485BPOS 1 d485bpos.htm 485BPOS 485BPOS
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As filed with the Securities and Exchange Commission on December 29, 2006

Registration Nos. 333-89822; 811-21114


U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933  x

Pre-Effective Amendment No.

Post-Effective Amendment No. 2

And/Or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940  x

Amendment No. 9

 


ProShares Trust

(Exact name of Registrant as Specified in Trust Instrument)

 


7501 Wisconsin Avenue, Suite 1000

Bethesda, MD 20814

(Address of Principal Executive Office) (Zip Code)

(240) 497-6400

(Area Code and Telephone Number)

 


Michael L. Sapir

Chairman

ProShare Advisors LLC

7501 Wisconsin Avenue, Suite 1000

Bethesda, MD 20814

(Name and Address of Agent for Service)

With a copy to:

Stuart M. Strauss, Esq.

C/o Clifford Chance US LLP

31 West 52nd Street

New York, NY 10019

 


Approximate date of Proposed Public Offering:

It is proposed that this filing will become effective:

 

x immediately upon filing pursuant to paragraph (b)

 

¨ on (date) pursuant to paragraph (b)

 

¨ 60 days after filing pursuant to paragraph (a)(1)

 

¨ on (date) pursuant to paragraph (a)(1)

 

¨ 75 days after filing pursuant to paragraph (a)(2)

 

¨ on (date) pursuant to paragraph (a)(2) of rule 485.

If appropriate, check the following:

 

¨ This post-effective amendment designates a new effective date for a previously filed post-effective amendment.

 



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EXPLANATORY NOTE

This post-effective amendment relates only to the Ultra Russell 2000 ProShares, Ultra S&P Small-Cap 600 ProShares, Ultra S&P500/Citigroup Value ProShares, Ultra S&P500/Citigroup Growth ProShares, Ultra S&P MidCap 400/Citigroup Value ProShares, Ultra S&P MidCap 400/Citigroup Growth ProShares, Ultra S&P SmallCap 600/Citigroup Value ProShares, Ultra S&P SmallCap 600/Citigroup Growth ProShares, Ultra Basic Materials ProShares, Ultra Biotechnology ProShares, Ultra Consumer Goods ProShares, Ultra Consumer Services ProShares, Ultra Financials ProShares, Ultra Health Care ProShares, Ultra Industrials ProShares, Ultra Oil & Gas ProShares, Ultra Precious Metals ProShares, Ultra Real Estate ProShares, Ultra Semiconductor ProShares, Ultra Technology ProShares, Ultra Telecommunications ProShares, Ultra Utilities ProShares, Short Russell 2000 ProShares, Short S&P Small-Cap 600 ProShares, Short S&P500/Citigroup Value ProShares, Short S&P500/Citigroup Growth ProShares, Short S&P MidCap 400/Citigroup Value ProShares, Short S&P MidCap 400/Citigroup Growth ProShares, Short S&P SmallCap 600/Citigroup Value ProShares, Short S&P SmallCap 600/Citigroup Growth ProShares, Short Basic Materials ProShares, Short Biotechnology ProShares, Short Consumer Goods ProShares, Short Consumer Services ProShares, Short Financials ProShares, Short Health Care ProShares, Short Industrials ProShares, Short Oil & Gas ProShares, Short Precious Metals ProShares, Short Real Estate ProShares, Short Semiconductor ProShares, Short Technology ProShares, Short Telecommunications ProShares, Short Utilities ProShares, UltraShort Russell 2000 ProShares, UltraShort S&P Small-Cap 600 ProShares, UltraShort S&P500/Citigroup Value ProShares, UltraShort S&P500/Citigroup Growth ProShares, UltraShort S&P MidCap 400/Citigroup Value ProShares, UltraShort S&P MidCap 400/Citigroup Growth ProShares, UltraShort S&P SmallCap 600/Citigroup Value ProShares, UltraShort S&P SmallCap 600/Citigroup Growth ProShares, UltraShort Basic Materials ProShares, UltraShort Biotechnology ProShares, UltraShort Consumer Goods ProShares, UltraShort Consumer Services ProShares, UltraShort Financials ProShares, UltraShort Health Care ProShares, UltraShort Industrials ProShares, UltraShort Oil & Gas ProShares, UltraShort Precious Metals ProShares, UltraShort Real Estate ProShares, UltraShort Semiconductor ProShares, UltraShort Technology ProShares, UltraShort Telecommunications ProShares and UltraShort Utilities ProShares. No information relating to any other series or class of series of ProShares Trust is amended or superseded hereby.

 

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Ultra Russell 2000    Short Russell 2000    UltraShort Russell 2000
Ultra S&P Small-Cap 600    Short S&P600    UltraShort S&P600
Ultra S&P500/Citigroup Value    Short S&P500/Citigroup Value    UltraShort S&P500/Citigroup Value
Ultra S&P500/Citigroup Growth    Short S&P500/Citigroup Growth    UltraShort S&P500/Citigroup Growth
Ultra S&P MidCap 400/Citigroup Value    Short S&P MidCap 400/Citigroup Value    UltraShort S&P MidCap 400/Citigroup Value
Ultra S&P MidCap 400/Citigroup Growth    Short S&P MidCap 400/Citigroup Growth    UltraShort S&P MidCap 400/Citigroup Growth
Ultra S&P SmallCap 600/Citigroup Value    Short S&P SmallCap 600/Citigroup Value    UltraShort S&P SmallCap 600/Citigroup Value
Ultra S&P SmallCap 600/Citigroup Growth    Short S&P SmallCap 600/Citigroup Growth    UltraShort S&P SmallCap 600/Citigroup Growth
Ultra Basic Materials    Short Basic Materials    UltraShort Basic Materials
Ultra Biotechnology    Short Biotechnology    UltraShort Biotechnology
Ultra Consumer Goods    Short Consumer Goods    UltraShort Consumer Goods
Ultra Consumer Services    Short Consumer Services    UltraShort Consumer Services
Ultra Financials    Short Financials    UltraShort Financials
Ultra Health Care    Short Health Care    UltraShort Health Care
Ultra Industrials    Short Industrials    UltraShort Industrials
Ultra Oil & Gas    Short Oil & Gas    UltraShort Oil & Gas
Ultra Precious Metals    Short Precious Metals    UltraShort Precious Metals
Ultra Real Estate    Short Real Estate    UltraShort Real Estate
Ultra Semiconductor    Short Semiconductor    UltraShort Semiconductor
Ultra Technology    Short Technology    UltraShort Technology
Ultra Telecommunications    Short Telecommunications    UltraShort Telecommunications
Ultra Utilities    Short Utilities    UltraShort Utilities

Prospectus

ProShares Trust

January 16, 2007

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.


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PROSHARES TRUST

ProShares Trust (the “Trust”) is an exchange-traded fund organized as a Delaware business trust that consists of separate investment portfolios (each, a “Fund”). ProShare Advisors LLC (“ProShare Advisors” or “Advisor”) serves as the investment advisor to each Fund.

The shares of each Fund (“Shares”) will be listed on the American Stock Exchange (“Exchange”). Shares trade on the Exchange at market prices that may differ from the indicative intraday value (“IIV”) of the Shares disseminated by the Exchange and may be above, below or equal to the Funds’ end of day net asset value (“NAV”). Each Fund has its own CUSIP number and exchange trading symbol. Each Fund issues and redeems Shares on a continuous basis at NAV in large, specified numbers of Shares called “Creation Units.” Creation Units of the Ultra Shares are issued and redeemed principally in-kind for securities included in the relevant underlying index and an amount of cash. Creation Units of the Short ProShares are purchased and redeemed in cash.

Except when aggregated in Creation Units, Shares are not redeemable securities of the Funds. Retail investors, therefore, generally will not be able to purchase or redeem Shares directly from or with a Fund. Rather, most retail investors will purchase or sell Shares in the secondary market with the assistance of a broker. Thus, some of the information contained in this prospectus—such as information about purchasing and redeeming Shares from or with a Fund and all references to the Transaction Fee imposed on purchases and redemptions—is not relevant to retail investors.

 

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TABLE OF CONTENTS

 

Ultra ProShares

   4

Short ProShares

   108

More on Investment Objectives, Strategies and Risks

   309

Creation and Redemption of Creation Units

   326

Purchasing Shares Directly From A Fund

   326

Redeeming Shares Directly From A Fund

   328

Transaction Fees on Creation and Redemption Transactions

   329

Distributions

   333

Dividend Reinvestment Service

   333

Determination of NAV

   333

Basic Tax Points

   334

Management of ProShares Trust

   335

[ProShares Trust Logo]

ProShare Advisors LLC — Investment Advisor

 

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ULTRA PROSHARES

The Ultra ProShares seek to provide daily investment results, before fees and expenses, that double (200%) the daily performance of their applicable indexes.

 

Fund

  

Index

  

Benchmark1

  

Types of Companies in Index

Ultra Russell 2000®    Russell 2000® Index   

Double

(200%)

   Diverse, small capitalization
Ultra S&P SmallCap 600    S&P SmallCap 600   

Double

(200%)

   Diverse, small capitalization
Ultra S&P500/Citigroup Value    S&P500/Citigroup Value   

Double

(200%)

   Diverse, widely traded, large capitalization
Ultra S&P500/Citigroup Growth    S&P500/Citigroup Growth   

Double

(200%)

   Diverse, widely traded, large capitalization
Ultra S&P MidCap 400/Citigroup Value    S&P MidCap 400/Citigroup Value   

Double

(200%)

   Diverse, widely traded, mid-capitalization
Ultra S&P MidCap 400/Citigroup Growth    S&P MidCap 400/Citigroup Growth   

Double

(200%)

   Diverse, widely traded, mid-capitalization
Ultra S&P SmallCap 600/Citigroup Value    S&P SmallCap 600/Citigroup Value   

Double

(200%)

   Diverse, small capitalization
Ultra S&P SmallCap 600/Citigroup Growth    S&P SmallCap 600/Citigroup Growth   

Double

(200%)

   Diverse, small capitalization
Ultra Basic Materials    Dow Jones U.S. Basic Materials Index   

Double

(200%)

   Securities within the basic materials industry in the U.S. equity market
Ultra Biotechnology    Dow Jones U.S. Biotechnology Index   

Double

(200%)

   Securities representing the biotechnology subsector in the U.S. equity market
Ultra Consumer Goods    Dow Jones U.S. Consumer Goods Index   

Double

(200%)

   Securities within the consumer goods industry in the U.S. equity market
Ultra Consumer Services    Dow Jones U.S. Consumer Services Index   

Double

(200%)

   Securities within the consumer services industry in the U.S. equity market
Ultra Financials    Dow Jones U.S. Financials Index   

Double

(200%)

   Securities within the financial industry in the U.S. equity market
Ultra Health Care    Dow Jones U.S. Health Care Index   

Double

(200%)

   Securities within the health care industry in the U.S. equity market
Ultra Industrials    Dow Jones U.S. Industrials Index   

Double

(200%)

   Securities within the industrial industry in the U.S. equity market
Ultra Oil & Gas    Dow Jones U.S. Oil & Gas Index   

Double

(200%)

   Securities within the oil and gas industry in the U.S. equity market
Ultra Precious Metals    Dow Jones U.S. Precious Metals Index   

Double

(200%)

   Securities of companies involved in the mining of precious metals
Ultra Real Estate    Dow Jones U.S. Real Estate Index   

Double

(200%)

   Securities representing the real estate sector in the U.S. equity market
Ultra Semiconductor    Dow Jones U.S. Semiconductor Index   

Double

(200%)

   Securities representing the semiconductor subsector in the U.S. equity market
Ultra Technology    Dow Jones U.S. Technology Index   

Double

(200%)

   Securities within the technology industry in the U.S. equity market
Ultra Telecommunications    Dow Jones U.S. Telecommunications Index   

Double

(200%)

   Securities within the telecommunications industry in the U.S. equity market
Ultra Utilities    Dow Jones U.S. Utilities Index   

Double

(200%)

   Securities within the utilities industry in the U.S. equity market

 

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An investment in a Fund is not a deposit of a bank, and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Funds are not guaranteed to achieve their investment objectives, and an investment in a Fund could lose money. No single Fund is a complete investment program.

 

1 A benchmark may be any standard of investment performance to which a fund seeks to match or correlate its performance. The Ultra ProShares and Short ProShares utilize the performance of a multiple of an index, an inverse of an index or an inverse multiple of an index as their benchmark. For example, Ultra Russell 2000 ProShares has a daily benchmark of twice the daily return of the Russell 2000® Index.

 

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Ultra Russell 2000 ProShares

Ticker: [    ]

CUSIP: 74347R842

INVESTMENT OBJECTIVE

Ultra Russell 2000 ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of the Russell 2000® Index.

If Ultra Russell 2000 ProShares is successful in meeting its objective, its net asset value should gain approximately twice as much, on a percentage basis, as the Russell 2000® Index when the Index rises on a given day. Conversely, its net asset value should lose approximately twice as much, on a percentage basis, as the Index when the Index declines on a given day.

PRINCIPAL INVESTMENT STRATEGY

The Ultra Russell 2000 ProShares’ principal investment strategies include:

 

    Investing in equity securities and/or financial instruments (including derivatives) that ProShare Advisors believes, in combination, should have similar daily price return characteristics as twice (200%) the daily return of the Russell 2000® Index. Information about the Index can be found on page __.

 

    Committing at least 80% of its assets, under normal circumstances, to equity securities contained in the Index and/or financial instruments with similar economic characteristics.

 

    Employing leveraged investment techniques and/or sampling techniques in seeking its investment objective.

 

    Investing assets not invested in equity securities or financial instruments, in debt securities and/or money market instruments.

The Ultra Russell 2000 ProShares employs leveraged investment techniques to achieve its investment objective. Over time, the use of leverage, combined with the effect of compounding, will have a more significant impact on the Ultra Russell 2000 ProShares’ performance compared to the index underlying its benchmark than a fund that does not employ leverage. Therefore, the return of the index over a period of time greater than one day multiplied by a fund’s specified multiple or inverse multiple (e.g., 200% or -200%) will not generally equal a fund’s performance over that same period. The following example illustrates this point:

Let’s say, hypothetically, that a shareholder invests $10,000 in Fund A and $10,000 in Fund B.

 

Fund A: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to the daily performance of an index.    Fund B: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of an index.

On Day 1, each fund’s benchmark index increases in value 1% which would cause a 1% increase in Fund A and a 2% increase in Fund B.

On Day 2, each fund’s benchmark index decreases in value 1% which would cause a 1% decrease in Fund A and a 2% decrease in Fund B. At the end of Day 2, the value of the shareholder’s investment in Fund A would be approximately $9,999 (an increase of $100 on Day 1 and a decrease of $101 on Day 2). The value of the shareholder’s investment in Fund B would be approximately $9,996 at the end of Day 2 (an increase of $200 on Day 1 and a decrease of $204 on Day 2). In each case, the value of the shareholder’s investment declined overall. However, the effect of compounding was more pronounced for Fund B, which

 

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employs leverage. This example demonstrates how an investment in Fund A would have decreased in value by $1 over two days based on the index performance, while an investment in Fund B would have decreased in value by $4 over two days (four times the cumulative index loss over two days rather than two times the cumulative index loss).

Over time, the cumulative percentage increase or decrease in the net asset value of the Fund may diverge significantly from the cumulative percentage increase or decrease in the multiple of the return of the underlying Index due to the compounding effect of losses and gains on the returns of the Fund. Consequently, for periods greater than one day, investors should not expect the return of the Fund to be twice the return of the underlying Index. In addition, in trendless or flat markets it is expected that the Fund will underperform its benchmark Index.

PRINCIPAL RISK CONSIDERATIONS

The Ultra Russell 2000 ProShares is subject to the following principal risks:

 

    Aggressive Investment Technique Risk    The Ultra Russell 2000 ProShares uses investment techniques and financial instruments that may be considered aggressive, including the use of futures contracts, options on futures contracts, securities and indices, forward contracts, swap agreements and similar instruments. Such techniques may expose the Fund to potentially dramatic changes (losses) in the value of its portfolio holdings and imperfect correlation to the index underlying the Fund’s benchmark. These techniques also may expose the Fund to risks different from or possibly greater than the risks associated with investing directly in the securities contained in the index underlying the Fund’s benchmark.

 

    Correlation Risk    A number of factors may affect the Ultra Russell 2000 ProShares’ ability to achieve a high correlation with its benchmark and there can be no guarantee that the Fund will achieve a high degree of correlation.

 

    Counterparty Risk    The counterparty to a financial instrument may default on its obligations under the related agreement. In this circumstance, the Ultra Russell 2000 ProShares may lose money.

 

    Credit Risk    An issuer of debt instruments may be unable to make interest payments and repay principal. Changes in an issuer’s financial strength or in an instrument’s credit rating may affect an instrument’s value and, thus, impact Ultra Russell 2000 ProShares’ performance. As described under “Counterparty Risk” above, the Fund will also be subject to credit risk with respect to the amount a Fund expects to receive from counterparties in financial instruments transactions. If a counterparty defaults on its payment obligations to a Fund, the value of your investment in a fund may decline.

 

    Equity Risk    The equity markets are volatile, and the value of securities, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day.

 

    Leverage Risk    The Ultra Russell 2000 ProShares’ NAV and market price will likely be more volatile than the index underlying its benchmark and funds that do not employ leverage. Leverage should cause the Ultra Russell 2000 ProShares to lose more money in market environments adverse to its daily investment objective than an unleveraged investment.

 

    Liquidity Risk    In certain circumstances, the Ultra Russell 2000 ProShares may not be able to dispose of portfolio investments within a reasonable time at a fair price.

 

    Market Price Variance Risk    The Ultra Russell 2000 ProShares’ NAV will fluctuate with changes in the value of its portfolio holdings. Fund shares are listed on the Exchange and are purchased and sold at market prices. Although it is expected that the secondary market price for shares should approximate the Fund’s NAV, there may be times when the secondary market price varies significantly from NAV and may be below or above the most recently calculated NAV.

 

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    Market Risk    The Ultra Russell 2000 ProShares is subject to market risks that will affect the value of its shares, including general economic and market conditions, as well as developments that impact specific economic sectors, industries or companies.

 

    Non-diversification Risk    The Ultra Russell 2000 ProShares is considered non-diversified and may invest a relatively high percentage of its assets in the securities of a small number of issuers. In such circumstances, the Fund’s performance may be susceptible to economic, political or regulatory events affecting a single issuer than a more diversified fund.

 

    Repurchase Agreement Risk    Repurchase agreement risk is the risk that the counterparty to the repurchase agreement that sells the securities may default on its obligation to repurchase them. In this circumstance, Ultra Russell 2000 ProShares may lose money because: it may not be able to sell the securities at the agreed upon time and price, the securities may lose value before they can be sold, the selling institution may default or declare bankruptcy or the Fund may have difficulty exercising rights to the collateral.

 

    Small-Cap Company Investment Risk    The risk of equity investing may be particularly acute for securities of issuers with small market capitalization. Small-cap company stocks may trade at greater spreads or lower trading volumes, and may be less liquid, than the stocks of larger companies. Liquidating positions in small-cap companies could become difficult in turbulent market conditions. Small-cap company stocks tend to have greater fluctuations in price than the stocks of large companies. They may have limited product lines, markets, financial resources or personnel. In addition, small-cap companies tend to lack the financial and personnel resources to handle economic or industry-wide setbacks and, as a result, such setbacks could have a greater effect on small-cap security prices.

 

    Volatility Risk    Ultra Russell 2000 ProShares seeks to achieve a multiple of an index and therefore will experience greater volatility than the index underlying its benchmark and consequently has the potential for greater losses.

The Ultra Russell 2000 ProShares may be subject to risks in addition to those identified as principal risks. The sections titled “More on Risks” and “Special Risks of Exchange-Traded Funds” later in this Prospectus and the Statement of Additional Information (“SAI”) contains additional information about the Fund and related risks.

FUND PERFORMANCE

Performance history will be available for the Ultra Russell 2000 ProShares after it has been in operation for a full calendar year.

FEES AND EXPENSES

The following table describes the estimated fees and expenses you may pay when you buy, hold, or sell Creation Units of the Ultra Russell 2000 ProShares. Annual fund operating expenses are estimates. Investors purchasing shares in the secondary market will not pay the shareholder fees shown below, but may be subject to costs (including customary brokerage commissions) charged by their broker.

Shareholder Fees (paid directly by Authorized Participants) *

 

Sales charges (loads)    None
Fixed transaction fee per orderA    $3,500
Variable transaction fee per creation unitB    up to 0.10%
Additional transaction charge if not settled through the Continuous Net Settlement System of the National Securities Clearing Corporation (NSCC)C    up to 3 times the fixed fee plus up to 0.10%

 

* See “Transaction Fees on Creation and Redemption Transactions” at the end of this Prospectus.

 

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A A fixed transaction fee of $3,500 will be charged when you create or redeem Creation Units of the Ultra Russell 2000 ProShares regardless of the number of shares created or redeemed on the date of the transaction.

 

B A variable transaction fee of up to 0.10% of the value of each Creation Unit will be charged to offset costs associated with the order.

 

C An additional fee of up to 3 times the fixed per order transaction fee plus up to 0.10% of the value of each Creation Unit may be charged if you do not create or redeem shares through the Continuous Net Settlement System of the NSCC, or in circumstances in which cash is substituted for certain securities. Such transactions are allowed at the sole discretion of the Fund.

Annual Fund Operating Expenses (as a percentage of average daily net assets)

 

Investment Advisory Fee

   0.75 %

Distribution and Service (12b-1) fees

   0.00 %

Other expenses A

   0.84 %

Total annual fund operating expenses

   1.59 %

Fee Waivers/Reimbursements B

   0.64 %
      

Total net annual fund operating expenses

   0.95 %
      

 

A Based on estimated amounts for the current fiscal year.

 

B ProShare Advisors has contractually agreed to waive Investment Advisory and Management Services Fees and to reimburse other expenses to the extent Total Annual Operating Expenses, as a percentage of average daily net assets, exceed 0.95% through May 31, 2007. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular fiscal year may be recouped by ProShare Advisors within five years of the waiver or reimbursement to the extent that recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time.

Example: The following examples are intended to help you compare the cost of investing in shares of the Ultra Russell 2000 ProShares with the cost of investing in other funds. Investors should note that the following examples are for illustration purposes only and are not meant to suggest actual or expected fees and expenses or returns, all of which may vary. The Fund issues and redeems shares in Creation Units principally on an in-kind basis for portfolio securities included in the relevant Index and cash. Shares are not redeemable in less than Creation Unit aggregations. The examples do not include the brokerage commissions that secondary market investors may incur to buy and sell shares.

The following example assumes that you invest $10,000 in the Ultra Russell 2000 ProShares for the time periods indicated and sell all of your shares at the end of those periods, but does not include transaction fees on purchases and redemptions of shares. The example also assumes that your investment has a 5% annual return each year and that the Fund’s annual operating expenses remain exactly as described in the fee table. Although your actual costs may be higher or lower, based on the assumptions, your costs would be:

 

1 year

   $ 97

3 years

   $ 439

Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the Ultra Russell 2000 ProShares, as of [ ], 2006, is $[ ]. Assuming an investment in a Creation Unit of $[ ] and a 5% return each year, and that an investor pays both the standard $[ ] transaction fee applicable to both the purchase and redemption of the Creation Unit and the maximum variable transaction fee of 0.10% of the value of the Creation Unit, and assuming that the Fund’s gross operating expenses remain the same, the total costs would be $[ ] if the Creation Unit is redeemed after one year and $[ ] if the Creation Unit is redeemed after three years.

 

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Ultra S&P SmallCap 600 ProShares

Ticker: [    ]

CUSIP: 74347R818

INVESTMENT OBJECTIVE

Ultra S&P SmallCap 600 ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of the S&P SmallCap 600 Index®.

If Ultra S&P SmallCap 600 ProShares is successful in meeting its objective, its net asset value should gain approximately twice as much, on a percentage basis, as the S&P SmallCap 600 Index when the Index rises on a given day. Conversely, its net asset value should lose approximately twice as much, on a percentage basis, as the Index when the Index declines on a given day.

PRINCIPAL INVESTMENT STRATEGY

The Ultra S&P SmallCap 600 ProShares’ principal investment strategies include:

 

    Investing in equity securities and/or financial instruments (including derivatives) that ProShare Advisors believes, in combination, should have similar daily price return characteristics as twice (200%) the daily return of the S&P SmallCap 600 Index. Information about the Index can be found on page __.

 

    Committing at least 80% of its assets, under normal circumstances, to equity securities contained in the Index and/or financial instruments with similar economic characteristics.

 

    Employing leveraged investment techniques and/or sampling techniques in seeking its investment objective.

 

    Investing assets not invested in equity securities or financial instruments, in debt securities and/or money market instruments.

The Ultra S&P SmallCap 600 ProShares employs leveraged investment techniques to achieve its investment objective. Over time, the use of leverage, combined with the effect of compounding, will have a more significant impact on the Ultra S&P SmallCap 600 ProShares’ performance compared to the index underlying its benchmark than a fund that does not employ leverage. Therefore, the return of the index over a period of time greater than one day multiplied by a fund’s specified multiple or inverse multiple (e.g., 200% or -200%) will not generally equal a fund’s performance over that same period. The following example illustrates this point:

Let’s say, hypothetically, that a shareholder invests $10,000 in Fund A and $10,000 in Fund B.

 

Fund A: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to the daily performance of an index.    Fund B: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of an index.

On Day 1, each fund’s benchmark index increases in value 1% which would cause a 1% increase in Fund A and a 2% increase in Fund B.

On Day 2, each fund’s benchmark index decreases in value 1% which would cause a 1% decrease in Fund A and a 2% decrease in Fund B. At the end of Day 2, the value of the shareholder’s investment in Fund A would be approximately $9,999 (an increase of $100 on Day 1 and a decrease of $101 on Day 2). The value of the shareholder’s investment in Fund B would be approximately $9,996 at the end of Day 2 (an increase of $200 on Day 1 and a decrease of $204 on Day 2). In each case, the value of the shareholder’s investment declined overall. However, the effect of compounding was more pronounced for Fund B, which employs leverage. This example demonstrates how an investment in Fund A would have decreased in value by $1 over two days based on the index performance, while an investment in Fund B would have decreased in value by $4 over two days (four times the cumulative index loss over two days rather than two times the cumulative index loss).

 

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Over time, the cumulative percentage increase or decrease in the net asset value of the Fund may diverge significantly from the cumulative percentage increase or decrease in the multiple of the return of the underlying Index due to the compounding effect of losses and gains on the returns of the Fund. Consequently, for periods greater than one day, investors should not expect the return of the Fund to be twice the return of the underlying Index. In addition, in trendless or flat markets it is expected that the Fund will underperform its benchmark Index.

PRINCIPAL RISK CONSIDERATIONS

The Ultra S&P SmallCap 600 ProShares is subject to the following principal risks:

 

    Aggressive Investment Technique Risk    The Ultra S&P SmallCap 600 ProShares uses investment techniques and financial instruments that may be considered aggressive, including the use of futures contracts, options on futures contracts, securities and indices, forward contracts, swap agreements and similar instruments. Such techniques may expose the Fund to potentially dramatic changes (losses) in the value of its portfolio holdings and imperfect correlation to the index underlying the Fund’s benchmark. These techniques also may expose the Fund to risks different from or possibly greater than the risks associated with investing directly in the securities contained in the index underlying the Fund’s benchmark.

 

    Correlation Risk    A number of factors may affect the Ultra S&P SmallCap 600 ProShares’ ability to achieve a high correlation with its benchmark and there can be no guarantee that the Fund will achieve a high degree of correlation.

 

    Counterparty Risk    The counterparty to a financial instrument may default on its obligations under the related agreement. In this circumstance, the Ultra S&P SmallCap 600 ProShares may lose money.

 

    Credit Risk    An issuer of debt instruments may be unable to make interest payments and repay principal. Changes in an issuer’s financial strength or in an instrument’s credit rating may affect an instrument’s value and, thus, impact Ultra S&P SmallCap 600 ProShares’ performance. As described under “Counterparty Risk” above, the Fund will also be subject to credit risk with respect to the amount a Fund expects to receive from counterparties in financial instruments transactions. If a counterparty defaults on its payment obligations to a Fund, the value of your investment in a fund may decline.

 

    Equity Risk    The equity markets are volatile, and the value of securities, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day.

 

    Leverage Risk    The Ultra S&P SmallCap 600 ProShares’ NAV and market price will likely be more volatile than the index underlying its benchmark and funds that do not employ leverage. Leverage should cause the Fund to lose more money in market environments adverse to its daily investment objective than an unleveraged investment.

 

    Liquidity Risk    In certain circumstances, such as the disruption of the orderly markets for the securities or financial instruments in which the Ultra S&P SmallCap 600 ProShares invests, the Fund might not be able to dispose of certain holdings quickly or at prices that represent true market value in the judgment of ProShare Advisors. Certain derivative securities such as over-the-counter contracts held by a ProShare may also be illiquid. This may prevent the ProShares from limiting losses, realizing gains, or from achieving a high (inverse) correlation with their underlying benchmark index or security. In addition, a ProShare may not be able to pay redemption proceeds within the time periods described in this Prospectus as a result of unusual market conditions, an unusually high volume of redemption requests or other reasons.

 

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    Market Price Variance Risk    The Ultra S&P SmallCap 600 ProShares’ NAV will fluctuate with changes in the value of its portfolio holdings. Fund shares are listed on the Exchange and are purchased and sold at market prices for shares. Although it is expected that the secondary market price for shares should approximate the Fund’s NAV, there may be times when the market price varies significantly from NAV.

 

    Market Risk    The Ultra S&P SmallCap 600 ProShares is subject to market risks that will affect the value of its shares, including general economic and market conditions, as well as developments that impact specific economic sectors, industries or companies.

 

    Non-diversification Risk    The Ultra S&P SmallCap 600 ProShares is considered non-diversified and may invest a relatively high percentage of its assets in the securities of a small number of issuers. In such circumstances, the Fund’s performance may be susceptible to economic, political or regulatory events affecting a single issuer than a more diversified fund.

 

    Repurchase Agreement Risk    Repurchase agreement risk is the risk that the counterparty to the repurchase agreement that sells the securities may default on its obligation to repurchase them. In this circumstance, Ultra S&P SmallCap 600 ProShares may lose money because: it may not be able to sell the securities at the agreed upon time and price, the securities may lose value before they can be sold, the selling institution may default or declare bankruptcy or the Fund may have difficulty exercising rights to the collateral.

 

    Small-Cap Company Investment Risk    The risk of equity investing may be particularly acute for securities of issuers with small market capitalization. Small-cap company stocks may trade at greater spreads or lower trading volumes, and may be less liquid, than the stocks of larger companies. Liquidating positions in small-cap companies could become difficult in turbulent market conditions. Small-cap company stocks tend to have greater fluctuations in price than the stocks of large companies. They may have limited product lines, markets, financial resources or personnel. In addition, small-cap companies tend to lack the financial and personnel resources to handle economic or industry-wide setbacks and, as a result, such setbacks could have a greater effect on small-cap security prices.

 

    Volatility Risk    Ultra S&P SmallCap 600 ProShares seeks to achieve a multiple of an index and therefore will experience greater volatility than the index underlying its benchmark and consequently has the potential for greater losses.

The Ultra S&P SmallCap 600 ProShares may be subject to risks in addition to those identified as principal risks. The sections titled “More on Risks” and “Special Risks of Exchange-Traded Funds” later in this Prospectus and the SAI contains additional information about the Fund and related risks.

FUND PERFORMANCE

Performance history will be available for the Ultra S&P SmallCap 600 ProShares after it has been in operation for a full calendar year.

FEES AND EXPENSES

The following table describes the estimated fees and expenses you may pay when you buy, hold, or sell Creation Units of the Ultra S&P SmallCap 600 ProShares. Annual fund operating expenses are estimates. Investors purchasing shares in the secondary market will not pay the shareholder fees shown below, but may be subject to costs (including customary brokerage commissions) charged by their broker.

 

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Shareholder Fees (paid directly by Authorized Participants) *

 

Sales charges (loads)

   None

Fixed transaction fee per orderA

   $3,000

Variable transaction fee per creation unitB

   up to 0.10%
Additional transaction charge if not settled through the Continuous Net Settlement System of the National Securities Clearing Corporation (NSCC)C    up to 3 times the fixed fee plus up to 0.10%

 

* See “Transaction Fees on Creation and Redemption Transactions” at the end of this Prospectus.

 

A A fixed transaction fee of $3,000 will be charged when you create or redeem Creation Units of the Ultra S&P SmallCap 600 ProShares regardless of the number of shares created or redeemed on the date of the transaction.

 

B A variable transaction fee of up to 0.10% of the value of each Creation Unit will be charged to offset costs associated with the order.

 

C An additional fee of up to 3 times the fixed per order transaction fee plus up to 0.10% of the value of each Creation Unit may be charged if you do not create or redeem shares through the Continuous Net Settlement System of the NSCC, or in circumstances in which cash is substituted for certain securities. Such transactions are allowed at the sole discretion of the Fund.

Annual Fund Operating Expenses (as a percentage of average daily net assets)

 

Investment Advisory Fee

   0.75 %

Distribution and Service (12b-1) fees

   0.00 %

Other expenses A

   0.66 %

Total annual fund operating expenses

   1.41 %

Fee Waivers/Reimbursements B

   0.46 %
      

Total net annual fund operating expenses

   0.95 %
      

 

A Based on estimated amounts for the current fiscal year.

 

B ProShare Advisors has contractually agreed to waive Investment Advisory and Management Services Fees and to reimburse other expenses to the extent Total Annual Operating Expenses, as a percentage of average daily net assets, exceed 0.95% through May 31, 2007. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular fiscal year may be recouped by ProShare Advisors within five years of the waiver or reimbursement to the extent that recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time.

Example: The following examples are intended to help you compare the cost of investing in shares of the Ultra S&P SmallCap 600 ProShares with the cost of investing in other funds. Investors should note that the following examples are for illustration purposes only and are not meant to suggest actual or expected fees and expenses or returns, all of which may vary. The Fund issues and redeems shares in Creation Units principally on an in-kind basis for portfolio securities included in the relevant Index and cash. Shares are not redeemable in less than Creation Unit aggregations. The examples do not include the brokerage commissions that secondary market investors may incur to buy and sell shares.

The following example assumes that you invest $10,000 in the Ultra S&P SmallCap 600 ProShares for the time periods indicated and sell all of your shares at the end of those periods, but does not include transaction fees on purchases and redemptions of shares. The example also assumes that your investment has a 5% annual return each year and that the Fund’s annual operating expenses remain exactly as described in the fee table. Although your actual costs may be higher or lower, based on the assumptions, your costs would be:

 

1 year

   $ 97

3 years

   $ 401

Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the Ultra S&P SmallCap 600 ProShares, as of January 16, 2006, is $[    ]. Assuming an investment in a Creation Unit of $[    ] and a 5% return each year, and that an investor pays both the standard $[    ] transaction fee applicable to both the purchase and redemption of the Creation Unit and the maximum variable transaction fee of 0.10% of the value of the Creation Unit, and assuming that the Fund’s gross operating expenses remain the same, the total costs would be $[    ] if the Creation Unit is redeemed after one year and $[    ] if the Creation Unit is redeemed after three years.

 

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Ultra S&P500/Citigroup Value ProShares

Ticker: [    ]

CUSIP: [    ]

INVESTMENT OBJECTIVE

Ultra S&P500/Citigroup Value ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of the S&P 500/Citigroup Value Index.

If Ultra S&P500/Citigroup Value ProShares is successful in meeting its objective, its net asset value should gain approximately twice as much, on a percentage basis, as the S&P 500/Citigroup Value Index (Index) when the Index rises on a given day. Conversely, its net asset value should lose approximately twice as much, on a percentage basis, as the Index when the Index declines on a given day.

PRINCIPAL INVESTMENT STRATEGY

The Ultra S&P500/Citigroup Value ProShares’ principal investment strategies include:

 

    Investing in equity securities and/or financial instruments (including derivatives) that ProShare Advisors believes, in combination, should have similar daily price return characteristics as twice (200%) the daily return of the S&P 500/Citigroup Value Index. Information about the Index can be found on page __.

 

    Committing at least 80% of its assets, under normal circumstances, to equity securities contained in the Index and/or financial instruments with similar economic characteristics.

 

    Employing leveraged investment techniques and/or sampling techniques in seeking its investment objective.

 

    Investing assets not invested in equity securities or financial instruments, in debt securities and/or money market instruments.

 

    The Fund will concentrate its investments in a particular industry or group of industries to approximately the same extent as the Index is so concentrated. As of the close of business on September 30, 2006, the Index was concentrated in the financials industry group, which comprised approximately 33% of the market capitalization of the Index

The Ultra S&P500/Citigroup Value ProShares employs leveraged investment techniques to achieve its investment objective. Over time, the use of leverage, combined with the effect of compounding, will have a more significant impact on the Ultra S&P500/Citigroup Value ProShares’ performance compared to the index underlying its benchmark than a fund that does not employ leverage. Therefore, the return of the index over a period of time greater than one day multiplied by a fund’s specified multiple or inverse multiple (e.g., 200% or -200%) will not generally equal a fund’s performance over that same period. The following example illustrates this point:

Let’s say, hypothetically, that a shareholder invests $10,000 in Fund A and $10,000 in Fund B.

 

Fund A: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to the daily performance of an index.    Fund B: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of an index.

 

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On Day 1, each fund’s benchmark index increases in value 1% which would cause a 1% increase in Fund A and a 2% increase in Fund B.

On Day 2, each fund’s benchmark index decreases in value 1% which would cause a 1% decrease in Fund A and a 2% decrease in Fund B. At the end of Day 2, the value of the shareholder’s investment in Fund A would be approximately $9,999 (an increase of $100 on Day 1 and a decrease of $101 on Day 2). The value of the shareholder’s investment in Fund B would be approximately $9,996 at the end of Day 2 (an increase of $200 on Day 1 and a decrease of $204 on Day 2). In each case, the value of the shareholder’s investment declined overall. However, the effect of compounding was more pronounced for Fund B, which employs leverage. This example demonstrates how an investment in Fund A would have decreased in value by $1 over two days based on the index performance, while an investment in Fund B would have decreased in value by $4 over two days (four times the cumulative index loss over two days rather than two times the cumulative index loss).

Over time, the cumulative percentage increase or decrease in the net asset value of the Fund may diverge significantly from the cumulative percentage increase or decrease in the multiple of the return of the underlying Index due to the compounding effect of losses and gains on the returns of the Fund. Consequently, for periods greater than one day, investors should not expect the return of the Fund to be twice the return of the underlying Index. In addition, in trendless or flat markets it is expected that the Fund will underperform its benchmark Index.

PRINCIPAL RISK CONSIDERATIONS

The Ultra S&P500/Citigroup Value ProShares is subject to the following principal risks:

 

    Aggressive Investment Technique Risk    The Ultra S&P500/Citigroup Value ProShares uses investment techniques and financial instruments that may be considered aggressive, including the use of futures contracts, options on futures contracts, securities and indices, forward contracts, swap agreements and similar instruments. Such techniques may expose the Fund to potentially dramatic changes (losses) in the value of its portfolio holdings and imperfect correlation to the index underlying the Fund’s benchmark. These techniques also may expose the Fund to risks different from or possibly greater than the risks associated with investing directly in the securities contained in the index underlying the Fund’s benchmark.

 

    Correlation Risk    A number of factors may affect the Ultra S&P500/Citigroup Value ProShares’ ability to achieve a high correlation with its benchmark and there can be no guarantee that the Fund will achieve a high degree of correlation.

 

    Counterparty Risk    The counterparty to a financial instrument may default on its obligations under the related agreement. In this circumstance, the Ultra S&P500/Citigroup Value ProShares may lose money.

 

    Credit Risk    An issuer of debt instruments may be unable to make interest payments and repay principal. Changes in an issuer’s financial strength or in an instrument’s credit rating may affect an instrument’s value and, thus, impact Ultra S&P500/Citigroup Value ProShares’ performance. As described under “Counterparty Risk” above, the Fund will also be subject to credit risk with respect to the amount a Fund expects to receive from counterparties in financial instruments transactions. If a counterparty defaults on its payment obligations to a Fund, the value of your investment in a fund may decline.

 

    Equity Risk    The equity markets are volatile, and the value of securities, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day.

 

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    Leverage Risk    The Ultra S&P500/Citigroup Value ProShares’ NAV and market price will likely be more volatile than the index underlying its benchmark and funds that do not employ leverage. Leverage should cause the Fund to lose more money in market environments adverse to its daily investment objective than an unleveraged investment.

 

    Liquidity Risk    In certain circumstances, the Ultra S&P500/Citigroup Value ProShares may not be able to dispose of positions within a reasonable time at a fair price.

 

    Market Price Variance Risk    The Ultra S&P500/Citigroup Value ProShares’ NAV will fluctuate with changes in the value of its portfolio holdings. Fund shares are listed on the Exchange and are purchased and sold at market prices for shares. Although it is expected that the secondary market price for shares should approximate the Fund’s NAV, there may be times when the market price varies significantly from NAV.

 

    Market Risk    The Ultra S&P500/Citigroup Value ProShares is subject to market risks that will affect the value of its shares, including general economic and market conditions, as well as developments that impact specific economic sectors, industries or companies.

 

    Non-diversification Risk    The Ultra S&P500/Citigroup Value ProShares is considered non-diversified and may invest a relatively high percentage of its assets in the securities of a small number of issuers. In such circumstances, the Fund’s performance may be susceptible to economic, political or regulatory events affecting a single issuer than a more diversified fund.

 

    Repurchase Agreement Risk    Repurchase agreement risk is the risk that the counterparty to the repurchase agreement that sells the securities may default on its obligation to repurchase them. In this circumstance, Ultra S&P500/Citigroup Value ProShares may lose money because: it may not be able to sell the securities at the agreed upon time and price, the securities may lose value before they can be sold, the selling institution may default or declare bankruptcy or the Fund may have difficulty exercising rights to the collateral.

 

    Value Investing Risk    Value investing carries the risk that the market will not recognize a security’s intrinsic value for a longtime, or that a stock deemed to be undervalued may actually be appropriately priced or overvalued. “Value” stocks can react differently to issuer, political, market and economic developments than the market as a whole.

 

    Volatility Risk    Ultra S&P500/Citigroup Value ProShares seeks to achieve a multiple of an index and therefore will experience greater volatility than the index underlying its benchmark and consequently has the potential for greater losses.

The Ultra S&P500/Citigroup Value ProShares may be subject to risks in addition to those identified as principal risks. The sections titled “More on Risks” and “Special Risks of Exchange-Traded Funds” later in this Prospectus and the SAI contains additional information about the Fund and related risks.

FUND PERFORMANCE

Performance history will be available for the Ultra S&P500/Citigroup Value ProShares after it has been in operation for a full calendar year.

FEES AND EXPENSES

The following table describes the estimated fees and expenses you may pay when you buy, hold, or sell Creation Units of the Ultra S&P500/Citigroup Value ProShares. Annual fund operating expenses are estimates. Investors purchasing shares in the secondary market will not pay the shareholder fees shown below, but may be subject to costs (including customary brokerage commissions) charged by their broker.

 

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Shareholder Fees (paid directly by Authorized Participants)*

 

Sales charges (loads)

   None

Fixed transaction fee per orderA

   $3,055

Variable transaction fee per creation unitB

   up to 0.10%
Additional transaction charge if not settled through the Continuous Net Settlement System of the National Securities Clearing Corporation (NSCC)C    up to 3 times the fixed fee plus up to 0.10%

 

* See “Transaction Fees on Creation and Redemption Transactions” at the end of this Prospectus.

 

A A fixed transaction fee of 3.055 will be charged when you create or redeem Creation Units of the Ultra S&P500/Citigroup Value ProShares regardless of the number of shares created or redeemed on the date of the transaction.

 

B A variable transaction fee of up to 0.10% of the value of each Creation Unit will be charged to offset costs associated with the order.

 

C An additional fee of up to 3 times the fixed per order transaction fee plus up to 0.10% of the value of each Creation Unit may be charged if you do not create or redeem shares through the Continuous Net Settlement System of the NSCC, or in circumstances in which cash is substituted for certain securities. Such transactions are allowed at the sole discretion of the Fund.

Annual Fund Operating Expenses (as a percentage of average daily net assets)

 

Investment Advisory Fee

   0.75 %

Distribution and Service (12b-1) fees

   0.00 %

Other expenses A

   0.72 %

Total annual fund operating expenses

   1.47 %

Fee Waivers/Reimbursements B

   0.52 %
      

Total net annual fund operating expenses

   0.95 %
      

 

A Based on estimated amounts for the current fiscal year.

 

B ProShare Advisors has contractually agreed to waive Investment Advisory and Management Services Fees and to reimburse other expenses to the extent Total Annual Operating Expenses, as a percentage of average daily net assets, exceed 0.95% through May 31, 2007. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular fiscal year may be recouped by ProShare Advisors within five years of the waiver or reimbursement to the extent that recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time.

Example: The following examples are intended to help you compare the cost of investing in shares of the Ultra S&P500/Citigroup Value ProShares with the cost of investing in other funds. Investors should note that the following examples are for illustration purposes only and are not meant to suggest actual or expected fees and expenses or returns, all of which may vary. The Fund issues and redeems shares in Creation Units principally on an in-kind basis for portfolio securities included in the relevant Index and cash. Shares are not redeemable in less than Creation Unit aggregations. The examples do not include the brokerage commissions that secondary market investors may incur to buy and sell shares.

The following example assumes that you invest $10,000 in the Fund for the time periods indicated and sell all of your shares at the end of those periods, but does not include transaction fees on purchases and redemptions of shares. The example also assumes that your investment has a 5% annual return each year and that the Fund’s annual operating expenses remain exactly as described in the fee table. Although your actual costs may be higher or lower, based on the assumptions, your costs would be:

 

1 year

   $ 97

3 years

   $ 414

 

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Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the Ultra S&P500/Citigroup Value ProShares, as of January 16, 2006, is $[    ]. Assuming an investment in a Creation Unit of $[    ] and a 5% return each year, and that an investor pays both the standard $[    ] transaction fee applicable to both the purchase and redemption of the Creation Unit and the maximum variable transaction fee of 0.10% of the value of the Creation Unit, and assuming that the Fund’s gross operating expenses remain the same, the total costs would be $[    ] if the Creation Unit is redeemed after one year and $[    ] if the Creation Unit is redeemed after three years.

 

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Ultra S&P500/Citigroup Growth ProShares

Ticker: [    ]

CUSIP: [    ]

INVESTMENT OBJECTIVE

Ultra S&P500/Citigroup Growth ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of the S&P 500/Citigroup Growth Index.

If Ultra S&P500/Citigroup Growth ProShares is successful in meeting its objective, its net asset value should gain approximately twice as much, on a percentage basis, as the S&P 500/Citigroup Growth Index (Index) when the Index rises on a given day. Conversely, its net asset value should lose approximately twice as much, on a percentage basis, as the Index when the Index declines on a given day.

PRINCIPAL INVESTMENT STRATEGY

The Ultra S&P500/Citigroup Growth ProShares’ principal investment strategies include:

 

    Investing in equity securities and/or financial instruments (including derivatives) that ProShare Advisors believes, in combination, should have similar daily price return characteristics as twice (200%) the daily return of the S&P 500/Citigroup Growth Index. Information about the Index can be found on page __.

 

    Committing at least 80% of its assets, under normal circumstances, to equity securities contained in the Index and/or financial instruments with similar economic characteristics.

 

    Employing leveraged investment techniques and/or sampling techniques in seeking its investment objective.

 

    Investing assets not invested in equity securities or financial instruments in debt securities and/or money market instruments.

The Ultra S&P500/Citigroup Growth ProShares employs leveraged investment techniques to achieve its investment objective. Over time, the use of leverage, combined with the effect of compounding, will have a more significant impact on the Fund’s performance compared to the index underlying its benchmark than a fund that does not employ leverage. Therefore, the return of the index over a period of time greater than one day multiplied by a fund’s specified multiple or inverse multiple (e.g., 200% or -200%) will not generally equal a fund’s performance over that same period. The following example illustrates this point:

Let’s say, hypothetically, that a shareholder invests $10,000 in Fund A and $10,000 in Fund B.

 

Fund A: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to the daily performance of an index.    Fund B: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of an index.

On Day 1, each fund’s benchmark index increases in value 1% which would cause a 1% increase in Fund A and a 2% increase in Fund B.

On Day 2, each fund’s benchmark index decreases in value 1% which would cause a 1% decrease in Fund A and a 2% decrease in Fund B. At the end of Day 2, the value of the shareholder’s investment in Fund A would be approximately $9,999 (an increase of $100 on Day 1 and a decrease of $101 on Day 2). The value of the shareholder’s investment in Fund B would be approximately $9,996 at the end of Day 2 (an increase of $200 on Day 1 and a decrease of $204 on Day 2). In each case, the value of the shareholder’s investment declined overall. However, the effect of compounding was more pronounced for Fund B, which employs leverage. This example demonstrates how an investment in Fund A would have decreased in value by $1 over two days based on the index performance, while an investment in Fund B would have decreased in value by $4 over two days (four times the cumulative index loss over two days rather than two times the cumulative index loss).

 

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Over time, the cumulative percentage increase or decrease in the net asset value of the Fund may diverge significantly from the cumulative percentage increase or decrease in the multiple of the return of the underlying Index due to the compounding effect of losses and gains on the returns of the Fund. Consequently, for periods greater than one day, investors should not expect the return of the Fund to be twice the return of the underlying Index. In addition, in trendless or flat markets it is expected that the Fund will underperform its benchmark Index.

PRINCIPAL RISK CONSIDERATIONS

The Ultra S&P500/Citigroup Growth ProShares is subject to the following principal risks:

 

    Aggressive Investment Technique Risk    The Ultra S&P500/Citigroup Growth ProShares uses investment techniques and financial instruments that may be considered aggressive, including the use of futures contracts, options on futures contracts, securities and indices, forward contracts, swap agreements and similar instruments. Such techniques may expose the Fund to potentially dramatic changes (losses) in the value of its portfolio holdings and imperfect correlation to the index underlying the Fund’s benchmark. These techniques also may expose the Fund to risks different from or possibly greater than the risks associated with investing directly in the securities contained in the index underlying the Fund’s benchmark.

 

    Correlation Risk    A number of factors may affect the Ultra S&P500/Citigroup Growth ProShares’ ability to achieve a high correlation with its benchmark and there can be no guarantee that the Fund will achieve a high degree of correlation.

 

    Counterparty Risk    The counterparty to a financial instrument may default on its obligations under the related agreement. In this circumstance, the Ultra S&P500/Citigroup Growth ProShares may lose money.

 

    Credit Risk    An issuer of debt instruments may be unable to make interest payments and repay principal. Changes in an issuer’s financial strength or in an instrument’s credit rating may affect an instrument’s value and, thus, impact Ultra S&P500/Citigroup Growth ProShares’ performance. As described under “Counterparty Risk” above, the Fund will also be subject to credit risk with respect to the amount a Fund expects to receive from counterparties in financial instruments transactions. If a counterparty defaults on its payment obligations to a Fund, the value of your investment in a fund may decline.

 

    Equity Risk    The equity markets are volatile, and the value of securities, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day.

 

    Growth Investing Risk    An investment in growth stocks may be susceptible to rapid price swings, especially during periods of economic uncertainty. Growth stocks typically have little or no dividend income to cushion the effect of adverse market conditions and may be particularly volatile in the event of earnings disappointments or other financial difficulties experienced by the issuer.

 

    Leverage Risk    The Ultra S&P500/Citigroup Growth ProShares’ NAV and market price will likely be more volatile than the index underlying its benchmark and funds that do not employ leverage. Leverage should cause the Fund to lose more money in market environments adverse to its daily investment objective than an unleveraged investment.

 

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    Liquidity Risk    In certain circumstances, the Ultra S&P500/Citigroup Growth ProShares may not be able to dispose of positions within a reasonable time at a fair price.

 

    Market Price Variance Risk    The Ultra S&P500/Citigroup Growth ProShares’ NAV will fluctuate with changes in the value of its portfolio holdings. Fund shares are listed on the Exchange and are purchased and sold at market prices for shares. Although it is expected that the secondary market price for shares should approximate the Fund’s NAV, there may be times when the market price varies significantly from NAV.

 

    Market Risk    The Ultra S&P500/Citigroup Growth ProShares is subject to market risks that will affect the value of its shares, including general economic and market conditions, as well as developments that impact specific economic sectors, industries or companies.

 

    Non-diversification Risk    The Ultra S&P500/Citigroup Growth ProShares is considered non-diversified and may invest a relatively high percentage of its assets in the securities of a small number of issuers. In such circumstances, the Fund’s performance may be susceptible to economic, political or regulatory events affecting a single issuer than a more diversified fund.

 

    Repurchase Agreement Risk    Repurchase agreement risk is the risk that the counterparty to the repurchase agreement that sells the securities may default on its obligation to repurchase them. In this circumstance, Ultra S&P500/Citigroup Growth ProShares may lose money because: it may not be able to sell the securities at the agreed upon time and price, the securities may lose value before they can be sold, the selling institution may default or declare bankruptcy or the Fund may have difficulty exercising rights to the collateral.

 

    Volatility Risk    Ultra S&P500/Citigroup Growth ProShares seeks to achieve a multiple of an index and therefore will experience greater volatility than the index underlying its benchmark and consequently has the potential for greater losses.

The Ultra S&P500/Citigroup Growth ProShares may be subject to risks in addition to those identified as principal risks. The sections titled “More on Risks” and “Special Risks of Exchange-Traded Funds” later in this Prospectus and the SAI contains additional information about the Fund and related risks.

FUND PERFORMANCE

Performance history will be available for the Ultra S&P500/Citigroup Growth ProShares after it has been in operation for a full calendar year.

FEES AND EXPENSES

The following table describes the estimated fees and expenses you may pay when you buy, hold, or sell Creation Units of the Ultra S&P500/Citigroup Growth ProShares. Annual fund operating expenses are estimates. Investors purchasing shares in the secondary market will not pay the shareholder fees shown below, but may be subject to costs (including customary brokerage commissions) charged by their broker.

Shareholder Fees (paid directly by Authorized Participants)*

 

Sales charges (loads)

   None

Fixed transaction fee per orderA

   $3,415

Variable transaction fee per creation unitB

   up to 0.10%
Additional transaction charge if not settled through the Continuous Net Settlement System of the National Securities Clearing Corporation (NSCC)C    up to 3 times the fixed fee plus up to 0.10%

 

* See “Transaction Fees on Creation and Redemption Transactions” at the end of this Prospectus.

 

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A A fixed transaction fee of $3,415 will be charged when you create or redeem Creation Units of the Ultra S&P500/Citigroup Growth ProShares regardless of the number of shares created or redeemed on the date of the transaction.

 

B A variable transaction fee of up to 0.10% of the value of each Creation Unit will be charged to offset costs associated with the order.

 

C An additional fee of up to 3 times the fixed per order transaction fee plus up to 0.10% of the value of each Creation Unit may be charged if you do not create or redeem shares through the Continuous Net Settlement System of the NSCC, or in circumstances in which cash is substituted for certain securities. Such transactions are allowed at the sole discretion of the Fund.

Annual Fund Operating Expenses (as a percentage of average daily net assets)

 

Investment Advisory Fee

   0.75 %

Distribution and Service (12b-1) fees

   0.00 %

Other expenses A

   0.73 %

Total annual fund operating expenses

   1.48 %

Fee Waivers/Reimbursements B

   0.53 %
      

Total net annual fund operating expenses

   0.95 %
      

 

A Based on estimated amounts for the current fiscal year.

 

B ProShare Advisors has contractually agreed to waive Investment Advisory and Management Services Fees and to reimburse other expenses to the extent Total Annual Operating Expenses, as a percentage of average daily net assets, exceed 0.95% through May 31, 2007. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular fiscal year may be recouped by ProShare Advisors within five years of the waiver or reimbursement to the extent that recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time.

Example: The following examples are intended to help you compare the cost of investing in shares of the Ultra S&P500/Citigroup Growth ProShares with the cost of investing in other funds. Investors should note that the following examples are for illustration purposes only and are not meant to suggest actual or expected fees and expenses or returns, all of which may vary. The Fund issues and redeems shares in Creation Units principally on an in-kind basis for portfolio securities included in the relevant Index and cash. Shares are not redeemable in less than Creation Unit aggregations. The examples do not include the brokerage commissions that secondary market investors may incur to buy and sell shares.

The following example assumes that you invest $10,000 in the Ultra S&P500/Citigroup Growth ProShares for the time periods indicated and sell all of your shares at the end of those periods, but does not include transaction fees on purchases and redemptions of shares. The example also assumes that your investment has a 5% annual return each year and that the Fund’s annual operating expenses remain exactly as described in the fee table. Although your actual costs may be higher or lower, based on the assumptions, your costs would be:

 

1 year

   $ 97

3 years

   $ 416

Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the Ultra S&P500/Citigroup Growth ProShares, as of January 16, 2006, is $[    ]. Assuming an investment in a Creation Unit of $[    ] and a 5% return each year, and that an investor pays both the standard $[    ] transaction fee applicable to both the purchase and redemption of the Creation Unit and the maximum variable transaction fee of 0.10% of the value of the Creation Unit, and assuming that the Fund’s gross operating expenses remain the same, the total costs would be $[    ] if the Creation Unit is redeemed after one year and $[    ] if the Creation Unit is redeemed after three years.

 

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Ultra S&P MidCap 400/Citigroup Value ProShares

Ticker: [    ]

CUSIP: [    ]

INVESTMENT OBJECTIVE

Ultra S&P MidCap 400/Citigroup Value ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of the S&P MidCap 400/Citigroup Value Index.

If Ultra S&P MidCap 400/Citigroup Value ProShares is successful in meeting its objective, its net asset value should gain approximately twice as much, on a percentage basis, as the S&P MidCap 400/Citigroup Value Index (Index) when the Index rises on a given day. Conversely, its net asset value should lose approximately twice as much, on a percentage basis, as the Index when the Index declines on a given day.

PRINCIPAL INVESTMENT STRATEGY

The Ultra S&P MidCap 400/Citigroup Value ProShares’ principal investment strategies include:

 

    Investing in equity securities and/or financial instruments (including derivatives) that ProShare Advisors believes, in combination, should have similar daily price return characteristics as twice (200%) the daily return of the S&P MidCap 400/Citigroup Value Index. Information about the Index can be found on page __.

 

    Committing at least 80% of its assets, under normal circumstances, to equity securities contained in the Index and/or financial instruments with similar economic characteristics.

 

    Employing leveraged investment techniques and/or sampling techniques in seeking its investment objective.

 

    Investing assets not invested in equity securities or financial instruments, in debt securities and/or money market instruments.

 

    The Fund will concentrate its investments in a particular industry or group of industries to approximately the same extent as the Index is so concentrated. As of the close of business on September 30, 2006, the Index was concentrated in the financials industry group, which comprised approximately 25% of the market capitalization of the Index

The Ultra S&P MidCap 400/Citigroup Value ProShares employs leveraged investment techniques to achieve its investment objective. Over time, the use of leverage, combined with the effect of compounding, will have a more significant impact on the Ultra S&P MidCap 400/Citigroup Value ProShares’ performance compared to the index underlying its benchmark than a fund that does not employ leverage. Therefore, the return of the index over a period of time greater than one day multiplied by a fund’s specified multiple or inverse multiple (e.g., 200% or -200%) will not generally equal a fund’s performance over that same period. The following example illustrates this point:

Let’s say, hypothetically, that a shareholder invests $10,000 in Fund A and $10,000 in Fund B.

 

Fund A: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to the daily performance of an index.    Fund B: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of an index.

On Day 1, each fund’s benchmark index increases in value 1% which would cause a 1% increase in Fund A and a 2% increase in Fund B.

 

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On Day 2, each fund’s benchmark index decreases in value 1% which would cause a 1% decrease in Fund A and a 2% decrease in Fund B. At the end of Day 2, the value of the shareholder’s investment in Fund A would be approximately $9,999 (an increase of $100 on Day 1 and a decrease of $101 on Day 2). The value of the shareholder’s investment in Fund B would be approximately $9,996 at the end of Day 2 (an increase of $200 on Day 1 and a decrease of $204 on Day 2). In each case, the value of the shareholder’s investment declined overall. However, the effect of compounding was more pronounced for Fund B, which employs leverage. This example demonstrates how an investment in Fund A would have decreased in value by $1 over two days based on the index performance, while an investment in Fund B would have decreased in value by $4 over two days (four times the cumulative index loss over two days rather than two times the cumulative index loss).

Over time, the cumulative percentage increase or decrease in the net asset value of the Fund may diverge significantly from the cumulative percentage increase or decrease in the multiple of the return of the underlying Index due to the compounding effect of losses and gains on the returns of the Fund. Consequently, for periods greater than one day, investors should not expect the return of the Fund to be twice the return of the underlying Index. In addition, in trendless or flat markets it is expected that the Fund will underperform its benchmark Index.

PRINCIPAL RISK CONSIDERATIONS

The Ultra S&P MidCap 400/Citigroup Value ProShares is subject to the following principal risks:

 

    Aggressive Investment Technique Risk    The Ultra S&P MidCap 400/Citigroup Value ProShares uses investment techniques and financial instruments that may be considered aggressive, including the use of futures contracts, options on futures contracts, securities and indices, forward contracts, swap agreements and similar instruments. Such techniques may expose the Fund to potentially dramatic changes (losses) in the value of its portfolio holdings and imperfect correlation to the index underlying the Fund’s benchmark. These techniques also may expose the Fund to risks different from or possibly greater than the risks associated with investing directly in the securities contained in the index underlying the Fund’s benchmark.

 

    Correlation Risk    A number of factors may affect the Ultra S&P MidCap 400/Citigroup Value ProShares’ ability to achieve a high correlation with its benchmark and there can be no guarantee that the Fund will achieve a high degree of correlation.

 

    Counterparty Risk    The counterparty to a financial instrument may default on its obligations under the related agreement. In this circumstance, the Ultra S&P MidCap 400/Citigroup Value ProShares may lose money.

 

    Credit Risk    An issuer of debt instruments may be unable to make interest payments and repay principal. Changes in an issuer’s financial strength or in an instrument’s credit rating may affect an instrument’s value and, thus, impact Ultra S&P MidCap 400/Citigroup Value ProShares’ performance. As described under “Counterparty Risk” above, the Fund will also be subject to credit risk with respect to the amount a Fund expects to receive from counterparties in financial instruments transactions. If a counterparty defaults on its payment obligations to a Fund, the value of your investment in a fund may decline.

 

    Equity Risk    The equity markets are volatile, and the value of securities, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day.

 

    Leverage Risk    The Ultra S&P MidCap 400/Citigroup Value ProShares’ NAV and market price will likely be more volatile than the index underlying its benchmark and funds that do not employ leverage. Leverage should cause the Fund to lose more money in market environments adverse to its daily investment objective than an unleveraged investment.

 

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    Liquidity Risk    In certain circumstances, the Ultra S&P MidCap 400/Citigroup Value ProShares may not be able to dispose of positions within a reasonable time at a fair price.

 

    Market Price Variance Risk    The Ultra S&P MidCap 400/Citigroup Value ProShares’ NAV will fluctuate with changes in the value of its portfolio holdings. Fund shares are listed on the Exchange and are purchased and sold at market prices for shares. Although it is expected that the secondary market price for shares should approximate the Fund’s NAV, there may be times when the market price varies significantly from NAV.

 

    Market Risk    The Ultra S&P MidCap 400/Citigroup Value ProShares is subject to market risks that will affect the value of its shares, including general economic and market conditions, as well as developments that impact specific economic sectors, industries or companies.

 

    Mid-cap Company Investment Risk    Mid-cap company stocks may have greater fluctuations in price than the stocks of large companies. Further, stocks of mid-sized companies could be more difficult to liquidate during market downturns compared to larger, more widely traded companies. Mid-Cap companies may have limited product lines or resources and may be dependant upon a particular market niche.

 

    Non-diversification Risk    The Ultra S&P MidCap 400/Citigroup Value ProShares is considered non-diversified and may invest a relatively high percentage of its assets in the securities of a small number of issuers. In such circumstances, the Fund’s performance may be susceptible to economic, political or regulatory events affecting a single issuer than a more diversified fund.

 

    Repurchase Agreement Risk    Repurchase agreement risk is the risk that the counterparty to the repurchase agreement that sells the securities may default on its obligation to repurchase them. In this circumstance, Ultra S&P MidCap 400/Citigroup Value ProShares may lose money because: it may not be able to sell the securities at the agreed upon time and price, the securities may lose value before they can be sold, the selling institution may default or declare bankruptcy or the Fund may have difficulty exercising rights to the collateral.

 

    Value Investing Risk    Value investing carries the risk that the market will not recognize a security’s intrinsic value for a longtime, or that a stock deemed to be undervalued may actually be appropriately priced or overvalued. “Value” stocks can react differently to issuer, political, market and economic developments than the market as a whole.

 

    Volatility Risk    Ultra S&P MidCap 400/Citigroup Value ProShares seeks to achieve a multiple of an index and therefore will experience greater volatility than the index underlying its benchmark and consequently has the potential for greater losses.

The Ultra S&P MidCap 400/Citigroup Value ProShares may be subject to risks in addition to those identified as principal risks. The sections titled “More on Risks” and “Special Risks of Exchange-Traded Funds” later in this Prospectus and the SAI contains additional information about the Fund and related risks.

FUND PERFORMANCE

Performance history will be available for the Ultra S&P MidCap 400/Citigroup Value ProShares after it has been in operation for a full calendar year.

 

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FEES AND EXPENSES

The following table describes the estimated fees and expenses you may pay when you buy, hold, or sell Creation Units of the Ultra S&P MidCap 400/Citigroup Value ProShares. Annual fund operating expenses are estimates. Investors purchasing shares in the secondary market will not pay the shareholder fees shown below, but may be subject to costs (including customary brokerage commissions) charged by their broker.

Shareholder Fees (paid directly by Authorized Participants)*

 

Sales charges (loads)

   None

Fixed transaction fee per orderA

   $2,405

Variable transaction fee per creation unitB

   up to 0.10%
Additional transaction charge if not settled through the Continuous Net Settlement System of the National Securities Clearing Corporation (NSCC)C    up to 3 times the fixed fee plus up to 0.10%

 

* See “Transaction Fees on Creation and Redemption Transactions” at the end of this Prospectus.

 

A A fixed transaction fee of $2,405 will be charged when you create or redeem Creation Units of the Ultra S&P MidCap 400/Citigroup Value ProShares regardless of the number of shares created or redeemed on the date of the transaction.

 

B A variable transaction fee of up to 0.10% of the value of each Creation Unit will be charged to offset costs associated with the order.

 

C An additional fee of up to 3 times the fixed per order transaction fee plus up to 0.10% of the value of each Creation Unit may be charged if you do not create or redeem shares through the Continuous Net Settlement System of the NSCC, or in circumstances in which cash is substituted for certain securities. Such transactions are allowed at the sole discretion of the Fund.

Annual Fund Operating Expenses (as a percentage of average daily net assets)

 

Investment Advisory Fee

   0.75 %

Distribution and Service (12b-1) fees

   0.00 %

Other expensesA

   0.72 %

Total annual fund operating expenses

   1.47 %

Fee Waivers/ReimbursementsB

   0.52 %
      

Total net annual fund operating expenses

   0.95 %
      

 

A Based on estimated amounts for the current fiscal year.

 

B ProShare Advisors has contractually agreed to waive Investment Advisory and Management Services Fees and to reimburse other expenses to the extent Total Annual Operating Expenses, as a percentage of average daily net assets, exceed 0.95% through May 31, 2007. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular fiscal year may be recouped by ProShare Advisors within five years of the waiver or reimbursement to the extent that recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time.

Example: The following examples are intended to help you compare the cost of investing in shares of the Ultra S&P MidCap 400/Citigroup Value ProShares with the cost of investing in other funds. Investors should note that the following examples are for illustration purposes only and are not meant to suggest actual or expected fees and expenses or returns, all of which may vary. The Fund issues and redeems shares in Creation Units principally on an in-kind basis for portfolio securities included in the relevant Index and cash. Shares are not redeemable in less than Creation Unit aggregations. The examples do not include the brokerage commissions that secondary market investors may incur to buy and sell shares.

The following example assumes that you invest $10,000 in the Fund for the time periods indicated and sell all of your shares at the end of those periods, but does not include transaction fees on purchases and redemptions of shares. The example also assumes that your investment has a 5% annual return each year and that the Fund’s annual operating expenses remain exactly as described in the fee table. Although your actual costs may be higher or lower, based on the assumptions, your costs would be:

 

1 year

   $ 97

3 years

   $ 414

 

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Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the Ultra S&P MidCap 400/Citigroup Value ProShares, as of January 16, 2006, is $[    ]. Assuming an investment in a Creation Unit of $[    ] and a 5% return each year, and that an investor pays both the standard $[    ] transaction fee applicable to both the purchase and redemption of the Creation Unit and the maximum variable transaction fee of 0.10% of the value of the Creation Unit, and assuming that the Fund’s gross operating expenses remain the same, the total costs would be $[    ] if the Creation Unit is redeemed after one year and $[    ] if the Creation Unit is redeemed after three years.

 

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Ultra S&P MidCap 400/Citigroup Growth ProShares

Ticker: [    ]

CUSIP: [    ]

INVESTMENT OBJECTIVE

Ultra S&P MidCap 400/Citigroup Growth ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of the S&P MidCap 400/Citigroup Growth Index.

If Ultra S&P MidCap 400/Citigroup Growth ProShares is successful in meeting its objective, its net asset value should gain approximately twice as much, on a percentage basis, as the S&P MidCap 400/Citigroup Growth Index (Index) when the Index rises on a given day. Conversely, its net asset value should lose approximately twice as much, on a percentage basis, as the Index when the Index declines on a given day.

PRINCIPAL INVESTMENT STRATEGY

The Ultra S&P MidCap 400/Citigroup Growth ProShares’ principal investment strategies include:

 

    Investing in equity securities and/or financial instruments (including derivatives) that ProShare Advisors believes, in combination, should have similar daily price return characteristics as twice (200%) the daily return of the S&P MidCap 400/Citigroup Growth Index. Information about the Index can be found on page __.

 

    Committing at least 80% of its assets, under normal circumstances, to equity securities contained in the Index and/or financial instruments with similar economic characteristics.

 

    Employing leveraged investment techniques and/or sampling techniques in seeking its investment objective.

 

    Investing assets not invested in equity securities or financial instruments in debt securities and/or money market instruments.

The Ultra S&P MidCap 400/Citigroup Growth ProShares employs leveraged investment techniques to achieve its investment objective. Over time, the use of leverage, combined with the effect of compounding, will have a more significant impact on the Fund’s performance compared to the index underlying its benchmark than a fund that does not employ leverage. Therefore, the return of the index over a period of time greater than one day multiplied by a fund’s specified multiple or inverse multiple (e.g., 200% or -200%) will not generally equal a fund’s performance over that same period. The following example illustrates this point:

Let’s say, hypothetically, that a shareholder invests $10,000 in Fund A and $10,000 in Fund B.

 

Fund A: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to the daily performance of an index.    Fund B: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of an index.

On Day 1, each fund’s benchmark index increases in value 1% which would cause a 1% increase in Fund A and a 2% increase in Fund B.

On Day 2, each fund’s benchmark index decreases in value 1% which would cause a 1% decrease in Fund A and a 2% decrease in Fund B. At the end of Day 2, the value of the shareholder’s investment in Fund A would be approximately $9,999 (an increase of $100 on Day 1 and a decrease of $101 on Day 2). The value of the shareholder’s investment in Fund B would be approximately $9,996 at the end of Day 2 (an increase of $200 on Day 1 and a decrease of $204 on Day 2). In each case, the value of the shareholder’s investment declined overall. However, the effect of compounding was more pronounced for Fund B, which

 

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employs leverage. This example demonstrates how an investment in Fund A would have decreased in value by $1 over two days based on the index performance, while an investment in Fund B would have decreased in value by $4 over two days (four times the cumulative index loss over two days rather than two times the cumulative index loss).

Over time, the cumulative percentage increase or decrease in the net asset value of the Fund may diverge significantly from the cumulative percentage increase or decrease in the multiple of the return of the underlying Index due to the compounding effect of losses and gains on the returns of the Fund. Consequently, for periods greater than one day, investors should not expect the return of the Fund to be twice the return of the underlying Index. In addition, in trendless or flat markets it is expected that the Fund will underperform its benchmark Index.

PRINCIPAL RISK CONSIDERATIONS

The Ultra S&P MidCap 400/Citigroup Growth ProShares is subject to the following principal risks:

 

    Aggressive Investment Technique Risk    The Ultra S&P MidCap 400/Citigroup Growth ProShares uses investment techniques and financial instruments that may be considered aggressive, including the use of futures contracts, options on futures contracts, securities and indices, forward contracts, swap agreements and similar instruments. Such techniques may expose the Fund to potentially dramatic changes (losses) in the value of its portfolio holdings and imperfect correlation to the index underlying the Fund’s benchmark. These techniques also may expose the Fund to risks different from or possibly greater than the risks associated with investing directly in the securities contained in the index underlying the Fund’s benchmark.

 

    Correlation Risk    A number of factors may affect the Ultra S&P MidCap 400/Citigroup Growth ProShares’ ability to achieve a high correlation with its benchmark and there can be no guarantee that the Fund will achieve a high degree of correlation.

 

    Counterparty Risk    The counterparty to a financial instrument may default on its obligations under the related agreement. In this circumstance, the Ultra S&P MidCap 400/Citigroup Growth ProShares may lose money.

 

    Credit Risk    An issuer of debt instruments may be unable to make interest payments and repay principal. Changes in an issuer’s financial strength or in an instrument’s credit rating may affect an instrument’s value and, thus, impact Ultra S&P MidCap 400/Citigroup Growth ProShares’ performance. As described under “Counterparty Risk” above, the Fund will also be subject to credit risk with respect to the amount a Fund expects to receive from counterparties in financial instruments transactions. If a counterparty defaults on its payment obligations to a Fund, the value of your investment in a fund may decline.

 

    Equity Risk    The equity markets are volatile, and the value of securities, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day.

 

    Growth Investing Risk    An investment in growth stocks may be susceptible to rapid price swings, especially during periods of economic uncertainty. Growth stocks typically have little or no dividend income to cushion the effect of adverse market conditions and may be particularly volatile in the event of earnings disappointments or other financial difficulties experienced by the issuer.

 

    Leverage Risk    The Ultra S&P MidCap 400/Citigroup Growth ProShares’ NAV and market price will likely be more volatile than the index underlying its benchmark and funds that do not employ leverage. Leverage should cause the Fund to lose more money in market environments adverse to its daily investment objective than an unleveraged investment.

 

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    Liquidity Risk    In certain circumstances, the Ultra S&P MidCap 400/Citigroup Growth ProShares may not be able to dispose of positions within a reasonable time at a fair price.

 

    Market Price Variance Risk    The Ultra S&P MidCap 400/Citigroup Growth ProShares’ NAV will fluctuate with changes in the value of its portfolio holdings. Fund shares are listed on the Exchange and are purchased and sold at market prices for shares. Although it is expected that the secondary market price for shares should approximate the Fund’s NAV, there may be times when the market price varies significantly from NAV.

 

    Market Risk    The Ultra S&P MidCap 400/Citigroup Growth ProShares is subject to market risks that will affect the value of its shares, including general economic and market conditions, as well as developments that impact specific economic sectors, industries or companies.

 

    Mid-cap Company Investment Risk    Mid-cap company stocks may have greater fluctuations in price than the stocks of large companies. Further, stocks of mid-sized companies could be more difficult to liquidate during market downturns compared to larger, more widely traded companies. Mid-Cap companies may have limited product lines or resources and may be dependant upon a particular market niche.

 

    Non-diversification Risk    The Ultra S&P MidCap 400/Citigroup Growth ProShares is considered non-diversified and may invest a relatively high percentage of its assets in the securities of a small number of issuers. In such circumstances, the Fund’s performance may be susceptible to economic, political or regulatory events affecting a single issuer than a more diversified fund.

 

    Repurchase Agreement Risk    Repurchase agreement risk is the risk that the counterparty to the repurchase agreement that sells the securities may default on its obligation to repurchase them. In this circumstance, Ultra S&P MidCap 400/Citigroup Growth ProShares may lose money because: it may not be able to sell the securities at the agreed upon time and price, the securities may lose value before they can be sold, the selling institution may default or declare bankruptcy or the Fund may have difficulty exercising rights to the collateral.

 

    Volatility Risk    Ultra S&P MidCap 400/Citigroup Growth ProShares seeks to achieve a multiple of an index and therefore will experience greater volatility than the index underlying its benchmark and consequently has the potential for greater losses.

The Ultra S&P MidCap 400/Citigroup Growth ProShares may be subject to risks in addition to those identified as principal risks. The sections titled “More on Risks” and “Special Risks of Exchange-Traded Funds” later in this Prospectus and the SAI contains additional information about the Fund and related risks.

FUND PERFORMANCE

Performance history will be available for the Ultra S&P MidCap 400/Citigroup Growth ProShares after it has been in operation for a full calendar year.

FEES AND EXPENSES

The following table describes the estimated fees and expenses you may pay when you buy, hold, or sell Creation Units of the Ultra S&P MidCap 400/Citigroup Growth ProShares. Annual fund operating expenses are estimates. Investors purchasing shares in the secondary market will not pay the shareholder fees shown below, but may be subject to costs (including customary brokerage commissions) charged by their broker.

 

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Shareholder Fees (paid directly by Authorized Participants)*

 

Sales charges (loads)    None
Fixed transaction fee per orderA    $2,695
Variable transaction fee per creation unitB    up to 0.10%
Additional transaction charge if not settled through the Continuous Net Settlement System of the National Securities Clearing Corporation (NSCC)C    up to 3 times the fixed fee plus up to 0.10%

 

* See “Transaction Fees on Creation and Redemption Transactions” at the end of this Prospectus.

 

A A fixed transaction fee of $2,695 will be charged when you create or redeem Creation Units of the Ultra S&P MidCap 400/Citigroup Growth ProShares regardless of the number of shares created or redeemed on the date of the transaction.

 

B A variable transaction fee of up to 0.10% of the value of each Creation Unit will be charged to offset costs associated with the order.

 

C An additional fee of up to 3 times the fixed per order transaction fee plus up to 0.10% of the value of each Creation Unit may be charged if you do not create or redeem shares through the Continuous Net Settlement System of the NSCC, or in circumstances in which cash is substituted for certain securities. Such transactions are allowed at the sole discretion of the Fund.

Annual Fund Operating Expenses (as a percentage of average daily net assets)

 

Investment Advisory Fee

   0.75 %

Distribution and Service (12b-1) fees

   0.00 %

Other expenses A

   0.72 %

Total annual fund operating expenses

   1.47 %

Fee Waivers/Reimbursements B

   0.52 %
      

Total net annual fund operating expenses

   0.95 %
      

 

A Based on estimated amounts for the current fiscal year.

 

B ProShare Advisors has contractually agreed to waive Investment Advisory and Management Services Fees and to reimburse other expenses to the extent Total Annual Operating Expenses, as a percentage of average daily net assets, exceed 0.95% through May 31, 2007. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular fiscal year may be recouped by ProShare Advisors within five years of the waiver or reimbursement to the extent that recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time.

Example: The following examples are intended to help you compare the cost of investing in shares of the Ultra S&P MidCap 400/Citigroup Growth ProShares with the cost of investing in other funds. Investors should note that the following examples are for illustration purposes only and are not meant to suggest actual or expected fees and expenses or returns, all of which may vary. The Fund issues and redeems shares in Creation Units principally on an in-kind basis for portfolio securities included in the relevant Index and cash. Shares are not redeemable in less than Creation Unit aggregations. The examples do not include the brokerage commissions that secondary market investors may incur to buy and sell shares.

The following example assumes that you invest $10,000 in the Ultra S&P MidCap 400/Citigroup Growth ProShares for the time periods indicated and sell all of your shares at the end of those periods, but does not include transaction fees on purchases and redemptions of shares. The example also assumes that your investment has a 5% annual return each year and that the Fund’s annual operating expenses remain exactly as described in the fee table. Although your actual costs may be higher or lower, based on the assumptions, your costs would be:

 

1 year

   $ 97

3 years

   $ 414

Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the Ultra S&P MidCap 400/Citigroup Growth ProShares, as of January 16, 2006, is $[    ]. Assuming an investment in a Creation Unit of $[    ] and a 5% return each year, and that an investor pays both the standard $[    ] transaction fee applicable to both the purchase and redemption of the Creation Unit and the maximum variable transaction fee of 0.10% of the value of the Creation Unit, and assuming that the Fund’s gross operating expenses remain the same, the total costs would be $[    ] if the Creation Unit is redeemed after one year and $[    ] if the Creation Unit is redeemed after three years.

 

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Ultra S&P SmallCap 600/Citigroup Value ProShares

Ticker: [    ]

CUSIP: [    ]

INVESTMENT OBJECTIVE

Ultra S&P SmallCap 600/Citigroup Value ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of the S&P SmallCap 600/Citigroup Value Index.

If Ultra S&P SmallCap 600/Citigroup Value ProShares is successful in meeting its objective, its net asset value should gain approximately twice as much, on a percentage basis, as the S&P SmallCap 600/Citigroup Value Index (Index) when the Index rises on a given day. Conversely, its net asset value should lose approximately twice as much, on a percentage basis, as the Index when the Index declines on a given day.

PRINCIPAL INVESTMENT STRATEGY

The Ultra S&P SmallCap 600/Citigroup Value ProShares’ principal investment strategies include:

 

    Investing in equity securities and/or financial instruments (including derivatives) that ProShare Advisors believes, in combination, should have similar daily price return characteristics as twice (200%) the daily return of the S&P SmallCap 600/Citigroup Value Index. Information about the Index can be found on page __.

 

    Committing at least 80% of its assets, under normal circumstances, to equity securities contained in the Index and/or financial instruments with similar economic characteristics.

 

    Employing leveraged investment techniques and/or sampling techniques in seeking its investment objective.

 

    Investing assets not invested in equity securities or financial instruments, in debt securities and/or money market instruments.

The Ultra S&P SmallCap 600/Citigroup Value ProShares employs leveraged investment techniques to achieve its investment objective. Over time, the use of leverage, combined with the effect of compounding, will have a more significant impact on the Ultra S&P SmallCap 600/Citigroup Value ProShares’ performance compared to the index underlying its benchmark than a fund that does not employ leverage. Therefore, the return of the index over a period of time greater than one day multiplied by a fund’s specified multiple or inverse multiple (e.g., 200% or -200%) will not generally equal a fund’s performance over that same period. The following example illustrates this point:

Let’s say, hypothetically, that a shareholder invests $10,000 in Fund A and $10,000 in Fund B.

 

Fund A: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to the daily performance of an index.   Fund B: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of an index.

On Day 1, each fund’s benchmark index increases in value 1% which would cause a 1% increase in Fund A and a 2% increase in Fund B.

On Day 2, each fund’s benchmark index decreases in value 1% which would cause a 1% decrease in Fund A and a 2% decrease in Fund B. At the end of Day 2, the value of the shareholder’s investment in Fund A would be approximately $9,999 (an increase of $100 on Day 1 and a decrease of $101 on Day 2). The value of the shareholder’s investment in Fund B would be approximately $9,996 at the end of Day 2 (an increase

 

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of $200 on Day 1 and a decrease of $204 on Day 2). In each case, the value of the shareholder’s investment declined overall. However, the effect of compounding was more pronounced for Fund B, which employs leverage. This example demonstrates how an investment in Fund A would have decreased in value by $1 over two days based on the index performance, while an investment in Fund B would have decreased in value by $4 over two days (four times the cumulative index loss over two days rather than two times the cumulative index loss).

Over time, the cumulative percentage increase or decrease in the net asset value of the Fund may diverge significantly from the cumulative percentage increase or decrease in the multiple of the return of the underlying Index due to the compounding effect of losses and gains on the returns of the Fund. Consequently, for periods greater than one day, investors should not expect the return of the Fund to be twice the return of the underlying Index. In addition, in trendless or flat markets it is expected that the Fund will underperform its benchmark Index.

PRINCIPAL RISK CONSIDERATIONS

The Ultra S&P SmallCap 600/Citigroup Value ProShares is subject to the following principal risks:

 

    Aggressive Investment Technique Risk     The Ultra S&P SmallCap 600/Citigroup Value ProShares uses investment techniques and financial instruments that may be considered aggressive, including the use of futures contracts, options on futures contracts, securities and indices, forward contracts, swap agreements and similar instruments. Such techniques may expose the Fund to potentially dramatic changes (losses) in the value of its portfolio holdings and imperfect correlation to the index underlying the Fund’s benchmark. These techniques also may expose the Fund to risks different from or possibly greater than the risks associated with investing directly in the securities contained in the index underlying the Fund’s benchmark.

 

    Correlation Risk     A number of factors may affect the Ultra S&P SmallCap 600/Citigroup Value ProShares’ ability to achieve a high correlation with its benchmark and there can be no guarantee that the Fund will achieve a high degree of correlation.

 

    Counterparty Risk     The counterparty to a financial instrument may default on its obligations under the related agreement. In this circumstance, the Ultra S&P SmallCap 600/Citigroup Value ProShares may lose money.

 

    Credit Risk     An issuer of debt instruments may be unable to make interest payments and repay principal. Changes in an issuer’s financial strength or in an instrument’s credit rating may affect an instrument’s value and, thus, impact Ultra S&P SmallCap 600/Citigroup Value ProShares’ performance. As described under “Counterparty Risk” above, the Fund will also be subject to credit risk with respect to the amount a Fund expects to receive from counterparties in financial instruments transactions. If a counterparty defaults on its payment obligations to a Fund, the value of your investment in a fund may decline.

 

    Equity Risk     The equity markets are volatile, and the value of securities, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day.

 

    Leverage Risk     The Ultra S&P SmallCap 600/Citigroup Value ProShares’ NAV and market price will likely be more volatile than the index underlying its benchmark and funds that do not employ leverage. Leverage should cause the Fund to lose more money in market environments adverse to its daily investment objective than an unleveraged investment.

 

    Liquidity Risk     In certain circumstances, the Ultra S&P SmallCap 600/Citigroup Value ProShares may not be able to dispose of positions within a reasonable time at a fair price.

 

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    Market Price Variance Risk     The Ultra S&P SmallCap 600/Citigroup Value ProShares’ NAV will fluctuate with changes in the value of its portfolio holdings. Fund shares are listed on the Exchange and are purchased and sold at market prices for shares. Although it is expected that the secondary market price for shares should approximate the Fund’s NAV, there may be times when the market price varies significantly from NAV.

 

    Market Risk     The Ultra S&P SmallCap 600/Citigroup Value ProShares is subject to market risks that will affect the value of its shares, including general economic and market conditions, as well as developments that impact specific economic sectors, industries or companies.

 

    Non-diversification Risk     The Ultra S&P SmallCap 600/Citigroup Value ProShares is considered non-diversified and may invest a relatively high percentage of its assets in the securities of a small number of issuers. In such circumstances, the Fund’s performance may be susceptible to economic, political or regulatory events affecting a single issuer than a more diversified fund.

 

    Repurchase Agreement Risk     Repurchase agreement risk is the risk that the counterparty to the repurchase agreement that sells the securities may default on its obligation to repurchase them. In this circumstance, Ultra S&P SmallCap 600/Citigroup Value ProShares may lose money because: it may not be able to sell the securities at the agreed upon time and price, the securities may lose value before they can be sold, the selling institution may default or declare bankruptcy or the Fund may have difficulty exercising rights to the collateral.

 

    Small-Cap Company Investment Risk     The risk of equity investing may be particularly acute for securities of issuers with small market capitalization. Small-cap company stocks may trade at greater spreads or lower trading volumes, and may be less liquid, than the stocks of larger companies. Liquidating positions in small-cap companies could become difficult in turbulent market conditions. Small-cap company stocks tend to have greater fluctuations in price than the stocks of large companies. They may have limited product lines, markets, financial resources or personnel. In addition, small-cap companies tend to lack the financial and personnel resources to handle economic or industry-wide setbacks and, as a result, such setbacks could have a greater effect on small-cap security prices.

 

    Value Investing Risk     Value investing carries the risk that the market will not recognize a security’s intrinsic value for a longtime, or that a stock deemed to be undervalued may actually be appropriately priced or overvalued. “Value” stocks can react differently to issuer, political, market and economic developments than the market as a whole.

 

    Volatility Risk     Ultra S&P SmallCap 600/Citigroup Value ProShares seeks to achieve a multiple of an index and therefore will experience greater volatility than the index underlying its benchmark and consequently has the potential for greater losses.

The Ultra S&P SmallCap 600/Citigroup Value ProShares may be subject to risks in addition to those identified as principal risks. The sections titled “More on Risks” and “Special Risks of Exchange-Traded Funds” later in this Prospectus and the SAI contains additional information about the Fund and related risks.

FUND PERFORMANCE

Performance history will be available for the Ultra S&P SmallCap 600/Citigroup Value ProShares after it has been in operation for a full calendar year.

FEES AND EXPENSES

The following table describes the estimated fees and expenses you may pay when you buy, hold, or sell Creation Units of the Ultra S&P SmallCap 600/Citigroup Value ProShares. Annual fund operating expenses are estimates. Investors purchasing shares in the secondary market will not pay the shareholder fees shown below, but may be subject to costs (including customary brokerage commissions) charged by their broker.

 

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Shareholder Fees (paid directly by Authorized Participants)*

 

Sales charges (loads)    None
Fixed transaction fee per orderA    $3,500
Variable transaction fee per creation unitB    up to 0.10%
Additional transaction charge if not settled through the Continuous Net Settlement System of the National Securities Clearing Corporation (NSCC)C    up to 3 times the fixed fee plus up to 0.10%

 

* See “Transaction Fees on Creation and Redemption Transactions” at the end of this Prospectus.

 

A A fixed transaction fee of $3,500 will be charged when you create or redeem Creation Units of the Ultra S&P SmallCap 600/Citigroup Value ProShares regardless of the number of shares created or redeemed on the date of the transaction.

 

B A variable transaction fee of up to 0.10% of the value of each Creation Unit will be charged to offset costs associated with the order.

 

C An additional fee of up to 3 times the fixed per order transaction fee plus up to 0.10% of the value of each Creation Unit may be charged if you do not create or redeem shares through the Continuous Net Settlement System of the NSCC, or in circumstances in which cash is substituted for certain securities. Such transactions are allowed at the sole discretion of the Fund.

Annual Fund Operating Expenses (as a percentage of average daily net assets)

 

Investment Advisory Fee

   0.75 %

Distribution and Service (12b-1) fees

   0.00 %

Other expenses A

   0.78 %

Total annual fund operating expenses

   1.53 %

Fee Waivers/Reimbursements B

   0.58 %
      

Total net annual fund operating expenses

   0.95 %
      

 

A Based on estimated amounts for the current fiscal year.

 

B ProShare Advisors has contractually agreed to waive Investment Advisory and Management Services Fees and to reimburse other expenses to the extent Total Annual Operating Expenses, as a percentage of average daily net assets, exceed 0.95% through May 31, 2007. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular fiscal year may be recouped by ProShare Advisors within five years of the waiver or reimbursement to the extent that recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time.

Example: The following examples are intended to help you compare the cost of investing in shares of the Ultra S&P SmallCap 600/Citigroup Value ProShares with the cost of investing in other funds. Investors should note that the following examples are for illustration purposes only and are not meant to suggest actual or expected fees and expenses or returns, all of which may vary. The Fund issues and redeems shares in Creation Units principally on an in-kind basis for portfolio securities included in the relevant Index and cash. Shares are not redeemable in less than Creation Unit aggregations. The examples do not include the brokerage commissions that secondary market investors may incur to buy and sell shares.

The following example assumes that you invest $10,000 in the Fund for the time periods indicated and sell all of your shares at the end of those periods, but does not include transaction fees on purchases and redemptions of shares. The example also assumes that your investment has a 5% annual return each year and that the Fund’s annual operating expenses remain exactly as described in the fee table. Although your actual costs may be higher or lower, based on the assumptions, your costs would be:

 

1 year

   $ 97

3 years

   $ 426

 

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Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the Ultra S&P SmallCap 600/Citigroup Value ProShares, as of January 16, 2006, is $[    ]. Assuming an investment in a Creation Unit of $[    ] and a 5% return each year, and that an investor pays both the standard $[    ] transaction fee applicable to both the purchase and redemption of the Creation Unit and the maximum variable transaction fee of 0.10% of the value of the Creation Unit, and assuming that the Fund’s gross operating expenses remain the same, the total costs would be $[    ] if the Creation Unit is redeemed after one year and $[    ] if the Creation Unit is redeemed after three years.

 

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Ultra S&P SmallCap 600/Citigroup Growth ProShares

Ticker: [    ]

CUSIP: [    ]

INVESTMENT OBJECTIVE

Ultra S&P SmallCap 600/Citigroup Growth ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of the S&P SmallCap 600/Citigroup Growth Index.

If Ultra S&P SmallCap 600/Citigroup Growth ProShares is successful in meeting its objective, its net asset value should gain approximately twice as much, on a percentage basis, as the S&P SmallCap 600/Citigroup Growth Index (Index) when the Index rises on a given day. Conversely, its net asset value should lose approximately twice as much, on a percentage basis, as the Index when the Index declines on a given day.

PRINCIPAL INVESTMENT STRATEGY

The Ultra S&P SmallCap 600/Citigroup Growth ProShares’ principal investment strategies include:

 

    Investing in equity securities and/or financial instruments (including derivatives) that ProShare Advisors believes, in combination, should have similar daily price return characteristics as twice (200%) the daily return of the S&P SmallCap 600/Citigroup Growth Index. Information about the Index can be found on page __.

 

    Committing at least 80% of its assets, under normal circumstances, to equity securities contained in the Index and/or financial instruments with similar economic characteristics.

 

    Employing leveraged investment techniques and/or sampling techniques in seeking its investment objective.

 

    Investing assets not invested in equity securities or financial instruments in debt securities and/or money market instruments.

The Ultra S&P SmallCap 600/Citigroup Growth ProShares employs leveraged investment techniques to achieve its investment objective. Over time, the use of leverage, combined with the effect of compounding, will have a more significant impact on the Fund’s performance compared to the index underlying its benchmark than a fund that does not employ leverage. Therefore, the return of the index over a period of time greater than one day multiplied by a fund’s specified multiple or inverse multiple (e.g., 200% or -200%) will not generally equal a fund’s performance over that same period. The following example illustrates this point:

Let’s say, hypothetically, that a shareholder invests $10,000 in Fund A and $10,000 in Fund B.

 

Fund A: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to the daily performance of an index.   Fund B: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of an index.

On Day 1, each fund’s benchmark index increases in value 1% which would cause a 1% increase in Fund A and a 2% increase in Fund B.

On Day 2, each fund’s benchmark index decreases in value 1% which would cause a 1% decrease in Fund A and a 2% decrease in Fund B. At the end of Day 2, the value of the shareholder’s investment in Fund A would be approximately $9,999 (an increase of $100 on Day 1 and a decrease of $101 on Day 2). The value of the shareholder’s investment in Fund B would be approximately $9,996 at the end of Day 2 (an increase of $200 on Day 1 and a decrease of $204 on Day 2). In each case, the value of the shareholder’s investment declined overall. However, the effect of compounding was more pronounced for Fund B, which

 

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employs leverage. This example demonstrates how an investment in Fund A would have decreased in value by $1 over two days based on the index performance, while an investment in Fund B would have decreased in value by $4 over two days (four times the cumulative index loss over two days rather than two times the cumulative index loss).

Over time, the cumulative percentage increase or decrease in the net asset value of the Fund may diverge significantly from the cumulative percentage increase or decrease in the multiple of the return of the underlying Index due to the compounding effect of losses and gains on the returns of the Fund. Consequently, for periods greater than one day, investors should not expect the return of the Fund to be twice the return of the underlying Index. In addition, in trendless or flat markets it is expected that the Fund will underperform its benchmark Index.

PRINCIPAL RISK CONSIDERATIONS

The Ultra S&P SmallCap 600/Citigroup Growth ProShares is subject to the following principal risks:

 

    Aggressive Investment Technique Risk     The Ultra S&P SmallCap 600/Citigroup Growth ProShares uses investment techniques and financial instruments that may be considered aggressive, including the use of futures contracts, options on futures contracts, securities and indices, forward contracts, swap agreements and similar instruments. Such techniques may expose the Fund to potentially dramatic changes (losses) in the value of its portfolio holdings and imperfect correlation to the index underlying the Fund’s benchmark. These techniques also may expose the Fund to risks different from or possibly greater than the risks associated with investing directly in the securities contained in the index underlying the Fund’s benchmark.

 

    Correlation Risk     A number of factors may affect the Ultra S&P SmallCap 600/Citigroup Growth ProShares’ ability to achieve a high correlation with its benchmark and there can be no guarantee that the Fund will achieve a high degree of correlation.

 

    Counterparty Risk     The counterparty to a financial instrument may default on its obligations under the related agreement. In this circumstance, the Ultra S&P SmallCap 600/Citigroup Growth ProShares may lose money.

 

    Credit Risk     An issuer of debt instruments may be unable to make interest payments and repay principal. Changes in an issuer’s financial strength or in an instrument’s credit rating may affect an instrument’s value and, thus, impact Ultra S&P SmallCap 600/Citigroup Growth ProShares’ performance. As described under “Counterparty Risk” above, the Fund will also be subject to credit risk with respect to the amount a Fund expects to receive from counterparties in financial instruments transactions. If a counterparty defaults on its payment obligations to a Fund, the value of your investment in a fund may decline.

 

    Equity Risk     The equity markets are volatile, and the value of securities, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day.

 

    Growth Investing Risk     An investment in growth stocks may be susceptible to rapid price swings, especially during periods of economic uncertainty. Growth stocks typically have little or no dividend income to cushion the effect of adverse market conditions and may be particularly volatile in the event of earnings disappointments or other financial difficulties experienced by the issuer.

 

    Leverage Risk     The Ultra S&P SmallCap 600/Citigroup Growth ProShares’ NAV and market price will likely be more volatile than the index underlying its benchmark and funds that do not employ leverage. Leverage should cause the Fund to lose more money in market environments adverse to its daily investment objective than an unleveraged investment.

 

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    Liquidity Risk     In certain circumstances, the Ultra S&P SmallCap 600/Citigroup Growth ProShares may not be able to dispose of positions within a reasonable time at a fair price.

 

    Market Price Variance Risk     The Ultra S&P SmallCap 600/Citigroup Growth ProShares’ NAV will fluctuate with changes in the value of its portfolio holdings. Fund shares are listed on the Exchange and are purchased and sold at market prices for shares. Although it is expected that the secondary market price for shares should approximate the Fund’s NAV, there may be times when the market price varies significantly from NAV.

 

    Market Risk     The Ultra S&P SmallCap 600/Citigroup Growth ProShares is subject to market risks that will affect the value of its shares, including general economic and market conditions, as well as developments that impact specific economic sectors, industries or companies.

 

    Non-diversification Risk     The Ultra S&P SmallCap 600/Citigroup Growth ProShares is considered non-diversified and may invest a relatively high percentage of its assets in the securities of a small number of issuers. In such circumstances, the Fund’s performance may be susceptible to economic, political or regulatory events affecting a single issuer than a more diversified fund.

 

    Repurchase Agreement Risk     Repurchase agreement risk is the risk that the counterparty to the repurchase agreement that sells the securities may default on its obligation to repurchase them. In this circumstance, Ultra S&P SmallCap 600/Citigroup Growth ProShares may lose money because: it may not be able to sell the securities at the agreed upon time and price, the securities may lose value before they can be sold, the selling institution may default or declare bankruptcy or the Fund may have difficulty exercising rights to the collateral.

 

    Small-Cap Company Investment Risk     The risk of equity investing may be particularly acute for securities of issuers with small market capitalization. Small-cap company stocks may trade at greater spreads or lower trading volumes, and may be less liquid, than the stocks of larger companies. Liquidating positions in small-cap companies could become difficult in turbulent market conditions. Small-cap company stocks tend to have greater fluctuations in price than the stocks of large companies. They may have limited product lines, markets, financial resources or personnel. In addition, small-cap companies tend to lack the financial and personnel resources to handle economic or industry-wide setbacks and, as a result, such setbacks could have a greater effect on small-cap security prices.

 

    Volatility Risk     Ultra S&P SmallCap 600/Citigroup Growth ProShares seeks to achieve a multiple of an index and therefore will experience greater volatility than the index underlying its benchmark and consequently has the potential for greater losses.

The Ultra S&P SmallCap 600/Citigroup Growth ProShares may be subject to risks in addition to those identified as principal risks. The sections titled “More on Risks” and “Special Risks of Exchange-Traded Funds” later in this Prospectus and the SAI contains additional information about the Fund and related risks.

FUND PERFORMANCE

Performance history will be available for the Ultra S&P SmallCap 600/Citigroup Growth ProShares after it has been in operation for a full calendar year.

FEES AND EXPENSES

The following table describes the estimated fees and expenses you may pay when you buy, hold, or sell Creation Units of the Ultra S&P SmallCap 600/Citigroup Growth ProShares. Annual fund operating expenses are estimates. Investors purchasing shares in the secondary market will not pay the shareholder fees shown below, but may be subject to costs (including customary brokerage commissions) charged by their broker.

 

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Shareholder Fees (paid directly by Authorized Participants)*

 

Sales charges (loads)    None
Fixed transaction fee per orderA    $3,500
Variable transaction fee per creation unitB    up to 0.10%
Additional transaction charge if not settled through the Continuous Net Settlement System of the National Securities Clearing Corporation (NSCC)C    up to 3 times the fixed fee plus up to 0.10%

 

* See “Transaction Fees on Creation and Redemption Transactions” at the end of this Prospectus.

 

A A fixed transaction fee of $3,500 will be charged when you create or redeem Creation Units of the Ultra S&P SmallCap 600/Citigroup Growth ProShares regardless of the number of shares created or redeemed on the date of the transaction.

 

B A variable transaction fee of up to 0.10% of the value of each Creation Unit will be charged to offset costs associated with the order.

 

C An additional fee of up to 3 times the fixed per order transaction fee plus up to 0.10% of the value of each Creation Unit may be charged if you do not create or redeem shares through the Continuous Net Settlement System of the NSCC, or in circumstances in which cash is substituted for certain securities. Such transactions are allowed at the sole discretion of the Fund.

Annual Fund Operating Expenses (as a percentage of average daily net assets)

 

Investment Advisory Fee

   0.75 %

Distribution and Service (12b-1) fees

   0.00 %

Other expenses A

   0.78 %

Total annual fund operating expenses

   1.53 %

Fee Waivers/Reimbursements B

   0.58 %
      

Total net annual fund operating expenses

   0.95 %
      

 

A Based on estimated amounts for the current fiscal year.

 

B ProShare Advisors has contractually agreed to waive Investment Advisory and Management Services Fees and to reimburse other expenses to the extent Total Annual Operating Expenses, as a percentage of average daily net assets, exceed 0.95% through May 31, 2007. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular fiscal year may be recouped by ProShare Advisors within five years of the waiver or reimbursement to the extent that recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time.

Example: The following examples are intended to help you compare the cost of investing in shares of the Ultra S&P SmallCap 600/Citigroup Growth ProShares with the cost of investing in other funds. Investors should note that the following examples are for illustration purposes only and are not meant to suggest actual or expected fees and expenses or returns, all of which may vary. The Fund issues and redeems shares in Creation Units principally on an in-kind basis for portfolio securities included in the relevant Index and cash. Shares are not redeemable in less than Creation Unit aggregations. The examples do not include the brokerage commissions that secondary market investors may incur to buy and sell shares.

The following example assumes that you invest $10,000 in the Ultra S&P SmallCap 600/Citigroup Growth ProShares for the time periods indicated and sell all of your shares at the end of those periods, but does not include transaction fees on purchases and redemptions of shares. The example also assumes that your investment has a 5% annual return each year and that the Fund’s annual operating expenses remain exactly as described in the fee table. Although your actual costs may be higher or lower, based on the assumptions, your costs would be:

 

1 year

   $ 97

3 years

     $426

Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the Ultra S&P SmallCap 600/Citigroup Growth ProShares, as of January 16, 2006, is $[    ]. Assuming an investment in a Creation Unit of $[    ] and a 5% return each year, and that an investor pays both the standard $[    ] transaction fee applicable to both the purchase and redemption of the Creation Unit and the maximum variable transaction fee of 0.10% of the value of the Creation Unit, and assuming that the Fund’s gross operating expenses remain the same, the total costs would be $[    ] if the Creation Unit is redeemed after one year and $[    ] if the Creation Unit is redeemed after three years.

 

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Ultra Basic Materials ProShares

Ticker: [    ]

CUSIP: 74347R776

INVESTMENT OBJECTIVE

Ultra Basic Materials ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of the Dow Jones U.S. Basic Materials Index.

If Ultra Basic Materials ProShares is successful in meeting its objective, its net asset value should gain approximately twice as much, on a percentage basis, as the Dow Jones U.S. Basic Materials Index (Index) when the Index rises on a given day. Conversely, its net asset value should lose approximately twice as much, on a percentage basis, as the Index when the Index declines on a given day.

PRINCIPAL INVESTMENT STRATEGY

The Ultra Basic Materials ProShares’ principal investment strategies include:

 

    Investing in equity securities and/or financial instruments (including derivatives) that ProShare Advisors believes, in combination, should have similar daily price return characteristics as twice (200%) the daily return of the Dow Jones U.S. Basic Materials Index. Information about the Index can be found on page __.

 

    Committing at least 80% of its assets, under normal circumstances, to equity securities contained in the Index and/or financial instruments with similar economic characteristics.

 

    Employing leveraged investment techniques and/or sampling techniques in seeking its investment objective.

 

    Investing assets not invested in equity securities or financial instruments in debt securities and/or money market instruments.

 

    The Fund will concentrate its investments in a particular industry or group of industries to approximately the same extent as the Index is so concentrated. As of the close of business on September 30, 2006, the Index was concentrated in the chemicals industry group, which comprised approximately 55% of the market capitalization of the Index.

The Ultra Basic Materials ProShares employs leveraged investment techniques to achieve its investment objective. Over time, the use of leverage, combined with the effect of compounding, will have a more significant impact on the Fund’s performance compared to the index underlying its benchmark than a fund that does not employ leverage. Therefore, the return of the index over a period of time greater than one day multiplied by a fund’s specified multiple or inverse multiple (e.g., 200% or -200%) will not generally equal a fund’s performance over that same period. The following example illustrates this point:

Let’s say, hypothetically, that a shareholder invests $10,000 in Fund A and $10,000 in Fund B.

 

Fund A: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to the daily performance of an index.   Fund B: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of an index.

On Day 1, each fund’s benchmark index increases in value 1% which would cause a 1% increase in Fund A and a 2% increase in Fund B.

 

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On Day 2, each fund’s benchmark index decreases in value 1% which would cause a 1% decrease in Fund A and a 2% decrease in Fund B. At the end of Day 2, the value of the shareholder’s investment in Fund A would be approximately $9,999 (an increase of $100 on Day 1 and a decrease of $101 on Day 2). The value of the shareholder’s investment in Fund B would be approximately $9,996 at the end of Day 2 (an increase of $200 on Day 1 and a decrease of $204 on Day 2). In each case, the value of the shareholder’s investment declined overall. However, the effect of compounding was more pronounced for Fund B, which employs leverage. This example demonstrates how an investment in Fund A would have decreased in value by $1 over two days based on the index performance, while an investment in Fund B would have decreased in value by $4 over two days (four times the cumulative index loss over two days rather than two times the cumulative index loss).

Over time, the cumulative percentage increase or decrease in the net asset value of the Fund may diverge significantly from the cumulative percentage increase or decrease in the multiple of the return of the underlying Index due to the compounding effect of losses and gains on the returns of the Fund. Consequently, for periods greater than one day, investors should not expect the return of the Fund to be twice the return of the underlying Index. In addition, in trendless or flat markets it is expected that the Fund will underperform its benchmark Index.

PRINCIPAL RISK CONSIDERATIONS

The Ultra Basic Materials ProShares is subject to the following principal risks:

 

    Aggressive Investment Technique Risk     The Ultra Basic Materials ProShares uses investment techniques and financial instruments that may be considered aggressive, including the use of futures contracts, options on futures contracts, securities and indices, forward contracts, swap agreements and similar instruments. Such techniques may expose the Fund to potentially dramatic changes (losses) in the value of its portfolio holdings and imperfect correlation to the index underlying the Fund’s benchmark. These techniques also may expose the Fund to risks different from or possibly greater than the risks associated with investing directly in the securities contained in the index underlying the Fund’s benchmark.

 

    Correlation Risk     A number of factors may affect the Ultra Basic Materials ProShares’ ability to achieve a high correlation with its benchmark and there can be no guarantee that the Fund will achieve a high degree of correlation.

 

    Counterparty Risk     The counterparty to a financial instrument may default on its obligations under the related agreement. In this circumstance, the Ultra Basic Materials ProShares may lose money.

 

    Concentration Risk     Ultra Basic Materials ProShares may concentrate its investments in issuers of one or more particular industries to the same extent that its underlying index is so concentrated. There is a risk that those issuers (or industry sector) will perform poorly and negatively impact a Fund.

 

    Credit Risk     An issuer of debt instruments may be unable to make interest payments and repay principal. Changes in an issuer’s financial strength or in an instrument’s credit rating may affect an instrument’s value and, thus, impact Ultra Basic Materials ProShares’ performance. As described under “Counterparty Risk” above, the Fund will also be subject to credit risk with respect to the amount a Fund expects to receive from counterparties in financial instruments transactions. If a counterparty defaults on its payment obligations to a Fund, the value of your investment in a fund may decline.

 

    Equity Risk     The equity markets are volatile, and the value of securities, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day.

 

    Leverage Risk     The Ultra Basic Materials ProShares’ NAV and market price will likely be more volatile than the index underlying its benchmark and funds that do not employ leverage. Leverage should cause the Fund to lose more money in market environments adverse to its daily investment objective than an unleveraged investment.

 

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    Liquidity Risk    In certain circumstances, the Ultra Basic Materials ProShares may not be able to dispose of positions within a reasonable time at a fair price.

 

    Market Price Variance Risk    The Ultra Basic Materials ProShares’ NAV will fluctuate with changes in the value of its portfolio holdings. Fund shares are listed on the Exchange and are purchased and sold at market prices for shares. Although it is expected that the secondary market price for shares should approximate the Fund’s NAV, there may be times when the market price varies significantly from NAV.

 

    Market Risk    The Ultra Basic Materials ProShares is subject to market risks that will affect the value of its shares, including general economic and market conditions, as well as developments that impact specific economic sectors, industries or companies.

 

    Non-diversification Risk    The Ultra Basic Materials ProShares is considered non-diversified and may invest a relatively high percentage of its assets in the securities of a small number of issuers. In such circumstances, the Fund’s performance may be susceptible to economic, political or regulatory events affecting a single issuer than a more diversified fund.

 

    Repurchase Agreement Risk    Repurchase agreement risk is the risk that the counterparty to the repurchase agreement that sells the securities may default on its obligation to repurchase them. In this circumstance, Ultra Basic Materials ProShares may lose money because: it may not be able to sell the securities at the agreed upon time and price, the securities may lose value before they can be sold, the selling institution may default or declare bankruptcy or the Fund may have difficulty exercising rights to the collateral.

 

    Volatility Risk    Ultra Basic Materials ProShares seeks to achieve a multiple of an index and therefore will experience greater volatility than the index underlying its benchmark and consequently has the potential for greater losses.

In addition to the risks noted above, Ultra Basic Materials ProShares is also subject to risks faced by companies in the basic materials economic sector, including: adverse effects from commodity price volatility, exchange rates, import controls and increased competition; production of industrial materials often exceeds demand as a result of overbuilding or economic downturns, leading to poor investment returns; risk for environmental damage and product liability claims; and adverse effects from depletion of resources, technical progress, labor relations and government regulations. Further, stocks in the Index may underperform fixed income investments and stock market indices that track other markets, segments and sectors.

The Ultra Basic Materials ProShares may be subject to risks in addition to those identified as principal risks. The sections titled “More on Risks” and “Special Risks of Exchange-Traded Funds” later in this Prospectus and the SAI contains additional information about the Fund and related risks.

FUND PERFORMANCE

Performance history will be available for the Ultra Basic Materials ProShares after it has been in operation for a full calendar year.

FEES AND EXPENSES

The following table describes the estimated fees and expenses you may pay when you buy, hold, or sell Creation Units of the Ultra Basic Materials ProShares. Annual fund operating expenses are estimates. Investors purchasing shares in the secondary market will not pay the shareholder fees shown below, but may be subject to costs (including customary brokerage commissions) charged by their broker.

 

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Shareholder Fees (paid directly by Authorized Participants)*

 

Sales charges (loads)    None
Fixed transaction fee per orderA    $500
Variable transaction fee per creation unitB    up to 0.10%
Additional transaction charge if not settled through the Continuous Net Settlement System of the National Securities Clearing Corporation (NSCC)C    up to 3 times the fixed fee plus up to 0.10%

 

* See “Transaction Fees on Creation and Redemption Transactions” at the end of this Prospectus.

 

A A fixed transaction fee of $500 will be charged when you create or redeem Creation Units of the Ultra Basic Materials ProShares regardless of the number of shares created or redeemed on the date of the transaction.

 

B A variable transaction fee of up to 0.10% of the value of each Creation Unit will be charged to offset costs associated with the order.

 

C An additional fee of up to 3 times the fixed per order transaction fee plus up to 0.10% of the value of each Creation Unit may be charged if you do not create or redeem shares through the Continuous Net Settlement System of the NSCC, or in circumstances in which cash is substituted for certain securities. Such transactions are allowed at the sole discretion of the Fund.

Annual Fund Operating Expenses (as a percentage of average daily net assets)

 

Investment Advisory Fee

   0.75 %

Distribution and Service (12b-1) fees

   0.00 %

Other expenses A

   0.64 %

Total annual fund operating expenses

   1.39 %

Fee Waivers/Reimbursements B

   0.44 %
      

Total net annual fund operating expenses

   0.95 %
      

 

A Based on estimated amounts for the current fiscal year.

 

B ProShare Advisors has contractually agreed to waive Investment Advisory and Management Services Fees and to reimburse other expenses to the extent Total Annual Operating Expenses, as a percentage of average daily net assets, exceed 0.95% through May 31, 2007. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular fiscal year may be recouped by ProShare Advisors within five years of the waiver or reimbursement to the extent that recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time.

Example: The following examples are intended to help you compare the cost of investing in shares of the Ultra Basic Materials ProShares with the cost of investing in other funds. Investors should note that the following examples are for illustration purposes only and are not meant to suggest actual or expected fees and expenses or returns, all of which may vary. The Fund issues and redeems shares in Creation Units principally on an in-kind basis for portfolio securities included in the relevant Index and cash. Shares are not redeemable in less than Creation Unit aggregations. The examples do not include the brokerage commissions that secondary market investors may incur to buy and sell shares.

The following example assumes that you invest $10,000 in the Ultra Basic Materials ProShares for the time periods indicated and sell all of your shares at the end of those periods, but does not include transaction fees on purchases and redemptions of shares. The example also assumes that your investment has a 5% annual return each year and that the Fund’s annual operating expenses remain exactly as described in the fee table. Although your actual costs may be higher or lower, based on the assumptions, your costs would be:

 

1 year

   $ 97

3 years

   $ 397

 

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Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the Ultra Basic Materials ProShares, as of January 16, 2006, is $[    ]. Assuming an investment in a Creation Unit of $[    ] and a 5% return each year, and that an investor pays both the standard $[    ] transaction fee applicable to both the purchase and redemption of the Creation Unit and the maximum variable transaction fee of 0.10% of the value of the Creation Unit, and assuming that the Fund’s gross operating expenses remain the same, the total costs would be $[    ] if the Creation Unit is redeemed after one year and $[    ] if the Creation Unit is redeemed after three years.

 

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Ultra Biotechnology ProShares

Ticker: [    ]

CUSIP: [    ]

INVESTMENT OBJECTIVE

Ultra Biotechnology ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of the Dow Jones U.S. Biotechnology Index.

If Ultra Biotechnology ProShares is successful in meeting its objective, its net asset value should gain approximately twice as much, on a percentage basis, as the Dow Jones U.S. Biotechnology Index (Index) when the Index rises on a given day. Conversely, its net asset value should lose approximately twice as much, on a percentage basis, as the Index when the Index declines on a given day.

PRINCIPAL INVESTMENT STRATEGY

The Ultra Biotechnology ProShares’ principal investment strategies include:

 

    Investing in equity securities and/or financial instruments (including derivatives) that ProShare Advisors believes, in combination, should have similar daily price return characteristics as twice (200%) the daily return of the Dow Jones U.S. Biotechnology Index. Information about the Index can be found on page __.

 

    Committing at least 80% of its assets, under normal circumstances, to equity securities contained in the Index and/or financial instruments with similar economic characteristics.

 

    Employing leveraged investment techniques and/or sampling techniques in seeking its investment objective.

 

    Investing assets not invested in equity securities or financial instruments in debt securities and/or money market instruments.

 

    The Fund will concentrate its investments in a particular industry or group of industries to approximately the same extent as the Index is so concentrated. Because all of the securities included in the Index are issued by companies in the biotechnology industry group, the Fund will be concentrated approximately 100% in the biotechnology industry.

The Ultra Biotechnology ProShares employs leveraged investment techniques to achieve its investment objective. Over time, the use of leverage, combined with the effect of compounding, will have a more significant impact on the Fund’s performance compared to the index underlying its benchmark than a fund that does not employ leverage. Therefore, the return of the index over a period of time greater than one day multiplied by a fund’s specified multiple or inverse multiple (e.g., 200% or -200%) will not generally equal a fund’s performance over that same period. The following example illustrates this point:

Let’s say, hypothetically, that a shareholder invests $10,000 in Fund A and $10,000 in Fund B.

 

Fund A: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to the daily performance of an index.   Fund B: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of an index.

On Day 1, each fund’s benchmark index increases in value 1% which would cause a 1% increase in Fund A and a 2% increase in Fund B.

 

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On Day 2, each fund’s benchmark index decreases in value 1% which would cause a 1% decrease in Fund A and a 2% decrease in Fund B. At the end of Day 2, the value of the shareholder’s investment in Fund A would be approximately $9,999 (an increase of $100 on Day 1 and a decrease of $101 on Day 2). The value of the shareholder’s investment in Fund B would be approximately $9,996 at the end of Day 2 (an increase of $200 on Day 1 and a decrease of $204 on Day 2). In each case, the value of the shareholder’s investment declined overall. However, the effect of compounding was more pronounced for Fund B, which employs leverage. This example demonstrates how an investment in Fund A would have decreased in value by $1 over two days based on the index performance, while an investment in Fund B would have decreased in value by $4 over two days (four times the cumulative index loss over two days rather than two times the cumulative index loss).

Over time, the cumulative percentage increase or decrease in the net asset value of the Fund may diverge significantly from the cumulative percentage increase or decrease in the multiple of the return of the underlying Index due to the compounding effect of losses and gains on the returns of the Fund. Consequently, for periods greater than one day, investors should not expect the return of the Fund to be twice the return of the underlying Index. In addition, in trendless or flat markets it is expected that the Fund will underperform its benchmark Index.

PRINCIPAL RISK CONSIDERATIONS

The Ultra Biotechnology ProShares is subject to the following principal risks:

 

    Aggressive Investment Technique Risk     The Ultra Biotechnology ProShares uses investment techniques and financial instruments that may be considered aggressive, including the use of futures contracts, options on futures contracts, securities and indices, forward contracts, swap agreements and similar instruments. Such techniques may expose the Fund to potentially dramatic changes (losses) in the value of its portfolio holdings and imperfect correlation to the index underlying the Fund’s benchmark. These techniques also may expose the Fund to risks different from or possibly greater than the risks associated with investing directly in the securities contained in the index underlying the Fund’s benchmark.

 

    Correlation Risk     A number of factors may affect the Ultra Biotechnology ProShares’ ability to achieve a high correlation with its benchmark and there can be no guarantee that the Fund will achieve a high degree of correlation.

 

    Counterparty Risk     The counterparty to a financial instrument may default on its obligations under the related agreement. In this circumstance, the Ultra Biotechnology ProShares may lose money.

 

    Concentration Risk     Ultra Biotechnology ProShares may concentrate its investments in issuers of one or more particular industries to the same extent that its underlying index is so concentrated. There is a risk that those issuers (or industry sector) will perform poorly and negatively impact a Fund.

 

    Credit Risk     An issuer of debt instruments may be unable to make interest payments and repay principal. Changes in an issuer’s financial strength or in an instrument’s credit rating may affect an instrument’s value and, thus, impact Ultra Biotechnology ProShares’ performance. As described under “Counterparty Risk” above, the Fund will also be subject to credit risk with respect to the amount a Fund expects to receive from counterparties in financial instruments transactions. If a counterparty defaults on its payment obligations to a Fund, the value of your investment in a fund may decline.

 

    Equity Risk     The equity markets are volatile, and the value of securities, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day.

 

    Leverage Risk     The Ultra Biotechnology ProShares’ NAV and market price will likely be more volatile than the index underlying its benchmark and funds that do not employ leverage. Leverage should cause the Fund to lose more money in market environments adverse to its daily investment objective than an unleveraged investment.

 

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    Liquidity Risk     In certain circumstances, the Ultra Biotechnology ProShares may not be able to dispose of positions within a reasonable time at a fair price.

 

    Market Price Variance Risk     The Ultra Biotechnology ProShares’ NAV will fluctuate with changes in the value of its portfolio holdings. Fund shares are listed on the Exchange and are purchased and sold at market prices for shares. Although it is expected that the secondary market price for shares should approximate the Fund’s NAV, there may be times when the market price varies significantly from NAV.

 

    Market Risk     The Ultra Biotechnology ProShares is subject to market risks that will affect the value of its shares, including general economic and market conditions, as well as developments that impact specific economic sectors, industries or companies.

 

    Non-diversification Risk     The Ultra Biotechnology ProShares is considered non-diversified and may invest a relatively high percentage of its assets in the securities of a small number of issuers. In such circumstances, the Fund’s performance may be susceptible to economic, political or regulatory events affecting a single issuer than a more diversified fund.

 

    Repurchase Agreement Risk     Repurchase agreement risk is the risk that the counterparty to the repurchase agreement that sells the securities may default on its obligation to repurchase them. In this circumstance, Ultra Biotechnology ProShares may lose money because: it may not be able to sell the securities at the agreed upon time and price, the securities may lose value before they can be sold, the selling institution may default or declare bankruptcy or the Fund may have difficulty exercising rights to the collateral.

 

    Volatility Risk     Ultra Biotechnology ProShares seeks to achieve a multiple of an index and therefore will experience greater volatility than the index underlying its benchmark and consequently has the potential for greater losses.

In addition to the risks noted above, Ultra Biotechnology ProShares is also subject to risks faced by companies in the biotechnology industry, including: heavy dependence on patents and intellectual property rights, with profitability affected by the loss or impairment of such rights; risks of new technologies and competitive pressures; large expenditures on research and development of products or services that may not prove commercially successful or may become obsolete quickly; regulation by, and the restrictions of, the Food and Drug Administration, the Environmental Protection Agency, state and local governments, and foreign regulatory authorities; and thin capitalization and limited product lines, markets, financial resources or personnel. Further, stocks in the Index may underperform fixed income investments and stock market indices that track other markets, segments and sectors.

The Ultra Biotechnology ProShares may be subject to risks in addition to those identified as principal risks. The sections titled “More on Risks” and “Special Risks of Exchange-Traded Funds” later in this Prospectus and the SAI contains additional information about the Fund and related risks.

FUND PERFORMANCE

Performance history will be available for the Ultra Biotechnology ProShares after it has been in operation for a full calendar year.

FEES AND EXPENSES

The following table describes the estimated fees and expenses you may pay when you buy, hold, or sell Creation Units of the Ultra Biotechnology ProShares. Annual fund operating expenses are estimates. Investors purchasing shares in the secondary market will not pay the shareholder fees shown below, but may be subject to costs (including customary brokerage commissions) charged by their broker.

 

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Shareholder Fees (paid directly by Authorized Participants)*

 

Sales charges (loads)    None
Fixed transaction fee per orderA    $500
Variable transaction fee per creation unitB    up to 0.10%
Additional transaction charge if not settled through the Continuous Net Settlement System of the National Securities Clearing Corporation (NSCC)C    up to 3 times the fixed fee plus up to 0.10%

 

* See “Transaction Fees on Creation and Redemption Transactions” at the end of this Prospectus.

 

A A fixed transaction fee of $500 will be charged when you create or redeem Creation Units of the Ultra Biotechnology ProShares regardless of the number of shares created or redeemed on the date of the transaction.

 

B A variable transaction fee of up to 0.10% of the value of each Creation Unit will be charged to offset costs associated with the order.

 

C An additional fee of up to 3 times the fixed per order transaction fee plus up to 0.10% of the value of each Creation Unit may be charged if you do not create or redeem shares through the Continuous Net Settlement System of the NSCC, or in circumstances in which cash is substituted for certain securities. Such transactions are allowed at the sole discretion of the Fund.

Annual Fund Operating Expenses (as a percentage of average daily net assets)

 

Investment Advisory Fee

   0.75 %

Distribution and Service (12b-1) fees

   0.00 %

Other expenses A

   0.64 %

Total annual fund operating expenses

   1.39 %

Fee Waivers/Reimbursements B

   0.44 %
      

Total net annual fund operating expenses

   0.95 %
      

 

A Based on estimated amounts for the current fiscal year.

 

B ProShare Advisors has contractually agreed to waive Investment Advisory and Management Services Fees and to reimburse other expenses to the extent Total Annual Operating Expenses, as a percentage of average daily net assets, exceed 0.95% through May 31, 2007. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular fiscal year may be recouped by ProShare Advisors within five years of the waiver or reimbursement to the extent that recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time.

Example: The following examples are intended to help you compare the cost of investing in shares of the Ultra Biotechnology ProShares with the cost of investing in other funds. Investors should note that the following examples are for illustration purposes only and are not meant to suggest actual or expected fees and expenses or returns, all of which may vary. The Fund issues and redeems shares in Creation Units principally on an in-kind basis for portfolio securities included in the relevant Index and cash. Shares are not redeemable in less than Creation Unit aggregations. The examples do not include the brokerage commissions that secondary market investors may incur to buy and sell shares.

The following example assumes that you invest $10,000 in the Ultra Biotechnology ProShares for the time periods indicated and sell all of your shares at the end of those periods, but does not include transaction fees on purchases and redemptions of shares. The example also assumes that your investment has a 5% annual return each year and that the Fund’s annual operating expenses remain exactly as described in the fee table. Although your actual costs may be higher or lower, based on the assumptions, your costs would be:

 

1 year

   $ 97

3 years

   $ 397

 

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Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the Ultra Biotechnology ProShares, as of January 16, 2006, is $[    ]. Assuming an investment in a Creation Unit of $[    ] and a 5% return each year, and that an investor pays both the standard $[    ] transaction fee applicable to both the purchase and redemption of the Creation Unit and the maximum variable transaction fee of 0.10% of the value of the Creation Unit, and assuming that the Fund’s gross operating expenses remain the same, the total costs would be $[    ] if the Creation Unit is redeemed after one year and $[    ] if the Creation Unit is redeemed after three years.

 

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Ultra Consumer Goods ProShares

Ticker: [    ]

CUSIP: 74347R768

INVESTMENT OBJECTIVE

Ultra Consumer Goods ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of the Dow Jones U.S. Consumer Goods Index.

If Ultra Consumer Goods ProShares is successful in meeting its objective, its net asset value should gain approximately twice as much, on a percentage basis, as the Dow Jones U.S. Consumer Goods Index (Index) when the Index rises on a given day. Conversely, its net asset value should lose approximately twice as much, on a percentage basis, as the Index when the Index declines on a given day.

PRINCIPAL INVESTMENT STRATEGY

The Ultra Consumer Goods ProShares’ principal investment strategies include:

 

    Investing in equity securities and/or financial instruments (including derivatives) that ProShare Advisors believes, in combination, should have similar daily price return characteristics as twice (200%) the daily return of the Dow Jones U.S. Consumer Goods Index. Information about the Index can be found on page __.

 

    Committing at least 80% of its assets, under normal circumstances, to equity securities contained in the Index and/or financial instruments with similar economic characteristics.

 

    Employing leveraged investment techniques and/or sampling techniques in seeking its investment objective.

 

    Investing assets not invested in equity securities or financial instruments in debt securities and/or money market instruments.

 

    The Fund will concentrate its investments in a particular industry or group of industries to approximately the same extent as the Index is so concentrated. As of the close of business on September 30, 2006, the Index was concentrated in the household goods industry group, which comprised approximately 25% of the market capitalization of the Index.

The Ultra Consumer Goods ProShares employs leveraged investment techniques to achieve its investment objective. Over time, the use of leverage, combined with the effect of compounding, will have a more significant impact on the Fund’s performance compared to the index underlying its benchmark than a fund that does not employ leverage. Therefore, the return of the index over a period of time greater than one day multiplied by a fund’s specified multiple or inverse multiple (e.g., 200% or -200%) will not generally equal a fund’s performance over that same period. The following example illustrates this point:

Let’s say, hypothetically, that a shareholder invests $10,000 in Fund A and $10,000 in Fund B.

 

Fund A: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to the daily performance of an index.   Fund B: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of an index.

 

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On Day 1, each fund’s benchmark index increases in value 1% which would cause a 1% increase in Fund A and a 2% increase in Fund B.

On Day 2, each fund’s benchmark index decreases in value 1% which would cause a 1% decrease in Fund A and a 2% decrease in Fund B. At the end of Day 2, the value of the shareholder’s investment in Fund A would be approximately $9,999 (an increase of $100 on Day 1 and a decrease of $101 on Day 2). The value of the shareholder’s investment in Fund B would be approximately $9,996 at the end of Day 2 (an increase of $200 on Day 1 and a decrease of $204 on Day 2). In each case, the value of the shareholder’s investment declined overall. However, the effect of compounding was more pronounced for Fund B, which employs leverage. This example demonstrates how an investment in Fund A would have decreased in value by $1 over two days based on the index performance, while an investment in Fund B would have decreased in value by $4 over two days (four times the cumulative index loss over two days rather than two times the cumulative index loss).

Over time, the cumulative percentage increase or decrease in the net asset value of the Fund may diverge significantly from the cumulative percentage increase or decrease in the multiple of the return of the underlying Index due to the compounding effect of losses and gains on the returns of the Fund. Consequently, for periods greater than one day, investors should not expect the return of the Fund to be twice the return of the underlying Index. In addition, in trendless or flat markets it is expected that the Fund will underperform its benchmark Index.

PRINCIPAL RISK CONSIDERATIONS

The Ultra Consumer Goods ProShares is subject to the following principal risks:

 

    Aggressive Investment Technique Risk     The Ultra Consumer Goods ProShares uses investment techniques and financial instruments that may be considered aggressive, including the use of futures contracts, options on futures contracts, securities and indices, forward contracts, swap agreements and similar instruments. Such techniques may expose the Fund to potentially dramatic changes (losses) in the value of its portfolio holdings and imperfect correlation to the index underlying the Fund’s benchmark. These techniques also may expose the Fund to risks different from or possibly greater than the risks associated with investing directly in the securities contained in the index underlying the Fund’s benchmark.

 

    Correlation Risk     A number of factors may affect the Ultra Consumer Goods ProShares’ ability to achieve a high correlation with its benchmark and there can be no guarantee that the Fund will achieve a high degree of correlation.

 

    Counterparty Risk     The counterparty to a financial instrument may default on its obligations under the related agreement. In this circumstance, the Ultra Consumer Goods ProShares may lose money.

 

    Concentration Risk     Ultra Consumer Goods ProShares may concentrate its investments in issuers of one or more particular industries to the same extent that its underlying index is so concentrated. There is a risk that those issuers (or industry sector) will perform poorly and negatively impact a Fund.

 

    Credit Risk     An issuer of debt instruments may be unable to make interest payments and repay principal. Changes in an issuer’s financial strength or in an instrument’s credit rating may affect an instrument’s value and, thus, impact Ultra Consumer Goods ProShares’ performance. As described under “Counterparty Risk” above, the Fund will also be subject to credit risk with respect to the amount a Fund expects to receive from counterparties in financial instruments transactions. If a counterparty defaults on its payment obligations to a Fund, the value of your investment in a fund may decline.

 

    Equity Risk     The equity markets are volatile, and the value of securities, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day.

 

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    Leverage Risk     The Ultra Consumer Goods ProShares’ NAV and market price will likely be more volatile than the index underlying its benchmark and funds that do not employ leverage. Leverage should cause the Fund to lose more money in market environments adverse to its daily investment objective than an unleveraged investment.

 

    Liquidity Risk     In certain circumstances, the Ultra Consumer Goods ProShares may not be able to dispose of positions within a reasonable time at a fair price.

 

    Market Price Variance Risk     The Ultra Consumer Goods ProShares’ NAV will fluctuate with changes in the value of its portfolio holdings. Fund shares are listed on the Exchange and are purchased and sold at market prices for shares. Although it is expected that the secondary market price for shares should approximate the Fund’s NAV, there may be times when the market price varies significantly from NAV.

 

    Market Risk     The Ultra Consumer Goods ProShares is subject to market risks that will affect the value of its shares, including general economic and market conditions, as well as developments that impact specific economic sectors, industries or companies.

 

    Non-diversification Risk     The Ultra Consumer Goods ProShares is considered non-diversified and may invest a relatively high percentage of its assets in the securities of a small number of issuers. In such circumstances, the Fund’s performance may be susceptible to economic, political or regulatory events affecting a single issuer than a more diversified fund.

 

    Repurchase Agreement Risk     Repurchase agreement risk is the risk that the counterparty to the repurchase agreement that sells the securities may default on its obligation to repurchase them. In this circumstance, Ultra Consumer Goods ProShares may lose money because: it may not be able to sell the securities at the agreed upon time and price, the securities may lose value before they can be sold, the selling institution may default or declare bankruptcy or the Fund may have difficulty exercising rights to the collateral.

 

    Volatility Risk     Ultra Consumer Goods ProShares seeks to achieve a multiple of an index and therefore will experience greater volatility than the index underlying its benchmark and consequently has the potential for greater losses.

In addition to the risks noted above, Ultra Consumer Goods ProShares is also subject to risks faced by companies in the consumer goods economic sector, including: governmental regulation affecting the permissibility of using various food additives and production methods could affect profitability; tobacco companies may be adversely affected by new laws or by litigation; securities prices and profitability of food, soft drink and fashion related products might be strongly affected by fads, marketing campaigns and other factors affecting supply and demand; and because food and beverage companies may derive a substantial portion of their net income from foreign countries, they may be impacted by international events. Further, stocks in the Index may underperform fixed income investments and stock market indices that track other markets, segments and sectors.

The Ultra Consumer Goods ProShares may be subject to risks in addition to those identified as principal risks. The sections titled “More on Risks” and “Special Risks of Exchange-Traded Funds” later in this Prospectus and the SAI contains additional information about the Fund and related risks.

FUND PERFORMANCE

Performance history will be available for the Ultra Consumer Goods ProShares after it has been in operation for a full calendar year.

FEES AND EXPENSES

The following table describes the estimated fees and expenses you may pay when you buy, hold, or sell Creation

 

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Units of the Ultra Consumer Goods ProShares. Annual fund operating expenses are estimates. Investors purchasing shares in the secondary market will not pay the shareholder fees shown below, but may be subject to costs (including customary brokerage commissions) charged by their broker.

Shareholder Fees (paid directly by Authorized Participants)*

 

Sales charges (loads)    None
Fixed transaction fee per orderA    $755
Variable transaction fee per creation unitB    up to 0.10%
Additional transaction charge if not settled through the Continuous Net Settlement System of the National Securities Clearing Corporation (NSCC)C    up to 3 times the fixed fee plus up to 0.10%

 

* See “Transaction Fees on Creation and Redemption Transactions” at the end of this Prospectus.

 

A A fixed transaction fee of $755 will be charged when you create or redeem Creation Units of the Ultra Consumer Goods ProShares regardless of the number of shares created or redeemed on the date of the transaction.

 

B A variable transaction fee of up to 0.10% of the value of each Creation Unit will be charged to offset costs associated with the order.

 

C An additional fee of up to 3 times the fixed per order transaction fee plus up to 0.10% of the value of each Creation Unit may be charged if you do not create or redeem shares through the Continuous Net Settlement System of the NSCC, or in circumstances in which cash is substituted for certain securities. Such transactions are allowed at the sole discretion of the Fund.

Annual Fund Operating Expenses (as a percentage of average daily net assets)

 

Investment Advisory Fee

   0.75 %

Distribution and Service (12b-1) fees

   0.00 %

Other expenses A

   0.65 %

Total annual fund operating expenses

   1.40 %

Fee Waivers/Reimbursements B

   0.45 %
      

Total net annual fund operating expenses

   0.95 %
      

 

A Based on estimated amounts for the current fiscal year.

 

B ProShare Advisors has contractually agreed to waive Investment Advisory and Management Services Fees and to reimburse other expenses to the extent Total Annual Operating Expenses, as a percentage of average daily net assets, exceed 0.95% through May 31, 2007. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular fiscal year may be recouped by ProShare Advisors within five years of the waiver or reimbursement to the extent that recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time.

Example: The following examples are intended to help you compare the cost of investing in shares of the Ultra Consumer Goods ProShares with the cost of investing in other funds. Investors should note that the following examples are for illustration purposes only and are not meant to suggest actual or expected fees and expenses or returns, all of which may vary. The Fund issues and redeems shares in Creation Units principally on an in-kind basis for portfolio securities included in the relevant Index and cash. Shares are not redeemable in less than Creation Unit aggregations. The examples do not include the brokerage commissions that secondary market investors may incur to buy and sell shares.

The following example assumes that you invest $10,000 in the Ultra Consumer Goods ProShares for the time periods indicated and sell all of your shares at the end of those periods, but does not include transaction fees on purchases and redemptions of shares. The example also assumes that your investment has a 5% annual return each year and that the Fund’s annual operating expenses remain exactly as described in the fee table. Although your actual costs may be higher or lower, based on the assumptions, your costs would be:

 

1 year

   $ 97

3 years

   $ 399

 

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Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the Ultra Consumer Goods ProShares, as of January 16, 2006, is $[    ]. Assuming an investment in a Creation Unit of $[    ] and a 5% return each year, and that an investor pays both the standard $[    ] transaction fee applicable to both the purchase and redemption of the Creation Unit and the maximum variable transaction fee of 0.10% of the value of the Creation Unit, and assuming that the Fund’s gross operating expenses remain the same, the total costs would be $[    ] if the Creation Unit is redeemed after one year and $[    ] if the Creation Unit is redeemed after three years.

 

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Ultra Consumer Services ProShares

Ticker: [    ]

CUSIP: 74347R750

INVESTMENT OBJECTIVE

Ultra Consumer Services ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of the Dow Jones U.S. Consumer Services Index.

If Ultra Consumer Services ProShares is successful in meeting its objective, its net asset value should gain approximately twice as much, on a percentage basis, as the Dow Jones U.S. Consumer Services Index (Index) when the Index rises on a given day. Conversely, its net asset value should lose approximately twice as much, on a percentage basis, as the Index when the Index declines on a given day.

PRINCIPAL INVESTMENT STRATEGY

The Ultra Consumer Services ProShares’ principal investment strategies include:

 

    Investing in equity securities and/or financial instruments (including derivatives) that ProShare Advisors believes, in combination, should have similar daily price return characteristics as twice (200%) the daily return of the Dow Jones U.S. Consumer Services Index. Information about the Index can be found on page __.

 

    Committing at least 80% of its assets, under normal circumstances, to equity securities contained in the Index and/or financial instruments with similar economic characteristics.

 

    Employing leveraged investment techniques and/or sampling techniques in seeking its investment objective.

 

    Investing assets not invested in equity securities or financial instruments in debt securities and/or money market instruments.

 

    The Fund will concentrate its investments in a particular industry or group of industries to approximately the same extent as the Index is so concentrated. As of the close of business on September 30, 2006, the Index was concentrated in the general retailers and media industry groups, which comprised approximately 41% and 30%, respectively, of the market capitalization of the Index.

The Ultra Consumer Services ProShares employs leveraged investment techniques to achieve its investment objective. Over time, the use of leverage, combined with the effect of compounding, will have a more significant impact on the Fund’s performance compared to the index underlying its benchmark than a fund that does not employ leverage. Therefore, the return of the index over a period of time greater than one day multiplied by a fund’s specified multiple or inverse multiple (e.g., 200% or -200%) will not generally equal a fund’s performance over that same period. The following example illustrates this point:

Let’s say, hypothetically, that a shareholder invests $10,000 in Fund A and $10,000 in Fund B.

 

Fund A: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to the daily performance of an index.   Fund B: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of an index.

On Day 1, each fund’s benchmark index increases in value 1% which would cause a 1% increase in Fund A and a 2% increase in Fund B.

 

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On Day 2, each fund’s benchmark index decreases in value 1% which would cause a 1% decrease in Fund A and a 2% decrease in Fund B. At the end of Day 2, the value of the shareholder’s investment in Fund A would be approximately $9,999 (an increase of $100 on Day 1 and a decrease of $101 on Day 2). The value of the shareholder’s investment in Fund B would be approximately $9,996 at the end of Day 2 (an increase of $200 on Day 1 and a decrease of $204 on Day 2). In each case, the value of the shareholder’s investment declined overall. However, the effect of compounding was more pronounced for Fund B, which employs leverage. This example demonstrates how an investment in Fund A would have decreased in value by $1 over two days based on the index performance, while an investment in Fund B would have decreased in value by $4 over two days (four times the cumulative index loss over two days rather than two times the cumulative index loss).

Over time, the cumulative percentage increase or decrease in the net asset value of the Fund may diverge significantly from the cumulative percentage increase or decrease in the multiple of the return of the underlying Index due to the compounding effect of losses and gains on the returns of the Fund. Consequently, for periods greater than one day, investors should not expect the return of the Fund to be twice the return of the underlying Index. In addition, in trendless or flat markets it is expected that the Fund will underperform its benchmark Index.

PRINCIPAL RISK CONSIDERATIONS

The Ultra Consumer Services ProShares is subject to the following principal risks:

 

    Aggressive Investment Technique Risk     The Ultra Consumer Services ProShares uses investment techniques and financial instruments that may be considered aggressive, including the use of futures contracts, options on futures contracts, securities and indices, forward contracts, swap agreements and similar instruments. Such techniques may expose the Fund to potentially dramatic changes (losses) in the value of its portfolio holdings and imperfect correlation to the index underlying the Fund’s benchmark. These techniques also may expose the Fund to risks different from or possibly greater than the risks associated with investing directly in the securities contained in the index underlying the Fund’s benchmark.

 

    Correlation Risk     A number of factors may affect the Ultra Consumer Services ProShares’ ability to achieve a high correlation with its benchmark and there can be no guarantee that the Fund will achieve a high degree of correlation.

 

    Counterparty Risk     The counterparty to a financial instrument may default on its obligations under the related agreement. In this circumstance, the Ultra Consumer Services ProShares may lose money.

 

    Concentration Risk     Ultra Consumer Services ProShares may concentrate its investments in issuers of one or more particular industries to the same extent that its underlying index is so concentrated. There is a risk that those issuers (or industry sector) will perform poorly and negatively impact a Fund.

 

    Credit Risk     An issuer of debt instruments may be unable to make interest payments and repay principal. Changes in an issuer’s financial strength or in an instrument’s credit rating may affect an instrument’s value and, thus, impact Ultra Consumer Services ProShares’ performance. As described under “Counterparty Risk” above, the Fund will also be subject to credit risk with respect to the amount a Fund expects to receive from counterparties in financial instruments transactions. If a counterparty defaults on its payment obligations to a Fund, the value of your investment in a fund may decline.

 

    Equity Risk     The equity markets are volatile, and the value of securities, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day.

 

    Leverage Risk     The Ultra Consumer Services ProShares’ NAV and market price will likely be more volatile than the index underlying its benchmark and funds that do not employ leverage. Leverage should cause the Fund to lose more money in market environments adverse to its daily investment objective than an unleveraged investment.

 

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    Liquidity Risk     In certain circumstances, the Ultra Consumer Services ProShares may not be able to dispose of positions within a reasonable time at a fair price.

 

    Market Price Variance Risk     The Ultra Consumer Services ProShares’ NAV will fluctuate with changes in the value of its portfolio holdings. Fund shares are listed on the Exchange and are purchased and sold at market prices for shares. Although it is expected that the secondary market price for shares should approximate the Fund’s NAV, there may be times when the market price varies significantly from NAV.

 

    Market Risk     The Ultra Consumer Services ProShares is subject to market risks that will affect the value of its shares, including general economic and market conditions, as well as developments that impact specific economic sectors, industries or companies.

 

    Non-diversification Risk     The Ultra Consumer Services ProShares is considered non-diversified and may invest a relatively high percentage of its assets in the securities of a small number of issuers. In such circumstances, the Fund’s performance may be susceptible to economic, political or regulatory events affecting a single issuer than a more diversified fund.

 

    Repurchase Agreement Risk     Repurchase agreement risk is the risk that the counterparty to the repurchase agreement that sells the securities may default on its obligation to repurchase them. In this circumstance, Ultra Consumer Services ProShares may lose money because: it may not be able to sell the securities at the agreed upon time and price, the securities may lose value before they can be sold, the selling institution may default or declare bankruptcy or the Fund may have difficulty exercising rights to the collateral.

 

    Volatility Risk     Ultra Consumer Services ProShares seeks to achieve a multiple of an index and therefore will experience greater volatility than the index underlying its benchmark and consequently has the potential for greater losses.

In addition to the risks noted above, Ultra Consumer Services ProShares is also subject to risks faced by companies in the consumer services industry, including: securities prices and profitability may be tied closely to the performance of the domestic and international economy, interest rates, competition and consumer confidence; heavy dependence on disposable household income and consumer spending; severe competition; and changes in demographics and consumer tastes can affect the success of consumer products. Further, stocks in the Index may underperform fixed income investments and stock market indices that track other markets, segments and sectors.

The Ultra Consumer Services ProShares may be subject to risks in addition to those identified as principal risks. The sections titled “More on Risks” and “Special Risks of Exchange-Traded Funds” later in this Prospectus and the SAI contains additional information about the Fund and related risks.

FUND PERFORMANCE

Performance history will be available for the Ultra Consumer Services ProShares after it has been in operation for a full calendar year.

FEES AND EXPENSES

The following table describes the estimated fees and expenses you may pay when you buy, hold, or sell Creation Units of the Ultra Consumer Services ProShares. Annual fund operating expenses are estimates. Investors purchasing shares in the secondary market will not pay the shareholder fees shown below, but may be subject to costs (including customary brokerage commissions) charged by their broker.

 

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Shareholder Fees (paid directly by Authorized Participants)*

 

Sales charges (loads)    None
Fixed transaction fee per orderA    $1,265
Variable transaction fee per creation unitB    up to 0.10%
Additional transaction charge if not settled through the Continuous Net Settlement System of the National Securities Clearing Corporation (NSCC)C    up to 3 times the fixed fee plus up to 0.10%

 

* See “Transaction Fees on Creation and Redemption Transactions” at the end of this Prospectus.

 

A A fixed transaction fee of $1,265 will be charged when you create or redeem Creation Units of the Ultra Consumer Services ProShares regardless of the number of shares created or redeemed on the date of the transaction.

 

B A variable transaction fee of up to 0.10% of the value of each Creation Unit will be charged to offset costs associated with the order.

 

C An additional fee of up to 3 times the fixed per order transaction fee plus up to 0.10% of the value of each Creation Unit may be charged if you do not create or redeem shares through the Continuous Net Settlement System of the NSCC, or in circumstances in which cash is substituted for certain securities. Such transactions are allowed at the sole discretion of the Fund.

Annual Fund Operating Expenses (as a percentage of average daily net assets)

 

Investment Advisory Fee

   0.75 %

Distribution and Service (12b-1) fees

   0.00 %

Other expenses A

   0.66 %

Total annual fund operating expenses

   1.41 %

Fee Waivers/Reimbursements B

   0.46 %
      

Total net annual fund operating expenses

   0.95 %
      

 

A Based on estimated amounts for the current fiscal year.

 

B ProShare Advisors has contractually agreed to waive Investment Advisory and Management Services Fees and to reimburse other expenses to the extent Total Annual Operating Expenses, as a percentage of average daily net assets, exceed 0.95% through May 31, 2007. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular fiscal year may be recouped by ProShare Advisors within five years of the waiver or reimbursement to the extent that recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time.

Example: The following examples are intended to help you compare the cost of investing in shares of the Ultra Consumer Services ProShares with the cost of investing in other funds. Investors should note that the following examples are for illustration purposes only and are not meant to suggest actual or expected fees and expenses or returns, all of which may vary. The Fund issues and redeems shares in Creation Units principally on an in-kind basis for portfolio securities included in the relevant Index and cash. Shares are not redeemable in less than Creation Unit aggregations. The examples do not include the brokerage commissions that secondary market investors may incur to buy and sell shares.

The following example assumes that you invest $10,000 in the Ultra Consumer Services ProShares for the time periods indicated and sell all of your shares at the end of those periods, but does not include transaction fees on purchases and redemptions of shares. The example also assumes that your investment has a 5% annual return each year and that the Fund’s annual operating expenses remain exactly as described in the fee table. Although your actual costs may be higher or lower, based on the assumptions, your costs would be:

 

1 year

   $ 97

3 years

   $ 401

 

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Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the Ultra Consumer Services ProShares, as of January 16, 2006, is $[    ]. Assuming an investment in a Creation Unit of $[    ] and a 5% return each year, and that an investor pays both the standard $[    ] transaction fee applicable to both the purchase and redemption of the Creation Unit and the maximum variable transaction fee of 0.10% of the value of the Creation Unit, and assuming that the Fund’s gross operating expenses remain the same, the total costs would be $[    ] if the Creation Unit is redeemed after one year and $[    ] if the Creation Unit is redeemed after three years.

 

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Ultra Financials ProShares

Ticker: [    ]

CUSIP: 74347R743

INVESTMENT OBJECTIVE

Ultra Financials ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of the Dow Jones U.S. Financials Index.

If Ultra Financials ProShares is successful in meeting its objective, its net asset value should gain approximately twice as much, on a percentage basis, as the Dow Jones U.S. Financials Index (Index) when the Index rises on a given day. Conversely, its net asset value should lose approximately twice as much, on a percentage basis, as the Index when the Index declines on a given day.

PRINCIPAL INVESTMENT STRATEGY

The Ultra Financials ProShares’ principal investment strategies include:

 

    Investing in equity securities and/or financial instruments (including derivatives) that ProShare Advisors believes, in combination, should have similar daily price return characteristics as twice (200%) the daily return of the Dow Jones U.S. Financials Index. Information about the Index can be found on page __.

 

    Committing at least 80% of its assets, under normal circumstances, to equity securities contained in the Index and/or financial instruments with similar economic characteristics.

 

    Employing leveraged investment techniques and/or sampling techniques in seeking its investment objective.

 

    Investing assets not invested in equity securities or financial instruments in debt securities and/or money market instruments.

 

    The Fund will concentrate its investments in a particular industry or group of industries to approximately the same extent as the Index is so concentrated. As of the close of business on September 30, 2006, the Index was concentrated in the banks and general financial industry groups, which comprised approximately 65% and 34%, respectively, of the market capitalization of the Index.

The Ultra Financials ProShares employs leveraged investment techniques to achieve its investment objective. Over time, the use of leverage, combined with the effect of compounding, will have a more significant impact on the Fund’s performance compared to the index underlying its benchmark than a fund that does not employ leverage. Therefore, the return of the index over a period of time greater than one day multiplied by a fund’s specified multiple or inverse multiple (e.g., 200% or -200%) will not generally equal a fund’s performance over that same period. The following example illustrates this point:

Let’s say, hypothetically, that a shareholder invests $10,000 in Fund A and $10,000 in Fund B.

 

Fund A: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to the daily performance of an index.   Fund B: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of an index.

On Day 1, each fund’s benchmark index increases in value 1% which would cause a 1% increase in Fund A and a 2% increase in Fund B.

 

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On Day 2, each fund’s benchmark index decreases in value 1% which would cause a 1% decrease in Fund A and a 2% decrease in Fund B. At the end of Day 2, the value of the shareholder’s investment in Fund A would be approximately $9,999 (an increase of $100 on Day 1 and a decrease of $101 on Day 2). The value of the shareholder’s investment in Fund B would be approximately $9,996 at the end of Day 2 (an increase of $200 on Day 1 and a decrease of $204 on Day 2). In each case, the value of the shareholder’s investment declined overall. However, the effect of compounding was more pronounced for Fund B, which employs leverage. This example demonstrates how an investment in Fund A would have decreased in value by $1 over two days based on the index performance, while an investment in Fund B would have decreased in value by $4 over two days (four times the cumulative index loss over two days rather than two times the cumulative index loss).

Over time, the cumulative percentage increase or decrease in the net asset value of the Fund may diverge significantly from the cumulative percentage increase or decrease in the multiple of the return of the underlying Index due to the compounding effect of losses and gains on the returns of the Fund. Consequently, for periods greater than one day, investors should not expect the return of the Fund to be twice the return of the underlying Index. In addition, in trendless or flat markets it is expected that the Fund will underperform its benchmark Index.

PRINCIPAL RISK CONSIDERATIONS

The Ultra Financials ProShares is subject to the following principal risks:

 

    Aggressive Investment Technique Risk    The Ultra Financials ProShares uses investment techniques and financial instruments that may be considered aggressive, including the use of futures contracts, options on futures contracts, securities and indices, forward contracts, swap agreements and similar instruments. Such techniques may expose the Fund to potentially dramatic changes (losses) in the value of its portfolio holdings and imperfect correlation to the index underlying the Fund’s benchmark. These techniques also may expose the Fund to risks different from or possibly greater than the risks associated with investing directly in the securities contained in the index underlying the Fund’s benchmark.

 

    Correlation Risk    A number of factors may affect the Ultra Financials ProShares’ ability to achieve a high correlation with its benchmark and there can be no guarantee that the Fund will achieve a high degree of correlation.

 

    Counterparty Risk    The counterparty to a financial instrument may default on its obligations under the related agreement. In this circumstance, the Ultra Financials ProShares may lose money.

 

    Concentration Risk    Ultra Financials ProShares may concentrate its investments in issuers of one or more particular industries to the same extent that its underlying index is so concentrated. There is a risk that those issuers (or industry sector) will perform poorly and negatively impact a Fund.

 

    Credit Risk    An issuer of debt instruments may be unable to make interest payments and repay principal. Changes in an issuer’s financial strength or in an instrument’s credit rating may affect an instrument’s value and, thus, impact Ultra Financials ProShares’ performance. As described under “Counterparty Risk” above, the Fund will also be subject to credit risk with respect to the amount a Fund expects to receive from counterparties in financial instruments transactions. If a counterparty defaults on its payment obligations to a Fund, the value of your investment in a fund may decline.

 

    Equity Risk    The equity markets are volatile, and the value of securities, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day.

 

    Leverage Risk    The Ultra Financials ProShares’ NAV and market price will likely be more volatile than the index underlying its benchmark and funds that do not employ leverage. Leverage should cause the Fund to lose more money in market environments adverse to its daily investment objective than an unleveraged investment.

 

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    Liquidity Risk    In certain circumstances, the Ultra Financials ProShares may not be able to dispose of positions within a reasonable time at a fair price.

 

    Market Price Variance Risk    The Ultra Financials ProShares’ NAV will fluctuate with changes in the value of its portfolio holdings. Fund shares are listed on the Exchange and are purchased and sold at market prices for shares. Although it is expected that the secondary market price for shares should approximate the Fund’s NAV, there may be times when the market price varies significantly from NAV.

 

    Market Risk    The Ultra Financials ProShares is subject to market risks that will affect the value of its shares, including general economic and market conditions, as well as developments that impact specific economic sectors, industries or companies.

 

    Non-diversification Risk    The Ultra Financials ProShares is considered non-diversified and may invest a relatively high percentage of its assets in the securities of a small number of issuers. In such circumstances, the Fund’s performance may be susceptible to economic, political or regulatory events affecting a single issuer than a more diversified fund.

 

    Repurchase Agreement Risk    Repurchase agreement risk is the risk that the counterparty to the repurchase agreement that sells the securities may default on its obligation to repurchase them. In this circumstance, Ultra Financials ProShares may lose money because: it may not be able to sell the securities at the agreed upon time and price, the securities may lose value before they can be sold, the selling institution may default or declare bankruptcy or the Fund may have difficulty exercising rights to the collateral.

 

    Volatility Risk    Ultra Financials ProShares seeks to achieve a multiple of an index and therefore will experience greater volatility than the index underlying its benchmark and consequently has the potential for greater losses.

In addition to the risks noted above, Ultra Financials ProShares is also subject to risks faced by companies in the financial services economic sector, including: extensive governmental regulation that affects the scope of their activities, the prices they can charge and the amount of capital they must maintain; adverse effects from increases in interest rates; effects on profitability by loan losses, which usually increase in economic downturns; banks and insurance companies may be subject to severe price competition; and newly enacted laws are expected to result in increased inter-industry consolidation and competition in the financial sector. Further, stocks in the Index may underperform fixed income investments and stock market indices that track other markets, segments and sectors.

The Ultra Financials ProShares may be subject to risks in addition to those identified as principal risks. The sections titled “More on Risks” and “Special Risks of Exchange-Traded Funds” later in this Prospectus and the SAI contains additional information about the Fund and related risks.

FUND PERFORMANCE

Performance history will be available for the Ultra Financials ProShares after it has been in operation for a full calendar year.

FEES AND EXPENSES

The following table describes the estimated fees and expenses you may pay when you buy, hold, or sell Creation Units of the Ultra Financials ProShares. Annual fund operating expenses are estimates. Investors purchasing shares in the secondary market will not pay the shareholder fees shown below, but may be subject to costs (including customary brokerage commissions) charged by their broker.

 

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Shareholder Fees (paid directly by Authorized Participants)*

 

Sales charges (loads)

   None

Fixed transaction fee per orderA

   $1,555

Variable transaction fee per creation unitB

   up to 0.10%
Additional transaction charge if not settled through the Continuous Net Settlement System of the National Securities Clearing Corporation (NSCC)C    up to 3 times the fixed fee plus up to 0.10%

 

* See “Transaction Fees on Creation and Redemption Transactions” at the end of this Prospectus.

 

A A fixed transaction fee of $1,555 will be charged when you create or redeem Creation Units of the Ultra Financials ProShares regardless of the number of shares created or redeemed on the date of the transaction.

 

B A variable transaction fee of up to 0.10% of the value of each Creation Unit will be charged to offset costs associated with the order.

 

C An additional fee of up to 3 times the fixed per order transaction fee plus up to 0.10% of the value of each Creation Unit may be charged if you do not create or redeem shares through the Continuous Net Settlement System of the NSCC, or in circumstances in which cash is substituted for certain securities. Such transactions are allowed at the sole discretion of the Fund.

Annual Fund Operating Expenses (as a percentage of average daily net assets)

 

Investment Advisory Fee

   0.75 %

Distribution and Service (12b-1) fees

   0.00 %

Other expenses A

   0.66 %

Total annual fund operating expenses

   1.41 %

Fee Waivers/Reimbursements B

   0.46 %
      

Total net annual fund operating expenses

   0.95 %
      

 

A Based on estimated amounts for the current fiscal year.

 

B ProShare Advisors has contractually agreed to waive Investment Advisory and Management Services Fees and to reimburse other expenses to the extent Total Annual Operating Expenses, as a percentage of average daily net assets, exceed 0.95% through May 31, 2007. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular fiscal year may be recouped by ProShare Advisors within five years of the waiver or reimbursement to the extent that recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time.

Example: The following examples are intended to help you compare the cost of investing in shares of the Ultra Financials ProShares with the cost of investing in other funds. Investors should note that the following examples are for illustration purposes only and are not meant to suggest actual or expected fees and expenses or returns, all of which may vary. The Fund issues and redeems shares in Creation Units principally on an in-kind basis for portfolio securities included in the relevant Index and cash. Shares are not redeemable in less than Creation Unit aggregations. The examples do not include the brokerage commissions that secondary market investors may incur to buy and sell shares.

The following example assumes that you invest $10,000 in the Ultra Financials ProShares for the time periods indicated and sell all of your shares at the end of those periods, but does not include transaction fees on purchases and redemptions of shares. The example also assumes that your investment has a 5% annual return each year and that the Fund’s annual operating expenses remain exactly as described in the fee table. Although your actual costs may be higher or lower, based on the assumptions, your costs would be:

 

1 year

   $ 97

3 years

   $ 401

Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the Ultra Financials ProShares, as of January 16, 2006, is $[    ]. Assuming an investment in a Creation Unit of $[    ] and a 5% return each year, and that an investor pays both the standard $[    ] transaction fee applicable to both the purchase and redemption of the Creation Unit and the maximum variable transaction fee of 0.10% of the value of the Creation Unit, and assuming that the Fund’s gross operating expenses remain the same, the total costs would be $[    ] if the Creation Unit is redeemed after one year and $[    ] if the Creation Unit is redeemed after three years.

 

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Ultra Health Care ProShares

Ticker: [    ]

CUSIP: 74347R735

INVESTMENT OBJECTIVE

Ultra Health Care ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of the Dow Jones U.S. Health Care Index.

If Ultra Health Care ProShares is successful in meeting its objective, its net asset value should gain approximately twice as much, on a percentage basis, as the Dow Jones U.S. Health Care Index (Index) when the Index rises on a given day. Conversely, its net asset value should lose approximately twice as much, on a percentage basis, as the Index when the Index declines on a given day.

PRINCIPAL INVESTMENT STRATEGY

The Ultra Health Care ProShares’ principal investment strategies include:

 

    Investing in equity securities and/or financial instruments (including derivatives) that ProShare Advisors believes, in combination, should have similar daily price return characteristics as twice (200%) the daily return of the Dow Jones U.S. Health Care Index. Information about the Index can be found on page __.

 

    Committing at least 80% of its assets, under normal circumstances, to equity securities contained in the Index and/or financial instruments with similar economic characteristics.

 

    Employing leveraged investment techniques and/or sampling techniques in seeking its investment objective.

 

    Investing assets not invested in equity securities or financial instruments in debt securities and/or money market instruments.

 

    The Fund will concentrate its investments in a particular industry or group of industries to approximately the same extent as the Index is so concentrated. As of the close of business on September 30, 2006, the Index was concentrated in the pharmaceuticals & biotechnology and healthcare equipment & services industry groups, which comprised approximately 64% and 36%, respectively, of the market capitalization of the Index.

The Ultra Health Care ProShares employs leveraged investment techniques to achieve its investment objective. Over time, the use of leverage, combined with the effect of compounding, will have a more significant impact on the Fund’s performance compared to the index underlying its benchmark than a fund that does not employ leverage. Therefore, the return of the index over a period of time greater than one day multiplied by a fund’s specified multiple or inverse multiple (e.g., 200% or -200%) will not generally equal a fund’s performance over that same period. The following example illustrates this point:

Let’s say, hypothetically, that a shareholder invests $10,000 in Fund A and $10,000 in Fund B.

 

Fund A: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to the daily performance of an index.   Fund B: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of an index.

 

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On Day 1, each fund’s benchmark index increases in value 1% which would cause a 1% increase in Fund A and a 2% increase in Fund B.

On Day 2, each fund’s benchmark index decreases in value 1% which would cause a 1% decrease in Fund A and a 2% decrease in Fund B. At the end of Day 2, the value of the shareholder’s investment in Fund A would be approximately $9,999 (an increase of $100 on Day 1 and a decrease of $101 on Day 2). The value of the shareholder’s investment in Fund B would be approximately $9,996 at the end of Day 2 (an increase of $200 on Day 1 and a decrease of $204 on Day 2). In each case, the value of the shareholder’s investment declined overall. However, the effect of compounding was more pronounced for Fund B, which employs leverage. This example demonstrates how an investment in Fund A would have decreased in value by $1 over two days based on the index performance, while an investment in Fund B would have decreased in value by $4 over two days (four times the cumulative index loss over two days rather than two times the cumulative index loss).

Over time, the cumulative percentage increase or decrease in the net asset value of the Fund may diverge significantly from the cumulative percentage increase or decrease in the multiple of the return of the underlying Index due to the compounding effect of losses and gains on the returns of the Fund. Consequently, for periods greater than one day, investors should not expect the return of the Fund to be twice the return of the underlying Index. In addition, in trendless or flat markets it is expected that the Fund will underperform its benchmark Index.

PRINCIPAL RISK CONSIDERATIONS

The Ultra Health Care ProShares is subject to the following principal risks:

 

    Aggressive Investment Technique Risk    The Ultra Health Care ProShares uses investment techniques and financial instruments that may be considered aggressive, including the use of futures contracts, options on futures contracts, securities and indices, forward contracts, swap agreements and similar instruments. Such techniques may expose the Fund to potentially dramatic changes (losses) in the value of its portfolio holdings and imperfect correlation to the index underlying the Fund’s benchmark. These techniques also may expose the Fund to risks different from or possibly greater than the risks associated with investing directly in the securities contained in the index underlying the Fund’s benchmark.

 

    Correlation Risk    A number of factors may affect the Ultra Health Care ProShares’ ability to achieve a high correlation with its benchmark and there can be no guarantee that the Fund will achieve a high degree of correlation.

 

    Counterparty Risk    The counterparty to a financial instrument may default on its obligations under the related agreement. In this circumstance, the Ultra Health Care ProShares may lose money.

 

    Concentration Risk    Ultra Health Care ProShares may concentrate its investments in issuers of one or more particular industries to the same extent that its underlying index is so concentrated. There is a risk that those issuers (or industry sector) will perform poorly and negatively impact a Fund.

 

    Credit Risk    An issuer of debt instruments may be unable to make interest payments and repay principal. Changes in an issuer’s financial strength or in an instrument’s credit rating may affect an instrument’s value and, thus, impact Ultra Health Care ProShares’ performance. As described under “Counterparty Risk” above, the Fund will also be subject to credit risk with respect to the amount a Fund expects to receive from counterparties in financial instruments transactions. If a counterparty defaults on its payment obligations to a Fund, the value of your investment in a fund may decline.

 

    Equity Risk    The equity markets are volatile, and the value of securities, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day.

 

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    Leverage Risk    The Ultra Health Care ProShares’ NAV and market price will likely be more volatile than the index underlying its benchmark and funds that do not employ leverage. Leverage should cause the Fund to lose more money in market environments adverse to its daily investment objective than an unleveraged investment.

 

    Liquidity Risk    In certain circumstances, the Ultra Health Care ProShares may not be able to dispose of positions within a reasonable time at a fair price.

 

    Market Price Variance Risk    The Ultra Health Care ProShares’ NAV will fluctuate with changes in the value of its portfolio holdings. Fund shares are listed on the Exchange and are purchased and sold at market prices for shares. Although it is expected that the secondary market price for shares should approximate the Fund’s NAV, there may be times when the market price varies significantly from NAV.

 

    Market Risk    The Ultra Health Care ProShares is subject to market risks that will affect the value of its shares, including general economic and market conditions, as well as developments that impact specific economic sectors, industries or companies.

 

    Non-diversification Risk    The Ultra Health Care ProShares is considered non-diversified and may invest a relatively high percentage of its assets in the securities of a small number of issuers. In such circumstances, the Fund’s performance may be susceptible to economic, political or regulatory events affecting a single issuer than a more diversified fund.

 

    Repurchase Agreement Risk    Repurchase agreement risk is the risk that the counterparty to the repurchase agreement that sells the securities may default on its obligation to repurchase them. In this circumstance, Ultra Health Care ProShares may lose money because: it may not be able to sell the securities at the agreed upon time and price, the securities may lose value before they can be sold, the selling institution may default or declare bankruptcy or the Fund may have difficulty exercising rights to the collateral.

 

    Volatility Risk    Ultra Health Care ProShares seeks to achieve a multiple of an index and therefore will experience greater volatility than the index underlying its benchmark and consequently has the potential for greater losses.

In addition to the risks noted above, Ultra Health Care ProShares is also subject to risks faced by companies in the healthcare economic sector, including: heavy dependence on patent protection, with profitability affected by the expiration of patents; expenses and losses from extensive litigation based on product liability and similar claims; competitive forces that may make it difficult to raise prices and, in fact, may result in price discounting; long and costly process for obtaining new product approval by the Food and Drug Administration; healthcare providers may have difficulty obtaining staff to deliver service; susceptibility to product obsolescence; and thin capitalization and limited product lines, markets, financial resources or personnel. Further, stocks in the Index may underperform fixed income investments and stock market indices that track other markets, segments and sectors.

The Ultra Health Care ProShares may be subject to risks in addition to those identified as principal risks. The sections titled “More on Risks” and “Special Risks of Exchange-Traded Funds” later in this Prospectus and the SAI contains additional information about the Fund and related risks.

FUND PERFORMANCE

Performance history will be available for the Ultra Health Care ProShares after it has been in operation for a full calendar year.

FEES AND EXPENSES

The following table describes the estimated fees and expenses you may pay when you buy, hold, or sell Creation Units of the Ultra Health Care ProShares. Annual fund operating expenses are estimates. Investors purchasing shares in the secondary market will not pay the shareholder fees shown below, but may be subject to costs (including customary brokerage commissions) charged by their broker.

 

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Shareholder Fees (paid directly by Authorized Participants)*

 

Sales charges (loads)    None
Fixed transaction fee per orderA    $800
Variable transaction fee per creation unitB    up to 0.10%
Additional transaction charge if not settled through the Continuous Net Settlement System of the National Securities Clearing Corporation (NSCC)C    up to 3 times the fixed fee plus up to 0.10%

 

* See “Transaction Fees on Creation and Redemption Transactions” at the end of this Prospectus.

 

A A fixed transaction fee of $800 will be charged when you create or redeem Creation Units of the Ultra Health Care ProShares regardless of the number of shares created or redeemed on the date of the transaction.

 

B A variable transaction fee of up to 0.10% of the value of each Creation Unit will be charged to offset costs associated with the order.

 

C An additional fee of up to 3 times the fixed per order transaction fee plus up to 0.10% of the value of each Creation Unit may be charged if you do not create or redeem shares through the Continuous Net Settlement System of the NSCC, or in circumstances in which cash is substituted for certain securities. Such transactions are allowed at the sole discretion of the Fund.

Annual Fund Operating Expenses (as a percentage of average daily net assets)

 

Investment Advisory Fee

   0.75 %

Distribution and Service (12b-1) fees

   0.00 %

Other expenses A

   0.65 %

Total annual fund operating expenses

   1.40 %

Fee Waivers/Reimbursements B

   0.45 %
      

Total net annual fund operating expenses

   0.95 %
      

 

A Based on estimated amounts for the current fiscal year.

 

B ProShare Advisors has contractually agreed to waive Investment Advisory and Management Services Fees and to reimburse other expenses to the extent Total Annual Operating Expenses, as a percentage of average daily net assets, exceed 0.95% through May 31, 2007. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular fiscal year may be recouped by ProShare Advisors within five years of the waiver or reimbursement to the extent that recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time.

Example: The following examples are intended to help you compare the cost of investing in shares of the Ultra Health Care ProShares with the cost of investing in other funds. Investors should note that the following examples are for illustration purposes only and are not meant to suggest actual or expected fees and expenses or returns, all of which may vary. The Fund issues and redeems shares in Creation Units principally on an in-kind basis for portfolio securities included in the relevant Index and cash. Shares are not redeemable in less than Creation Unit aggregations. The examples do not include the brokerage commissions that secondary market investors may incur to buy and sell shares.

The following example assumes that you invest $10,000 in the Ultra Health Care ProShares for the time periods indicated and sell all of your shares at the end of those periods, but does not include transaction fees on purchases and redemptions of shares. The example also assumes that your investment has a 5% annual return each year and that the Fund’s annual operating expenses remain exactly as described in the fee table. Although your actual costs may be higher or lower, based on the assumptions, your costs would be:

 

1 year

   $ 97

3 years

   $ 399

 

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Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the Ultra Health Care ProShares, as of January 16, 2006, is $[    ]. Assuming an investment in a Creation Unit of $[    ] and a 5% return each year, and that an investor pays both the standard $[    ] transaction fee applicable to both the purchase and redemption of the Creation Unit and the maximum variable transaction fee of 0.10% of the value of the Creation Unit, and assuming that the Fund’s gross operating expenses remain the same, the total costs would be $[    ] if the Creation Unit is redeemed after one year and $[    ] if the Creation Unit is redeemed after three years.

 

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Ultra Industrials ProShares

Ticker: [    ]

CUSIP: 74347R727

INVESTMENT OBJECTIVE

Ultra Industrials ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of the Dow Jones U.S. Industrials Index.

If Ultra Industrials ProShares is successful in meeting its objective, its net asset value should gain approximately twice as much, on a percentage basis, as the Dow Jones U.S. Industrials Index (Index) when the Index rises on a given day. Conversely, its net asset value should lose approximately twice as much, on a percentage basis, as the Index when the Index declines on a given day.

PRINCIPAL INVESTMENT STRATEGY

The Ultra Industrials ProShares’ principal investment strategies include:

 

    Investing in equity securities and/or financial instruments (including derivatives) that ProShare Advisors believes, in combination, should have similar daily price return characteristics as twice (200%) the daily return of the Dow Jones U.S. Industrials Index. Information about the Index can be found on page __.

 

    Committing at least 80% of its assets, under normal circumstances, to equity securities contained in the Index and/or financial instruments with similar economic characteristics.

 

    Employing leveraged investment techniques and/or sampling techniques in seeking its investment objective.

 

    Investing assets not invested in equity securities or financial instruments in debt securities and/or money market instruments.

 

    The Fund will concentrate its investments in a particular industry or group of industries to approximately the same extent as the Index is so concentrated. As of the close of business on September 30, 2006, the Index was concentrated in the general industrials industry group, which comprised approximately 34% of the market capitalization of the Index.

The Ultra Industrials ProShares employs leveraged investment techniques to achieve its investment objective. Over time, the use of leverage, combined with the effect of compounding, will have a more significant impact on the Fund’s performance compared to the index underlying its benchmark than a fund that does not employ leverage. Therefore, the return of the index over a period of time greater than one day multiplied by a fund’s specified multiple or inverse multiple (e.g., 200% or -200%) will not generally equal a fund’s performance over that same period. The following example illustrates this point:

Let’s say, hypothetically, that a shareholder invests $10,000 in Fund A and $10,000 in Fund B.

 

Fund A: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to the daily performance of an index.   Fund B: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of an index.

On Day 1, each fund’s benchmark index increases in value 1% which would cause a 1% increase in Fund A and a 2% increase in Fund B.

 

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On Day 2, each fund’s benchmark index decreases in value 1% which would cause a 1% decrease in Fund A and a 2% decrease in Fund B. At the end of Day 2, the value of the shareholder’s investment in Fund A would be approximately $9,999 (an increase of $100 on Day 1 and a decrease of $101 on Day 2). The value of the shareholder’s investment in Fund B would be approximately $9,996 at the end of Day 2 (an increase of $200 on Day 1 and a decrease of $204 on Day 2). In each case, the value of the shareholder’s investment declined overall. However, the effect of compounding was more pronounced for Fund B, which employs leverage. This example demonstrates how an investment in Fund A would have decreased in value by $1 over two days based on the index performance, while an investment in Fund B would have decreased in value by $4 over two days (four times the cumulative index loss over two days rather than two times the cumulative index loss).

Over time, the cumulative percentage increase or decrease in the net asset value of the Fund may diverge significantly from the cumulative percentage increase or decrease in the multiple of the return of the underlying Index due to the compounding effect of losses and gains on the returns of the Fund. Consequently, for periods greater than one day, investors should not expect the return of the Fund to be twice the return of the underlying Index. In addition, in trendless or flat markets it is expected that the Fund will underperform its benchmark Index.

PRINCIPAL RISK CONSIDERATIONS

The Ultra Industrials ProShares is subject to the following principal risks:

 

    Aggressive Investment Technique Risk    The Ultra Industrials ProShares uses investment techniques and financial instruments that may be considered aggressive, including the use of futures contracts, options on futures contracts, securities and indices, forward contracts, swap agreements and similar instruments. Such techniques may expose the Fund to potentially dramatic changes (losses) in the value of its portfolio holdings and imperfect correlation to the index underlying the Fund’s benchmark. These techniques also may expose the Fund to risks different from or possibly greater than the risks associated with investing directly in the securities contained in the index underlying the Fund’s benchmark.

 

    Correlation Risk    A number of factors may affect the Ultra Industrials ProShares’ ability to achieve a high correlation with its benchmark and there can be no guarantee that the Fund will achieve a high degree of correlation.

 

    Counterparty Risk    The counterparty to a financial instrument may default on its obligations under the related agreement. In this circumstance, the Ultra Industrials ProShares may lose money.

 

    Concentration Risk    Ultra Industrials ProShares may concentrate its investments in issuers of one or more particular industries to the same extent that its underlying index is so concentrated. There is a risk that those issuers (or industry sector) will perform poorly and negatively impact a Fund.

 

    Credit Risk    An issuer of debt instruments may be unable to make interest payments and repay principal. Changes in an issuer’s financial strength or in an instrument’s credit rating may affect an instrument’s value and, thus, impact Ultra Industrials ProShares’ performance. As described under “Counterparty Risk” above, the Fund will also be subject to credit risk with respect to the amount a Fund expects to receive from counterparties in financial instruments transactions. If a counterparty defaults on its payment obligations to a Fund, the value of your investment in a fund may decline.

 

    Equity Risk    The equity markets are volatile, and the value of securities, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day.

 

    Leverage Risk    The Ultra Industrials ProShares’ NAV and market price will likely be more volatile than the index underlying its benchmark and funds that do not employ leverage. Leverage should cause the Fund to lose more money in market environments adverse to its daily investment objective than an unleveraged investment.

 

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    Liquidity Risk    In certain circumstances, the Ultra Industrials ProShares may not be able to dispose of positions within a reasonable time at a fair price.

 

    Market Price Variance Risk    The Ultra Industrials ProShares’ NAV will fluctuate with changes in the value of its portfolio holdings. Fund shares are listed on the Exchange and are purchased and sold at market prices for shares. Although it is expected that the secondary market price for shares should approximate the Fund’s NAV, there may be times when the market price varies significantly from NAV.

 

    Market Risk    The Ultra Industrials ProShares is subject to market risks that will affect the value of its shares, including general economic and market conditions, as well as developments that impact specific economic sectors, industries or companies.

 

    Non-diversification Risk    The Ultra Industrials ProShares is considered non-diversified and may invest a relatively high percentage of its assets in the securities of a small number of issuers. In such circumstances, the Fund’s performance may be susceptible to economic, political or regulatory events affecting a single issuer than a more diversified fund.

 

    Repurchase Agreement Risk    Repurchase agreement risk is the risk that the counterparty to the repurchase agreement that sells the securities may default on its obligation to repurchase them. In this circumstance, Ultra Industrials ProShares may lose money because: it may not be able to sell the securities at the agreed upon time and price, the securities may lose value before they can be sold, the selling institution may default or declare bankruptcy or the Fund may have difficulty exercising rights to the collateral.

 

    Volatility Risk    Ultra Industrials ProShares seeks to achieve a multiple of an index and therefore will experience greater volatility than the index underlying its benchmark and consequently has the potential for greater losses.

In addition to the risks noted above, Ultra Industrials ProShares is also subject to risks faced by companies in the industrial economic sector, including: effects on stock prices by supply and demand both for their specific product or service and for industrial sector products in general; decline in demand for products due to rapid technological developments and frequent new product introduction; effects on securities prices and profitability from government regulation, world events and economic conditions; and risks for environmental damage and product liability claims. Further, stocks in the Index may underperform fixed income investments and stock market indices that track other markets, segments and sectors.

The Ultra Industrials ProShares may be subject to risks in addition to those identified as principal risks. The sections titled “More on Risks” and “Special Risks of Exchange-Traded Funds” later in this Prospectus and the SAI contains additional information about the Fund and related risks.

FUND PERFORMANCE

Performance history will be available for the Ultra Industrials ProShares after it has been in operation for a full calendar year.

FEES AND EXPENSES

The following table describes the estimated fees and expenses you may pay when you buy, hold, or sell Creation Units of the Ultra Industrials ProShares. Annual fund operating expenses are estimates. Investors purchasing shares in the secondary market will not pay the shareholder fees shown below, but may be subject to costs (including customary brokerage commissions) charged by their broker.

 

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Shareholder Fees (paid directly by Authorized Participants)*

 

Sales charges (loads)    None
Fixed transaction fee per orderA    $1,355
Variable transaction fee per creation unitB    up to 0.10%
Additional transaction charge if not settled through the Continuous Net Settlement System of the National Securities Clearing Corporation (NSCC)C    up to 3 times the fixed fee plus up to 0.10%

 

* See “Transaction Fees on Creation and Redemption Transactions” at the end of this Prospectus.

 

A A fixed transaction fee of $1,355 will be charged when you create or redeem Creation Units of the Ultra Industrials ProShares regardless of the number of shares created or redeemed on the date of the transaction.

 

B A variable transaction fee of up to 0.10% of the value of each Creation Unit will be charged to offset costs associated with the order.

 

C An additional fee of up to 3 times the fixed per order transaction fee plus up to 0.10% of the value of each Creation Unit may be charged if you do not create or redeem shares through the Continuous Net Settlement System of the NSCC, or in circumstances in which cash is substituted for certain securities. Such transactions are allowed at the sole discretion of the Fund.

Annual Fund Operating Expenses (as a percentage of average daily net assets)

 

Investment Advisory Fee

   0.75 %

Distribution and Service (12b-1) fees

   0.00 %

Other expenses A

   0.66 %

Total annual fund operating expenses

   1.41 %

Fee Waivers/Reimbursements B

   0.46 %
      

Total net annual fund operating expenses

   0.95 %
      

 

A Based on estimated amounts for the current fiscal year.

 

B ProShare Advisors has contractually agreed to waive Investment Advisory and Management Services Fees and to reimburse other expenses to the extent Total Annual Operating Expenses, as a percentage of average daily net assets, exceed 0.95% through May 31, 2007. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular fiscal year may be recouped by ProShare Advisors within five years of the waiver or reimbursement to the extent that recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time.

Example: The following examples are intended to help you compare the cost of investing in shares of the Ultra Industrials ProShares with the cost of investing in other funds. Investors should note that the following examples are for illustration purposes only and are not meant to suggest actual or expected fees and expenses or returns, all of which may vary. The Fund issues and redeems shares in Creation Units principally on an in-kind basis for portfolio securities included in the relevant Index and cash. Shares are not redeemable in less than Creation Unit aggregations. The examples do not include the brokerage commissions that secondary market investors may incur to buy and sell shares.

The following example assumes that you invest $10,000 in the Ultra Industrials ProShares for the time periods indicated and sell all of your shares at the end of those periods, but does not include transaction fees on purchases and redemptions of shares. The example also assumes that your investment has a 5% annual return each year and that the Fund’s annual operating expenses remain exactly as described in the fee table. Although your actual costs may be higher or lower, based on the assumptions, your costs would be:

 

1 year

   $ 97

3 years

   $ 401

Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the Ultra Industrials ProShares, as of January 16, 2006, is $[    ]. Assuming an investment in a Creation Unit of $[    ] and a 5% return each year, and that an investor pays both the standard $[    ] transaction fee applicable to both the purchase and redemption of the Creation Unit and the maximum variable transaction fee of 0.10% of the value of the Creation Unit, and assuming that the Fund’s gross operating expenses remain the same, the total costs would be $[    ] if the Creation Unit is redeemed after one year and $[    ] if the Creation Unit is redeemed after three years.

 

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Ultra Oil & Gas ProShares

Ticker: [    ]

CUSIP: 74347R719

INVESTMENT OBJECTIVE

Ultra Oil & Gas ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of the Dow Jones U.S. Oil & Gas Index.

If Ultra Oil & Gas ProShares is successful in meeting its objective, its net asset value should gain approximately twice as much, on a percentage basis, as the Dow Jones U.S. Oil & Gas Index (Index) when the Index rises on a given day. Conversely, its net asset value should lose approximately twice as much, on a percentage basis, as the Index when the Index declines on a given day.

PRINCIPAL INVESTMENT STRATEGY

The Ultra Oil & Gas ProShares’ principal investment strategies include:

 

    Investing in equity securities and/or financial instruments (including derivatives) that ProShare Advisors believes, in combination, should have similar daily price return characteristics as twice (200%) the daily return of the Dow Jones U.S. Oil & Gas Index. Information about the Index can be found on page __.

 

    Committing at least 80% of its assets, under normal circumstances, to equity securities contained in the Index and/or financial instruments with similar economic characteristics.

 

    Employing leveraged investment techniques and/or sampling techniques in seeking its investment objective.

 

    Investing assets not invested in equity securities or financial instruments in debt securities and/or money market instruments.

 

    The Fund will concentrate its investments in a particular industry or group of industries to approximately the same extent as the Index is so concentrated. As of the close of business on September 30, 2006, the Index was concentrated in the integrated oil and gas and the oil equipment and services industry groups which comprised approximately 74% and 26%, respectively, of the market capitalization of the Index.

The Ultra Oil & Gas ProShares employs leveraged investment techniques to achieve its investment objective. Over time, the use of leverage, combined with the effect of compounding, will have a more significant impact on the Fund’s performance compared to the index underlying its benchmark than a fund that does not employ leverage. Therefore, the return of the index over a period of time greater than one day multiplied by a fund’s specified multiple or inverse multiple (e.g., 200% or -200%) will not generally equal a fund’s performance over that same period. The following example illustrates this point:

Let’s say, hypothetically, that a shareholder invests $10,000 in Fund A and $10,000 in Fund B.

 

Fund A: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to the daily performance of an index.   Fund B: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of an index.

On Day 1, each fund’s benchmark index increases in value 1% which would cause a 1% increase in Fund A and a 2% increase in Fund B.

 

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On Day 2, each fund’s benchmark index decreases in value 1% which would cause a 1% decrease in Fund A and a 2% decrease in Fund B. At the end of Day 2, the value of the shareholder’s investment in Fund A would be approximately $9,999 (an increase of $100 on Day 1 and a decrease of $101 on Day 2). The value of the shareholder’s investment in Fund B would be approximately $9,996 at the end of Day 2 (an increase of $200 on Day 1 and a decrease of $204 on Day 2). In each case, the value of the shareholder’s investment declined overall. However, the effect of compounding was more pronounced for Fund B, which employs leverage. This example demonstrates how an investment in Fund A would have decreased in value by $1 over two days based on the index performance, while an investment in Fund B would have decreased in value by $4 over two days (four times the cumulative index loss over two days rather than two times the cumulative index loss).

Over time, the cumulative percentage increase or decrease in the net asset value of the Fund may diverge significantly from the cumulative percentage increase or decrease in the multiple of the return of the underlying Index due to the compounding effect of losses and gains on the returns of the Fund. Consequently, for periods greater than one day, investors should not expect the return of the Fund to be twice the return of the underlying Index. In addition, in trendless or flat markets it is expected that the Fund will underperform its benchmark Index.

PRINCIPAL RISK CONSIDERATIONS

The Ultra Oil & Gas ProShares is subject to the following principal risks:

 

    Aggressive Investment Technique Risk    The Ultra Oil & Gas ProShares uses investment techniques and financial instruments that may be considered aggressive, including the use of futures contracts, options on futures contracts, securities and indices, forward contracts, swap agreements and similar instruments. Such techniques may expose the Fund to potentially dramatic changes (losses) in the value of its portfolio holdings and imperfect correlation to the index underlying the Fund’s benchmark. These techniques also may expose the Fund to risks different from or possibly greater than the risks associated with investing directly in the securities contained in the index underlying the Fund’s benchmark.

 

    Correlation Risk    A number of factors may affect the Ultra Oil & Gas ProShares’ ability to achieve a high correlation with its benchmark and there can be no guarantee that the Fund will achieve a high degree of correlation.

 

    Counterparty Risk    The counterparty to a financial instrument may default on its obligations under the related agreement. In this circumstance, the Ultra Oil & Gas ProShares may lose money.

 

    Concentration Risk    Ultra Oil & Gas ProShares may concentrate its investments in issuers of one or more particular industries to the same extent that its underlying index is so concentrated. There is a risk that those issuers (or industry sector) will perform poorly and negatively impact a Fund.

 

    Credit Risk    An issuer of debt instruments may be unable to make interest payments and repay principal. Changes in an issuer’s financial strength or in an instrument’s credit rating may affect an instrument’s value and, thus, impact Ultra Oil & Gas ProShares’ performance. As described under “Counterparty Risk” above, the Fund will also be subject to credit risk with respect to the amount a Fund expects to receive from counterparties in financial instruments transactions. If a counterparty defaults on its payment obligations to a Fund, the value of your investment in a fund may decline.

 

    Equity Risk    The equity markets are volatile, and the value of securities, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day.

 

    Leverage Risk    The Ultra Oil & Gas ProShares’ NAV and market price will likely be more volatile than the index underlying its benchmark and funds that do not employ leverage. Leverage should cause the Fund to lose more money in market environments adverse to its daily investment objective than an unleveraged investment.

 

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    Liquidity Risk    In certain circumstances, the Ultra Oil & Gas ProShares may not be able to dispose of positions within a reasonable time at a fair price.

 

    Market Price Variance Risk    The Ultra Oil & Gas ProShares’ NAV will fluctuate with changes in the value of its portfolio holdings. Fund shares are listed on the Exchange and are purchased and sold at market prices for shares. Although it is expected that the secondary market price for shares should approximate the Fund’s NAV, there may be times when the market price varies significantly from NAV.

 

    Market Risk    The Ultra Oil & Gas ProShares is subject to market risks that will affect the value of its shares, including general economic and market conditions, as well as developments that impact specific economic sectors, industries or companies.

 

    Non-diversification Risk    The Ultra Oil & Gas ProShares is considered non-diversified and may invest a relatively high percentage of its assets in the securities of a small number of issuers. In such circumstances, the Fund’s performance may be susceptible to economic, political or regulatory events affecting a single issuer than a more diversified fund.

 

    Repurchase Agreement Risk    Repurchase agreement risk is the risk that the counterparty to the repurchase agreement that sells the securities may default on its obligation to repurchase them. In this circumstance, Ultra Oil & Gas ProShares may lose money because: it may not be able to sell the securities at the agreed upon time and price, the securities may lose value before they can be sold, the selling institution may default or declare bankruptcy or the Fund may have difficulty exercising rights to the collateral.

 

    Volatility Risk    Ultra Oil & Gas ProShares seeks to achieve a multiple of an index and therefore will experience greater volatility than the index underlying its benchmark and consequently has the potential for greater losses.

In addition to the risks noted above, Ultra Oil & Gas ProShares is also subject to risks faced by companies in the energy sector, including: effects on profitability from changes in worldwide energy prices and exploration, and production spending; adverse effects from changes in exchange rates, government regulation, world events and economic conditions; market, economic and political risks of the countries where energy companies are located or do business; and risk for environmental damage claims. Further, stocks in the Index may underperform fixed income investments and stock market indices that track other markets, segments and sectors.

The Ultra Oil & Gas ProShares may be subject to risks in addition to those identified as principal risks. The sections titled “More on Risks” and “Special Risks of Exchange-Traded Funds” later in this Prospectus and the SAI contains additional information about the Fund and related risks.

FUND PERFORMANCE

Performance history will be available for the Ultra Oil & Gas ProShares after it has been in operation for a full calendar year.

FEES AND EXPENSES

The following table describes the estimated fees and expenses you may pay when you buy, hold, or sell Creation Units of the Ultra Oil & Gas ProShares. Annual fund operating expenses are estimates. Investors purchasing shares in the secondary market will not pay the shareholder fees shown below, but may be subject to costs (including customary brokerage commissions) charged by their broker.

 

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Shareholder Fees (paid directly by Authorized Participants)*

 

Sales charges (loads)    None
Fixed transaction fee per orderA    $500
Variable transaction fee per creation unitB    up to 0.10%
Additional transaction charge if not settled through the Continuous Net Settlement System of the National Securities Clearing Corporation (NSCC)C    up to 3 times the fixed fee plus up to 0.10%

 

* See “Transaction Fees on Creation and Redemption Transactions” at the end of this Prospectus.

 

A A fixed transaction fee of $500 will be charged when you create or redeem Creation Units of the Ultra Oil & Gas ProShares regardless of the number of shares created or redeemed on the date of the transaction.

 

B A variable transaction fee of up to 0.10% of the value of each Creation Unit will be charged to offset costs associated with the order.

 

C An additional fee of up to 3 times the fixed per order transaction fee plus up to 0.10% of the value of each Creation Unit may be charged if you do not create or redeem shares through the Continuous Net Settlement System of the NSCC, or in circumstances in which cash is substituted for certain securities. Such transactions are allowed at the sole discretion of the Fund.

Annual Fund Operating Expenses (as a percentage of average daily net assets)

 

Investment Advisory Fee

   0.75 %

Distribution and Service (12b-1) fees

   0.00 %

Other expenses A

   0.65 %

Total annual fund operating expenses

   1.40 %

Fee Waivers/Reimbursements B

   0.45 %
      

Total net annual fund operating expenses

   0.95 %
      

 

A Based on estimated amounts for the current fiscal year.

 

B ProShare Advisors has contractually agreed to waive Investment Advisory and Management Services Fees and to reimburse other expenses to the extent Total Annual Operating Expenses, as a percentage of average daily net assets, exceed 0.95% through May 31, 2007. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular fiscal year may be recouped by ProShare Advisors within five years of the waiver or reimbursement to the extent that recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time.

Example: The following examples are intended to help you compare the cost of investing in shares of the Ultra Oil & Gas ProShares with the cost of investing in other funds. Investors should note that the following examples are for illustration purposes only and are not meant to suggest actual or expected fees and expenses or returns, all of which may vary. The Fund issues and redeems shares in Creation Units principally on an in-kind basis for portfolio securities included in the relevant Index and cash. Shares are not redeemable in less than Creation Unit aggregations. The examples do not include the brokerage commissions that secondary market investors may incur to buy and sell shares.

The following example assumes that you invest $10,000 in the Ultra Oil & Gas ProShares for the time periods indicated and sell all of your shares at the end of those periods, but does not include transaction fees on purchases and redemptions of shares. The example also assumes that your investment has a 5% annual return each year and that the Fund’s annual operating expenses remain exactly as described in the fee table. Although your actual costs may be higher or lower, based on the assumptions, your costs would be:

 

1 year

   $ 97

3 years

   $ 399

Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the Ultra Oil & Gas ProShares, as of January 16, 2006, is $[    ]. Assuming an investment in a Creation Unit of $[    ] and a 5% return each year, and that an investor pays both the standard $[    ] transaction fee applicable to both the purchase and redemption of the Creation Unit and the maximum variable transaction fee of 0.10% of the value of the Creation Unit, and assuming that the Fund’s gross operating expenses remain the same, the total costs would be $[    ] if the Creation Unit is redeemed after one year and $[    ] if the Creation Unit is redeemed after three years.

 

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Ultra Precious Metals ProShares

Ticker: [    ]

CUSIP: [    ]

INVESTMENT OBJECTIVE

Ultra Precious Metals ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of the Dow Jones U.S. Precious Metals Index.

If Ultra Precious Metals ProShares is successful in meeting its objective, its net asset value should gain approximately twice as much, on a percentage basis, as the Dow Jones U.S. Precious Metals Index (Index) when the Index rises on a given day. Conversely, its net asset value should lose approximately twice as much, on a percentage basis, as the Index when the Index declines on a given day.

PRINCIPAL INVESTMENT STRATEGY

The Ultra Precious Metals ProShares’ principal investment strategies include:

 

    Investing in equity securities and/or financial instruments (including derivatives) that ProShare Advisors believes, in combination, should have similar daily price return characteristics as twice (200%) the daily return of the Dow Jones U.S. Precious Metals Index. Information about the Index can be found on page __.

 

    Committing at least 80% of its assets, under normal circumstances, to equity securities contained in the Index and/or financial instruments with similar economic characteristics.

 

    Employing leveraged investment techniques and/or sampling techniques in seeking its investment objective.

 

    Investing assets not invested in equity securities or financial instruments in debt securities and/or money market instruments.

 

    The Fund will concentrate its investments in a particular industry or group of industries to approximately the same extent as the Index is so concentrated. Because all of the securities included in the Index are issued by companies in the precious metals industry group, the Fund will be concentrated approximately 100% in the precious metals industry.

The Ultra Precious Metals ProShares employs leveraged investment techniques to achieve its investment objective. Over time, the use of leverage, combined with the effect of compounding, will have a more significant impact on the Fund’s performance compared to the index underlying its benchmark than a fund that does not employ leverage. Therefore, the return of the index over a period of time greater than one day multiplied by a fund’s specified multiple or inverse multiple (e.g., 200% or -200%) will not generally equal a fund’s performance over that same period. The following example illustrates this point:

Let’s say, hypothetically, that a shareholder invests $10,000 in Fund A and $10,000 in Fund B.

 

Fund A: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to the daily performance of an index.   Fund B: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of an index.

On Day 1, each fund’s benchmark index increases in value 1% which would cause a 1% increase in Fund A and a 2% increase in Fund B.

 

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On Day 2, each fund’s benchmark index decreases in value 1% which would cause a 1% decrease in Fund A and a 2% decrease in Fund B. At the end of Day 2, the value of the shareholder’s investment in Fund A would be approximately $9,999 (an increase of $100 on Day 1 and a decrease of $101 on Day 2). The value of the shareholder’s investment in Fund B would be approximately $9,996 at the end of Day 2 (an increase of $200 on Day 1 and a decrease of $204 on Day 2). In each case, the value of the shareholder’s investment declined overall. However, the effect of compounding was more pronounced for Fund B, which employs leverage. This example demonstrates how an investment in Fund A would have decreased in value by $1 over two days based on the index performance, while an investment in Fund B would have decreased in value by $4 over two days (four times the cumulative index loss over two days rather than two times the cumulative index loss).

Over time, the cumulative percentage increase or decrease in the net asset value of the Fund may diverge significantly from the cumulative percentage increase or decrease in the multiple of the return of the underlying Index due to the compounding effect of losses and gains on the returns of the Fund. Consequently, for periods greater than one day, investors should not expect the return of the Fund to be twice the return of the underlying Index. In addition, in trendless or flat markets it is expected that the Fund will underperform its benchmark Index.

PRINCIPAL RISK CONSIDERATIONS

The Ultra Precious Metals ProShares is subject to the following principal risks:

 

    Aggressive Investment Technique Risk    The Ultra Precious Metals ProShares uses investment techniques and financial instruments that may be considered aggressive, including the use of futures contracts, options on futures contracts, securities and indices, forward contracts, swap agreements and similar instruments. Such techniques may expose the Fund to potentially dramatic changes (losses) in the value of its portfolio holdings and imperfect correlation to the index underlying the Fund’s benchmark. These techniques also may expose the Fund to risks different from or possibly greater than the risks associated with investing directly in the securities contained in the index underlying the Fund’s benchmark.

 

    Correlation Risk    A number of factors may affect the Ultra Precious Metals ProShares’ ability to achieve a high correlation with its benchmark and there can be no guarantee that the Fund will achieve a high degree of correlation.

 

    Counterparty Risk    The counterparty to a financial instrument may default on its obligations under the related agreement. In this circumstance, the Ultra Precious Metals ProShares may lose money.

 

    Concentration Risk    Ultra Precious Metals ProShares may concentrate its investments in issuers of one or more particular industries to the same extent that its underlying index is so concentrated. There is a risk that those issuers (or industry sector) will perform poorly and negatively impact a Fund.

 

    Credit Risk    An issuer of debt instruments may be unable to make interest payments and repay principal. Changes in an issuer’s financial strength or in an instrument’s credit rating may affect an instrument’s value and, thus, impact Ultra Precious Metals ProShares’ performance. As described under “Counterparty Risk” above, the Fund will also be subject to credit risk with respect to the amount a Fund expects to receive from counterparties in financial instruments transactions. If a counterparty defaults on its payment obligations to a Fund, the value of your investment in a fund may decline.

 

    Equity Risk    The equity markets are volatile, and the value of securities, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day.

 

    Leverage Risk    The Ultra Precious Metals ProShares’ NAV and market price will likely be more volatile than the index underlying its benchmark and funds that do not employ leverage. Leverage should cause the Fund to lose more money in market environments adverse to its daily investment objective than an unleveraged investment.

 

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    Liquidity Risk    In certain circumstances, the Ultra Precious Metals ProShares may not be able to dispose of positions within a reasonable time at a fair price.

 

    Market Price Variance Risk    The Ultra Precious Metals ProShares’ NAV will fluctuate with changes in the value of its portfolio holdings. Fund shares are listed on the Exchange and are purchased and sold at market prices for shares. Although it is expected that the secondary market price for shares should approximate the Fund’s NAV, there may be times when the market price varies significantly from NAV.

 

    Market Risk    The Ultra Precious Metals ProShares is subject to market risks that will affect the value of its shares, including general economic and market conditions, as well as developments that impact specific economic sectors, industries or companies.

 

    Non-diversification Risk    The Ultra Precious Metals ProShares is considered non-diversified and may invest a relatively high percentage of its assets in the securities of a small number of issuers. In such circumstances, the Fund’s performance may be susceptible to economic, political or regulatory events affecting a single issuer than a more diversified fund.

 

    Repurchase Agreement Risk    Repurchase agreement risk is the risk that the counterparty to the repurchase agreement that sells the securities may default on its obligation to repurchase them. In this circumstance, Ultra Precious Metals ProShares may lose money because: it may not be able to sell the securities at the agreed upon time and price, the securities may lose value before they can be sold, the selling institution may default or declare bankruptcy or the Fund may have difficulty exercising rights to the collateral.

 

    Volatility Risk    Ultra Precious Metals ProShares seeks to achieve a multiple of an index and therefore will experience greater volatility than the index underlying its benchmark and consequently has the potential for greater losses.

In addition to the risks noted above, Ultra Precious Metals ProShares is also subject to risks faced by companies in the gold and silver mining industry, including: the prices of precious metals may fluctuate widely due to changes in inflation or inflation expectations or currency fluctuations, speculation, and worldwide demand; adverse effects from government regulation, world events and economic conditions; market, economic and political risks of the countries where precious metals companies are located or do business; thin capitalization and limited product lines, markets, financial resources or personnel; securities prices may underperform those of other sectors and/or fixed income investments; and certain of the securities represented in the Index may be illiquid, which may limit the ability to dispose of these securities quickly at fair value when ProFund Advisors deems it desirable to do so. In addition, illiquid securities may be more difficult to value than liquid securities, and typically entail higher transaction expenses.

The Ultra Precious Metals ProShares may be subject to risks in addition to those identified as principal risks. The sections titled “More on Risks” and “Special Risks of Exchange-Traded Funds” later in this Prospectus and the SAI contains additional information about the Fund and related risks.

FUND PERFORMANCE

Performance history will be available for the Ultra Precious Metals ProShares after it has been in operation for a full calendar year.

FEES AND EXPENSES

The following table describes the estimated fees and expenses you may pay when you buy, hold, or sell Creation Units of the Ultra Precious Metals ProShares. Annual fund operating expenses are estimates. Investors purchasing shares in the secondary market will not pay the shareholder fees shown below, but may be subject to costs (including customary brokerage commissions) charged by their broker.

 

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Shareholder Fees (paid directly by Authorized Participants)*

 

Sales charges (loads)    None
Fixed transaction fee per orderA    $500
Variable transaction fee per creation unitB    up to 0.10%
Additional transaction charge if not settled through the Continuous Net Settlement System of the National Securities Clearing Corporation (NSCC)C    up to 3 times the fixed fee plus up to 0.10%

 

* See “Transaction Fees on Creation and Redemption Transactions” at the end of this Prospectus.

 

A A fixed transaction fee of $500 will be charged when you create or redeem Creation Units of the Ultra Precious Metals ProShares regardless of the number of shares created or redeemed on the date of the transaction.

 

B A variable transaction fee of up to 0.10% of the value of each Creation Unit will be charged to offset costs associated with the order.

 

C An additional fee of up to 3 times the fixed per order transaction fee plus up to 0.10% of the value of each Creation Unit may be charged if you do not create or redeem shares through the Continuous Net Settlement System of the NSCC, or in circumstances in which cash is substituted for certain securities. Such transactions are allowed at the sole discretion of the Fund.

Annual Fund Operating Expenses (as a percentage of average daily net assets)

 

Investment Advisory Fee

   0.75 %

Distribution and Service (12b-1) fees

   0.00 %

Other expenses A

   0.64 %

Total annual fund operating expenses

   1.39 %

Fee Waivers/Reimbursements B

   0.44 %
      

Total net annual fund operating expenses

   0.95 %
      

 

A Based on estimated amounts for the current fiscal year.

 

B ProShare Advisors has contractually agreed to waive Investment Advisory and Management Services Fees and to reimburse other expenses to the extent Total Annual Operating Expenses, as a percentage of average daily net assets, exceed 0.95% through May 31, 2007. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular fiscal year may be recouped by ProShare Advisors within five years of the waiver or reimbursement to the extent that recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time.

Example: The following examples are intended to help you compare the cost of investing in shares of the Ultra Precious Metals ProShares with the cost of investing in other funds. Investors should note that the following examples are for illustration purposes only and are not meant to suggest actual or expected fees and expenses or returns, all of which may vary. The Fund issues and redeems shares in Creation Units principally on an in-kind basis for portfolio securities included in the relevant Index and cash. Shares are not redeemable in less than Creation Unit aggregations. The examples do not include the brokerage commissions that secondary market investors may incur to buy and sell shares.

The following example assumes that you invest $10,000 in the Ultra Precious Metals ProShares for the time periods indicated and sell all of your shares at the end of those periods, but does not include transaction fees on purchases and redemptions of shares. The example also assumes that your investment has a 5% annual return each year and that the Fund’s annual operating expenses remain exactly as described in the fee table. Although your actual costs may be higher or lower, based on the assumptions, your costs would be:

 

1 year

   $ 97

3 years

   $ 397

 

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Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the Ultra Precious Metals ProShares, as of January 16, 2006, is $[    ]. Assuming an investment in a Creation Unit of $[    ] and a 5% return each year, and that an investor pays both the standard $[    ] transaction fee applicable to both the purchase and redemption of the Creation Unit and the maximum variable transaction fee of 0.10% of the value of the Creation Unit, and assuming that the Fund’s gross operating expenses remain the same, the total costs would be $[    ] if the Creation Unit is redeemed after one year and $[    ] if the Creation Unit is redeemed after three years.

 

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Ultra Real Estate ProShares

Ticker: [    ]

CUSIP: 74347R677

INVESTMENT OBJECTIVE

Ultra Real Estate ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of the Dow Jones U.S. Real Estate Index.

If Ultra Real Estate ProShares is successful in meeting its objective, its net asset value should gain approximately twice as much, on a percentage basis, as the Dow Jones U.S. Real Estate Index (Index) when the Index rises on a given day. Conversely, its net asset value should lose approximately twice as much, on a percentage basis, as the Index when the Index declines on a given day.

PRINCIPAL INVESTMENT STRATEGY

The Ultra Real Estate ProShares’ principal investment strategies include:

 

    Investing in equity securities and/or financial instruments (including derivatives) that ProShare Advisors believes, in combination, should have similar daily price return characteristics as twice (200%) the daily return of the Dow Jones U.S. Real Estate Index. Information about the Index can be found on page __.

 

    Committing at least 80% of its assets, under normal circumstances, to equity securities contained in the Index and/or financial instruments with similar economic characteristics.

 

    Employing leveraged investment techniques and/or sampling techniques in seeking its investment objective.

 

    Investing assets not invested in equity securities or financial instruments in debt securities and/or money market instruments.

 

    The Fund will concentrate its investments in a particular industry or group of industries to approximately the same extent as the Index is so concentrated. Because all of the securities included in the Index are issued by companies in the real estate industry group, the Fund will be concentrated approximately 100% in the real estate industry.

The Ultra Real Estate ProShares employs leveraged investment techniques to achieve its investment objective. Over time, the use of leverage, combined with the effect of compounding, will have a more significant impact on the Fund’s performance compared to the index underlying its benchmark than a fund that does not employ leverage. Therefore, the return of the index over a period of time greater than one day multiplied by a fund’s specified multiple or inverse multiple (e.g., 200% or -200%) will not generally equal a fund’s performance over that same period. The following example illustrates this point:

Let’s say, hypothetically, that a shareholder invests $10,000 in Fund A and $10,000 in Fund B.

 

Fund A: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to the daily performance of an index.   Fund B: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of an index.

On Day 1, each fund’s benchmark index increases in value 1% which would cause a 1% increase in Fund A and a 2% increase in Fund B.

 

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On Day 2, each fund’s benchmark index decreases in value 1% which would cause a 1% decrease in Fund A and a 2% decrease in Fund B. At the end of Day 2, the value of the shareholder’s investment in Fund A would be approximately $9,999 (an increase of $100 on Day 1 and a decrease of $101 on Day 2). The value of the shareholder’s investment in Fund B would be approximately $9,996 at the end of Day 2 (an increase of $200 on Day 1 and a decrease of $204 on Day 2). In each case, the value of the shareholder’s investment declined overall. However, the effect of compounding was more pronounced for Fund B, which employs leverage. This example demonstrates how an investment in Fund A would have decreased in value by $1 over two days based on the index performance, while an investment in Fund B would have decreased in value by $4 over two days (four times the cumulative index loss over two days rather than two times the cumulative index loss).

Over time, the cumulative percentage increase or decrease in the net asset value of the Fund may diverge significantly from the cumulative percentage increase or decrease in the multiple of the return of the underlying Index due to the compounding effect of losses and gains on the returns of the Fund. Consequently, for periods greater than one day, investors should not expect the return of the Fund to be twice the return of the underlying Index. In addition, in trendless or flat markets it is expected that the Fund will underperform its benchmark Index.

PRINCIPAL RISK CONSIDERATIONS

The Ultra Real Estate ProShares is subject to the following principal risks:

 

    Aggressive Investment Technique Risk    The Ultra Real Estate ProShares uses investment techniques and financial instruments that may be considered aggressive, including the use of futures contracts, options on futures contracts, securities and indices, forward contracts, swap agreements and similar instruments. Such techniques may expose the Fund to potentially dramatic changes (losses) in the value of its portfolio holdings and imperfect correlation to the index underlying the Fund’s benchmark. These techniques also may expose the Fund to risks different from or possibly greater than the risks associated with investing directly in the securities contained in the index underlying the Fund’s benchmark.

 

    Correlation Risk    A number of factors may affect the Ultra Real Estate ProShares’ ability to achieve a high correlation with its benchmark and there can be no guarantee that the Fund will achieve a high degree of correlation.

 

    Counterparty Risk    The counterparty to a financial instrument may default on its obligations under the related agreement. In this circumstance, the Ultra Real Estate ProShares may lose money.

 

    Concentration Risk    Ultra Real Estate ProShares may concentrate its investments in issuers of one or more particular industries to the same extent that its underlying index is so concentrated. There is a risk that those issuers (or industry sector) will perform poorly and negatively impact a Fund.

 

    Credit Risk    An issuer of debt instruments may be unable to make interest payments and repay principal. Changes in an issuer’s financial strength or in an instrument’s credit rating may affect an instrument’s value and, thus, impact Ultra Real Estate ProShares’ performance. As described under “Counterparty Risk” above, the Fund will also be subject to credit risk with respect to the amount a Fund expects to receive from counterparties in financial instruments transactions. If a counterparty defaults on its payment obligations to a Fund, the value of your investment in a fund may decline.

 

    Equity Risk    The equity markets are volatile, and the value of securities, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day.

 

    Leverage Risk    The Ultra Real Estate ProShares’ NAV and market price will likely be more volatile than the index underlying its benchmark and funds that do not employ leverage. Leverage should cause the Fund to lose more money in market environments adverse to its daily investment objective than an unleveraged investment.

 

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    Liquidity Risk    In certain circumstances, the Ultra Real Estate ProShares may not be able to dispose of positions within a reasonable time at a fair price.

 

    Market Price Variance Risk    The Ultra Real Estate ProShares’ NAV will fluctuate with changes in the value of its portfolio holdings. Fund shares are listed on the Exchange and are purchased and sold at market prices for shares. Although it is expected that the secondary market price for shares should approximate the Fund’s NAV, there may be times when the market price varies significantly from NAV.

 

    Market Risk    The Ultra Real Estate ProShares is subject to market risks that will affect the value of its shares, including general economic and market conditions, as well as developments that impact specific economic sectors, industries or companies.

 

    Non-diversification Risk    The Ultra Real Estate ProShares is considered non-diversified and may invest a relatively high percentage of its assets in the securities of a small number of issuers. In such circumstances, the Fund’s performance may be susceptible to economic, political or regulatory events affecting a single issuer than a more diversified fund.

 

    Repurchase Agreement Risk    Repurchase agreement risk is the risk that the counterparty to the repurchase agreement that sells the securities may default on its obligation to repurchase them. In this circumstance, Ultra Real Estate ProShares may lose money because: it may not be able to sell the securities at the agreed upon time and price, the securities may lose value before they can be sold, the selling institution may default or declare bankruptcy or the Fund may have difficulty exercising rights to the collateral.

 

    Volatility Risk     Ultra Real Estate ProShares seeks to achieve a multiple of an index and therefore will experience greater volatility than the index underlying its benchmark and consequently has the potential for greater losses.

In addition to the risks noted above, Ultra Real Estate ProShares is also subject to risks faced by companies in the real estate industry, including: adverse changes in national, state or local real estate conditions (such as oversupply of or reduced demand for space and changes in market rental rates); obsolescence of properties; changes in the availability, cost and terms of mortgage funds; the impact of environmental laws; a real estate investment trust (“REIT”) that fails to comply with the federal tax requirements affecting REITs would be subject to federal income taxation; and the federal tax requirement that a REIT distribute substantially all of its net income to its shareholders could result in a REIT having insufficient capital for future expenditures. Further, stocks in the Index may underperform fixed income investments and stock market indices that track other markets, segments and sectors.

The Ultra Real Estate ProShares may be subject to risks in addition to those identified as principal risks. The sections titled “More on Risks” and “Special Risks of Exchange-Traded Funds” later in this Prospectus and the SAI contains additional information about the Fund and related risks.

FUND PERFORMANCE

Performance history will be available for the Ultra Real Estate ProShares after it has been in operation for a full calendar year.

FEES AND EXPENSES

The following table describes the estimated fees and expenses you may pay when you buy, hold, or sell Creation Units of the Ultra Real Estate ProShares. Annual fund operating expenses are estimates. Investors purchasing shares in the secondary market will not pay the shareholder fees shown below, but may be subject to costs (including customary brokerage commissions) charged by their broker.

 

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Shareholder Fees (paid directly by Authorized Participants)*

 

Sales charges (loads)    None
Fixed transaction fee per orderA    $500
Variable transaction fee per creation unitB    up to 0.10%
Additional transaction charge if not settled through the Continuous Net Settlement System of the National Securities Clearing Corporation (NSCC)C    up to 3 times the fixed fee plus up to 0.10%

 

* See “Transaction Fees on Creation and Redemption Transactions” at the end of this Prospectus.

 

A A fixed transaction fee of $500 will be charged when you create or redeem Creation Units of the Ultra Real Estate ProShares regardless of the number of shares created or redeemed on the date of the transaction.

 

B A variable transaction fee of up to 0.10% of the value of each Creation Unit will be charged to offset costs associated with the order.

 

C An additional fee of up to 3 times the fixed per order transaction fee plus up to 0.10% of the value of each Creation Unit may be charged if you do not create or redeem shares through the Continuous Net Settlement System of the NSCC, or in circumstances in which cash is substituted for certain securities. Such transactions are allowed at the sole discretion of the Fund.

Annual Fund Operating Expenses (as a percentage of average daily net assets)

 

Investment Advisory Fee

   0.75 %

Distribution and Service (12b-1) fees

   0.00 %

Other expenses A

   0.65 %

Total annual fund operating expenses

   1.40 %

Fee Waivers/Reimbursements B

   0.45 %
      

Total net annual fund operating expenses

   0.95 %
      

 

A Based on estimated amounts for the current fiscal year.

 

B ProShare Advisors has contractually agreed to waive Investment Advisory and Management Services Fees and to reimburse other expenses to the extent Total Annual Operating Expenses, as a percentage of average daily net assets, exceed 0.95% through May 31, 2007. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular fiscal year may be recouped by ProShare Advisors within five years of the waiver or reimbursement to the extent that recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time.

Example: The following examples are intended to help you compare the cost of investing in shares of the Ultra Real Estate ProShares with the cost of investing in other funds. Investors should note that the following examples are for illustration purposes only and are not meant to suggest actual or expected fees and expenses or returns, all of which may vary. The Fund issues and redeems shares in Creation Units principally on an in-kind basis for portfolio securities included in the relevant Index and cash. Shares are not redeemable in less than Creation Unit aggregations. The examples do not include the brokerage commissions that secondary market investors may incur to buy and sell shares.

The following example assumes that you invest $10,000 in the Ultra Real Estate ProShares for the time periods indicated and sell all of your shares at the end of those periods, but does not include transaction fees on purchases and redemptions of shares. The example also assumes that your investment has a 5% annual return each year and that the Fund’s annual operating expenses remain exactly as described in the fee table. Although your actual costs may be higher or lower, based on the assumptions, your costs would be:

 

1 year

   $ 97

3 years

   $ 399

 

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Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the Ultra Real Estate ProShares, as of January 16, 2006, is $[    ]. Assuming an investment in a Creation Unit of $[    ] and a 5% return each year, and that an investor pays both the standard $[    ] transaction fee applicable to both the purchase and redemption of the Creation Unit and the maximum variable transaction fee of 0.10% of the value of the Creation Unit, and assuming that the Fund’s gross operating expenses remain the same, the total costs would be $[    ] if the Creation Unit is redeemed after one year and $[    ] if the Creation Unit is redeemed after three years.

 

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Ultra Semiconductor ProShares

Ticker: [    ]

CUSIP: 74347R669

INVESTMENT OBJECTIVE

Ultra Semiconductor ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of the Dow Jones U.S. Semiconductor Index.

If Ultra Semiconductor ProShares is successful in meeting its objective, its net asset value should gain approximately twice as much, on a percentage basis, as the Dow Jones U.S. Semiconductor Index (Index) when the Index rises on a given day. Conversely, its net asset value should lose approximately twice as much, on a percentage basis, as the Index when the Index declines on a given day.

PRINCIPAL INVESTMENT STRATEGY

The Ultra Semiconductor ProShares’ principal investment strategies include:

 

    Investing in equity securities and/or financial instruments (including derivatives) that ProShare Advisors believes, in combination, should have similar daily price return characteristics as twice (200%) the daily return of the Dow Jones U.S. Semiconductor Index. Information about the Index can be found on page __.

 

    Committing at least 80% of its assets, under normal circumstances, to equity securities contained in the Index and/or financial instruments with similar economic characteristics.

 

    Employing leveraged investment techniques and/or sampling techniques in seeking its investment objective.

 

    Investing assets not invested in equity securities or financial instruments in debt securities and/or money market instruments.

 

    The Fund will concentrate its investments in a particular industry or group of industries to approximately the same extent as the Index is so concentrated. Because all of the securities included in the Index are issued by companies in the semiconductor industry group, the Fund will be concentrated approximately 100% in the semiconductor industry.

The Ultra Semiconductor ProShares employs leveraged investment techniques to achieve its investment objective. Over time, the use of leverage, combined with the effect of compounding, will have a more significant impact on the Fund’s performance compared to the index underlying its benchmark than a fund that does not employ leverage. Therefore, the return of the index over a period of time greater than one day multiplied by a fund’s specified multiple or inverse multiple (e.g., 200% or -200%) will not generally equal a fund’s performance over that same period. The following example illustrates this point:

Let’s say, hypothetically, that a shareholder invests $10,000 in Fund A and $10,000 in Fund B.

 

Fund A: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to the daily performance of an index.    Fund B: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of an index.

On Day 1, each fund’s benchmark index increases in value 1% which would cause a 1% increase in Fund A and a 2% increase in Fund B.

 

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On Day 2, each fund’s benchmark index decreases in value 1% which would cause a 1% decrease in Fund A and a 2% decrease in Fund B. At the end of Day 2, the value of the shareholder’s investment in Fund A would be approximately $9,999 (an increase of $100 on Day 1 and a decrease of $101 on Day 2). The value of the shareholder’s investment in Fund B would be approximately $9,996 at the end of Day 2 (an increase of $200 on Day 1 and a decrease of $204 on Day 2). In each case, the value of the shareholder’s investment declined overall. However, the effect of compounding was more pronounced for Fund B, which employs leverage. This example demonstrates how an investment in Fund A would have decreased in value by $1 over two days based on the index performance, while an investment in Fund B would have decreased in value by $4 over two days (four times the cumulative index loss over two days rather than two times the cumulative index loss).

Over time, the cumulative percentage increase or decrease in the net asset value of the Fund may diverge significantly from the cumulative percentage increase or decrease in the multiple of the return of the underlying Index due to the compounding effect of losses and gains on the returns of the Fund. Consequently, for periods greater than one day, investors should not expect the return of the Fund to be twice the return of the underlying Index. In addition, in trendless or flat markets it is expected that the Fund will underperform its benchmark Index.

PRINCIPAL RISK CONSIDERATIONS

The Ultra Semiconductor ProShares is subject to the following principal risks:

 

    Aggressive Investment Technique Risk    The Ultra Semiconductor ProShares uses investment techniques and financial instruments that may be considered aggressive, including the use of futures contracts, options on futures contracts, securities and indices, forward contracts, swap agreements and similar instruments. Such techniques may expose the Fund to potentially dramatic changes (losses) in the value of its portfolio holdings and imperfect correlation to the index underlying the Fund’s benchmark. These techniques also may expose the Fund to risks different from or possibly greater than the risks associated with investing directly in the securities contained in the index underlying the Fund’s benchmark.

 

    Correlation Risk    A number of factors may affect the Ultra Semiconductor ProShares’ ability to achieve a high correlation with its benchmark and there can be no guarantee that the Fund will achieve a high degree of correlation.

 

    Counterparty Risk    The counterparty to a financial instrument may default on its obligations under the related agreement. In this circumstance, the Ultra Semiconductor ProShares may lose money.

 

    Concentration Risk    Ultra Semiconductor ProShares may concentrate its investments in issuers of one or more particular industries to the same extent that its underlying index is so concentrated. There is a risk that those issuers (or industry sector) will perform poorly and negatively impact a Fund.

 

    Credit Risk    An issuer of debt instruments may be unable to make interest payments and repay principal. Changes in an issuer’s financial strength or in an instrument’s credit rating may affect an instrument’s value and, thus, impact Ultra Semiconductor ProShares’ performance. As described under “Counterparty Risk” above, the Fund will also be subject to credit risk with respect to the amount a Fund expects to receive from counterparties in financial instruments transactions. If a counterparty defaults on its payment obligations to a Fund, the value of your investment in a fund may decline.

 

    Equity Risk    The equity markets are volatile, and the value of securities, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day.

 

    Leverage Risk    The Ultra Semiconductor ProShares’ NAV and market price will likely be more volatile than the index underlying its benchmark and funds that do not employ leverage. Leverage should cause the Fund to lose more money in market environments adverse to its daily investment objective than an unleveraged investment.

 

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    Liquidity Risk    In certain circumstances, the Ultra Semiconductor ProShares may not be able to dispose of positions within a reasonable time at a fair price.

 

    Market Price Variance Risk    The Ultra Semiconductor ProShares’ NAV will fluctuate with changes in the value of its portfolio holdings. Fund shares are listed on the Exchange and are purchased and sold at market prices for shares. Although it is expected that the secondary market price for shares should approximate the Fund’s NAV, there may be times when the market price varies significantly from NAV.

 

    Market Risk    The Ultra Semiconductor ProShares is subject to market risks that will affect the value of its shares, including general economic and market conditions, as well as developments that impact specific economic sectors, industries or companies.

 

    Non-diversification Risk    The Ultra Semiconductor ProShares is considered non-diversified and may invest a relatively high percentage of its assets in the securities of a small number of issuers. In such circumstances, the Fund’s performance may be susceptible to economic, political or regulatory events affecting a single issuer than a more diversified fund.

 

    Repurchase Agreement Risk    Repurchase agreement risk is the risk that the counterparty to the repurchase agreement that sells the securities may default on its obligation to repurchase them. In this circumstance, Ultra Semiconductor ProShares may lose money because: it may not be able to sell the securities at the agreed upon time and price, the securities may lose value before they can be sold, the selling institution may default or declare bankruptcy or the Fund may have difficulty exercising rights to the collateral.

 

    Volatility Risk    Ultra Semiconductor ProShares seeks to achieve a multiple of an index and therefore will experience greater volatility than the index underlying its benchmark and consequently has the potential for greater losses.

In addition to the risks noted above, Ultra Semiconductor ProShares is also subject to risks faced by companies in the semiconductor industry, including: intense competition, both domestically and internationally, including competition from subsidized foreign competitors with lower production costs; securities prices may fluctuate widely due to risks of rapid obsolescence of products; economic performance of the customers of semiconductor companies; research costs and the risks that their products may not prove commercially successful; capital equipment expenditures could be substantial and suffer from rapid obsolescence; and thin capitalization and limited product lines, markets, financial resources or personnel. Further, stocks in the Index may underperform fixed income investments and stock market indices that track other markets, segments and sectors.

The Ultra Semiconductor ProShares may be subject to risks in addition to those identified as principal risks. The sections titled “More on Risks” and “Special Risks of Exchange-Traded Funds” later in this Prospectus and the SAI contains additional information about the Fund and related risks.

FUND PERFORMANCE

Performance history will be available for the Ultra Semiconductor ProShares after it has been in operation for a full calendar year.

FEES AND EXPENSES

The following table describes the estimated fees and expenses you may pay when you buy, hold, or sell Creation Units of the Ultra Semiconductor ProShares. Annual fund operating expenses are estimates. Investors purchasing shares in the secondary market will not pay the shareholder fees shown below, but may be subject to costs (including customary brokerage commissions) charged by their broker.

 

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Shareholder Fees (paid directly by Authorized Participants)*

 

Sales charges (loads)    None
Fixed transaction fee per orderA    $500
Variable transaction fee per creation unitB    up to 0.10%
Additional transaction charge if not settled through the Continuous Net Settlement System of the National Securities Clearing Corporation (NSCC)C    up to 3 times the fixed fee plus up to 0.10%

 

* See “Transaction Fees on Creation and Redemption Transactions” at the end of this Prospectus.

 

A A fixed transaction fee of $[    ] will be charged when you create or redeem Creation Units of the Ultra Semiconductor ProShares regardless of the number of shares created or redeemed on the date of the transaction.

 

B A variable transaction fee of up to 0.10% of the value of each Creation Unit will be charged to offset costs associated with the order.

 

C An additional fee of up to 3 times the fixed per order transaction fee plus up to 0.10% of the value of each Creation Unit may be charged if you do not create or redeem shares through the Continuous Net Settlement System of the NSCC, or in circumstances in which cash is substituted for certain securities. Such transactions are allowed at the sole discretion of the Fund.

Annual Fund Operating Expenses (as a percentage of average daily net assets)

 

Investment Advisory Fee

   0.75 %

Distribution and Service (12b-1) fees

   0.00 %

Other expensesA

   0.64 %

Total annual fund operating expenses

   1.39 %

Fee Waivers/ReimbursementsB

   0.44 %
      

Total net annual fund operating expenses

   0.95 %
      

 

A Based on estimated amounts for the current fiscal year.

 

B ProShare Advisors has contractually agreed to waive Investment Advisory and Management Services Fees and to reimburse other expenses to the extent Total Annual Operating Expenses, as a percentage of average daily net assets, exceed 0.95% through May 31, 2007. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular fiscal year may be recouped by ProShare Advisors within five years of the waiver or reimbursement to the extent that recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time.

Example: The following examples are intended to help you compare the cost of investing in shares of the Ultra Semiconductor ProShares with the cost of investing in other funds. Investors should note that the following examples are for illustration purposes only and are not meant to suggest actual or expected fees and expenses or returns, all of which may vary. The Fund issues and redeems shares in Creation Units principally on an in-kind basis for portfolio securities included in the relevant Index and cash. Shares are not redeemable in less than Creation Unit aggregations. The examples do not include the brokerage commissions that secondary market investors may incur to buy and sell shares.

The following example assumes that you invest $10,000 in the Ultra Semiconductor ProShares for the time periods indicated and sell all of your shares at the end of those periods, but does not include transaction fees on purchases and redemptions of shares. The example also assumes that your investment has a 5% annual return each year and that the Fund’s annual operating expenses remain exactly as described in the fee table. Although your actual costs may be higher or lower, based on the assumptions, your costs would be:

 

1 year

   $ 97

3 years

   $ 397

 

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Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the Ultra Semiconductor ProShares, as of January 16, 2006, is $[    ]. Assuming an investment in a Creation Unit of $[    ] and a 5% return each year, and that an investor pays both the standard $[    ] transaction fee applicable to both the purchase and redemption of the Creation Unit and the maximum variable transaction fee of 0.10% of the value of the Creation Unit, and assuming that the Fund’s gross operating expenses remain the same, the total costs would be $[    ] if the Creation Unit is redeemed after one year and $[    ] if the Creation Unit is redeemed after three years.

 

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Ultra Technology ProShares

Ticker: [    ]

CUSIP: 74347R693

INVESTMENT OBJECTIVE

Ultra Technology ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of the Dow Jones U.S. Technology Index.

If Ultra Technology ProShares is successful in meeting its objective, its net asset value should gain approximately twice as much, on a percentage basis, as the Dow Jones U.S. Technology Index (Index) when the Index rises on a given day. Conversely, its net asset value should lose approximately twice as much, on a percentage basis, as the Index when the Index declines on a given day.

PRINCIPAL INVESTMENT STRATEGY

The Ultra Technology ProShares’ principal investment strategies include:

 

    Investing in equity securities and/or financial instruments (including derivatives) that ProShare Advisors believes, in combination, should have similar daily price return characteristics as twice (200%) the daily return of the Dow Jones U.S. Technology Index. Information about the Index can be found on page __.

 

    Committing at least 80% of its assets, under normal circumstances, to equity securities contained in the Index and/or financial instruments with similar economic characteristics.

 

    Employing leveraged investment techniques and/or sampling techniques in seeking its investment objective.

 

    Investing assets not invested in equity securities or financial instruments in debt securities and/or money market instruments.

 

    The Fund will concentrate its investments in a particular industry or group of industries to approximately the same extent as the Index is so concentrated. As of the close of business on September 30, 2006, the Index was concentrated in the technology hardware & equipment and software & computer services industry groups, which comprised 60% and 40%, respectively, of the market capitalization of the Index.

The Ultra Technology ProShares employs leveraged investment techniques to achieve its investment objective. Over time, the use of leverage, combined with the effect of compounding, will have a more significant impact on the Fund’s performance compared to the index underlying its benchmark than a fund that does not employ leverage. Therefore, the return of the index over a period of time greater than one day multiplied by a fund’s specified multiple or inverse multiple (e.g., 200% or -200%) will not generally equal a fund’s performance over that same period. The following example illustrates this point:

Let’s say, hypothetically, that a shareholder invests $10,000 in Fund A and $10,000 in Fund B.

 

Fund A: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to the daily performance of an index.    Fund B: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of an index.

On Day 1, each fund’s benchmark index increases in value 1% which would cause a 1% increase in Fund A and a 2% increase in Fund B.

 

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On Day 2, each fund’s benchmark index decreases in value 1% which would cause a 1% decrease in Fund A and a 2% decrease in Fund B. At the end of Day 2, the value of the shareholder’s investment in Fund A would be approximately $9,999 (an increase of $100 on Day 1 and a decrease of $101 on Day 2). The value of the shareholder’s investment in Fund B would be approximately $9,996 at the end of Day 2 (an increase of $200 on Day 1 and a decrease of $204 on Day 2). In each case, the value of the shareholder’s investment declined overall. However, the effect of compounding was more pronounced for Fund B, which employs leverage. This example demonstrates how an investment in Fund A would have decreased in value by $1 over two days based on the index performance, while an investment in Fund B would have decreased in value by $4 over two days (four times the cumulative index loss over two days rather than two times the cumulative index loss).

Over time, the cumulative percentage increase or decrease in the net asset value of the Fund may diverge significantly from the cumulative percentage increase or decrease in the multiple of the return of the underlying Index due to the compounding effect of losses and gains on the returns of the Fund. Consequently, for periods greater than one day, investors should not expect the return of the Fund to be twice the return of the underlying Index. In addition, in trendless or flat markets it is expected that the Fund will underperform its benchmark Index.

PRINCIPAL RISK CONSIDERATIONS

The Ultra Technology ProShares is subject to the following principal risks:

 

    Aggressive Investment Technique Risk    The Ultra Technology ProShares uses investment techniques and financial instruments that may be considered aggressive, including the use of futures contracts, options on futures contracts, securities and indices, forward contracts, swap agreements and similar instruments. Such techniques may expose the Fund to potentially dramatic changes (losses) in the value of its portfolio holdings and imperfect correlation to the index underlying the Fund’s benchmark. These techniques also may expose the Fund to risks different from or possibly greater than the risks associated with investing directly in the securities contained in the index underlying the Fund’s benchmark.

 

    Correlation Risk    A number of factors may affect the Ultra Technology ProShares’ ability to achieve a high correlation with its benchmark and there can be no guarantee that the Fund will achieve a high degree of correlation.

 

    Counterparty Risk    The counterparty to a financial instrument may default on its obligations under the related agreement. In this circumstance, the Ultra Technology ProShares may lose money.

 

    Concentration Risk    Ultra Technology ProShares may concentrate its investments in issuers of one or more particular industries to the same extent that its underlying index is so concentrated. There is a risk that those issuers (or industry sector) will perform poorly and negatively impact a Fund.

 

    Credit Risk    An issuer of debt instruments may be unable to make interest payments and repay principal. Changes in an issuer’s financial strength or in an instrument’s credit rating may affect an instrument’s value and, thus, impact Ultra Technology ProShares’ performance. As described under “Counterparty Risk” above, the Fund will also be subject to credit risk with respect to the amount a Fund expects to receive from counterparties in financial instruments transactions. If a counterparty defaults on its payment obligations to a Fund, the value of your investment in a fund may decline.

 

    Equity Risk    The equity markets are volatile, and the value of securities, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day.

 

    Leverage Risk    The Ultra Technology ProShares’ NAV and market price will likely be more volatile than the index underlying its benchmark and funds that do not employ leverage. Leverage should cause the Fund to lose more money in market environments adverse to its daily investment objective than an unleveraged investment.

 

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    Liquidity Risk    In certain circumstances, the Ultra Technology ProShares may not be able to dispose of positions within a reasonable time at a fair price.

 

    Market Price Variance Risk    The Ultra Technology ProShares’ NAV will fluctuate with changes in the value of its portfolio holdings. Fund shares are listed on the Exchange and are purchased and sold at market prices for shares. Although it is expected that the secondary market price for shares should approximate the Fund’s NAV, there may be times when the market price varies significantly from NAV.

 

    Market Risk    The Ultra Technology ProShares is subject to market risks that will affect the value of its shares, including general economic and market conditions, as well as developments that impact specific economic sectors, industries or companies.

 

    Non-diversification Risk    The Ultra Technology ProShares is considered non-diversified and may invest a relatively high percentage of its assets in the securities of a small number of issuers. In such circumstances, the Fund’s performance may be susceptible to economic, political or regulatory events affecting a single issuer than a more diversified fund.

 

    Repurchase Agreement Risk    Repurchase agreement risk is the risk that the counterparty to the repurchase agreement that sells the securities may default on its obligation to repurchase them. In this circumstance, Ultra Technology ProShares may lose money because: it may not be able to sell the securities at the agreed upon time and price, the securities may lose value before they can be sold, the selling institution may default or declare bankruptcy or the Fund may have difficulty exercising rights to the collateral.

 

    Volatility Risk    Ultra Technology ProShares seeks to achieve a multiple of an index and therefore will experience greater volatility than the index underlying its benchmark and consequently has the potential for greater losses.

In addition to the risks noted above, Ultra Technology ProShares is also subject to risks faced by companies in the technology sector, including: intense competition, both domestically and internationally; limited product lines, markets, financial resources or personnel; product obsolescence due to rapid technological developments and frequent new product introduction; dramatic and often unpredictable changes in growth rates and competition for the services of qualified personnel; loss of key personnel to form competitive concerns; and heavy dependence on patent and intellectual property rights, with profitability affected by loss or impairment of these rights. Further, stocks in the Index may underperform fixed income investments and stock market indices that track other markets, segments and sectors.

The Ultra Technology ProShares may be subject to risks in addition to those identified as principal risks. The sections titled “More on Risks” and “Special Risks of Exchange-Traded Funds” later in this Prospectus and the SAI contains additional information about the Fund and related risks.

FUND PERFORMANCE

Performance history will be available for the Ultra Technology ProShares after it has been in operation for a full calendar year.

FEES AND EXPENSES

The following table describes the estimated fees and expenses you may pay when you buy, hold, or sell Creation Units of the Ultra Technology ProShares. Annual fund operating expenses are estimates. Investors purchasing shares in the secondary market will not pay the shareholder fees shown below, but may be subject to costs (including customary brokerage commissions) charged by their broker.

 

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Shareholder Fees (paid directly by Authorized Participants)*

 

Sales charges (loads)

   None

Fixed transaction fee per orderA

   $1,105

Variable transaction fee per creation unitB

   up to 0.10%

Additional transaction charge if not settled through the Continuous Net Settlement System of the National Securities Clearing Corporation (NSCC)C

   up to 3 times the fixed fee plus up to 0.10%

 

* See “Transaction Fees on Creation and Redemption Transactions” at the end of this Prospectus.

 

A A fixed transaction fee of $1,105 will be charged when you create or redeem Creation Units of the Ultra Technology ProShares regardless of the number of shares created or redeemed on the date of the transaction.

 

B A variable transaction fee of up to 0.10% of the value of each Creation Unit will be charged to offset costs associated with the order.

 

C An additional fee of up to 3 times the fixed per order transaction fee plus up to 0.10% of the value of each Creation Unit may be charged if you do not create or redeem shares through the Continuous Net Settlement System of the NSCC, or in circumstances in which cash is substituted for certain securities. Such transactions are allowed at the sole discretion of the Fund.

Annual Fund Operating Expenses (as a percentage of average daily net assets)

 

Investment Advisory Fee

   0.75 %

Distribution and Service (12b-1) fees

   0.00 %

Other expensesA

   0.65 %

Total annual fund operating expenses

   1.40 %

Fee Waivers/ReimbursementsB

   0.45 %
      

Total net annual fund operating expenses

   0.95 %
      

 

A Based on estimated amounts for the current fiscal year.

 

B ProShare Advisors has contractually agreed to waive Investment Advisory and Management Services Fees and to reimburse other expenses to the extent Total Annual Operating Expenses, as a percentage of average daily net assets, exceed 0.95% through May 31, 2007. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular fiscal year may be recouped by ProShare Advisors within five years of the waiver or reimbursement to the extent that recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time.

Example: The following examples are intended to help you compare the cost of investing in shares of the Ultra Technology ProShares with the cost of investing in other funds. Investors should note that the following examples are for illustration purposes only and are not meant to suggest actual or expected fees and expenses or returns, all of which may vary. The Fund issues and redeems shares in Creation Units principally on an in-kind basis for portfolio securities included in the relevant Index and cash. Shares are not redeemable in less than Creation Unit aggregations. The examples do not include the brokerage commissions that secondary market investors may incur to buy and sell shares.

The following example assumes that you invest $10,000 in the Ultra Technology ProShares for the time periods indicated and sell all of your shares at the end of those periods, but does not include transaction fees on purchases and redemptions of shares. The example also assumes that your investment has a 5% annual return each year and that the Fund’s annual operating expenses remain exactly as described in the fee table. Although your actual costs may be higher or lower, based on the assumptions, your costs would be:

 

1 year

   $ 97

3 years

   $ 399

 

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Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the Ultra Technology ProShares, as of January 16, 2006, is $[    ]. Assuming an investment in a Creation Unit of $[    ] and a 5% return each year, and that an investor pays both the standard $[    ] transaction fee applicable to both the purchase and redemption of the Creation Unit and the maximum variable transaction fee of 0.10% of the value of the Creation Unit, and assuming that the Fund’s gross operating expenses remain the same, the total costs would be $[    ] if the Creation Unit is redeemed after one year and $[    ] if the Creation Unit is redeemed after three years.

 

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Ultra Telecommunications ProShares

Ticker: [    ]

CUSIP: [    ]

INVESTMENT OBJECTIVE

Ultra Telecommunications ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of the Dow Jones U.S. Telecommunications Index.

If Ultra Telecommunications ProShares is successful in meeting its objective, its net asset value should gain approximately twice as much, on a percentage basis, as the Dow Jones U.S. Telecommunications Index (Index) when the Index rises on a given day. Conversely, its net asset value should lose approximately twice as much, on a percentage basis, as the Index when the Index declines on a given day.

PRINCIPAL INVESTMENT STRATEGY

The Ultra Telecommunications ProShares’ principal investment strategies include:

 

    Investing in equity securities and/or financial instruments (including derivatives) that ProShare Advisors believes, in combination, should have similar daily price return characteristics as twice (200%) the daily return of the Dow Jones U.S. Telecommunications Index. Information about the Index can be found on page __.

 

    Committing at least 80% of its assets, under normal circumstances, to equity securities contained in the Index and/or financial instruments with similar economic characteristics.

 

    Employing leveraged investment techniques and/or sampling techniques in seeking its investment objective.

 

    Investing assets not invested in equity securities or financial instruments in debt securities and/or money market instruments.

 

    The Fund will concentrate its investments in a particular industry or group of industries to approximately the same extent as the Index is so concentrated. As of the close of business on September 30, 2006, the Index was concentrated in the fixed-line communications industry group, which comprised 73% of the market capitalization of the Index.

The Ultra Telecommunications ProShares employs leveraged investment techniques to achieve its investment objective. Over time, the use of leverage, combined with the effect of compounding, will have a more significant impact on the Fund’s performance compared to the index underlying its benchmark than a fund that does not employ leverage. Therefore, the return of the index over a period of time greater than one day multiplied by a fund’s specified multiple or inverse multiple (e.g., 200% or -200%) will not generally equal a fund’s performance over that same period. The following example illustrates this point:

Let’s say, hypothetically, that a shareholder invests $10,000 in Fund A and $10,000 in Fund B.

 

Fund A: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to the daily performance of an index.    Fund B: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of an index.

On Day 1, each fund’s benchmark index increases in value 1% which would cause a 1% increase in Fund A and a 2% increase in Fund B.

 

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On Day 2, each fund’s benchmark index decreases in value 1% which would cause a 1% decrease in Fund A and a 2% decrease in Fund B. At the end of Day 2, the value of the shareholder’s investment in Fund A would be approximately $9,999 (an increase of $100 on Day 1 and a decrease of $101 on Day 2). The value of the shareholder’s investment in Fund B would be approximately $9,996 at the end of Day 2 (an increase of $200 on Day 1 and a decrease of $204 on Day 2). In each case, the value of the shareholder’s investment declined overall. However, the effect of compounding was more pronounced for Fund B, which employs leverage. This example demonstrates how an investment in Fund A would have decreased in value by $1 over two days based on the index performance, while an investment in Fund B would have decreased in value by $4 over two days (four times the cumulative index loss over two days rather than two times the cumulative index loss).

Over time, the cumulative percentage increase or decrease in the net asset value of the Fund may diverge significantly from the cumulative percentage increase or decrease in the multiple of the return of the underlying Index due to the compounding effect of losses and gains on the returns of the Fund. Consequently, for periods greater than one day, investors should not expect the return of the Fund to be twice the return of the underlying Index. In addition, in trendless or flat markets it is expected that the Fund will underperform its benchmark Index.

PRINCIPAL RISK CONSIDERATIONS

The Ultra Telecommunications ProShares is subject to the following principal risks:

 

    Aggressive Investment Technique Risk    The Ultra Telecommunications ProShares uses investment techniques and financial instruments that may be considered aggressive, including the use of futures contracts, options on futures contracts, securities and indices, forward contracts, swap agreements and similar instruments. Such techniques may expose the Fund to potentially dramatic changes (losses) in the value of its portfolio holdings and imperfect correlation to the index underlying the Fund’s benchmark. These techniques also may expose the Fund to risks different from or possibly greater than the risks associated with investing directly in the securities contained in the index underlying the Fund’s benchmark.

 

    Correlation Risk    A number of factors may affect the Ultra Telecommunications ProShares’ ability to achieve a high correlation with its benchmark and there can be no guarantee that the Fund will achieve a high degree of correlation.

 

    Counterparty Risk    The counterparty to a financial instrument may default on its obligations under the related agreement. In this circumstance, the Ultra Telecommunications ProShares may lose money.

 

    Concentration Risk    Ultra Telecommunications ProShares may concentrate its investments in issuers of one or more particular industries to the same extent that its underlying index is so concentrated. There is a risk that those issuers (or industry sector) will perform poorly and negatively impact a Fund.

 

    Credit Risk    An issuer of debt instruments may be unable to make interest payments and repay principal. Changes in an issuer’s financial strength or in an instrument’s credit rating may affect an instrument’s value and, thus, impact Ultra Telecommunications ProShares’ performance. As described under “Counterparty Risk” above, the Fund will also be subject to credit risk with respect to the amount a Fund expects to receive from counterparties in financial instruments transactions. If a counterparty defaults on its payment obligations to a Fund, the value of your investment in a fund may decline.

 

    Equity Risk    The equity markets are volatile, and the value of securities, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day.

 

    Leverage Risk    The Ultra Telecommunications ProShares’ NAV and market price will likely be more volatile than the index underlying its benchmark and funds that do not employ leverage. Leverage should cause the Fund to lose more money in market environments adverse to its daily investment objective than an unleveraged investment.

 

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    Liquidity Risk    In certain circumstances, the Ultra Telecommunications ProShares may not be able to dispose of positions within a reasonable time at a fair price.

 

    Market Price Variance Risk    The Ultra Telecommunications ProShares’ NAV will fluctuate with changes in the value of its portfolio holdings. Fund shares are listed on the Exchange and are purchased and sold at market prices for shares. Although it is expected that the secondary market price for shares should approximate the Fund’s NAV, there may be times when the market price varies significantly from NAV.

 

    Market Risk    The Ultra Telecommunications ProShares is subject to market risks that will affect the value of its shares, including general economic and market conditions, as well as developments that impact specific economic sectors, industries or companies.

 

    Non-diversification Risk    The Ultra Telecommunications ProShares is considered non-diversified and may invest a relatively high percentage of its assets in the securities of a small number of issuers. In such circumstances, the Fund’s performance may be susceptible to economic, political or regulatory events affecting a single issuer than a more diversified fund.

 

    Repurchase Agreement Risk    Repurchase agreement risk is the risk that the counterparty to the repurchase agreement that sells the securities may default on its obligation to repurchase them. In this circumstance, Ultra Telecommunications ProShares may lose money because: it may not be able to sell the securities at the agreed upon time and price, the securities may lose value before they can be sold, the selling institution may default or declare bankruptcy or the Fund may have difficulty exercising rights to the collateral.

 

    Volatility Risk    Ultra Telecommunications ProShares seeks to achieve a multiple of an index and therefore will experience greater volatility than the index underlying its benchmark and consequently has the potential for greater losses.

In addition to the risks noted above, Ultra Telecommunications ProShares is also subject to risks faced by companies in the telecommunications economic sector, including: a telecommunications market characterized by increasing competition and regulation by the Federal Communications Commission and various state regulatory authorities; the need to commit substantial capital to meet increasing competition, particularly in formulating new products and services using new technology; and technological innovations may make various products and services obsolete. Further, stocks in the Index may underperform fixed income investments and stock market indices that track other markets, segments and sectors.

The Ultra Telecommunications ProShares may be subject to risks in addition to those identified as principal risks. The sections titled “More on Risks” and “Special Risks of Exchange-Traded Funds” later in this Prospectus and the SAI contains additional information about the Fund and related risks.

FUND PERFORMANCE

Performance history will be available for the Ultra Telecommunications ProShares after it has been in operation for a full calendar year.

FEES AND EXPENSES

The following table describes the estimated fees and expenses you may pay when you buy, hold, or sell Creation Units of the Ultra Telecommunications ProShares. Annual fund operating expenses are estimates. Investors purchasing shares in the secondary market will not pay the shareholder fees shown below, but may be subject to costs (including customary brokerage commissions) charged by their broker.

 

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Shareholder Fees (paid directly by Authorized Participants)*

 

Sales charges (loads)

   None

Fixed transaction fee per orderA

   $500

Variable transaction fee per creation unitB

   up to 0.10%
Additional transaction charge if not settled through the Continuous Net Settlement System of the National Securities Clearing Corporation (NSCC)C    up to 3 times the fixed fee plus up to 0.10%

 

* See “Transaction Fees on Creation and Redemption Transactions” at the end of this Prospectus.

 

A A fixed transaction fee of $500 will be charged when you create or redeem Creation Units of the Ultra Telecommunications ProShares regardless of the number of shares created or redeemed on the date of the transaction.

 

B A variable transaction fee of up to 0.10% of the value of each Creation Unit will be charged to offset costs associated with the order.

 

C An additional fee of up to 3 times the fixed per order transaction fee plus up to 0.10% of the value of each Creation Unit may be charged if you do not create or redeem shares through the Continuous Net Settlement System of the NSCC, or in circumstances in which cash is substituted for certain securities. Such transactions are allowed at the sole discretion of the Fund.

Annual Fund Operating Expenses (as a percentage of average daily net assets)

 

Investment Advisory Fee

   0.75 %

Distribution and Service (12b-1) fees

   0.00 %

Other expensesA

   0.64 %

Total annual fund operating expenses

   1.39 %

Fee Waivers/ReimbursementsB

   0.44 %
      

Total net annual fund operating expenses

   0.95 %
      

 

A Based on estimated amounts for the current fiscal year.

 

B ProShare Advisors has contractually agreed to waive Investment Advisory and Management Services Fees and to reimburse other expenses to the extent Total Annual Operating Expenses, as a percentage of average daily net assets, exceed 0.95% through May 31, 2007. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular fiscal year may be recouped by ProShare Advisors within five years of the waiver or reimbursement to the extent that recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time.

Example: The following examples are intended to help you compare the cost of investing in shares of the Ultra Telecommunications ProShares with the cost of investing in other funds. Investors should note that the following examples are for illustration purposes only and are not meant to suggest actual or expected fees and expenses or returns, all of which may vary. The Fund issues and redeems shares in Creation Units principally on an in-kind basis for portfolio securities included in the relevant Index and cash. Shares are not redeemable in less than Creation Unit aggregations. The examples do not include the brokerage commissions that secondary market investors may incur to buy and sell shares.

The following example assumes that you invest $10,000 in the Ultra Telecommunications ProShares for the time periods indicated and sell all of your shares at the end of those periods, but does not include transaction fees on purchases and redemptions of shares. The example also assumes that your investment has a 5% annual return each year and that the Fund’s annual operating expenses remain exactly as described in the fee table. Although your actual costs may be higher or lower, based on the assumptions, your costs would be:

 

1 year

   $ 97

3 years

   $ 397

 

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Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the Ultra Telecommunications ProShares, as of January 16, 2006, is $[    ]. Assuming an investment in a Creation Unit of $[    ] and a 5% return each year, and that an investor pays both the standard $[    ] transaction fee applicable to both the purchase and redemption of the Creation Unit and the maximum variable transaction fee of 0.10% of the value of the Creation Unit, and assuming that the Fund’s gross operating expenses remain the same, the total costs would be $[    ] if the Creation Unit is redeemed after one year and $[    ] if the Creation Unit is redeemed after three years.

 

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Ultra Utilities ProShares

Ticker: [    ]

CUSIP: 74347R685

INVESTMENT OBJECTIVE

Ultra Utilities ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of the Dow Jones U.S. Utilities Index.

If Ultra Utilities ProShares is successful in meeting its objective, its net asset value should gain approximately twice as much, on a percentage basis, as the Dow Jones U.S. Utilities Index (Index) when the Index rises on a given day. Conversely, its net asset value should lose approximately twice as much, on a percentage basis, as the Index when the Index declines on a given day.

PRINCIPAL INVESTMENT STRATEGY

The Ultra Utilities ProShares’ principal investment strategies include:

 

    Investing in equity securities and/or financial instruments (including derivatives) that ProShare Advisors believes, in combination, should have similar daily price return characteristics as twice (200%) the daily return of the Dow Jones U.S. Utilities Index. Information about the Index can be found on page __.

 

    Committing at least 80% of its assets, under normal circumstances, to equity securities contained in the Index and/or financial instruments with similar economic characteristics.

 

    Employing leveraged investment techniques and/or sampling techniques in seeking its investment objective.

 

    Investing assets not invested in equity securities or financial instruments in debt securities and/or money market instruments.

 

    The Fund will concentrate its investments in a particular industry or group of industries to approximately the same extent as the Index is so concentrated. As of the close of business on September 30, 2006, the Index was concentrated in the electricity and gas, water and multi-utilities industry groups, which comprised approximately 74% and 26%, respectively of the market capitalization of the Index.

The Ultra Utilities ProShares employs leveraged investment techniques to achieve its investment objective. Over time, the use of leverage, combined with the effect of compounding, will have a more significant impact on the Fund’s performance compared to the index underlying its benchmark than a fund that does not employ leverage. Therefore, the return of the index over a period of time greater than one day multiplied by a fund’s specified multiple or inverse multiple (e.g., 200% or -200%) will not generally equal a fund’s performance over that same period. The following example illustrates this point:

Let’s say, hypothetically, that a shareholder invests $10,000 in Fund A and $10,000 in Fund B.

 

Fund A: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to the daily performance of an index.    Fund B: A fund whose objective is to seek daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of an index.

On Day 1, each fund’s benchmark index increases in value 1% which would cause a 1% increase in Fund A and a 2% increase in Fund B.

 

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On Day 2, each fund’s benchmark index decreases in value 1% which would cause a 1% decrease in Fund A and a 2% decrease in Fund B. At the end of Day 2, the value of the shareholder’s investment in Fund A would be approximately $9,999 (an increase of $100 on Day 1 and a decrease of $101 on Day 2). The value of the shareholder’s investment in Fund B would be approximately $9,996 at the end of Day 2 (an increase of $200 on Day 1 and a decrease of $204 on Day 2). In each case, the value of the shareholder’s investment declined overall. However, the effect of compounding was more pronounced for Fund B, which employs leverage. This example demonstrates how an investment in Fund A would have decreased in value by $1 over two days based on the index performance, while an investment in Fund B would have decreased in value by $4 over two days (four times the cumulative index loss over two days rather than two times the cumulative index loss).

Over time, the cumulative percentage increase or decrease in the net asset value of the Fund may diverge significantly from the cumulative percentage increase or decrease in the multiple of the return of the underlying Index due to the compounding effect of losses and gains on the returns of the Fund. Consequently, for periods greater than one day, investors should not expect the return of the Fund to be twice the return of the underlying Index. In addition, in trendless or flat markets it is expected that the Fund will underperform its benchmark Index.

PRINCIPAL RISK CONSIDERATIONS

The Ultra Utilities ProShares is subject to the following principal risks:

 

    Aggressive Investment Technique Risk    The Ultra Utilities ProShares uses investment techniques and financial instruments that may be considered aggressive, including the use of futures contracts, options on futures contracts, securities and indices, forward contracts, swap agreements and similar instruments. Such techniques may expose the Fund to potentially dramatic changes (losses) in the value of its portfolio holdings and imperfect correlation to the index underlying the Fund’s benchmark. These techniques also may expose the Fund to risks different from or possibly greater than the risks associated with investing directly in the securities contained in the index underlying the Fund’s benchmark.

 

    Correlation Risk    A number of factors may affect the Ultra Utilities ProShares’ ability to achieve a high correlation with its benchmark and there can be no guarantee that the Fund will achieve a high degree of correlation.

 

    Counterparty Risk    The counterparty to a financial instrument may default on its obligations under the related agreement. In this circumstance, the Ultra Utilities ProShares may lose money.

 

    Concentration Risk    Ultra Utilities ProShares may concentrate its investments in issuers of one or more particular industries to the same extent that its underlying index is so concentrated. There is a risk that those issuers (or industry sector) will perform poorly and negatively impact a Fund.

 

    Credit Risk    An issuer of debt instruments may be unable to make interest payments and repay principal. Changes in an issuer’s financial strength or in an instrument’s credit rating may affect an instrument’s value and, thus, impact Ultra Utilities ProShares’ performance. As described under “Counterparty Risk” above, the Fund will also be subject to credit risk with respect to the amount a Fund expects to receive from counterparties in financial instruments transactions. If a counterparty defaults on its payment obligations to a Fund, the value of your investment in a fund may decline.

 

    Equity Risk    The equity markets are volatile, and the value of securities, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day.

 

    Leverage Risk    The Ultra Utilities ProShares’ NAV and market price will likely be more volatile than the index underlying its benchmark and funds that do not employ leverage. Leverage should cause the Fund to lose more money in market environments adverse to its daily investment objective than an unleveraged investment.

 

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    Liquidity Risk    In certain circumstances, the Ultra Utilities ProShares may not be able to dispose of positions within a reasonable time at a fair price.

 

    Market Price Variance Risk    The Ultra Utilities ProShares’ NAV will fluctuate with changes in the value of its portfolio holdings. Fund shares are listed on the Exchange and are purchased and sold at market prices for shares. Although it is expected that the secondary market price for shares should approximate the Fund’s NAV, there may be times when the market price varies significantly from NAV.

 

    Market Risk    The Ultra Utilities ProShares is subject to market risks that will affect the value of its shares, including general economic and market conditions, as well as developments that impact specific economic sectors, industries or companies.

 

    Non-diversification Risk    The Ultra Utilities ProShares is considered non-diversified and may invest a relatively high percentage of its assets in the securities of a small number of issuers. In such circumstances, the Fund’s performance may be susceptible to economic, political or regulatory events affecting a single issuer than a more diversified fund.

 

    Repurchase Agreement Risk    Repurchase agreement risk is the risk that the counterparty to the repurchase agreement that sells the securities may default on its obligation to repurchase them. In this circumstance, Ultra Utilities ProShares may lose money because: it may not be able to sell the securities at the agreed upon time and price, the securities may lose value before they can be sold, the selling institution may default or declare bankruptcy or the Fund may have difficulty exercising rights to the collateral.

 

    Volatility Risk    Ultra Utilities ProShares seeks to achieve a multiple of an index and therefore will experience greater volatility than the index underlying its benchmark and consequently has the potential for greater losses.

In addition to the risks noted above, Ultra Utilities ProShares is also subject to risks faced by companies in the utilities economic sector, including: review and limitation of rates by governmental regulatory commissions; the value of regulated utility debt instruments (and, to a lesser extent, equity securities) tends to have an inverse relationship to the movement of interest rates; as deregulation allows utilities to diversify outside of their original geographic regions and their traditional lines of business, utilities may engage in riskier ventures where they have little or no experience; and greater competition as a result of deregulation, which may adversely affect profitability due to lower operating margins, higher costs and diversification into unprofitable business lines. Further, stocks in the Index may underperform fixed income investments and stock market indices that track other markets, segments and sectors.

The Ultra Utilities ProShares may be subject to risks in addition to those identified as principal risks. The sections titled “More on Risks” and “Special Risks of Exchange-Traded Funds” later in this Prospectus and the SAI contains additional information about the Fund and related risks.

FUND PERFORMANCE

Performance history will be available for the Ultra Utilities ProShares after it has been in operation for a full calendar year.

FEES AND EXPENSES

The following table describes the estimated fees and expenses you may pay when you buy, hold, or sell Creation Units of the Ultra Utilities ProShares. Annual fund operating expenses are estimates. Investors purchasing shares in the secondary market will not pay the shareholder fees shown below, but may be subject to costs (including customary brokerage commissions) charged by their broker.

 

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Shareholder Fees (paid directly by Authorized Participants)*

 

Sales charges (loads)

   None

Fixed transaction fee per orderA

   $500

Variable transaction fee per creation unitB

   up to 0.10%
Additional transaction charge if not settled through the Continuous Net Settlement System of the National Securities Clearing Corporation (NSCC)C    up to 3 times the fixed fee plus up to 0.10%

 

* See “Transaction Fees on Creation and Redemption Transactions” at the end of this Prospectus.

 

A A fixed transaction fee of $[    ] will be charged when you create or redeem Creation Units of the Ultra Utilities ProShares regardless of the number of shares created or redeemed on the date of the transaction.

 

B A variable transaction fee of up to 0.10% of the value of each Creation Unit will be charged to offset costs associated with the order.

 

C An additional fee of up to 3 times the fixed per order transaction fee plus up to 0.10% of the value of each Creation Unit may be charged if you do not create or redeem shares through the Continuous Net Settlement System of the NSCC, or in circumstances in which cash is substituted for certain securities. Such transactions are allowed at the sole discretion of the Fund.

Annual Fund Operating Expenses (as a percentage of average daily net assets)

 

Investment Advisory Fee

   0.75 %

Distribution and Service (12b-1) fees

   0.00 %

Other expensesA

   0.64 %

Total annual fund operating expenses

   1.39 %

Fee Waivers/ReimbursementsB

   0.44 %
      

Total net annual fund operating expenses

   0.95 %
      

 

A Based on estimated amounts for the current fiscal year.

 

B ProShare Advisors has contractually agreed to waive Investment Advisory and Management Services Fees and to reimburse other expenses to the extent Total Annual Operating Expenses, as a percentage of average daily net assets, exceed 0.95% through May 31, 2007. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular fiscal year may be recouped by ProShare Advisors within five years of the waiver or reimbursement to the extent that recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time.

Example: The following examples are intended to help you compare the cost of investing in shares of the Ultra Utilities ProShares with the cost of investing in other funds. Investors should note that the following examples are for illustration purposes only and are not meant to suggest actual or expected fees and expenses or returns, all of which may vary. The Fund issues and redeems shares in Creation Units principally on an in-kind basis for portfolio securities included in the relevant Index and cash. Shares are not redeemable in less than Creation Unit aggregations. The examples do not include the brokerage commissions that secondary market investors may incur to buy and sell shares.

The following example assumes that you invest $10,000 in the Ultra Utilities ProShares for the time periods indicated and sell all of your shares at the end of those periods, but does not include transaction fees on purchases and redemptions of shares. The example also assumes that your investment has a 5% annual return each year and that the Fund’s annual operating expenses remain exactly as described in the fee table. Although your actual costs may be higher or lower, based on the assumptions, your costs would be:

 

1 year

   $ 97

3 years

   $ 397

 

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Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the Ultra Utilities ProShares, as of January 16, 2006, is $[    ]. Assuming an investment in a Creation Unit of $[    ] and a 5% return each year, and that an investor pays both the standard $[    ] transaction fee applicable to both the purchase and redemption of the Creation Unit and the maximum variable transaction fee of 0.10% of the value of the Creation Unit, and assuming that the Fund’s gross operating expenses remain the same, the total costs would be $[    ] if the Creation Unit is redeemed after one year and $[    ] if the Creation Unit is redeemed after three years.

 

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SHORT PROSHARES

The Short ProShares seek to provide daily investment results, before fees and expenses, that either match (100%) or double (200%) the inverse (opposite) of the daily performance of their applicable indexes.

 

Fund

  

Index

  

Benchmark1

  

Types of Companies in Index

Short Russell 2000®    Russell 2000® Index    100% of the Inverse    Diverse, small capitalization
Short S&P Small-Cap 600    S&P Small-Cap 600    100% of the Inverse    Diverse, small capitalization
Short S&P500/Citigroup Value    S&P500/Citigroup Value    100% of the Inverse    Diverse, widely traded, large capitalization
Short S&P500/Citigroup Growth    S&P500/Citigroup Growth    100% of the Inverse    Diverse, widely traded, large capitalization
Short S&P MidCap 400/Citigroup Value    S&P MidCap 400/Citigroup Value    100% of the Inverse    Diverse, widely traded, mid-capitalization
Short S&P MidCap 400/Citigroup Growth    S&P MidCap 400/Citigroup Growth    100% of the Inverse    Diverse, widely traded, mid-capitalization
Short S&P SmallCap 600/Citigroup Value    S&P SmallCap 600/Citigroup Value    100% of the Inverse    Diverse, small capitalization
Short S&P SmallCap 600/Citigroup Growth    S&P SmallCap 600/Citigroup Growth    100% of the Inverse    Diverse, small capitalization
Short Basic Materials    Dow Jones U.S. Basic Materials Index    100% of the Inverse    Securities within the basic materials industry in the U.S. equity market
Short Biotechnology    Dow Jones U.S. Biotechnology Index    100% of the Inverse    Securities representing the biotechnology subsector in the U.S. equity market
Short Consumer Goods    Dow Jones U.S. Consumer Goods Index    100% of the Inverse    Securities within the consumer goods industry in the U.S. equity market
Short Consumer Services    Dow Jones U.S. Consumer Services Index    100% of the Inverse    Securities within the consumer services industry in the U.S. equity market
Short Financials    Dow Jones U.S. Financials Index    100% of the Inverse    Securities within the financial industry in the U.S. equity market
Short Health Care    Dow Jones U.S. Health Care Index    100% of the Inverse    Securities within the health care industry in the U.S. equity market
Short Industrials    Dow Jones U.S. Industrials Index    100% of the Inverse    Securities within the industrial industry in the U.S. equity market
Short Oil & Gas    Dow Jones U.S. Oil & Gas Index    100% of the Inverse    Securities within the oil and gas industry in the U.S. equity market
Short Precious Metals    Dow Jones U.S. Precious Metals Index    100% of the Inverse    Securities of companies involved in the mining of precious metals
Short Real Estate    Dow Jones U.S. Real Estate Index    100% of the Inverse    Securities representing the real estate sector in the U.S. equity market
Short Semiconductor    Dow Jones U.S. Semiconductor Index    100% of the Inverse    Securities representing the semiconductor subsector in the U.S. equity market
Short Technology    Dow Jones U.S. Technology Index    100% of the Inverse    Securities within the technology industry in the U.S. equity market
Short Telecommunications    Dow Jones U.S. Telecommunications Index    100% of the Inverse    Securities within the telecommunications industry in the U.S. equity market

 

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Short Utilities    Dow Jones U.S. Utilities Index    100% of the Inverse    Securities within the utilities industry in the U.S. equity market
Ultra Russell 2000®    Russell 2000® Index    200% of the Inverse    Diverse, small capitalization
Ultra S&P Small-Cap 600    S&P Small-Cap 600    200% of the Inverse    Diverse, small capitalization
Ultra S&P500/Citigroup Value    S&P500/Citigroup Value    200% of the Inverse    Diverse, widely traded, large capitalization
Ultra S&P500/Citigroup Growth    S&P500/Citigroup Growth    200% of the Inverse    Diverse, widely traded, large capitalization
Ultra S&P MidCap 400/Citigroup Value    S&P MidCap 400/Citigroup Value    200% of the Inverse    Diverse, widely traded, mid-capitalization
Ultra S&P MidCap 400/Citigroup Growth    S&P MidCap 400/Citigroup Growth    200% of the Inverse    Diverse, widely traded, mid-capitalization
Ultra S&P SmallCap 600/Citigroup Value    S&P SmallCap 600/Citigroup Value    200% of the Inverse    Diverse, small capitalization
Ultra S&P SmallCap 600/Citigroup Growth    S&P SmallCap 600/Citigroup Growth    200% of the Inverse    Diverse, small capitalization
Ultra Basic Materials    Dow Jones U.S. Basic Materials Index    200% of the Inverse    Securities within the basic materials industry in the U.S. equity market
Ultra Biotechnology    Dow Jones U.S. Biotechnology Index    200% of the Inverse    Securities representing the biotechnology subsector in the U.S. equity market
Ultra Consumer Goods    Dow Jones U.S. Consumer Goods Index    200% of the Inverse    Securities within the consumer goods industry in the U.S. equity market
Ultra Consumer Services    Dow Jones U.S. Consumer Services Index    200% of the Inverse    Securities within the consumer services industry in the U.S. equity market
Ultra Financials    Dow Jones U.S. Financials Index    200% of the Inverse    Securities within the financial industry in the U.S. equity market
Ultra Health Care    Dow Jones U.S. Health Care Index    200% of the Inverse    Securities within the health care industry in the U.S. equity market
Ultra Industrials    Dow Jones U.S. Industrials Index    200% of the Inverse    Securities within the industrial industry in the U.S. equity market
Ultra Oil & Gas    Dow Jones U.S. Oil & Gas Index    200% of the Inverse    Securities within the oil and gas industry in the U.S. equity market
Ultra Precious Metals    Dow Jones U.S. Precious Metals Index    200% of the Inverse    Securities of companies involved in the mining of precious metals
Ultra Real Estate    Dow Jones U.S. Real Estate Index    200% of the Inverse    Securities representing the real estate sector in the U.S. equity market
Ultra Semiconductor    Dow Jones U.S. Semiconductor Index    200% of the Inverse    Securities representing the semiconductor subsector in the U.S. equity market
Ultra Technology    Dow Jones U.S. Technology Index    200% of the Inverse    Securities within the technology industry in the U.S. equity market
Ultra Telecommunications    Dow Jones U.S. Telecommunications Index    200% of the Inverse    Securities within the telecommunications industry in the U.S. equity market
Ultra Utilities    Dow Jones U.S. Utilities Index    200% of the Inverse    Securities within the utilities industry in the U.S. equity market

The Short ProShares may be appropriate for investors who believe that the value of a particular index will decrease and desire to earn a profit as a result of the index declining or who want to protect (hedge) the value of a diversified portfolio of stocks and/or stock mutual funds from a market downturn that they anticipate.

 

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An investment in a Fund is not a deposit of a bank, and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Funds are not guaranteed to achieve their investment objectives, and an investment in a Fund could lose money. No single Fund is a complete investment program.

 

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Short Russell 2000 ProShares

Ticker: [    ]

CUSIP: 74347R826

INVESTMENT OBJECTIVE

Short Russell 2000 ProShares seeks daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the Russell 2000® Index.

If Short Russell 2000 ProShares is successful in meeting its objective, its net asset value should gain approximately the same amount, on a percentage basis, as any decrease in the Russell 2000® Index (Index) when the Index declines on a given day. Conversely, its net asset value should lose approximately the same amount, on a percentage basis, as any increase in the Index when the Index rises on a given day.

PRINCIPAL INVESTMENT STRATEGY

The Short Russell 2000 ProShares’ principal investment strategies include:

 

    Taking positions in financial instruments (including derivatives) that ProShare Advisors believes, in combination, should have similar daily price return characteristics as the inverse of the Russell 2000® Index. Information about the Index can be found on page __.

 

    Committing at least 80% of its assets to investments that, in combination, have economic characteristics that are inverse to those of the Index.

 

    Employing leveraged investment techniques in seeking its investment objective.

 

    Investing assets not invested in financial instruments in debt securities and/or money market instruments.

PRINCIPAL RISK CONSIDERATIONS

The Short Russell 2000 ProShares is subject to the following principal risks:

 

    Aggressive Investment Technique Risk    The Short Russell 2000 ProShares uses investment techniques and financial instruments that may be considered aggressive, including the use of futures contracts, options on futures contracts, securities and indices, forward contracts, swap agreements and similar instruments. Such techniques may expose the Fund to potentially dramatic changes (losses) in the value of its portfolio holdings and imperfect correlation to the index underlying the Fund’s benchmark. These techniques also may expose the Fund to risks different from or possibly greater than the risks associated with investing directly in the securities contained in the index underlying the Fund’s benchmark.

 

    Correlation Risk    A number of factors may affect the Short Russell 2000 ProShares ability to achieve a high correlation with its benchmark and there can be no guarantee that the Fund will achieve a high degree of correlation.

 

    Counterparty Risk    The counterparty to a financial instrument may default on its obligations under the related agreement. In this circumstance, the Short Russell 2000 ProShares may lose money.

 

    Credit Risk    An issuer of debt instruments may be unable to make interest payments and repay principal. Changes in an issuer’s financial strength or in an instrument’s credit rating may affect an instrument’s value and, thus, impact Short Russell 2000 ProShares’ performance. As described under “Counterparty Risk” above, the Fund will also be subject to credit risk with respect to the amount a Fund expects to receive from counterparties in financial instruments transactions. If a counterparty defaults on its payment obligations to a Fund, the value of your investment in a fund may decline.

 

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    Equity Risk    The equity markets are volatile, and the value of securities, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day.

 

    Inverse Correlation Risk    Shareholders in Short Russell 2000 ProShares should lose money when the index underlying the Fund’s benchmark rises – a result that is the opposite from traditional equity or bond funds.

 

    Liquidity Risk    In certain circumstances, the Short Russell 2000 ProShares may not be able to dispose of portfolio investments within a reasonable time at a fair price.

 

    Market Price Variance Risk    The Short Russell 2000 ProShares’ NAV will fluctuate with changes in the value of its portfolio holdings. Fund shares are listed on the Exchange and are purchased and sold at market prices. Although it is expected that the secondary market price for shares should approximate the Fund’s NAV, there may be times when the secondary market price varies significantly from NAV and may be below or above the most recently calculated NAV.

 

    Market Risk    The Short Russell 2000 ProShares is subject to market risks that will affect the value of its shares, including general economic and market conditions, as well as developments that impact specific economic sectors, industries or companies.

 

    Non-diversification Risk    The Short Russell 2000 ProShares is considered non-diversified and may invest a relatively high percentage of its assets in the securities of a small number of issuers. In such circumstances, the Fund’s performance may be susceptible to economic, political or regulatory events affecting a single issuer than a more diversified fund.

 

    Repurchase Agreement Risk    Repurchase agreement risk is the risk that the counterparty to the repurchase agreement that sells the securities may default on its obligation to repurchase them. In this circumstance, Short Russell 2000 ProShares may lose money because: it may not be able to sell the securities at the agreed upon time and price, the securities may lose value before they can be sold, the selling institution may default or declare bankruptcy or the Fund may have difficulty exercising rights to the collateral.

 

    Short Sale Risk    The Short Russell 2000 ProShares may sell securities short to seek gains when its benchmark index declines or to adjust investment exposure to its benchmark index. The Fund’s use of short sales involves additional transaction costs and other expenses. Under certain market conditions, short sales can increase the volatility, and decrease the liquidity, of a Fund and may lower a Fund’s return or result in a loss.

 

    Small-Cap Company Investment Risk    The risk of equity investing may be particularly acute for securities of issuers with small market capitalization. Small-cap company stocks may trade at greater spreads or lower trading volumes, and may be less liquid, than the stocks of larger companies. Liquidating positions in small-cap companies could become difficult in turbulent market conditions. Small-cap company stocks tend to have greater fluctuations in price than the stocks of large companies. They may have limited product lines, markets, financial resources or personnel. In addition, small-cap companies tend to lack the financial and personnel resources to handle economic or industry-wide setbacks and, as a result, such setbacks could have a greater effect on small-cap security prices.

The Short Russell 2000 ProShares may be subject to risks in addition to those identified as principal risks. The sections titled “More on Risks” and “Special Risks of Exchange-Traded Funds” later in this Prospectus and the Statement of Additional Information (“SAI”) contains additional information about the Fund and related risks.

 

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FUND PERFORMANCE

Performance history will be available for the Short Russell 2000 ProShares after it has been in operation for a full calendar year.

FEES AND EXPENSES

The following table describes the estimated fees and expenses you may pay when you buy, hold, or sell Creation Units of the Short Russell 2000 ProShares. Annual fund operating expenses are estimates. Investors purchasing shares in the secondary market will not pay the shareholder fees shown below, but may be subject to costs (including customary brokerage commissions) charged by their broker.

Shareholder Fees (paid directly by Authorized Participants) *

 

Sales charges (loads)

   None

Fixed transaction fee per orderA

   $2,000

Variable transaction fee per creation unitB

   up to 0.10%
Additional transaction charge if not settled through the Continuous Net Settlement System of the National Securities Clearing Corporation (NSCC)C    up to 3 times the fixed fee plus up to 0.10%

 

* See “Transaction Fees on Creation and Redemption Transactions” at the end of this Prospectus.

 

A A fixed transaction fee of $2,000 will be charged when you create or redeem Creation Units of the Short Russell 2000 ProShares regardless of the number of shares created or redeemed on the date of the transaction.

 

B A variable transaction fee of up to 0.10% of the value of each Creation Unit will be charged to offset costs associated with the order.

 

C An additional fee of up to 3 times the fixed per order transaction fee plus up to 0.10% of the value of each Creation Unit may be charged if you do not create or redeem shares through the Continuous Net Settlement System of the NSCC, or in circumstances in which cash is substituted for certain securities. Such transactions are allowed at the sole discretion of the Fund.

Annual Fund Operating Expenses (as a percentage of average daily net assets)

 

Investment Advisory Fee

   0.75 %

Distribution and Service (12b-1) fees

   0.00 %

Other expensesA

   0.68 %

Total annual fund operating expenses

   1.43 %

Fee Waivers/ReimbursementsB

   0.48 %
      

Total net annual fund operating expenses

   0.95 %
      

 

A Based on estimated amounts for the current fiscal year.

 

B ProShare Advisors has contractually agreed to waive Investment Advisory and Management Services Fees and to reimburse other expenses to the extent Total Annual Operating Expenses, as a percentage of average daily net assets, exceed 0.95% through May 31, 2007. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular fiscal year may be recouped by ProShare Advisors within five years of the waiver or reimbursement to the extent that recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time.

Example: The following examples are intended to help you compare the cost of investing in shares of the Short Russell 2000 ProShares with the cost of investing in other funds. Investors should note that the following examples are for illustration purposes only and are not meant to suggest actual or expected fees and expenses or

 

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returns, all of which may vary. The Fund issues and redeems shares in Creation Units principally on an in-kind basis for portfolio securities included in the relevant Index and cash. Shares are not redeemable in less than Creation Unit aggregations. The examples do not include the brokerage commissions that secondary market investors may incur to buy and sell shares.

The following example assumes that you invest $10,000 in the Short Russell 2000 ProShares for the time periods indicated and sell all of your shares at the end of those periods, but does not include transaction fees on purchases and redemptions of shares. The example also assumes that your investment has a 5% annual return each year and that the Fund’s annual operating expenses remain exactly as described in the fee table. Although your actual costs may be higher or lower, based on the assumptions, your costs would be:

 

1 year

   $ 97

3 years

   $ 405

Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the Short Russell 2000 ProShares, as of January 16, 2006, is $[    ]. Assuming an investment in a Creation Unit of $[    ] and a 5% return each year, and that an investor pays both the standard $[    ] transaction fee applicable to both the purchase and redemption of the Creation Unit and the maximum variable transaction fee of 0.10% of the value of the Creation Unit, and assuming that the Fund’s gross operating expenses remain the same, the total costs would be $[    ] if the Creation Unit is redeemed after one year and $[    ] if the Creation Unit is redeemed after three years.

 

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Short S&P SmallCap 600 ProShares

Ticker: [    ]

CUSIP: 74347R784

INVESTMENT OBJECTIVE

Short S&P SmallCap 600 ProShares seeks daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the S&P SmallCap 600 Index®.

If Short S&P SmallCap 600 ProShares is successful in meeting its objective, its net asset value should gain approximately the same amount, on a percentage basis, as any decrease in the S&P SmallCap 600 Index (Index) when the Index declines on a given day. Conversely, its net asset value should lose approximately the same amount, on a percentage basis, as any increase in the Index when the Index rises on a given day.

PRINCIPAL INVESTMENT STRATEGY

The Short S&P SmallCap 600 ProShares’ principal investment strategies include:

 

    Taking positions in financial instruments (including derivatives) that ProShare Advisors believes, in combination, should have similar daily price return characteristics as the inverse of the S&P SmallCap 600 Index. Information about the Index can be found on page __.

 

    Committing at least 80% of its assets to investments that, in combination, have economic characteristics that are inverse to those of the Index.

 

    Employing leveraged investment techniques in seeking its investment objective.

 

    Investing assets not invested in financial instruments in debt securities and/or money market instruments.

PRINCIPAL RISK CONSIDERATIONS

The Short S&P SmallCap 600 ProShares is subject to the following principal risks:

 

    Aggressive Investment Technique Risk    The Short S&P SmallCap 600 ProShares uses investment techniques and financial instruments that may be considered aggressive, including the use of futures contracts, options on futures contracts, securities and indices, forward contracts, swap agreements and similar instruments. Such techniques may expose the Fund to potentially dramatic changes (losses) in the value of its portfolio holdings and imperfect correlation to the index underlying the Fund’s benchmark. These techniques also may expose the Fund to risks different from or possibly greater than the risks associated with investing directly in the securities contained in the index underlying the Fund’s benchmark.

 

    Correlation Risk    A number of factors may affect the Short S&P SmallCap 600 ProShares’ ability to achieve a high correlation with its benchmark and there can be no guarantee that the Fund will achieve a high degree of correlation.

 

    Counterparty Risk    The counterparty to a financial instrument may default on its obligations under the related agreement. In this circumstance, the Short S&P SmallCap 600 ProShares may lose money.

 

    Credit Risk    An issuer of debt instruments may be unable to make interest payments and repay principal. Changes in an issuer’s financial strength or in an instrument’s credit rating may affect an instrument’s value and, thus, impact Short S&P SmallCap 600 ProShares’ performance. As described under “Counterparty Risk” above, the Fund will also be subject to credit risk with respect to the amount a Fund expects to receive from counterparties in financial instruments transactions. If a counterparty defaults on its payment obligations to a Fund, the value of your investment in a fund may decline.

 

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    Equity Risk    The equity markets are volatile, and the value of securities, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day.

 

    Inverse Correlation Risk    Shareholders in Short S&P SmallCap 600 ProShares should lose money when the index underlying the Fund’s benchmark rises – a result that is the opposite from traditional equity or bond funds.

 

    Liquidity Risk    In certain circumstances, such as the disruption of the orderly markets for the securities or financial instruments in which the Short S&P SmallCap 600 ProShares invests, the Fund might not be able to dispose of certain holdings quickly or at prices that represent true market value in the judgment of ProShare Advisors. Certain derivative securities such as over-the-counter contracts held by a ProShare may also be illiquid. This may prevent the ProShares from limiting losses, realizing gains, or from achieving a high (inverse) correlation with their underlying benchmark index or security. In addition, a ProShare may not be able to pay redemption proceeds within the time periods described in this Prospectus as a result of unusual market conditions, an unusually high volume of redemption requests or other reasons.

 

    Market Price Variance Risk    The Short S&P SmallCap 600 ProShares’ NAV will fluctuate with changes in the value of its portfolio holdings. Fund shares are listed on the Exchange and are purchased and sold at market prices for shares. Although it is expected that the secondary market price for shares should approximate the Fund’s NAV, there may be times when the market price varies significantly from NAV.

 

    Market Risk    The Short S&P SmallCap 600 ProShares is subject to market risks that will affect the value of its shares, including general economic and market conditions, as well as developments that impact specific economic sectors, industries or companies.

 

    Non-diversification Risk    The Short S&P SmallCap 600 ProShares is considered non-diversified and may invest a relatively high percentage of its assets in the securities of a small number of issuers. In such circumstances, the Fund’s performance may be susceptible to economic, political or regulatory events affecting a single issuer than a more diversified fund.

 

    Repurchase Agreement Risk    Repurchase agreement risk is the risk that the counterparty to the repurchase agreement that sells the securities may default on its obligation to repurchase them. In this circumstance, Short S&P SmallCap 600 ProShares may lose money because: it may not be able to sell the securities at the agreed upon time and price, the securities may lose value before they can be sold, the selling institution may default or declare bankruptcy or the Fund may have difficulty exercising rights to the collateral.

 

    Short Sale Risk    The Short S&P SmallCap 600 ProShares may sell securities short to seek gains when its benchmark index declines or to adjust investment exposure to its benchmark index. The Fund’s use of short sales involves additional transaction costs and other expenses. Under certain market conditions, short sales can increase the volatility, and decrease the liquidity, of a Fund and may lower a Fund’s return or result in a loss.

 

    Small-Cap Company Investment Risk    The risk of equity investing may be particularly acute for securities of issuers with small market capitalization. Small-cap company stocks may trade at greater spreads or lower trading volumes, and may be less liquid, than the stocks of larger companies. Liquidating positions in small-cap companies could become difficult in turbulent market conditions. Small-cap company stocks tend to have greater fluctuations in price than the stocks of large companies. They may have limited product lines, markets, financial resources or personnel. In addition, small-cap companies tend to lack the financial and personnel resources to handle economic or industry-wide setbacks and, as a result, such setbacks could have a greater effect on small-cap security prices.

 

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The Short S&P SmallCap 600 ProShares may be subject to risks in addition to those identified as principal risks. The sections titled “More on Risks” and “Special Risks of Exchange-Traded Funds” later in this Prospectus and the SAI contains additional information about the Fund and related risks.

FUND PERFORMANCE

Performance history will be available for the Short S&P SmallCap 600 ProShares after it has been in operation for a full calendar year.

FEES AND EXPENSES

The following table describes the estimated fees and expenses you may pay when you buy, hold, or sell Creation Units of the Short S&P SmallCap 600 ProShares. Annual fund operating expenses are estimates. Investors purchasing shares in the secondary market will not pay the shareholder fees shown below, but may be subject to costs (including customary brokerage commissions) charged by their broker.

Shareholder Fees (paid directly by Authorized Participants) *

 

Sales charges (loads)

   None

Fixed transaction fee per orderA

   $500

Variable transaction fee per creation unitB

   up to 0.10%
Additional transaction charge if not settled through the Continuous Net Settlement System of the National Securities Clearing Corporation (NSCC)C    up to 3 times the fixed fee plus up to 0.10%

 

* See “Transaction Fees on Creation and Redemption Transactions” at the end of this Prospectus.

 

A A fixed transaction fee of $500 will be charged when you create or redeem Creation Units of the Short S&P SmallCap 600 ProShares regardless of the number of shares created or redeemed on the date of the transaction.

 

B A variable transaction fee of up to 0.10% of the value of each Creation Unit will be charged to offset costs associated with the order.

 

C An additional fee of up to 3 times the fixed per order transaction fee plus up to 0.10% of the value of each Creation Unit may be charged if you do not create or redeem shares through the Continuous Net Settlement System of the NSCC, or in circumstances in which cash is substituted for certain securities. Such transactions are allowed at the sole discretion of the Fund.

Annual Fund Operating Expenses (as a percentage of average daily net assets)

 

Investment Advisory Fee

   0.75 %

Distribution and Service (12b-1) fees

   0.00 %

Other expensesA

   0.61 %

Total annual fund operating expenses

   1.36 %

Fee Waivers/ReimbursementsB

   0.41 %
      

Total net annual fund operating expenses

   0.95 %
      

 

A Based on estimated amounts for the current fiscal year.

 

B ProShare Advisors has contractually agreed to waive Investment Advisory and Management Services Fees and to reimburse other expenses to the extent Total Annual Operating Expenses, as a percentage of average daily net assets, exceed 0.95% through May 31, 2007. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular fiscal year may be recouped by ProShare Advisors within five years of the waiver or reimbursement to the extent that recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time.

 

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Example: The following examples are intended to help you compare the cost of investing in shares of the Short S&P SmallCap 600 ProShares with the cost of investing in other funds. Investors should note that the following examples are for illustration purposes only and are not meant to suggest actual or expected fees and expenses or returns, all of which may vary. The Fund issues and redeems shares in Creation Units principally on an in-kind basis for portfolio securities included in the relevant Index and cash. Shares are not redeemable in less than Creation Unit aggregations. The examples do not include the brokerage commissions that secondary market investors may incur to buy and sell shares.

The following example assumes that you invest $10,000 in the Short S&P SmallCap 600 ProShares for the time periods indicated and sell all of your shares at the end of those periods, but does not include transaction fees on purchases and redemptions of shares. The example also assumes that your investment has a 5% annual return each year and that the Fund’s annual operating expenses remain exactly as described in the fee table. Although your actual costs may be higher or lower, based on the assumptions, your costs would be:

 

1 year

   $ 97

3 years

   $ 390

Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the Short S&P SmallCap 600 ProShares, as of January 16, 2006, is $[    ]. Assuming an investment in a Creation Unit of $[    ] and a 5% return each year, and that an investor pays both the standard $[    ] transaction fee applicable to both the purchase and redemption of the Creation Unit and the maximum variable transaction fee of 0.10% of the value of the Creation Unit, and assuming that the Fund’s gross operating expenses remain the same, the total costs would be $[    ] if the Creation Unit is redeemed after one year and $[    ] if the Creation Unit is redeemed after three years.

 

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Short S&P500/Citigroup Value ProShares

Ticker: [    ]

CUSIP: [    ]

INVESTMENT OBJECTIVE

Short S&P500/Citigroup Value ProShares seeks daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the S&P 500/Citigroup Value Index.

If Short S&P500/Citigroup Value ProShares is successful in meeting its objective, its net asset value should gain approximately the same amount, on a percentage basis, as any decrease in the S&P 500/Citigroup Value Index (Index) when the Index declines on a given day. Conversely, its net asset value should lose approximately the same amount, on a percentage basis, as any increase in the Index when the Index rises on a given day.

PRINCIPAL INVESTMENT STRATEGY

The Short S&P500/Citigroup Value ProShares’ principal investment strategies include:

 

    Taking positions in financial instruments (including derivatives) that ProShare Advisors believes, in combination, should have similar daily price return characteristics as the inverse of the S&P 500/Citigroup Value Index. Information about the Index can be found on page __.

 

    Committing at least 80% of its assets to investments that, in combination, have economic characteristics that are inverse to those of the Index.

 

    Employing leveraged investment techniques in seeking its investment objective.

 

    Investing assets not invested in financial instruments in debt securities and/or money market instruments.

 

    The Fund will concentrate its investments in a particular industry or group of industries to approximately the same extent as the Index is so concentrated. As of the close of business on September 30, 2006, the Index was concentrated in the financials industry group, which comprised approximately 33% of the market capitalization of the Index

PRINCIPAL RISK CONSIDERATIONS

The Short S&P500/Citigroup Value ProShares is subject to the following principal risks:

 

    Aggressive Investment Technique Risk    The Short S&P500/Citigroup Value ProShares uses investment techniques and financial instruments that may be considered aggressive, including the use of futures contracts, options on futures contracts, securities and indices, forward contracts, swap agreements and similar instruments. Such techniques may expose the Fund to potentially dramatic changes (losses) in the value of its portfolio holdings and imperfect correlation to the index underlying the Fund’s benchmark. These techniques also may expose the Fund to risks different from or possibly greater than the risks associated with investing directly in the securities contained in the index underlying the Fund’s benchmark.

 

    Correlation Risk    A number of factors may affect the Short S&P500/Citigroup Value ProShares’ ability to achieve a high correlation with its benchmark and there can be no guarantee that the Fund will achieve a high degree of correlation.

 

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    Counterparty Risk    The counterparty to a financial instrument may default on its obligations under the related agreement. In this circumstance, the Short S&P500/Citigroup Value ProShares may lose money.

 

    Credit Risk    An issuer of debt instruments may be unable to make interest payments and repay principal. Changes in an issuer’s financial strength or in an instrument’s credit rating may affect an instrument’s value and, thus, impact Short S&P500/Citigroup Value ProShares’ performance. As described under “Counterparty Risk” above, the Fund will also be subject to credit risk with respect to the amount a Fund expects to receive from counterparties in financial instruments transactions. If a counterparty defaults on its payment obligations to a Fund, the value of your investment in a fund may decline.

 

    Equity Risk    The equity markets are volatile, and the value of securities, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day.

 

    Inverse Correlation Risk    Shareholders in Short S&P500/Citigroup Value ProShares should lose money when the index underlying the Fund’s benchmark rises – a result that is the opposite from traditional equity or bond funds.

 

    Liquidity Risk    In certain circumstances, the Short S&P500/Citigroup Value ProShares may not be able to dispose of positions within a reasonable time at a fair price.

 

    Market Price Variance Risk    The Short S&P500/Citigroup Value ProShares’ NAV will fluctuate with changes in the value of its portfolio holdings. Fund shares are listed on the Exchange and are purchased and sold at market prices for shares. Although it is expected that the secondary market price for shares should approximate the Fund’s NAV, there may be times when the market price varies significantly from NAV.

 

    Market Risk    The Short S&P500/Citigroup Value ProShares is subject to market risks that will affect the value of its shares, including general economic and market conditions, as well as developments that impact specific economic sectors, industries or companies.

 

    Non-diversification Risk    The Short S&P500/Citigroup Value ProShares is considered non-diversified and may invest a relatively high percentage of its assets in the securities of a small number of issuers. In such circumstances, the Fund’s performance may be susceptible to economic, political or regulatory events affecting a single issuer than a more diversified fund.

 

    Repurchase Agreement Risk    Repurchase agreement risk is the risk that the counterparty to the repurchase agreement that sells the securities may default on its obligation to repurchase them. In this circumstance, Short S&P500/Citigroup Value ProShares may lose money because: it may not be able to sell the securities at the agreed upon time and price, the securities may lose value before they can be sold, the selling institution may default or declare bankruptcy or the Fund may have difficulty exercising rights to the collateral.

 

    Short Sale Risk    The Short S&P500/Citigroup Value ProShares may sell securities short to seek gains when its benchmark index declines or to adjust investment exposure to its benchmark index. The Fund’s use of short sales involves additional transaction costs and other expenses. Under certain market conditions, short sales can increase the volatility, and decrease the liquidity, of a Fund and may lower a Fund’s return or result in a loss.

 

    Value Investing Risk    Value investing carries the risk that the market will not recognize a security’s intrinsic value for a longtime, or that a stock deemed to be undervalued may actually be appropriately priced or overvalued. “Value” stocks can react differently to issuer, political, market and economic developments than the market as a whole.

 

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The Short S&P500/Citigroup Value ProShares may be subject to risks in addition to those identified as principal risks. The sections titled “More on Risks” and “Special Risks of Exchange-Traded Funds” later in this Prospectus and the SAI contains additional information about the Fund and related risks.

FUND PERFORMANCE

Performance history will be available for the Short S&P500/Citigroup Value ProShares after it has been in operation for a full calendar year.

FEES AND EXPENSES

The following table describes the estimated fees and expenses you may pay when you buy, hold, or sell Creation Units of the Short S&P500/Citigroup Value ProShares. Annual fund operating expenses are estimates. Investors purchasing shares in the secondary market will not pay the shareholder fees shown below, but may be subject to costs (including customary brokerage commissions) charged by their broker.

Shareholder Fees (paid directly by Authorized Participants)*

 

Sales charges (loads)

   None

Fixed transaction fee per orderA

   $500

Variable transaction fee per creation unitB

   up to 0.10%
Additional transaction charge if not settled through the Continuous Net Settlement System of the National Securities Clearing Corporation (NSCC)C   

up to 3 times the fixed

fee plus up to 0.10%

 

* See “Transaction Fees on Creation and Redemption Transactions” at the end of this Prospectus.

 

A A fixed transaction fee of $500 will be charged when you create or redeem Creation Units of the Short S&P500/Citigroup Value ProShares regardless of the number of shares created or redeemed on the date of the transaction.

 

B A variable transaction fee of up to 0.10% of the value of each Creation Unit will be charged to offset costs associated with the order.

 

C An additional fee of up to 3 times the fixed per order transaction fee plus up to 0.10% of the value of each Creation Unit may be charged if you do not create or redeem shares through the Continuous Net Settlement System of the NSCC, or in circumstances in which cash is substituted for certain securities. Such transactions are allowed at the sole discretion of the Fund.

Annual Fund Operating Expenses (as a percentage of average daily net assets)

 

Investment Advisory Fee

   0.75 %

Distribution and Service (12b-1) fees

   0.00 %

Other expenses A

   0.68 %

Total annual fund operating expenses

   1.43 %

Fee Waivers/Reimbursements B

   0.48 %
      

Total net annual fund operating expenses

   0.95 %
      

 

A Based on estimated amounts for the current fiscal year.

 

B ProShare Advisors has contractually agreed to waive Investment Advisory and Management Services Fees and to reimburse other expenses to the extent Total Annual Operating Expenses, as a percentage of average daily net assets, exceed 0.95% through May 31, 2007. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular fiscal year may be recouped by ProShare Advisors within five years of the waiver or reimbursement to the extent that recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time.

 

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Example: The following examples are intended to help you compare the cost of investing in shares of the Short S&P500/Citigroup Value ProShares with the cost of investing in other funds. Investors should note that the following examples are for illustration purposes only and are not meant to suggest actual or expected fees and expenses or returns, all of which may vary. The Fund issues and redeems shares in Creation Units principally on an in-kind basis for portfolio securities included in the relevant Index and cash. Shares are not redeemable in less than Creation Unit aggregations. The examples do not include the brokerage commissions that secondary market investors may incur to buy and sell shares.

The following example assumes that you invest $10,000 in the Fund for the time periods indicated and sell all of your shares at the end of those periods, but does not include transaction fees on purchases and redemptions of shares. The example also assumes that your investment has a 5% annual return each year and that the Fund’s annual operating expenses remain exactly as described in the fee table. Although your actual costs may be higher or lower, based on the assumptions, your costs would be:

 

1 year

   $ 97

3 years

   $ 405

Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the Short S&P500/Citigroup Value ProShares, as of January 16, 2006, is $[    ]. Assuming an investment in a Creation Unit of $[    ] and a 5% return each year, and that an investor pays both the standard $[    ] transaction fee applicable to both the purchase and redemption of the Creation Unit and the maximum variable transaction fee of 0.10% of the value of the Creation Unit, and assuming that the Fund’s gross operating expenses remain the same, the total costs would be $[    ] if the Creation Unit is redeemed after one year and $[    ] if the Creation Unit is redeemed after three years.

 

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Short S&P500/Citigroup Growth ProShares

Ticker: [    ]

CUSIP: [    ]

INVESTMENT OBJECTIVE

Short S&P500/Citigroup Growth ProShares seeks daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the S&P 500/Citigroup Growth Index.

If Short S&P500/Citigroup Growth ProShares is successful in meeting its objective, its net asset value should gain approximately the same amount, on a percentage basis, as any decrease in the S&P 500/Citigroup Growth Index (Index) when the Index declines on a given day. Conversely, its net asset value should lose approximately the same amount, on a percentage basis, as any increase in the Index when the Index rises on a given day.

PRINCIPAL INVESTMENT STRATEGY

The Short S&P500/Citigroup Growth ProShares’ principal investment strategies include:

 

    Taking positions in financial instruments (including derivatives) that ProShare Advisors believes, in combination, should have similar daily price return characteristics as the inverse of the S&P 500/Citigroup Growth Index. Information about the Index can be found on page __.

 

    Committing at least 80% of its assets to investments that, in combination, have economic characteristics that are inverse to those of the Index.

 

    Employing leveraged investment techniques in seeking its investment objective.

 

    Investing assets not invested in financial instruments in debt securities and/or money market instruments.

PRINCIPAL RISK CONSIDERATIONS

The Short S&P500/Citigroup Growth ProShares is subject to the following principal risks:

 

    Aggressive Investment Technique Risk    The Short S&P500/Citigroup Growth ProShares uses investment techniques and financial instruments that may be considered aggressive, including the use of futures contracts, options on futures contracts, securities and indices, forward contracts, swap agreements and similar instruments. Such techniques may expose the Fund to potentially dramatic changes (losses) in the value of its portfolio holdings and imperfect correlation to the index underlying the Fund’s benchmark. These techniques also may expose the Fund to risks different from or possibly greater than the risks associated with investing directly in the securities contained in the index underlying the Fund’s benchmark.

 

    Correlation Risk    A number of factors may affect the Short S&P500/Citigroup Growth ProShares’ ability to achieve a high correlation with its benchmark and there can be no guarantee that the Fund will achieve a high degree of correlation.

 

    Counterparty Risk    The counterparty to a financial instrument may default on its obligations under the related agreement. In this circumstance, the Short S&P500/Citigroup Growth ProShares may lose money.

 

    Credit Risk    An issuer of debt instruments may be unable to make interest payments and repay principal. Changes in an issuer’s financial strength or in an instrument’s credit rating may affect an instrument’s value and, thus, impact Short S&P500/Citigroup Growth ProShares’ performance. As described under “Counterparty Risk” above, the Fund will also be subject to credit risk with respect to the amount a Fund expects to receive from counterparties in financial instruments transactions. If a counterparty defaults on its payment obligations to a Fund, the value of your investment in a fund may decline.

 

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    Equity Risk    The equity markets are volatile, and the value of securities, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day.

 

    Growth Investing Risk    An investment in growth stocks may be susceptible to rapid price swings, especially during periods of economic uncertainty. Growth stocks typically have little or no dividend income to cushion the effect of adverse market conditions and may be particularly volatile in the event of earnings disappointments or other financial difficulties experienced by the issuer.

 

    Inverse Correlation Risk    Shareholders in Short S&P500/Citigroup Growth ProShares should lose money when the index underlying the Fund’s benchmark rises – a result that is the opposite from traditional equity or bond funds.

 

    Liquidity Risk    In certain circumstances, the Short S&P500/Citigroup Growth ProShares may not be able to dispose of positions within a reasonable time at a fair price.

 

    Market Price Variance Risk    The Short S&P500/Citigroup Growth ProShares’ NAV will fluctuate with changes in the value of its portfolio holdings. Fund shares are listed on the Exchange and are purchased and sold at market prices for shares. Although it is expected that the secondary market price for shares should approximate the Fund’s NAV, there may be times when the market price varies significantly from NAV.

 

    Market Risk    The Short S&P500/Citigroup Growth ProShares is subject to market risks that will affect the value of its shares, including general economic and market conditions, as well as developments that impact specific economic sectors, industries or companies.

 

    Non-diversification Risk    The Short S&P500/Citigroup Growth ProShares is considered non-diversified and may invest a relatively high percentage of its assets in the securities of a small number of issuers. In such circumstances, the Fund’s performance may be susceptible to economic, political or regulatory events affecting a single issuer than a more diversified fund.

 

    Repurchase Agreement Risk    Repurchase agreement risk is the risk that the counterparty to the repurchase agreement that sells the securities may default on its obligation to repurchase them. In this circumstance, Short S&P500/Citigroup Growth ProShares may lose money because: it may not be able to sell the securities at the agreed upon time and price, the securities may lose value before they can be sold, the selling institution may default or declare bankruptcy or the Fund may have difficulty exercising rights to the collateral.

 

    Short Sale Risk    The Short S&P500/Citigroup Growth ProShares may sell securities short to seek gains when its benchmark index declines or to adjust investment exposure to its benchmark index. The Fund’s use of short sales involves additional transaction costs and other expenses. Under certain market conditions, short sales can increase the volatility, and decrease the liquidity, of a Fund and may lower a Fund’s return or result in a loss.

The Short S&P500/Citigroup Growth ProShares may be subject to risks in addition to those identified as principal risks. The sections titled “More on Risks” and “Special Risks of Exchange-Traded Funds” later in this Prospectus and the SAI contains additional information about the Fund and related risks.

FUND PERFORMANCE

Performance history will be available for the Short S&P500/Citigroup Growth ProShares after it has been in operation for a full calendar year.

 

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FEES AND EXPENSES

The following table describes the estimated fees and expenses you may pay when you buy, hold, or sell Creation Units of the Short S&P500/Citigroup Growth ProShares. Annual fund operating expenses are estimates. Investors purchasing shares in the secondary market will not pay the shareholder fees shown below, but may be subject to costs (including customary brokerage commissions) charged by their broker.

Shareholder Fees (paid directly by Authorized Participants)*

 

Sales charges (loads)    None
Fixed transaction fee per orderA    $500
Variable transaction fee per creation unitB    up to 0.10%
Additional transaction charge if not settled through the Continuous Net Settlement System of the National Securities Clearing Corporation (NSCC)C    up to 3 times the fixed fee plus up to 0.10%

 

* See “Transaction Fees on Creation and Redemption Transactions” at the end of this Prospectus.

 

A A fixed transaction fee of $500 will be charged when you create or redeem Creation Units of the Short S&P500/Citigroup Growth ProShares regardless of the number of shares created or redeemed on the date of the transaction.

 

B A variable transaction fee of up to 0.10% of the value of each Creation Unit will be charged to offset costs associated with the order.

 

C An additional fee of up to 3 times the fixed per order transaction fee plus up to 0.10% of the value of each Creation Unit may be charged if you do not create or redeem shares through the Continuous Net Settlement System of the NSCC, or in circumstances in which cash is substituted for certain securities. Such transactions are allowed at the sole discretion of the Fund.

Annual Fund Operating Expenses (as a percentage of average daily net assets)

 

Investment Advisory Fee

   0.75 %

Distribution and Service (12b-1) fees

   0.00 %

Other expensesA

   0.68 %

Total annual fund operating expenses

   1.43 %

Fee Waivers/ReimbursementsB

   0.48 %
      

Total net annual fund operating expenses

   0.95 %
      

 

A Based on estimated amounts for the current fiscal year.

 

B ProShare Advisors has contractually agreed to waive Investment Advisory and Management Services Fees and to reimburse other expenses to the extent Total Annual Operating Expenses, as a percentage of average daily net assets, exceed 0.95% through May 31, 2007. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular fiscal year may be recouped by ProShare Advisors within five years of the waiver or reimbursement to the extent that recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time.

Example: The following examples are intended to help you compare the cost of investing in shares of the Short S&P500/Citigroup Growth ProShares with the cost of investing in other funds. Investors should note that the following examples are for illustration purposes only and are not meant to suggest actual or expected fees and expenses or returns, all of which may vary. The Fund issues and redeems shares in Creation Units principally on an in-kind basis for portfolio securities included in the relevant Index and cash. Shares are not redeemable in less than Creation Unit aggregations. The examples do not include the brokerage commissions that secondary market investors may incur to buy and sell shares.

 

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The following example assumes that you invest $10,000 in the Short S&P500/Citigroup Growth ProShares for the time periods indicated and sell all of your shares at the end of those periods, but does not include transaction fees on purchases and redemptions of shares. The example also assumes that your investment has a 5% annual return each year and that the Fund’s annual operating expenses remain exactly as described in the fee table. Although your actual costs may be higher or lower, based on the assumptions, your costs would be:

 

1 year

   $ 97

3 years

   $ 405

Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the Short S&P500/Citigroup Growth ProShares, as of January 16, 2006, is $[    ]. Assuming an investment in a Creation Unit of $[    ] and a 5% return each year, and that an investor pays both the standard $[    ] transaction fee applicable to both the purchase and redemption of the Creation Unit and the maximum variable transaction fee of 0.10% of the value of the Creation Unit, and assuming that the Fund’s gross operating expenses remain the same, the total costs would be $[    ] if the Creation Unit is redeemed after one year and $[    ] if the Creation Unit is redeemed after three years.

 

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Short S&P MidCap 400/Citigroup Value ProShares

Ticker: [    ]

CUSIP: [    ]

INVESTMENT OBJECTIVE

Short S&P MidCap 400/Citigroup Value ProShares seeks daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the S&P MidCap 400/Citigroup Value Index.

If Short S&P MidCap 400/Citigroup Value ProShares is successful in meeting its objective, its net asset value should gain approximately the same amount, on a percentage basis, as any decrease in the S&P MidCap 400/Citigroup Value Index (Index) when the Index declines on a given day. Conversely, its net asset value should lose approximately the same amount, on a percentage basis, as any increase in the Index when the Index rises on a given day.

PRINCIPAL INVESTMENT STRATEGY

The Short S&P MidCap 400/Citigroup Value ProShares’ principal investment strategies include:

 

    Taking positions in financial instruments (including derivatives) that ProShare Advisors believes, in combination, should have similar daily price return characteristics as the inverse of the S&P MidCap 400/Citigroup Value Index. Information about the Index can be found on page __.

 

    Committing at least 80% of its assets to investments that, in combination, have economic characteristics that are inverse to those of the Index.

 

    Employing leveraged investment techniques in seeking its investment objective.

 

    Investing assets not invested in financial instruments in debt securities and/or money market instruments.

 

    The Fund will concentrate its investments in a particular industry or group of industries to approximately the same extent as the Index is so concentrated. As of the close of business on September 30, 2006, the Index was concentrated in the financials industry group, which comprised approximately 25% of the market capitalization of the Index

PRINCIPAL RISK CONSIDERATIONS

The Short S&P MidCap 400/Citigroup Value ProShares is subject to the following principal risks: