An investment in the units issued by the United States Natural Gas Fund® LP ("UNG"), involves risks. Some of the risks you may face are summarized below. A more extensive discussion of the risks associated with investing directly or indirectly in UNG, appears in the Prospectus preceding or accompanying this Disclosure document.
- Unlike mutual funds, commodity pools or other investment pools that manage their investments in an attempt to realize income and gains and distribute such income and gains to their investors, UNG generally does not distribute cash to limited partners or other unitholders. You should not invest in UNG if you will need cash distributions from UNG to pay taxes on your share of income and gains of UNG, if any, or for any other reason.
- You may not be able to effectively use UNG as a way to hedge against natural gas-related losses or as a way to indirectly invest in natural gas if the following were to occur:
- Daily changes in the price of UNG's units on the NYSE Arca will not closely track the daily changes in the spot price of natural gas;
- Changes in UNG's NAV may not correlate with daily changes in the price of the Benchmark Futures Contract;
- The Benchmark Futures Contract may not correlate with the spot price of natural gas and this could cause changes in the price of the units to substantially vary from the changes in the spot price of natural gas;
- Changes in the price of units may cause the units to trade at a price that is above or below UNG's NAV per unit. Accordingly, changes in the price of units may substantially vary from the changes in the spot price of natural gas;
- Accountability levels, position limits, and daily price fluctuation limits set by the exchanges have the potential to cause a tracking error, which could cause the price of units to substantially vary from the price of the Benchmark Futures Contract.
- Investing in UNG for purposes of hedging may subject you to risks, including the possibility of losing the benefit of favorable market movements.
- The price relationship between the near month contract and the next month contract that compose the Benchmark Futures Contract will vary and may impact both the total return over time of UNG's NAV, as well as the degree to which its total return tracks other natural gas price indices' total returns.
- The design of UNG's Benchmark Futures Contract is such that every month it begins by using the near month contract to expire until the near month contract is within two weeks of expiration, when, over a four-day period, it transitions to the next month contract to expire as its benchmark contract and keeps that contract as its benchmark until it becomes the near month contract and close to expiration. In the event of a natural gas futures market where near month contracts trade at a higher price than next month to expire contracts, a situation described as "backwardation" in the futures market, then absent the impact of the overall movement in natural gas prices the value of the benchmark contract would tend to rise as it approaches expiration. As a result, the total return of the Benchmark Futures Contract would tend to track higher. Conversely, in the event of a natural gas futures market where near month contracts trade at a lower price than next month contracts, a situation described as "contango" in the futures market, then absent the impact of the overall movement in natural gas prices the value of the Benchmark Futures Contract would tend to decline as it approaches expiration. As a result, the total return of the Benchmark Futures Contract would tend to track lower. When compared to total return of other price indices, such as the spot price of natural gas, the impact of backwardation and contango may lead the total return of UNG's NAV to vary significantly. In the event of a prolonged period of contango, and absent the impact of rising or falling natural gas prices, this could have a significant negative impact on UNG's NAV and total return.
- The structure and operation of UNG may involve conflicts of interest. For example, a conflict may arise because the General Partner and its principals and affiliates may trade for themselves. In addition, the General Partner has sole current authority to manage the investments and operations, which may create a conflict with the unitholders' best interests. The General Partner may also have a conflict to the extent that its trading decisions may be influenced by the effect they would have on the United States Oil Fund, LP, the United States 12 Month Oil Fund, LP, the United States Short Oil Fund, LP, the United States Brent Oil Fund, LP, the United States 12 Month Natural Gas Fund, LP, the United States Gasoline Fund, LP, the United States Heating Oil Fund, LP, the United States Commodity Index Fund, the United States Copper Index Fund and the United States Agriculture Index Fund, the other commodity pools that it manages, or any other commodity pool the General Partner may form and manage in the future.
- You will have no rights to participate in the management of UNG and will have to rely on the duties and judgment of the General Partner to manage UNG.
- UNG pays fees and expenses that are incurred regardless of whether it is profitable.
- If the General Partner causes or permits UNG to become leveraged, you could lose all or substantially all of your investment if UNG's trading positions suddenly turn unprofitable.
- UNG may also invest in Other Natural Gas-Related Investments, many of which are negotiated contracts that are not as liquid as Futures Contracts and expose UNG to credit risk that its counterparty may not be able to satisfy its obligations to UNG.
*Some risks listed above may be mitigated due to rules proposed by the CFTC and SEC as promulgated under the Dodd-Frank Act. For a discussion of these risks and others, please see the current Prospectus.