Fund Objective & Key Features
The United States Natural Gas Fund® LP (UNG) is an exchange-traded security that is designed to track in percentage terms the movements of natural gas prices. UNG issues units that may be purchased and sold on the NYSE Arca.
UNG's Objective
The investment objective of UNG is for the daily changes in percentage terms of its units' per unit net asset value ("NAV") to reflect the daily changes in percentage terms of the spot price of natural gas delivered at the Henry Hub, Louisiana as measured by the daily changes in the price of the Futures Contract on natural gas traded on the NYMEX that is the near month contract to expire, except when the near month contract is within two weeks of expiration, in which case it will be measured by the futures contract that is the next month contract to expire (the "Benchmark Futures Contract"), less UNG's expenses.
UNG's Target
Natural Gas is one of the most important physical commodities in the global economy. Natural Gas futures are one of the most actively traded futures contracts and represent the primary US benchmark for natural gas.
UNG's Portfolio
The portfolio consists of listed natural gas futures contracts and other natural gas related futures contracts, 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.
UNG's Key Features
- UNG provides a vehicle to hedge crude oil movements or take directional positions on oil prices
- UNG offers the convenience of an exchange-traded security listed on the NYSE Arca
- UNG permits commodity-like exposure without using a commodity futures account
- UNG provides "equity-like" order flexibility, including market, limit, stop, stop limit and Good-Til-Cancelled (GTC) orders
- UNG provides Market Price, NAV, and Portfolio Holdings on a daily basis
UNG'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
- UNG's NAV is calculated generally around 4:00 pm ET
- Settlement is T+3
- Custodian is Brown Brothers Harriman & Co.
- 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 UNG, and the U.S. federal income tax treatment of UNG, 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 UNG to the investor and as to applicable state, local or foreign taxes.
Tax Status of UNG
UNG is organized and operates as a limited partnership in accordance with the provisions of the LP Agreement and applicable state law. Under the Code, an entity classified as a partnership that is deemed to be a "publicly traded partnership" is generally taxable as a corporation for federal income tax purposes. The Code provides an exception to this general rule for a publicly traded partnership whose gross income for each taxable year of its existence consists of at least 90% "qualifying income" ("qualifying income exception"). For this purpose, section 7704 defines "qualifying income" as including, in pertinent part, interest (other than from a financial business), dividends and gains from the sale or disposition of capital assets held for the production of interest or dividends. In addition, in the case of a partnership a principal activity of which is the buying and selling of commodities (other than as inventory) or of futures, forwards and options with respect to commodities, "qualifying income" includes income and gains from such commodities and futures, forwards and options with respect to commodities. UNG and the General Partner have represented the following to Reed Smith LLP:
- At least 90% of UNG's gross income for each taxable year will constitute "qualifying income" within the meaning of Code section 7704 (as described above);
- UNG is organized and operated in accordance with its governing agreements and applicable law;
- UNG 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 UNG classifies as a partnership for federal income tax purposes and that it is not taxable as a corporation for such purposes.
If UNG 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, UNG 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 UNG's income or loss on their returns. In addition, distributions to unitholders would be treated as dividend income to the extent of UNG's current and accumulated earnings and profits. To the extent a distribution exceeded UNG'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 UNG were to be taxable as a corporation, it would likely have a material adverse effect on the economic return from an investment in UNG and on the value of the units.
The foregoing is only a partial summary of the federal income tax consequences of an investment in UNG. The full summary can be found in the Prospectus.
| Fund Details | |
|---|---|
| UNG Data | as of 05/23/2013 |
| Ticker | UNG |
| IIV | UNG.IV |
| CUSIP | 912318201 |
| ISIN | US9123182019 |
| Minimum Trade Size | 1 unit |
| Marginable1 | Yes |
| Options Traded | Yes |
| Administrator | Brown Brothers Harriman & Co |
| Distributor | ALPS Distributors, Inc. |
| General Partner | United States Commodity Funds, LLC |
| Management Expense Ratio2 | 0.60% |
| Trading Increment | $0.01 |
1There are special risks associated with margin investing. Please ask your financial advisor for more information about these risks.
2 Management fee for first $1,000,000,000 is 0.60% of NAV. At and above this amount, the fee decreases to 0.50% of NAV. This figure does not include the impact of commissions incurred in the trading of natural gas futures contracts or other holdings.