|
An investment in the units issued by United States 12 Month Natural Gas Fund, LP (“UNL”) involves risks. These risks can significantly impact the market value of the units. Some of the risks you may face are summarized below.
• Unlike mutual funds, commodity pools or other investment pools that actively manage their investments in an attempt to realize income and gains from their investing activities and distribute such income and gains to their investors, UNL generally does not expect to distribute cash to limited partners or other unitholders. You should not invest in UNL if you will need cash distributions from UNL to pay taxes on your share of income and gains of UNL, if any, or for any other reason.
• There is the risk that the changes in the price of UNL’s units on the NYSE Arca will not closely track the changes in the spot price of natural gas. This could happen if the price of units traded on the NYSE Arca does not correlate closely with UNL’s NAV; the changes in UNL’s NAV do not closely correlate with the changes in the average of the prices of the Benchmark Futures Contracts; or the changes in the average of the prices of the Benchmark Futures Contracts do not closely correlate with the changes in the cash or spot price of natural gas. This is a risk because if these correlations do not exist, then investors may not be able to use UNL as a cost-effective way to invest indirectly in natural gas or as a hedge against the risk of loss in natural gas-related transactions.
• UNL seeks to have the changes in its units’ NAV in percentage terms track changes in the Benchmark Futures Contracts in percentage terms rather than profit from speculative trading of Natural Gas Interests. The General Partner will therefore endeavor to manage UNL’s positions in Natural Gas Interests so that UNL’s assets are, unlike those of other commodity pools, not leveraged (i.e., so that the aggregate value of UNL’s unrealized losses from its investments in such Natural Gas Interests at any time will not exceed the value of UNL’s assets). There is no assurance that the General Partner will successfully implement this investment strategy. If the General Partner permits UNL to become leveraged, you could lose all or substantially all of your investment if UNL’s trading positions suddenly turn unprofitable. These movements in price may be the result of factors outside of the General Partner’s control and may not be anticipated by the General Partner.
• As described above the Benchmark Futures Contracts consist of the near month contract to expire and the contracts for the following eleven months, except during the last two weeks of the current month when the near month contract is sold and replaced by the futures contract for the thirteenth month following the current month. The price relationship among these contracts will vary and may impact both the total return over time of UNL’s NAV, as well as the degree to which its total return tracks other natural gas price indices’ total returns. In cases in which the near month contract’s price is lower than the twelfth month contract’s price (a situation known as “contango” in the futures markets), then absent the impact of the overall movement in natural gas prices the value of the near month contract would tend to decline as it approaches expiration. In cases in which the near month contract’s price is higher than the twelfth month contract’s price (a situation known as “backwardation” in the futures markets), then absent the impact of the overall movement in natural gas prices the value of the near month contract would tend to rise as it approaches expiration. A portfolio, such as UNL’s, that consists of twelve different monthly contracts that roll just one month as described above, will be impacted differently by contango and backwardation than a portfolio that consists of just the near month contract that rolls each month to the next month contract.
• Investors may choose to use UNL as a means of investing indirectly in natural gas and there are risks involved in such investments. The risks and hazards that are inherent in the natural gas industry may cause the price of natural gas to widely fluctuate. The exploration for, and production of, natural gas is an uncertain process with many risks. The cost of drilling, completing and operating wells for natural gas is often uncertain, and a number of factors can delay or prevent drilling operations or production.
• Investors, including those who directly participate in the natural gas market, may choose to use UNL as a vehicle to hedge against the risk of loss and there are risks involved in hedging activities. While hedging can provide protection against an adverse movement in market prices, it can also preclude a hedger’s opportunity to benefit from a favorable market movement.
• UNL expects to invest primarily in futures contracts that are traded in the United States. However, a portion of UNL’s trades may take place in markets and on exchanges outside the United States. Some non-U.S. markets present risks because they are not subject to the same degree of regulation as their U.S. counterparts. In some of these non-U.S. markets, the performance on a contract is the responsibility of the counterparty and is not backed by an exchange or clearing corporation and therefore exposes UNL to credit risk. Trading in non-U.S. markets also leaves UNL susceptible to fluctuations in the value of the local currency against the U.S. dollar.
• UNL 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 UNL to credit risk that its counterparty may not be able to satisfy its obligations to UNL.
• UNL will pay fees and expenses that are incurred regardless of whether it is profitable.
• You will have no rights to participate in the management of UNL and will have to rely on the duties and judgment of the General Partner to manage UNL.
• The structure and operation of UNL 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 United States Oil Fund, LP (“USOF”), the United States Natural Gas Fund, LP (“USNG”), the United States 12 Month Oil Fund, LP (“US12OF”), the United States Gasoline Fund, LP (“UGA”), the United States Heating Oil Fund, LP (“USHO”), or the United States Short Oil Fund, LP ("USSO"), the other commodity pools that it manages, or any other commodity pool the General Partner may form and manage in the future.
• Regulation of the commodity interest and energy markets is extensive and constantly changing. Currently, a number of proposals that would alter the regulation of Natural Gas Interests are being considered by federal regulators and Congress. These proposals include the imposition of fixed position limits on energy-based commodity futures contracts, extension of position and accountability limits to futures contracts on non-U.S. exchanges previously exempt from such limits, and the forced use of clearinghouse mechanisms for all over-the-counter transactions. Certain proposals would aggregate and limit all positions in energy futures held by a single entity, whether such positions exist on U.S. futures exchanges, non-U.S. futures exchanges, or in over-the-counter contracts. While it cannot be predicted at this time what reforms will eventually be made or how they will impact UNL, if any of the aforementioned proposals are implemented, UNL’s ability to meet its investment objective may be negatively impacted and investors could be adversely affected.
• UNL is new and has no operating history. Therefore, you do not have the benefit of reviewing the past performance of UNL as a basis for you to evaluate an investment in UNL.
For further discussion of these and additional risks associated with an investment in UNL units, see the Prospectus that accompanies this website.
|
