Fund Objective & Key Features
The United States Oil Fund® LP (USO) is a domestic exchange-traded security designed to track the movements of West Texas Intermediate ("WTI") light, sweet crude oil. USO issues units that may be purchased and sold on the NYSE Arca.
The investment objective of USO is for the daily changes in percentage terms of its units' net asset value ("NAV") to reflect the daily changes in percentage terms of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by the changes in the price of the futures contract for light, sweet crude oil traded on the New York Mercantile Exchange (the "NYMEX") that is the near month contract to expire, except when the near month contract is within two weeks of expiration, in which case it will be measured by the futures contract that is the enxt month contract to expire (the "Benchmark Oil Futures Contract"), less USO's expenses.
Crude oil is one of the most important physical commodities in the global economy. WTI light, sweet crude oil futures contracts are also the most actively traded futures contracts and represent the primary US benchmark for crude oil.
The portfolio consists of listed crude oil futures contracts and other oil-related futures and may consist of forwards and swap contracts. These investments will be collateralized by cash, cash equivalents and US government obligations with remaining maturities of two years or less.
USO's Key Features
- USO provides a vehicle to hedge crude oil movements or take directional positions on oil prices
- USO offers the convenience of an exchange-traded security listed on the NYSE Arca
- USO permits commodity-like exposure without using a commodity futures account
- USO provides "equity-like" order flexibility, including market, limit, stop, stop limit and Good-Til-Cancelled (GTC) orders
- USO provides Market Price, NAV, and Portfolio Holdings on a daily basis
USO's Creation & Redemption Process
- Creation/Redemption Basket Size 100,000 Units
- Transaction charge for each AP Order is $1,000 (per order, not per basket)
- Order Cut-off for AP's is 12:00 p.m. ET
- USO's NAV is calculated generally around 4:00 pm ET
- Settlement is T+3
- Custodian is Brown Brothers Harriman
- Marketing Agent is ALPS Distributors, Inc.
U.S. Federal Income Tax Considerations
A summary of the material U.S. federal income tax consequences of the purchase, ownership and disposition of units in USO, and the U.S. federal income tax treatment of USO, is set forth in the Prospectus.
Each prospective investor is advised to consult its own tax advisor as to the U.S. federal income tax consequences of an investment in USO to the investor and as to applicable state, local or foreign taxes
Tax Status of USO
USO is organized and operates as a limited partnership in accordance with the provisions of the LP Agreement and applicable state law. Under the Internal Revenue Code of 1986, as amended (the "Code"), an entity classified as a partnership that is deemed to be a "publicly traded partnership" is generally taxable as a corporation for federal income tax purposes. The Code provides an exception to this general rule for a publicly traded partnership whose gross income for each taxable year of its existence consists of at least 90% "qualifying income" ("qualifying income exception"). For this purpose, section 7704 defines "qualifying income" as including, in pertinent part, interest (other than from a financial business), dividends and gains from the sale or disposition of capital assets held for the production of interest or dividends. In addition, in the case of a partnership a principal activity of which is the buying and selling of commodities (other than as inventory) or of futures, forwards and options with respect to commodities, "qualifying income" includes income and gains from such commodities and futures, forwards and options with respect to commodities. USO and the General Partner have represented the following to Reed Smith LLP:
- At least 90% of USO's gross income for each taxable year will constitute "qualifying income" within the meaning of Code section 7704 (as described above);
- USO is organized and operated in accordance with its governing agreements and applicable law; and
- USO has not elected, and will not elect, to be classified as a corporation for U.S. federal income tax purposes.
Based in part on these representations, Reed Smith LLP is of the opinion that USO classifies as a partnership for federal income tax purposes and that it is not taxable as a corporation for such purposes.
If USO failed to satisfy the qualifying income exception in any year, other than a failure that is determined by the IRS to be inadvertent and that is cured within a reasonable time after discovery, USO would be taxable as a corporation for federal income tax purposes and would pay federal income tax on its income at regular corporate rates. In that event, unitholders would not report their share of USO's income or loss on their returns. In addition, distributions to unitholders would be treated as dividend income to the extent of USO's current and accumulated earnings and profits. To the extent a distribution exceeded USO's earnings and profits, the distribution would be treated as a return of capital to the extent of a unitholder's basis in its units, and thereafter as gain from the sale of units. Accordingly, if USO were to be taxable as a corporation, it would likely have a material adverse effect on the economic return from an investment in USO and on the value of the units.
The foregoing is only a partial summary of the federal income tax consequences of an investment in USO. The full summary can be found in the Prospectus.
|USO Data||as of 05/17/2013|
|Minimum Trade Size||1 share|
|Administrator||Brown Brothers Harriman & Co|
|Distributor||ALPS Distributors, Inc.|
|General Partner||United States Commodity Funds, LLC|
|Management Expense Ratio||0.45%|
*There are special risks associated with margin investing. Please ask your financial advisor for more information about these risks.