[Federal Register: February 24, 2006 (Volume 71, Number 37)]
[Notices]
[Page 9614-9627]
[DOCID:fr24fe06-123]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53324; File No. SR-Amex-2005-127]

Self-Regulatory Organizations; American Stock Exchange LLC;
Notice of Filing of a Proposed Rule Change, and Amendment Nos. 1 and 2
Thereto, Relating to the Listing and Trading of Units of the United
States Oil Fund, LP

February 16, 2006.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on December 6, 2005, the American Stock Exchange LLC (``Amex'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II
and III below, which Items have been prepared by the Exchange. On
January 20, 2006, the Exchange filed Amendment No. 1 to the proposed
rule change.\3\ On February 15, 2006, the Exchange filed Amendment No.
2 to the proposed rule change.\4\ The Commission is publishing this
notice to solicit comments on the proposed rule change, as amended,
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(l).
    \2\ 17 CFR 240.19b-4.
    \3\ See Partial Amendment dated January 20, 2006 (``Amendment
No. 1''). In Amendment No. 1, the Amex made clarifying changes to
the purpose section.
    \4\ See id.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to add new Rules 1500 et seq. to permit the
listing and trading of units in a partnership that is a commodity pool
under the Commodity Exchange Act (``CEA'') \5\ that are designed to
track a specified commodity or index of commodities by holding any
combination of investments (i) comprised of or based on futures
contracts, options on futures contracts, forward contracts, swaps, and
over-the-counter (``OTC'') contracts for commodities or based on price
changes in commodities, and (ii) in securities that may be required to
satisfy margin or collateral requirements associated with investments
in the financial instruments listed in item (i) above. Pursuant to
these proposed rules, the Amex proposes to list and trade units (the
``Units'') of the United States Oil Fund, LP (``USOF'' or the
``Partnership'').
    The text of the proposed rule change is set forth below. Proposed
new language is italicized.
* * * * *

Trading of Partnership Units

    Rule 1500. (a) Applicability. The Rules in this Chapter (Trading of
Partnership Units) are applicable only to Partnership Units. Except to
the extent that specific Rules in this Chapter govern, or unless the
context otherwise requires, the provisions of the Constitution and all
other rules and policies of the Board of Governors shall be applicable
to the trading on the Exchange of such securities. Pursuant to the
provisions of Article I, Section 3(i) of the Constitution, Partnership
Units are included within the definitions of ``security'' or
``securities'' as such terms are used in the Constitution and Rules of
the Exchange.
    (b) Definitions. The following terms as used in the Rules shall,
unless the context otherwise requires, have the meanings herein
specified:
    (i) Commodity. The term ``commodity'' is defined in Section 1(a)(4)
of the Commodity Exchange Act.
    (ii) Partnership Units. The term ``Partnership Units'' for purposes
of this Rule means a security (a) that is issued by a partnership that
invests in any combination of futures contracts, options on futures
contracts, forward contracts, commodities and/or securities; and (b)
that is issued and redeemed daily in specified aggregate amounts at net
asset value.

Commentary

    .01 The Exchange requires that members and member organizations
provide to all purchasers of newly issued Partnership Units a
prospectus for the series of Partnership Units.
    .02 Transactions in Partnership Units will occur between 9:30 a.m.
and either 4 p.m. or 4:15 p.m. for each series, as specified by the
Exchange.
    .03 (a) Limit Orders--Members and member organizations shall not
enter orders into the Exchange's order routing system, as principal or
agent, limit orders in the same partnership, for the account or
accounts of the same or related beneficial owner, in such a manner that
the member or beneficial owner(s) effectively is operating as a market
maker by holding itself out as willing to buy and sell such Partnership
Units on a regular or continuous basis. In determining whether a member
or beneficial owner effectively is operating as a market maker, the
Exchange will consider, among other things, the simultaneous or near-
simultaneous entry of limit orders to buy and sell the same Partnership
Units; the multiple acquisition and liquidation of positions in the
same Partnership Units during the same day; and the entry of multiple
limit orders at different prices in the same Partnership Units.
    (b) Members and member organizations may not enter, nor permit the
entry of, orders into the Exchange's order routing system if those
orders are (i) created and communicated electronically without manual
input (i.e., order entry by public customers or associated persons of
members must involve manual input such as entering the terms of an
order into an order-entry screen or manually selecting a displayed
order against which an off-setting order should be sent) and (ii)
eligible for execution through the Exchange's automatic execution
system for Partnership Units. Nothing in this paragraph, however,
prohibits members from electronically communicating to the Exchange
orders manually entered by customers into front-end communication
systems (e.g., Internet gateways, on-line networks, etc.).

Designation

    Rule 1501. The Exchange may list and trade Partnership Units based
on an underlying asset, commodity or security. Each issue of a
Partnership Unit shall be designated as a separate series and shall be
identified by a unique symbol.

Initial and Continued Listing

    Rule 1502. Partnership Units will be listed and/or traded on the
Exchange subject to application of the following criteria:
    (a) Initial Listing--The Exchange will establish a minimum number
of Partnership Units required to be outstanding at the time of
commencement of trading on the Exchange.
    (b) Continued Listing--The Exchange will remove from listing
Partnership Units under any of the following circumstances:
    (i) If following the initial twelve month period following the
commencement of trading of Partnership Units, (A) the partnership has
more than 60 days remaining until termination and there are fewer than
50 record and/or beneficial holders of Partnership Units for 30 or more
consecutive trading days; (B) if the partnership has fewer than 50,000

Partnership Units issued and outstanding; or (C) if the market value of
all Partnership Units issued and outstanding is less than $1,000,000;
    (ii) If the value of the underlying benchmark investment, commodity
or asset is no longer calculated or available on at least a 15-second
delayed basis or the Exchange stops providing a hyperlink on its Web
site to any such investment, commodity, or asset value;
    (iii) If the Indicative Partnership Value is no longer made
available on at least a 15-second delayed basis; or
    (iv) If such other event shall occur or condition exists which in
the opinion of the Exchange makes further dealings on the Exchange
inadvisable.
    Upon termination of a partnership, the Exchange requires that
Partnership Units issued in connection with such partnership be removed
from Exchange listing. A partnership will terminate in accordance with
the provisions of the partnership prospectus.
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    \5\ The offering of the units of the partnership is registered
with the Commission under the Securities Act of 1933 (``the 1933
Act'').
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    (c) Term--The stated term of the partnership shall be as stated in
the prospectus. However, such entity may be terminated under such
earlier circumstances as may be specified in the partnership
prospectus.
    (d) General Partner--The following requirements apply:
    (i) The general partner of a partnership must be an entity having
substantial capital and surplus and the experience and facilities for
handling partnership business. In cases where, for any reason, an
individual has been appointed as general partner, a qualified entity
must also be appointed as general partner.
    (ii) No change is to be made in the general partner of a listed
issue without prior notice to and approval of the Exchange.
    (e) Voting--Voting rights shall be as set forth in the applicable
partnership prospectus.

Commentary

    .01 The Exchange will file separate proposals under Section 19(b)
of the Securities Exchange Act of 1934 before listing and trading
separate and distinct Partnership Units designated on different
underlying investments, commodities and/or assets.

Specialist Prohibitions

    Rule 1503. Rule 175(c) shall be deemed to prohibit an equity
specialist, his member organization, or any other member, limited
partner, officer, or approved person thereof from acting as a market
maker or functioning in any capacity involving market-making
responsibilities in an underlying asset or commodity, related futures
or options on futures, or any other related derivatives. However, an
approved person of an equity specialist that has established and
obtained Exchange approval of procedures restricting the flow of
material, non-public market information between itself and the
specialist member organization pursuant to Rule 193, and any member,
officer, or employee associated therewith, may act in a market making
capacity, other than as a specialist in Partnership Units on another
market center, in the underlying asset or commodity, related futures or
options on futures, or any other related derivatives.

Commentary

    .01 In connection with the Partnership Units, Commentaries .01, .02
and .07 of Rule 170 shall not apply to the trading of Partnership Units
for the purpose of bringing the price of the Partnership Units into
parity with the value of the underlying investment, commodity or asset
on which the Partnership Units are based, with the net asset value of
the Partnership Units or with a futures contract on the underlying
investment, commodity or asset on which the Partnership Units are
based. Such transactions must be effected in a manner that is
consistent with the maintenance of a fair and orderly market and with
the other requirements of this rule and the supplementary material
herein.

Securities Accounts and Orders of Specialists

    Rule 1504. (a) The member organization acting as specialist in
Partnership Units is obligated to conduct all trading in the
Partnership Units in its specialist account, subject only to the
ability to have one or more investment accounts, all of which must be
reported to the Exchange (See Rule 170). In addition, the member
organization acting as specialist in the Partnership Units must file,
with the Exchange, in a manner prescribed by the Exchange, and keep
current a list identifying all accounts for trading the underlying
physical asset or commodity, related futures or options on futures, or
any other related derivatives, which the member organization acting as
specialist may have or over which it may exercise investment
discretion. No member organization acting as specialist in the
Partnership Units shall trade in the underlying physical asset or
commodity, related futures or options on futures, or any other related
derivatives, in an account in which a member organization acting as
specialist, directly or indirectly, controls trading activities, or has
a direct interest in the profits or losses thereof, which has not been
reported to the Exchange as required by this Rule.
    (b) In addition to the existing obligations under Exchange rules
regarding the production of books and records (See, e.g. Rule 31), the
member organization acting as a specialist in Partnership Units shall
make available to the Exchange such books, records or other information
pertaining to transactions by such entity or any member, member
organization, limited partner, officer or approved person thereof,
registered or non-registered employee affiliated with such entity for
its or their own accounts in the underlying physical asset or
commodity, related futures or options on futures, or any other related
derivatives, as may be requested by the Exchange.
    (c) In connection with trading the underlying physical asset or
commodity, related futures or options on futures or any other related
derivative (including Partnership Units), the specialist registered as
such in Partnership Units shall not use any material nonpublic
information received from any person associated with a member, member
organization or employee of such person regarding trading by such
person or employee in the physical asset or commodity, futures or
options on futures, or any other related derivatives.

Limitation on Exchange Liability

    Rule 1505. Neither the Exchange nor any agent of the Exchange shall
have any liability for damages, claims, losses or expenses caused by
any errors, omissions, or delays in calculating or disseminating any
underlying asset or commodity value, the current value of the
underlying asset or commodity if required to be deposited to the
partnership in connection with issuance of Partnership Units; net asset
value; or other information relating to the purchase, redemption or
trading of Partnership Units, resulting from any negligent act or
omission by the Exchange or any agent of the Exchange, or any act,
condition or cause beyond the reasonable control of the Exchange or its
agent, including, but not limited to, an act of God; fire; flood;
extraordinary weather conditions; war; insurrection; riot; strike;
accident; action of government; communications or power failure;
equipment or software malfunction; or any error, omission or delay in
the reports of transactions in an underlying asset or commodity.
* * * * *
    The revision to Sections 140 and 141 of the Amex Company Guide is
provided below. [Bracketing] indicates

text to be deleted and Italics indicate new text.

Original Listing Fees

    Section 140. Stock Issues--No Change.
    Issues Listed Under Section 106 (Currency and Index Warrants) and
Section 107
    (Other Securities)--No Change.
    Warrants--No Change.
    Bonds--No Change.
    Index Fund Shares, Trust Issued Receipts, Commodity-Based Trust
Shares, Currency Trust Shares, Partnership Units and Closed-End Funds--
The original listing fee for Index Fund Shares listed under Rule 1000A,
Trust Issued Receipts listed under Rule 1200, Commodity-Based Trust
Shares listed under Rule 1200A, Currency Trust Shares listed under Rule
1200B, Partnership Units listed under Rule 1500 and Closed-End Funds
listed under Section 101 of the Company Guide is $5,000 for each series
or Fund, with no application processing fee. The Board of Governors or
its designee may, in its discretion defer, waive or rebate all or any
part of the initial listing fee applicable to Closed-End Funds when
such funds transfer to the Amex from another marketplace.
    Special Shareholder Rights Plans--No Change.

Annual Fees

Sec. 141. Stock Issues; Issues Listed Under Sections 106 and 107; Rules
1200 (Trust Issued Receipts) and 1200A (Commodity-Based Trust Shares);
Rule 1200B (Currency Trust Shares); Rule 1500 (Partnership Units); and
Closed-End Funds

------------------------------------------------------------------------
        Shares or Units outstanding                     Fees
------------------------------------------------------------------------
5,000,000 shares (units) or less..........  $15,000
                                            (minimum)
5,000,001 to 10,000,000 shares (units)....  17,500
10,000,001 to 25,000,000 shares (units)...  20,000
25,000,001 to 50,000,000 shares (units)...  22,500
In excess of 50,000,000 shares (units)....  30,000
                                            (maximum)
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[The Board of Governors or its designee may, in its discretion, defer,
waive or rebate all or any part of the applicable annual listing fee
specified above excluding the fees applicable to issues listed under
Sections 106 and 107 and rule 1200 (Trust Issued Receipts); and Closed-
End Funds.]

    Issues Listed Under Rule 1000A (Index Fund Shares)--No Change.
    The annual fee is payable in January of each year and is based on
the total number of all classes of shares (excluding treasury shares)
and warrants according to information available on Exchange records as
of December 31 of the preceding year. (The above fee schedule also
applies to companies whose securities are admitted to unlisted trading
privileges.)
    In the calendar year in which a company first lists, the annual fee
will be prorated to reflect only that portion of the year during which
the security has been admitted to dealings and will be payable within
30 days of the date the company receives the invoice, based on the
total number of outstanding shares of all classes of stock at the time
of original listing.
    The annual fee for issues listed under Rule 1000A (Index Fund
Shares), [and] Rule 1200 (Trust Issued Receipts), Rule 1200A
(Commodity-Based Trust Shares), Rule 1200B (Currency Trust Shares), and
Rule 1500 (Partnership Units) is based upon the number of shares of a
series of Index Fund Shares, Trust Issued Receipts, [or] Commodity-
Based Trust Shares, Currency Trust Shares or Partnership Units
outstanding at the end of each calendar year. For multiple series of
Index Fund Shares issued by an open-end management investment company,
[or] for multiple series of Trust Issued Receipts and/or Commodity-
Based Trust Shares, for multiple series of Currency Trust Shares or for
multiple series of Partnership Units, the annual listing fee is based
on the aggregate number of shares in all series outstanding at the end
of each calendar year.
    The annual fee for a Closed-End Fund listed under Section 101 of
the Company Guide is based upon the number of shares outstanding of
such Fund at the end of each calendar year. For multiple Closed-End
Funds of the same sponsor, the annual listing fee is based on the
aggregate number of shares outstanding of all such Funds at the end of
each calendar year.
    Bond Issues--No Change.
    Late Fee--No Change.
    Note: No Change.

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Amex included statements
concerning the purpose of, and basis for, the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Amex has prepared summaries, set forth in sections
A, B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to add new Rules 1500 et seq. so that it may
list and/or trade units in a partnership that holds commodity-based or
linked investments. The Amex initially proposes to list and trade the
Units, which represent ownership of a fractional undivided beneficial
interest in the net assets of USOF. The assets of USOF will consist of
futures contracts for light, sweet crude oil and other petroleum based
fuels that are traded on the New York Mercantile Exchange (``NYMEX'')
or other U.S. and foreign exchanges (collectively, ``Oil Futures
Contracts'') and other oil interests, such as cash-settled options on
Oil Futures Contracts, forward contracts for oil, and OTC transactions
that are based on the price of oil, other petroleum-based fuels, and
indices based on the foregoing (collectively, ``Other Oil Interests'')
(Oil Futures Contracts and Other Oil Interests are collectively
referred to as ``Oil Interests''). USOF will also invest in short term
obligations of the United States Government (``Treasuries'') to be used
to satisfy its current or future margin and collateral requirements and
to otherwise satisfy its obligations with respect to its investments in
Oil Interests.
    The investment objective of the USOF is for its net asset value
(``NAV'') \6\ to reflect the performance of the spot price of West
Texas Intermediate light, sweet crude oil \7\ delivered to Cushing,
Oklahoma (the ``WTI light, sweet crude oil''),\8\ less the expense of
operation of

USOF. This ``neutral'' investment strategy, as stated by the Exchange,
is expected to cause the Unit price to track the price of WTI light,
sweet crude oil.
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    \6\ NAV is the total assets, less total liabilities of USOF,
determined on the basis of generally accepted accounting principles.
NAV per Unit is the NAV of USOF divided by the number of outstanding
Units.
    \7\ USOF will attempt to manage its investments so that its NAV
closely tracks the price of the NYMEX traded near-month (i.e., spot
month) future contract for delivery of West Texas Intermediate
light, sweet crude oil.
    \8\ The types of crude oil are typically described by a
combination of their physical attributes and their place of origin.
A few of these types of crude oil are widely traded and their prices
serve as benchmarks in determining the spot and forward prices of
the other types of crude oil. The three most important types of
crude oil that are used as benchmarks are the light, sweet crude
from the United States known as ``West Texas Intermediate,'' a
light, sweet crude from Europe's North Sea known as ``Brent Crude,''
and a medium crude oil from the Middle East known as ``Dubai
Crude.'' These three types of crude oil are the ones used most
frequently in the trading of listed futures contracts, listed
options, and non-exchange listed derivative contracts based on crude
oil.
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    The Exchange states that WTI light, sweet crude oil is the world's
most actively-traded commodity, and the markets for oil and financial
instruments based on WTI light, sweet crude oil are well-developed,
liquid, and efficient. An investment in the Units will allow both
retail and institutional investors to easily gain exposure to the crude
oil market in a cost-effective manner. In addition, the Exchange states
that the Units are also expected to provide additional means for
diversifying an investor's investments or hedging exposure to changes
in oil prices.
    In January 2005, the Commission approved Exchange rules (Amex Rule
1200A et seq.) for the listing and trading of Commodity-Based Trust
Shares.\9\ Commodity-Based Trust Shares are trust issued receipts
(``TIRs'') based on the value of an underlying commodity or index of
commodities held by a trust.\10\ Because of USOF's structure as a
partnership and the nature of its investments, the current Commodity-
Based Trust Shares rules (Amex Rules 1200A et seq.) do not specifically
permit the Exchange to list this product.\11\ This proposal seeks to
expand the ability of the Exchange to list and/or trade securities
based on a portfolio of underlying investments that may not be
``securities'' in circumstances where the issuer is a partnership,
organized as a commodities pool under the CEA.
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    \9\ See Securities Exchange Act Release No. 51058 (January 19,
2005), 70 FR 3749 (January 26, 2005).
    \10\ See Securities Exchange Act Release No. 51446 (March 29,
2005), 70 FR 17272 (April 5, 2005). The Exchange listed and traded
the iShares(r) COMEX Gold Trust under Amex Rule 1200A as the first
Commodity Based Trust Share. Recently, the Exchange commenced the
trading of shares of the streetTRACKS(r) Gold Trust (GLD) pursuant
to Amex Rule 1000B on an unlisted trading privileges (``UTP'')
basis. See also Securities Exchange Act Release No. 53105 (January
11, 2006), 71 FR 3129 (January 19, 2006) (order approving listing
and trading of DB Commodity Index Tracking Fund).
    \11\ As noted above, the Commission has permitted the listing
and trading of products linked to the performance of an underlying
commodity or commodities. See Securities Exchange Act Release Nos.
51058 (January 19, 2005), 70 FR 3749 (January 26, 2005) (approving
the listing and trading of iShares(r) COMEX Gold Trust); 50603
(October 28, 2004), 69 FR 64614 (November 5, 2004) (approving the
listing and trading of streetTRACKS(r) Gold Shares); 39402 (December
4, 1997), 62 FR 65459 (December 12, 1997) (approving the listing and
trading of commodity index preferred or debt securities (ComPS) on
various agricultural futures contracts and commodities indexes);
36885 (February 26, 1996), 61 FR 8315 (March 4, 1996) (approving the
listing and trading of ComPS linked to the value of single
commodity); 35518 (March 21, 1995), 60 FR 15804 (March 27, 1995)
(approving the listing and trading of commodity indexed notes or
COINs); and 43427 (October 10, 2000), 65 FR 62783 (October 19, 2000)
(approving the listing and trading of inflation indexed securities).
See also Central Fund of Canada (Registration No. 033-15180)
(closed-end fund listed and traded on the Amex that invests in gold)
and Salomon Phibro Oil Trust (Registration No. 033-33823) (trust
units listed and traded on the Amex that held the right to a forward
contract for the delivery of crude oil).
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    Under proposed Amex Rule 1501, the Exchange would be able to list
and trade the Units issued by USOF. For units issued by other
commodity-based partnerships or other types of units issued by USOF, if
any, the Exchange will submit a filing pursuant to Section 19(b) of the
Act, subject to the review and approval of the Commission. The Exchange
submits that the Units will conform to the initial and continued
listing criteria under proposed Amex Rule 1502.\12\
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    \12\ Proposed Amex Rule 1502 for listing the Units is
substantially similar to current Amex Rule 1202A relating to
Commodity-Based Trust Shares. As set forth in the section ``Initial
and Continued Listing'' of proposed Amex Rule 1502, the Exchange
expects the minimum number of Units required to be outstanding at
the time of trading to be 100,000. This section of the proposed rule
specifically details the initial and continued listing standards for
the Units.
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Description of the Oil Market

    The Exchange states that crude oil is the world's most actively
traded commodity. The Oil Futures Contracts for light, sweet crude oil
that are traded on the NYMEX are the world's most liquid forum for
crude oil trading, as well as the most liquid futures contracts on a
physical commodity. Due to the liquidity and price transparency of Oil
Futures Contracts, they are used as a principal international pricing
benchmark. Oil Futures Contracts for WTI light, sweet crude oil trade
on the NYMEX in units of 1,000 U.S. barrels (42,000 gallons) and, if
not closed out before maturity, will result in delivery of the oil to
Cushing, Oklahoma, which is also accessible to the world market by two
major interstate petroleum pipeline systems.\13\ USOF will primarily
purchase WTI light, sweet crude Oil Futures Contracts traded on the
NYMEX, but may also purchase Oil Futures Contracts on other exchanges,
including the Intercontinental Exchange, formerly known as the
International Petroleum Exchange (``ICE Futures'') and the Singapore
Oil Exchange.\14\ In total, therefore, Oil Futures Contracts for light,
sweet crude oil provide for delivery of several grades of domestic and
internationally traded foreign crude oils, which makes them a hedging
and trading instrument for the international oil industry, and they
serve the diverse needs of the physical market.
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    \13\ In practice, few Oil Futures Contracts result in delivery
of the underlying oil.
    \14\ The Commission would expect the Exchange to have entered
into the appropriate comprehensive surveillance sharing arrangements
with such exchanges. Telephone conversation between Jeffrey Burns,
Senior Associate General Counsel, Amex, Florence Harmon, Senior
Special Counsel, Division, Commission and Johnna B. Dumler,
Attorney, Division, Commission, on February 13, 2006.
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    The price of crude oil is established by the supply and demand
conditions in the global market overall, and more particularly, in the
main refining centers: Singapore, Northwest Europe, and the U.S. Gulf
Coast. These oil markets essentially constitute a global auction--the
highest bidder will win the supply. When markets are ``strong'' (when
demand is high and/or supply is low), a bidder must be willing to pay a
higher premium to capture the supply. When markets are ``weak'' (demand
low and/or supply high), a bidder may choose not to outbid competitors,
waiting instead for later, possibly lower priced, supplies. NYMEX is
the world's largest physical commodity futures exchange and the
dominant market for the trading of energy and precious metals.
    Demand for petroleum products by consumers, as well as
agricultural, manufacturing and transportation industries, determines
demand for crude oil by refiners. The Exchange states that since the
precursors of product demand are linked to economic activity, crude oil
demand will tend to reflect economic conditions. However, other factors
such as weather also influence product and crude oil demand.
    Crude oil supply is determined by both economic and political
factors. Oil prices (along with drilling costs, availability of
attractive prospects for drilling, taxes and technology) determine
exploration and development spending, which influence output capacity
with a lag. In the short run, production decisions by the Organization
of Petroleum Exporting Countries (``OPEC'') also affect supply and
prices. Oil export embargoes and the current conflicts in Iraq
represent other routes through which political developments move the
market.
    Oil prices are a result of thousands of transactions taking place
simultaneously around the world, at all levels of the distribution.
Contract arrangements in the oil market cover most oil that changes
hands. Oil is also sold in ``spot transactions,'' that is, cargo-by-
cargo, transaction-by-transaction arrangements. In addition,

oil is traded in the futures markets. Both spot markets and futures
markets provide critical price information for contract markets.
    The Exchange states that prices in spot markets send a clear signal
about the supply/demand balance. Rising prices indicate that more
supply is needed, and falling prices indicate that there is too much
supply for the prevailing demand level. Furthermore, while most oil
flows under contract, its price varies with the spot markets. Futures
markets also provide information about the physical supply/demand
balance as well as the market's expectations.
    Additional underlying influences in the supply/demand balance, and
hence in price fluctuations, include seasonal swings, level of
inventories, regional cost differences, transportation and storage
costs, and ease of refining. With regard to the refining process,
light, sweet crude oil is preferred by refiners because of the low
sulfur content and relatively high yields of high-value products such
as gasoline, diesel fuel, heating oil and jet fuel. The denser crude
oils require additional processing to produce the desired range of
products.

Domestic Oil

    The price of WTI light, sweet crude oil has historically exhibited
periods of significant volatility. The spot price per barrel price of
WTI light, sweet crude oil during the period January 1995 through
November 2005, ranged from a high of $70.85 in August 2005 to a low of
$10.35 in December 1998. As of December 2, 2005, the spot price per
barrel was $59.32 per barrel.\15\ The WTI light, sweet crude oil
contract, listed and traded at the NYMEX trades in units of 42,000
gallons (1,000 barrels). Annual daily contract volume on the NYMEX from
2001 through October 2005 was 149,028, 182,718, 181,748, 212,382 and
242,262, respectively.
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    \15\ Amex clarified that quantitative references in this
paragraph were intended to reflect the per barrel price. Telephone
conversation between Jeffrey Burns, Senior Associate General
Counsel, Amex, and Florence Harmon, Senior Special Counsel,
Division, Commission and Johnna B. Dumler, Attorney, Division,
Commission, on February 8, 2006.
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International Oil

    In Europe, Brent crude oil is the standard for futures contracts
traded on the ICE Futures, an electronic marketplace for energy trading
and price discovery. Brent crude oil is the price reference for two-
thirds of the world's traded oil. The spot price per barrel price of
Brent crude oil during the period January 1995 through November 2005,
ranged from a high of $68.89 in August 2005 to a low of $9.55 in
December 1998. As of December 2, 2005, the spot price per barrel was
$55.58. Annual daily contract volume on the ICE Futures from 2001
through October 2005 was 74,011, 86,499, 96,767, 102,361 and 120,695
respectively.\16\
---------------------------------------------------------------------------

    \16\ See supra note 15.
---------------------------------------------------------------------------

Heating Oil

    Heating oil, also known as No. 2 fuel oil, accounts for 25% of the
yield of a barrel of crude oil, the second largest ``cut'' from oil
after gasoline. The heating oil futures contracts, listed and traded at
the NYMEX, trade in units of 42,000 gallons (1,000 barrels) and are
based on delivery in New York harbor, the principal cash market center.
The price of heating oil is volatile. The price of heating oil during
the period January 1995 through November 2005, ranged from a high of
$221.00 per barrel in September 2005 to a low of $29.20 in February
1999. As of December 2, 2005, the spot price per barrel was $166.47.
Annual daily contract volume on the NYMEX from 2001 through October
2005 was 41,710, 42,781, 46,327, 51,745 and 52,334, respectively.\17\
---------------------------------------------------------------------------

    \17\ See supra note 15.
---------------------------------------------------------------------------

Natural Gas

    Natural gas accounts for almost a quarter of U.S. energy
consumption. The natural gas futures contracts, listed and traded on
the NYMEX, trade in units of 10,000 million British Thermal Units
(``BTUs'') and are based on delivery at the Henry Hub in Louisiana, the
nexus of 16 intra- and inter-state natural gas pipeline systems that
draw supplies from the region's prolific gas deposits. The pipelines
serve markets throughout the U.S. East Coast, the Gulf Coast, the
Midwest, and up to the Canadian border. The price of natural gas is
volatile.
    The price of natural gas (in BTUs) during the period January 1995
through November 2005, ranged from a high of $14.75 in October 2005 to
a low of $1.25 in January 1995. As of December 2, 2005, the spot price
per BTU was $12.56. Annual daily contract volume on the NYMEX from 2001
through October 2005 was 47,457, 97,431, 76,148, 70,048 and 77,149,
respectively.

Gasoline

    Gasoline is the largest single volume refined product sold in the
U.S. and accounts for almost half of the national oil consumption. The
natural gas futures contracts, listed and traded on the NYMEX, trade in
units of 42,000 gallons (1,000 barrels) and are based on delivery at
petroleum products terminals in the New York harbor, the major East
Coast trading center for imports and domestic shipments from refineries
in the New York harbor area or from the Gulf Coast refining centers.
The price of gasoline is volatile.
    The per gallon price of gasoline during the period January 1995
through November 2005, ranged from a high of $2.92 in August 2005 to a
low of $0.3258 in November 1998. As of December 2, 2005, the spot price
per gallon was $2.124. Annual daily contract volume on the NYMEX from
2001 through October 2005 was 38,033, 43,919, 44,688, 51,315 and
53,577, respectively.\18\
---------------------------------------------------------------------------

    \18\ See supra note 15.
---------------------------------------------------------------------------

Futures Regulation
    The CEA \19\ governs the regulation of commodity interest
transactions, markets, and intermediaries. The Exchange states that the
CEA, as amended by the Commodity Futures Modernization Act of 2000
(``CFMA''),\20\ requires commodity futures exchanges to have rules and
procedures to prevent market manipulation, abusive trade practices, and
fraud. The Commodity Futures Trading Commission (``CFTC'') administers
the CEA and conducts regular review and inspection of the futures
exchanges' enforcement programs.
---------------------------------------------------------------------------

    \19\ 7 U.S.C. 1 et seq.
    \20\ Pub. L. No. 106-554, 114 Stat. 2763 (2000).
---------------------------------------------------------------------------

    The CEA provides for varying degrees of regulation of commodity
interest transactions, depending upon the variables of the transaction.
In general, these variables include (1) the type of instrument being
traded (e.g., contracts for future delivery, options, swaps, or spot
contracts); (2) the type of commodity underlying the instrument
(distinctions are made between instruments based on agricultural
commodities, energy and metals commodities, and financial commodities);
(3) the nature of the parties to the transaction (retail, eligible
contract participant, or eligible commercial entity); (4) whether the
transaction is entered into on a principal-to-principal or
intermediated basis; (5) the type of market on which the transaction
occurs; and (6) whether the transaction is subject to clearing through
a clearing organization.
    The Exchange states that the function of the CFTC is to implement
the objectives of the CEA of preventing price manipulation and other
disruptions to market integrity, avoiding

systemic risk, preventing fraud, and promoting innovation, competition
and financial integrity of transactions. Among other things, the CEA
provides that the trading of commodity interest contracts generally
must be upon exchanges designated as contract markets or derivatives
transaction execution facilities and that all trading on those
exchanges must be done by or through exchange members. Commodity
interest trading between sophisticated persons may be traded on a
trading facility not regulated by the CFTC. As a general matter, the
Exchange states that trading in spot contracts, forward contracts,
options on forward contracts or options on commodities, or swap
contracts between eligible contract participants is not within the
jurisdiction of the CFTC and may therefore be effectively unregulated.
    Non-U.S. futures exchanges differ in certain respects from their
U.S. counterparts. Importantly, non-U.S. futures exchanges are not
subject to regulation by the CFTC, but rather are regulated by their
home country regulator. In contrast to U.S. designated contract
markets, some non-U.S. exchanges are principals' markets, where trades
remain the liability of the traders involved, and the exchange or an
affiliated clearing organization, if any, does not become substituted
for any party. Due to the absence of a clearing system, the Exchange
states that such exchanges are significantly more susceptible to
disruptions. Further, participants in such markets must often satisfy
themselves as to the individual creditworthiness of each entity with
which they enter into a trade. Trading on non-U.S. exchanges is often
in the currency of the exchange's home jurisdiction. Consequently, USOF
may be subject to the additional risk of fluctuations in the exchange
rate between such currencies and U.S. dollars and the possibility that
exchange controls could be imposed in the future.
    The CFTC and U.S. designated contract markets have established
limits or position accountability rules (i.e., speculative position
limits or position limits) on the maximum net long or net short
speculative position that any person or group of persons under common
trading control (other than a hedger) may hold, own, or control in
commodity interests. Among the purposes of speculative position limits
is to prevent a corner or squeeze on a market or undue influence on
prices by any single trader or group of traders.
    Most U.S. futures exchanges limit the amount of fluctuation in some
futures contracts or options on futures contract prices during a single
trading session.\21\ These regulations specify what are referred to as
daily price fluctuation limits (i.e., daily limits). The daily limits
establish the maximum amount that the price of a futures contract or
options on a futures contract may vary either up or down from the
previous day's settlement price. Once the daily limit has been reached
in a particular futures contract or options on a futures contract, no
trades may be made at a price beyond the limit.
---------------------------------------------------------------------------

    \21\ Amex clarified that this sentence was intended to reflect
the limits on the amount of fluctuation during a single trading
session. Telephone conversation between Jeffrey Burns, Senior
Associate General Counsel, Amex, Florence Harmon, Senior Special
Counsel, Division, Commission and Johnna B. Dumler, Attorney,
Division, Commission, on February 8, 2006.
---------------------------------------------------------------------------

    The Exchange states that commodity prices are volatile and,
although ultimately determined by the interaction of supply and demand,
are subject to many other influences, including the psychology of the
marketplace and speculative assessments of future world and economic
events. Political climate, interest rates, treaties, balance of
payments, exchange controls and other governmental interventions, as
well as numerous other variables, affect the commodity markets, and
even with complete information it is impossible for any trader to
reliably predict commodity prices.
    The CFTC also possesses exclusive jurisdiction to regulate the
activities of Commodity Pool Operators (``CPOs'') and has adopted
regulations with respect to the activities of those persons and/or
entities.\22\
---------------------------------------------------------------------------

    \22\ See Part 4 of CFTC Regulation, 17 CFR Section 4.1 et al. A
COP is any person engaged in a business that is of the nature of an
investment trust, syndicate, or similar form of 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 on or subject to the rules of any contract market or
derivatives transaction execution facility, except that the term
does not include such persons not within the intent of the
definition of the term as the CFTC may specify by rule, regulation,
or order.
---------------------------------------------------------------------------

    A portion of USOF's assets may be employed to enter into OTC
transactions based on oil. OTC transactions are subject to little, if
any, regulation. OTC contracts are typically traded on a principal-to-
principal basis through dealer markets that are dominated by the major
money centers and investment banks and other institutions and are
essentially unregulated by the CFTC. In connection with the trading of
OTC instruments, USOF will not receive the protection of CFTC
regulation or the CEA. The markets for OTC contracts rely upon the
integrity of market participants, as well as contractual margin
payments, collateral and/or credit supports in lieu of additional
regulation that is imposed by the CFTC on the futures markets.
Structure and Regulation of USOF
    USOF, a Delaware limited partnership formed in May of 2005, is a
commodity pool that will invest in Oil Interests.\23\ It is operated by
Victoria Bay Asset Management, LLC, a single member Delaware limited
liability company (the ``General Partner'' or ``Victoria Bay'') which
is wholly owned by Wainwright Holdings, Inc. The General Partner was
formed for the specific purpose of managing and controlling USOF and
has registered as a CPO with the CFTC and has become a member of the
National Futures Association (``NFA'').\24\ As a CPO, the General
Partner must comply with numerous provisions of the CEA and the rules
and regulations thereunder, including provisions that require adequate
disclosure to investors of the risks of investing in a commodity pool
managed by the CPO, and provisions designed to protect investors from
fraud. Both the CFTC and the NFA perform regular, periodic inspections
of their members.
---------------------------------------------------------------------------

    \23\ The Exchange states that USOF is not an investment company
as defined in Section 3(a) of the Investment Company Act of 1940.
    \24\ Telephone conversation between Jeffrey Burns, Senior
Associate General Counsel, Amex, Florence Harmon, Senior Special
Counsel, Division, Commission and Johnna B. Dumler, Attorney,
Division, Commission, on February 15, 2006.
---------------------------------------------------------------------------

    Information regarding USOF and the General Partner, as well as
detailed descriptions of the manner in which the Units will be offered
and sold, and the investment strategy of USOF, are included in the
registration statement regarding the offering of the Units filed with
the Commission under the 1933 Act.\25\
---------------------------------------------------------------------------

    \25\ See Pre-Effective Amendment No. 4 to Form S-1 filed with
the Commission on January 19, 2006 (File No. 333-124950). Telephone
conversation between Jeffrey Burns, Senior Associate General
Counsel, Amex, Florence Harmon, Senior Special Counsel, Division,
Commission and Johnna B. Dumler, Attorney, Division, Commission, on
February 13, 2006 (changing reference from Amendment No. 3 to
Amendment No. 4 to Form S-1).
---------------------------------------------------------------------------

Clearing Broker

    ABN AMRO, the clearing broker (``Clearing Broker''), is registered
with the CFTC as a futures commission merchant (``FCM''). The Clearing
Broker will execute and clear USOF's futures contract transactions,
hold the margin related to its Oil Futures Contracts investments, and
perform certain administrative services for USOF. USOF

may use other FCMs as its investments increase or as may be required to
trade particular Oil Interests.

Administrator and Custodian

    Under separate agreements with USOF, Brown Brothers Harriman & Co.,
a registered broker-dealer under the Act,\26\ will serve as USOF's
administrator, registrar, transfer agent, and custodian for USOF (the
``Administrator'' or ``Custodian''). The Administrator will perform or
supervise the performance of services necessary for the operation and
administration of USOF. These services include, but are not limited to,
investment accounting, financial reporting, broker and trader
reconciliation, calculation of the NAV, and valuation of Treasuries
used to purchase or redeem Units and other USOF assets or liabilities.
As Custodian, it will receive payments to USOF from purchasers of
Creation Baskets and will make payments to Sellers for Redemption
Baskets, as described below, and will hold the Treasuries and cash of
USOF, as well as collateral posted by USOF's derivatives
counterparties, and will make transfers of margin and collateral with
respect to USOF's investments to and from its FCMs or counterparties.
---------------------------------------------------------------------------

    \26\ Telephone conversation between Jeffrey Burns, Senior
Associate General Counsel, Amex, Florence Harmon, Senior Special
Counsel, Division, Commission and Johnna B. Dumler, Attorney,
Division, Commission, on February 15, 2006.
---------------------------------------------------------------------------

Marketing Agent

    ALPS Distributors, Inc., a registered broker-dealer under the
Act,\27\ will be the marketing agent for USOF (``Marketing Agent'').
The Marketing Agent, on behalf of USOF, will continuously offer
Creation and Redemption Baskets and will receive and process orders
from Authorized Purchasers (as defined below) and coordinate the
processing of orders for the creation or redemption of Units with the
General Partner and the Depository Trust Company (``DTC'').
---------------------------------------------------------------------------

    \27\ See id.
---------------------------------------------------------------------------

Investment Strategy

    USOF will pursue its investment objective by investing its assets
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 those investments. USOF will attempt to
manage its investments so that its NAV closely tracks the price of a
specified Oil Futures Contract (the ``Benchmark Oil Futures Contract'')
that the General Partner believes has historically exhibited a close
price correlation with the spot price of WTI light, sweet crude oil.
Currently, the Benchmark Oil Futures Contract is the NYMEX traded near-
month (i.e., spot month) futures contract for delivery of WTI light,
sweet crude oil.\28\ In connection with tracking the price of the
Benchmark Oil Futures contract, the General Partner will endeavor to
place USOF's trades in Oil Futures Contracts and Other Oil Interests
and otherwise manage USOF's investments so that ``A'' will be within +/
-10 percent of ``B'', where:
---------------------------------------------------------------------------

    \28\ The Exchange will file a Form 19b-4 to obtain Commission
approval for the continued listing and trading of the Units should
the General Partner change the Benchmark Oil Futures Contract from
this NYMEX WTI light, sweet crude oil futures contract. Telephone
conversation between Jeffrey Burns, Senior Associate General
Counsel, Amex, Florence Harmon, Senior Special Counsel, Division,
Commission and Johnna B. Dumler, Attorney, Division, Commission, on
February 13, 2006.
---------------------------------------------------------------------------

     A is the average daily change in USOF's NAV for any period
of 30 successive valuation days, i.e., any day as of which USOF
calculates its NAV; and
     B is the average daily change in the price of the
Benchmark Oil Futures Contract over the same period.
    Therefore, USOF's investment objective is to manage its assets so
that the average daily change in the NAV for any period of 30
successive valuation days will be within 10% of the average daily
change in the price of the Benchmark Oil Futures Contract over the same
period.\29\
---------------------------------------------------------------------------

    \29\ Telephone conversation between Jeffrey Burns, Senior
Associate General Counsel, Amex, Florence Harmon, Senior Sepcial
Counsel, Division, Commission and Johnna B. Dumler, Attorney,
Division, Commission, on February 13, 2006.
---------------------------------------------------------------------------

    The Exchange believes that market arbitrage opportunities should
cause USOF's Unit price to closely track USOF's per Unit NAV which is
targeted at the current Benchmark Oil Futures Contract. The price of
the Benchmark Oil Futures Contract has closely tracked the spot price
of WTI light, sweet crude oil over time.\30\ Accordingly, the General
Partner expects that the price of USOF's Units on the Exchange will
closely track the spot price of a barrel of WTI light, sweet crude oil,
less USOF's expenses.
---------------------------------------------------------------------------

    \30\ See Exhibit A attached to the Form 19b-4 filed by the
Exchange, showing the tracking of the Benchmark Oil Futures Contract
and the WTI spot price.
---------------------------------------------------------------------------

Investments
    USOF believes that it will be able to use a combination of Oil
Futures Contracts and Other Oil Interests to manage the portfolio to
achieve its investment objective of tracking the price of the Benchmark
Oil Futures Contract. USOF further anticipates that the exact mix of
Oil Futures Contracts and Other Oil Interests held by the portfolio
will vary over time depending on, among over things, the amount of
invested assets in the portfolio, price movements of oil, the rules and
regulations of the various futures and commodities exchanges and
trading platforms that deal in Oil Interests, and innovations in the
Oil Interests marketplace including both the creation of new Oil
Interest investment vehicles and the creation of new trading venues
that trade in Oil Interests. USOF's total portfolio composition will be
disclosed, each business day that the Amex is open for trading, on its
Web site at http://www.unitedstatesoilfund.com and/or the Exchange's Web site at http://www.amex.com. USOF expects that Web site disclosure

of portfolio holdings will be made daily and will include, as
applicable, the name and value of each Oil Interest, the specific types
of Other Oil Interests and characteristics of such Other Oil Interests,
Treasuries and amount of cash held in the portfolio of USOF.

Oil Futures Contracts

    The principal Oil Interests to be invested in by USOF are Oil
Futures Contracts. USOF expects to purchase Oil Futures Contracts
traded on the NYMEX on the WTI light, sweet crude oil. USOF may also
purchase Oil Futures Contracts traded on NYMEX based on Brent crude
oil.\31\ Brent crude oil futures contracts are also listed on the ICE
Futures. In addition to the commodities and futures exchanges in New
York and London, several other established futures exchanges currently
offer, or have announced plans to offer, trading in futures contracts
on light, medium, or heavy crude oils, including exchanges in
Singapore, Tokyo, Shanghai and Dubai.\32\
---------------------------------------------------------------------------

    \31\ Brent crude oil is the price reference for two-thirds of
the world's traded oil.
    \32\ See note 14, supra. The Exchange has represented that the
USOF will only purchase Oil Futures Contracts on markets where the
Exchange has entered into the appropriate comprehensive surveillance
sharing arrangements. See note 49, infra.
---------------------------------------------------------------------------

    As noted above, the NYMEX Oil Futures Contracts for WTI light,
sweet crude oil have historically closely tracked the investment
objective of USOF over both the short-term, medium-term, and the long-
term. For that reason, USOF anticipates making significant investments
in the current Benchmark Oil Futures Contract. The General Partner
submits that Other Oil Futures Contracts, such as the Brent crude oil
futures contract traded on the NYMEX and ICE Futures, the Dubai

crude oil futures contract traded in Singapore and elsewhere, and other
NYMEX petroleum-based futures contracts such as heating oil and
gasoline,\33\ have also tended to track the investment objective of
USOF, though not as closely as the NYMEX light, sweet crude (WTI) oil
futures contract.\34\
---------------------------------------------------------------------------

    \33\ USOF may also invest in futures contracts traded on the
NYMEX that are based on gasoline and heating oil. Gasoline is the
largest single volume refined product sold in the U.S. and accounts
for almost half of national oil consumption. Heating oil accounts
for 25% of the yield of a barrel of crude oil, the second largest
``cut'' from oil after gasoline.
    \34\ See Exhibit B attached to the Form 19b-4 filed by the
Exchange, tracking the NYMEX futures contracts on light, sweet crude
oil, heating oil, natural gas and gasoline from November 17, 1995 to
November 11, 2005.
---------------------------------------------------------------------------

Other Oil Interests

    In addition to Oil Futures Contracts, there are also a number of
listed options on Oil Futures Contracts on the principal commodities
and futures exchanges. These option contracts offer investors and
hedgers another vehicle for managing exposure to the crude oil market.
USOF may purchase oil-related listed options on these exchanges in
pursuing its investment objective.
    In addition to the Oil Futures Contracts and related listed
options, there also exists an active OTC market in derivatives linked
to crude oil. These OTC derivative transactions are privately-
negotiated agreements between two parties. Unlike most of the exchange-
traded Oil Futures Contracts or related options, each party to an OTC
contract bears the credit risk that the counterparty may not be able to
perform its obligations.
    Some oil-based derivatives transactions contain fairly generic
terms and conditions and are available from a wide range of
participants. Other oil-based derivatives have highly customized terms
and conditions and are not as widely available. Many of these OTC
contracts are cash-settled forwards for the future delivery of oil-or
petroleum-based fuels that have terms similar to the Oil Futures
Contracts. Others take the form of ``swaps'' in which the two parties
exchange cash flows based on pre-determined formulas tied to the price
of oil as determined by the spot, forward, or futures markets. USOF may
enter into OTC derivative contracts whose value will be tied to changes
in the difference between the WTI spot price, the price of Oil Futures
Contracts traded on NYMEX, and the prices of non-NYMEX Oil Futures
Contracts that may be invested in by USOF.
    To protect itself from the credit risk that arises in connection
with such contracts, USOF will enter into agreements with each
counterparty that provide for the netting of its overall exposure to
its counterparty and/or provide collateral or other credit support to
address USOF's exposure.\35\ The counterparties to an OTC contract will
generally be major broker-dealers and banks or their affiliates, though
certain institutions, such as large energy companies or other
institutions active in oil commodities markets, may also be
counterparties. The creditworthiness of each potential counterparty
will be assessed by the General Partner. The General Partner will
assess or review, as appropriate, the creditworthiness of each
potential or existing counterparty to an OTC contract pursuant to
guidelines approved by the General Partner's Board of Directors.
Furthermore, the General Partner on behalf of USOF will only enter into
OTC contracts with (a) members of the Federal Reserve System or foreign
banks with branches regulated by the Federal Reserve Board; (b) primary
dealers in U.S. government securities; (c) broker-dealers; (d)
commodities futures merchants; or (e) affiliates of the foregoing.
Existing counterparties will also be reviewed periodically by the
General Partner.
---------------------------------------------------------------------------

    \35\ The agreements published by the International Swap and
Derivatives Association (``ISDA'') and used extensively in the OTC
derivatives market provides ``netting'' provisions. As discussed
above, USOF's total portfolio composition will be disclosed, each
business day that the Amex is open for trading, on its Web site at
http://www.unitedstatesoilfund.com and/or the Exchange's Web site at

http://www.amex.com, with a valuation assigned to these instruments.

---------------------------------------------------------------------------

    USOF anticipates that the use of Other Oil Interests, together with
its investments in Oil Futures Contracts, will produce price and total
return results that closely track the investment objective of USOF.\36\
---------------------------------------------------------------------------

    \36\ See ``Investment Strategy,'' supra.
---------------------------------------------------------------------------

Treasuries and Cash

    USOF will invest virtually all of its assets not invested in Oil
Interests in Treasuries, currently anticipated to be those securities
with a remaining maturity of two years or less. The Treasuries and any
cash will be available to be used to meet USOF's current or potential
margin and collateral requirements with respect to its investments in
Oil Interests. USOF will not use Treasuries as margin for new
investments unless it has a sufficient amount of Treasuries and cash to
meet the margin or collateral requirements that may arise due to
changes in the value of its currently held Oil Interests. Other than in
connection with a redemption of Units, USOF does not intend to
distribute cash or property to its Unit holders. Interest earned on
Treasuries and cash held by USOF will be retained by it to pay its
expenses, to make investments to satisfy its investment objectives, or
to satisfy its margin or collateral requirements.

Impact of Speculative Position Limits

    As stated above, the CFTC and U.S. designated contract markets such
as the NYMEX have speculative position limits or position limits on the
maximum net long or net short speculative position that any person or
group of persons under common trading control (other than a hedger) may
hold, own, or control in commodity interests.\37\
---------------------------------------------------------------------------

    \37\ Similarly, most U.S. futures exchanges also have ``daily
limits'' to limit the amount of fluctuation in the prices of some
futures contracts or options on futures contracts during a single
trading day. See ``Futures Regulation,'' supra.
---------------------------------------------------------------------------

    The foregoing speculative position limits will impact the mix of
investments in Oil Interests by USOF, with such mix varying depending
on the level of assets held by USOF. The following example illustrates
how the mix will vary as assets increase, assuming the spot price of
WTI light, sweet crude oil remains the same: Assuming the spot price
for WTI light, sweet crude oil and the Unit price were each $60, USOF
anticipates that it would invest the first $300 million of its daily
net assets only in Oil Futures Contracts. The majority of those
contracts will consist of the current Benchmark Oil Futures Contract.
At this level, USOF could purchase 5,000 of such contacts or 25% of the
NYMEX's speculative position limit for such contracts. When daily net
assets exceed $300 million, USOF anticipates that it will invest the
majority of its assets above that amount in the current Benchmark Oil
Futures Contract with the balance of its net assets being invested in a
mix of other Oil Futures Contracts, such as the Brent crude oil futures
contract as traded on NYMEX or the ICE Futures, and other Oil
Interests. At this level, USOF anticipates that it would also invest in
various OTC derivative contracts to hedge the short-term price
movements of Oil Futures Contracts against the current Benchmark Oil
Futures Contract.
    Once the daily net assets of the portfolio exceed approximately
$1.2 billion, USOF anticipates that a majority of all further
investments will be made in Oil Futures Contracts other than the
current Benchmark Oil Futures Contract and in Other Oil Interests. Oil
Futures

Contracts other than the current Benchmark Oil Futures Contract, would
be purchased on the NYMEX and on other futures and commodities
exchanges, including non-U.S. exchanges such as the ICE Futures.
    USOF anticipates that once the daily net assets of the portfolio
exceed approximately $2.4 billion, the ability of the portfolio to
invest in additional current Benchmark Oil Futures Contracts may be
sharply limited due to speculative position limit rules in effect on
the NYMEX. Assuming the current Benchmark Oil Futures Contract is at
the same price level and half of the USOF's assets were then fully
invested in such contracts ($1.2 billion), the current NYMEX position
limits for such contracts (20,000 contracts) would be met. Under that
scenario, all additional investments above the $2.4 billion level would
be required to be invested in other Oil Future Contracts and Other Oil
Interests. USOF anticipates that at or above the $2.4 billion daily net
asset level, the majority of the total portfolio holdings will be in
other Oil Futures Contracts or Other Oil Interests.
The Markets for USOF Units
    There will be two markets for investors to purchase and sell Units.
New issuances of the Units will be made only in baskets of 100,000
Units or multiples thereof (a ``Basket''). USOF will issue and redeem
Baskets of the Units on a continuous basis, by or through participants
who have entered into authorized purchaser agreements (``Authorized
Purchaser Agreement'' and each such participant, an ``Authorized
Purchaser'')\38\ with the General Partner, at the NAV per Unit next
determined after an order to purchase the Units in a Basket is received
in proper form. Baskets may be issued and redeemed on any Business day
(defined as any day other than a day on which the Amex, the NYMEX or
the New York Stock Exchange is closed for regular trading) through the
Marketing Agent in exchange for cash and/or Treasuries, which the
Custodian receives from Authorized Purchasers or transfers to
Authorized Purchasers, in each case on behalf of USOF. Baskets are then
separable upon issuance into identical Units that will be listed and
traded on the Exchange.\39\
---------------------------------------------------------------------------

    \38\ An ``Authorized Purchaser'' is a person, who at the time of
submitting to the General Partner an order to create or redeem one
or more Baskets: (i) is a registered broker-dealer or other market
participants, such as banks and other financial institutions, that
are exempt from broker-dealer registration; (ii) is a DTC
Participant; and (iii) has in effect a valid Authorized Participant
Agreement Telephone conversation between Jeffrey Burns, Senior
Associate General Counsel, Amex, Florence Harmon, Senior Special
Counsel, Division, Commission and Johnna B. Dumler, Attorney,
Division, Commission, on February 13, 2006 (clarifying that the
reference to ``trustee'' in this sentence should be changed to
``General Partner'').
    \39\ The Exchange expects that the number of outstanding Units
will increase and decrease as a result of creations and redemptions
of Baskets.
---------------------------------------------------------------------------

    The Units will thereafter be traded on the Exchange similar to
other equity securities. Units will be registered in book-entry form
through DTC. Trading in the Units on the Exchange will be effected
until 4:15 p.m. Eastern time (``ET'') each business day. The minimum
trading increment for such units will be $.01.
    Each Authorized Purchaser, and each distributor \40\offering and
selling newly issued Units as part of the distribution of such Units,
is required comply with the prospectus delivery and disclosure
requirements of the 1933 Act, as well as the requirements under the CEA
including, the requirement that prospective investors provide an
acknowledgement of receipt of such disclosure materials prior to the
payment for any newly issued Units.\41\
---------------------------------------------------------------------------

    \40\ An Authorized Purchaser selling newly issued Units may be
deemed a ``distributor''/underwriter under the 1933 Act.Telephone
conversation between Jeffrey Burns, Senior Associate General
Counsel, Amex, Florence Harmon, Senior Special Counsel, Division,
Commission and Johnna B. Dumler, Attorney, Division, Commission, on
February 16, 2006.
    \41\ USOF is seeking to obtain an exemption from this CFTC
acknowledgement of receipt requirement. Telephone conversation
between Jeffrey Burns, Senior Associate General Counsel, Amex,
Florence Harmon, Senior Special Counsel, Division, Commission and
Johnna B. Dumler, Attorney, Division, Commission, on February 15,
2006.
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Calculation of the Basket Amount

    Baskets will be issued in exchange for Treasuries and/or cash in an
amount equal to the NAV per Unit times 100,000 Units (the ``Basket
Amount''). Baskets will be delivered by the Marketing Agent to each
Authorized Purchaser only after execution of the Authorized Purchaser
Agreement. Units in a Basket are issued and redeemed in accordance with
the Authorized Purchaser Agreement. Authorized Purchasers that wish to
purchase a Basket must transfer the Basket Amount to the Administrator
(the ``Deposit Amount''). Authorized Purchasers that wish to redeem a
Basket will receive an amount of Treasuries and cash in exchange for
each Basket surrendered in an amount equal to the NAV per Basket (the
``Redemption Amount'').
    On each Business day, the Administrator will make available prior
to the opening of trading on the Exchange, the estimated Basket Amount
for the creation of a Basket based on the prior day's NAV.\42\ The
Exchange will disseminate at least every 15 seconds throughout the
trading day, via the facilities of the Consolidated Tape Association
(``CTA''), an amount representing, on a per Unit basis, the current
indicative value of the Basket Amount (See ``Indicative Partnership
Value'' below). Shortly after 4 p.m. ET, the Administrator will
determine the NAV for USOF as described below. At or about 4 p.m. ET on
each business day, the Administrator will determine the Actual Basket
Amount (``Actual Basket Amount'') for orders placed by Authorized
Purchasers received before 12 p.m. ET that day.\43\ Thus, although
Authorized Purchasers place orders to purchase Units during the trading
day until 12 p.m. ET, the Actual Basket Amount is determined as of 4
p.m. ET
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    \42\ Amex clarified that it intended for this sentence to
indicate that the Administrator will make available an ``estimated''
Basket Amount prior to the opening of trading on the Exchange,
rather than the Actual Basket Amount (as described below), which
will not be available until shortly after the close of trading on
each business day. Additionally, such information (NAV, Actual
Basket Amount, Estimated Basket Amount, daily disclosure of
portfolio holdings) will be available to all market participants at
the same time. Telephone conversation between Jeffrey Burns, Senior
Associate General Counsel, Amex, Florence Harmon, Senior Special
Counsel, Division, Commission and Johnna B. Dumler, Attorney,
Division, Commission, on February 8, 2006.
    \43\ See Amendment No. 2. See also ``Calculation and Payment of
Deposit Amount'' and ``Calculation and Payment of Redemption
Amount'' below.
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    Shortly after 4 p.m. ET on each business day, the Administrator,
Amex, and the General Partner will disseminate the NAV for the Units
and the Actual Basket Amount (for orders placed during the day). The
Basket Amount and the NAV are communicated by the Administrator to all
Authorized Purchasers via facsimile or electronic mail message. The
Amex will also disclose the NAV and the Actual Basket Amount on its Web
site at http://www.amex.com.\44\ The Basket Amount necessary for the creation

of a Basket will change from day to day. On each day that the Amex is
open for regular trading, the Administrator will adjust the Deposit
Amount as appropriate to reflect the prior day's Partnership NAV and
accrued expenses. The Administrator will then determine the Deposit
Amount for a given business day.
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    \44\ See supra note 42.
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Calculation of USOF's NAV

    The Administrator will calculate NAV as follows: (1) Determine the
current value of USOF assets and (2) subtract the liabilities of USOF.
The NAV will be calculated at 4 p.m. ET using the

settlement value\45\ of Oil Futures Contracts traded on the NYMEX as of
the close of open-outcry trading on the NYMEX at 2:30 p.m. ET,\46\ and
for the value of other Oil Futures Interests and Treasuries, the value
of such investments as of the earlier of 4 p.m. New York time or the
close of trading on the New York Stock Exchange. The NAV is calculated
by including any unrealized profit or loss on Oil Futures Contracts and
other Oil Interests and any other credit or debit accruing to USOF but
unpaid or not received by USOF. The NAV is then used to compute all
fees (including the management and administrative fees) that are
calculated from the value of Partnership assets. The Administrator will
calculate the NAV per unit by dividing the NAV by the number of Units
outstanding.
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    \45\ See Rule 6.52 of the NYMEX Rulebook.
    \46\ Telephone conversation between Jeffrey Burns, Senior
Associate General Counsel, Amex, Florence Harmon, Senior Special
Counsel, Division, Commission and Johnna B. Dumler, Attorney,
Division, Commission, on February 8, 2006.
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    When calculating NAV for USOF, the Administrator will value Oil
Futures Contracts based on the closing settlement prices quoted on the
relevant commodities and futures exchange and obtained from various
market data vendors such as Bloomberg or Reuters. The value of the
Other Oil Interests for purposes of determining the NAV will be valued
based upon the determination of the Administrator as to their fair
market value. Certain types of Other Oil Interests, such as listed
options on futures contracts, have closing prices that are available
from the exchange upon which they are traded or from various market
data vendors. If available from an exchange, Other Oil Interests will
be valued based on the last sale price on the exchange or market where
traded. If a contract fails to trade, the value shall be the most
recent bid quotation from the third-party source.
    Other types of Other Oil Interests, such as crude oil forward
contracts do not trade on established exchanges, but typically have
prices that are widely available from third-party sources. The
Administrator may make use of such third-party sources in calculating a
fair market value of these Other Oil Interests.
    Certain types of Other Oil Interests, such as OTC derivative
contracts such as ``swaps'' also do not have established exchanges upon
which they trade and may not have readily available price quotes from
third parties. Swaps and other similar derivative or contractual-type
instruments will be first valued at a price provided by a single broker
or dealer, typically the counterparty. If no such price is available,
the contract will be valued at the price at which the counterparty to
such contract would repurchase the instrument or terminate the
contract. In determining the fair market value of such derivative
contracts, the Administrator may make use of quotes from other
providers of similar derivatives. If these are not available, the
Administrator may calculate a fair market value of the derivative
contract based on the terms of the contract and the movement of the
underlying price factors of the contract.

Calculation and Payment of the Deposit Amount

    The Deposit Amount of Treasuries and cash will be in the same
proportion to the total net assets of USOF as the number of Units to be
created is in proportion to the total number of Units outstanding. The
General Partner will determine the requirements for the Treasuries that
may be included in the Deposit Amount and will disseminate these
requirements prior to the start of each business day. The amount of
cash that is required is the difference between the aggregate market
value of the Treasuries required to be included in the Deposit Amount
as of 4 p.m. ET on the date of purchase and the total required deposit.
    All purchase orders must be received by the Marketing Agent by 12
p.m. ET. Delivery of the Deposit Amount, i.e., Treasuries and cash, to
the Administrator must occur by the third Business day following the
purchase order date.\47\ Thus, the General Partner will disseminate
shortly after 4 p.m. ET the amount of Treasuries and cash to be
deposited with the Custodian for each Basket (100,000 Units) order
properly submitted by Authorized Purchasers by 12 p.m. ET that business
day, (e.g., the Actual Basket Amount).
---------------------------------------------------------------------------

    \47\ Authorized Purchasers are required to pay a transaction fee
of $1,000 for each order to create one or more Baskets.
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Calculation and Payment of the Redemption Amount

    The Units will not be individually redeemable but will only be
redeemable in Baskets. To redeem, an Authorized Purchaser will be
required to accumulate enough Units to constitute a Basket (i.e.,
100,000 Units). An Authorized Purchaser redeeming a Basket will receive
the Redemption Amount.
    Upon the surrender of the Units and payment of applicable
redemption transaction fee,\48\ taxes or charges, the Custodian will
deliver to the redeeming Authorized Purchaser the Redemption Amount.
The Redemption Amount of Treasuries and cash will be in the same
proportion to the total net assets of USOF as the number of Units to be
redeemed is in proportion to the total number of Units outstanding. The
General Partner will determine the Treasuries to be included in the
Redemption Amount. The amount of cash that is required is the
difference between the aggregate market value of the Treasuries
required to be included in the Redemption Amount calculated as of 4
p.m. ET on the date of redemption and the total Redemption Amount. All
redemption orders must be received by the Marketing Agent by 12 p.m. ET
on the date redemption is requested. Delivery of the Basket to be
redeemed to the Custodian and payment of Redemption Amount will occur
by the third business day (T+3) following the redemption order date.
---------------------------------------------------------------------------

    \48\ Authorized Purchasers are required to pay a transaction fee
of $1,000 for each order to redeem one or more Baskets.
---------------------------------------------------------------------------

    The Exchange believes that the Units will not trade at a material
discount or premium to a Unit's NAV based on potential arbitrage
opportunities. Due to the fact that the Units can be created and
redeemed only in Baskets at the NAV, the Exchange submits that
arbitrage opportunities should provide a mechanism to mitigate the
effect of any premiums or discounts that may exist from time to time.
Dissemination and Availability of Information

Oil Futures Contracts

    The daily settlement prices for the NYMEX traded Oil Futures
Contracts held by USOF are publicly available on the NYMEX Web site at
http://www.nymex.com The Exchange's Web site at http://www.amex.com.
will also include a hyperlink to the NYMEX Web site for the purpose of
disclosing futures contract pricing. In addition, various market data
vendors and news publications publish futures prices and related data.
The Exchange represents that quote and last sale information for the
Oil Futures Contracts are widely disseminated through a variety of
market data vendors worldwide, including Bloomberg and Reuters. In
addition, the Exchange further represents that real-time futures data
is available by subscription from Reuters and Bloomberg. The NYMEX also
provides delayed futures information on current and past trading
sessions and market news free of charge on its Web

site. The specific contract specifications for the Oil Futures
Contracts are also available on the NYMEX Web site and the ICE Futures
Web site at https://www.the ice.com.\49\

---------------------------------------------------------------------------

    \49\ The Amex confirmed that the pricing for the NAV also will
be derived from the NYMEX futures contract nearest to settlement
(spot month) for WTI light, sweet crude. Telephone conversation
between Jeffrey Burns, Senior Associate General Counsel, Amex, and
Florence Harmon, Senior Special Counsel, Division of Market
Regulation, Commission and Johnna B. Dumler, Attorney, Division,
Commission, on February 8, 2006. The General Partner on behalf of
USOF represents that it will not enter into futures contracts traded
on or through ICE Futures until the proposed Information Sharing
Arrangement between the Exchange and ICE Futures is adequate to the
Commission staff. See id.
---------------------------------------------------------------------------

USOF Units

    The Web site for USOF, which will be publicly accessible at no
charge, will contain the following information: (1) The prior business
day's NAV and the reported closing price; (2) the mid-point of the bid-
ask price\50\ in relation to the NAV as of the time the NAV is
calculated (the ``Bid-Ask Price''); (3) calculation of the premium or
discount of such price against such NAV; (4) data in chart form
displaying the frequency distribution of discounts and premiums of the
Bid-Ask Price against the NAV, within appropriate ranges for each of
the four (4) previous calendar quarters; (5) the prospectus and the
most recent periodic reports filed with the Commission or required by
the CFTC; and (6) other applicable quantitative information. In
addition, information on USOF's portfolio holdings will be available on
its Web site at http://www.unitedstatesoilfund.com and will be equally

accessible to investors and Authorized Purchasers.
---------------------------------------------------------------------------

    \50\ The Bid-Ask Price of Units is determined using the highest
bid and lowest offer as of the time of calculation of the NAV.
---------------------------------------------------------------------------

    As described above, the NAV for USOF will be calculated and
disseminated daily. The Amex also intends to disseminate for USOF on a
daily basis by means of CTA/CQ High Speed Lines information with
respect to the Indicative Partnership Value (as discussed below),
recent NAV, Units outstanding, the estimated Basket Amount and the
Deposit Amount (e.g., the Actual Basket Amount). The Exchange will also
make available on its Web site daily trading volume, closing prices and
the NAV. The closing price and settlement prices of the Oil Futures
Contracts held by USOF are also readily available from the NYMEX,
automated quotation systems, published or other public sources, or on-
line information services such as Bloomberg or Reuters. In addition,
the Exchange will provide a hyperlink on its Web site at http://www.amex.com
 to USOF's Web site.

Indicative Partnership Value

    In order to provide updated information relating to USOF for use by
investors, professionals and persons wishing to create or redeem the
Units, the Exchange will disseminate through the facilities of the CTA
an updated Indicative Partnership Value (the ``Indicative Partnership
Value''). The Indicative Partnership Value will be disseminated on a
per Unit basis at least every 15 seconds during the regular Amex
trading hours of 9:30 a.m. to 4:15 p.m. ET. The Indicative Partnership
Value will be calculated based on the Treasuries and cash required for
creations and redemptions (i.e., NAV per limit x 100,000) adjusted to
reflect the price changes of the current Benchmark Oil Futures
Contract.
    The Indicative Partnership Value will not reflect price changes to
the price of the current Benchmark Oil Futures Contract between the
close of open-outcry trading of these oil futures contract on the NYMEX
at 2:30 p.m. ET and the open of trading on the NYMEX ACCESS market at
3:15 p.m. ET. The Indicative Partnership Value after 3:15 p.m. ET\51\
will reflect changes to the current Benchmark Oil Futures Contract as
provided for through NYMEX ACCESS. The value of a Unit may accordingly
be influenced by non-concurrent trading hours between the Amex and
NYMEX. While the Units will trade on the Amex from 9:30 a.m. to 4:15
p.m. ET, the current Benchmark Oil Futures Contract will trade, in
open-outcry, on the NYMEX from 10 a.m. ET to 2:30 p.m. ET and NYMEX
ACCESS from 3:15 p.m. ET through the following morning 9:30 a.m. ET.
---------------------------------------------------------------------------

    \51\ NYMEX ACCESS[reg], an electronic trading system, is open
for price discovery on the NYMEX light, sweet crude oil futures
contract each Monday through Thursday at 3:15 p.m. ET through the
following morning at 9:30 a.m. ET, and from 7 p.m. Sunday night
until Monday morning 9:30 a.m. ET.
---------------------------------------------------------------------------

    While the NYMEX (open outcry) is open for trading, the Indicative
Partnership Value can be expected to closely approximate the value per
unit of the Basket Amount. However, during Amex trading hours when the
Oil Futures Contracts have ceased trading, spreads and resulting
premiums or discounts may widen, and therefore, increase the difference
between the price of the Units and the NAV of the Units. The Exchange
submits that the Indicative Partnership Value on a per Unit basis
disseminated during Amex trading hours should not be viewed as a real-
time update of the NAV, which is calculated only once a day. The
Exchange believes that dissemination of the Indicative Partnership
Value based on the cash amount required for a Basket provides
additional information that is not otherwise available to the public
and is useful to professionals and investors in connection with the
Units trading on the Exchange or the creation or redemption of the
Units.
Partnership Termination Events
    USOF will continue in effect from the date of its formation in
perpetuity, unless sooner terminated upon the occurrence of any one or
more of the following circumstances: (1) The death, adjudication of
incompetence, bankruptcy, dissolution, withdrawal, or removal of a
general partner who is the sole remaining general partner, unless a
majority in interest of limited partners within ninety (90) days after
such event elects to continue USOF and appoints a successor general
partner; or (2) the affirmative vote to terminate USOF by a majority in
interest of the limited partners subject to certain conditions.
    Upon termination of USOF, holders of the Units will surrender their
Units and the assets of USOF shall be distributed to the Unit holders
pro rata in accordance with the value of the Units, in cash or in kind,
as determined by the General Partner.
Criteria for Initial and Continued Exchange Listing
    USOF will be subject to the criteria in proposed Amex Rule 1502 for
initial and continued listing of the Units. The proposed continued
listing criteria provides for the delisting or removal from listing of
the Units under any of the following circumstances:
     Following the initial twelve month period from the date of
commencement of trading of the Units: (i) If USOF has more than 60 days
remaining until termination and there are fewer than 50 record and/or
beneficial holders of the Units for 30 or more consecutive trading
days; (ii) if USOF has fewer than 50,000 Units issued and outstanding;
or (iii) if the market value of all Units issued and outstanding is
less than $1,000,000.
     If the value of the underlying spot commodity or Oil
Futures Contract is no longer calculated or available on at least a 15-
second delayed basis or the Exchange stops providing a hyperlink on its
Web site to any such investment commodity or asset value.
     The Indicative Partnership Value is no longer made
available on at least a 15-second delayed basis.
     If such other event shall occur or condition exists which
in the opinion of the Exchange makes further dealings on the Exchange
inadvisable.

    It is anticipated that a minimum of 100,000 Units will be required
to be outstanding at the start of trading. It is anticipated that the
initial price of a Unit will be approximately $59.22 based upon the WTI
light, sweet crude oil spot price on December 2, 2005. USOF expects
that the initial Authorized Purchaser will purchase the initial Basket
of 100,000 Units at the initial offering price per Unit equal to the
closing price of the expiration month light, sweet crude (WTI) oil
futures contract listed on the NYMEX on the first Business day prior to
the launch date. On the date of the public offering and thereafter,
USOF will continuously issue Units in Baskets of 100,000 Units to
Authorized Purchasers at NAV. The Exchange believes that the
anticipated minimum number of Units outstanding at the start of trading
is sufficient to provide adequate market liquidity and to further
USOF's objective to seek to provide a simple and cost effective means
of accessing the commodity futures markets.
    The Exchange represents that it prohibits the initial and/or
continued listing of any security that is not in compliance with Rule
10A-3 under the Act.\52\
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    \52\ See Rule 10A-3(c)(7), 17 CFR 240.10A-3(c)(7) (stating that
a listed issuer is not subject to the requirements of Rule 10A-3 if
the issuer is organized as a trust that does not have a board of
directors or other unincorporated association and the activities of
the issuer are limited to passively owning or holding securities or
other assets on behalf of or for the benefit of the holders of the
listed securities).
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Original and Annual Listing Fees
    The Amex original listing fee applicable to the listing of USOF is
$5,000. In addition, the annual listing fee applicable under Section
141 of the Amex Company Guide will be based on the year-end aggregate
number of Units in all series of USOF outstanding at the end of each
calendar year.
Disclosure
    The Exchange, in an Information Circular (described below) to
Exchange members and member organizations, will inform members and
member organizations, prior to commencement of trading, of the
prospectus delivery requirements applicable to USOF. The Exchange notes
that investors purchasing Units directly from USOF (by delivery of the
Deposit Amount) will receive a prospectus. Amex members purchasing
Units from USOF for resale to investors will deliver a prospectus to
such investors.
Purchase and Redemptions in Baskets
    In the Information Circular (described below), members and member
organizations will be informed that procedures for purchases and
redemptions of Units in Baskets are described in the Prospectus and
that Units are not individually redeemable but are redeemable only in
Baskets or multiples thereof.
Trading Rules
    The Units are equity securities subject to Amex Rules governing the
trading of equity securities, including, among others, rules governing
priority, parity and precedence of orders, specialist responsibilities
and account opening and customer suitability (Amex Rule 411). Initial
equity margin requirements of 50% will apply to transactions in the
Units. Units will trade on the Amex until 4:15 p.m. ET each business
day and will trade in a minimum price variation of $0.01 pursuant to
Amex Rule 127. Trading rules pertaining to odd-lot trading in Amex
equities (Amex Rule 205) will also apply.
    Amex Rule 154, Commentary .04(c) provides that stop and stop limit
orders to buy or sell a security (other than an option, which is
covered by Amex Rule 950(f) and Commentary thereto) the price of which
is derivatively priced based upon another security or index of
securities, may with the prior approval of a Floor Official, be elected
by a quotation, as set forth in Commentary .04(c)(i-v). The Exchange
has designated the Units as eligible for this treatment.\53\
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    \53\ See Securities Exchange Act Release No. 29063 (April 10,
1991), 56 FR 15652 (April 17, 1991) at note 9, regarding the
Exchange's designation of equity derivative securities as eligible
for such treatment under Amex Rule 154, Commentary .04(c).
---------------------------------------------------------------------------

    The Units will be deemed ``Eligible Securities'', as defined in
Amex Rule 230, for purposes of the Intermarket Trading System Plan and
therefore will be subject to the trade-through provisions of Amex Rule
236 which require that Amex members avoid initiating trade-throughs for
ITS securities.
    Specialist transactions of the Units made in connection with the
creation and redemption of Units will not be subject to the
prohibitions of Amex Rule 190.\54\ Unless exemptive or no-action relief
is available, the Units will be subject to the short sale rule, Rule
10a-1 under the Act.\55\ If exemptive or no-action relief is provided,
the Exchange will issue a notice detailing the terms of the exemption
or relief. The Units will generally be subject to the Exchange's
stabilization rule, Amex Rule 170, except that specialists may buy on
``plus ticks'' and sell on ``minus ticks,'' in order to bring the Units
into parity with the underlying commodity or commodities and/or futures
contract price. Proposed Commentary .01 to Amex Rule 1503 sets forth
this limited exception to Amex Rule 170.
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    \54\ See Commentary .05 to Amex Rule 190.
    \55\ USOF expects to seek relief, in the near future, from the
Commission in connection with the trading of the Units from the
operation of the short sale rule, Rule 10a-1 under the Act. If
granted, the Units would be exempt from Rule 10a-1 permitting sales
without regard to the ``tick'' requirements of Rule 10a-1. Rule 10a-
1(a)(1)(i) provides that a short sale of an exchange-traded security
may not be effected (i) below the last regular-way sale price (an
``uptick'') or (ii) at such price unless such price is above the
next preceding different price at which a sale was reported (a
``zero-plus tick''). See also Regulation SHO, Securities Exchange
Act Release No. 50103 (July 28, 2004), 69 FR 48008 (August 6, 2004)
(adoption of Regulation SHO).
---------------------------------------------------------------------------

    The adoption of Amex Rule 1503 relating to certain specialist
prohibitions will address potential conflicts of interest in connection
with acting as a specialist in the Units. Specifically, Amex Rule 1503
provides that the prohibitions in Amex Rule 175(c) apply to a
specialist in the Units so that the specialist or affiliated person may
not act or function as a market-maker in an underlying asset, related
futures contract or option or any other related derivative. An
affiliated person of the specialist consistent with Amex Rule 193 may
be afforded an exemption to act in a market making capacity, other than
as a specialist in the Units on another market center, in the
underlying asset, related futures or options or any other related
derivative. In particular, proposed Amex Rule 1503 provides that an
approved person of an equity specialist that has established and
obtained Exchange approval for procedures restricting the flow of
material, non-public market information between itself and the
specialist member organization, and any member, officer, or employee
associated therewith, may act in a market making capacity, other than
as a specialist in the Units on another market center, in the
underlying asset or commodity, related futures or options on futures,
or any other related derivatives.
    Adoption of Amex Rule 1504 will also ensure that specialists
handling the Units provide the Exchange with all the necessary
information relating to their trading in physical assets or
commodities, related futures contracts and options thereon or any other
derivative. As a general matter, the Exchange has regulatory
jurisdiction over its members, member organizations and approved
persons of a member

organization. The Exchange also has regulatory jurisdiction over any
person or entity controlling a member organization as well as a
subsidiary or affiliate of a member organization that is in the
securities business. A subsidiary or affiliate of a member organization
that does business only in commodities or futures contracts would not
be subject to Exchange jurisdiction, but the Exchange could obtain
information regarding the activities of such subsidiary or affiliate
through surveillance sharing agreements with regulatory organizations
of which such subsidiary or affiliate is a member.
Trading Halts
    Prior to the commencement of trading, the Exchange will issue an
Information Circular (described below) to members informing them of,
among other things, Exchange policies regarding trading halts in the
Units. First, the Information Circular will advise that trading will be
halted in the event the market volatility trading halt parameters set
forth in Amex Rule 117 have been reached. Second, the Information
Circular will advise that, in addition to the parameters set forth in
Amex Rule 117, the Exchange will halt trading in the Units if trading
in the current Benchmark Oil Futures Contract is halted or suspended.
Third, with respect to a halt in trading that is not specified above,
the Exchange may also consider other relevant factors and the existence
of unusual conditions or circumstances that may be detrimental to the
maintenance of a fair and orderly market. Additionally, the Exchange
represents that it will cease trading the Units if the conditions in
Amex Rule 1202(d)(2)(ii) or (iii) exist (i.e., if there is a halt or
disruption in the dissemination of the Indicative Fund Value and/or
underlying Benchmark Futures Contract (spot commodity) value).\56\
---------------------------------------------------------------------------

    \56\ In the event the Benchmark Futures Contract value or
Indicative Value is no longer calculated or disseminated, the
Exchange would immediately contact the Commission to discuss
measures that may be appropriate under the circumstances. Telephone
conversation between Jeffrey Burns, Associate General Counsel, Amex,
Florence Harmon, Senior Special Counsel, Division, Commission and
Johnna B. Dumler, Attorney, Division, Commission on February 8,
2006.
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Suitability
    The Information Circular (described below) will inform members and
member organizations of the characteristics of USOF Units and of
applicable Exchange rules, as well as of the requirements of Amex Rule
411 (Duty to Know and Approve Customers).
    The Exchange notes that pursuant to Amex Rule 411, members and
member organizations are required in connection with recommending
transactions in the Units to have a reasonable basis to believe that a
customer is suitable for the particular investment given reasonable
inquiry concerning the customer's investment objectives, financial
situation, needs, and any other information known by such member.
Information Circular
    The Amex will distribute an Information Circular to its members in
connection with the trading of the Units. The Information Circular,
will discuss the special characteristics of and risks of trading in the
Units. Specifically, Information the Circular, among other things, will
discuss what the Units are, how a basket is created and redeemed, the
requirement that members and member firms deliver a prospectus to
investors purchasing newly issued Units prior to or concurrently with
the confirmation of a transaction, applicable Amex rules, dissemination
information regarding the per unit Indicative Partnership Value,
trading information and applicable suitability rules. The Information
Circular will also explain that USOF is subject to various fees and
expenses described in the Registration Statement. The Information
Circular will also reference the fact that there is no regulated source
of last sale information regarding physical commodities, that the
Commission has no jurisdiction over the trading of WTI light, sweet
crude oil, Brent crude oil, heating oil, gasoline, natural gas or other
petroleum-based fuels, and that the CFTC has regulatory jurisdiction
over the trading of oil-based futures contracts and related options.
    The Information Circular will also notify members and member
organizations about the procedures for purchases and redemptions of
Units in Baskets, and that Units are not individually redeemable but
are redeemable only in Baskets or multiples thereof.
    The Information Circular will advise members of their suitability
obligations with respect to recommended transactions to customers in
the Units. The Information Circular will also discuss any relief, if
granted, by the Commission or the staff from any rules under the Act.
    The Information Circular will disclose that the NAV for Units will
be calculated shortly after 4 p.m. ET each trading day.
Surveillance
    The Exchange submits that its surveillance procedures are adequate
to deter and detect violations of Exchange rules relating to the
trading of the units. The surveillance procedures for the Units will be
similar to those used for the iShares[supreg] COMEX Gold Trust and the
streetTRACKS[supreg] Gold Trust Shares, as well as other TIRs and
exchange-traded funds. In addition, the surveillance procedures will
incorporate and rely on existing Amex surveillance procedures governing
options and equities.\57\
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    \57\ Proposed Rule 1504 will aid the Exchange in conducting
appropriate surveillance.
---------------------------------------------------------------------------

    The Exchange currently has in place an Information Sharing
Agreement with the NYMEX for the purpose of providing information in
connection with trading in or related to futures contracts traded on
the NYMEX. In addition, the Exchange is also in the process of
negotiating an Information Sharing Arrangement with ICE Futures for the
purpose of providing information in connection with the trading in or
related to futures contracts traded on the ICE Futures. To the extent
that USOF invests in Oil Interests traded on other exchanges, the Amex
will seek to enter into Information Sharing Arrangements, acceptable to
the Commission staff, with those particular exchanges.
 2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent
with Section 6 of the Act \58\ in general and furthers the objectives
of Section 6(b)(5) \59\ in particular in that it is designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in facilitating transactions in securities, and to
remove impediments to and perfect the mechanism of a free and open
market and a national market system.
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    \58\ 15 U.S.C. 78f(b).
    \59\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change, as
amended, will impose any burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others

    The Exchange has neither solicited nor received any written
comments on the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change, as amended, is consistent with the Act. Comments may be
submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form at http://www.sec.gov/rules/sro.shtml.
 or     Send an e-mail to<EMAIL_ADDRESS>Please include

File No. SR-Amex-2005-127 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.

All submissions should refer to File No. SR-Amex-2005-127. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site at http://www.sec.gov/rules/sro.shtml.
 Copies of the submission, all subsequent amendments, all

written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for inspection and
copying in the Commission's Public Reference Room. Copies of such
filing also will be available for inspection and copying at the
principal office of the Exchange. All comments received will be posted
without change; the Commission does not edit personal identifying
information from submissions. You should submit only information that
you wish to make available publicly. All submissions should refer to
File No. SR-Amex-2005-127 and should be submitted on or before March
17, 2006.

    For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\60\
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    \60\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
 [FR Doc. E6-2642 Filed 2-23-06; 8:45 am]

BILLING CODE 8010-01-P