whose behalf such amounts
were withheld since it does not generally expect to make any distributions. Under such circumstances, the economic cost of the
withholding may be borne by all shareholders, not just the shareholders on whose behalf such amounts were withheld. This could
have a material impact on the value of the shares.
The
impact of U.S. tax reform on USO is uncertain.
On December
22, 2017, H.R. 1, the bill formerly known as the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), was signed into law.
The Tax Act substantially alters the U.S. federal tax system in a variety of ways, including significant changes to the taxation
of business entities, the deductibility of interest expense, and the tax treatment of capital investment. We cannot predict with
certainty how any changes in the tax laws might affect the US economy or the demand for and the price of commodities. As a result,
it is possible that the Tax Act, as well as any U.S. Treasury regulations, administrative interpretations or court decisions interpreting
the Tax Act and any future legislation related to tax reform, could have unexpected or negative impacts on USO and some or all
of its shareholders. Shareholders are urged to consult with their tax advisor regarding tax legislative, regulatory, or administrative
developments and proposals and their potential effect on an investment in USO.
OTC Contract Risk
USO
will be subject to credit risk with respect to counterparties to OTC contracts entered into by USO or held by special purpose
or structured vehicles.
USO faces
the risk of non-performance by the counterparties to the OTC 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 USO, in which case USO could suffer significant losses on these contracts.
If a counterparty
becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, USO may experience significant delays
in obtaining any recovery in a bankruptcy or other reorganization proceeding. USO may obtain only limited recovery or may obtain
no recovery in such circumstances.
Valuing
OTC derivatives may be less certain than actively traded financial instruments.
In general,
valuing OTC derivatives is less certain than valuing actively traded financial instruments such as exchange traded futures contracts
and securities or cleared swaps because the price and terms on which such OTC derivatives are entered into or can be terminated
are individually negotiated, and those prices and terms may not reflect the best price or terms available from other sources.
In addition, while market makers and dealers generally quote indicative prices or terms for entering into or terminating OTC contracts,
they typically are not contractually obligated to do so, particularly if they are not a party to the transaction. As a result,
it may be difficult to obtain an independent value for an outstanding OTC derivatives transaction.
Other Risks
Certain
of USO’s investments could be illiquid, which could cause large losses to investors at any time or from time to time.
Futures
positions cannot always be liquidated 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 for its currency, its crude oil production or exports, or another major export, can also make
it difficult to liquidate a position. Because both Oil Futures Contracts and Other Oil-Related Investments may be illiquid, USO’s
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. The large size of the positions
that USO may acquire increases the risk of illiquidity both by making its positions more difficult to liquidate and by potentially
increasing losses while trying to do so.
OTC contracts
that are not subject to clearing may be even less marketable than futures contracts 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 make such contracts less liquid than standardized futures contracts traded on a commodities exchange and could adversely
impact USO’s ability to realize the full value of such contracts. In addition, even if collateral is used to reduce counterparty
credit risk, sudden changes in the value of OTC transactions may leave a party open to financial risk due to a counterparty default
since the collateral held may not cover a party’s exposure on the transaction in such situations.
USO
is not actively managed and its investment objective is to track the Benchmark Oil Futures Contract so that the average
daily percentage change in USO’s NAV for any period of 30 successive valuation days will be within plus/minus ten percent
(10%) of the average daily percentage change in the price of the Benchmark Oil Futures Contract over the same period.
USO is
not actively managed by conventional methods. Accordingly, if USO’s investments in Oil Interests are declining in value,
in the ordinary course, USO will not close out such positions except in connection with paying the proceeds to an Authorized
Participant upon the redemption of a basket or closing out its positions in Oil Futures Contracts and other permitted
investments (i) in connection with the monthly change in the Benchmark Oil Futures Contract or when USO otherwise determines
it would be appropriate to do so, e.g., due to regulatory requirements or risk mitigation measures, or to avoid USO becoming leveraged,
and it reinvests the proceeds in new Oil Futures Contracts or Other Oil-Related Investments to the extent possible. USCF will
seek to cause the NAV of USO’s shares to track the Benchmark Oil Futures Contract during periods in which its price is flat
or declining as well as when the price is rising.
Although
USO has always had the ability to invest in Oil Futures Contracts beyond the Benchmark Oil Futures Contract and in Other Oil-Related
Investments, USO announced its intention to invest in Oil Futures Contracts other than the Benchmark Oil Future Contract and that
it could, if it determined it appropriate in light of market conditions and regulatory requirements, invest in Other Oil-Related
Interests. As of the date of this prospectus, it is likely that the factors limiting USO’s investments in the Benchmark
Oil Futures Contract will continue, including as a result of the COVID-19 pandemic and the state of the crude oil markets, and
that USO’s need to invest in other Oil Futures Contracts and, potentially other permitted investments, will continue.
As disclosed
in this prospectus in the section on “Recent Developments Impacting the Ability of USO to Achieve Its Investment Objective
and Strategy”, USO’s ability to invest in the Benchmark Oil Futures Contract could be limited as a result of any
or all of the following: evolving market conditions, a change in regulator accountability levels and position limits imposed on
USO with respect to its investment in Oil Futures Contracts, additional or different risk mitigation measures taken by market
participants, generally, including USO, with respect to USO acquiring additional Oil Futures contracts, or USO selling additional
shares. Accordingly, for the foreseeable future, to address and comply with the market conditions, regulatory requirements and
other factors that have influenced, and will continue to influence, its investment decisions, USO intends to buy or sell its permitted
investments when USO increases or decreases either its portfolio overall or its holdings of particular investments. USO has disclosed
the parameters for making decisions regarding the permitted investments USO will hold, including the intended order of priority
in selecting investments and the type of investments to be held in its portfolio. As of May 1, 2020, the type and percentages
of investments to be held by USO at the end of the monthly roll period as well as going forward, including for any rebalances,
is published on its website www.uscfinvestments.com. Commencing with the monthly roll occurring in May 2020, USO’s
positions in Oil Futures Contracts and Other Oil Related Investments roll over a ten-day period, whereas previously USO’s
positions would roll over a four-day period. In addition, while determining the appropriate investments for USO’s portfolio
in accordance with its current intention, or to address the foregoing changes in market conditions, regulatory requirements or
risk mitigation measures, USO may need to hold significant portions of its portfolio in cash beyond what it has historically held
in order to satisfy potential margin requirements.
USO
may not meet the listing standards of NYSE Arca, which would adversely impact an investor’s ability to sell shares.
USO’s
shares are listed for trading on the NYSE Arca under the market symbol “USO.” NYSE Arca may suspend USO’s shares
from trading on the exchange with or without prior notice to USO, upon failure of USO to comply with the NYSE’s
listing requirements, or when in its sole discretion, the NYSE Arca determines that such suspension of dealings is in the public
interest or otherwise warranted. There can be no assurance that the requirements necessary to maintain the listing of USO’s
shares will continue to be met or will remain unchanged. If USO were unable to meet the NYSE’s listing standards and were
to become delisted, an investor’s ability to sell its shares would be adversely impacted.
The
NYSE Arca may halt trading in USO’s shares, which would adversely impact an investor’s ability to sell shares.
Trading in shares may be halted due
to market conditions or, in light of NYSE Arca rules and procedures, for reasons that, in the view of the NYSE Arca, make trading
in shares inadvisable. For example, the NYSE ARCA recently halted trading in USO shares when USO first announced that it would
also be investing in Oil Futures Contracts other than the Benchmark Futures Contract. In addition, trading is subject to trading
halts caused by extraordinary market volatility pursuant to “circuit breaker” rules that require trading to be halted
for a specified period based on a specified market decline.
The
liquidity of the USO shares may also be affected by the withdrawal from participation of Authorized Participants, which
could adversely affect the market price of the shares.
In the
event that one or more Authorized Participants which have substantial interests in the shares withdraw from participation, the
liquidity of the shares will likely decrease, which could adversely affect the market price of the shares and result in investors
incurring a loss on their investment.
Shareholders
that are not Authorized Participants may only purchase or sell their shares in secondary trading markets, and the conditions associated
with trading in secondary markets may adversely affect investors’ investment in the shares.
Only Authorized
Participants may directly purchase from, or redeem shares with, USO through Creation Baskets or Redemption Baskets. All other
investors that desire to purchase or sell shares must do so through the NYSE Arca or in other markets, if any, in which the shares
may be traded. Shares may trade at a premium or discount to NAV per share.
The
lack of an active trading market for USO’s shares may result in losses on an investor’s investment in USO at the time
the investor sells the shares.
Although
USO’s shares are listed and traded on the NYSE Arca, there can be no guarantee that an active trading market for the shares
will be maintained. If an investor needs to sell shares at a time when no active trading market for them exists, the price the
investor receives upon sale of the shares, assuming they were able to be sold, likely would be lower than if an active market
existed.
USO could become leveraged
if it had insufficient assets to completely meet its margin or collateral requirements relating to its investments.
Although USO does not and will not
borrow money or use debt to satisfy its margin or collateral obligations in respect of its investments, it could become leveraged
if USO were to hold insufficient assets that would allow it to meet not only the current, but also future, margin or collateral
obligations required for such investments. Such a circumstance could occur if USO were to hold assets that have a value of less
than zero.
USCF endeavors to have the value
of USO’s Treasuries, cash and cash equivalents, whether held by USO or posted as margin or other collateral, at all times
approximate the aggregate market value of its obligations under its Oil Futures Contracts and Other Oil-Related Investments. Although
permitted to do so under its Limited Partnership Agreement, USO has not and does not intend to leverage its assets by making investments
beyond its potential ability to meet the potential margin and collateral obligations relating to such investments. Consistent
with this, USO’s announced investment intentions, and any changes thereto, will take into account the need for USO to make
permitted investments that also allow it to maintain adequate liquidity to meet its margin and collateral requirements and to
avoid, to the extent reasonably possible, USO becoming leveraged, including by its holding of assets that have a high probability
of having a value of less than zero. If market conditions require it, these risk reduction procedures may occur on short notice.
Limited
partners and shareholders do not participate in the management of USO and do not control USCF, so they do not have any influence
over basic matters that affect USO.
The limited
partners and shareholders take no part in the management or control, and have a minimal voice in USO’s operations or business.
Limited partners and shareholders must therefore rely upon the duties and judgment of USCF to manage USO’s affairs. Limited
partners and shareholders have no right to elect USCF on an annual or any other continuing basis. If USCF voluntarily withdraws,
however, the holders of a majority of USO’s outstanding shares (excluding for purposes of such determination shares owned,
if any, by the withdrawing general partner and its affiliates) may elect its successor. USCF may not be removed as general partner
except upon approval by the affirmative vote of the holders of at least 66 2/3 percent of USO’s outstanding shares (excluding
shares, if any, owned by USCF and its affiliates), subject to the satisfaction of certain conditions set forth in the LP Agreement.
Limited
partners may 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 USO’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.
A limited
partner will not be liable for assessments in addition to its initial capital investment in any of USO’s shares. However,
a limited partner may be required to repay to USO any amounts wrongfully returned or distributed to it under some circumstances.
Under Delaware law, USO may not make a distribution to limited partners if the distribution causes USO’s liabilities (other
than liabilities to partners on account of their partnership interests and nonrecourse liabilities) to exceed the fair value of
USO’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.
The
LLC Agreement provides limited authority to the Non-Management Directors, and any Director of USCF may be removed by USCF’s
parent company, which is wholly owned by Concierge Technologies, Inc., a controlled public company where the majority of shares
are owned by Nicholas Gerber along with certain other family members and certain other shareholders.
USCF’s
Board of Directors (the “Board”) currently consists of four Management Directors, each of whom are also executive
officers or employees of USCF (“Management Directors”), and three Non-Management Directors, each of whom are considered
independent for purposes of applicable NYSE Arca and SEC rules. Under USCF’s Sixth Amended and Restated Limited Liability
Company Agreement, dated as of May 15, 2015 (as amended from time to time, the (“LLC Agreement”), the Non-Management
Directors have only such authority as the Management Directors expressly confer upon them, which means that the Non-Management
Directors may have less authority to control the actions of the Management Directors than is typically the case with the independent
members of a company’s Board. In addition, any Director may be removed by written consent of Wainwright Holdings, Inc. (“Wainwright”),
which is the sole member of USCF. The sole shareholder of Wainwright is Concierge Technologies, Inc., a company publicly traded
under the ticker symbol “CNCG” (“Concierge”). Mr. Nicholas Gerber along with certain family members and
certain other shareholders, own the majority of the shares in Concierge, which is the sole shareholder of Wainwright, the sole
member of USCF. Accordingly, although USCF is governed by the Board, which consists of both Management Directors and Non-Management
Directors, pursuant to the LLC Agreement, it is possible for Mr. Gerber to exercise his indirect control of Wainwright to effect
the removal of any Director (including the Non-Management Directors which comprise the Audit Committee) and to replace that Director
with another Director. Having control in one person could have a negative impact on USCF and USO, including their regulatory obligations.
There
is a risk that USO will not earn trading gains sufficient to compensate for the fees and expenses that it must pay and as such
USO may not earn any profit.
USO pays
brokerage charges of approximately 0.17% of average total net assets based on brokerage fees of $3.50 per buy or sell, management
fees of 0.45% of NAV on its average net assets, and OTC spreads and extraordinary expenses (e.g., subsequent offering expenses,
other expenses not in the ordinary course of business, 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 USCF on USO’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 cannot be quantified.
These
fees and expenses must be paid in all cases regardless of whether USO’s activities are profitable. Accordingly, USO must
earn trading gains sufficient to compensate for these fees and expenses before it can earn any profit.
USO
is subject to extensive regulatory reporting and compliance.
USO is
subject to a comprehensive scheme of regulation under the federal commodities and securities laws. USO could be subject to sanctions
for a failure to comply with those requirements, which could adversely affect its financial performance (in the case of financial
penalties) or ability to pursue its investment objective (in the case of a limitation on its ability to trade).
Because
USO’s shares are publicly traded, USO is subject to certain rules and regulations of federal, state and financial market
exchange entities charged with the protection of investors and the oversight of companies whose securities are publicly traded.
These entities include the Public Company Accounting Oversight Board (the “PCAOB”), the SEC, the CFTC, the National
Futures Association (the “NFA”), and NYSE Arca and these authorities have continued to develop additional regulations
or interpretations of existing regulations. USO’s ongoing efforts to comply with these regulations and interpretations have
resulted in, and are likely to continue resulting in, a diversion of management’s time and attention from revenue-generating
activities to compliance related activities.
USO is
responsible for establishing and maintaining adequate internal control over financial reporting. USO’s internal control
system is designed to provide reasonable assurance to its management regarding the preparation and fair presentation of published
financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those
systems determined to be effective may provide only reasonable assurance with respect to financial statement preparation and presentation.
Regulatory
changes or actions, including the implementation of new legislation, is impossible to predict but may significantly and adversely
affect USO.
The futures
markets are subject to comprehensive statutes, regulations, and margin requirements. In addition, the CFTC and futures 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.
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 that are publicly distributed in the United States. In addition, the SEC, 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. Further,
various national governments outside of the United States 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 USO is impossible to predict, but it could be substantial and adverse.
USO
is not a registered investment company so shareholders do not have the protections of the 1940 Act.
USO is
not an investment company subject to the 1940 Act. Accordingly, investors 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.
Trading
in international markets could expose USO to credit and regulatory risk.
USO
invests primarily in Oil Futures Contracts, a significant portion of which are traded on United States exchanges, including the
NYMEX. However, a portion of USO’s trades may take place on markets and exchanges outside the United States. Trading on
such non-U.S. markets or exchanges presents risks because they are not subject to the same degree of regulation as their U.S.
counterparts, including potentially different or diminished investor protections. In trading contracts denominated in currencies
other than U.S. dollars, USO is subject to the risk of adverse exchange-rate movements between the dollar and the functional currencies
of such contracts. 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.
USO
and USCF may have conflicts of interest, which may permit them to favor their own interests to the detriment of shareholders.
USO is
subject to actual and potential inherent conflicts involving USCF, various commodity futures brokers and Authorized Participants.
USCF’s officers, directors and employees do not devote their time exclusively to USO and also are directors, officers or
employees of other entities that may compete with USO for their services. They could have a conflict between their responsibilities
to USO and to those other entities. As a result of these and other relationships, parties involved with USO have a financial incentive
to act in a manner other than in the best interests of USO and the shareholders. USCF has not established any formal procedure
to resolve conflicts of interest. Consequently, investors are dependent on the good faith of the respective parties subject to
such conflicts of interest to resolve them equitably. Although USCF attempts to monitor these conflicts, it is extremely difficult,
if not impossible, for USCF to ensure that these conflicts do not, in fact, result in adverse consequences to the shareholders.
See “Conflicts of Interest” below at page 54.
USCF serves
as the general partner or sponsor to each of USO and the Related Public Funds. USCF may have a conflict to the extent that its
trading decisions for USO 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 the NYMEX, USO purchased oil futures contracts, this decision could impact
USO’s ability to purchase additional oil futures contracts if the number of contracts held by funds managed by USCF reached
the maximum allowed by the NYMEX. Similar situations could adversely affect the ability of any fund to track its benchmark futures
contract.
USO may also
be subject to certain conflicts with respect to its FCM, including, but not limited to, conflicts that result from
receiving greater amounts of compensation from other clients, or purchasing opposite or competing positions on behalf of third
party accounts traded through the FCM. In addition, USCF’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 USO trades using the clearing broker to be used by USO. A potential conflict also may occur if USCF’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 USO.
USO
could terminate at any time and cause the liquidation and potential loss of an investor’s investment and could upset the
overall maturity and timing of an investor’s investment portfolio.
USO may
terminate at any time, regardless of whether USO has incurred losses, subject to the terms of the LP Agreement. In particular,
unforeseen circumstances, including, but not limited to, (i) market conditions, regulatory requirements, risk mitigation measures
taken by USO or third parties or otherwise that would lead USO to determine that it could no longer foreseeably meet its business
objective or that USO’s aggregate net assets in relation to its operating expenses or its margin or collateral requirements
make the continued operation of USO unreasonable or imprudent, or (ii) adjudication of incompetence, bankruptcy, dissolution,
withdrawal or removal of USCF as the general partner of USO could cause USO, to terminate unless a majority 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 USO to terminate USO. USO’s termination would cause the liquidation and potential loss of an investor’s
investment. Termination could also negatively affect the overall maturity and timing of an investor’s investment portfolio.
USO
does not expect to make cash distributions.
USO has
not previously made any cash distributions and intends to reinvest any realized gains in additional Oil Interests rather than
distributing cash to limited partners, or other shareholders. 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, USO generally does not expect to distribute cash to limited partners. An investor should
not invest in USO if the investor will need cash distributions from USO to pay taxes on its share of income and gains of USO,
if any, or for any other reason. Nonetheless, although USO 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 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.
An
unanticipated number of redemption requests during a short period of time could have an adverse effect on USO’s NAV.
If a substantial
number of requests for redemption of Redemption Baskets are received by USO during a relatively short period of time, USO may
not be able to satisfy the requests from USO’s assets not committed to trading. As a consequence, it could be necessary
to liquidate positions in USO’s trading positions before the time that the trading strategies would otherwise dictate liquidation.
An
unanticipated number of creation requests during a short period of time could result in a shortage of shares.
While
USCF makes every effort to predict and maintain an adequate amount of shares outstanding, if a substantial number of requests
for Creation Baskets are received by USO during a relatively short period of time that substantially differ from past creation
volumes, due to market volatility or otherwise, including, for example, the volatility that occurred during the COVID-19 pandemic
and disputes among oil-producing countries regarding limits on the production of crude oil. Among other things, such conditions
could result in circumstances where, because of high demand for its shares, USO may not have sufficient shares available for sale
to satisfy demand and Authorized Participants may, therefore, be unable to purchase additional Creation Baskets. This was the
case immediately prior to the date of this prospectus as a result of the COVID-19 pandemic and disputes among oil-producing countries.
In
the event that there was a suspension in the ability of Authorized Participants to purchase additional Creation Baskets, Authorized
Participants and other groups that make a market in shares of USO would likely still continue to actively trade the shares. However,
in such a situation, Authorized Participants and other market makers may seek to adjust the market they make in the shares. Specifically,
such market participants may increase the spread between the prices that they quote for offers to buy and sell shares to allow
them to adjust to the potential uncertainty as to when they might be able to purchase additional Creation Baskets of shares. In
addition, Authorized Participants may be less willing to offer to quote offers to buy or sell shares in large numbers. The potential
impact of either wider spreads between bid and offer prices, or reduced number of shares on which quotes may be available, could
increase the trading costs to investors in USO compared to the quotes and the number of shares on which bids and offers are made
if the Authorized Participants still were able to freely create new baskets of shares. In addition, there could be a significant
variation between the market price at which shares are traded and the shares’ net asset value, which is also the price shares
can be redeemed with USO by Authorized Participants in Redemption Baskets.
For
example, USO recently suspended purchases of Creation Baskets as a result of the exhaustion of available SEC registered shares
that could be issued by USO due to unexpected demand during the aforementioned market volatility arising from the COVID-19 pandemic
and disputes among oil-producing countries. At the time of this suspension, the market price of USO shares on April 21, 2020 was
36% higher than USO’s reported end-of-day per share NAV. A significant portion of this difference can be attributed
to the fact that USO’s NAV is calculated based on the settlement price of Oil Futures Contracts at 2:30 p.m. New York Time,
which is ninety (90) minutes earlier than the determination of the closing share price at 4:00 p.m. New York Time.
The closing share price takes into account changes in the price of Oil Futures Contracts that occur after
the settlement price is determined. However, USO’s suspension of purchases of Creation Baskets, record
volatility that occurred in crude futures markets on April 20, 2020 and April 21, 2020, and record volume in USO share transactions
on the NYSE on the same days also contributed to the premium on April, 21, 2020. In addition, investors should be aware that such
premiums can be transitory. The high premium that occurred recently was short-lived and fell almost immediately, notwithstanding
the suspension of sales of Creation Basket. On April 22, 2020, the market price of USO shares fell to a level of 8.66% above the
per share NAV, and, from April 23, 2020, continued its decline to 1.45% on May 1, 2020. For the period beginning May 1,
2020 and ending May 29, 2020 the premium averaged 2.25%. Any potential impact to the market in shares of USO that
could occur from the Authorized Participants’ inability to purchase new Creation Baskets would likely not extend beyond
the time when additional shares of USO would be registered and available for distribution.
USO
may determine that to allow it to reinvest the proceeds from sales of its Creation Baskets in currently permitted assets in a
manner that meets its investment objective it may limit its offers of Creation Baskets.
USO
may determine that USO will limit the issuance of its shares through the offering of Creation Baskets to its Authorized Purchasers.
As a result of certain circumstances described herein, including (1) the need to comply with regulatory requirements (including,
but not limited to, exchange accountability levels and position limits); (2) market conditions (including but not limited to those
allowing USO to obtain greater liquidity or to execute transactions with more favorable pricing); and (3) risk mitigation measures
taken by USO’s current and other FCMs that further limit USO and other market participants from investing in particular
crude oil futures contracts, USO’s management can determine that it will limit the issuance of shares and the offerings of Creation
Baskets because it is unable to invest the proceeds from such offerings in investments that would permit it to reasonably meet
its investment objective.
If such a determination is made,
the same consequences associated with a suspension of the offering of Creation Baskets, as described in the foregoing risk factor,
An unanticipated number of creation requests during a short period of time could result in a shortage of shares,
could also occur as a result of USO determining to limit the offering of creation baskets.
Money
Market Reform
The
SEC adopted amendments to Rule 2a-7 under the 1940 Act which became effective in 2016, to reform money market funds (“MMFs”).
While the rule applies only to MMFs, it may indirectly affect institutional investors such as USO. A portion of USO’s
assets that are not used for margin or collateral in the Futures Contracts currently are invested in government MMFs. USO does
not hold any non-government MMFs and does not anticipate investing in any non-government MMFs. However, if USO invests
in other types of MMFs besides government MMFs in the future, USO could be negatively impacted by investing in an MMF that does
not maintain a stable $1.00 NAV or that has the potential to impose redemption fees and gates (temporary suspension of redemptions).
Although
such government money market funds seek to preserve the value of an investment at $1.00 per share, there is no guarantee that
they will be able to do so and USO may lose money by investing in a government money market fund. An investment in a government
money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation, referred to herein as the FDIC, or
any other government agency. The share price of a government money market fund can fall below the $1.00 share price. USO
cannot rely on or expect a government money market fund’s adviser or its affiliates to enter into support agreements or
take other actions to maintain the government money market fund’s $1.00 share price. The credit quality of a government
money market fund’s holdings can change rapidly in certain markets, and the default of a single holding could have an adverse
impact on the government money market fund’s share price. Due to fluctuations in interest rates, the market value of securities
held by a government money market fund may vary. A government money market fund’s share price can also be negatively affected
during periods of high redemption pressures and/or illiquid markets.
The
failure or bankruptcy of a clearing broker or the Fund’s Custodian could result in a substantial loss of USO’s assets
and could impair USO in its ability to execute trades.
The Commodity
Exchange Act and CFTC regulations impose several requirements on FCMs and clearing houses that are designed to protect customers,
including mandating the implementation of risk management programs, internal monitoring and controls, capital and liquidity standards,
customer disclosures, and auditing and examination programs. In particular, the Commodity Exchange Act and CFTC regulations require
FCM and clearing houses to segregate all funds received from customers from proprietary assets. There can be no assurance that
the requirements imposed by the Commodity Exchange Act and CFTC regulations will prevent losses to, or not materially adversely
affect, USO or its investors.
In particular,
in the event of an FCM’s or clearing house’s bankruptcy, USO could be limited to recovering either a pro rata share
of all available funds segregated on behalf of the FCM’s combined customer accounts or USO may not recover any assets at
all. USO may also incur a loss of any unrealized profits on its open and closed positions. This is because if such a bankruptcy
were to occur, USO would be afforded the protections granted to customers of an FCM, and participants to transactions cleared
through a clearing house, under the United States Bankruptcy Code and applicable CFTC regulations. Such provisions generally provide
for a pro rata distribution to customers of customer property held by the bankrupt FCM or an exchange’s clearing house if
the customer property held by the FCM or the exchange’s clearing house is insufficient to satisfy all customer claims.
Bankruptcy
of a clearing FCM can be caused by, among other things, the default of one of the FCM’s customers. In this event, the exchange’s
clearing house is permitted to use the entire amount of margin posted by USO (as well as margin posted by other customers of the
FCM) to cover the amounts owed by the bankrupt FCM. Consequently, USO could be unable to recover amounts due to it on its futures
positions, including assets posted as margin, and could sustain substantial losses.
Notwithstanding
that USO could sustain losses upon the failure or bankruptcy of its FCM, the majority of USO’s assets are held in Treasuries,
cash and/or cash equivalents with USO’s Custodian and would not be impacted by the bankruptcy of an FCM.
The
failure or bankruptcy of USO’s Custodian could result in a substantial loss of USO’s assets.
The majority
of USO’s assets are held in Treasuries, cash and/or cash equivalents with the Custodian. The insolvency of the Custodian
could result in a complete loss of USO’s assets held by that Custodian, which, at any given time, would likely comprise
a substantial portion of USO’s total assets.
Third
parties may infringe upon or otherwise violate intellectual property rights or assert that USCF has infringed or otherwise violated
their intellectual property rights, which may result in significant costs and diverted attention.
It is
possible that third parties might utilize USO’s intellectual property or technology, including the use of its business methods,
trademarks and trading program software, without permission. USCF has a patent for USO’s business method and has registered
its trademarks. USO does not currently have any proprietary software. However, if it obtains proprietary software in the future,
any unauthorized use of USO’s proprietary software and other technology could also adversely affect its competitive advantage.
USO may not have adequate resources to implement procedures for 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 USCF or claim that USCF has violated their intellectual property rights, including their
copyrights, trademark rights, trade names, trade secrets and patent rights. As a result, USCF 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 USCF is successful and regardless of the merits, may result in significant costs,
divert its resources from USO, or require it to change its proprietary software and other technology or enter into royalty or
licensing agreements.
Due
to the increased use of technologies, intentional and unintentional cyber-attacks pose operational and information security risks.
With the
increased use of technologies such as the internet and the dependence on computer systems to perform necessary business functions,
USO is susceptible to operational and information security risks. In general, cyber incidents can result from deliberate attacks
or unintentional events such as a cyber-attack against USO, a natural catastrophe, an industrial accident, failure of USO’s
disaster recovery systems, or consequential employee error. Cyber-attacks include, but are not limited to, gaining unauthorized
access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational
disruption. Cyber-attacks may also be carried out in a manner that does not require gaining unauthorized access, such as causing
denial-of-service attacks on websites. Cyber security failures or breaches of USO’s clearing broker or third party service
provider (including, but not limited to, index providers, the administrator and transfer agent, the custodian), have the ability
to cause disruptions and impact business operations, potentially resulting in financial losses, the inability of USO shareholders
to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement
or other compensation costs, and/or additional compliance costs. Adverse effects can become particularly acute if those events
affect USO’s electronic data processing, transmission, storage, and retrieval systems, or impact the availability, integrity,
or confidentiality of our data.
In addition,
substantial costs may be incurred in order to prevent any cyber incidents in the future. USO and its shareholders could be negatively
impacted as a result. While USO has established business continuity plans, there are inherent limitations in such plans.
ADDITIONAL
INFORMATION ABOUT USO, ITS INVESTMENT OBJECTIVE AND INVESTMENTS
USO is
a Delaware limited partnership organized on May 12, 2005. It operates pursuant to the terms of the Seventh Amended and Restated
Agreement of Limited Partnership dated as of December 15, 2017 (as amended from time to time, the “LP Agreement”),
which grants full management control of USO to USCF. USO maintains its main business office at 1850 Mt. Diablo Boulevard, Suite
640, Walnut Creek, California 94596.
The net
assets of USO consist primarily of investments in Oil Futures Contracts and, to a lesser extent, in order to comply with regulatory
requirements or in view of market conditions, Other Oil-Related Investments. Market conditions that USCF currently anticipates
could cause USO to invest in Other Oil-Related Investments include those allowing USO to obtain greater liquidity or to execute
transactions with more favorable pricing.
USO invests
substantially the entire amount of its assets in Oil Futures Contracts while supporting such investments by holding the amounts
of its margin, collateral and other requirements relating to these obligations in short-term obligations of the United States
of two years or less (“Treasuries”), cash and cash equivalents. The daily holdings of USO are available on USO’s
website at www.uscfinvestments.com.
USO invests
in Oil Interests to the fullest extent possible without being leveraged or unable to satisfy its current or potential margin or
collateral obligations with respect to its investments in Oil Interests. In pursuing this objective, the primary focus of USCF,
is the investment in Oil Futures Contracts and the management of USO’s investments in Treasuries, cash and/or cash equivalents
for margining purposes and as collateral.
USO seeks
to invest in a combination of Oil Interests such that the daily changes in its NAV, measured in percentage terms, will closely
track the daily changes in the price of the Benchmark Oil Futures Contract, also measured in percentage terms. As a specific benchmark,
USCF endeavors to place USO’s trades in Oil Interests and otherwise manage USO’s investments so that “A”
will be within plus/ minus ten percent (10%) of “B”, where:
|
·
|
A
is the average daily percentage change in USO’s per share NAV for any period of
30 successive valuation days; i.e., any NYSE Arca trading day as of which USO calculates
its per share NAV; and
|
|
·
|
B
is the average daily percentage change in the price of the Benchmark Oil Futures Contract
over the same period.
|
USCF believes
that market arbitrage opportunities will cause the daily changes in USO’s share price on the NYSE Arca to closely track
the daily changes in USO’s per share NAV. USCF further believes that the daily changes in USO’s NAV in percentage
terms will closely track the daily changes in percentage terms in the Benchmark Oil Futures Contract, less USO’s expenses.
The following
two graphs demonstrate the correlation between the changes in USO’s NAV and the changes in the Benchmark Oil Futures Contract.
The first graph exhibits the daily changes in the last 30 valuation days ended May 31, 2020 the second graph measures monthly
changes from May 2015 through May 2020.
*PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
*PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
While
the foregoing graphs are consistent with USO’s overall historical experience concerning the daily and monthly differences
between changes in USO’s NAV and the Benchmark Oil Futures Contract, they are not intended to indicate that the experience
reflected in either graph will be replicated in subsequent days or months. The wide differences in changes between USO’s
NAV and the Benchmark Oil Futures Contract during late April through early May of 2020, if they were to continue, would
not provide the sort of narrow differences reflected in the preceding graphs. While the difference in the average of daily
movement of USO’s NAV and the price of the Benchmark Oil Futures Contract over the 30 days ending May 29, 2020
was only -2.247%, and well within the range of plus/minus ten percent (10%) described above, there were four days
in late April 2020 when daily differences were greater than within plus/minus ten percent (10%). In April, these days
with higher differences were offset by the remaining days with much lower differences of less than plus/minus one percent (1%).
If the trend of differences during the latter part of April were to continue for any period of 30 successive valuation days,
there could be a wider variation within, and potentially outside, of the plus/minus ten percent (10%) thirty day
average of differences between percentage daily movements of USOs NAV and the average daily percentage change in the price of
the Benchmark Oil Futures Contract over the same period.
As a result of previously discussed
market conditions and the regulatory response that occurred in March and April of 2020, large numbers of USO shares that were
purchased during a short period of time, and regulatory accountability levels and position limits on oil futures contracts that
were imposed on USO, USO invested in Oil Futures Contracts in months other than the Benchmark Oil Futures Contracts. The foregoing
impacted the performance of USO and made it difficult for USO to meet its investment objective, which is for the daily percentage
changes in the NAV per share to reflect the daily percentage changes of the spot price of light, sweet crude oil, as measured
by the daily percentage changes in the price of Benchmark Oil Futures Contract, plus interest earned on USO’s collateral
holdings, less USO’s expenses.
While
it is USO’s expectation that at some point in the future it will return to primarily investing in the Benchmark Futures
Contract and related ICE Futures contracts or other similar futures contracts of the same tenor based on light, sweet crude oil,
there can be no guarantee of when, if ever, that will occur. As a result, investors in USO should expect that there will be continued
deviations between the performance of USO’s investments and the Benchmark Futures Contract and that USO may not be able
to track the Benchmark Futures Contract or meet its investment objective.
USCF employs
a “neutral” investment strategy in order to track changes in the price of the Benchmark Oil Futures Contract regardless
of whether the price goes up or goes down. USO’s “neutral” investment strategy is designed to permit investors
generally to purchase and sell USO’s shares for the purpose of investing indirectly in crude oil in a cost-effective manner,
and/or to permit participants in the 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 investing in
crude oil and/or the risks involved in hedging may exist. In addition, an investment in USO involves the risk that the daily changes
in the price of USO’s shares, in percentage terms, will not accurately track the daily changes in the Benchmark Oil Futures
Contract, in percentage terms, and that daily changes in the Benchmark Oil Futures Contract in percentage terms, will not closely
correlate with daily changes in the spot prices of light, sweet crude oil, in percentage terms.
As an example, for the five months
ended May 31, 2020, the actual total return of USO as measured by changes in its per share NAV was (74.63)%.
This is based on an initial per share NAV of $102.27* as of December 31, 2019 and an ending per share NAV as of May 31,
2020 of $25.94. During this time period, USO made no distributions to its shareholders. However, if USO’s daily changes
in its per share NAV had instead exactly tracked the changes in the daily total return of the Benchmark Oil Futures Contract,
USO would have had an estimated per share NAV of $44.62 as of May 31, 2020, for a total return over the relevant
time period of (56.36)%. While the difference between USO’s actual per share NAV total return of (74.63)%
and the expected total return based on the Benchmark Oil Futures Contract of (56.36)% during that five months time
period was (18.27)%, the average daily difference over these five months was -0.658% and the maximum 30-day average of daily differences
was -2.327%, which is within the range of USO’s investment objective. USO incurs expenses primarily composed of the management
fee, brokerage commissions for the buying and selling of futures contracts, and other expenses. The impact of these expenses,
offset by interest and dividend income, and net of positive or negative execution, tends to cause daily changes in the per share
NAV of USO to track slightly lower or higher than daily changes in the price of the Benchmark Oil Futures Contract.
* Adjusted to give effect to the reverse
share split of 1-for-8 executed on April 28, 2020.
Impact of Contango and
Backwardation on Total Returns
Contango
and backwardation are natural market forces that have impacted the total return on an investment in USO’s shares during
the past year relative to a hypothetical direct investment in crude oil. In the future, it is likely that the relationship between
the market price of USO’s shares and changes in the spot prices of light, sweet crude oil will continue to be impacted by
contango and backwardation. It is important to note that this comparison ignores the potential costs associated with physically
owning and storing crude oil, which could be substantial.
Several
factors determine the total return from investing in futures contracts. One factor arises from “rolling” futures contracts
that will expire at the end of the current month (the “near” or “front” month contract) forward each month
prior to expiration. For a strategy that entails holding the near month contract, the price relationship between that futures
contract and the next month futures contract will impact returns. For example, if the price of the near month futures contract
is higher than the next futures month contract (a situation referred to as “backwardation”), then absent any other
change, the price of a next month futures contract tends to rise in value as it becomes the near month futures contract and approaches
expiration. Conversely, if the price of a near month futures contract is lower than the next month futures contract (a situation
referred to as “contango”), then absent any other change, the price of a next month futures contract tends to decline
in value as it becomes the near month futures contract and approaches expiration.
As an
example, assume that the price of crude oil for immediate delivery, is $50 per barrel, and the value of a position in the near
month futures contract is also $50. Over time, the price of crude oil will fluctuate based on a number of market factors, including
demand for oil relative to supply. The value of the near month futures contract will likewise fluctuate in reaction to a number
of market factors. If an investor seeks to maintain a position in a near month futures contract and not take delivery of physical
barrels of crude oil, the investor must sell the current near month futures contract as it approaches expiration and invest in
the next month futures contract. In order to continue holding a position in the current near month futures contract, this “roll”
forward of the futures contract must be executed every month.
If the
futures market is in backwardation, e.g., when the price of the near month futures contract is higher than the price of
the next month futures contract, the investor would buy a next month futures contract for a lower price than the current near
month futures contract. Assuming the price of the next month futures contract was $49 per barrel, or 2% cheaper than the $50 near
month futures contract, then, hypothetically, and assuming no other changes (e.g., to either prevailing crude oil prices or the
price relationship between the spot price, the near month contract and the next month contract, and, ignoring the impact of commission
costs and the income earned on cash and/or cash equivalents), the value of the $49 next month futures contract would rise to $50
as it approaches expiration. In this example, the value of an investment in the next month futures contract would tend to outperform
the spot price of crude oil. As a result, it would be possible for the new near month futures contract to rise 12% while the spot
price of crude oil may have risen a lower amount, e.g., only 10%. Similarly, the spot price of crude oil could have fallen 10%
while the value of an investment in the futures contract might have fallen another amount, e.g., only 8%. Over time, if backwardation
remained constant, this difference between the spot price and the futures contract price would continue to increase.
If the
futures market is in contango, an investor would be buying a next month futures contract for a higher price than the current near
month futures contract. Again, assuming the near month futures contract is $50 per barrel, the price of the next month futures
contract might be $51 per barrel, or 2% more expensive than the front month futures contract. Hypothetically, and assuming no
other changes, the value of the $51 next month futures contract would fall to $50 as it approaches expiration. In this example,
the value of an investment in the second month would tend to underperform the spot price of crude oil. As a result, it would be
possible for the new near month futures contract to rise only 10% while the spot price of crude oil may have risen a higher amount,
e.g., 12%. Similarly, the spot price of crude oil could have fallen 10% while the value of an investment in the second month futures
contract might have fallen another amount, e.g., 12%. Over time, if contango remained constant, this difference between the spot
price and the futures contract price would continue to increase.
The chart
below compares the daily price of the near month crude oil futures contract to the price of 13th month crude oil futures contract
(i.e. a contract one year forward) over the last 10 years. When the price of the near month futures contract is higher than the
price of the 13th month futures contract, the market would be described as being in backwardation. When the price of the near
month futures contract is lower than the 13th month futures contract, the market would be described as being in contango. Although
the price of the near month futures contract and the price of the 13th month futures contract tend to move together, it can be
seen that at times the near month futures contract prices are higher than the 13th month futures contract prices (backwardation)
and, at other times, the near month futures contract prices are lower than the 13th month futures contract prices (contango).
*PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
An alternative
way to view the same data is to subtract the dollar price of the 13th month crude oil futures contract from the dollar price of
the near month crude oil futures contract, as shown in the chart below. When the difference is positive, the market is in backwardation.
When the difference is negative, the market is in contango. The crude oil market spent time in both backwardation and contango
during the last ten years. The chart below shows the results from subtracting the average dollar price of the near 12-months contracts
from the near month price for the 10-year period between May 31, 2010 and May 31, 2020. Investors will note that
the crude oil market spent time in both backwardation and contango.
*PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
An investment
in a portfolio that owned only the near month crude oil futures contract would likely produce a different result than an investment
in a portfolio that owned an equal number of each of the near 12 months’ of crude oil futures contracts. Generally speaking,
when the crude oil futures market is in backwardation, a portfolio of only the near month crude oil futures contract may tend
to have a higher total return than a portfolio of 12 months’ of the crude oil futures contract. Conversely, if the crude
oil futures market was in contango, the portfolio containing only 12 months’ of crude oil futures contracts may tend to
outperform the portfolio holding only the near month crude oil futures contract.
Historically,
the crude oil futures markets have experienced periods of contango and backwardation, with backwardation being in place somewhat
less often than contango since oil futures trading started in 1983. Following the global financial crisis in the fourth quarter
of 2008, the crude oil market moved into contango and remained in contango for a period of several years. During parts of 2009,
the level of contango was unusually steep as a combination of slack U.S. and global demand for crude oil and issues involving
the physical transportation and storage of crude oil at Cushing, Oklahoma, the primary pricing point for oil traded in the U.S.,
led to unusually high inventories of crude oil. A combination of improved transportation and storage capacity, along with growing
demand for crude oil globally, moderated the inventory build-up and led to reduced levels of contango by 2011. However, at the
end of November 2014, global crude oil inventories grew rapidly after OPEC voted to defend its market share against U.S. shale-oil
producers, resulting in another period during which the crude oil market remained primarily in contango. This period of contango
continued through December 31, 2017. Declining global crude oil inventories caused the market to flip into backwardation at the
beginning of 2018 through late October 2018, at which point ongoing supply growth in the U.S., combined with increased OPEC production,
once again led market participants to fear another global glut of crude oil. The crude oil market was primarily in contango the
first half of 2019 and in backwardation from August 2019 through mid-January 2020, when it flipped back into contango.
In March 2020, contango dramatically
increased and reached historic levels during the economic crisis arising from the COVID-19 pandemic and disputes among oil-producing
nations regarding limits on oil production levels. This contango was due to significant market volatility that has
occurred and is continuing in the crude oil markets as well as the oil futures markets. Crude oil prices have collapsed in the
wake of the COVID-19 demand shock, which reduced global petroleum consumption, and the price war launched by Saudi Arabia at the
beginning of March 2020 in response to Russia’s unwillingness to participate in extending previously agreed upon supply
cuts. An estimated twenty million barrels a day of crude demand evaporated as a result of quarantines and massive drops in industrial
and manufacturing activity. In addition, the United States, OPEC, Russia, and other oil producers around the world agreed to a
historic 9.7 million barrel per day cut to crude supply. In the short term, this cut does not close the gap relative to the massive
drop in demand. However, the duration of the agreement, lasting until 2022, should allow oil prices to slowly recover as demand
re-materializes. The supply cut may also reduce at least some of the unprecedented volatility oil markets experienced in
the Spring of 2020. As the crisis continues into the second quarter of 2020, and potentially beyond, demand weakness and
limited storage capacity will continue to put pressure on crude oil in the near term.
Prior
to 2020, periods of contango or backwardation have not materially impacted
USO’s investment objective of having the daily percentage changes in its per share NAV track the daily percentage changes
in the price of the Benchmark Oil Futures Contract since the impact of backwardation and contango tended to equally impact
the daily percentage changes in price of both USO’s shares and the Benchmark Oil 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. Contango may persist for the foreseeable future, potentially at extreme levels, as a result
of the unprecedented conditions in the wake of the COVID-19 crisis described above (namely simultaneous oversupply and a collapse
in demand for crude oil combined with a lack of on-land storage for crude oil).
As a result of market and regulatory
conditions, including significant market volatility, large numbers of USO shares purchased during a short period of time, and
applicable regulatory accountability levels and position limits on oil futures contracts that were imposed on USO, USO invested
in Oil Futures Contracts in months other than the Benchmark Oil Futures Contracts. To approximate its investment objective, USO
has chosen from its permitted investments types and amounts of Oil Futures Contracts allowed by its current regulatory requirements
and under the risk mitigation efforts of its FCMs and other market participants, including those Oil Futures Contracts
with expiration dates for months later than that of the Benchmark Oil Futures Contract. While these investment decisions might
initially appear to exacerbate contango by requiring USO to invest the proceeds of sales of nearer month oil futures contracts
in later month contracts, continued holdings in these later month contracts will typically allow USO to experience lesser effects
from contango and backwardation than would be the case if USOs holdings were primarily in oil futures contracts in the first month
or second month.
While it is USO’s expectation
that at some point in the future it will return to primarily investing in the Benchmark Oil Futures Contract and ICE WTI
Contract or other similar futures contracts of the same tenor based on light, sweet crude oil, there can be no guarantee of when,
if ever, that will occur. As a result, investors in USO should expect that there will be continued deviations between the performance
of USO’s investments and the Benchmark Oil Futures Contract and that USO may not be able to track the Benchmark Oil Futures
Contract or meet its investment objective.
What are the Trading Policies of USO?
Investment Objectives
The
investment objective of USO is for the daily changes in percentage terms of its shares’ per share net asset value (“NAV”)
to reflect the daily changes in percentage terms of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma, as
measured by the daily changes in the price of the Benchmark Oil Futures Contract, plus interest earned on USO’s collateral
holdings, less USO’s expenses. The Benchmark Oil Futures Contract is the futures contract on light, sweet crude oil as traded
on the New York Mercantile Exchange (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 it will be measured by the futures contract that is the next month
contract to expire.
USO
intends to continue to pursue its investment objective as described above. By remaining invested as fully as possible in Oil Futures
Contracts or Other Oil-Related Investments, USCF believes that the daily changes in percentage terms of USO’s NAV will continue
to closely track the daily changes in percentage terms in the price of the Benchmark Oil Futures Contract. USCF believes that
certain arbitrage opportunities result in the price of the shares traded on the NYSE Arca closely tracking the NAV of USO. Additionally,
Oil Futures Contracts traded on the NYMEX have closely tracked the spot price of light, sweet crude oil. Based on these expected,
USCF believes that the changes in the price of USO’s shares as traded on the NYSE Arca have closely tracked and will continue
to closely track on a daily basis, the changes in the spot price of light, sweet crude oil on a percentage basis.
However,
in the current market and regulatory environment, significant tracking deviations can be anticipated to occur above and beyond
the differences that historically occurred when USO’s primary investment was the Benchmark Oil Futures Contract and light,
sweet crude oil futures contracts of the same month traded on ICE Futures. In addition, the types of permitted investments in
which USO currently can invest to achieve its investment objective are limited as a result of regulatory requirements and risk
mitigation measures taken by market participants, generally, including USO, and include later months in Oil Futures Contracts
than the tenor of the Benchmark Oil Futures Contract. Continued holdings in these later month contracts will typically cause USO
to experience lesser effects from contango and backwardation than would be the case if USO’s holdings were primarily in
oil futures contracts in the first month or second month. While it is USO’s expectation that at some point in the future
it will be able to return to primarily investing in the Benchmark Oil Futures Contract or other similar futures contracts of the
same tenor based on light, sweet crude oil, there can be no guarantee of when, if ever, that will occur. As a result, investors
in USO should expect USO will continue to invest in other permitted investments and that there will be continued deviations between
the performance of USO’s investments and the Benchmark Oil Futures Contract, and that USO may not be able to track the Benchmark
Oil Futures Contract or meet its investment objective, stated above. The inability to closely track the Benchmark Oil Futures
Contract, the changes in its portfolio of investments and the impact of higher levels of contango, will impact the performance
of USO and the value of its shares.
Monthly Roll
Each month, within two weeks of expiration,
USO changes the Benchmark Oil Futures Contract, which at the beginning of the month is the futures contract on light, sweet crude
oil as traded on the NYMEX that is the near or front month (referred to herein as the first month) into the NYMEX futures contract
that is the next month contract to expire (referred to herein as the second month). Historically, this was done over a four-day
period at the end of which the Benchmark Oil Futures Contract was the next month contract to expire at that time and that contract
remained the Benchmark Oil Futures Contract until the beginning of the following month’s change in the Benchmark Oil Futures
Contract over a four-day period. On each day during the four-day period, USCF “rolled” USO’s positions in Oil
Interests by closing, or selling, a percentage of USO’s positions in Oil Interests and reinvesting the proceeds from closing
those positions in new Oil Interests that reflected the change in the Benchmark Oil Futures Contract. In the past, during the
four-day period, USO has rolled its positions in Oil Futures Contracts in the first month prior to the end of the month to avoid
such contracts’ expiration and having to take delivery of the underlying commodity.
As discussed below, USO has extended
the monthly roll/rebalancing period from a four-day period to a ten-day period. USO continues this monthly roll process with
respect to its portfolio holdings, notwithstanding that its investments may not be concentrated in the first month futures contract,
as is the case as of the date of this prospectus. Currently, USO rolls and rebalances its portfolio to: (1) sell the earliest
month of the futures contracts that it holds, (2) rebalance its portfolio in a manner that allows it to meet market conditions,
regulatory requirements and other factors described herein, and (3) structure its investments within the foregoing limits in a
way that allows USO to best pursue its stated investment objective.
Currently, due to position limits,
market conditions, and risk measures imposed by third parties, USO does not own the front or first month futures contract. This
situation may occur in the future. When USO does not currently own the front month future, but determines it has the capability
to do so again, USO will elect not to roll forward its second month position and/or subsequent positions, and may instead increase
the size of its second and/or subsequent month positions.
USO has extended the monthly roll/rebalancing
period from a four-day period to a ten-day period due to the size and diversification of its portfolio holdings and to address
regulatory concerns. During the ten-day roll period, or a rebalance period, USO will close certain existing positions, e.g., when
it changes the Benchmark Oil Futures Contract and sells contracts that will expire at the end of the month, or when it sells Oil
Futures Contracts to address the market conditions, regulatory requirements and other factors discussed herein, and reinvests
the proceeds in new Oil Futures Contracts or Other Oil-Related Investments in a manner that is consistent with its stated investment
intentions concerning the type and percentages of the investments in its portfolio, including the waterfall permitted investments
as described above.
The change from a four-day roll to
a ten-day roll, whether or not USO holds any Benchmark Oil Futures Contacts at the time of the roll, does not change USO’s
benchmark or its investment objective. The Benchmark Oil Futures Contract remains the futures contract on light, sweet crude oil
as traded on the NYMEX for the first month before the roll period, and during the roll period will proportionately change each
day the Benchmark Oil Futures Contract to the futures contract on light, sweet crude oil as traded on the NYMEX for the second
month, until the roll is completed.
Typically, on each day during the
ten-day roll period, USO intends to rebalance approximately 1/10th of the announced percentage of the notional value of its nearest
month instrument and other specified instruments (which could be 100% of such notional value of such interests) and reinvest the
proceeds in the remaining current portfolio holdings as well as further-dated contracts and any new specified portfolio holdings
in the waterfall of permitted investments described above. In addition, USO may need to adjust the roll/rebalance in light of
market conditions, regulatory requirements or other factors that impact the ability of USO to make its investments and achievement
its investment objectives.
USO has determined that commencing
with the monthly roll occurring in May 2020 and for each month going forward, USO’s positions in Oil Futures Contracts and
Other Oil Related Investments will roll over a ten-day period. The May roll commenced on May 1, 2020. Thereafter, USO will roll
its positions during the first 10 trading days of each subsequent month. The anticipated dates that the monthly roll period will
commence are published on USO’s website at www.uscfinvestments.com and are subject to change without notice.
Trading Policy
In managing
USO’s assets USCF does not use a technical trading system that issues buy and sell orders. USCF instead employs a quantitative
methodology whereby each time a Creation Basket is sold, USCF purchases Oil Interests, such as the Benchmark Oil Futures Contract
and other Oil Futures Contracts, that have an aggregate market value that approximates the amount of Treasuries and/or
cash received upon the issuance of the Creation Basket.
The specific
Oil Futures Contracts purchased depends on various factors, including a judgment by USCF as to the appropriate diversification
of USO’s investments in futures contracts with respect to the month of expiration, and the prevailing price volatility of
particular contracts. While USCF has made significant investments in NYMEX Oil Futures Contracts, for various reasons, including
the ability to enter into the precise amount of exposure to the crude oil market, position limits or other regulatory requirements
limiting USO’s holdings, and market conditions, it may invest in Oil Futures Contracts traded on other exchanges or invest
in Other Oil-Related Investments. To the extent that USO invests in Other Oil-Related Investments, it would prioritize investments
in contracts and instruments that are economically equivalent to the Benchmark Oil Futures Contract, including cleared swaps that
satisfy such criteria, and then, to a lesser extent, it would invest in other types of cleared swaps and other contracts, instruments
and non-cleared swaps, such as swaps in the over-the-counter market (or commonly referred to as the “OTC market”).
If USO is required by law or regulation, or by one of its regulators, including a futures exchange, to reduce its position in
the Benchmark Oil Futures Contracts to the applicable position limit or to a specified accountability level or if market conditions
dictate it would be more appropriate to invest in Other Oil-Related Investments, a substantial portion of USO’s assets could
be invested in accordance with such priority in Oil Futures Contracts other than the Benchmark Oil Futures Contract or oil futures
contracts issued by NYMEX and ICE Futures with the same months and Other Oil-Related Investments that are intended to replicate
the return on the Benchmark Oil Futures Contract. As USO’s assets reach higher levels, it is more likely to exceed position
limits, accountability levels or other regulatory limits and, as a result, it is more likely that it will invest in accordance
with such priority in Other Oil-Related Investments at such higher levels. In addition, market conditions that USCF currently
anticipates could cause USO to invest in Other Oil-Related Investments include those allowing USO to obtain greater liquidity
or to execute transactions with more favorable pricing. See “Risk Factors Involved with an Investment in USO”
for a discussion of the potential impact of regulation on USO’s ability to invest in OTC transactions and cleared swaps.
As
discussed above, various factors including, but not limited to, evolving market conditions, changes to regulatory requirements
imposed on USO with respect to its investment in the Benchmark Oil Futures Contract or other Oil Futures Contracts, and risk mitigation
measures imposed taken by market participants generally, including USO, have severely limited USO’s ability to invest in
the Benchmark Oil Futures Contract and certain of the other investments in which USO traditionally would have invested in a substantial
portion of its portfolio. Moreover, because such factors have continued to evolve, USO has had to invest in other permitted investments
instead of investing primarily in the Benchmark Oil Futures Contract and the cash-settled, but substantially similar, oil futures
contract traded on ICE Futures (i.e., the ICE WTI Contract), but also has had to more frequently change the holdings in its portfolio
than it has in the past. The foregoing factors have changed USO’s portfolio holdings and have resulted in significant deviations
from USO’s intended investment objective which is for the daily percentage changes in the NAV per share to reflect the daily
percentage changes of the spot price of light, sweet crude oil, as measured by the daily percentage changes in the price of Benchmark
Oil Futures Contract, plus interest earned on USO’s collateral holdings, less USO’s expenses.
At this time, it is likely that the
factors limiting USO’s investments in the Benchmark Oil Futures Contract will continue, including as a result of the COVID-19
pandemic and the state of the crude oil markets, and that USO’s need to invest in other Oil Futures Contracts will continue.
As noted above, USO, in addition to investing in the Benchmark Oil Futures Contract, may also seek to achieve its investment objective
by investing primarily in other Oil Futures and to a lesser extent, in order to comply with regulatory requirements or in view
of market conditions Other Oil-Related Investments.
In view of the foregoing, in addition
to disclosing its end of day portfolio of investments on its website, commencing on May 1, 2020, it also will disclose changes
to its investment intentions with respect to the type and percentage of investments in USO’s portfolio. Below, USO has outlined
the parameters for making decisions regarding the permitted investments it will hold, including the intended order of priority
in selecting investments to be held in its portfolio. These parameters and order of priority are discretionary to USO and,
as described below, can be changed by USO due to regulatory requirements, risk mitigation measures, market conditions, liquidity
requirements or other factors. The type and percentages of investments to be held by USO at the end of the monthly roll period
as well as going forward, including for any rebalances, will be published on USO’s website www.uscfinvestments.com.
Accordingly, for the foreseeable future, to address and comply with the market conditions, regulatory requirements and other factors
that have influenced, and will continue to influence, its investment decisions, USO intends to buy or sell the following permitted
investments taking into account the order, or waterfall, set forth below when USO increases or decreases either
its portfolio overall or its holdings of particular investments:
|
1.
|
The current or front month (“first month”) Oil Futures Contracts based on the price 1. of the light, sweet
crude oil known as West Texas Intermediate (“WTI”) or, which are priced off of the oil futures contracts based
on WTI as traded on the NYMEX including the Benchmark Oil Futures Contracts and the ICE WTI Contract (“WTI Oil Futures
Contracts”); then
|
|
2.
|
The first month, the next or following month (“second month”, with months thereafter being numerically
designated, i.e., the third month, the fourth month, the fifth month, etc.) and the third month WTI Oil Futures Contracts;
then
|
|
3.
|
The first through the sixth month WTI Oil Futures Contracts, plus the next nearest June WTI Oil Futures Contracts or
the next nearest December WTI Oil Futures Contracts that is not included in the first through sixth months ; then
|
|
4.
|
The first through the twelfth month WTI Oil Futures Contracts; then
|
|
5.
|
The first through the twelfth month WTI Oil Futures Contracts plus the second through thirteenth month Oil Futures
Contracts based on Brent Crude Oil traded on ICE Futures (“Brent Oil Futures Contracts”);
then
|
|
6.
|
The first through the twelfth month WTI Oil Futures Contracts Months plus 6. the second through thirteenth month Brent
Oil Futures Contracts plus the first through the twelfth month Oil Futures Contracts based on Ultra Low Sulfur Diesel Oil
Futures Contract traded on NYMEX (“USDL Oil Futures Contract”); then
|
|
7.
|
The first through the twelfth month WTI Oil Futures Contracts plus the second through thirteenth month Brent Oil Futures
Contracts plus the first through the twelfth month USDL Oil Futures Contracts plus the first through the twelfth month RBOB
Gasoline Oil Futures Contracts (“Gasoline Futures Contract”); then
|
|
8.
|
USO may also utilize the Oil Futures Contracts based on WTI, WTI Oil Futures Contacts or other types of crude oil traded
on the Dubai, Singapore, and Houston exchanges, if and when these contracts reach sufficient scale and liquidity to meaningfully
contribute to USO’s investment objective, in addition to the foregoing investments; then, finally,
|
|
9.
|
Other Oil-Related Investments, in addition to the foregoing investments.
|
If, due to regulatory requirements, risk mitigation measures,
market conditions, liquidity requirements or other factors, USO is not available to invest in a particular month contract described
above, then it will adjust the methodology incrementally beginning from the nearest month contract available to it that it is
reasonable or feasible to hold in light of such factors.
If USO uses over-the-counter (“OTC”)
swaps or other instruments, those OTC swaps or instruments would also provide exposure to one or more of the same above-described
permitted investments in varying months or contracts. USO also anticipates that to the extent it invests in Oil Futures Contracts
other than WTI Oil Futures Contacts) and Other Oil-Related Investments, it may enter into various non-exchange-traded derivative
contracts to hedge the short-term price movements of such Oil Futures Contracts and Other Oil-Related Investments against the
current Benchmark Oil Futures Contract.
The progression from one stage of
permitted investments described in the above waterfall to the next stage, including the specific target weights for the particular
portfolio investments to be held by USO, will take into account, to the extent applicable, the relative levels of open interest,
position limits, and other factors. The specific permitted investments and the identified target weights for such investments,
consistent with progression from one stage of the above described waterfall to the next stage, will be published on the website
the day before the start of (i) any monthly roll/rebalance period for the end of such roll/rebalance period, and (ii) any rebalancing
to be done outside of the monthly roll period due to market conditions, regulatory requirements and other factors described herein.
In extreme circumstances, changes may need to be made intraday. In such circumstances, the changes will be published on the website
at the end of the day. USO will attempt to execute rebalances required over several days to minimize market impact. However, it
may be necessary to execute these risk measures rapidly and with minimal notice. Published portfolio changes will be implemented
by USO over the course of the roll/rebalance period as indicated on the website or over the course of another day or period with
respect to a particular change outside of the roll.
USO will progress through the stages
of the above describe waterfall of permitted investments as it approaches regulatory or other limits or as necessary to address
market conditions, or other factors, including additional investments in USO, requiring consideration of particular levels of
the waterfall. Generally, USO will invest in each stage of the waterfall in the order described above. However, USO, in its sole
discretion, may proceed to invest in a further stage of the waterfall (i.e., skipping over a particular stage) if it determines
it may exceed position limits in the immediately following stage of the above waterfall within the next month.
The
investment intention announced by USO could change as a result of any or all of the following: evolving market conditions, a change
in regulator accountability levels and position limits imposed on USO with respect to its investment in Oil Futures Contracts,
additional or different risk mitigation measures taken by market participants, generally, including USO, with respect to USO acquiring
additional Oil Futures contracts, or USO selling additional shares USO’s ability to invest in the Benchmark Oil Futures
Contract could be limited by any of these occurrences. In addition, while determining the appropriate investments for USO’s
portfolio in accordance with its current intention, or to address the foregoing changes in market conditions, regulatory requirements
or risk mitigation measures, USO may need to hold significant portions of its portfolio in cash beyond what it has historically
held in order to satisfy potential margin requirements.
USCF may
not be able to fully invest USO’s assets in Benchmark Oil Futures Contracts having an aggregate notional amount exactly
equal to USO’s NAV. For example, as standardized contracts, the Benchmark Oil Futures Contracts are for a specified amount
of a particular commodity, and USO’s NAV and the proceeds from the sale of a Creation Basket are unlikely to be an exact
multiple of the amounts of those contracts. As a result, in such circumstances, USO may be better able to achieve the exact amount
of exposure to changes in price of the Benchmark Oil Futures Contract through the use of Other Oil-Related Investments, such as
OTC contracts that have better correlation with changes in price of the Benchmark Oil Futures Contract.
USCF does not
anticipate letting USO’s Oil Futures Contracts expire and taking delivery of the underlying commodity. Instead, USCF will
close existing positions, e.g., when it changes the Benchmark Oil Futures Contracts or Other Oil-Related Investments or
it otherwise determines it would be appropriate to do so and reinvests the proceeds in new Oil Futures Contracts or Other Oil-Related
Investments. Positions may also be closed out to meet orders for Redemption Baskets and in such case proceeds for such baskets
will not be reinvested.
Liquidity
USO invests
only in Oil Futures Contracts and Other Oil-Related Investments that, in the opinion of USCF, are traded in sufficient volume
to permit the ready taking and liquidation of positions in these financial interests and in Other Oil-Related Investments that,
in the opinion of USCF, may be readily liquidated with the original counterparty or through a third party assuming the position
of USO.
Spot Commodities
While
the crude Oil Futures Contracts traded can be physically settled, USO does not intend to take or make physical delivery. USO may
from time to time trade in Other Oil-Related Investments, including contracts based on the spot price of crude oil.
Leverage
USCF endeavors
to have the value of USO’s Treasuries, cash and cash equivalents, whether held by USO or posted as margin or other collateral,
at all times approximate the aggregate market value of its obligations under its Oil Futures Contracts and Other Oil-Related Investments.
Commodity pools’ trading positions in futures contracts or other related investments 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 interest’s)
entire market value.
Although permitted to do so under its Limited
Partnership Agreement, USO has not and does not intend to leverage its assets and makes its investments accordingly. Consistent
with the foregoing, USO’s announced investment intentions noted above, and any changes thereto, will take into account the
need for USO to make permitted investments that also allow it to maintain adequate liquidity to meet its margin and collateral
requirements and to avoid, to the extent reasonably possible, USO becoming leveraged. If market conditions require it, these risk
reduction procedures may occur on short notice if they occur other than during a roll or rebalance period.
Borrowings
Borrowings
are not used by USO unless USO is required to borrow money in the event of physical delivery, if USO trades in cash commodities,
or for short-term needs created by unexpected redemptions.
OTC Derivatives (Including
Spreads and Straddles)
In addition
to Oil Futures Contracts, there are also a number of listed options on the Oil 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, USO may purchase options on crude Oil Futures Contracts on these exchanges in pursuing its investment objective.
In addition
to the Oil Futures Contracts and options on the Oil Futures Contracts, there also exists an active non-exchange-traded market
in derivatives tied to crude oil. These derivatives transactions (also known as OTC contracts) are usually entered into between
two parties in private contracts. Unlike most of the exchange-traded Oil Futures Contracts or exchange-traded options on the Oil
Futures Contracts, each party to such contract bears the credit risk of the other party, i.e., the risk that the other
party may not be able to perform its obligations under its contract. To reduce the credit risk that arises in connection with
such contracts, USO will generally enter into an agreement with each counterparty based on the Master Agreement published by the
International Swaps and Derivatives Association, Inc. (“ISDA”) that provides for the netting of its overall exposure
to its counterparty.
USCF assesses
or reviews, as appropriate, the creditworthiness of each potential or existing counterparty to an OTC contract pursuant to guidelines
approved by the Board.
USO may
enter into certain transactions where an OTC component is exchanged for a corresponding futures contract (“Exchange for
Related Position” or “EFRP” transactions). In the most common type of EFRP transaction entered into by USO,
the OTC component is the purchase or sale of one or more baskets of USO shares. These EFRP transactions may expose USO to counterparty
risk during the interim period between the execution of the OTC component and the exchange for a corresponding futures contract.
Generally, the counterparty risk from the EFRP transaction will exist only on the day of execution.
USO 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 Oil Futures Contract. USO 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.
During
all of 2019 and through May 31, 2020, USO has limited its derivatives activities to Oil Futures Contracts and EFRP transactions.
Pyramiding
USO has
not employed and 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.
Prior Performance of USO
*PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
USCF manages
USO which is a commodity pool that issues shares traded on the NYSE Arca. The chart below shows, as of May 31, 2020, the
number of Authorized Participants, the total number of baskets created and redeemed since inception and the number of outstanding
shares for USO.
# of Authorized
Participants
|
|
|
Baskets
Purchased
|
|
|
Baskets
Redeemed
|
|
|
Outstanding
Shares
|
|
|
15
|
|
|
|
46,270
|
|
|
|
44,418
|
|
|
|
185,223,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Since
the commencement of the offering of USO shares to the public on April 10, 2006 to May 31, 2020, the simple average daily
changes in benchmark futures contract was (0.032)% while the simple average daily change in the NAV of USO over the same
time period was (0.051)%. The average daily difference was (0.018)% (or (0.18) 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 0.569%, meaning that over this time period USO’s tracking error was within the plus or minus ten percent
10% range established as its benchmark tracking goal.
The table
below shows the relationship between the trading prices of the shares and the daily NAV of USO, since inception through May
31, 2020. The first row shows the average amount of the variation between USO’s closing market price and NAV, computed
on a daily basis since inception, while the second and third rows depict the maximum daily amount of the end of day premiums and
discounts to NAV since inception, on a percentage basis. USCF believes that maximum and minimum end of day premiums and discounts
typically occur because trading in the shares continues on the NYSE Arca until 4:00 p.m. New York time while regular trading in
the benchmark futures contract on the NYMEX ceases at 2:30 p.m. New York time and the value of the relevant benchmark futures
contract, for purposes of determining its end of day NAV, can be determined at that time.
|
|
USO
|
|
Average Difference
|
|
$
|
(0.016
|
)%
|
Max Premium %
|
|
|
36.457
|
%
|
Max Discount %
|
|
|
4.51
|
%
|
|
|
|
|
|
For more information on
the performance of USO, see the Performance Tables below.1
1 At the market close
on April 21, 2020, the day that USO announced it was suspending the offering of its Creation Baskets for purchase, USO’s
closing share price was 36% over its end of the day per share NAV. A significant portion of this difference could be attributed
to the fact that USO’s NAV is calculated based on the settlement price of Oil Futures Contracts held by USO at 2:30 p.m.
New York Time 90 minutes before the determination of the closing share price at 4:00 p.m. New York Time and the closing share
price may have taken into account pricing of aftermarket transactions in Oil Futures Contracts of the type held by USO before
the determination of USO’s closing share price. However, USO’s suspension of purchases of Creation baskets
in the midst of record volatility that occurred in crude futures markets on April 20, 2020 and April 21, 2020, and record volume
in USO share transactions on the NYSE on the same days also contributed to the premium on April, 21, 2020. In addition, investors
should be aware that such premiums can be transitory. The high premium that occurred recently was short-lived and fell almost
immediately, notwithstanding the suspension of sales of Creation Baskets. On April 22, 2020, the market price of USO shares fell
to a level of 8.66% above the per share NAV and from April 23, 2020, continued its decline to 1.45% on May 1, 2020. For the period
beginning May 1, 2020 and ending May 31, 2020 the premium averaged 2.25%. Any potential impact to the market in
shares of USO that could occur from the Authorized Participants’ inability to purchase new Creation Baskets would likely
not extend beyond the time when additional shares of USO would be registered and available for distribution.
*PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
COMPOSITE
PERFORMANCE DATA FOR USO
Name of
Pool: United States Oil Fund, LP
Type of
Pool: Public, Exchange-Listed Commodity Pool
Inception
of Trading: April 10, 2006
Aggregate
Subscriptions (from inception through May 31, 2020): $179,396,583,241
Net Asset
Value as of May 31, 2020: $4,804,095,782.94
Net Asset
Value per Share as of May 31, 2020: $25.94***
Worst
Monthly Drawdown: March 2020 (54.70)%
Worst
Peak-to-Valley Drawdown: June 2008 — May 2020 (97.92)%
Number
of Shares (as of May 31, 2020): 185,223,603
|
|
Rates of Return*
|
|
Month
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
January
|
|
|
(10.47
|
)%
|
|
|
(12.34
|
)%
|
|
|
(3.33
|
)%
|
|
|
7.28
|
%
|
|
|
17.831
|
%
|
|
|
(15.258
|
)%
|
February
|
|
|
1.39
|
%
|
|
|
(6.93
|
)%
|
|
|
1.24
|
%
|
|
|
(4.32
|
)%
|
|
|
5.752
|
%
|
|
|
(13.573
|
)%
|
March
|
|
|
(7.76
|
)%
|
|
|
8.34
|
%
|
|
|
(7.33
|
)%
|
|
|
5.65
|
%
|
|
|
4.603
|
%
|
|
|
(54.701
|
)%
|
April
|
|
|
21.52
|
%
|
|
|
15.91
|
%
|
|
|
(3.20
|
)%
|
|
|
5.65
|
%
|
|
|
6.400
|
%
|
|
|
(44.517
|
)%
|
May
|
|
|
(0.63
|
)%
|
|
|
5.31
|
%
|
|
|
(2.92
|
)%
|
|
|
(2.02
|
)%
|
|
|
(16.32
|
)%
|
|
|
37.832
|
%
|
June
|
|
|
(2.16
|
)%
|
|
|
(2.77
|
)%
|
|
|
(5.11
|
)%
|
|
|
10.77
|
%
|
|
|
8.985
|
%
|
|
|
|
|
July
|
|
|
(21.48
|
)%
|
|
|
(15.31
|
)%
|
|
|
8.45
|
%
|
|
|
(4.86
|
)%
|
|
|
0.17
|
%
|
|
|
|
|
August
|
|
|
3.00
|
%
|
|
|
5.61
|
%
|
|
|
(6.13
|
)%
|
|
|
2.73
|
%
|
|
|
(5.68
|
)%
|
|
|
|
|
September
|
|
|
(9.62
|
)%
|
|
|
6.38
|
%
|
|
|
8.30
|
%
|
|
|
5.38
|
%
|
|
|
(1.57
|
)%
|
|
|
|
|
October
|
|
|
2.13
|
%
|
|
|
(3.81
|
)%
|
|
|
4.60
|
%
|
|
|
(10.54
|
)%
|
|
|
0.27
|
%
|
|
|
|
|
November
|
|
|
(13.10
|
)%
|
|
|
3.96
|
%
|
|
|
5.13
|
%
|
|
|
(22.11
|
)%
|
|
|
1.86
|
%
|
|
|
|
|
December
|
|
|
(14.77
|
)%
|
|
|
6.45
|
%
|
|
|
5.23
|
%
|
|
|
(11.04
|
)%
|
|
|
10.94
|
%
|
|
|
|
|
Annual Rate of Return
|
|
|
(45.31
|
)%
|
|
|
6.26
|
%
|
|
|
3.16
|
%
|
|
|
(20.61
|
)%
|
|
|
33.26
|
%
|
|
|
(74.628
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
The
monthly rate of return is calculated by dividing the ending NAV of a given month by the
ending NAV of the previous month, subtracting 1 and multiplying this number by 100 to
arrive at a percentage increase or decrease.
|
|
***
|
Adjusted
to give effect to the reverse share split of 1-for-8 executed on April 28, 2020.
|
Draw-down:
Losses experienced 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 during the most recent five calendar years and year-to-date.
Worst
Peak-to-Valley Draw-down: The largest percentage decline in the NAV per share 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 cumulative percentage decline in month-end per share NAV is not
equaled or exceeded by a subsequent month-end per share NAV.
USO’s Operations
USCF and its Management
and Traders
USCF is
a single member limited liability company that was formed in the state of Delaware on May 10, 2005. USCF maintains its main business
office at 1850 Mt. Diablo Boulevard, Suite 640, Walnut Creek, California 94596. USCF is a wholly-owned subsidiary of Wainwright
Holdings, Inc., a Delaware corporation (“Wainwright”), which is an intermediate holding company that owns USCF and
another advisor of exchange traded funds. Wainwright is a wholly owned subsidiary of Concierge Technologies, Inc. (publicly traded
under the ticker CNCG) (“Concierge”), a publicly traded holding company that owns various financial and non-financial
businesses. Mr. Nicholas Gerber (discussed below), along with certain family members and certain other shareholders, owns the
majority of the shares in Concierge. Wainwright is a holding company that currently holds both USCF, as well as USCF Advisers
LLC, an investment adviser registered under the Investment Advisers Act of 1940, as amended, (“USCF Advisers”). USCF
Advisers serves as the investment adviser for the USCF SummerHaven SHPEI Index Fund (“BUY”) and the USCF SummerHaven
Dynamic Commodity Strategy No K-1 Fund (“SDCI”), each a series of the USCF ETF Trust. USCF Advisers was also the investment
adviser for the USCF Commodity Strategy Fund (the “Mutual Fund”), a series of the USCF Mutual Funds Trust, until March
2019, when the Mutual Fund liquidated all of its assets and distributed cash pro rata to all remaining shareholders and for
the USCF SummerHaven SHPEN Index Fund (“BUYN”), a series of the USCF ETF Trust until May 2020, when BUYN liquidated
all of its assets and distributed cash pro rata to all remaining shareholders. USCF ETF Trust and USCF Mutual Funds Trust are
registered under the Investment Company Act of 1940, as amended (the “1940 Act”). The Board of Trustees for the USCF
ETF Trust and USCF Mutual Funds Trust consist of different independent trustees than those independent directors who serve on
the Board of Directors of USCF. USCF is a member of the National Futures Association (the “NFA”) and registered as
a commodity pool operator (“CPO”) with the Commodity Futures Trading Commission (the “CFTC”) on December
1, 2005 and as a swaps firm on August 8, 2013.
USCF serves
as the general partner of USO. USCF also serves as the general partner of the United States Natural Gas Fund, LP (“UNG”),
the United States 12 Month Oil Fund, LP (“USL”), the United States Gasoline Fund, LP (“UGA”), the United
States 12 Month Natural Gas Fund, LP (“UNL”) and the United States Brent Oil Fund, LP (“BNO”). USCF previously
served as the general partner for the United States Short Oil Fund, LP (“DNO”) and the United States Diesel-Heating
Oil Fund, LP (“UHN”), both of which were liquidated in 2018.
USCF is
also the sponsor of the United States Commodity Index Funds Trust (“USCIFT”), a Delaware statutory trust, and each
of its series: the United States Commodity Index Fund (“USCI”), the United States Copper Index Fund (“CPER”),
and the USCF Crescent Crypto Index Fund (“XBET”). XBET is currently in registration and has not commenced operations.
USCF previously served as the sponsor for the United States Agriculture Index Fund (“USAG”), which was liquidated
in 2018.
In addition,
USCF is the sponsor of the USCF Funds Trust, a Delaware statutory trust, and each of its series, the United States 3x Oil Fund
(“USOU”) and the United States 3x Short Oil Fund (“USOD”), which listed their shares on the NYSE Arca
on July 20, 2017 under the ticker symbols “USOU” and “USOD”, respectively. Each of USOU and USOD liquidated
all of its assets and distributed cash pro rata to all remaining shareholders in December 2019. UNG, UGA, UNL, USL, BNO, USCI
and CPER are referred to collectively herein as the “Related Public Funds.”
The Related
Public Funds are subject to reporting requirements under the Securities Exchange Act of 1934, as amended (“Exchange Act”)
and, if registered under the 1940 Act, a Related Public Fund also must comply with the reporting requirements under the 1940 Act.
For more information about each of the Related Public Funds, investors in USO may call 1-800-920-0259 or visit www.uscfinvestments.com
or the Securities and Exchange Commission’s (“SEC”) website at www.sec.gov.
USCF is
required to evaluate the credit risk of USO to its FCMs, oversee the purchase and sale of USO’s shares by certain
authorized participants (“Authorized Participants”), review daily positions and margin requirements of USO and manage
USO’s investments. USCF also pays the fees of ALPS Distributors, Inc., which serves as the marketing agent for USO (the
“Marketing Agent”), and The Bank of New York Mellon (“BNY Mellon”), which serves as the administrator
(the “Administrator”) and the custodian (the “Custodian”) for USO. In no event may the aggregate compensation
paid for the Marketing Agent and any affiliate of USCF for distribution-related services in connection with the offering of shares
exceed ten percent (10%) of the gross proceeds of this offering.
The limited
partners take no part in the management or control, and have a minimal voice in USO’s operations or business. Limited partners
have no right to elect USCF on an annual or any other continuing basis. If USCF voluntarily withdraws, however, the holders of
a majority of USO’s outstanding shares (excluding for purposes of such determination shares owned, if any, by the withdrawing
general partner and its affiliates) may elect its successor. USCF may not be removed as general partner except upon approval by
the affirmative vote of the holders of at least 66 2/3 percent of USO’s outstanding shares (excluding shares, if any, owned
by USCF and its affiliates), subject to the satisfaction of certain conditions set forth in the LP Agreement.
The business
and affairs of USCF are managed by the Board, which is comprised of the Management Directors, each of whom are also executive
officers and employees of USCF, and three independent directors who meet the independent director requirements established by
the NYSE Arca Equities Rules and the Sarbanes-Oxley Act of 2002. The Management Directors have the authority to manage USCF pursuant
to the terms of the LLC Agreement. Through its Management Directors, USCF manages the day-to-day operations of USO. The Board
has an audit committee, which is made up of the three independent directors (Gordon L. Ellis, Malcolm R. Fobes III and Peter M.
Robinson,). The audit committee is governed by an audit committee charter that is posted on USO’s website at www.uscfinvestments.com.
The Board 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 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 Finance
Expert” as such term is defined in Item 407(d)(5) of Regulation S-K.
USO has
no executive officers. Pursuant to the terms of the LP Agreement, USO’s affairs are managed by USCF.
The following
are individual Principals, as that term is defined in CFTC Rule 3.1, for USCF: John P. Love, Stuart P. Crumbaugh, Nicholas D.
Gerber, Melinda D. Gerber, Andrew F. Ngim, Robert L. Nguyen, Peter M. Robinson, Scott Schoenberger, Gordon L. Ellis, Malcolm R.
Fobes III, Ray W. Allen, Kevin A. Baum, Carolyn M. Yu, and Wainwright. The individuals who are Principals due to their positions
are John P. Love, Stuart P. Crumbaugh, Nicholas D. Gerber, Andrew F. Ngim, Robert L. Nguyen, Peter M. Robinson, Gordon L. Ellis,
Malcolm R. Fobes, Ray W. Allen, Kevin A. Baum and Carolyn M. Yu. In addition, Wainwright is a Principal because it is the sole
member of USCF. None of the Principals owns or has any other beneficial interest in USO. Ray W. Allen and John P. Love make trading
and investment decisions for USO. John P. Love and Ray Allen direct the execution of execute trades on behalf of USO. In addition,
Nicholas D. Gerber, John P. Love, Robert Nguyen, Ray Allen, Kevin Baum, Kathryn Rooney, Maya Lowry, and Ryan Katz are registered
with the CFTC as Associated Persons of USCF and are NFA Associate Members. John P. Love and Ray Allen are also registered with
the CFTC as Swap Associated Persons.
Ray W.
Allen, 63, Portfolio Manager of USCF since January 2008. Mr. Allen was the portfolio manager of: (1) UGA from
February 2008 until March 2010, and then portfolio manager since May 2015, (2) UHN from April 2008 until March 2010, and then
from May 2015 to September 2018, (3) UNL from November 2009 until March 2010, and then portfolio manager since May 2015. In
addition, he has been the portfolio manager of: (1) DNO from September 2009 to September 2018, (2) USO and USL since March
2010, (3) BNO since June 2010, (4) UNG since May 2015, and (4) USOU and USOD since July 2017 to December 2019. Mr. Allen also
has served as the portfolio manager of (1) the USCF Commodity Strategy Fund, a series of USCF Mutual Funds Trust, from
October 2017 to March 2019, and (2) the USCF SummerHaven Dynamic Commodity Strategy No K-1 Fund, a series of the USCF ETF
Trust, since May 2018. Mr. Allen has been a principal of USCF listed with the CFTC and NFA since March 2009 and has been
registered as an associated person of USCF since July 2015 and from March 2008 to November 2012. Additionally, Mr. Allen has
been approved as an NFA swap associated person of USCF since July 2015. As of February 2017, he also is an associated person
and swap associated person of USCF Advisers. USCF Advisers, an affiliate of USCF, is an investment adviser registered under
the Investment Advisers Act of 1940, and, as of February 2017, is registered as a commodity pool operator, NFA member and
swap firm. Mr. Allen earned a B.A. in Economics from the University of California at Berkeley and holds an NFA Series 3
registration.
Kevin
A. Baum, 49, has served as a Portfolio Manager of USCF since March 2016 and as the Chief Investment Officer of USCF since
September 1, 2016. Prior to joining USCF, Mr. Baum temporarily retired from December 2015 to March 2016. Mr. Baum served as the
Vice President and Senior Portfolio Manager for Invesco Capital Management, an investment manager that manages a family of exchange-traded
funds, from October 2014 through December 2015. Mr. Baum was temporarily retired from May 2012 through September 2014. From May
1993 to April 2012, Mr. Baum worked as the Senior Portfolio Manager, Head of Commodities for OppenheimerFunds, Inc., a global
asset manager. Mr. Baum has been approved as an NFA principal, and associated person of USCF since April 2016 and, as of January
2017, a branch manager of USCF. As of February 2017, he also is an associated person, and branch manager of USCF Advisers. USCF
Advisers, an affiliate of USCF, is an investment adviser registered under the Investment Advisers Act of 1940, and, as of February
2017, is registered as a commodity pool operator, NFA member and swap firm. Mr. Baum is a CFA Charterholder, CAIA Charterholder,
earned a B.B.A. in Finance from Texas Tech University and holds an NFA Series 3 registration.
Stuart
P. Crumbaugh, 56, Chief Financial Officer, Secretary and Treasurer of USCF since May 2015 and also the Chief Financial
Officer of Concierge Technologies, Inc., the parent of Wainwright, since December 2017. In addition, Mr. Crumbaugh has served
as a director of Wainwright, the parent and sole member of USCF, since December 2016. Mr. Crumbaugh has been a principal of USCF
listed with the CFTC and NFA since July 1, 2015 and, as of January 2017, he is a principal of USCF Advisers. USCF Advisers, an
affiliate of USCF, is an investment adviser registered under the Investment Advisers Act of 1940, and, as of February 2017, is
registered as a commodity pool operator, NFA member and swap firm. Since June 2015, Mr. Crumbaugh has been the Treasurer and Secretary
of USCF Advisers. He also has served as a Management Trustee, Chief Financial Officer and Treasurer of (1) USCF ETF Trust since
May 2015 and (2) USCF Mutual Funds Trust since October 2016. Mr. Crumbaugh joined USCF as the Assistant Chief Financial Officer
on April 6, 2015. Prior to joining USCF, Mr. Crumbaugh was the Vice President Finance and Chief Financial Officer of Sikka Software
Corporation, a software service healthcare company providing optimization software and data solutions from April 2014 to April
6, 2015. Mr. Crumbaugh served as a consultant providing technical accounting, IPO readiness and M&A consulting services to
various early stage companies with the Connor Group, a technical accounting consulting firm, for the periods of January 2014 through
March 2014; October 2012 through November 2012; and January 2011 through February 2011. From December 2012 through December 2013,
Mr. Crumbaugh was Vice President, Corporate Controller and Treasurer of Auction.com, LLC, a residential and commercial real estate
online auction company. From March 2011 through September 2012, Mr. Crumbaugh was Chief Financial Officer of IP Infusion Inc.,
a technology company providing network routing and switching software enabling software-defined networking solutions for major
mobile carriers and network infrastructure providers. Mr. Crumbaugh earned a B.A. in Accounting and Business Administration from
Michigan State University in 1987 and is a Certified Public Accountant – Michigan (inactive).
Nicholas
D. Gerber, 57, Vice President since May 15, 2015 and Management Director since June 2005. Mr. Gerber also served as the
Chairman of the Board of Directors of USCF from June 2005 through October 2019 and as President and Chief Executive Officer of
USCF from June 2005 through May 15, 2015. Mr. Gerber co-founded USCF in 2005 and prior to that, he co-founded Ameristock Corporation
in March 1995, a California-based investment adviser registered under the Investment Advisers Act of 1940 from March 1995 until
January 2013. Since January 26, 2015, Mr. Gerber also has served as the Chief Executive Officer, President, and Chairman of the
Board of Directors of Concierge Technologies, Inc. (“Concierge”), which is a company publicly traded under the ticker
symbol “CNCG.” Concierge is the sole shareholder of Wainwright. Mr. Gerber also is the President and a director of
Wainwright, a position he has held since March of 2004. From August 1995 to January 2013, Mr. Gerber served as Portfolio Manager
of Ameristock Mutual Fund, Inc. On January 11, 2013, the Ameristock Mutual Fund, Inc. merged with and into the Drexel Hamilton
Centre American Equity Fund, a series of Drexel Hamilton Mutual Funds. Drexel Hamilton Mutual Funds is not affiliated with Ameristock
Corporation, the Ameristock Mutual Fund, Inc. or USCF. Mr. Gerber also has served USCF Advisers on the Board of Managers from
June 2013 to present, as the President from June 2013 through June 18, 2015, and as Vice President from June 18, 2015 to present.
USCF Advisers, an affiliate of USCF, is an investment adviser registered under the Investment Advisers Act of 1940, and, since
February 2017, is registered as a commodity pool operator, NFA member and swap firm. He also has served as Chairman of the Boards
of Trustees of USCF ETF Trust since 2014 and USCF Mutual Funds Trust since October 2016, respectively, (USCF ETF Trust and together
with USCF Mutual Funds Trust are referred to as the “Trusts”) and each of the Trusts are investment companies registered
under the 1940 Act, as amended. In addition, Mr. Gerber served as the President and Chief Executive Officer of USCF ETF Trust
from June 2014 until December 2015. In the above 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 been a principal
of USCF listed with the CFTC and NFA since November 2005, an NFA associate member and associated person of USCF since December
2005 and a Branch Manager of USCF since May 2009. Additionally, effective as of January 2017, he is a principal of USCF Advisers
and, effective as of February 2017, he is an associated person and branch manager of USCF Advisers. Mr. Gerber earned an MBA degree
in finance from the University of San Francisco, a B.A. from Skidmore College and holds an NFA Series 3 registration.
John
P. Love, 48, President and Chief Executive Officer of USCF since May 15, 2015, Management Director of USCF since October
2016, and Chairman of the Board of Directors of USCF since October 2019. Mr. Love previously served as a Senior Portfolio Manager
for the Related Public Funds from March 2010 through May 15, 2015. Prior to that, while still at USCF, he was a Portfolio Manager
beginning with the launch of USO in April 2006. Mr. Love was the portfolio manager of USO from April 2006 until March 2010 and
the portfolio manager for USL from December 2007 until March 2010. Mr. Love has been the portfolio manager of UNG since April
2007, and the portfolio manager of UGA, and UNL since March 2010 and the portfolio manager of UHN from March 2010 to September
2018. USCF Advisers, an affiliate of USCF, is an investment adviser registered under the Investment Advisers Act of 1940, and,
as of February 2017, is registered as a commodity pool operator, NFA member and swap firm. Mr. Love has served as on the Board
of Managers of USCF Advisers since November 2016 and as its President since June 18, 2015. He also acted as co-portfolio manager
of the Stock Split Index Fund, a series of the USCF ETF Trust for the period from September 2014 to December 2015, when he was
promoted to the position of President and Chief Executive Officer of the USCF ETF Trust. Since October 2016 to present, he also
has served as the President and Chief Executive of the USCF Mutual Funds Trust. Mr. Love also is a director of Wainwright, a position
he has held since December 2016. Mr. Love has been a principal of USCF listed with the CFTC and NFA since January 17, 2006. Mr.
Love has been registered as an associated person of USCF since February 2015 and from December 1, 2005 to April 16, 2009. Mr.
Love has also been registered as a branch manager of USCF since March 2016. Additionally, Mr. Love has been approved as an NFA
swap associated person since February 2015. Mr. Love is a principal of USCF Advisers LLC as of January 2017. Additionally, effective
as of February 2017, he is an associated person, swap associated person, and branch manager of USCF Advisers. Mr. Love earned
a B.A. from the University of Southern California, holds an NFA Series 3 and FINRA Series 7 registrations and is a CFA Charterholder.
Andrew
F Ngim, 59, co-founded USCF in 2005 and has served as a Management Director since May 2005 and, since August 15, 2016,
has served as the Chief Operating Officer of USCF. Mr. Ngim has served as the portfolio manager for USCI and CPER since January
2013 and for USAG from January 2013 to September 2018. Mr. Ngim also served as USCF’s Treasurer from June 2005 to February
2012. In addition, he has been on the Board of Managers and has served as the Assistant Secretary and Assistant Treasurer of USCF
Advisers since its inception in June 2013. Prior to and concurrent with his services to USCF and USCF Advisers, from January 1999
to January 2013, Mr. Ngim served as a Managing Director for Ameristock Corporation, a California-based investment adviser, which
he co-founded in March 1995, and was Co-Portfolio Manager of Ameristock Mutual Fund, Inc. from January 2000 to January 2013. Mr.
Ngim also served as portfolio manager of (1) the Stock Split Index Fund from September 2014 to October 2017, and (2) the USCF
Restaurant Leaders Fund from November 2016 to October 2017, both series of the USCF ETF Trust. Mr. Ngim also serves as the portfolio
manager for three funds that are series of the USCF ETF Trust: (1) USCF SummerHaven SHPEI Index Fund from December 2017 to present,
(2) USCF SummerHaven SHPEN Index Fund also from December 2017 to present, and (3) USCF SummerHaven Dynamic Commodity Strategy
No K-1 Fund from May 2018 to present. Mr. Ngim serves as a Management Trustee of: (1) the USCF ETF Trust from August 2014 to the
present and (2) the USCF Mutual Funds Trust from October 2016 to present. Mr. Ngim has been a principal of USCF listed with the
CFTC and NFA since November 2005 and a principal of USCF Advisers LLC since January 2017. USCF Advisers, an affiliate of USCF,
is an investment adviser registered under the Investment Advisers Act of 1940, and, as of February 2017, is registered as a commodity
pool operator, NFA member and swap firm. Mr. Ngim earned his B.A. from the University of California at Berkeley.
Robert
L. Nguyen, 60, Management Director and principal since July 2015. Mr. Nguyen served on the Board of Wainwright from December
2014 to December 2016. Mr. Nguyen co-founded USCF in 2005 and served as a Management Director until March 2012. Mr. Nguyen was
an Investment Manager with Ribera Investment Management, an investment adviser registered under the Investment Advisers Act of
1940, from January 2013 to March 2015. Prior to and concurrent with his services to USCF, from January 2000 to January 2013, Mr.
Nguyen served as a Managing Principal for Ameristock Corporation, a California-based investment adviser registered under the Investment
Advisers Act of 1940, which he co-founded in March 1995. Mr. Nguyen was a principal of USCF listed with the CFTC and NFA from
November 2005 through March 2012 and an associated person of USCF listed with the CFTC and NFA from November 2007 through March
2012. Mr. Nguyen has been a principal of USCF listed with the CFTC and NFA since July 2015 and an associated person of USCF listed
with the CFTC and NFA since December 2015. As of February 2017, he also is an associated person of USCF Advisers. USCF Advisers,
an affiliate of USCF, is an investment adviser registered under the Investment Advisers Act of 1940, and, as of February 2017,
is registered as a commodity pool operator, NFA member and swap firm. Mr. Nguyen earned his B.S. from California State University
at Sacramento, and holds NFA Series 3 and FINRA Series 7 registrations.
Carolyn
M. Yu, 61, Chief Compliance Officer of USCF since February 2013. In addition, she served USCF as the General Counsel from
May 2015 through April 2018 and the Assistant General Counsel from August 2011 through April 2015. Ms. Yu also served as the General
Counsel of Concierge, the parent of Wainwright from November 2017 through December 2018. Ms. Yu has served as (1) Chief Compliance
Officer of USCF Advisers and USCF ETF Trust since May 2015 and of USCF Mutual Funds Trust since October 2016, (2) Chief AML Officer
of USCF ETF Trust since May 2015 and of USCF Mutual Funds Trust since October 2016, and (3) Chief Legal Officer of USCF Advisers
and USCF ETF Trust from May 2015 through April 2018 and of USCF Mutual Funds Trust from October 2016 through April 2018. Prior
to May 2015, Ms. Yu was the Assistant Chief Compliance Officer and AML Officer of the USCF ETF Trust. Since August 2013, in the
case of USCF, and January 2017, in the case of USCF Advisers, Ms. Yu has been a principal listed with the CFTC and NFA. USCF Advisers
LLC, an affiliate of USCF, is an investment adviser registered under the Investment Advisers Act of 1940, and, as of February
2017, is registered as a commodity pool operator, NFA member and swap firm. Ms. Yu earned her JD from Golden Gate University School
of Law and a B.S. in business administration from San Francisco State University.
Gordon
L. Ellis, 73, Independent Director of USCF since September 2005. Previously, Mr. Ellis was a founder of International
Absorbents, Inc., Director and Chairman since July 1985 and July 1988, respectively, and Chief Executive Officer and President
since November 1996. He also served as Chairman of Absorption Corp., a wholly-owned subsidiary of International Absorbents, Inc.,
which is a leading developer and producer of environmentally friendly pet care and industrial products, from May July 1985 until
July 2010 when it was sold to Kinderhook Industries, a private investment banking firm and remained as a director until March
2013 when Absorption Corp was sold again to J. Rettenmaier & Söhne Group, a German manufacturing firm. Concurrent with
that, he founded and has served as Chairman from November 2010 to present of Lupaka Gold Corp., a firm that acquires, explores,
develops, and evaluates gold mining properties in Peru, South America. Mr. Ellis has his Chartered Directors designation from
The Director’s College (a joint venture of McMaster University and The Conference Board of Canada). He has been a principal
of USCF listed with the CFTC and NFA since November 2005. Mr. Ellis is an engineer and earned an MBA in international finance.
Malcolm
R. Fobes III, 55, Independent Director of USCF and Chairman of USCF’s audit committee since September 2005. He founded
and is the 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. Mr. Fobes serves as Chairman and President of The Berkshire Funds, a mutual fund investment company registered
under the 1940 Act. Since 1997, Mr. Fobes has also served as portfolio manager of the Berkshire Focus Fund, a mutual fund registered
under the 1940 Act, which concentrates its investments in the electronic technology industry. He 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 has been a principal
of USCF listed with the CFTC and NFA since November 2005. He earned a B.S. in finance with a minor in economics from San Jose
State University in California.
Peter
M. Robinson, 62, Independent Director of USCF since September 2005. Mr. Robinson has been a Research Fellow since 1993
with the Hoover Institution, a public policy think tank located on the campus of Stanford University. He authored three books
and has been published in the New York Times, Red Herring, and Forbes ASAP and is the editor of Can Congress Be Fixed?: Five Essays
on Congressional Reform (Hoover Institution Press, 1995). Mr. Robinson has been a principal of USCF listed with the CFTC and NFA
since December 2005. He earned an MBA from the Stanford University Graduate School of Business, graduated from Oxford University
in 1982 after studying politics, philosophy, and economics and graduated summa cum laude from Dartmouth College in 1979.
USO’s Service Providers
Custodian, Registrar, Transfer
Agent, and Administrator
In its
capacity as the Custodian for USO, The Bank of New York Mellon (“BNY Mellon” or the “Custodian”) holds
USO’s Treasuries, cash and/or cash equivalents pursuant to a custody agreement. BNY Mellon is also the registrar and transfer
agent for the shares. In addition, in its capacity as Administrator for USO, BNY Mellon performs certain administrative and accounting
services for USO and prepares certain SEC, NFA and CFTC reports on behalf of USO.
As compensation
for the services that BNY Mellon provides to USO in the foregoing capacities, and the services BNY Mellon provides to the Related
Public Funds, BNY Mellon receives certain out of pocket costs, transaction fees, and asset based fees, which are accrued daily
and paid monthly by USCF.
BNY Mellon
is authorized to conduct a commercial banking business in accordance with the provisions of New York State Banking Law, and is
subject to regulation, supervision, and examination by the New York State Department of Financial Services and the Board of Governors
of the Federal Reserve System.
Marketing Agent
USO also
employs ALPS Distributors, Inc. (“ALPS Distributors”) as the Marketing Agent, which is further discussed under “What
is the Plan of Distribution?” USCF pays the Marketing Agent an annual fee. In no event may the aggregate compensation paid
to the Marketing Agent and any affiliate of USCF for distribution-related services in connection with the offering of shares exceed
ten percent (10%) of the gross proceeds of the offering.
ALPS Distributors’
principal business address is 1290 Broadway, Suite 1000, Denver, CO 80203. ALPS Distributors is a broker-dealer registered with
the U.S. Securities and Exchange Commission (“SEC”) and is a member of FINRA and a member of the Securities Investor
Protection Corporation.
Payments to Certain Third
Parties
USCF
or the Marketing Agent, or an affiliate of USCF or the Marketing Agent, may directly or indirectly make cash payments to certain
broker-dealers for participating in activities that are designed to make registered representatives and other professionals more
knowledgeable about exchange-traded funds and exchange-traded products, including USO and the Related Public Funds, or for other
activities, such as participation in marketing activities and presentations, educational training programs, conferences, the development
of technology platforms and reporting systems.
Additionally,
pursuant to written agreements, USCF may make payments, out of its own resources, to financial intermediaries in exchange for
providing services in connection with the sale or servicing of the Fund’s shares, including waiving commissions on the purchase
or sale of shares of participating exchange-traded products.
Payments
to a broker-dealer or intermediary may create potential conflicts of interest between the broker-dealer or intermediary and its
clients. The amounts described above, which may be significant, are paid by USCF and/or the Marketing Agent from their own resources
and not from the assets of USO or the Related Public Funds.
Futures Commission Merchants
RBC
Capital Markets, LLC
On October
8, 2013, USCF entered into a Futures and Cleared Derivatives Transactions Customer Account Agreement with RBC Capital Markets,
LLC (“RBC Capital” or “RBC”) to serve as USO’s FCM. This agreement requires RBC Capital to provide
services to USO, in connection with the purchase and sale of Oil Futures Contracts and Other Oil-Related Investments that may
be purchased or sold by or through RBC Capital for USO’s account. Under the agreement, USO pays RBC Capital commissions
for executing and clearing trades on behalf of USO.
RBC Capital’s
primary address is 3 World Financial Center, 200 Vesey St., New York, NY 10281. Effective October 10, 2013, RBC Capital became
the futures clearing broker for USO. RBC Capital is registered in the United States with FINRA as a broker-dealer and with the
CFTC as an FCM. RBC Capital is a member of various U.S. futures and securities exchanges.
RBC Capital
is a large broker dealer subject to many different complex legal and regulatory requirements. As a result, certain of RBC Capital’s
regulators may from time to time conduct investigations, initiate enforcement proceedings and/or enter into settlements with RBC
Capital with respect to issues raised in various investigations. RBC Capital complies fully with its regulators in all investigations
being conducted and in all settlements it reaches. In addition, RBC Capital is and has been subject to a variety of civil legal
claims in various jurisdictions, a variety of settlement agreements and a variety of orders, awards and judgments made against
it by courts and tribunals, both in regard to such claims and investigations. RBC Capital complies fully with all settlements
it reaches and all orders, awards and judgments made against it.
RBC Capital
has been named as a defendant in various legal actions, including arbitrations, class actions and other litigation including those
described below, arising in connection with its activities. Certain of the actual or threatened legal actions include claims for
substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. RBC Capital is also involved,
in other reviews, investigations and proceedings (both formal and informal) by governmental and self-regulatory agencies regarding
RBC Capital’s business, including among other matters, accounting and operational matters, certain of which may result in
adverse judgments, settlements, fines, penalties, injunctions or other relief.
RBC Capital
contests liability and/or the amount of damages as appropriate in each pending matter. In view of the inherent difficulty of predicting
the outcome of such matters, particularly in cases where claimants seek substantial or indeterminate damages or where investigations
and proceedings are in the early stages, RBC Capital cannot predict the loss or range of loss, if any, related to such matters;
how or if such matters will be resolved; when they will ultimately be resolved; or what the eventual settlement, fine, penalty
or other relief, if any, might be. Subject to the foregoing, RBC Capital believes, based on current knowledge and after consultation
with counsel, that the outcome of such pending matters will not have a material adverse effect on the consolidated financial condition
of RBC Capital.
On April
27, 2017, pursuant to an offer of settlement, a Panel of the Chicago Board of Trade Business Conduct Committee (“Panel”)
found that RBC Capital engaged in EFRP transactions which failed to satisfy the Rules of the Chicago Board of Trade (“Chicago
Board of Trade”) in one or more ways. Specifically, the Panel found that RBC Capital traders entered into EFRP trades in
which RBC Capital accounts were on both sides of the transactions. While the purpose of the transactions was to transfer positions
between the RBC Capital accounts, the Panel found that the manner in which the trades occurred violated the Chicago Board of Trade’s
prohibition on wash trades. The Panel found that RBC Capital thereby violated CBOT Rules 534 and (legacy) 538.B. and C. In accordance
with the settlement offer, the Panel ordered RBC Capital to pay a $175,000 fine. On October 1, 2019, the CFTC issued an order
filing and settling charges against RBCCM for the above activity, as well as related charges. The order required that RBCCM cease
and desist from violating the applicable regulations, pay a $5 million civil monetary penalty, and comply with various conditions,
including conditions regarding public statements and future cooperation with the Commission.
On June
18, 2015, in connection with the Municipalities Continuing Disclosure Cooperation initiative of the SEC, the SEC commenced and
settled an administrative proceeding against RBC Capital for willful violations of Sections 17(a)(2) of the 1933 Act after the
firm self-reported instances in which it conducted inadequate due diligence in certain municipal securities offerings and as a
result, failed to form a reasonable basis for believing the truthfulness of certain material representations in official statements
issued in connection with those offerings. RBC Capital paid a fine of $500,000.
RBC Capital
and certain affiliates were named as defendants in a lawsuit relating to their role in transactions involving investments made
by a number of Wisconsin school districts in certain collateralized debt obligations. These transactions were also the subject
of a regulatory investigation, which was resolved in 2011. RBC Capital reached a final settlement with all parties in the civil
litigation, and the civil action against RBC Capital was dismissed with prejudice on December 6, 2016.
Beginning
in 2015, putative class actions were brought against RBC Capital and/or Royal Bank of Canada in the U.S., Canada and Israel. These
actions were each brought against multiple foreign exchange dealers and allege, among other things, collusive behavior in foreign
exchange trading. Various regulators are also conducting inquiries regarding potential violations of law by a number of banks
and other entities, including RBC Capital, regarding foreign exchange trading. In August 2018, the U.S. District Court entered
a final order approving RBC Capital’s pending settlement with class plaintiffs. Certain institutional plaintiffs opted out
of participating in the settlement and have brought their own claims. The Canadian class actions and one other U.S. action that
is purportedly brought on behalf of different classes of plaintiffs, and an action filed in Israel, remain pending. Based on the
facts currently known, it is not possible at this time for us to predict the ultimate outcome of these investigations or proceedings
or the timing of their resolution.
On July
31, 2015, RBC Capital was added as a new defendant in a pending putative class action initially filed in November 2013 in the
United States District Court for the Southern District of New York. The action is brought against multiple foreign exchange dealers
and alleges collusive behavior, among other allegations, in foreign exchange trading. Based on the facts currently known, the
ultimate resolution of these collective matters is not expected to have a material adverse effect on RBC.
On April
13, 2015, RBC Capital’s affiliate, Royal Bank of Canada Trust Company (Bahamas) Limited (“RBC Bahamas”), was
charged in France with complicity in tax fraud. RBC Bahamas believes that its actions did not violate French law and contested
the charge in the French court. The trial of this matter has concluded and a verdict was delivered on January 12, 2017, acquitting
the company and the other defendants and on June 29, 2018, the French appellate court affirmed the acquittals. The acquittals
are being appealed.
Various
regulators and competition and enforcement authorities around the world, including in Canada, the United Kingdom, and the U.S.,
are conducting investigations related to certain past submissions made by panel banks in connection with the setting of the U.S.
dollar London interbank offered rate (LIBOR). These investigations focus on allegations of collusion between the banks that were
on the panel to make submissions for certain LIBOR rates. Royal Bank of Canada, RBC Capital’s indirect parent, is a member
of certain LIBOR panels, including the U.S. dollar LIBOR panel, and has in the past been the subject of regulatory requests for
information. In addition, Royal Bank of Canada and other U.S. dollar panel banks have been named as defendants in private lawsuits
filed in the U.S. with respect to the setting of LIBOR including a number of class action lawsuits which have been consolidated
before the U.S. District Court for the Southern District of New York. The complaints in those private lawsuits assert claims against
us and other panel banks under various U.S. laws, including U.S. antitrust laws, the U.S. Commodity Exchange Act, and state law.
On February 28, 2018, the motion by the plaintiffs in the class action lawsuits to have the class certified was denied in relation
to Royal Bank of Canada. As such, unless that ruling is reversed on appeal, Royal Bank of Canada is no longer a defendant in any
pending class action. Royal Bank of Canada is still a party to the various individual LIBOR actions. Based on the facts currently
known, it is not possible at this time for us to predict the ultimate outcome of these investigations or proceedings or the timing
of their resolution.
Thornburg
Mortgage Inc. (“TMST”) and RBC Capital were parties to a master repurchase agreement executed in September 2003 whereby
TMST financed its purchase of residential mortgage-backed securities. Upon TMST’s default during the financial crisis, RBC
Capital valued TMST’s collateral at allegedly deflated prices. After TMST’s bankruptcy filing, TMST’s trustee
brought suit against RBC Capital in 2011 for breach of contract. In 2015, TMST was awarded more than $45 million in damages. RBC
Capital has appealed. The appeals court set a briefing schedule and simultaneously ordered the parties to participate in a mediation.
The parties subsequently reached an agreement to settle the matter; a motion to approve the settlement was filed with the bankruptcy
court on January 10, 2016 and granted on February 27, 2017.
On October
14, 2014, the Delaware Court of Chancery (the “Court of Chancery”) in a class action brought by former shareholders
of Rural/Metro Corporation, held RBC Capital liable for aiding and abetting a breach of fiduciary duty by three Rural/Metro directors,
but did not make an additional award for attorney’s fees. A final judgment was entered on February 19, 2015 in the amount
of US$93 million plus post judgment interest. RBC Capital appealed the Court of Chancery’s determination of liability and
quantum of damages, and the plaintiffs cross-appealed the ruling on additional attorneys’ fees. On November 30, 2015, the
Delaware Supreme Court affirmed the Court of Chancery with respect to both the appeal and cross-appeal. RBC Capital is cooperating
with an investigation by the SEC relating to this matter. In particular, the SEC contended that RBC Capital caused materially
false and misleading information to be included in the proxy statement that Rural filed to solicit shareholder approval for the
sale in violation of section 14(A) of the Exchange Act and Rule 14A-9 thereunder. On August 31, 2016, RBC Capital was ordered
by the SEC to cease and desist and paid $500,000 in disgorgement, plus interest of $77,759 and a civil penalty of $2 million.
Please
see RBC Capital’s Form BD, which is available on the FINRA BrokerCheck program, for more details.
RBC Capital
will act only as clearing broker for USO and as such will be paid commissions for executing and clearing trades on behalf of USO.
RBC Capital has not passed upon the adequacy or accuracy of this disclosure document. RBC Capital will not act in any supervisory
capacity with respect to USCF or participate in the management of USCF or USO.
RBC Capital
is not affiliated with USO or USCF. Therefore, neither USCF nor USO believes that there are any conflicts of interest with RBC
Capital or its trading principals arising from its acting as USO’s FCM.
RCG Division of Marex Spectron
On May 28, 2020, USO entered into a Commodity
Futures Customer Agreement with RCG to serve as a FCM for USO. This agreement requires
RCG to provide services to USO in connection with the purchase and sale of Oil Futures Contracts and other Oil-Related Investments
which may be purchased or sold by or through RCG for USO’s account. Under this agreement, USO pays RCG commissions for executing
and clearing trades on behalf of USO.
RCG’s primary address is 360
Madison Avenue, 3rd Floor, New York, NY 10017. RCG is registered in the United States with FINRA as a broker-dealer and with
the CFTC as an FCM. RCG is a member of various U.S. futures and securities exchanges.
RCG is a large broker dealer subject to
many different complex legal and regulatory requirements. As a result, certain of RCG’s regulators may from time to time
conduct investigations, initiate enforcement proceedings and/or enter into settlements with RCG with respect to issues raised
in various investigations. RCG complies fully with its regulators in all investigations which may be conducted and in all settlements
it may reach. As of the date hereof, RCG has no material litigation to disclose as that term is defined under the U.S. Commodity
Exchange Act and the regulations promulgated thereunder.
RCG will act only
as clearing broker for USO and as such will be paid commissions for executing and clearing trades on behalf of USO. RCG has not
passed upon the adequacy or accuracy of this disclosure document. RCG will not act in any supervisory capacity with respect to
USCF or participate in the management of USCF or BNO.
RCG is not affiliated
with USO or USCF. Therefore, neither USCF nor USO believes that there are any conflicts of interest with RCG or its trading principals
arising from its acting as USO’s FCM.
Introducing Broker
BTIG, LLC,
whose principal address is 600 Montgomery Street, Sixth Floor, San Francisco, CA, 94111, will act as an introducing broker for
USO’s futures trading. BTIG is registered with the U.S. Securities and Exchange Commission as a broker-dealer, with the
CFTC as an introducing broker, and is a member of FINRA and other regulatory agencies and exchanges. In the normal course of its
regulated business activities, BTIG receives examinations, subpoenas, and inquiries from the regulatory organizations that oversee
its various business activities. From March 2015 through March 2020, BTIG has not been involved in any material litigation.
BTIG LLC
is not affiliated with USO or USCF. Therefore, neither USCF nor USO believes that there will be any conflicts of interest with
BTIG, LLC or its trading principals arising from its acting as USO’s introducing broker.
Commodity Trading Advisor
Currently,
USCF does not employ commodity trading advisors for the trading of USO contracts. USCF currently does, however, employ SummerHaven
Investment Management, LLC as a trading Advisor for USCI and CPER. If, in the future, USCF does employ commodity trading advisors
for USO, it will choose each advisor based on arm’s-length negotiations and will consider the advisor’s experience,
fees and reputation.
USO’s Fees and Expenses
This
table describes the fees and expenses that you may pay if you buy and hold shares of USO. You should note that you may pay brokerage
commissions on purchases and sales of USO’s shares, which are not reflected in the table. Authorized Participants will pay
applicable creation and redemption fees. See “Creation and Redemption of Shares—Creation and Redemption
Transaction Fee,” page 80.
Annual
Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)(1)
Management Fees
|
|
|
0.45
|
%
|
Distribution Fees
|
|
|
None
|
|
Other Fund Expenses
|
|
|
0.34
|
%
|
Total Annual Fund Expenses
|
|
|
0.79
|
%
|
|
|
|
|
|
|
(1)
|
Based
on amounts for the year ended December 31, 2019. The individual expense amounts in dollar
terms are shown in the table below. As used in this table, (i) Professional Expenses
include expenses for legal, audit, tax accounting and printing; and (ii) Independent
Director and Officer Expenses include amounts paid to independent directors and for officers’
liability insurance.
|
Management fees
|
|
$
|
6,461,273
|
|
Professional Expenses
|
|
$
|
1,440,997
|
|
Brokerage commissions
|
|
$
|
2,423,017
|
|
Licensing fees
|
|
$
|
215,376
|
|
Registration fees
|
|
$
|
504,876
|
|
Independent Directors and Officer Expenses
|
|
$
|
333,741
|
|
Breakeven Analysis
The breakeven
analysis below indicates the approximate dollar returns and percentage required for the redemption value of a hypothetical initial
investment in a single share to equal the amount invested twelve months after the investment was made. For purposes of this breakeven
analysis, an initial selling price of $25.94 per share, which equals the NAV per share at the close of trading on May
31, 2020, is assumed. In order for a hypothetical investment in shares to break even over the next 12 months, assuming a selling
price of $25.94 per share, the investment would have to generate a 0.790% or $0.205 return, rounded to $0.21.
This breakeven
analysis refers to the redemption of baskets by Authorized Participants 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. As used in this table, (i) Professional
Expenses include expenses for legal, audit, tax accounting and printing; and (ii) Independent Director and Officer Expenses include
amounts paid to independent directors and for officers’ liability insurance.
Assumed initial selling price per share(1)
|
|
$
|
25.94
|
|
Management Fee (0.45%)(2)
|
|
$
|
0.117
|
|
Creation Basket Fee (0.01%)(3)
|
|
$
|
(0.001
|
)
|
Estimated Brokerage Fee (0.17%)(4)
|
|
$
|
0.044
|
|
Interest Income (0.00%)(5)
|
|
$
|
(0.000
|
)
|
Registration Fee (0.035%)(6)
|
|
$
|
0.009
|
|
NYMEX Licensing Fee (0.015%)(7)
|
|
$
|
0.004
|
|
Independent Directors’ and Officers’ Fees (0.023%)(8)
|
|
$
|
0.006
|
|
Professional Expenses (0.10%)(9)
|
|
$
|
0.026
|
|
Amount of trading income (loss) required for the redemption value at the end of
one year to equal the initial selling price of the share
|
|
$
|
0.205
|
|
Percentage of initial selling price per share
|
|
|
0.790
|
%
|
|
|
|
|
|
|
(1)
|
In
order to show how a hypothetical investment in shares would break even over the next
12 months, this breakeven analysis uses an assumed initial selling price of $25.94
per share, which is based on the NAV per share of USO at the close of trading on
May 31, 2020. Investors should note that, because USO’s NAV changes on a
daily basis, the breakeven amount on any given day could be higher or lower than the
amount reflected here.
|
|
(2)
|
USO
is contractually obligated to pay USCF a management fee based on average daily net assets
and paid monthly of 0.45% per annum on its average daily net assets. Average daily net
assets are calculated daily by taking the average of the total net assets of USO over
the calendar year, i.e., the sum of daily total net assets divided by the number of calendar
days in the year. On days when markets are closed, the total net assets are the total
net assets from the last day when the market was open. See page 76 for a discussion
of net assets of USO.
|
|
(3)
|
Authorized
Participants are required to pay a Creation Basket fee of $1,000 for each order they
place to create one or more baskets. This breakeven analysis assumes a hypothetical investment
in a single share, which would equal the $1,000 Creation Basket fee divided by the total
number of outstanding shares plus the 100,000 shares created by the Creation Basket,
so the Creation Basket fee is $0.001.
|
|
(4)
|
This
amount is based on the actual brokerage fees for USO calculated on an annualized basis
and includes a per trade commission of $3.50.
|
|
(5)
|
Given
market volatility in 2020 arising from the COVID-19 pandemic and other geopolitical issues,
USO believes it is reasonable to assume that it will not earn any significant interest
income in 2020.
|
|
(6)
|
USO
pays fees to the SEC and FINRA to register its shares for sale. This amount is based
on actual registration fees for USO calculated on an annualized basis. This fee may vary
in future years.
|
|
(7)
|
The
NYMEX Licensing Fee is 0.015% on aggregate net assets of the Related Public Funds (except
BNO, USCI, CPER). For more information see “USO’s Fees and Expenses.”
|
|
(8)
|
Independent
Director and Officer Expenses include amounts paid to independent directors and for officers’
liability insurance. The foregoing assumes that the assets of USO are aggregated with
those of the Related Public Funds, that the aggregate fees paid to the independent directors
for 2019 was $550,250 that the allocable portion of the fees borne by USO equals $333,741
and that USO has $1,435,838,329 in assets, which was the average amount of assets in
2019.
|
|
(9)
|
Professional
Expenses include expenses for legal, audit, tax accounting and printing. USO estimates
the costs attributable to Professional Expenses for 2019 were approximately $1,440,997.
The number in the breakeven table assumes USO has $1,435,838,329 in average total assets
during the calendar year ended December 31, 2019.
|
Conflicts of Interest
There
are present and potential future conflicts of interest in USO’s structure and operation you should consider before you purchase
shares. USCF will use this notice of conflicts as a defense against any claim or other proceeding made. If USCF is not able to
resolve these conflicts of interest adequately, it may impact USO’s and the Related Public Funds’ ability to achieve
their investment objectives.
USO and
USCF may have inherent conflicts to the extent USCF attempts to maintain USO’s asset size in order to preserve its fee income
and this may not always be consistent with USO’s objective of having the value of its share’s NAV track changes in
the price of the Benchmark Oil Futures Contract.
USCF’s
officers, directors and employees, do not devote their time exclusively to USO. These persons are directors, officers or employees
of other entities which may compete with USO for their services. They could have a conflict between their responsibilities to
USO and to those other entities.
USCF has
adopted policies that prohibit their principals, officers, directors and employees from trading futures and related contracts
in which either USO or any of the Related Public Funds invests. These policies are intended to prevent conflicts of interest occurring
where USCF, or their principals, officers, directors or employees could give preferential treatment to their own accounts or trade
their own accounts ahead of or against USO or any of the Related Public Funds.
USCF has
sole current authority to manage the investments and operations of USO, 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 USO’s basic investment policy, dissolution
of USO, or the sale or distribution of USO’s assets.
USCF serves
as the general partner or sponsor to each of USO and the Related Public Funds. USCF may have a conflict to the extent that its
trading decisions for USO 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 the NYMEX, USO purchased oil futures contracts, this decision could impact
USO’s ability to purchase additional oil futures contracts if the number of contracts held by funds managed by USCF reached
the maximum allowed by the NYMEX. Similar situations could adversely affect the ability of any fund to track its benchmark futures
contract.
In addition,
USCF is required to indemnify the officers and directors of the other funds, if the need for indemnification arises. This potential
indemnification will cause USCF’s assets to decrease. If USCF’s other sources of income are not sufficient to compensate
for the indemnification, then USCF may terminate and you could lose your investment.
Whenever
a conflict of interest exists or arises between USCF on the one hand, and the partnership or any limited partner, on the other
hand, any resolution or course of action by USCF 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 USCF 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 USCF 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 USCF. 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, which can be found on USO’s
website at www.uscfinvestments.com. You should also consult with your personal legal, tax, and other professional advisors.
Interests of Named Experts
and Counsel
USCF has
employed Eversheds Sutherland (US) LLP to prepare this prospectus. Neither the law firm nor any other expert hired by USO to give
advice on the preparation of this offering document has been hired on a contingent fee basis. None of them have any present or
future expectation of interest in USCF, Marketing Agent, Authorized Participants, Custodian, Administrator or other service providers
to USO.
Ownership or Beneficial
Interest in USO
As of
May 31, 2020 no person owned more than five percent (5%) of the shares of USO. Also, as of such date, USCF and the principals
of USCF do not own any of the shares of USO.
USCF’s Responsibilities
and Remedies
Pursuant
to the DRULPA (“Delaware Revised Uniform Limited Partnership Act”), parties may contractually modify or even eliminate
fiduciary duties in a limited partnership agreement to the limited partnership itself, or to another partner or person otherwise
bound by the limited 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 limited partnership agreement, those expressed duties become the
standard that courts will use to determine whether such duties were breached. For this reason, USO’s limited partnership
agreement does not explicitly provide for any fiduciary duties so that common law fiduciary duty principles will apply to measure
USCF’s conduct.
A prospective
investor should be aware that USCF has a responsibility to limited partners of USO 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 USCF should consult with their counsel. In the event that a limited
partner of USO believes that USCF has violated its fiduciary duty to the limited partners, he may seek legal relief individually
or on behalf of USO under applicable laws, including under DRULPA and under commodities laws, to recover damages from or require
an accounting by USCF. 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 shares
may be able to recover such losses from USCF where the losses result from a violation by USCF of the federal securities laws.
State securities laws may also provide certain remedies to limited partners. Limited partners should be aware that performance
by USCF of its fiduciary duty 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 (“CEA”) for violations of the
CEA or of any rule, regulation or order of the CFTC by USCF.
Liability and Indemnification
Under the
LP Agreement, neither a general partner nor any employee or other agent of USO nor any officer, director, stockholder, partner,
employee or agent of a general partner (a “Protected Person”) shall be liable to any partner or USO 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 USO 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 USO 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.
USO shall,
to the fullest extent permitted by law, but only out of USO assets, indemnify and hold harmless a general partner and each officer,
director, stockholder, partner, employee or agent thereof (including persons who serve at USO’s request as directors, officers
or trustees of another organization in which USO has an interest as a shareholder, 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 USO, and except that no Covered Person shall
be indemnified against any liability to USO 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 USO 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 USO if it is ultimately determined that the indemnification of such expenses is not authorized hereunder.
Meetings
Meetings
of limited partners may be called by USCF and may be called by it upon the written request of limited partners holding at least
20% of the outstanding shares of USO. USCF shall deposit written notice to all limited partners of the meeting and the purpose
of the meeting, which shall be held on a date not less than 30 nor more than 60 days after the date of mailing of such notice,
at a reasonable time and place. USCF may also call a meeting upon not less than 20 and not more than 60 days prior notice.
Each limited
partner appoints USCF and each of its authorized officers as its attorney-in-fact with full power and authority in its name, place
and stead to execute, swear to, acknowledge, deliver, file and record all ballots, consents, approval waivers, certificates and
other instruments necessary or appropriate, in the sole discretion of USCF, to make, evidence, give, confirm or ratify any vote,
consent, approval, agreement or other action that is made or given by the partner of USO. However, when the LP Agreement establishes
a percentage of the limited partners required to take any action, USCF may exercise such power of attorney made only after the
necessary vote, consent or approval of the limited partners.
Termination Events
USO will
dissolve at any time upon the happening of any of the following events:
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The
bankruptcy, dissolution, withdrawal, or removal of USCF, unless a majority in interest
of the limited partners within 90 days after such event elects to continue USO and appoints
a successor general partner; or
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The
affirmative vote of a majority in interest of the limited partners, provided that prior
to or concurrently with such vote, there shall have been established procedures for the
assumption of USO’s obligations arising under any agreement to which USO is a party
and which is still in force immediately prior to such vote regarding termination, and
there shall have been an irrevocable appointment of an agent who shall be empowered to
give and receive notices, reports and payments under such agreements, and hold and exercise
such other powers as are necessary to permit all other parties to such agreements to
deal with such agent as if the agent were the sole owner of USO’s interest, which
procedures are agreed to in writing by each of the other parties to such agreements.
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Provisions of Law
According
to applicable law, indemnification of USCF is payable only if USCF determined, in good faith, that the act, omission or conduct
that gave rise to the claim for indemnification was in the best interest of USO 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 USCF, and such indemnification or agreement to hold harmless is recoverable
only out of the assets of USO and not from the members, individually.
Provisions of Federal
and State Securities Laws
This offering
is made pursuant to federal and applicable state securities laws. The SEC and state securities agencies take the position that
indemnification of USCF that arises out of an alleged violation of such laws is prohibited unless certain conditions are met.
Those
conditions require that no indemnification of USCF or any underwriter for USO 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: (i) there has been a successful
adjudication on the merits of each count involving alleged securities law violations as to the party seeking indemnification and
the court approves the indemnification; (ii) such claim has been dismissed with prejudice on the merits by a court of competent
jurisdiction as to the party seeking indemnification; or (iii) a court of competent jurisdiction approves a settlement of the
claims against the party seeking indemnification and finds that indemnification of the settlement and related costs should be
made, provided that, before seeking such approval, USCF 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 1933
Act and NASAA Guidelines
Insofar
as indemnification for liabilities arising under the 1933 Act may be permitted to USCF or its directors, officers, or persons
controlling USO, USO has been informed that SEC and the various State administrators believe that such indemnification is against
public policy as expressed in the 1933 Act and the North American Securities Administrators Association, Inc. (“NASAA”)
commodity pool guidelines and is therefore unenforceable.
Books and Records
USO keeps
its books of record and account at its office located at 1850 Mt. Diablo Boulevard, Suite 640, Walnut Creek, California 94596
or at the offices of the Administrator at its office located at 50 Post Office Square, Boston, Massachusetts, 02110, 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 USO’s satisfaction that such person is a limited partner upon reasonable advance notice
at all reasonable times during the usual business hours of USO.
USO keeps
a copy of USO’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.
Statements, Filings, and
Reports
At the
end of each fiscal year, USO will furnish to banks, broker dealers and trust companies (“DTC Participants”) for distribution
to each person who is a shareholder at the end of the fiscal year an annual report containing USO’s audited financial statements
and other information about USO. USCF is responsible for the registration and qualification of the shares 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
USCF may select. USCF is responsible for preparing all reports required by the SEC, NYSE Arca 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 USO’s behalf.
The financial
statements of USO will be audited, as required by law and as may be directed by USCF, by an independent registered public accounting
firm designated from time to time by USCF. The accountants report will be furnished by USO to shareholders upon request. USO 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
In addition
to periodic reports filed with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports
on Form 8-K, all of which can be accessed on the SEC’s website at www.sec.gov or on USO’s website at www.uscfinvestments.com,
USO, pursuant to the LP Agreement, will provide the following reports to limited partners in the manner prescribed below:
Annual
Reports. Within 90 days after the end of each fiscal year, USCF shall cause to be delivered to each limited partner who was
a limited partner at any time during the fiscal year, an annual report containing the following:
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(i)
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financial
statements of the partnership, including, without limitation, a balance sheet as of the
end of the partnership’s fiscal year and statements of income, partners’
equity and changes in financial position, for such fiscal year, which shall be prepared
in accordance with accounting principles generally accepted in the United States of America
consistently applied and shall be audited by a firm of independent certified public accountants
registered with the Public Company Accounting Oversight Board,
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(ii)
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a
general description of the activities of the partnership during the period covered by
the report, and
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(iii)
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a
report of any material transactions between the partnership and USCF or any of its affiliates,
including fees or compensation paid by the partnership and the services performed by
USCF or any such affiliate for such fees or compensation.
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Quarterly
Reports. Within 45 days after the end of each quarter of each fiscal year, USCF shall cause to be delivered to each limited
partner who was a limited partner at any time during the quarter then ended, a quarterly report containing a balance sheet and
statement of income for the period covered by the report, each of which may be unaudited but shall be certified by USCF as fairly
presenting the financial position and results of operations of the partnership during the period covered by the report. The report
shall also contain a description of any material event regarding the business of the partnership during the period covered by
the report.
Monthly
Reports. Within 30 days after the end of each month, USCF shall cause to be posted on its website and, upon request, to be
delivered to each limited partner who was a limited partner at any time during the month then ended, a monthly report containing
an account statement, which will include a statement of income (loss) and a statement of changes in NAV, for the prescribed period.
In addition, the account statement will disclose any material business dealings between the partnership, USCF, commodity trading
advisor (if any), FCMs, or the principals thereof that previously have not been disclosed in this prospectus or any amendment
thereto, other account statements or annual reports.
USO will
provide information to its shareholders to the extent required by applicable SEC, CFTC, and NYSE Arca requirements. An issuer,
such as USO, of exchange-traded securities may not always readily know the identities of the investors who own those securities.
USO will post the same information that would otherwise be provided in USO’s reports to limited partners described above
including its monthly account statements, which will include, without limitation, USO’s NAV, on USO’s website www.uscfinvestments.com.
Fiscal Year
The fiscal
year of USO is the calendar year. USCF may select an alternate fiscal year.
Governing Law; Consent
to Delaware Jurisdiction
The rights
of USCF, USO, DTC (as registered owner of USO’s global certificate for shares) and the shareholders, are governed by the
laws of the State of Delaware. USCF, USO and DTC and, by accepting shares, each DTC Participant and each shareholder, consent
to the jurisdiction of the courts of the State of Delaware and any federal courts located in Delaware. Such consent is not required
for any person to assert a claim of Delaware jurisdiction over USCF or USO.
Legal Matters
Litigation and Claims
Within
the past 5 years of the date of this prospectus, there have been no material administrative, civil or criminal actions against
USCF, USO, or any principal or affiliate of any of them. This includes any actions pending, on appeal, concluded, threatened,
or otherwise known to them.
Legal Opinion
Eversheds
Sutherland (US) LLP is counsel to and advises USO and USCF with respect to the preparation of shares being offered hereby and
has passed upon the validity of the shares being issued hereunder. Eversheds Sutherland (US) LLP has also provided USCF with its
opinion with respect to federal income tax matters addressed herein.
Experts
Spicer
Jeffries LLP, an independent registered public accounting firm, has audited the statements of financial condition of USO as of
December 31, 2019 and December 31, 2018, including the schedule of investments as of December 31, 2019 and 2018, and the related
statements of operations, changes in partners’ capital and cash flows for the years ended December 31, 2019, 2018 and 2017,
that appear in the annual report on Form 10-K that is incorporated by reference. The financial statements of USO in the Form 10-K
were included herein in reliance upon the report of Spicer Jeffries LLP dated February 21, 2020, given on its authority of such
firm as experts in accounting and auditing.
U.S. Federal Income Tax
Considerations
The following
discussion summarizes the material U.S. federal income tax consequences of the purchase, ownership and disposition of shares in
USO, and the U.S. federal income tax treatment of USO, as of the date hereof. This discussion is applicable to a beneficial owner
of shares who purchases shares in the offering to which this prospectus relates, including a beneficial owner who purchases shares
from an Authorized Participant. Except where noted otherwise, it deals only with shares held as capital assets and does not deal
with special situations, such as those of dealers in securities or currencies, financial institutions, tax-exempt entities, insurance
companies, persons holding shares as a part of a position in a “straddle” or as part of a “hedging,” “conversion”
or other integrated transaction for federal income tax purposes, traders in securities or commodities that elect to use a mark-to-market
method of accounting, or holders of shares whose “functional currency” is not the U.S. dollar. Furthermore, the discussion
below is based upon the provisions of the Code , as amended, and regulations (“Treasury Regulations”), rulings and
judicial decisions thereunder as of the date hereof, and such authorities may be repealed, revoked or modified so as to result
in U.S. federal income tax consequences different from those discussed below.
Persons
considering the purchase, ownership or disposition of shares should consult their own tax advisors concerning the United States
federal income tax consequences in light of their particular situations as well as any consequences arising under the laws of
any other taxing jurisdiction.
As used
herein, a “U.S. shareholder” of a share means a beneficial owner of a share that is a U.S. person. A “U.S. person,”
for United States federal income tax purposes, is (i) a citizen or resident of the United States, (ii) a corporation or partnership
created or organized in or under the laws of the United States or any political subdivision thereof, (iii) an estate the income
of which is subject to United States federal income taxation regardless of its source or (iv) a trust (X) that is subject to the
supervision of a court within the United States and the control of one or more United States persons as described in section 7701(a)(30)
of the Code or (Y) that has a valid election in effect under applicable Treasury Regulations to be treated as a United States
person. A “non-U.S. shareholder” is a holder that is not a U.S. shareholder and a “non-U.S. person” is
an individual or entity that is not a U.S. person. If a partnership holds our shares, the tax treatment of a partner will generally
depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holding our
shares, you should consult your own tax advisor regarding the tax consequences.
USO has
received the opinion of Eversheds Sutherland (US) LLP, counsel to USO, that the material U.S. federal income tax consequences
to USO and to U.S. shareholders and non-U.S. shareholders will be as described below. In rendering its opinion, Eversheds Sutherland
(US) LLP has relied on the facts described in this prospectus as well as certain factual representations made by USO and USCF.
The opinion of Eversheds Sutherland (US) LLP is not binding on the IRS, and as a result, the IRS may not agree with the tax positions
taken by USO. If challenged by the IRS, USO’s tax positions might not be sustained by the courts. No ruling has been requested
from the IRS with respect to any matter affecting USO or prospective investors.
EACH PROSPECTIVE
INVESTOR IS ADVISED TO CONSULT ITS OWN TAX ADVISOR AS TO HOW U.S. FEDERAL INCOME TAX CONSEQUENCES OF AN INVESTMENT IN USO APPLY
TO YOU AND AS TO HOW THE APPLICABLE STATE, LOCAL OR FOREIGN TAXES APPLY TO YOU.
Tax Status of USO
USO is
organized and operated as a limited partnership in accordance with the provisions of the LP Agreement and applicable state law.
Under the Code, an entity classified as a partnership that is deemed to be a “publicly traded partnership” is generally
taxable as a corporation for federal income tax purposes. The Code provides an exception to this general rule for a publicly traded
partnership whose gross income for each taxable year of its existence consists of at least 90% “qualifying income”
(“qualifying income exception”). For this purpose, section 7704 defines “qualifying income” as including,
in pertinent part, interest (other than from a financial business), dividends and gains from the sale or disposition of capital
assets held for the production of interest or dividends. In addition, in the case of a partnership a principal activity of which
is the buying and selling of commodities (other than as inventory) or of futures, forwards and options with respect to commodities,
“qualifying income” includes income and gains from such commodities and futures, forwards and options with respect
to commodities. USO and USCF have represented the following to Eversheds Sutherland (US) LLP:
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At
least 90% of USO’s gross income for each taxable year will be derived from (i)
income and gains from commodities (not held as inventory) or futures, forwards, options,
swaps and other notional principal contracts with respect to commodities, and (ii) interest
income;
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USO
is organized and operated in accordance with its governing agreements and applicable
law;
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USO
has not elected, and will not elect, to be classified as a corporation for U.S. federal
income tax purposes.
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Based in
part on these representations, Eversheds Sutherland (US) LLP is of the opinion that USO will be classified as a partnership for
federal income tax purposes and that it is not taxable as a corporation for such purposes. USO’s taxation as a partnership
rather than a corporation will require USCF to conduct USO’s business activities in such a manner that it satisfies the
qualifying income exception on a continuing basis. No assurance can be given that USO’s operations for any given year will
produce income that satisfies the requirements of the qualifying income exception. Eversheds Sutherland (US) LLP will not review
USO’s ongoing compliance with these requirements and will have no obligation to advise USO or USO’s shareholders in
the event of any subsequent change in the facts, representations or applicable law relied upon in reaching its opinion.
If USO
failed to satisfy the qualifying income exception in any year, other than a failure that is determined by the IRS to be inadvertent
and that is cured within a reasonable time after discovery, USO would be taxable as a corporation for federal income tax purposes
and would pay federal income tax on its income at regular corporate rates. In that event, shareholders would not report their
share of USO’s income or loss on their returns.
In addition,
distributions to shareholders would be treated as dividends to the extent of USO’s current and accumulated earnings and
profits. Subject to holding period and other requirements, any such dividend would be a qualifying dividend subject to U.S. federal
income tax at the lower maximum tax rates applicable to long-term capital gains. To the extent a distribution exceeded USO’s
earnings and profits, the distribution would be treated as a return of capital to the extent of a shareholder’s basis in
its shares, and thereafter as gain from the sale of shares. Accordingly, if USO were to be taxable as a corporation, it would
likely have a material adverse effect on the economic return from an investment in USO and on the value of the shares.
The remainder
of this summary assumes that USO is classified as a partnership for federal income tax purposes and that it is not taxable as
a corporation.
U.S. Shareholders
Tax Consequences of Ownership
of Shares
Taxation
of USO’s Income. No U.S. federal income tax is paid by USO on its income. Instead, USO files annual information returns,
and each U.S. shareholder is required to report on its U.S. federal income tax return its allocable share of the income, gain,
loss, deduction, and credit of USO. For example, shareholders must take into account their share of ordinary income realized by
USO from accruals of interest on Treasuries and other investments, and their share of gain from Oil Interests. These items must
be reported without regard to the amount (if any) of cash or property the shareholder receives as a distribution from USO during
the taxable year. Consequently, a shareholder may be allocated income or gain by USO but receive no cash distribution with which
to pay its tax liability resulting from the allocation, or may receive a distribution that is insufficient to pay such liability.
Because USCF currently does not intend to make distributions, it is likely that in any year USO realizes net income and/or gain
that a U.S. shareholder will be required to pay taxes on its allocable share of such income or gain from sources other than USO
distributions. In addition, individuals with income in excess of $200,000 ($250,000 in the case of married individuals filing
jointly) and certain estates and trusts are subject to an additional 3.8% tax on their “net investment income,” which
generally includes net income from interest, dividends, annuities, royalties, and rents, and net capital gains (other than certain
amounts earned from trades or businesses). The income subject to the additional 3.8% tax includes any income from businesses involved
in the trading of financial instruments or commodities.
Allocations
of USO’s Profit and Loss. Under Code section 704, the determination of a partner’s distributive share of any item
of income, gain, loss, deduction or credit is governed by the applicable organizational document unless the allocation provided
by such document lacks “substantial economic effect.” An allocation that lacks substantial economic effect nonetheless
will be respected if it is in accordance with the partners’ interests in the partnership, determined by taking into account
all facts and circumstances relating to the economic arrangements among the partners. Subject to the discussion below, concerning
certain conventions to be used by USO, allocations of USO income pursuant to the Partnership Agreement should be considered as
having substantial economic effect or as being in accordance with a shareholder’s interest in USO.
In general,
USO applies a monthly closing-of-the-books convention in determining allocations of economic profit or loss to shareholders. Income,
gain, loss and deduction are determined on a monthly “mark-to-market” basis, taking into account our accrued income
and deductions and realized and unrealized gains and losses for the month. Items of taxable income, deduction, gain, loss and
credit recognized by USO for federal income tax purposes for any taxable year are allocated among holders in a manner that equitably
reflects the allocation of economic profit or loss.
Under
the modified monthly allocation convention used by USO, the investor who holds a share as of the close of business on the
last trading day of the previous month will be treated for purposes of making allocations as if it owned the share throughout
the current month even if such investor disposes of such share during the current month. For example, an investor who buys a share
on April 10 of a year and sells it on May 20 of the same year will be allocated all of the tax items attributable to May (because
he is deemed to hold it through the last day of May) but will not be allocated any of the tax items attributable to April. The
tax items attributable to that share for April will be allocated to the person who is the actual or deemed holder of the share
as of the close of business on the last trading day of March.
Under the
monthly convention, an investor who purchases and sells a share during the same month, and therefore does not hold (and is not
deemed to hold) the share at the close of business on the last trading day of either that month or the previous month, will receive
no allocations with respect to that share for any period. Accordingly, investors may receive no allocations with respect to shares
that they actually held, or may receive allocations with respect to shares attributable to periods that they did not actually
hold the shares.
By investing
in shares, a U.S. Shareholder agrees that, in the absence of new legislation, regulatory or administrative guidance, or judicial
rulings to the contrary, it will file its U.S. income tax returns in a manner that is consistent with the monthly allocation convention
as described above and with the IRS Schedule K-1 or any successor form provided to shareholders by USO.
In addition,
for any month in which a Creation Basket is issued or a Redemption Basket is redeemed, USO generally will credit or debit the
“book” capital accounts of its existing shareholders with any unrealized gain or loss on USO’s assets. The capital
accounts as adjusted in this manner will be used in making tax allocations intended to account for the differences between the
tax basis and fair market value of the assets of USO at the time new shares are issued or outstanding shares are redeemed (so-called
“reverse Code section 704(c) allocations”). The intended effect of these adjustments is to equitably allocate among
shareholders any unrealized appreciation or depreciation in USO’s assets existing at the time of a contribution or redemption
for book and tax purposes.
USO applies
certain conventions in determining and allocating items for tax purposes in order to reduce the complexity and costs of administration.
USCF believes that application of these conventions is consistent with the intent of the partnership provisions of the Code and
the applicable Treasury Regulations, and that the resulting allocations will have substantial economic effect or otherwise should
be respected as being in accordance with shareholders’ interests in USO for federal income tax purposes. The Code and existing
Treasury Regulations do not expressly permit adoption of these conventions although the monthly allocation convention described
above is consistent with methods permitted under the applicable Treasury Regulations, as well as the legislative history for the
provisions that require allocations to appropriately reflect changes in ownership interests. It is possible that the IRS could
successfully challenge USO’s allocations methods on the ground that they do not satisfy the technical requirements off the
Code or Treasury Regulations, requiring a shareholder to report a greater or lesser share of items of income, gain, loss, deduction,
or credit than if our method were respected. USCF is authorized to revise our allocation method to conform to any method permitted
under future Treasury Regulations.
The assumptions
and conventions used in making tax allocations may cause a shareholder to be allocated more or less income or loss for federal
income tax purposes than its proportionate share of the economic income or loss realized by USO during the period it held its
shares. This “mismatch” between taxable and economic income or loss in some cases may be temporary, reversing itself
in a later period when the shares are sold, but could be permanent.
Section
754 Election. USO has made the election permitted by section 754 of the Code, which election is irrevocable without the consent
of the Service. The effect of this election is that, in connection with secondary market sales, we adjust the purchaser’s
proportionate share of the tax basis of our assets to fair market value, as reflected in the price paid for the shares, as if
the purchaser had directly acquired an interest in our assets. The section 754 election is intended to eliminate disparities between
a partner’s basis in its partnership interest and its share of the tax bases of the partnership’s assets, so that
the partner’s allocable share of taxable gain or loss on a disposition of an asset will correspond to its share of the appreciation
or depreciation in the value of the asset since it acquired its interest. Depending on the price paid for shares and the tax bases
of USO’s assets at the time of the purchase, the effect of the section 754 election on a purchaser of shares may be favorable
or unfavorable. In order to make the appropriate basis adjustments in a cost effective manner, USO will use certain simplifying
conventions and assumptions. In particular, all transfers of shares in USO will be deemed to take place at a price (the “single
monthly price”) equal to the value of such share at the end of the Business Day during the month in which the transfer takes
place on which the value of a share is lowest at close of the market. Adjustments to be made under Sections 734(b) and 743(b)
of the Code will be made using the same monthly convention, including by reference to the single monthly price. It is possible
the IRS will successfully assert that the conventions and assumptions applied are improper and require different basis adjustments
to be made, which could adversely affect some shareholders.
Mark
to Market of Certain Exchange-Traded Contracts. For federal income tax purposes, USO generally is required to use a “mark-to-market”
method of accounting under which unrealized gains and losses on instruments constituting “section 1256 contracts”
are recognized currently. A section 1256 contract is defined as: (1) a futures contract that is traded on or subject to the rules
of a national securities exchange which is registered with the SEC, a domestic board of trade designated as a contract market
by the CFTC, or any other board of trade or exchange designated by the Secretary of the Treasury, and with respect to which the
amount required to be deposited and the amount that may be withdrawn depends on a system of “marking to market”; (2)
a forward contract on exchange-traded foreign currencies, where the contracts are traded in the interbank market; (3) a non-equity
option traded on or subject to the rules of a qualified board or exchange; (4) a dealer equity option; or (5) a dealer securities
futures contract.
Under
these rules, section 1256 contracts held by USO at the end of each taxable year, including for example Futures Contracts and options
on Futures Contracts traded on a U.S. exchange or board of trade or certain foreign exchanges, are treated as if they were sold
by USO for their fair market value on the last business day of the taxable year. A shareholder’s distributive share of USO’s
net gain or loss with respect to each section 1256 contract generally is treated as long-term capital gain or loss to the extent
of 60 percent thereof, and as short-term capital gain or loss to the extent of 40 percent thereof, without regard to the actual
holding period (“60 – 40 treatment”).
Many of
USO’s Futures Contracts and some of their other commodity interests will qualify as “section 1256 contracts”
under the Code. Gain or loss recognized through disposition, termination or marking-to-market of USO’s section 1256 contracts
will be subject to 60-40 treatment and allocated to shareholders in accordance with the monthly allocation convention. Cleared
swaps and other commodity swaps will most likely not qualify as section 1256 contracts. If a commodity swap is not treated as
a section 1256 contract, any gain or loss on the swap recognized at the time of disposition or termination will be long-term or
short-term capital gain or loss depending on the holding period of the swap.
Limitations
on Deductibility of Losses and Certain Expenses. A number of different provisions of the Code may defer or disallow the deduction
of losses or expenses allocated to you by USO, including but not limited to those described below.
A shareholder’s
deduction of its allocable share of any loss of USO is limited to the lesser of (1) the tax basis in its shares or (2) in the
case of a shareholder that is an individual or a closely held corporation, the amount which the shareholder is considered to have
“at risk” with respect to our activities. In general, the amount at risk will be your invested capital plus your share
of any recourse debt of USO for which you are liable. Losses in excess of the lesser of tax basis or the amount at risk must be
deferred until years in which USO generates additional taxable income against which to offset such carryover losses or until additional
capital is placed at risk.
Noncorporate
taxpayers are permitted to deduct capital losses only to the extent of their capital gains for the taxable year plus $3,000 of
other income. Unused capital losses can be carried forward and used to offset capital gains in future years. In addition, a noncorporate
taxpayer may elect to carry back net losses on section 1256 contracts to each of the three preceding years and use them to offset
section 1256 contract gains in those years, subject to certain limitations. Corporate taxpayers generally may deduct capital losses
only to the extent of capital gains, subject to special carryback and carryforward rules.
For taxable
years beginning before January 1, 2026, otherwise deductible expenses incurred by noncorporate taxpayers constituting “miscellaneous
itemized deductions,” generally including investment-related expenses (other than interest and certain other specified expenses),
are not deductible. For taxable years beginning on or after January 1, 2026, such miscellaneous itemized deductions are deductible
only to the extent they exceed 2 percent of the taxpayer’s adjusted gross income for the year. Although the matter is not
free from doubt, we believe management fees we pay to USCF and other expenses we incur will constitute investment-related expenses
subject to the miscellaneous itemized deduction limitation, rather than expenses incurred in connection with a trade or business,
and will report these expenses consistent with that interpretation. In addition, for taxable years beginning on or after January
1, 2026, the Code imposes additional limitations on the amount of certain itemized deductions allowable to individuals with adjusted
gross income in excess of certain amounts by reducing the otherwise allowable portion of such deductions by an amount equal to
the lesser of:
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3%
of the individual’s adjusted gross income in excess of certain threshold amounts;
or
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80%
of the amount of certain itemized deductions otherwise allowable for the taxable year.
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For taxable
years beginning before January 1, 2026, noncorporate shareholders are entitled to a deduction (subject to certain limitations)
equal to their “combined qualified business income.” “Combined qualified business income” for this purpose
includes 20% of a noncorporate taxpayer’s “qualified publicly traded partnership income.” In general, “qualified
publicly traded partnership income” includes a noncorporate taxpayer’s allocable share of “qualified items”
of income, gain, deduction, and loss. A “qualified item” for this purpose is an item of income, gain deduction, or
loss that is effectively connected with a US trade or business and includible income for the year. As discussed below, although
the matter is not free from doubt, USO believes that the activities directly conducted by USO will not result in USO being engaged
in a trade or business within in the United States. See “Non-U.S. Shareholders—Withholding on Allocations and
Distributions” below. As a result, we do not anticipate that any of our items of income, gain, deduction, or loss will be
reported as “qualified publicly traded partnership income” eligible for the deduction for “combined qualified
business income.” “Qualified publicly traded partnership income” also includes any gain or loss from the sale
of an interest in a partnership to extent attributable to “unrealized receivables” or “inventory” under
section 751. (For a discussion of section 751, see “Tax Consequences of Disposition of Shares” below.) A noncorporate
taxpayer that recognizes any gain or loss from the sale of an interest in USO that is attributable to “unrealized receivables”
or “inventory” under section 751 should consult with such taxpayer’s tax advisor to determine whether any portion
of such gain or loss constitutes “qualified publicly traded partnership income” eligible for the deduction for “combined
qualified business income.”
A taxpayer
is generally prohibited from deducting business interest to the extent that it exceeds the sum of (i) business interest income
of such taxpayer, (ii) 30% of the adjusted taxable income of such taxpayer, plus (iii) the floor plan financing interest of such
taxpayer. In the case of partnerships, this determination is made at the partnership level. To the extent that the business income
of the partnership exceeds the amount necessary to absorb all of the partnership’s business interest, such excess amount
is allocated to the partners as excess business income, which amount may be used against any business interest of the partner
(but not any other partnerships). To the extent that the partnership has any disallowed business interest expense, such amount
is allocated among the partners, reduces the partners’ outside basis in their partnership interests by their allocable shares,
and is carried forward to future years. Such carry forward may only be used as a deduction to the extent that the partnership
has excess business income in the future. In the event that a partner transfers a partnership interest with any excess business
interest carry forward amounts, such amounts increase the partner’s basis in its partnership interest immediately before
the transfer. Although it is not free from doubt, USO does not anticipate that it will be treated as engaged in a trade or business.
As a result, USO does not anticipate that any portion of its interest expense (if any) will constitute business interest or that
shareholders will be allocated any excess business income as a result of holding USO shares.
Noncorporate
shareholders generally may deduct “investment interest expense” only to the extent of their “net investment
income.” Investment interest expense of a shareholder will generally include any interest accrued by USO and any interest
paid or accrued on direct borrowings by a shareholder to purchase or carry its shares, such as interest with respect to a margin
account. Net investment income generally includes gross income from property held for investment (including “portfolio income”
under the passive loss rules but not, absent an election, long-term capital gains or certain qualifying dividend income) less
deductible expenses other than interest directly connected with the production of investment income.
To the
extent that we allocate losses or expenses to you that must be deferred or disallowed as a result of these or other limitations
in the Code, you may be taxed on income in excess of your economic income or distributions (if any) on your shares. As one example,
you could be allocated and required to pay tax on your share of interest income accrued by USO for a particular taxable year,
and in the same year be allocated a share of a capital loss that you cannot deduct currently because you have insufficient capital
gains against which to offset the loss. As another example, you could be allocated and required to pay tax on your share of interest
income and capital gain for a year, but be unable to deduct some or all of your share of management fees and/or margin account
interest incurred by you with respect to your shares. Shareholders are urged to consult their own professional tax advisors regarding
the effect of limitations under the Code on your ability to deduct your allocable share of USO’s losses and expenses.
Tax Basis of Shares
A shareholder’s
tax basis in its shares is important in determining (1) the amount of taxable gain or loss it will realize on the sale or other
disposition of its shares, (2) the amount of non-taxable distributions that it may receive from USO and (3) its ability to utilize
its distributive share of any losses of USO on its tax return. A shareholder’s initial tax basis of its shares will equal
its cost for the shares plus its share of USO’s liabilities (if any) at the time of purchase. In general, a shareholder’s
“share” of those liabilities will equal the sum of (i) the entire amount of any otherwise nonrecourse liability of
USO as to which the shareholder or an affiliate is the creditor (a “partner nonrecourse liability”) and (ii) a pro
rata share of any nonrecourse liabilities of USO that are not partner nonrecourse liabilities as to any shareholder.
A shareholder’s
tax basis in its shares generally will be (1) increased by (a) its allocable share of USO’s taxable income and gain and
(b) any additional contributions by the shareholder to USO and (2) decreased (but not below zero) by (a) its allocable share of
USO’s tax deductions and losses and (b) any distributions by USO to the shareholder. For this purpose, an increase in a
shareholder’s share of USO’s liabilities will be treated as a contribution of cash by the shareholder to USO and a
decrease in that share will be treated as a distribution of cash by USO to the shareholder. Pursuant to certain IRS rulings, a
shareholder will be required to maintain a single, “unified” basis in all shares that it owns. As a result, when a
shareholder that acquired its shares at different prices sells less than all of its shares, such shareholder will not be entitled
to specify particular shares (e.g., those with a higher basis) as having been sold. Rather, it must determine its gain
or loss on the sale by using an “equitable apportionment” method to allocate a portion of its unified basis in its
shares to the shares sold.
Treatment
of USO Distributions. If USO makes non-liquidating distributions to shareholders, such distributions generally will not be
taxable to the shareholders for federal income tax purposes except to the extent that the sum of (i) the amount of cash and (ii)
the fair market value of marketable securities distributed exceeds the shareholder’s adjusted basis of its interest in USO
immediately before the distribution. Any cash distributions in excess of a shareholder’s tax basis generally will be treated
as gain from the sale or exchange of shares.
Tax Consequences of Disposition
of Shares
If a shareholder
sells its shares, it will recognize gain or loss equal to the difference between the amount realized and its adjusted tax basis
for the shares sold. A shareholder’s amount realized will be the sum of the cash or the fair market value of other property
received plus its share of any USO debt outstanding.
Gain or
loss recognized by a shareholder on the sale or exchange of shares held for more than one year will generally be taxable as long-term
capital gain or loss; otherwise, such gain or loss will generally be taxable as short-term capital gain or loss. A special election
is available under the Treasury Regulations that will allow shareholders to identify and use the actual holding periods for the
shares sold for purposes of determining whether the gain or loss recognized on a sale of shares will give rise to long-term or
short-term capital gain or loss. It is expected that most shareholders will be eligible to elect, and generally will elect, to
identify and use the actual holding period for shares sold. If a shareholder fails to make the election or is not able to identify
the holding periods of the shares sold, the shareholder may have a split holding period in the shares sold. Under such circumstances,
a shareholder will be required to determine its holding period in the shares sold by first determining the portion of its entire
interest in USO that would give rise to long-term capital gain or loss if its entire interest were sold and the portion that would
give rise to short-term capital gain or loss if the entire interest were sold. The shareholder would then treat each share sold
as giving rise to long-term capital gain or loss and short-term capital gain or loss in the same proportions as if it had sold
its entire interest in USO.
Under Section
751 of the Code, a portion of a shareholder’s gain or loss from the sale of shares (regardless of the holding period for
such shares), will be separately computed and taxed as ordinary income or loss to the extent attributable to “unrealized
receivables” or “inventory” owned by USO. The term “unrealized receivables” includes, among other
things, market discount bonds and short-term debt instruments to the extent such items would give rise to ordinary income if sold
by USO. However, the short-term capital gain on section 1256 contracts resulting from 60 – 40 treatment, described above,
should not be subject to this rule.
If some
or all of your shares are lent by your broker or other agent to a third party — for example, for use by the third party
in covering a short sale — you may be considered as having made a taxable disposition of the loaned shares, in which case
—
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·
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you
may recognize taxable gain or loss to the same extent as if you had sold the shares for
cash;
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·
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any
of USO’s income, gain, loss or deduction allocable to those shares during the period
of the loan will not be reportable by you for tax purposes; and
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·
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any
distributions you receive with respect to the shares will be fully taxable, most likely
as ordinary income.
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Shareholders
desiring to avoid these and other possible consequences of a deemed disposition of their shares should consider modifying any
applicable brokerage account agreements to prohibit the lending of their shares.
Other Tax Matters
Information
Reporting. We report tax information to the beneficial owners of shares. The IRS has ruled that assignees of partnership interests
who have not been admitted to a partnership as partners but who have the capacity to exercise substantial dominion and control
over the assigned partnership interests will be considered beneficial owners for federal income tax purposes. On the basis of
such ruling, except as otherwise provided herein, we treat the following persons as partners for federal income tax purposes:
(1) assignees of shares who are pending admission as limited partners, and (2) shareholders whose shares are held in street name
or by another nominee and who have the right to direct the nominee in the exercise of all substantive rights attendant to the
ownership of their shares. USO will furnish shareholders each year with tax information on IRS Schedule K-1 (Form 1065), which
will be used by the shareholders in completing their tax returns.
Persons
who hold an interest in USO as a nominee for another person are required to furnish to us the following information: (1) the name,
address and taxpayer identification number of the beneficial owner and the nominee; (2) whether the beneficial owner is (a) a
person that is not a U.S. person, (b) a foreign government, an international organization or any wholly-owned agency or instrumentality
of either of the foregoing, or (c) a tax-exempt entity; (3) the number and a description of shares acquired or transferred for
the beneficial owner; and (4) certain information including the dates of acquisitions and transfers, means of acquisitions and
transfers, and acquisition cost for purchases, as well as the amount of net proceeds from sales. Brokers and financial institutions
are required to furnish additional information, including whether they are U.S. persons and certain information on shares they
acquire, hold or transfer for their own account. The nominee is required to supply the beneficial owner of the shares with the
information furnished to us. Penalties may apply for failure to report required information.
Additional
3.8% Tax on Net Investment Income. Individuals with income in excess of $200,000 ($250,000 in the case of married individuals
filing jointly) and certain estates and trusts are subject to an additional 3.8% tax on their “net investment income,”
which generally includes net income from interest, dividends, annuities, royalties, and rents, and net capital gains (other than
certain amounts earned from trades or businesses). The income subject to the additional 3.8% tax includes any income from businesses
involved in the trading of financial instruments or commodities.
Partnership
Audit Procedures. The IRS may audit the federal income tax returns filed by USO. Partnerships are generally treated as separate
entities for purposes of federal tax audits, judicial review of administrative adjustments by the IRS, and tax settlement proceedings.
The tax treatment of partnership items of income, gain, loss and deduction are determined at the partnership level in a unified
partnership proceeding rather than in separate proceedings with the shareholders.
USO may
be liable for U.S. federal income tax on any “imputed understatement” of tax resulting from an adjustment as a result
of an IRS audit. The amount of the imputed understatement generally includes increases in allocations of items of income or gains
to any investor and decreases in allocations of items of deduction, loss, or credit to any investor without any offset for any
corresponding reductions in allocations of items of income or gain to any investor or increases in allocations of items of deduction,
loss, or credit to any investor. If USO is required to pay any U.S. federal income taxes on any imputed understatement, the resulting
tax liability would reduce the net assets of USO and would likely have an adverse impact on the value of the shares. Under certain
circumstances, USO may be eligible to make an election to cause the investors to take into account the amount of any imputed understatement,
including any interest and penalties. The ability of a publicly traded partnership such as USO to make this election is uncertain.
If the election is made, USO would be required to provide investors who owned beneficial interests in the shares in the year to
which the adjusted allocations relate with a statement setting forth their proportionate shares of the adjustment (“Adjusted
K-1s”). The investors would be required to take the adjustment into account in the taxable year in which the Adjusted K-1s
are issued. The Code generally requires USO to designate one person as the “partnership representative” who has sole
authority to conduct an audit with the IRS, challenge any adjustment in a court of law, and settle any audit or other proceeding.
The LP Agreement appoints USCF as the partnership representative of USO.
Tax
Shelter Disclosure Rules. In certain circumstances the Code and Treasury Regulations require that the IRS be notified of taxable
transactions through a disclosure statement attached to a taxpayer’s United States federal income tax return. In addition,
certain “material advisers” must maintain a list of persons participating in such transactions and furnish the list
to the IRS upon written request. These disclosure rules may apply to transactions irrespective of whether they are structured
to achieve particular tax benefits. They could require disclosure by USO or shareholders if a shareholder incurs a loss in excess
a specified threshold from a sale or redemption of its shares or possibly in other circumstances. While these rules generally
do not require disclosure of a loss recognized on the disposition of an asset in which the taxpayer has a “qualifying basis”
(generally a basis equal to the amount of cash paid by the taxpayer for such asset), they apply to a loss recognized with respect
to interests in a pass-through entity, such as the shares, even if the taxpayer’s basis in such interests is equal to the
amount of cash it paid. In addition, under recently enacted legislation, significant penalties may be imposed in connection with
a failure to comply with these reporting requirements. Investors should consult their own tax advisors concerning the application
of these reporting requirements to their specific situation.
Tax-Exempt
Organizations. Subject to numerous exceptions, qualified retirement plans and individual retirement accounts, charitable organizations
and certain other organizations that otherwise are exempt from federal income tax (collectively “exempt organizations”)
nonetheless are subject to the tax on unrelated business taxable income (“UBTI”). Generally, UBTI means the gross
income derived by an exempt organization from a trade or business that it regularly carries on, the conduct of which is not substantially
related to the exercise or performance of its exempt purpose or function, less allowable deductions directly connected with that
trade or business. If USO were to regularly carry on (directly or indirectly) a trade or business that is unrelated with respect
to an exempt organization shareholder, then in computing its UBTI, the shareholder must include its share of (1) USO’s gross
income from the unrelated trade or business, whether or not distributed, and (2) USO’s allowable deductions directly connected
with that gross income.
UBTI generally
does not include dividends, interest, or payments with respect to securities loans and gains from the sale of property (other
than property held for sale to customers in the ordinary course of a trade or business). Nonetheless, income on, and gain from
the disposition of, “debt-financed property” is UBTI. Debt-financed property generally is income-producing property
(including securities), the use of which is not substantially related to the exempt organization’s tax-exempt purposes,
and with respect to which there is “acquisition indebtedness” at any time during the taxable year (or, if the property
was disposed of during the taxable year, the 12-month period ending with the disposition). Acquisition indebtedness includes debt
incurred to acquire property, debt incurred before the acquisition of property if the debt would not have been incurred but for
the acquisition, and debt incurred subsequent to the acquisition of property if the debt would not have been incurred but for
the acquisition and at the time of acquisition the incurrence of debt was foreseeable. The portion of the income from debt-financed
property attributable to acquisition indebtedness is equal to the ratio of the average outstanding principal amount of acquisition
indebtedness over the average adjusted basis of the property for the year. USO currently does not anticipate that it will borrow
money to acquire investments; however, USO cannot be certain that it will not borrow for such purpose in the future. In addition,
an exempt organization shareholder that incurs acquisition indebtedness to purchase its shares in USO may have UBTI.
The federal
tax rate applicable to an exempt organization shareholder on its UBTI generally will be either the corporate or trust tax rate,
depending upon the shareholder’s form of organization. USO may report to each such shareholder information as to the portion,
if any, of the shareholder’s income and gains from USO for any year that will be treated as UBTI; the calculation of that
amount is complex, and there can be no assurance that USO’s calculation of UBTI will be accepted by the Service. An exempt
organization shareholder will be required to make payments of estimated federal income tax with respect to its UBTI.
Regulated
Investment Companies. Interests in and income from “qualified publicly traded partnerships” satisfying certain
gross income tests are treated as qualifying assets and income, respectively, for purposes of determining eligibility for regulated
investment company (“RIC”) status. A RIC may invest up to 25% of its assets in interests in a qualified publicly traded
partnership. The determination of whether a publicly traded partnership such as USO is a qualified publicly traded partnership
is made on an annual basis. USO expects to be a qualified publicly traded partnership in each of its taxable years. However, such
qualification is not assured.
Non-U.S. Shareholders
Generally,
non-U.S. persons who derive U.S. source income or gain from investing or engaging in a U.S. business are taxable on two categories
of income. The first category consists of amounts that are fixed, determinable, annual and periodic income, such as interest,
dividends and rent that are not connected with the operation of a U.S. trade or business (“FDAP”). The second category
is income that is effectively connected with the conduct of a U.S. trade or business (“ECI”). FDAP income (other than
interest that is considered “portfolio interest”) is generally subject to a 30 percent withholding tax, which may
be reduced for certain categories of income by a treaty between the U.S. and the recipient’s country of residence. In contrast,
ECI is generally subject to U.S. tax on a net basis at graduated rates upon the filing of a U.S. tax return. Where a non-U.S.
person has ECI as a result of an investment in a partnership, the ECI is subject to a withholding tax at a rate of 37% (39.6%for
taxable years beginning after December 31, 2025) individual shareholders and a rate of 21% for corporate shareholders.
Withholding
on Allocations and Distributions. The Code provides that a non-U.S. person who is a partner in a partnership that is engaged
in a U.S. trade or business during a taxable year will also be considered to be engaged in a U.S. trade or business during that
year. Classifying an activity by a partnership as an investment or an operating business is a factual determination. Under certain
safe harbors in the Code, an investment fund whose activities consist of trading in stocks, securities, or commodities for its
own account generally will not be considered to be engaged in a U.S. trade or business unless it is a dealer is such stocks, securities,
or commodities. This safe harbor applies to investments in commodities only if the commodities are of a kind customarily dealt
in on an organized commodity exchange and if the transaction is of a kind customarily consummated at such place. Although the
matter is not free from doubt, USO believes that the activities directly conducted by USO will not result in USO being engaged
in a trade or business within in the United States. However, there can be no assurance that the IRS would not successfully assert
that USO’s activities constitute a U.S. trade or business.
In the
event that USO’s activities were considered to constitute a U.S. trade or business, USO would be required to withhold at
the highest rate specified in Code section 1 (currently 37% (39.6% for taxable years beginning after December 31, 2026)) on allocations
of our income to individual non-U.S. Shareholders and the highest rate specified in Code section 11(b) (currently 21%) on allocations
of our income to corporate non-U.S. Shareholders, when such income is allocated or distributed. A non-U.S. shareholder with ECI
will generally be required to file a U.S. federal income tax return, and the return will provide the non-U.S. shareholder with
the mechanism to seek a refund of any withholding in excess of such shareholder’s actual U.S. federal income tax liability.
Any amount withheld by USO on behalf of a non-U.S. shareholder will be treated as a distribution to the non-U.S. shareholder to
the extent possible. In some cases, USO may not be able to match the economic cost of satisfying its withholding obligations to
a particular non-U.S. shareholder, which may result in such cost being borne by USO, generally, and accordingly, by all shareholders.
If USO
is not treated as engaged in a U.S. trade or business, a non-U.S. shareholder may nevertheless be treated as having FDAP income,
which would be subject to a 30 percent withholding tax (possibly subject to reduction by treaty), with respect to some or all
of its distributions from USO or its allocable share of USO income. Amounts withheld on behalf of a non-U.S. shareholder will
be treated as being distributed to such shareholder.
To the
extent any interest income allocated to a non-U.S. shareholder that otherwise constitutes FDAP is considered “portfolio
interest,” neither the allocation of such interest income to the non-U.S. shareholder nor a subsequent distribution of such
interest income to the non-U.S. shareholder will be subject to withholding, provided that the non-U.S. shareholder is not otherwise
engaged in a trade or business in the U.S. and provides USO with a timely and properly completed and executed IRS Form W-8BEN,
W-8BEN-E, or other applicable form. In general, “portfolio interest” is interest paid on debt obligations issued in
registered form, unless the “recipient” owns 10 percent or more of the voting power of the issuer.
Most of
USO’s interest income qualifies as “portfolio interest.” In order for USO to avoid withholding on any interest
income allocable to non-U.S. shareholders that would qualify as “portfolio interest,” it will be necessary for all
non-U.S. shareholders to provide USO with a timely and properly completed and executed Form W-8BEN or W-8BEN-E. or other applicable
form. If a non-U.S. shareholder fails to provide a properly completed Form W-8BEN, W-8BEN-E, or other applicable form, USCF may
request that the non-U.S. shareholder provide, within 15 days after the request by USCF, a properly completed Form W-8BEN, W-8BEN-E,
or other applicable form. If a non-U.S. shareholder fails to comply with this request, the shares owned by such non-U.S. shareholder
will be subject to redemption.
Gain
from Sale of Shares. Gain from the sale or exchange of the shares may be taxable to a non-U.S. shareholder if the non-U.S.
shareholder is a nonresident alien individual who is present in the U.S. for 183 days or more during the taxable year. In such
case, the nonresident alien individual will be subject to a 30 percent withholding tax on the amount of such individual’s
gain. In addition, if USO is treated as being engaged in a U.S. trade or business, a portion of the gain on the sale or exchange
will be treated as effectively connected income subject to U.S. federal income tax to the extent that a sale of USO’s assets
would give rise to effectively connected income. Although the transferee of a partnership interest is generally required to withhold
10% of the proceeds from the sale of a partnership interest acquired from a non-U.S. partner if any portion of the gain would
be treated as effectively connected income, the IRS has issued a notice in which it has indicated that such withholding requirement
will not apply to transferees of publicly traded partnership interests until the IRS and Treasury issue regulations implementing
such provision. However, this does not relieve a non-U.S. shareholder from U.S. income tax on any gain treated as effectively
connected income.
Branch
Profits Tax on Corporate Non-U.S. Shareholders. In addition to the taxes noted above, any non-U.S. shareholders that are corporations
may also be subject to an additional tax, the branch profits tax, at a rate of 30 percent. The branch profits tax is imposed on
a non-U.S. corporation’s dividend equivalent amount, which generally consists of the corporation’s after-tax earnings
and profits that are effectively connected with the corporation’s U.S. trade or business but are not reinvested in a U.S.
business. This tax may be reduced or eliminated by an income tax treaty between the United States and the country in which the
non-U.S. shareholder is a “qualified resident.”
Prospective
non-U.S. shareholders should consult their tax advisor with regard to these and other issues unique to non-U.S. shareholders.
Backup Withholding
USO may
be required to withhold U.S. federal income tax (“backup withholding”) from all payments to: (1) any shareholder who
fails to furnish USO with his, her or its correct taxpayer identification number or a certificate that the shareholder is exempt
from backup withholding, and (2) any shareholder with respect to whom the IRS notifies USO that the shareholder has failed to
properly report certain interest and dividend income to the IRS and to respond to notices to that effect. Backup withholding is
not an additional tax and may be returned or credited against a taxpayer’s regular federal income tax liability if appropriate
information is provided to the IRS.
Tax Agent
The beneficial
owners who are of a type, as identified by the nominee through whom their Shares are held, that do not ordinarily have U.S. federal
tax return filing requirements, collectively, Certain K-1 shareholders, have designated the General Partner as their tax agent,
or the Tax Agent, in dealing with the Partnership. In light of such designation and pursuant to Treasury Regulation section 1.6031(b)-1T(c),
as amended from time to time, the Partnership will provide to the Tax Agent Certain K-1 shareholders’ statements as such
term is defined under Treasury Regulation section 1.6031(b)-1T(a)(3), as amended from time to time.
Foreign Account Tax Compliance
Act Provisions
Legislation
commonly referred to as the “Foreign Account Tax Compliance Act,” or “FATCA,” generally imposes a 30%
withholding tax on payments of certain types of income to foreign financial institutions (“FFIs”) unless such FFIs
(i) enter into an agreement with the U.S. Treasury to report certain required information with respect to accounts held by U.S.
persons (or held by foreign entities that have U.S. persons as substantial owners) or (ii) reside in a jurisdiction that has entered
into an intergovernmental agreement (“IGA”) with the United States to collect and share such information and comply
with the terms of such IGA and any enabling legislation or regulations. The types of income subject to the tax include U.S.- source
interest and dividends. The information required to be reported includes the identity and taxpayer identification number of each
account holder that is a U.S. person and transaction activity within the holder’s account. In addition, subject to certain
exceptions, this legislation also imposes a 30% withholding on payments to foreign entities that are not financial institutions
unless the foreign entity certifies that it does not have a greater than 10% U.S. owner or provides the withholding agent with
identifying information on each greater than 10% U.S. owner. Depending on the status of a non-U.S. shareholder and the status
of the intermediaries through which they hold their shares, non-U.S. shareholders could be subject to this 30% withholding tax
with respect to distributions on their shares and proceeds from the sale of their shares. Under certain circumstances, a non-U.S.
shareholder might be eligible for refunds or credits of such taxes.
Other Tax Considerations
In addition
to federal income taxes, shareholders may be subject to other taxes, such as state and local income taxes, unincorporated business
taxes, business franchise taxes, and estate, inheritance or intangible taxes that may be imposed by the various jurisdictions
in which USO does business or owns property or where the shareholders reside. Although an analysis of those various taxes is not
presented here, each prospective shareholder should consider their potential impact on its investment in USO. It is each shareholder’s
responsibility to file the appropriate U.S. federal, state, local, and foreign tax returns. Eversheds Sutherland (US) LLP has
not provided an opinion concerning any aspects of state, local or foreign tax or U.S. federal tax other than those U.S. federal
income tax issues discussed herein.
Certain ERISA and Related
Considerations
General
Many employee
benefit plans and individual retirement accounts (“IRAs”) are subject to the Employee Retirement Income Security Act
of 1974, as amended (“ERISA”) or the Code, or both. This section discusses certain considerations that arise under
ERISA and the Code that a fiduciary of: (i) an employee benefit plan as defined in ERISA; (ii) a plan as defined in Section 4975
of the Code; or (iii) any collective investment vehicle, business trust, investment partnership, pooled separate account or other
entity the assets of which are treated as comprised (at least in part) of “plan assets” under the ERISA plan asset
rules (“plan asset entity”); who has investment discretion should take into account before deciding to invest in the
entity’s assets in USO. Employee benefit plans, plans defined under Section 4975 of the Code and plan asset entities are
collectively referred to below as “plans”, and fiduciaries with investment discretion are referred to below as “plan
fiduciaries.”
This summary
is based on the provisions of ERISA, the Code and applicable guidance as of the date hereof. This summary is not intended to be
complete, but only to address certain questions under ERISA and the Code. The summary does not include state or local law.
Potential
plan investors are urged to consult with their own professional advisors concerning the appropriateness of an investment in USO
and the manner in which limited partnership interests should be purchased. USCF does not represent that the limited partnership
interests hereby offered are appropriate for plans or any particular plan.
Special Investment Considerations
Investments
by plans governed by ERISA are subject to ERISA’s fiduciary requirements, including the requirements of investment prudent
and diversification. As a result, each plan fiduciary must consider the facts and circumstances that are relevant to their plan’s
specific circumstances when evaluating an investment in USO, including the role that an investment in USO would play in the plan’s
overall investment portfolio, taking into account the plan’s purpose, the risk and loss of potential return with respect
to the investment, the liquidity, the current return of the total portfolio relative to the anticipated cash flow needs of the
plan, and the projected return of the portfolio and relative to the plan’s investment objectives. Each plan fiduciary, before
deciding to invest in USO, must be satisfied that its investment in the limited partnership interests in USO is prudent for the
plan, that the investments of the plan are properly diversified and that an investment in USO complies with the terms of the plan.
USO and Plan Assets
Regulations
issued under ERISA contains rules for determining when an investment by a plan in an equity interest of a limited partnership
will result in the underlying assets of the partnership being deemed “plan assets” for purposes of ERISA and Section
4975 of the Code. Those rules provide that assets of a limited partnership will not be deemed to be assets of a plan that purchases
an equity interest in the partnership if the equity interest purchased qualifies as a publicly-offered security. If the underlying
assets of a limited partnership are considered to be assets of any plan for purposes of ERISA or Section 4975 of the Code, the
operations of that partnership would be subject to and, in some cases, limited by, the provisions of ERISA and Section 4975 of
the Code.
An equity
interest will qualify as a publicly offered security if it is:
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1.
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freely
transferable (determined based on the relevant facts and circumstances);
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2.
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part
of a class of securities that is widely held (meaning that the class of securities is
owned by 100 or more investors independent of the issuer and of each other); and
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3.
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either
(a) part of a class of securities registered under Section 12(b) or 12(g) of the Exchange
Act or (b) sold to the plan as part of a public offering pursuant to an effective registration
statement under the 1933 Act and the class of which such security is a part is registered
under the Exchange Act within 120 days (or such later time as may be allowed by the SEC)
after the end of the fiscal year of the issuer in which the offering of such security
occurred.
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Regulations
under ERISA state that the determination of whether a security is “freely transferable” is to be made based on all
of the relevant facts and circumstances. In the case of a security that is part of an offering in which the minimum investment
is $10,000 or less, the following requirements, alone or in combination, ordinarily will not affect a finding that the security
is freely transferable: (1) a requirement that no transfer or assignment of the security or rights relating to the security be
made that would violate any federal or state law, (2) a requirement that no transfer or assignment be made without advance written
notice given to the entity that issued the security, and (3) any restriction on the substitution of an assignee as a limited partner
of a partnership, including a general partner consent requirement, provided that the economic benefits of ownership of the assignor
may be transferred or assigned without regard to such restriction or consent (other than compliance with any of the foregoing
restrictions).
USCF believes
that the conditions described above are satisfied with respect to the limited partnership interests. USCF believes that the limited
partnership interests therefore constitute publicly-offered securities, and the underlying assets of USO will not be deemed to
be “plan assets” under applicable ERISA regulations.
Prohibited Transactions
ERISA and
the Code generally prohibit certain transactions involving plans and persons who have certain specified relationships to plans.
In general,
USO limited partnership interests may not be purchased with the assets of a plan if USCF, the clearing brokers, the trading advisors
(if any), or any of their affiliates, agents or employees:
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exercise
any discretionary authority or discretionary control with respect to management of the
plan;
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exercise
any authority or control with respect to management or disposition of the assets of the
plan;
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render
investment advice for a fee or other compensation, direct or indirect, with respect to
any monies or other property of the plan;
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have
any authority or responsibility to render investment advice with respect to any monies
or other property of the plan; or
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have
any discretionary authority or discretionary responsibility in the administration of
the plan.
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Also, a
prohibited transaction may occur under ERISA or the Code when circumstances indicate that (1) the investment in an equity interest
is made or retained for the purpose of avoiding application of the fiduciary standards of ERISA, (2) the investment in an equity
interest constitutes an arrangement under which USO is expected to engage in transactions that would otherwise be prohibited if
entered into directly by the plan purchasing the share, (3) the investing plan, by itself, has the authority or influence to cause
USO to engage in such transactions, or (4) a person who is prohibited from transacting with the investing plan may, but only with
the aid of certain of its affiliates and the investing plan, cause USO to engage in such transactions with such person.
Special IRA Rules
Individual
retirement accounts (“IRAs”) are not subject to ERISA’s fiduciary standards, but are subject to their own rules,
including the prohibited transaction rules of Section 4975 of the Code, which generally mirror ERISA’s prohibited transaction
rules. For example, IRAs are subject to special custody rules and must maintain a qualifying IRA custodial arrangement separate
and distinct from USO and its custodial arrangement. Otherwise, if a separate qualifying custodial arrangement is not maintained,
an investment in the limited partnership interests will be treated as a distribution from the IRA. Additionally, IRAs are prohibited
from investing in certain commingled investments, and USCF makes no representation regarding whether an investment in limited
partnership interests is an inappropriate commingled investment for an IRA. Finally, in applying the prohibited transaction provisions
of Section 4975 of the Code, in addition to the rules summarized above, the individual for whose benefit the IRA is maintained
is also treated as the creator of the IRA. For example, if the owner or beneficiary of an IRA enters into any transaction, arrangement,
or agreement involving the assets of his or her IRA to benefit the IRA owner or beneficiary (or his or her relatives or business
affiliates) personally, or with the understanding that such benefit will occur, directly or indirectly, such transaction could
give rise to a prohibited transaction that is not exempted by any available exemption. Moreover, in the case of an IRA, the consequences
of a non-exempt prohibited transaction are that the IRA’s assets will be treated as if they were distributed, causing immediate
taxation of the assets (including any early distribution penalty tax applicable under Section 72 of the Code), in addition to
any other fines or penalties that may apply.
Exempt Plans
Governmental
plans and church plans are generally not subject to ERISA, and the above-described prohibited transaction provisions described
above do not apply to them. These plans are, however, subject to prohibitions against certain related-party transactions under
Section 503 of the Code, which operate similar to the prohibited transaction rules described above. In addition, the fiduciary
of any governmental or church plan should consider any applicable state or local laws and any restrictions and duties of common
law imposed upon the plan.
No view
is expressed as to whether an investment in USO (and any continued investment in USO), or the operation and administration of
USO, is appropriate or permissible for any governmental plan or church plan under Code Section 503, or under any state, county,
local or other law relating to that type of plan.
Allowing
an investment in USO is not to be construed as a representation by USO, USCF, any trading advisor, any clearing broker, the Marketing
Agent or legal counsel or other advisors to such parties or any other party that this investment meets some or all of the relevant
legal requirements with respect to investments by any particular plan or that this investment is appropriate for any such particular
plan. The person with investment discretion should consult with the plan’s attorney and financial advisors as to the propriety
of an investment in USO in light of the circumstances of the particular plan, current tax law and ERISA.
THE
FOREGOING SUMMARY OF ERISA CONSIDERATIONS IS BASED UPON ERISA, JUDICIAL DECISIONS, DEPARTMENT OF LABOR REGULATIONS AND RULINGS
IN EXISTENCE ON THE DATE HEREOF, ALL OF WHICH ARE SUBJECT TO CHANGE. THE SUMMARY IS GENERAL IN NATURE AND DOES NOT ADDRESS EVERY
ERISA ISSUE THAT MAY BE APPLICABLE TO AN INVESTMENT IN USO OR TO A PARTICULAR INVESTOR.
Form of Shares
Registered
Form. Shares 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 shares in certificated form. The Administrator keeps a record of all limited
partners and holders of the shares in certificated form in the registry (the “Register”). USCF recognizes transfers
of shares in certificated form only if done in accordance with the LP Agreement. The beneficial interests in such shares are held
in book-entry form through participants and/or accountholders in DTC.
Book
Entry. Individual certificates are not issued for the shares. Instead, shares are represented by one or more global certificates,
which are deposited by the Administrator with DTC and registered in the name of Cede & Co., as nominee for DTC. The global
certificates evidence all of the shares outstanding at any time. Shareholders 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 shares through DTC Participants or Indirect Participants, in each case who
satisfy the requirements for transfers of shares. DTC Participants acting on behalf of investors holding shares through such participants’
accounts in DTC will follow the delivery practice applicable to securities eligible for DTC’s Same-Day Funds Settlement
System. Shares are credited to DTC Participants’ securities accounts following confirmation of receipt of payment.
DTC.
DTC has advised USO as follows. It 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 Shares
Transfers
of Shares Only Through DTC. The shares are only transferable through the book-entry system of DTC. Limited partners who
are not DTC Participants may transfer their shares through DTC by instructing the DTC Participant holding their shares (or by
instructing the Indirect Participant or other entity through which their shares are held) to transfer the shares. Transfers are
made in accordance with standard securities industry practice.
Transfers
of interests in shares with DTC are 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 certificate or other definitive document
representing such interest.
DTC has
advised USO that it will take any action permitted to be taken by a shareholder (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 USO’s shares, and potentially any purchasers of shares 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 USO’s LP Agreement and is eligible to purchase USO’s securities. Each purchaser of shares must execute
a transfer application and certification. The obligation to provide the form of transfer application will be imposed on the seller
of shares or, if a purchase of shares is made through an exchange, the form may be obtained directly through USO. Further, USCF
may request each record holder to furnish certain information, including that record holder’s nationality, citizenship or
other related status. A record holder is a shareholder 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 USO’s limited partners if that investor’s
ownership would subject USO to the risk of cancellation or forfeiture of any of USO’s assets under any federal, state or
local law or regulation. If the record holder fails to furnish the information or if USCF 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 USO’s limited partners,
USCF may be substituted as a holder for the record holder, who will then be treated as a non-citizen assignee, and USO 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. USO may, at its discretion,
treat the nominee holder of a share 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 USO’s existing shares, 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 USCF obtained, our shares are securities and are transferable according
to the laws governing transfers of securities.
Any transfer
of shares will not be recorded by the transfer agent or recognized by USCF unless a completed transfer application is delivered
to USCF or the Administrator. When acquiring shares, the transferee of such shares that completes a transfer application will:
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be
an assignee until admitted as a substituted limited partner upon the consent and sole
discretion of USCF and the recording of the assignment on the books and records of the
partnership;
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automatically
request admission as a substituted limited partner;
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agree
to be bound by the terms and conditions of, and execute, our LP Agreement;
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represent
that such transferee has the capacity and authority to enter into our LP Agreement;
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grant
powers of attorney to USCF and any liquidator of us; and
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make
the consents and waivers contained in our LP Agreement.
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An assignee
will become a limited partner in respect of the transferred shares upon the consent of USCF and the recordation of the name of
the assignee on our books and records. Such consent may be withheld in the sole discretion of USCF.
If consent
of USCF 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 shares that are held by assignees, USCF shall be deemed to be
the limited partner with respect thereto and shall, in exercising the voting rights in respect of such shares on any matter, vote
such shares at the written direction of the assignee who is the record holder of such shares. If no such written direction is
received, such shares will not be voted. An assignee shall have no other rights of a limited partner.
Until
a share has been transferred on our books, we and the transfer agent may treat the record holder of the share as the absolute
owner for all purposes, except as otherwise required by law or stock exchange regulations.
What is the Plan of Distribution?
Buying and Selling Shares
Most investors
buy and sell shares of USO in secondary market transactions through brokers. Shares trade on the NYSE Arca under the ticker symbol
“USO.” Shares are bought and sold throughout the trading day like other publicly traded securities. When buying or
selling shares through a broker, most investors incur customary brokerage commissions and charges. Investors are encouraged to
review the terms of their brokerage account for details on applicable charges.
Marketing Agent and
Authorized Participants
The offering
of USO’s shares is a best efforts offering. USO continuously offers Creation Baskets consisting of 100,000 shares through
the Marketing Agent, to Authorized Participants. All Authorized Participants pay a $1,000 fee for each order to create or redeem
one or more Creation Baskets or Redemption Baskets. The Marketing Agent receives, for its services as marketing agent to USO,
$425,000 per annum plus an incentive fee of 0.0% on USO’s assets from $0-500 million; 0.04% on USO’s assets from $500
million-$4 billion; and 0.03% on USO’s assets in excess of $4 billion provided, however, that in no event may the aggregate
compensation paid to the Marketing Agent and any affiliate of USCF for distribution-related services in connection with this offering
of shares exceed ten percent (10%) of the gross proceeds of this offering. The activities of the Marketing Agent may result in
its being deemed a participant in a distribution in a manner that would render it a statutory underwriter and subject it to the
prospectus delivery and liability provisions of the 1933 Act.
The offering
of baskets is being made in compliance with Conduct Rule 2310 of FINRA. Accordingly, Authorized Participants will not make any
sales to any account over which they have discretionary authority without the prior written approval of a purchaser of shares.
The per
share price of shares offered in Creation Baskets on any subsequent day will be the total NAV of USO calculated shortly after
the close of the core trading session on the NYSE Arca on that day divided by the number of issued and outstanding shares. An
Authorized Participant is not required to sell any specific number or dollar amount of shares.
When an
Authorized Participant executes an agreement with USCF on behalf of USO (each such agreement, an “Authorized Participant
Agreement,”), such Authorized Participant becomes part of the group of parties eligible to purchase baskets from, and put
baskets for redemption to, USO. An Authorized Participant is under no obligation to create or redeem baskets, and an Authorized
Participant is under no obligation to offer to the public shares of any baskets it does create.
As of
May 31, 2020, USO had the following Authorized Participants: ABN Amro, BNP Paribas Securities Corp., Citadel Securities
LLC, Citigroup Global Markets Inc., Credit Suisse Securities USA LLC, Deutsche Bank Securities Inc., Goldman Sachs & Company,
JP Morgan Securities Inc., Merrill Lynch Professional Clearing Corp., Morgan Stanley & Company Inc., Nomura Securities International
Inc., RBC Capital Markets LLC, SG Americas Securities LLC, UBS Securities LLC, and Virtu Financial BD LLC.
Because
new shares can be created and issued on an ongoing basis, at any point during the life of USO, a “distribution”, as
such term is used in the 1933 Act, will be occurring. Authorized Participants, 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 Participant was a statutory underwriter with respect to its initial purchase of Creation Baskets. In addition,
any purchaser who purchases shares with a view towards distribution of such shares may be deemed to be a statutory underwriter.
Authorized Participants will comply with the prospectus-delivery requirements in connection with the sale of shares to customers.
For example, an Authorized Participant, other broker-dealer firm or its client will be deemed a statutory underwriter if it purchases
a Creation Basket from USO, breaks the Creation Basket down into the constituent shares and sells the shares to its customers;
or if it chooses to couple the creation of a supply of new shares with an active selling effort involving solicitation of secondary
market demand for the shares. Authorized Participants may also engage in secondary market transactions in shares that would not
be deemed “underwriting”. For example, an Authorized Participant may act in the capacity of a broker or dealer with
respect to shares that were previously distributed by other Authorized Participants. A determination of whether a particular market
participant is an underwriter must take into account all the facts and circumstances pertaining to the 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 Participants nor “underwriters” but are nonetheless participating in a distribution (as
contrasted to ordinary secondary trading transactions), and thus dealing with shares that are part of an “unsold allotment”
within the meaning of Section 4(a)(3)(C) of the 1933 Act, would be unable to take advantage of the prospectus-delivery exemption
provided by Section 4(a)(3) of the 1933 Act.
USCF may
qualify the shares in states selected by USCF and intends that sales be made through broker-dealers who are members of FINRA.
Investors intending to create or redeem baskets through Authorized Participants 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 Participants may be indemnified by USCF, they will not be entitled to receive a discount or commission from USO for
their purchases of Creation Baskets.
Calculating Per Share NAV
USO’s
per share NAV is calculated by:
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Taking
the current market value of its total assets;
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Subtracting
any liabilities; and
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Dividing
that total by the total number of outstanding shares.
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The Administrator
calculates the per share NAV of USO once each NYSE Arca trading day. The per share NAV for a normal trading day is released after
4:00 p.m. New York time. Trading during the core trading session on the NYSE Arca typically closes at 4:00 p.m. New York time.
The Administrator uses the NYMEX closing price (determined at the earlier of the close of the NYMEX or 2:30 p.m. New York time)
for the Oil Futures Contracts traded on the NYMEX, but calculates or determines the value of all other USO investments (including
Oil Futures Contracts not traded on the NYMEX, Other Oil-Related Investments and Treasuries) using market quotations, if available,
or other information customarily used to determine the fair value of such 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 the Administrator, USO and
USCF. “Other information” customarily used in determining fair value includes information consisting of market data
in the relevant market supplied by one or more third parties including, without limitation, relevant rates, prices, yields, yield
curves, volatilities, spreads, correlations or other market data in the relevant market; or information of the types described
above from internal sources if that information is of the same type used by USO in the regular course of its business for the
valuation of similar transactions. The information may include costs of funding, to the extent costs of funding are not and would
not be a component of the other information being utilized. Third parties supplying quotations or market data may include, without
limitation, dealers in the relevant markets, end-users of the relevant product, information vendors, brokers and other sources
of market information.
In addition,
in order to provide updated information relating to USO for use by investors and market professionals, the NYSE Arca calculates
and disseminates throughout the core trading session on each trading day an updated indicative fund value. The indicative fund
value is calculated by using the prior day’s closing per share NAV of USO as a base and updating that value throughout the
trading day to reflect changes in the most recently reported trade prices for the Oil Futures Contracts and Other Oil-Related
Investments held by USO. The indicative
fund value share basis disseminated during NYSE Arca core trading session hours should not be viewed as an actual real time update
of the per share NAV, because the per share NAV is calculated only once at the end of each trading day based upon the relevant
end of day values of USO’s investments.
The indicative
fund value is disseminated on a per share basis every 15 seconds during regular NYSE Arca core trading session hours of 9:30 a.m.
New York time to 4:00 p.m. New York time. The normal trading hours of the NYMEX are 9:00 a.m. New York time to 2:30 p.m. New York
time. This means that there is a gap in time at the beginning and the end of each day during which USO’s shares are traded
on the NYSE Arca, but real-time NYMEX trading prices for Oil Futures Contracts traded on the NYMEX are not available. During such
gaps in time, the indicative fund value will be calculated based on the end of day price of such Oil Futures Contracts from the
NYMEX’s immediately preceding trading session. In addition, other Oil Futures Contracts, Other Oil-Related Investments and
Treasuries held by USO 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 fund value.
The NYSE
Arca disseminates the indicative fund value through the facilities of CTA/CQ High Speed Lines. In addition, the indicative fund
value is published on the NYSE Arca’s website and is 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 USO shares on the NYSE Arca. Investors and market professionals are
able throughout the trading day to compare the market price of USO and the indicative fund value. If the market price of USO shares
diverges significantly from the indicative fund value, market professionals will have an incentive to execute arbitrage trades.
For example, if USO appears to be trading at a discount compared to the indicative fund value, a market professional could buy
USO shares on the NYSE Arca and sell short Oil Futures Contracts. Such arbitrage trades can tighten the tracking between the market
price of USO and the indicative fund value and thus can be beneficial to all market participants.
USO reserves
the right to adjust the Share price of USO in the future to maintain convenient trading ranges for investors. Any adjustments
would be accomplished through stock splits or reverse stock splits. Such splits would decrease (in the case of a split) or increase
(in the case of a reverse split) the proportionate net asset value per Share, but would have no effect on the net assets of the
Fund or the proportionate voting rights of shareholders or limited partners.
Creation and Redemption
of Shares
USO creates
and redeems shares from time to time, but only in one or more Creation Baskets or Redemption Baskets. The creation and redemption
of baskets are only made in exchange for delivery to USO or the distribution by USO of the amount of Treasuries and any cash represented
by the baskets being created or redeemed, the amount of which is based on the combined NAV of the number of shares 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
Participants are the only persons that may place orders to create and redeem baskets. Authorized Participants 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 described below, and (2) DTC Participants. To become an Authorized
Participant, a person must enter into an Authorized Participant Agreement with USCF on behalf of USO (each such agreement, an
“Authorized Participant Agreement”). The Authorized Participant 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 Participant Agreement and the related procedures attached thereto may be amended by USO, without the consent of any
limited partner or shareholder or Authorized Participant. Authorized Participants will pay a transaction fee of $1,000 to USO
for each order they place to create one or more Creation Baskets or to redeem one or more Redemption Baskets. The transaction
fee may be reduced, increased, or otherwise changed by USCF. Authorized Participants who make deposits with USO in exchange for
baskets receive no fees, commissions or other form of compensation or inducement of any kind from either USO or USCF, and no such
person will have any obligation or responsibility to USCF or USO to effect any sale or resale of shares.
Certain
Authorized Participants are expected to be capable of participating directly in the physical crude oil market and the crude oil
futures market. In some cases, Authorized Participants or their affiliates may from time to time buy or sell crude oil or Oil
Interests and may profit in these instances. USCF believes that the size and operation of the crude oil market make it unlikely
that an Authorized Participant’s direct activities in the crude oil or securities markets will significantly affect the
price of crude oil, Oil Interests or the price of the shares.
Each Authorized
Participant is required to be registered as a broker-dealer under the Exchange Act and is a member in good standing with FINRA,
or exempt from being or otherwise not required to be registered as a broker-dealer or a member of FINRA, and qualified to act
as a broker or dealer in the states or other jurisdictions where the nature of its business so requires. Certain Authorized Participants
may also be regulated under federal and state banking laws and regulations. Each Authorized Participant has 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 Participant Agreement, USCF, and USO under limited circumstances, have agreed to indemnify the Authorized Participants
against certain liabilities, including liabilities under the 1933 Act, and to contribute to the payments the Authorized Participants
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 Participant Agreement for more detail, each of which is incorporated
by reference into this prospectus.
Creation Procedures
On any
business day, an Authorized Participant 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. The day on which the Marketing Agent receives
a valid purchase order is referred to as the purchase order date.
By placing
a purchase order, an Authorized Participant agrees to deposit Treasuries, cash or a combination of Treasuries and cash, as described
below. Prior to the delivery of baskets for a purchase order, the Authorized Participant must also have wired to the Custodian
the non-refundable transaction fee due for the purchase order. Authorized Participants may not withdraw a creation request, except
as otherwise set forth in the procedures in the Authorized Participant Agreement.
The manner
by which creations are made is dictated by the terms of the Authorized Participant Agreement. By placing a purchase order, an
Authorized Participant agrees to (1) deposit Treasuries, cash, or a combination of Treasuries and cash with the Custodian, and
(2) if required by USCF in its sole discretion, enter into or arrange for a block trade, an exchange for physical or exchange
for swap, or any other OTC energy transaction (through itself or a designated acceptable broker) with USO 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
Participant fails to consummate (1) and (2), the order shall be cancelled. The number and types of contracts specified shall be
determined by USCF, in its sole discretion, to meet USO’s investment objective and shall be purchased as a result of the
Authorized Participant’s purchase of shares.
Determination of Required
Deposits
The total
deposit required to create each basket (“Creation Basket Deposit”) is the amount of Treasuries and/or cash that is
in the same proportion to the total assets of USO (net of estimated accrued but unpaid fees, expenses and other liabilities) on
the purchase order date as the number of shares to be created under the purchase order is in proportion to the total number of
shares outstanding on the purchase order date. USCF 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 is 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
Participant who places a purchase order is responsible for transferring to USO’s account with the Custodian the required
amount of Treasuries and cash by the end of the second business day following the purchase order date. Upon receipt of the deposit
amount, the Administrator directs DTC to credit the number of baskets ordered to the Authorized Participant’s DTC account
on the second 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 USO shall be borne solely by the Authorized Participant.
Because
orders to purchase baskets must be placed by 12:00 p.m., New York time, but the total payment required to create a basket during
the continuous offering period will not be determined until after 4:00 p.m., New York time, on the date the purchase order is
received, Authorized Participants 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. USO’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
USCF acting
by itself or through the Marketing Agent shall have the absolute right but no obligation to reject a purchase order or a Creation
Basket Deposit if:
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it
determines that the investment alternative available to USO at that time will not enable
it to meet its investment objective;
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it
determines that the purchase order or the Creation Basket Deposit is not in proper form;
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it
believes that the purchase order or the Creation Basket Deposit would have adverse tax
consequences to USO, the limited partners or its shareholders;
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the
acceptance or receipt of the Creation Basket Deposit would, in the opinion of counsel
to USCF, be unlawful; or
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circumstances
outside the control of USCF, Marketing Agent or Custodian make it, for all practical
purposes, not feasible to process creations of baskets.
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None of
USCF, the Marketing Agent or the Custodian will be liable for the rejection of any purchase order or Creation Basket Deposit.
Redemption Procedures
The procedures
by which an Authorized Participant can redeem one or more baskets mirror the procedures for the creation of baskets. On any business
day, an Authorized Participant 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 (“Redemption Order
Date”). The redemption procedures allow Authorized Participants to redeem baskets and do not entitle an individual shareholder
to redeem any shares in an amount less than a Redemption Basket, or to redeem baskets other than through an Authorized Participant.
By placing
a redemption order, an Authorized Participant agrees to deliver the baskets to be redeemed through DTC’s book-entry system
to USO, as described below. Prior to the delivery of the redemption distribution for a redemption order, the Authorized Participant
must also have wired to USO’s account at the Custodian the non-refundable transaction fee due for the redemption order.
An Authorized Participant may not withdraw a redemption order, except as otherwise set forth in the procedures in the Authorized
Participant Agreement.
The manner
by which redemptions are made is dictated by the terms of the Authorized Participant Agreement. By placing a redemption order,
an Authorized Participant agrees to (1) deliver the Redemption Basket to be redeemed through DTC’s book-entry system to
USO’s account with the Custodian not later than 3:00 p.m. New York time on the second business day following the effective
date of the redemption order (“Redemption Distribution Date”), and (2) if required by USCF in its sole discretion,
enter into or arrange for a block trade, an exchange for physical or exchange for swap, or any other OTC energy transaction (through
itself or a designated acceptable broker) with USO 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 Participant fails to consummate (1) and (2) above, the
order shall be cancelled. The number and type of contracts specified shall be determined by USCF, in its sole discretion, to meet
USO’s investment objective and shall be sold as a result of the Authorized Participant’s sale of shares.
Determination of Redemption
Distribution
The redemption
distribution from USO consists of a transfer to the redeeming Authorized Participant of an amount of Treasuries and/or cash that
is in the same proportion to the total assets of USO (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 shares to be redeemed under the redemption order is in proportion
to the total number of shares outstanding on the date the order is received. USCF, 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
an estimate of the redemption distribution per basket as of the beginning of each business day.
Delivery of Redemption
Distribution
The redemption
distribution due from USO will be delivered to the Authorized Participant by 3:00 p.m. New York time on the second business day
following the redemption order date if, by 3:00 p.m. New York time on such second business day, USO’s DTC account has been
credited with the baskets to be redeemed. If USO’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 USO receives the
fee applicable to the extension of the redemption distribution date which USCF may, from time to time, determine and the remaining
baskets to be redeemed are credited to USO’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 USCF, the Custodian will also be authorized
to deliver the redemption distribution notwithstanding that the baskets to be redeemed are not credited to USO’s DTC account
by 3:00 p.m. New York time on the second business day following the redemption order date if the Authorized Participant has collateralized
its obligation to deliver the baskets through DTC’s book entry-system on such terms as USCF may from time to time determine.
Suspension or Rejection
of Redemption Orders
USCF 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 USCF determines to be necessary for the protection
of the limited partners or shareholders. For example, USCF may determine that it is necessary to suspend redemptions to allow
for the orderly liquidation of USO’s assets at an appropriate value to fund a redemption. If USCF 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 OTC contract, it may be
appropriate to suspend redemptions until such time as such circumstances are rectified. None of USCF, 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
close out or postponement.
Redemption
orders must be made in whole baskets. USCF will reject a redemption order if the order is not in proper form as described in the
Authorized Participant Agreement or if the fulfillment of the order, in the opinion of its counsel, might be unlawful. USCF may
also reject a redemption order if the number of shares being redeemed would reduce the remaining outstanding shares to 100,000
shares (i.e., one basket) or less.
Creation and Redemption
Transaction Fee
To compensate
USO for its expenses in connection with the creation and redemption of baskets, an Authorized Participant is required to pay a
transaction fee to USO of $1,000 per order to create or redeem baskets, regardless of the number of baskets in such order. An
order may include multiple baskets. The transaction fee may be reduced, increased or otherwise changed by USCF. USCF 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 thirty
(30) days after the date of the notice.
Tax Responsibility
Authorized
Participants 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 Participant, and agree to indemnify USCF and USO if they are required by law to pay any such
tax, together with any applicable penalties, additions to tax and interest thereon.
Secondary Market Transactions
As noted,
USO creates and redeems shares from time to time, but only in one or more Creation Baskets or Redemption Baskets. The creation
and redemption of baskets are only made in exchange for delivery to USO or the distribution by USO 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 shares 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 Participants are the only persons that may place orders to create and redeem baskets. Authorized Participants
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 Participant is under no obligation
to create or redeem baskets, and an Authorized Participant is under no obligation to offer to the public shares of any baskets
it does create. Authorized Participants that do offer to the public shares from the baskets they create will do so at per-share
offering prices that are expected to reflect, among other factors, the trading price of the shares on the NYSE Arca, the per share
NAV of USO at the time the Authorized Participant purchased the Creation Baskets and the per share NAV at the time of the offer
of the shares to the public, the supply of and demand for shares at the time of sale, and the liquidity of the Oil Futures Contract
market and the market for Other Oil-Related Investments.
The prices
of shares offered by Authorized Participants are expected to fall between USO’s per share NAV and the trading price of the
shares on the NYSE Arca at the time of sale. Shares initially comprising the same basket but offered by Authorized Participants
to the public at different times may have different offering prices. An order for one or more baskets may be placed by an Authorized
Participant on behalf of multiple clients. Authorized Participants who make deposits with USO in exchange for baskets receive
no fees, commissions or other forms of compensation or inducement of any kind from either USO or USCF, and no such person has
any obligation or responsibility to USCF or USO to effect any sale or resale of shares. Shares trade in the secondary market on
the NYSE Arca. Shares may trade in the secondary market at prices that are lower or higher relative to their NAV per share. The
amount of the discount or premium in the trading price relative to the NAV per share may be influenced by various factors, including,
among other things, the number of investors who seek to purchase or sell shares in the secondary market and the liquidity of the
Oil Futures Contracts market and the market for Other Oil-Related Investments. As an example, on April 21, 2020, the price per
of USO shares sold in the secondary market was 36% higher than the end of day per share NAV of USO. This discrepancy was attributable
to increased demand for USO shares due to market forces and USO’s having temporarily halted the offer for purchase
of Creation Baskets. In addition, while USO’s shares trade during the core trading session on the NYSE Arca until 4:00 p.m.
New York time, liquidity in the market for Oil Interests 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 shares may widen.
Use of Proceeds
USCF causes
USO to transfer the proceeds from the sale of Creation Baskets to the Custodian or other custodian for trading activities. USCF
will invest USO’s assets in Oil Interests and investments in Treasuries, cash and/or cash equivalents. When USO purchases
a Futures Contract and certain exchange-traded Other Oil-Related Investments, USO is required to deposit typically 5% to 30% with
the selling FCM 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 Oil Interests at maturity. This deposit is known as initial margin. Counterparties in transactions in
OTC contracts will generally impose similar collateral requirements on USO. USCF will invest the assets that remain after margin
and collateral are posted in Treasuries, cash and/or cash equivalents subject to these margin and collateral requirements. USCF
has sole authority to determine the percentage of assets that are:
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held
on deposit with any FCM or other custodian,
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used
for other investments, and
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held
in bank accounts to pay current obligations and as reserves.
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Approximately
5% to 30% of USO’s assets have normally been committed as margin for commodity futures contracts. However, from time to
time, the percentage of assets committed as margin may be substantially more, or less, than such range. Ongoing margin and collateral
payments will generally be required for both exchange-traded and OTC contracts based on changes in the value of the Oil Interests.
Furthermore, ongoing collateral requirements with respect to OTC contracts are negotiated by the parties, and may be affected
by overall market volatility, volatility of the underlying commodity or index, the ability of the counterparty to hedge its exposure
under the Oil Interests, and each party’s creditworthiness. In light of the differing requirements for initial payments
under exchange-traded and OTC contracts and the fluctuating nature of ongoing margin and collateral payments, it is not possible
to estimate what portion of USO’s assets will be posted as margin or collateral at any given time. The Treasuries, cash
and cash equivalents held by USO will constitute reserves that will be available to meet ongoing margin and collateral requirements.
All interest income will be used for USO’s benefit. USCF invests the balance of USO’s assets not invested in Oil Interests
or held in margin as reserves to be available for changes in margin. All interest income is used for USO’s benefit.
An FCM,
a government agency or a commodity exchange could increase margin or collateral requirements applicable to USO 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 held.
The assets
of USO posted as margin for Oil Futures Contracts are held in segregated accounts pursuant to the CEA and CFTC regulations.
If USO
enters into a swap agreement, USO must post both collateral and independent amounts to its swap counterparty(ies). The amount
of collateral USO posts changes according to the amounts owed by USO to its counterparty on a given swap transaction, while independent
amounts are fixed amounts posted by USO at the start of a swap transaction. Collateral and independent amounts posted to swap
counterparties will be held by a third-party custodian.
INFORMATION
YOU SHOULD KNOW
This prospectus
contains information you should consider when making an investment decision about the shares. You may rely on the information
contained in this prospectus. Neither USO nor USCF has authorized any person to provide you with different information and, if
anyone provides you with different or inconsistent information, you should not rely on it. This prospectus is not an offer to
sell the shares in any jurisdiction where the offer or sale of the shares is not permitted.
The information
contained in this prospectus was obtained from us and other sources believed by us to be reliable.
You should
rely only on the information contained in this prospectus or any applicable prospectus supplement or any information incorporated
by reference to this prospectus. We have not authorized anyone to provide you with any information that is different. If you receive
any unauthorized information, you must not rely on it. You should disregard anything we said in an earlier document that is inconsistent
with what is included in this prospectus or any applicable prospectus supplement or any information incorporated by reference
to this prospectus. Where the context requires, when we refer to this “prospectus,” we are referring to this prospectus
and (if applicable) the relevant prospectus supplement.
You should
not assume that the information in this prospectus or any applicable prospectus supplement is current as of any date other than
the date on the front page of this prospectus or the date on the front page of any applicable prospectus supplement.
We include
cross references in this prospectus to captions in these materials where you can find further related discussions. The table of
contents tells you where to find these captions.
SUMMARY
OF PROMOTIONAL AND SALES MATERIAL
USO uses
the following promotional or sales material:
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USO’s
website, www.uscfinvestments.com;
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Press
release dated the effective date of USO’s initial registration statement; and
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USO
fact sheet found on USO’s website.
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The materials
described above are not a part of this prospectus or the registration statement of which this prospectus is a part and have been
submitted to the staff of the SEC for their review pursuant to Industry Guide 5. This section is provided here as a convenience
to you.
INTELLECTUAL
PROPERTY
USCF owns
trademark registrations for UNITED STATES OIL FUND (U.S. Reg. No. 3240929) for “Investment services in the field of oil
futures contracts and other oil interests,” in use since April 30, 2006, USO UNITED STATES OIL FUND, LP (and Flame Design)
(U.S. Reg. No. 4440928) for “Financial investment services in the field of oil futures contracts, cash-settled options on
oil futures contracts, forward contracts for oil, over-the-counter transactions based on the price of oil, and indices based on
the foregoing,” in use since September 30, 2012, and THE ORIGINAL OIL ETF, (U.S. Reg. No. 4472747) for “Fund investment
services in the field of oil futures contracts, cash-settled options on oil futures contracts, forward contracts for oil, over-the-counter
transactions based on the price of oil, and indices based on the foregoing,” in use since September 23, 2013. USCF relies
upon these trademarks through which it markets its services and strives to build and maintain brand recognition in the market
and among current and potential investors. So long as USCF continues to use these trademarks to identify its services, without
challenge from any third party, and properly maintains and renews the trademark registrations under applicable laws, rules and
regulations, it will continue to have indefinite protection for these trademarks under current laws, rules and regulations.
USCF owns
trademark registrations for USCF (and Design) (U.S. Reg. No. 5127374) for “Fund investment services,” in use since
April 10, 2016, USCF (U.S. Reg No. 5040755) for “Fund investment services,” in use since June 24, 2008, , and INVEST
IN WHAT’S REAL (U.S. Reg. No. 5450808) for “Fund investment services,” in use since April 2016 USCF relies upon
these trademarks and service mark through which it markets its services and strives to build and maintain brand recognition in
the market and among current and potential investors. So long as USCF continues to use these trademarks to identify its services,
without challenge from any third party, and properly maintains and renews the trademark registrations under applicable laws, rules
and regulations; it will continue to have indefinite protection for these trademarks under current laws, rules and regulations.
USCF has been granted two patents Nos. 7,739,186 and 8,019,675, for systems and methods for an exchange traded fund (ETF) that
tracks the price of one or more commodities.
WHERE
YOU CAN FIND MORE INFORMATION
USCF has
filed on behalf of USO a registration statement on Form S-3 with the SEC under the 1933 Act. This prospectus does not contain
all of the information set forth in the registration statement (including the exhibits to the registration statement), parts of
which have been omitted in accordance with the rules and regulations of the SEC. For further information about USO or the shares,
please refer to the registration statement, which you may access online at www.sec.gov. Information about USO and the shares
can also be obtained from USO’s website, http://www.uscfinvestments.com. USO’s website address is only provided
here as a convenience to you and the information contained on or connected to the website is not part of this prospectus or the
registration statement of which this prospectus is part. USO is subject to the informational requirements of the Exchange Act
and USCF and USO will each, on behalf of USO, file certain reports and other information with the SEC under the Exchange Act.
USCF will file an updated prospectus annually for USO pursuant to the 1933 Act. The reports and other information can be accessed
online at www.sec.gov.
STATEMENT
REGARDING FORWARD-LOOKING STATEMENTS
This prospectus
includes “forward-looking statements” which generally relate to future events or future performance. In some cases,
you can identify forward-looking statements by terminology such as “may,” “will,” “should,”
“expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,”
“potential” or the negative of these terms or other comparable terminology. All statements (other than statements
of historical fact) included in this prospectus that address activities, events or developments that will or may occur in the
future, including such matters as changes in inflation in the United States, movements in the stock market, movements in U.S.
and foreign currencies, and movements in the commodities markets and indexes that track such movements, USO’s operations,
USCF’s plans and references to USO’s future success and other similar matters, are forward-looking statements. These
statements are only predictions. Actual events or results may differ materially. These statements are based upon certain assumptions
and analyses USCF has made based on its perception of historical trends, current conditions and expected future developments,
as well as other factors appropriate in the circumstances. Whether or not actual results and developments will conform to USCF’s
expectations and predictions, however, is subject to a number of risks and uncertainties, including the special considerations
discussed in this prospectus, general economic, market and business conditions, changes in laws or regulations, including those
concerning taxes, made by governmental authorities or regulatory bodies, and other world economic and political developments.
See “Risk Factors Involved with an Investment in USO.” Consequently, all the forward-looking statements made in this
prospectus are qualified by these cautionary statements, and there can be no assurance that the actual results or developments
USCF anticipates will be realized or, even if substantially realized, that they will result in the expected consequences to, or
have the expected effects on, USO’s operations or the value of the shares.
INCORPORATION
BY REFERENCE OF CERTAIN INFORMATION
We are a reporting
company and file annual, quarterly and current reports and other information with the SEC. The rules of the SEC allow us to “incorporate
by reference” information that we file with them, which means that we can disclose important information to you by referring
you to those documents; provided, however, that information “furnished” under Item 2.02 or Item 7.01 of Form 8-K,
or other information “furnished” to the SEC, which is not deemed filed is not and will not be incorporated by reference.
The information incorporated by reference is an important part of this prospectus period, and information that we file later
with the SEC will automatically update and supersede this information. We incorporate by reference the documents listed below
and any future filings we will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934
after the date of this Registration Statement on Form S-3 and prior to effectiveness of the registration statement, and after
the date of this prospectus but prior to completion of our offering. This prospectus incorporates by reference the documents set
forth below that have been previously filed with the SEC.
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Annual
Report on Form 10-K for the year ended December 31, 2019 filed on February 21, 2020.
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Quarterly
Report on Form
10-Q, filed with the SEC for the quarterly period ended March 31, 2020 filed on May
8, 2020.
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Current
Report on Form
8-K, filed with the SEC on March 20, 2020.
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Current
Report on Form 8-K, filed with the SEC on March 30, 2020.
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Current
Report on Form 8-K, filed with the SEC on April 16, 2020.
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Current
Report on Form 8-K, filed with the SEC on April 20, 2020.
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Current
Report on Form 8-K, filed with the SEC on April 21, 2020.
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Current
Report on Form 8-K, filed with the SEC on April 21, 2020.
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Current
Report on Form 8-K, filed with the SEC on April 22, 2020.
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Current
Report on Form 8-K, filed with the SEC on April 24, 2020.
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Current Report
on Form 8-K, filed with the SEC on April 27, 2020.
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Current Report
on Form 8-K, filed with the SEC on April 29, 2020.
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Current
Report on Form
8-K, filed with the SEC on April 30, 2020.
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Current
Report on Form
8-K, filed with the SEC on May 29, 2020.
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We will
provide to each person to whom a prospectus is delivered, including any beneficial owner, a copy of these filings at no cost,
upon written or oral request at the following address or telephone number:
United
States Oil Fund, LP
Attention: Katie Rooney
1850 Mt. Diablo Boulevard, Suite 640
Walnut Creek, California 94596
510.522.9600
Privacy Policy
USO and
USCF may collect or have access to certain nonpublic personal information about current and former investors. Nonpublic personal
information may include information received from investors, such as an investor’s name, social security number and address,
as well as information received from brokerage firms about investor holdings and transactions in shares of USO.
USO and
USCF do not disclose nonpublic personal information except as required by law or as described in their Privacy Policy. In general,
USO and USCF restrict access to the nonpublic personal information they collect about investors to those of their and their affiliates’
employees and service providers who need access to such information to provide products and services to investors.
USO and
USCF maintain safeguards that comply with federal and applicable state law to protect investors’ nonpublic personal information.
These safeguards are reasonably designed to (1) ensure the security and confidentiality of investors’ records and information,
(2) protect against any anticipated threats or hazards to the security or integrity of investors’ records and information,
and (3) protect against unauthorized access to or use of investors’ records or information that could result in substantial
harm or inconvenience to any investor. Third-party service providers with whom USO and USCF share nonpublic personal information
about investors must agree to follow appropriate standards of security and confidentiality, which includes safeguarding such nonpublic
personal information physically, electronically and procedurally.
A copy
of USO and USCF’s current privacy policy is available at http://www.uscfinvestments.com.
APPENDIX
A
Glossary
of Defined Terms
In this
prospectus, each of the following terms has the meaning set forth after such term:
1933
Act: The Securities Act of 1933.
1940
Act: Investment Company Act of 1940.
Adjusted
K-1: A statement to investors who owned beneficial interests in the shares in the year to which the adjusted allocations relate
setting forth their proportionate shares of the adjustment.
Administrator:
BNY Mellon.
Authorized
Participant: A person that purchases or redeems Creation Baskets or Redemption Baskets, respectively, from or to USO.
Authorized
Participant Agreement: An agreement with USCF on behalf of USO whereby a person becomes an Authorized Participant.
Backup
Withholding: U.S. federal income tax that is required to be withheld.
Basket:
A block of 100,000 shares.
Benchmark
Oil Futures Contract: The near month futures contract for light, sweet crude oil traded on the NYMEX unless the near month
futures contract will expire within two weeks of the valuation day, in which case the Benchmark Oil Futures Contract is the next
month futures contract for light, sweet crude oil traded on the NYMEX.
BNO:
United States Brent Oil Fund, LP.
BNY
Mellon: The Bank of New York Mellon
Board:
USCF’s board of directors.
Business
Day: 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.
CEA:
Commodity Exchange Act.
CFTC:
Commodity Futures Trading Commission, an independent agency with the mandate to regulate commodity futures and options in
the United States.
Cleared
Swap Contract: A financial contract, whose value is designed to track the return on stocks, bonds, currencies, commodities,
or some other benchmark, that is submitted to a central clearinghouse after it is either traded OTC or on an exchange or other
trading platform.
Code:
Internal Revenue Code.
Commodity
Pool: An enterprise in which several individuals contribute funds in order to trade futures contracts or options on futures
contracts collectively.
Commodity
Pool Operator or CPO: Any person engaged in a business which is of the nature of an investment trust, syndicate, or similar
enterprise, and who, in connection therewith, solicits, accepts, or receives from others, funds, securities, or property, either
directly or through capital contributions, the sale of stock or other forms of securities, or otherwise, for the purpose of trading
in any commodity for future delivery or commodity option on or subject to the rules of any contract market.
Concierge:
Concierge Technologies, Inc., a company publicly traded under the ticker symbol “CNCG.”
CPER:
United States Copper Index Fund.
Creation
Basket: A block of 100,000 shares used by USO to issue shares.
Creation
Basket Deposit: The total deposit required to create each basket.
Custodian:
The Bank of New York Mellon.
DCM:
Designated contract market.
DNO:
United States Short Oil Fund, LP.
DTC:
The Depository Trust Company. DTC will act as the securities depository for the shares.
DTC
Participant: An entity that has an account with DTC.
DTEF:
A derivatives transaction execution facility.
ECI:
Income that is effectively connected with the conduct of a U.S. trade or business.
ERISA:
Employee Retirement Income Security Act of 1974.
Exchange
Act: The Securities Exchange Act of 1934.
Exchange
for Related Position (EFRP): An off market transaction which involves the swapping (or exchanging) of an over-the-counter
(OTC) position for a futures position. The OTC transaction must be for the same or similar quantity or amount of a specified commodity,
or a substantially similar commodity or instrument. The OTC side of the EFRP can include swaps, swap options, or other instruments
traded in the OTC market. In order that an EFRP transaction can take place, the OTC side and futures components must be “substantially
similar” in terms of either value and or quantity. The net result is that the OTC position (and the inherent counterparty
credit exposure) is transferred from the OTC market to the futures market. EFRPs can also work in reverse, where a futures position
can be reversed and transferred to the OTC market.
FDAP:
Amounts that are fixed, determinable, annual and periodic income, such as interest, dividends and rent that are not connected
with the operation of a U.S. trade or business.
FCM:
Futures commission merchant.
FFI:
Foreign financial institution.
FINRA:
Financial Industry Regulatory Authority, formerly the National Association of Securities Dealers.
ICE
Futures: The leading electronic regulated futures and options exchange for global energy markets.
ICE WTI Contract: Cash-settled
Oil Futures Contracts based on the price of the light, sweet crude oil known as West Texas Intermediate traded on ICE Futures.
IGA:
Intergovernmental agreement.
Indirect
Participants: Banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a DTC
Participant, either directly or indirectly.
IRA:
Individual retirement account.
IRS:
U.S. Internal Revenue Service.
ISDA:
International Swaps and Derivatives Association, Inc.
Limited
Liability Company (LLC): A type of business ownership combining several features of corporation and partnership structures.
LLC
Agreement: Sixth Amended and Restated Limited Liability Company Agreement of USCF, dated as of May 15, 2015 (as amended from
time to time).
LP
Agreement: The Seventh Amended and Restated Agreement of Limited Partnership effective as of December 15, 2017.
Margin:
The amount of equity required for an investment in futures contracts.
Management
Directors: The four management directors that are on USCF’s board of directors.
Marketing
Agent: ALPS Distributors, Inc.
NAV:
Net asset value of USO.
NFA:
National Futures Association.
New
York Mercantile Exchange (NYMEX): The primary exchange on which futures contracts are traded in the U.S. USO expects to invest
primarily in futures contracts, and particularly in futures contracts traded on the NYMEX. USO expressly disclaims any association
with the Exchange or endorsement of USO by the Exchange and acknowledges that “NYMEX” and “New York Mercantile
Exchange” are registered trademarks of such Exchange.
NYSE
Arca: NYSE Arca stock exchange.
Oil
Futures Contracts: Futures contracts for crude oil, diesel-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.
Oil
Interests: Futures Contracts and Other Oil-Related Investments.
OPEC:
Organization of the Petroleum Exporting Countries.
Option:
The right, but not the obligation, to buy or sell a futures contract or forward contract at a specified price on or before
a specified date.
Other
Oil-Related Investments: Other crude oil-related investments such as cash-settled options on Oil Futures Contracts, forward
contracts for crude oil, and OTC transactions that are based on the price of crude oil, other petroleum-based fuels, Oil Futures
Contracts and indices based on the foregoing.
OTC
Derivative: A financial contract, whose value is designed to track the return on stocks, bonds, currencies, commodities, or
some other benchmark, that is traded OTC or off organized exchanges.
Position
Limit Rules: The CFTC’s proposed limits on speculative positions in certain physical commodity futures and option contracts
and swaps that are economically equivalent to such contracts in the agriculture, energy and metals markets and rules addressing
the circumstances under which market participants would be required to aggregate their positions with other persons under common
ownership or control.
Prudential
Regulators: The CFTC, the SEC and the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve
System, the Federal Deposit Insurance Corporation, the Farm Credit Administration and the Federal Housing Finance Agency, collectively.
Redemption
Basket: A block of 100,000 shares used by USO to redeem shares.
Redemption
Order Date: The date a redemption order is received in satisfactory form and approved by the Marketing Agent.
Register:
The record of all Shareholders and holders of the shares in certificated form kept by the Administrator.
Related
Public Funds: United States 12 Month Natural Gas Fund, LP (“UNL”); United States 12 Month Oil Fund, LP (“USL”);
United States Brent Oil Fund, LP (“BNO”); United States Gasoline Fund, LP (“UGA”); United States Natural
Gas Fund, LP (“UNG”); United States Copper Index Fund (“CPER”); United States Commodity Index Fund (“USCI”).
SEC:
Securities and Exchange Commission.
SEF:
A swap execution facility.
Secondary
Market: The stock exchanges and the OTC market. Securities are first issued as a primary offering to the public. When the
securities are traded from that first holder to another, the issues trade in these secondary markets.
Shareholders:
Holders of Shares.
Shares:
Common shares representing fractional undivided beneficial interests in USO.
Spot
Contract: 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.
Swap
Contract: Swap transactions generally involve contracts between two parties to exchange a stream of payments computed by reference
to a notional amount and the price of the asset that is the subject of the swap. Some swap transactions are cleared through central
counterparties. These transactions, known as cleared swaps, involve two counterparties first agreeing to the terms of a swap transaction,
then submitting the transaction to a clearing house that acts as the central counterparty. Swap transactions that are not cleared
through central counterparties are called “uncleared” or “over-the-counter” (“OTC”) swaps.
Tracking
Error: Possibility that the daily NAV of USO will not track the price of light, sweet crude oil.
Treasuries:
Obligations of the U.S. government with remaining maturities of 2 years or less.
UBTI:
Unrelated business taxable income.
UGA:
United States Gasoline Fund, LP.
UHN:
United States Diesel-Heating Oil Fund, LP.
UNG:
United States Natural Gas Fund, LP.
UNL:
United States 12 Month Natural Gas Fund, LP.
USAG:
United States Agriculture Index Fund.
USCF:
United States Commodity Funds LLC (the general partner), a Delaware limited liability company, which is registered as a CPO,
who controls the investments and other decisions of USO.
USCI:
United States Commodity Index Fund.
USL:
United States 12 Month Oil Fund, LP.
USO:
United States Oil Fund, LP.
USOD:
United States 3x Oil Fund.
USOU:
United States 3x Short Oil Fund.
Valuation
Day: Any day as of which USO calculates its NAV.
Wainwright:
Wainwright Holdings, Inc.
WTI Contracts: The current
or front month (“first month”) Oil Futures Contracts based on the price of the light, sweet crude oil known as West
Texas Intermediate (“WTI”) or, which are priced off of the oil futures contracts based on WTI as traded on the NYMEX
including the Benchmark Oil Futures Contracts and the ICE WTI Contract.
You:
The owner or holder of shares.
PART II
INFORMATION
NOT REQUIRED IN THE PROSPECTUS
Item 14.
|
Other Expenses of Issuance
and Distribution
|
Set forth below is an estimate (except
as indicated) of the amount of fees and expenses (other than underwriting commissions and discounts) payable by the registrant
in connection with the issuance and distribution of the shares pursuant to the prospectus contained in this registration statement.
|
|
Amount
|
|
Amount SEC registration fee (actual)
|
|
$
|
2,139,104
|
|
NYSE Arca Listing Fee
|
|
$
|
15,000
|
|
FINRA filing fees
|
|
|
N/A
|
|
Blue Sky expenses
|
|
|
N/A
|
|
Auditor’s fees and expenses
|
|
$
|
1,350,000
|
|
Legal fees and expenses
|
|
$
|
40,000
|
|
Printing expenses
|
|
$
|
60,000
|
|
Total
|
|
$
|
3,604,104
|
|
Item 15.
|
Indemnification of Directors
and Officers
|
USO shall, to the fullest extent
permitted by law, but only out of USO assets, indemnify and hold harmless a general partner and each officer, director, stockholder,
partner, employee or agent thereof (including persons who serve at USO’s request as directors, officers or trustees of another
organization in which USO has an interest as a Shareholder, 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 believe
that such Covered Person’s action was in the best interest of USO, and except that no Covered Person shall be indemnified
against any liability to USO 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 USO 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 USO
if it is ultimately determined that the indemnification of such expenses is not authorized hereunder.
As to any matter disposed of by a
compromise payment by any such Covered Person, pursuant to a consent decree or otherwise, no such indemnification either for said
payment or for any other expenses shall be provided unless such compromise shall be approved as in the best interests of USO,
after notice that it involved such indemnification by any disinterested person or persons to whom the questions may be referred
by United States Commodity Funds LLC (“USCF”), the general partner, provided that there has been obtained an opinion
in writing of independent legal counsel to the effect that such Covered Person appears to have acted in good faith in the reasonable
belief that his or her action was in the best interests of USO and that such indemnification would not protect such persons against
any liability to USO or its limited partners to which such person would otherwise by subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the conduct of office. Approval by any disinterested
person or persons shall not prevent the recovery from persons as indemnification if such Covered Person is subsequently adjudicated
by a court of competent jurisdiction not to have acted in good faith in the reasonable belief that such Covered Person’s
action was in the best interests of USO or to have been liable to USO or its limited partners 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.
The right of indemnification hereby
provided shall not be exclusive of or affect any other rights to which any such Covered Person may be entitled. An “interested
Covered Person” is one against whom the action, suit or other proceeding on the same or similar grounds is then or has
been pending and a “disinterested person” is a person against whom none of such actions, suits or other proceedings
or another action, suit or other proceeding on the same or similar grounds is then or has been pending. Nothing contained in this
provision shall affect any rights to indemnification to which personnel of a general partner, other than directors and officers,
and other persons may be entitled by contract or otherwise under law, nor the power of USO to purchase and maintain liability
insurance on behalf of any such person.
Nothing in this provision shall be
construed to subject any Covered Person to any liability to which he is not already liable under this Agreement or applicable
law.
Each limited partner agrees that
it will not hold any Affiliate or any officer, director, stockholder, partner, employee or agent of any Affiliate of USCF liable
for any actions of USCF or any obligations arising under or in connection with this Agreement or the transactions contemplated
hereby.
(a) Exhibits
(1)
|
Incorporated by reference to
Registrant’s Registration Statement on Form S-1 (File No. 333-124950) filed on May 16, 2005.
|
(2)
|
Incorporated by reference to the Registrant’s
Quarterly Report on Form 10-Q for the Quarter ended September 30, 2009, filed on November 9, 2009.
|
(3)
|
Incorporated by reference to Registrant’s
Current Report on Form 8-K, filed on March 30, 2020.
|
(4)
|
Incorporated by reference to the Registrant’s
Current Report on Form 8-K, filed on October 24, 2011.
|
(5)
|
Incorporated by reference to Registrant’s
Annual Report on Form 10-K for the year ended December 31, 2015, filed on February 26, 2016.
|
(6)
|
Incorporated by reference to Registrant’s
Current Report on Form 8-K, filed on December 15, 2017.
|
(7)
|
Incorporated by reference to Registrant’s
Quarterly Report on Form 10-Q for the Quarter ended June 30, 2012, filed on August 9, 2012.
|
(8)
|
Incorporated by reference to the Registrant’s
Form S-3 (File No. 333-209362) filed on February 3, 2016.
|
(9)
|
Incorporated by reference to United States
Natural Gas Fund, LP’s Quarterly Report on Form 10-Q for the Quarter ended March 31, 2007, filed on June 1, 2007.
|
(10)
|
Incorporated by reference to Registrant’s
Annual Report on Form 10-K for the year ended December 31, 2012, filed on February 27, 2013.
|
(11)
|
Incorporated by reference to the Registrant’s Current Report on Form
8-K, filed on October 10, 2013.
|
(12)
|
Incorporated by reference to Registrant’s Pre-Effective Amendment
No. 3 to the Registration Statement on Form S-3 (File No. 333-237750), filed on May 11, 2020.
|
(13)
|
Incorporated by reference to Registrant’s Current Report on Form 8-K,
filed on May 29, 2020.
|
(14)
|
Incorporated by reference to Registrant’s Registration Statement on
Form S-3 (File No. 333-237750), filed on April 20, 2020.
|
(*)
|
Filed herewith.
|
(b) Financial Statement Schedules
The financial statement schedules
are either not applicable or the required information is included in the financial statements and footnotes related thereto.
(a)
|
The undersigned registrant
hereby undertakes:
|
|
(1)
|
To file,
during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
|
|
|
|
|
|
(i)
|
To include
any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
|
|
|
|
|
|
|
(ii)
|
To reflect in the
prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Securities and Exchange
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the
effective registration statement.
|
|
|
|
|
|
|
(iii)
|
To include any material
information with respect to the plan of distribution not previously disclosed in the registration statement or any material
change to such information in the registration statement.
|
Provided, however, that paragraphs
(a)(1)(i), (a)(1)(ii) and (a)(1)(iii) of this section do not apply if the registration statement is on Form S-3 or Form F-3 and
the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or
furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that
are incorporated by reference in the registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b)
that is part of the registration statement.
|
(2)
|
That,
for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
|
|
|
|
|
(3)
|
To remove from registration
by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the
offering.
|
|
|
|
|
(4)
|
That, for the purpose
of determining liability under the Securities Act of 1933 to any purchaser:
|
|
|
(i)
|
If the registrant is subject
to Rule 430C (§230.430C of this chapter), each prospectus filed pursuant to Rule 424(b) as part of a registration statement
relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance
on Rule 430A (§230.430A of this chapter), shall be deemed to be part of and included in the registration statement as
of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or
prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference
into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time
of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement
or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first
use.
|
|
(5)
|
That, for the purpose of determining
liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:
The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this
registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities
are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be
a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
|
|
(i)
|
Any preliminary
prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424
(§230.424 of this chapter);
|
|
(ii)
|
Any free
writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to
by the undersigned registrant;
|
|
(iii)
|
The portion
of any other free writing prospectus relating to the offering containing material information about the undersigned registrant
or its securities provided by or on behalf of the undersigned registrant; and
|
|
(iv)
|
Any other communication
that is an offer in the offering made by the undersigned registrant to the purchaser.
|
|
(b)
|
The undersigned registrant
hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s
annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
|
|
|
|
|
(c)
|
Insofar as indemnification
for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant
of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such issue.
|
(d)
|
The undersigned registrant
hereby undertakes:
|
|
(1)
|
To send
to the limited partner at least on an annual basis a detailed statement of any transactions with the General Partner or its
affiliates, and of fees, commissions, compensation and other benefits paid, or accrued to the General Partner or its affiliates
for the fiscal year completed, showing the amount paid or accrued to each recipient and the services performed.
|
|
(2)
|
To provide
to the limited partner the financial statements required by Form 10-K for the first full fiscal year of operations of the
partnership.
|
SIGNATURES
Pursuant to the
requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Pre-Effective Amendment No. 6 to this registration
statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Walnut Creek, State of California,
on June 4, 2020.
|
UNITED STATES OIL FUND,
LP
|
|
|
|
|
|
By:
|
|
United States Commodity
Funds LLC
as General Partner
|
|
|
|
|
|
By:
|
|
/s/
John P. Love
|
|
|
|
John P. Love
President and Chief Executive Officer
|
Pursuant to the
requirements of the Securities Act of 1933, this Pre-Effective Amendment No. 6 to this registration statement has been
signed by the following persons in the capacities and on the dates indicated. The document may be executed by signatories hereto
on any number of counterparts, all of which shall constitute one and the same instrument.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
John P. Love
|
|
President and Chief Executive Officer
|
|
June 4,
2020
|
John P. Love
|
|
(Principal Executive Officer)
|
|
|
|
|
|
|
|
/s/
Stuart P. Crumbaugh
|
|
Chief Financial Officer
|
|
June 4,
2020
|
Stuart P. Crumbaugh
|
|
(Principal Financial and Accounting
Officer)
|
|
|
|
|
|
|
|
*
|
|
Management Director
|
|
June 4,
2020
|
Nicholas D. Gerber
|
|
|
|
|
|
|
|
|
|
*
|
|
Management Director
|
|
June 4,
2020
|
Andrew F Ngim
|
|
|
|
|
|
|
|
|
|
*
|
|
Management Director
|
|
June 4,
2020
|
Robert L. Nguyen
|
|
|
|
|
|
|
|
|
|
*
|
|
Independent Director
|
|
June 4,
2020
|
Peter M. Robinson
|
|
|
|
|
|
|
|
|
|
*
|
|
Independent Director
|
|
June 4,
2020
|
Gordon L. Ellis
|
|
|
|
|
|
|
|
|
|
*
|
|
Independent Director
|
|
June 4,
2020
|
Malcolm R. Fobes III
|
|
|
|
|
* Signed by John P. Love pursuant a power of attorney signed
by each individual on April 20, 2020.
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