485APOS 1 d485apos.htm 485APOS 485APOS
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As filed with the Securities and Exchange Commission on June 15, 2007

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. 4   
And/Or   
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940    x
Amendment No. 11   

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 copies to:

 

John Loder, Esq.

c/o Ropes and Gray LLP

One International Place

Boston, MA 02110-2624

 

Stuart M. Strauss

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:

 

¨ 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)

 

x 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 NASDAQ Biotechnology ProShares, Ultra Dow Jones Select Biotechnology ProShares, Ultra Dow Jones Select Telecommunications ProShares, Short NASDAQ Biotechnology ProShares, Short Dow Jones Select Biotechnology ProShares, Short Dow Jones Select Telecommunications ProShares, Short MSCI Emerging Markets ProShares, Short MSCI Japan ProShares, Short MSCI EAFE ProShares, Short FTSE/Xinhua China 25 ProShares, Short Lehman Brothers 7-10 Year U.S. Treasury ProShares, Short Lehman Brothers 20+ Year U.S. Treasury ProShares, Short iBoxx $ Liquid Investment Grade ProShares, Short iBoxx $ Liquid High Yield ProShares, UltraShort NASDAQ Biotechnology ProShares, UltraShort Dow Jones Select Biotechnology ProShares, UltraShort Dow Jones Select Telecommunications ProShares, UltraShort MSCI Emerging Markets ProShares, UltraShort MSCI Japan ProShares, UltraShort MSCI EAFE ProShares, UltraShort FTSE/Xinhua China 25 ProShares, UltraShort Lehman Brothers 7-10 Year U.S. Treasury ProShares, UltraShort Lehman Brothers 20+ Year U.S. Treasury ProShares, UltraShort iBoxx $ Liquid Investment Grade ProShares and UltraShort iBoxx $ Liquid High Yield 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 ProShares    Short ProShares
Ultra NASDAQ Biotechnology    Short NASDAQ Biotechnology
Ultra Dow Jones Select Biotechnology    Short Dow Jones Select Biotechnology
Ultra Dow Jones Select Telecommunications    Short Dow Jones Select Telecommunications
   Short MSCI Emerging Markets
   Short MSCI Japan
   Short MSCI EAFE
   Short FTSE/Xinhua China 25
   UltraShort NASDAQ Biotechnology
   UltraShort Dow Jones Select Biotechnology
   UltraShort Dow Jones Select Telecommunications
   UltraShort MSCI Emerging Markets
   UltraShort MSCI Japan
   UltraShort MSCI EAFE
   UltraShort FTSE/Xinhua China 25
   Short Non-Equity ProShares
   Short Lehman Brothers 7-10 Year U.S. Treasury
   Short Lehman Brothers 20+ Year U.S. Treasury
   Short iBoxx $ Liquid Investment Grade
   Short iBoxx $ Liquid High Yield
   UltraShort Lehman Brothers 7-10 Year U.S. Treasury
   UltraShort Lehman Brothers 20+ Year U.S. Treasury
   UltraShort iBoxx $ Liquid Investment Grade
   UltraShort iBoxx $ Liquid High Yield

Prospectus

ProShares Trust

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.

[August 31], 2007

Distributor: SEI Investments Distribution Co.

ProSharesTM


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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    20
More on Investment Objectives, Strategies and Risks    115
Creation and Redemption of Creation Units    127
Purchasing Shares Directly From A Fund    127
Redeeming Shares Directly From A Fund    129
Transaction Fees on Creation and Redemption Transactions    130
Distributions    131
Dividend Reinvestment Service    131
Determination of NAV    131
Basic Tax Points    132
Management of ProShares Trust    133

[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 Name

  

Index

  

Benchmark1

Ultra NASDAQ Biotechnology    NASDAQ Biotechnology Index®    Double (200%)
Ultra Dow Jones Select Biotechnology    Dow Jones Select Biotechnology IndexSM    Double (200%)
Ultra Dow Jones Select Telecommunications    Dow Jones Select Telecommunications IndexSM    Double (200%)

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 utilize the performance of a multiple of an index as their benchmark. For example, Ultra NASDAQ Biotechnology ProShares has a daily benchmark of twice the daily return of the NASDAQ Biotechnology Index.

 

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Ultra NASDAQ Biotechnology ProShares

Ticker: [ ]

CUSIP: [ ]

INVESTMENT OBJECTIVE

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

If Ultra NASDAQ Biotechnology ProShares is successful in meeting its objective, its net asset value should gain approximately twice as much, on a percentage basis, as the NASDAQ Biotechnology 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 NASDAQ 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 NASDAQ 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. As of close of business March 31, 2007, the Index was concentrated in the Medical-Biomedical/Gene industry group, which comprised approximately 48.10% of the market capitalization of the index.

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

 

   

Aggressive Investment Technique Risk The Ultra NASDAQ 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.

 

   

Concentration Risk The Ultra NASDAQ 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.

 

   

Correlation Risk A number of factors may affect the Ultra NASDAQ 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 NASDAQ Biotechnology 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 NASDAQ 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.

 

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Leverage Risk The Ultra NASDAQ 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 Ultra NASDAQ Biotechnology 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 Dow Jones Select Biotechnology ProShares invests, the Fund might not be able to dispose of positions within a reasonable time at a fair price.

 

   

Market Price Variance Risk The Ultra NASDAQ 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. 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 Ultra NASDAQ 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 Ultra NASDAQ 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 NASDAQ 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 NASDAQ 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 NASDAQ 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. Moreover, stock prices of biotechnology companies are very volatile, particularly when their products are up for regulatory approval and/or under regulatory scrutiny.

The Ultra NASDAQ 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 Statement of Additional Information (“SAI”) contains additional information about the Fund and related risks.

FUND PERFORMANCE

Performance history will be available for the Ultra NASDAQ Biotechnology 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 NASDAQ 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.

Shareholder Fees (paid directly by Authorized Participants) *

 

Sales charges (loads)    None
Fixed transaction fee per orderA    $[ ]
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 NASDAQ 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

   [   ]%
      

Total annual fund operating expenses

   [   ]%

Fee Waivers/Reimbursements B

   [   ]%
      

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 [        ], 2008. 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 NASDAQ 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.

 

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The following example assumes that you invest $10,000 in the Ultra NASDAQ 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

   $ [   ]

3 years

   $ [   ]

Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the Ultra NASDAQ Biotechnology ProShares, as of [ ], 2007, 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 Dow Jones Select Biotechnology ProShares

Ticker: [ ]

CUSIP: [ ]

INVESTMENT OBJECTIVE

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

If Ultra Dow Jones Select 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 Select Biotechnology 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 Dow Jones Select 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 Select 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. As of close of business March 31, 2007, the Index was concentrated in the [ ] industry groups, which comprised approximately [ ]% of the market capitalization of the index.

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

 

   

Aggressive Investment Technique Risk The Ultra Dow Jones Select 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.

 

   

Concentration Risk The Ultra Dow Jones Select 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.

 

   

Correlation Risk A number of factors may affect the Ultra Dow Jones Select 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 Dow Jones Select Biotechnology 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 Dow Jones Select 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.

 

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Leverage Risk The Ultra Dow Jones Select 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.

 

   

Liquidity Risk In certain circumstances, the Ultra Dow Jones Select Biotechnology ProShares invests, the Fund might not be able to dispose of positions within a reasonable time at a fair price.

 

   

Market Price Variance Risk The Ultra Dow Jones Select 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 Dow Jones Select 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 Dow Jones Select 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 Dow Jones Select 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 Dow Jones Select 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 Dow Jones Select 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. Moreover, stock prices of biotechnology companies are very volatile, particularly when their products are up for regulatory approval and/or under regulatory scrutiny.

The Ultra Dow Jones Select 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 Dow Jones Select Biotechnology 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 Dow Jones Select 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.

Shareholder Fees (paid directly by Authorized Participants) *

 

Sales charges (loads)    None
Fixed transaction fee per orderA    $[ ]
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 Dow Jones Select 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

   [   ]%
      

Total annual fund operating expenses

   [   ]%

Fee Waivers/Reimbursements B

   [   ]%
      

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 [        ], 2008. 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 Dow Jones Select 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.

 

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The following example assumes that you invest $10,000 in the Ultra Dow Jones Select 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

   $ [   ]

3 years

   $ [   ]

Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the Ultra Dow Jones Select Biotechnology ProShares, as of [ ], 2007, 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 Dow Jones Select Telecommunications ProShares

Ticker: [ ]

CUSIP: [ ]

INVESTMENT OBJECTIVE

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

If Ultra Dow Jones Select 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 Select 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 Dow Jones Select 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 Select 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 March 31, 2007, the Index was concentrated in the fixed line telecommunications, and mobile telecommunications industry groups, which comprised approximately 71.52% and 26.17% respectively of the market capitalization of the Index.

The Ultra Dow Jones Select 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 Ultra Dow Jones Select Telecommunications 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 Dow Jones Select Telecommunications ProShares is subject to the following principal risks:

 

   

Aggressive Investment Technique Risk The Ultra Dow Jones Select 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.

 

   

Concentration Risk The Ultra Dow Jones Select 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.

 

   

Correlation Risk A number of factors may affect the Ultra Dow Jones Select 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 Dow Jones Select Telecommunications 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 Dow Jones Select 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.

 

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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.

 

   

Leverage Risk The Ultra Dow Jones Select 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.

 

   

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

 

   

Market Price Variance Risk The Ultra Dow Jones Select 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 Dow Jones Select 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 Dow Jones Select 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.

 

   

Volatility Risk Ultra Dow Jones Select 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 Dow Jones Select 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 Dow Jones Select 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 Dow Jones Select 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 Dow Jones Select 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    $[ ]
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 Dow Jones Select 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 expenses A

   [   ]%
      

Total annual fund operating expenses

   [   ]%

Fee Waivers/Reimbursements B

   [   ]%
      

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 [        ], 2008. 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 Dow Jones Select 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 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

   $ [   ]

3 years

   $ [   ]

 

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Table of Contents

Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the Ultra Dow Jones Select Telecommunications ProShares, as of [ ], 2007, 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

Short NASDAQ Biotechnology    NASDAQ Biotechnology Index®    100% of the Inverse
Short Dow Jones Select Biotechnology    Dow Jones Select Biotechnology IndexSM    100% of the Inverse
Short Dow Jones Select Telecommunications    Dow Jones Select Telecommunications IndexSM    100% of the Inverse
Short MSCI Emerging Markets    MSCI Emerging Markets Index    100% of the Inverse
Short MSCI Japan    MSCI Japan Index    100% of the Inverse
Short MSCI EAFE    MSCI EAFE Index®    100% of the Inverse
Short FTSE/Xinhua China 25    FTSE/Xinhua China 25 Index    100% of the Inverse
UltraShort NASDAQ Biotechnology    NASDAQ Biotechnology Index®    200% of the Inverse
UltraShort Dow Jones Select Biotechnology    Dow Jones Select Biotechnology IndexSM    200% of the Inverse
UltraShort Dow Jones Select Telecommunications    Dow Jones Select Telecommunications IndexSM    200% of the Inverse
UltraShort MSCI Emerging Markets    MSCI Emerging Markets Index    200% of the Inverse
UltraShort MSCI Japan    MSCI Japan Index    200% of the Inverse
UltraShort MSCI EAFE    MSCI EAFE Index®    200% of the Inverse
UltraShort FTSE/Xinhua China 25    FTSE/Xinhua China 25 Index    200% of the Inverse

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.

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 correlate its performance. Short ProShares utilize the performance of an inverse of an index or an inverse multiple of an index as their benchmark. For example, UltraShort NASDAQ Biotechnology ProShares has a daily benchmark of twice the inverse of the daily return of the NASDAQ Biotechnology Index.

 

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Short NASDAQ Biotechnology ProShares

Ticker: [ ]

CUSIP: [ ]

INVESTMENT OBJECTIVE

Short NASDAQ Biotechnology ProShares seeks daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the NASDAQ Biotechnology Index.

If Short NASDAQ Biotechnology 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 NASDAQ Biotechnology 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 NASDAQ Biotechnology 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 NASDAQ Biotechnology 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 close of business March 31, 2007, the Index was concentrated in the Medical-Biomedical/Gene industry group, which comprised approximately 48.10% of the market capitalization of the index.

PRINCIPAL RISK CONSIDERATIONS

The Short NASDAQ Biotechnology ProShares is subject to the following principal risks:

 

   

Aggressive Investment Technique Risk The Short NASDAQ 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.

 

   

Concentration Risk The Short NASDAQ 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.

 

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Correlation Risk A number of factors may affect the Short NASDAQ 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 Short NASDAQ Biotechnology 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 NASDAQ 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.

 

   

Inverse Correlation Risk Shareholders in Short NASDAQ Biotechnology 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 NASDAQ Biotechnology ProShares may not be able to dispose of portfolio investments within a reasonable time at a fair price.

 

   

Market Price Variance Risk The Short NASDAQ 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. 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 NASDAQ 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 Short NASDAQ 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.

 

   

Short Sale Risk The Short NASDAQ Biotechnology 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 NASDAQ 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 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 NASDAQ 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 Short NASDAQ 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.

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%

 

* 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 NASDAQ 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.

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

   [   ]%
      

Total annual fund operating expenses

   [   ]%

Fee Waivers/Reimbursements B

   [   ]%
      

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 [        ], 2008. 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 NASDAQ 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 Short NASDAQ 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    $ [   ]
3 years    $ [   ]

 

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Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the Short NASDAQ Biotechnology ProShares, as of [ ], 2007, 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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Table of Contents

Short Dow Jones Select Biotechnology ProShares

Ticker: [ ]

CUSIP: [ ]

INVESTMENT OBJECTIVE

Short Dow Jones Select Biotechnology ProShares seeks daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the Dow Jones Select Biotechnology Index.

If Short Dow Jones Select Biotechnology 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 Dow Jones Select Biotechnology 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 Dow Jones Select Biotechnology 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 Dow Jones Select Biotechnology 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 close of business March 31, 2007, the Index was concentrated in the [ ] industry groups, which comprised approximately [ ]% of the market capitalization of the index.

PRINCIPAL RISK CONSIDERATIONS

The Short Dow Jones Select Biotechnology ProShares is subject to the following principal risks:

 

   

Aggressive Investment Technique Risk The Short Dow Jones Select 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.

 

   

Concentration Risk The Short Dow Jones Select 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.

 

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Correlation Risk A number of factors may affect the Short Dow Jones Select 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 Short Dow Jones Select Biotechnology 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 Dow Jones Select 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.

 

   

Inverse Correlation Risk Shareholders in Short Dow Jones Select Biotechnology 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 Dow Jones Select Biotechnology 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 Dow Jones Select 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 Short Dow Jones Select 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 Short Dow Jones Select 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.

 

   

Short Sale Risk The Short Dow Jones Select Biotechnology 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.

 

26


Table of Contents

The Short Dow Jones Select 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 Short Dow Jones Select 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 Short Dow Jones Select 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.

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%

 

* 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 Dow Jones Select 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.

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

   [   ]%
      

Total annual fund operating expenses

   [   ]%

Fee Waivers/Reimbursements B

   [   ]%
      

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 [        ], 2008. 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 Dow Jones Select 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.

 

27


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The following example assumes that you invest $10,000 in the Short Dow Jones Select 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    $ [   ]
3 years    $ [   ]

Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the Short Dow Jones Select Biotechnology ProShares, as of [ ], 2007, 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.

 

28


Table of Contents

Short Dow Jones Select Telecommunications ProShares

Ticker: [ ]

CUSIP: [ ]

INVESTMENT OBJECTIVE

Short Dow Jones Select Telecommunications ProShares seeks daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the Dow Jones Select Telecommunications Index.

If Short Dow Jones Select Telecommunications 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 Dow Jones Select Telecommunications 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 Dow Jones Select Telecommunications 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 Dow Jones Select Telecommunications 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 March 31, 2007, the Index was concentrated in the fixed line telecommunications, and mobile telecommunications industry groups, which comprised approximately 71.52% and 26.17% respectively of the market capitalization of the Index

PRINCIPAL RISK CONSIDERATIONS

The Short Dow Jones Select Telecommunications ProShares is subject to the following principal risks:

 

   

Aggressive Investment Technique Risk The Short Dow Jones Select 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.

 

   

Concentration Risk The Short Dow Jones Select 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.

 

29


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Correlation Risk A number of factors may affect the Short Dow Jones Select 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 Short Dow Jones Select Telecommunications 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 Dow Jones Select 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.

 

   

Inverse Correlation Risk Shareholders in Short Dow Jones Select Telecommunications 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 Dow Jones Select Telecommunications ProShares may not be able to dispose of positions within a reasonable time at a fair price.

 

   

Market Price Variance Risk The Short Dow Jones Select 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 Short Dow Jones Select 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 Short Dow Jones Select 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.

 

   

Short Sale Risk The Short Dow Jones Select Telecommunications 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 Dow Jones Select 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 Short Dow Jones Select Telecommunications ProShares after it has been in operation for a full calendar year.

 

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Table of Contents

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 Dow Jones Select 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.

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%

 

* 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 Dow Jones Select 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.

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

   [   ]%
      

Total annual fund operating expenses

   [   ]%

Fee Waivers/Reimbursements B

   [   ]%
      

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 [        ], 2008. 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 Dow Jones Select 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 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    $ [   ]
3 years    $ [   ]

 

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Table of Contents

Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the Short Dow Jones Select Telecommunications ProShares, as of [ ], 2007, 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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Table of Contents

Short MSCI Emerging Markets ProShares

Ticker: [ ]

CUSIP: [ ]

INVESTMENT OBJECTIVE

Short MSCI Emerging Markets ProShares seeks daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the MSCI Emerging Markets Index.

If Short MSCI Emerging Markets 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 MSCI Emerging Markets 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 MSCI Emerging Markets 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 MSCI Emerging Markets 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 MSCI Emerging Markets ProShares is subject to the following principal risks:

 

   

Aggressive Investment Technique Risk The Short MSCI Emerging Markets 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 MSCI Emerging Markets 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 MSCI Emerging Markets 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 MSCI Emerging Markets ProShares’ performance. As described under “Counterparty Risk” above, the Fund will also be subject to credit risk with respect to the

 

33


Table of Contents
 

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.

 

   

Foreign Currency Risk Investments denominated in foreign currencies are exposed to risk factors in addition to investments denominated in U.S. dollars. The value of an investment denominated in a foreign currency could change significantly as foreign currencies strengthen or weaken relative to the U.S. dollar. Generally, when the U.S. dollar rises in value against a foreign currency, an investment in that country loses value because that currency is worth fewer U.S. dollars. Risks related to foreign currencies also include those related to economic or political developments, market inefficiencies or a higher risk that essential investment information is incomplete, unavailable or inaccurate. A U.S. dollar investment in Depositary Receipts or Ordinary Shares of foreign issuers traded on U.S. exchanges is subject to foreign currency risk.

 

   

Foreign Investment Risk Foreign stocks and financial instruments correlated to such stocks may be more volatile than their U.S. counterparts for a variety of reasons, including the effects of economic or political developments, public health and safety issues, demographic changes, market inefficiencies, or a higher risk that essential investment information is incomplete, unavailable or inaccurate. Additionally, certain countries may lack uniform accounting and disclosure standards, or have standards that differ from U.S. standards. Securities or financial instruments purchased by a Fund may be impacted by fluctuations in foreign currencies. The value of such securities or instruments could change significantly as the currencies strengthen or weaken relative to the U.S. dollar. ProShare Advisors does not engage in activities designed to hedge against foreign currency fluctuations.

 

   

Inverse Correlation Risk Shareholders in Short MSCI Emerging Markets 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 MSCI Emerging Markets ProShares may not be able to dispose of positions within a reasonable time at a fair price.

 

   

Market Price Variance Risk The Short MSCI Emerging Markets 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 MSCI Emerging Markets 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 MSCI Emerging Markets 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.

 

   

Short Sale Risk The Short MSCI Emerging Markets 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.

 

34


Table of Contents

The Short MSCI Emerging Markets 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 MSCI Emerging Markets 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 MSCI Emerging Markets 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%

 

* 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 MSCI Emerging Markets 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.

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

   [   ]%
      

Total annual fund operating expenses

   [   ]%

Fee Waivers/Reimbursements B

   [   ]%
      

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 [        ], 2008. 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 MSCI Emerging Markets 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.

 

35


Table of Contents

The following example assumes that you invest $10,000 in the Short MSCI Emerging Markets 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    $ [   ]
3 years    $ [   ]

Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the Short MSCI Emerging Markets ProShares, as of [ ], 2007, 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.

 

36


Table of Contents

Short MSCI Japan ProShares

Ticker: [ ]

CUSIP: [ ]

INVESTMENT OBJECTIVE

Short MSCI Japan ProShares seeks daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the MSCI Japan Index.

If Short MSCI Japan 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 MSCI Japan 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 MSCI Japan 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 MSCI Japan 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 MSCI Japan ProShares is subject to the following principal risks:

 

   

Aggressive Investment Technique Risk The Short MSCI Japan 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 MSCI Japan 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 MSCI Japan 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 MSCI Japan ProShares’ performance. As described under “Counterparty Risk” above, the Fund will also be subject to credit risk with respect to the amount a Fund

 

37


Table of Contents
 

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.

 

   

Foreign Currency Risk Investments denominated in foreign currencies are exposed to risk factors in addition to investments denominated in U.S. dollars. The value of an investment denominated in a foreign currency could change significantly as foreign currencies strengthen or weaken relative to the U.S. dollar. Generally, when the U.S. dollar rises in value against a foreign currency, an investment in that country loses value because that currency is worth fewer U.S. dollars. Risks related to foreign currencies also include those related to economic or political developments, market inefficiencies or a higher risk that essential investment information is incomplete, unavailable or inaccurate. A U.S. dollar investment in Depositary Receipts or Ordinary Shares of foreign issuers traded on U.S. exchanges are subject to foreign currency risk.

 

   

Foreign Investment Risk Foreign stocks and financial instruments correlated to such stocks may be more volatile than their U.S. counterparts for a variety of reasons, including the effects of economic or political developments, public health and safety issues, demographic changes, market inefficiencies, or a higher risk that essential investment information is incomplete, unavailable or inaccurate. Additionally, certain countries may lack uniform accounting and disclosure standards, or have standards that differ from U.S. standards. Securities or financial instruments purchased by the Short MSCI Japan ProShares may be impacted by fluctuations in foreign currencies, as described under Foreign Currency Risk above.

 

   

Geographic Concentration Risk The Short MSCI Japan ProShares focuses its investments in particular countries or geographic regions may be particularly susceptible to economic, political or regulatory events affective those countries or regions. In addition, currency devaluations could occur in countries that have not yet experienced currency devaluations to date, or could continue to occur in countries that have already experienced such devaluations. As a result, the Short MSCI Japan ProShares that focuses it’s investments in a particular geographic region or country may be more volatile than a more geographically diversified Fund.

 

   

Inverse Correlation Risk Shareholders in Short MSCI Japan 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 MSCI Japan ProShares may not be able to dispose of positions within a reasonable time at a fair price.

 

   

Market Price Variance Risk The Short MSCI Japan 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 MSCI Japan 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 MSCI Japan 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.

 

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Short Sale Risk The Short MSCI Japan 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 MSCI Japan 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 MSCI Japan 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 MSCI Japan 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%

 

* 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 MSCI Japan 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.

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

   [   ]%
      

Total annual fund operating expenses

   [   ]%

Fee Waivers/Reimbursements B

   [   ]%
      

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 [        ], 2008. 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 MSCI Japan 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 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    $ [   ]
3 years    $ [   ]

Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the Short MSCI Japan ProShares, as of [ ], 2007, 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 MSCI EAFE ProShares

Ticker: [ ]

CUSIP: [ ]

INVESTMENT OBJECTIVE

Short MSCI EAFE ProShares seeks daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the MSCI EAFE Index.

If Short MSCI EAFE 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 MSCI EAFE 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 MSCI EAFE 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 MSCI EAFE 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 MSCI EAFE ProShares is subject to the following principal risks:

 

   

Aggressive Investment Technique Risk The Short MSCI EAFE 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 MSCI EAFE 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 MSCI EAFE 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 MSCI EAFE ProShares’ performance. As described under “Counterparty Risk” above, the Fund will also be subject to credit risk with respect to the amount a Fund

 

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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.

 

   

Foreign Currency Risk Investments denominated in foreign currencies are exposed to risk factors in addition to investments denominated in U.S. dollars. The value of an investment denominated in a foreign currency could change significantly as foreign currencies strengthen or weaken relative to the U.S. dollar. Generally, when the U.S. dollar rises in value against a foreign currency, an investment in that country loses value because that currency is worth fewer U.S. dollars. Risks related to foreign currencies also include those related to economic or political developments, market inefficiencies or a higher risk that essential investment information is incomplete, unavailable or inaccurate. A U.S. dollar investment in Depositary Receipts or Ordinary Shares of foreign issuers traded on U.S. exchanges are subject to foreign currency risk.

 

   

Foreign Investment Risk Foreign stocks and financial instruments correlated to such stocks may be more volatile than their U.S. counterparts for a variety of reasons, including the effects of economic or political developments, public health and safety issues, demographic changes, market inefficiencies, or a higher risk that essential investment information is incomplete, unavailable or inaccurate. Additionally, certain countries may lack uniform accounting and disclosure standards, or have standards that differ from U.S. standards. Securities or financial instruments purchased by the Short MSCI EAFE ProShares may be impacted by fluctuations in foreign currencies, as described under Foreign Currency Risk above.

 

   

Inverse Correlation Risk Shareholders in Short MSCI EAFE 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 MSCI EAFE ProShares may not be able to dispose of positions within a reasonable time at a fair price.

 

   

Market Price Variance Risk The Short MSCI EAFE 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 MSCI EAFE 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 MSCI EAFE 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.

 

   

Short Sale Risk The Short MSCI EAFE 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 MSCI EAFE 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.

 

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FUND PERFORMANCE

Performance history will be available for the Short MSCI EAFE 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 MSCI EAFE 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%

 

* 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 MSCI EAFE 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.

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

   [   ]%
      

Total annual fund operating expenses

   [   ]%

Fee Waivers/Reimbursements B

   [   ]%
      

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 [        ], 2008. 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 MSCI EAFE 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 MSCI EAFE 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

   $ [   ]

3 years

   $ [   ]

Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the Short MSCI EAFE ProShares, as of [ ], 2007, 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 FTSE/Xinhua China 25 ProShares

Ticker: [ ]

CUSIP: [ ]

INVESTMENT OBJECTIVE

Short FTSE/Xinhua China 25 ProShares seeks daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the FTSE/Xinhua China 25 Index.

If Short FTSE/Xinhua China 25 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 FTSE/Xinhua China 25 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 FTSE/Xinhua China 25 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 FTSE/Xinhua China 25 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 close of business March 31, 2007, the Index was concentrated in the Financials industry group, which comprised approximately 40.75% of the market capitalization of the index.

PRINCIPAL RISK CONSIDERATIONS

The Short FTSE/Xinhua China 25 ProShares is subject to the following principal risks:

 

   

Aggressive Investment Technique Risk The Short FTSE/Xinhua China 25 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 FTSE/Xinhua China 25 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 FTSE/Xinhua China 25 ProShares may lose money.

 

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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 FTSE/Xinhua China 25 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.

 

   

Foreign Currency Risk Investments denominated in foreign currencies are exposed to risk factors in addition to investments denominated in U.S. dollars. The value of an investment denominated in a foreign currency could change significantly as foreign currencies strengthen or weaken relative to the U.S. dollar. Generally, when the U.S. dollar rises in value against a foreign currency, an investment in that country loses value because that currency is worth fewer U.S. dollars. Risks related to foreign currencies also include those related to economic or political developments, market inefficiencies or a higher risk that essential investment information is incomplete, unavailable or inaccurate. A U.S. dollar investment in Depositary Receipts or Ordinary Shares of foreign issuers traded on U.S. exchanges are subject to foreign currency risk.

 

   

Foreign Investment Risk Foreign stocks and financial instruments correlated to such stocks may be more volatile than their U.S. counterparts for a variety of reasons, including the effects of economic or political developments, public health and safety issues, demographic changes, market inefficiencies, or a higher risk that essential investment information is incomplete, unavailable or inaccurate. Additionally, certain countries may lack uniform accounting and disclosure standards, or have standards that differ from U.S. standards. Securities or financial instruments purchased by a Fund may be impacted by fluctuations in foreign currencies. The value of such securities or instruments could change significantly as the currencies strengthen or weaken relative to the U.S. dollar. ProShare Advisors does not engage in activities designed to hedge against foreign currency fluctuations.

 

   

Inverse Correlation Risk Shareholders in Short FTSE/Xinhua China 25 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 FTSE/Xinhua China 25 ProShares may not be able to dispose of positions within a reasonable time at a fair price.

 

   

Market Price Variance Risk The Short FTSE/Xinhua China 25 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 FTSE/Xinhua China 25 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 FTSE/Xinhua China 25 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.

 

   

Short Sale Risk The Short FTSE/Xinhua China 25 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

 

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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 FTSE/Xinhua China 25 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 FTSE/Xinhua China 25 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 FTSE/Xinhua China 25 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%

 

* 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 FTSE/Xinhua China 25 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.

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

   [   ]%
      

Total annual fund operating expenses

   [   ]%

Fee Waivers/Reimbursements B

   [   ]%
      

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 [        ], 2008. 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 FTSE/Xinhua China 25 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

 

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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

   $ [   ]

3 years

   $ [   ]

Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the Short FTSE/Xinhua China 25 ProShares, as of [ ], 2007, 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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UltraShort NASDAQ Biotechnology ProShares

Ticker: [ ]

CUSIP: [ ]

INVESTMENT OBJECTIVE

UltraShort NASDAQ Biotechnology ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the NASDAQ Biotechnology Index.

If UltraShort NASDAQ Biotechnology ProShares is successful in meeting its objective, its net asset value should gain approximately twice as much, on a percentage basis, as any decrease in the NASDAQ Biotechnology Index (Index) when the Index declines on a given day. Conversely, its net asset value should lose approximately twice as much, on a percentage basis, as any increase in the Index when the Index rises on a given day.

PRINCIPAL INVESTMENT STRATEGY

The UltraShort NASDAQ Biotechnology 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 twice (200%) the inverse of the NASDAQ Biotechnology 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 UltraShort NASDAQ 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 UltraShort NASDAQ Biotechnology 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

 

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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 UltraShort NASDAQ Biotechnology ProShares is subject to the following principal risks:

 

   

Aggressive Investment Technique Risk The UltraShort NASDAQ 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 UltraShort NASDAQ 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 UltraShort NASDAQ Biotechnology 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 UltraShort NASDAQ 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.

 

   

Inverse Correlation Risk Shareholders in UltraShort NASDAQ Biotechnology 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.

 

   

Leverage Risk The UltraShort NASDAQ 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 UltraShort NASDAQ Biotechnology ProShares 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 UltraShort NASDAQ Biotechnology ProShares may not be able to dispose of portfolio investments within a reasonable time at a fair price.

 

   

Market Price Variance Risk The UltraShort NASDAQ 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. 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 UltraShort NASDAQ 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 UltraShort NASDAQ 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.

 

   

Short Sale Risk The UltraShort NASDAQ Biotechnology 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.

 

   

Volatility Risk UltraShort NASDAQ 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.

The UltraShort NASDAQ 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 Statement of Additional Information (“SAI”) contains additional information about the Fund and related risks.

FUND PERFORMANCE

Performance history will be available for the UltraShort NASDAQ 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 UltraShort NASDAQ 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.

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%

 

* 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 UltraShort NASDAQ 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.

 

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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

   [   ]%
      

Total annual fund operating expenses

   [   ]%

Fee Waivers/Reimbursements B

   [   ]%
      

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 [        ], 2008. 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 UltraShort NASDAQ 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 UltraShort NASDAQ 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

   $ [   ]

3 years

   $ [   ]

Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the UltraShort NASDAQ Biotechnology ProShares, as of [ ], 2007, 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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UltraShort Dow Jones Select Biotechnology ProShares

Ticker: [ ]

CUSIP: [ ]

INVESTMENT OBJECTIVE

UltraShort Dow Jones Select Biotechnology ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the Dow Jones Select Biotechnology Index®.

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

PRINCIPAL INVESTMENT STRATEGY

The UltraShort Dow Jones Select Biotechnology 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 twice (200%) the inverse of the Dow Jones Select Biotechnology 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 UltraShort Dow Jones Select 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 UltraShort Dow Jones Select Biotechnology 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 UltraShort Dow Jones Select Biotechnology ProShares is subject to the following principal risks:

 

   

Aggressive Investment Technique Risk The UltraShort Dow Jones Select 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 UltraShort Dow Jones Select 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 UltraShort Dow Jones Select Biotechnology 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 UltraShort Dow Jones Select 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.

 

   

Inverse Correlation Risk Shareholders in UltraShort Dow Jones Select Biotechnology 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.

 

   

Leverage Risk The UltraShort Dow Jones Select 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, such as the disruption of the orderly markets for the securities or financial instruments in which the UltraShort Dow Jones Select Biotechnology 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 UltraShort Dow Jones Select 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 UltraShort Dow Jones Select 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 UltraShort Dow Jones Select 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.

 

   

Short Sale Risk The UltraShort Dow Jones Select Biotechnology 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.

 

   

Volatility Risk UltraShort Dow Jones Select 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.

The UltraShort Dow Jones Select 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 UltraShort Dow Jones Select 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 UltraShort Dow Jones Select 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.

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%

 

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

 

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A

A fixed transaction fee of $500 will be charged when you create or redeem Creation Units of the UltraShort Dow Jones Select 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

   [   ]%
      

Total annual fund operating expenses

   [   ]%

Fee Waivers/Reimbursements B

   [   ]%
      

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 [        ], 2008. 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 UltraShort Dow Jones Select 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 UltraShort Dow Jones Select 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

   $ [   ]

3 years

   $ [   ]

Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the UltraShort Dow Jones Select Biotechnology ProShares, as of [ ], 2007, 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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UltraShort Dow Jones Select Telecommunications ProShares

Ticker: [ ]

CUSIP: [ ]

INVESTMENT OBJECTIVE

UltraShort Dow Jones Select Telecommunications ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the Dow Jones Select Telecommunications Index.

If UltraShort Dow Jones Select Telecommunications ProShares is successful in meeting its objective, its net asset value should gain approximately twice as much, on a percentage basis, as any decrease in the Dow Jones Select Telecommunications Index (Index) when the Index declines on a given day. Conversely, its net asset value should lose approximately twice as much, on a percentage basis, as any increase in the Index when the Index rises on a given day.

PRINCIPAL INVESTMENT STRATEGY

The UltraShort Dow Jones Select Telecommunications 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 twice (200%) the inverse of the Dow Jones Select Telecommunications 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 March 31, 2007, the Index was concentrated in the financials industry group, which comprised approximately 33% of the market capitalization of the Index

The UltraShort Dow Jones Select 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 UltraShort Dow Jones Select Telecommunications 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 UltraShort Dow Jones Select Telecommunications ProShares is subject to the following principal risks:

 

   

Aggressive Investment Technique Risk The UltraShort Dow Jones Select 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 UltraShort Dow Jones Select 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 UltraShort Dow Jones Select Telecommunications 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 UltraShort Dow Jones Select 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.

 

   

Inverse Correlation Risk Shareholders in UltraShort Dow Jones Select Telecommunications 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.

 

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Leverage Risk The UltraShort Dow Jones Select 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.

 

   

Liquidity Risk In certain circumstances, the UltraShort Dow Jones Select Telecommunications ProShares may not be able to dispose of positions within a reasonable time at a fair price.

 

   

Market Price Variance Risk The UltraShort Dow Jones Select 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 UltraShort Dow Jones Select 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 UltraShort Dow Jones Select 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.

 

   

Short Sale Risk The UltraShort Dow Jones Select Telecommunications 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.

 

   

Volatility Risk UltraShort Dow Jones Select 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.

The UltraShort Dow Jones Select 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 UltraShort Dow Jones Select 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 UltraShort Dow Jones Select 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.

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%

 

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

 

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A

A fixed transaction fee of $500 will be charged when you create or redeem Creation Units of the UltraShort Dow Jones Select 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.

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

   [   ]%
      

Total annual fund operating expenses

   [   ]%

Fee Waivers/Reimbursements B

   [   ]%
      

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 [        ], 2008. 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 UltraShort Dow Jones Select 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 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

   $ [   ]

3 years

   $ [   ]

Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the UltraShort Dow Jones Select Telecommunications ProShares, as of [ ], 2007, 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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UltraShort MSCI Emerging Markets ProShares

Ticker: [ ]

CUSIP: [ ]

INVESTMENT OBJECTIVE

UltraShort MSCI Emerging Markets ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the MSCI Emerging Markets Index.

If UltraShort MSCI Emerging Markets ProShares is successful in meeting its objective, its net asset value should gain approximately twice as much, on a percentage basis, as any decrease in the MSCI Emerging Markets Index (Index) when the Index declines on a given day. Conversely, its net asset value should lose approximately twice as much, on a percentage basis, as any increase in the Index when the Index rises on a given day.

PRINCIPAL INVESTMENT STRATEGY

The UltraShort MSCI Emerging Markets 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 twice (200%) the inverse of the MSCI Emerging Markets 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 UltraShort MSCI Emerging Markets 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

 

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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 UltraShort MSCI Emerging Markets ProShares is subject to the following principal risks:

 

   

Aggressive Investment Technique Risk The UltraShort MSCI Emerging Markets 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 UltraShort MSCI Emerging Markets 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 UltraShort MSCI Emerging Markets 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 UltraShort MSCI Emerging Markets 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.

 

   

Foreign Currency Risk Investments denominated in foreign currencies are exposed to risk factors in addition to investments denominated in U.S. dollars. The value of an investment denominated in a foreign currency could change significantly as foreign currencies strengthen or weaken relative to the U.S. dollar. Generally, when the U.S. dollar rises in value against a foreign currency, an investment in that country loses value because that currency is worth fewer U.S. dollars. Risks related to foreign currencies also include those related to economic or political developments, market inefficiencies or a higher risk that essential investment information is incomplete, unavailable or inaccurate. A U.S. dollar investment in Depositary Receipts or Ordinary Shares of foreign issuers traded on U.S. exchanges are subject to foreign currency risk.

 

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Foreign Investment Risk Foreign stocks and financial instruments correlated to such stocks may be more volatile than their U.S. counterparts for a variety of reasons, including the effects of economic or political developments, public health and safety issues, demographic changes, market inefficiencies, or a higher risk that essential investment information is incomplete, unavailable or inaccurate. Additionally, certain countries may lack uniform accounting and disclosure standards, or have standards that differ from U.S. standards. Securities or financial instruments purchased by a Fund may be impacted by fluctuations in foreign currencies. The value of such securities or instruments could change significantly as the currencies strengthen or weaken relative to the U.S. dollar. ProShare Advisors does not engage in activities designed to hedge against foreign currency fluctuations.

 

   

Inverse Correlation Risk Shareholders in UltraShort MSCI Emerging Markets 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.

 

   

Leverage Risk The UltraShort MSCI Emerging Markets 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 UltraShort MSCI Emerging Markets ProShares may not be able to dispose of positions within a reasonable time at a fair price.

 

   

Market Price Variance Risk The UltraShort MSCI Emerging Markets 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 UltraShort MSCI Emerging Markets 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 UltraShort MSCI Emerging Markets 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.

 

   

Short Sale Risk The UltraShort MSCI Emerging Markets 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.

 

   

Volatility Risk UltraShort MSCI Emerging Markets 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 UltraShort MSCI Emerging Markets 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 UltraShort MSCI Emerging Markets 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 UltraShort MSCI Emerging Markets 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%

 

* 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 UltraShort MSCI Emerging Markets 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.

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

   [   ]%
      

Total annual fund operating expenses

   [   ]%

Fee Waivers/Reimbursements B

   [   ]%
      

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 [        ], 2008. 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 UltraShort MSCI Emerging Markets 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 UltraShort MSCI Emerging Markets 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

   $ [   ]

3 years

   $ [   ]

 

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Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the UltraShort MSCI Emerging Markets ProShares, as of [ ], 2007, 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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UltraShort MSCI Japan ProShares

Ticker: [ ]

CUSIP: [ ]

INVESTMENT OBJECTIVE

UltraShort MSCI Japan ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the MSCI Japan Index.

If UltraShort MSCI Japan ProShares is successful in meeting its objective, its net asset value should gain approximately twice as much, on a percentage basis, as any decrease in the MSCI Japan Index (Index) when the Index declines on a given day. Conversely, its net asset value should lose approximately twice as much, on a percentage basis, as any increase in the Index when the Index rises on a given day.

PRINCIPAL INVESTMENT STRATEGY

The UltraShort MSCI Japan 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 twice (200%) the inverse of the MSCI Japan 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 March 31, 2007, the Index was concentrated in the financials industry group, which comprised approximately 25% of the market capitalization of the Index

The UltraShort MSCI Japan 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 UltraShort MSCI Japan 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

 

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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 UltraShort MSCI Japan ProShares is subject to the following principal risks:

 

   

Aggressive Investment Technique Risk The UltraShort MSCI Japan 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 UltraShort MSCI Japan 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 UltraShort MSCI Japan 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 UltraShort MSCI Japan 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.

 

   

Foreign Currency Risk Investments denominated in foreign currencies are exposed to risk factors in addition to investments denominated in U.S. dollars. The value of an investment denominated in a foreign currency could change significantly as foreign currencies strengthen or weaken relative to the U.S. dollar. Generally, when the U.S. dollar rises in value against a foreign currency, an investment in that country loses value because that currency is worth fewer U.S. dollars. Risks related to foreign currencies also include those related to economic or political developments, market inefficiencies or a higher risk that essential investment information is incomplete, unavailable or inaccurate. A U.S. dollar investment in Depositary Receipts or Ordinary Shares of foreign issuers traded on U.S. exchanges are subject to foreign currency risk.

 

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Foreign Investment Risk Foreign stocks and financial instruments correlated to such stocks may be more volatile than their U.S. counterparts for a variety of reasons, including the effects of economic or political developments, public health and safety issues, demographic changes, market inefficiencies, or a higher risk that essential investment information is incomplete, unavailable or inaccurate. Additionally, certain countries may lack uniform accounting and disclosure standards, or have standards that differ from U.S. standards. Securities or financial instruments purchased by a Fund may be impacted by fluctuations in foreign currencies. The value of such securities or instruments could change significantly as the currencies strengthen or weaken relative to the U.S. dollar. ProShare Advisors does not engage in activities designed to hedge against foreign currency fluctuations.

 

   

Inverse Correlation Risk Shareholders in UltraShort MSCI Japan 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.

 

   

Leverage Risk The UltraShort MSCI Japan 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 UltraShort MSCI Japan ProShares may not be able to dispose of positions within a reasonable time at a fair price.

 

   

Market Price Variance Risk The UltraShort MSCI Japan 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 UltraShort MSCI Japan 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 UltraShort MSCI Japan 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.

 

   

Short Sale Risk The UltraShort MSCI Japan 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.

 

   

Volatility Risk UltraShort MSCI Japan 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 UltraShort MSCI Japan 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 UltraShort MSCI Japan 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 UltraShort MSCI Japan 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%

 

* 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 UltraShort MSCI Japan 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.

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

   [   ]%
      

Total annual fund operating expenses

   [   ]%

Fee Waivers/Reimbursements B

   [   ]%
      

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 [        ], 2008. 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 UltraShort MSCI Japan 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

   $ [   ]

3 years

   $ [   ]

 

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Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the UltraShort MSCI Japan ProShares, as of [ ], 2007, 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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UltraShort MSCI EAFE ProShares

Ticker: [ ]

CUSIP: [ ]

INVESTMENT OBJECTIVE

UltraShort MSCI EAFE ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the MSCI EAFE Index.

If UltraShort MSCI EAFE ProShares is successful in meeting its objective, its net asset value should gain approximately twice as much, on a percentage basis, as any decrease in the MSCI EAFE Index (Index) when the Index declines on a given day. Conversely, its net asset value should lose approximately twice as much, on a percentage basis, as any increase in the Index when the Index rises on a given day.

PRINCIPAL INVESTMENT STRATEGY

The UltraShort MSCI EAFE 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 twice (200%) the inverse of the MSCI EAFE 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 UltraShort MSCI EAFE 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 UltraShort MSCI EAFE ProShares is subject to the following principal risks:

 

   

Aggressive Investment Technique Risk The UltraShort MSCI EAFE 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 UltraShort MSCI EAFE 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 UltraShort MSCI EAFE 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 UltraShort MSCI EAFE 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.

 

   

Foreign Currency Risk Investments denominated in foreign currencies are exposed to risk factors in addition to investments denominated in U.S. dollars. The value of an investment denominated in a foreign currency could change significantly as foreign currencies strengthen or weaken relative to the U.S. dollar. Generally, when the U.S. dollar rises in value against a foreign currency, an investment in that country loses value because that currency is worth fewer U.S. dollars. Risks related to foreign currencies also include those related to economic or political developments, market inefficiencies or a higher risk that essential investment information is incomplete, unavailable or inaccurate. A U.S. dollar investment in Depositary Receipts or Ordinary Shares of foreign issuers traded on U.S. exchanges are subject to foreign currency risk.

 

   

Foreign Investment Risk Foreign stocks and financial instruments correlated to such stocks may be more volatile than their U.S. counterparts for a variety of reasons, including the effects of economic or political developments, public health and safety issues, demographic changes, market inefficiencies, or a higher risk that essential investment information is incomplete, unavailable or inaccurate. Additionally,

 

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certain countries may lack uniform accounting and disclosure standards, or have standards that differ from U.S. standards. Securities or financial instruments purchased by a Fund may be impacted by fluctuations in foreign currencies. The value of such securities or instruments could change significantly as the currencies strengthen or weaken relative to the U.S. dollar. ProShare Advisors does not engage in activities designed to hedge against foreign currency fluctuations.

 

   

Inverse Correlation Risk Shareholders in UltraShort MSCI EAFE 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.

 

   

Leverage Risk The UltraShort MSCI EAFE 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 UltraShort MSCI EAFE ProShares may not be able to dispose of positions within a reasonable time at a fair price.

 

   

Market Price Variance Risk The UltraShort MSCI EAFE 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 UltraShort MSCI EAFE 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 UltraShort MSCI EAFE 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.

 

   

Short Sale Risk The UltraShort MSCI EAFE 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.

 

   

Volatility Risk UltraShort MSCI EAFE 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 UltraShort MSCI EAFE 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 UltraShort MSCI EAFE 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 UltraShort MSCI EAFE 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%

 

* 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 UltraShort MSCI EAFE 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.

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

   [   ]%
      

Total annual fund operating expenses

   [   ]%

Fee Waivers/Reimbursements B

   [   ]%
      

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 [        ], 2008. 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 UltraShort MSCI EAFE 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 UltraShort MSCI EAFE 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

   $ [   ]

3 years

   $ [   ]

Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the UltraShort MSCI EAFE ProShares, as of [ ], 2007, 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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UltraShort FTSE/Xinhua China 25 ProShares

Ticker: [ ]

CUSIP: [ ]

INVESTMENT OBJECTIVE

UltraShort FTSE/Xinhua China 25 ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the FTSE/Xinhua China 25 Index.

If UltraShort FTSE/Xinhua China 25 ProShares is successful in meeting its objective, its net asset value should gain approximately twice as much, on a percentage basis, as any decrease in the FTSE/Xinhua China 25 Index (Index) when the Index declines on a given day. Conversely, its net asset value should lose approximately twice as much, on a percentage basis, as any increase in the Index when the Index rises on a given day.

PRINCIPAL INVESTMENT STRATEGY

The UltraShort FTSE/Xinhua China 25 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 twice (200%) the inverse of the FTSE/Xinhua China 25 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 close of business March 31, 2007, the Index was concentrated in the Financials industry group, which comprised approximately 40.75% of the market capitalization of the index.

The UltraShort FTSE/Xinhua China 25 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 UltraShort FTSE/Xinhua China 25 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

 

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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 UltraShort FTSE/Xinhua China 25 ProShares is subject to the following principal risks:

 

   

Aggressive Investment Technique Risk The UltraShort FTSE/Xinhua China 25 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 UltraShort FTSE/Xinhua China 25 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 UltraShort FTSE/Xinhua China 25 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 UltraShort FTSE/Xinhua China 25 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.

 

   

Foreign Currency Risk Investments denominated in foreign currencies are exposed to risk factors in addition to investments denominated in U.S. dollars. The value of an investment denominated in a foreign currency could change significantly as foreign currencies strengthen or weaken relative to the U.S. dollar. Generally, when the U.S. dollar rises in value against a foreign currency, an investment in that country loses value because that currency is worth fewer U.S. dollars. Risks related to foreign currencies also include those related to economic or political developments, market inefficiencies or a higher risk that essential investment information is incomplete, unavailable or inaccurate. A U.S. dollar investment in Depositary Receipts or Ordinary Shares of foreign issuers traded on U.S. exchanges are subject to foreign currency risk.

 

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Foreign Investment Risk Foreign stocks and financial instruments correlated to such stocks may be more volatile than their U.S. counterparts for a variety of reasons, including the effects of economic or political developments, public health and safety issues, demographic changes, market inefficiencies, or a higher risk that essential investment information is incomplete, unavailable or inaccurate. Additionally, certain countries may lack uniform accounting and disclosure standards, or have standards that differ from U.S. standards. Securities or financial instruments purchased by a Fund may be impacted by fluctuations in foreign currencies. The value of such securities or instruments could change significantly as the currencies strengthen or weaken relative to the U.S. dollar. ProShare Advisors does not engage in activities designed to hedge against foreign currency fluctuations.

 

   

Inverse Correlation Risk Shareholders in UltraShort FTSE/Xinhua China 25 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.

 

   

Leverage Risk The UltraShort FTSE/Xinhua China 25 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 UltraShort FTSE/Xinhua China 25 ProShares may not be able to dispose of positions within a reasonable time at a fair price.

 

   

Market Price Variance Risk The UltraShort FTSE/Xinhua China 25 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 UltraShort FTSE/Xinhua China 25 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 UltraShort FTSE/Xinhua China 25 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.

 

   

Short Sale Risk The UltraShort FTSE/Xinhua China 25 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.

 

   

Volatility Risk UltraShort FTSE/Xinhua China 25 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 UltraShort FTSE/Xinhua China 25 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.

 

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FUND PERFORMANCE

Performance history will be available for the UltraShort FTSE/Xinhua China 25 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 UltraShort FTSE/Xinhua China 25 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%

 

* 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 UltraShort FTSE/Xinhua China 25 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.

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

   [   ]%
      

Total annual fund operating expenses

   [   ]%

Fee Waivers/Reimbursements B

   [   ]%
      

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 [        ], 2008. 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 UltraShort FTSE/Xinhua China 25 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 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    $[  ]
3 years    $[  ]

Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the UltraShort FTSE/Xinhua China 25 ProShares, as of [ ] , 2007, 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 NON-EQUITY PROSHARES

The Short Non-Equity 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

Short Lehman Brothers 7-10 Year U.S. Treasury    Lehman Brothers 7-10 Year U.S. Treasury Index    100% of the Inverse
Short Lehman Brothers 20+ Year U.S. Treasury    Lehman Brothers 20+ Year U.S. Treasury Index    100% of the Inverse
Short iBoxx $ Liquid Investment Grade    iBoxx $ Liquid Investment Grade Index    100% of the Inverse
Short iBoxx $ Liquid High Yield    iBoxx $ Liquid High Yield Index    100% of the Inverse
UltraShort Lehman Brothers 7-10 Year U.S. Treasury    Lehman Brothers 7-10 Year U.S. Treasury Index    200% of the Inverse
UltraShort Lehman Brothers 20+ Year U.S. Treasury    Lehman Brothers 20+ Year U.S. Treasury Index    200% of the Inverse
UltraShort iBoxx $ Liquid Investment Grade    iBoxx $ Liquid Investment Grade Index    200% of the Inverse
UltraShort iBoxx $ Liquid High Yield    iBoxx $ Liquid High Yield Index    200% of the Inverse

Short Non-Equity 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 debt securities, stocks and/or mutual funds from a market downturn that they anticipate.

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 correlate its performance. Short Non-Equity ProShares utilize the performance of an inverse of an index or an inverse multiple of an index as their benchmark. For example, UltraShort Lehman Brothers 7-10 Year U.S. Treasury ProShares has a daily benchmark of twice the inverse of the daily return of the Lehman Brothers 7-10 Year U.S. Treasury Index.

 

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Short Lehman Brothers 7-10 Year U.S. Treasury ProShares

Ticker: [ ]

CUSIP: [ ]

INVESTMENT OBJECTIVE

Short Lehman Brothers 7-10 Year U.S. Treasury ProShares seeks daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the Lehman Brothers 7-10 Year U.S. Treasury Index.

If Short Lehman Brothers 7-10 Year U.S. Treasury 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 Lehman Brothers 7-10 Year U.S. Treasury 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 Lehman Brothers 7-10 Year U.S. Treasury 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 Lehman Brothers 7-10 Year U.S. Treasury 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 Lehman Brothers 7-10 Year U.S. Treasury ProShares is subject to the following principal risks:

 

   

Aggressive Investment Technique Risk The Short Lehman Brothers 7-10 Year U.S. Treasury 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 Lehman Brothers 7-10 Year U.S. Treasury 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 Lehman Brothers 7-10 Year U.S. Treasury ProShares may lose money.

 

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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 Lehman Brothers 7-10 Year U.S. Treasury 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.

 

   

Debt Instrument Risk. Each Fund may invest in, or seek exposure to, debt instruments. Debt instruments may have varying levels of sensitivity to changes in interest rates, credit risk and other factors. Typically, the value of outstanding debt instruments fall when interest rates rise. Debt instruments with longer maturities may fluctuate more in response to interest rate changes than instruments with shorter maturities. Many types of debt instruments are subject to prepayment risk, which is the risk that the issuer of the security can repay principal prior to the maturity date. Debt instruments allowing prepayment may offer less potential for gains during a period of declining interest rates. In addition, changes in the credit quality of the issuer of a debt instrument can also affect the price of a debt instrument, as can an issuer’s default on its payment obligations. Such factors may cause the value of an investment in a Fund to decrease. Also, the securities of certain U.S. government agencies, authorities or instrumentalities in which a Fund may invest are neither issued by nor guaranteed as to principal and interest by the U.S. Government, and may be exposed to credit risk.

 

   

Inverse Correlation Risk Shareholders in Short Lehman Brothers 7-10 Year U.S. Treasury 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 Lehman Brothers 7-10 Year U.S. Treasury ProShares may not be able to dispose of portfolio investments within a reasonable time at a fair price.

 

   

Market Price Variance Risk The Short Lehman Brothers 7-10 Year U.S. Treasury 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 Lehman Brothers 7-10 Year U.S. Treasury 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 Lehman Brothers 7-10 Year U.S. Treasury 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.

 

   

Short Sale Risk The Short Lehman Brothers 7-10 Year U.S. Treasury 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 Lehman Brothers 7-10 Year U.S. Treasury 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 Lehman Brothers 7-10 Year U.S. Treasury 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 Lehman Brothers 7-10 Year U.S. Treasury 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%

 

* 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 Lehman Brothers 7-10 Year U.S. Treasury 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.

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

   [   ]%
      

Total annual fund operating expenses

   [   ]%

Fee Waivers/Reimbursements B

   [   ]%
      

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 [        ], 2008. 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 Lehman Brothers 7-10 Year U.S. Treasury 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 Lehman Brothers 7-10 Year U.S. Treasury 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    $ [   ]
3 years    $ [   ]

Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the Short Lehman Brothers 7-10 Year U.S. Treasury ProShares, as of [ ], 2007, 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 Lehman Brothers 20+ Year U.S. Treasury ProShares

Ticker: [ ]

CUSIP: [ ]

INVESTMENT OBJECTIVE

Short Lehman Brothers 20+ Year U.S. Treasury ProShares seeks daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the Lehman Brothers 20+ Year U.S. Treasury Index.

If Short Lehman Brothers 20+ Year U.S. Treasury 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 Lehman Brothers 20+ Year U.S. Treasury 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 Lehman Brothers 20+ Year U.S. Treasury 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 Lehman Brothers 20+ Year U.S. Treasury 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 Lehman Brothers 20+ Year U.S. Treasury ProShares is subject to the following principal risks:

 

   

Aggressive Investment Technique Risk The Short Lehman Brothers 20+ Year U.S. Treasury 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 Lehman Brothers 20+ Year U.S. Treasury 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 Lehman Brothers 20+ Year U.S. Treasury ProShares may lose money.

 

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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 Lehman Brothers 20+ Year U.S. Treasury 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.

 

   

Debt Instrument Risk. Each Fund may invest in, or seek exposure to, debt instruments. Debt instruments may have varying levels of sensitivity to changes in interest rates, credit risk and other factors. Typically, the value of outstanding debt instruments fall when interest rates rise. Debt instruments with longer maturities may fluctuate more in response to interest rate changes than instruments with shorter maturities. Many types of debt instruments are subject to prepayment risk, which is the risk that the issuer of the security can repay principal prior to the maturity date. Debt instruments allowing prepayment may offer less potential for gains during a period of declining interest rates. In addition, changes in the credit quality of the issuer of a debt instrument can also affect the price of a debt instrument, as can an issuer’s default on its payment obligations. Such factors may cause the value of an investment in a Fund to decrease. Also, the securities of certain U.S. government agencies, authorities or instrumentalities in which a Fund may invest are neither issued by nor guaranteed as to principal and interest by the U.S. Government, and may be exposed to credit risk.

 

   

Inverse Correlation Risk Shareholders in Short Lehman Brothers 20+ Year U.S. Treasury 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 Lehman Brothers 20+ Year U.S. Treasury 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 Lehman Brothers 20+ Year U.S. Treasury 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 Lehman Brothers 20+ Year U.S. Treasury 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 Lehman Brothers 20+ Year U.S. Treasury 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.

 

   

Short Sale Risk The Short Lehman Brothers 20+ Year U.S. Treasury 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.

 

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The Short Lehman Brothers 20+ Year U.S. Treasury 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 Lehman Brothers 20+ Year U.S. Treasury 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 Lehman Brothers 20+ Year U.S. Treasury 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%

 

* 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 Lehman Brothers 20+ Year U.S. Treasury 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.

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

   [   ]%
      

Total annual fund operating expenses

   [   ]%

Fee Waivers/Reimbursements B

   [   ]%
      

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 [        ], 2008. 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 Lehman Brothers 20+ Year U.S. Treasury 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 Lehman Brothers 20+ Year U.S. Treasury 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    $ [   ]
3 years    $ [   ]

Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the Short Lehman Brothers 20+ Year U.S. Treasury ProShares, as of [ ], 2007, 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 iBoxx $ Liquid Investment Grade ProShares

Ticker: [ ]

CUSIP: [ ]

INVESTMENT OBJECTIVE

Short IBoxx $ Liquid Investment Grade ProShares seeks daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the IBoxx $ Liquid Investment Grade Index.

If Short IBoxx $ Liquid Investment Grade 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 IBoxx $ Liquid Investment Grade 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 IBoxx $ Liquid Investment Grade 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 IBoxx $ Liquid Investment Grade 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 IBoxx $ Liquid Investment Grade ProShares is subject to the following principal risks:

 

   

Aggressive Investment Technique Risk The Short IBoxx $ Liquid Investment Grade 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 IBoxx $ Liquid Investment Grade 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 IBoxx $ Liquid Investment Grade ProShares may lose money.

 

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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 IBoxx $ Liquid Investment Grade 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.

 

   

Debt Instrument Risk. Each Fund may invest in, or seek exposure to, debt instruments. Debt instruments may have varying levels of sensitivity to changes in interest rates, credit risk and other factors. Typically, the value of outstanding debt instruments fall when interest rates rise. Debt instruments with longer maturities may fluctuate more in response to interest rate changes than instruments with shorter maturities. Many types of debt instruments are subject to prepayment risk, which is the risk that the issuer of the security can repay principal prior to the maturity date. Debt instruments allowing prepayment may offer less potential for gains during a period of declining interest rates. In addition, changes in the credit quality of the issuer of a debt instrument can also affect the price of a debt instrument, as can an issuer’s default on its payment obligations. Such factors may cause the value of an investment in a Fund to decrease. Also, the securities of certain U.S. government agencies, authorities or instrumentalities in which a Fund may invest are neither issued by nor guaranteed as to principal and interest by the U.S. Government, and may be exposed to credit risk.

 

   

Inverse Correlation Risk Shareholders in Short IBoxx $ Liquid Investment Grade 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 IBoxx $ Liquid Investment Grade ProShares may not be able to dispose of positions within a reasonable time at a fair price.

 

   

Market Price Variance Risk The Short IBoxx $ Liquid Investment Grade 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 IBoxx $ Liquid Investment Grade 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 IBoxx $ Liquid Investment Grade 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.

 

   

Short Sale Risk The Short IBoxx $ Liquid Investment Grade 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 IBoxx $ Liquid Investment Grade 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.

 

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FUND PERFORMANCE

Performance history will be available for the Short IBoxx $ Liquid Investment Grade 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 IBoxx $ Liquid Investment Grade 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%

 

* 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 IBoxx $ Liquid Investment Grade 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.

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

   [   ]%
      

Total annual fund operating expenses

   [   ]%

Fee Waivers/Reimbursements B

   [   ]%
      

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 [        ], 2008. 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 IBoxx $ Liquid Investment Grade 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    $ [   ]
3 years    $ [   ]

 

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Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the Short IBoxx $ Liquid Investment Grade ProShares, as of [ ], 2007, 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 iBoxx $ Liquid High Yield ProShares

Ticker: [ ]

CUSIP: [ ]

INVESTMENT OBJECTIVE

Short IBoxx $ Liquid High Yield ProShares seeks daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the IBoxx $ Liquid High Yield Index.

If Short IBoxx $ Liquid High Yield 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 IBoxx $ Liquid High Yield 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 IBoxx $ Liquid High Yield 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 IBoxx $ Liquid High Yield 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 IBoxx $ Liquid High Yield ProShares is subject to the following principal risks:

 

   

Aggressive Investment Technique Risk The Short IBoxx $ Liquid High Yield 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 IBoxx $ Liquid High Yield 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 IBoxx $ Liquid High Yield 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 IBoxx $ Liquid High Yield ProShares’ performance. As described under “Counterparty Risk” above, the Fund will also be subject to credit risk with respect to the

 

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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.

 

   

Debt Instrument Risk Each Fund may invest in, or seek exposure to, debt instruments. Debt instruments may have varying levels of sensitivity to changes in interest rates, credit risk and other factors. Typically, the value of outstanding debt instruments fall when interest rates rise. Debt instruments with longer maturities may fluctuate more in response to interest rate changes than instruments with shorter maturities. Many types of debt instruments are subject to prepayment risk, which is the risk that the issuer of the security can repay principal prior to the maturity date. Debt instruments allowing prepayment may offer less potential for gains during a period of declining interest rates. In addition, changes in the credit quality of the issuer of a debt instrument can also affect the price of a debt instrument, as can an issuer’s default on its payment obligations. Such factors may cause the value of an investment in a Fund to decrease. Also, the securities of certain U.S. government agencies, authorities or instrumentalities in which a Fund may invest are neither issued by nor guaranteed as to principal and interest by the U.S. Government, and may be exposed to credit risk.

 

   

Inverse Correlation Risk Shareholders in Short IBoxx $ Liquid High Yield 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 IBoxx $ Liquid High Yield ProShares may not be able to dispose of positions within a reasonable time at a fair price.

 

   

Market Price Variance Risk The Short IBoxx $ Liquid High Yield 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 IBoxx $ Liquid High Yield 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 IBoxx $ Liquid High Yield 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.

 

   

Short Sale Risk The Short IBoxx $ Liquid High Yield 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 IBoxx $ Liquid High Yield 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 IBoxx $ Liquid High Yield 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 IBoxx $ Liquid High Yield 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%

 

* 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 IBoxx $ Liquid High Yield 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.

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

   [   ]%
      

Total annual fund operating expenses

   [   ]%

Fee Waivers/Reimbursements B

   [   ]%
      

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 [        ], 2008. 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 IBoxx $ Liquid High Yield 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 IBoxx $ Liquid High Yield 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    $ [   ]
3 years    $ [   ]

 

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Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the Short IBoxx $ Liquid High Yield ProShares, as of [ ], 2007, 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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UltraShort Lehman Brothers 7-10 Year U.S. Treasury ProShares

Ticker: [ ]

CUSIP: [ ]

INVESTMENT OBJECTIVE

UltraShort Lehman Brothers 7-10 Year U.S. Treasury ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the Lehman Brothers 7-10 Year U.S. Treasury Index.

If UltraShort Lehman Brothers 7-10 Year U.S. Treasury ProShares is successful in meeting its objective, its net asset value should gain approximately twice as much, on a percentage basis, as any decrease in the Lehman Brothers 7-10 Year U.S. Treasury Index (Index) when the Index declines on a given day. Conversely, its net asset value should lose approximately twice as much, on a percentage basis, as any increase in the Index when the Index rises on a given day.

PRINCIPAL INVESTMENT STRATEGY

The UltraShort Lehman Brothers 7-10 Year U.S. Treasury 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 twice (200%) the inverse of the Lehman Brothers 7-10 Year U.S. Treasury 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 UltraShort Lehman Brothers 7-10 Year U.S. Treasury 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 UltraShort Lehman Brothers 7-10 Year U.S. Treasury 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

 

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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 UltraShort Lehman Brothers 7-10 Year U.S. Treasury ProShares is subject to the following principal risks:

 

   

Aggressive Investment Technique Risk The UltraShort Lehman Brothers 7-10 Year U.S. Treasury 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 UltraShort Lehman Brothers 7-10 Year U.S. Treasury 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 UltraShort Lehman Brothers 7-10 Year U.S. Treasury 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 UltraShort Lehman Brothers 7-10 Year U.S. Treasury 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.

 

   

Debt Instrument Risk. Each Fund may invest in, or seek exposure to, debt instruments. Debt instruments may have varying levels of sensitivity to changes in interest rates, credit risk and other factors. Typically, the value of outstanding debt instruments fall when interest rates rise. Debt instruments with longer maturities may fluctuate more in response to interest rate changes than instruments with shorter maturities. Many types of debt instruments are subject to prepayment risk, which is the risk that the issuer of the security can repay principal prior to the maturity date. Debt instruments allowing prepayment may offer less potential for gains during a period of declining interest rates. In addition, changes in the credit quality of the issuer of a debt instrument can also affect the price of a debt instrument, as can an issuer’s default on its payment obligations. Such factors may cause the value of an investment in a Fund to decrease. Also, the securities of certain U.S. government agencies, authorities or

 

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instrumentalities in which a Fund may invest are neither issued by nor guaranteed as to principal and interest by the U.S. Government, and may be exposed to credit risk.

 

   

Inverse Correlation Risk Shareholders in UltraShort Lehman Brothers 7-10 Year U.S. Treasury 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.

 

   

Leverage Risk The UltraShort Lehman Brothers 7-10 Year U.S. Treasury 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 UltraShort Lehman Brothers 7-10 Year U.S. Treasury ProShares to lose more money in market environments adverse to its daily investment objective than an unleveraged investment.

 

   

Liquidity Risk In certain circumstances, the UltraShort Lehman Brothers 7-10 Year U.S. Treasury ProShares may not be able to dispose of portfolio investments within a reasonable time at a fair price.

 

   

Market Price Variance Risk The UltraShort Lehman Brothers 7-10 Year U.S. Treasury 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 UltraShort Lehman Brothers 7-10 Year U.S. Treasury 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 UltraShort Lehman Brothers 7-10 Year U.S. Treasury 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.

 

   

Short Sale Risk The UltraShort Lehman Brothers 7-10 Year U.S. Treasury 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.

 

   

Volatility Risk UltraShort Lehman Brothers 7-10 Year U.S. Treasury 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 UltraShort Lehman Brothers 7-10 Year U.S. Treasury 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 UltraShort Lehman Brothers 7-10 Year U.S. Treasury 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 UltraShort Lehman Brothers 7-10 Year U.S. Treasury 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%

 

* 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 UltraShort Lehman Brothers 7-10 Year U.S. Treasury 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.

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

   [   ]%
      

Total annual fund operating expenses

   [   ]%

Fee Waivers/Reimbursements B

   [   ]%
      

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 [        ], 2008. 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 UltraShort Lehman Brothers 7-10 Year U.S. Treasury 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 UltraShort Lehman Brothers 7-10 Year U.S. Treasury 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

   $ [   ]

3 years

   $ [   ]

 

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Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the UltraShort Lehman Brothers 7-10 Year U.S. Treasury ProShares, as of [ ], 2007, 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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UltraShort Lehman Brothers 20+ Year U.S. Treasury ProShares

Ticker: [ ]

CUSIP: [ ]

INVESTMENT OBJECTIVE

UltraShort Lehman Brothers 20+ Year U.S. Treasury ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the Lehman Brothers 20+ Year U.S. Treasury Index.

If UltraShort Lehman Brothers 20+ Year U.S. Treasury ProShares is successful in meeting its objective, its net asset value should gain approximately twice as much, on a percentage basis, as any decrease in the Lehman Brothers 20+ Year U.S. Treasury Index (Index) when the Index declines on a given day. Conversely, its net asset value should lose approximately twice as much, on a percentage basis, as any increase in the Index when the Index rises on a given day.

PRINCIPAL INVESTMENT STRATEGY

The UltraShort Lehman Brothers 20+ Year U.S. Treasury 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 twice (200%) the inverse of the Lehman Brothers 20+ Year U.S. Treasury 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 UltraShort Lehman Brothers 20+ Year U.S. Treasury 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 UltraShort Lehman Brothers 20+ Year U.S. Treasury 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 UltraShort Lehman Brothers 20+ Year U.S. Treasury ProShares is subject to the following principal risks:

 

   

Aggressive Investment Technique Risk The UltraShort Lehman Brothers 20+ Year U.S. Treasury 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 UltraShort Lehman Brothers 20+ Year U.S. Treasury 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 UltraShort Lehman Brothers 20+ Year U.S. Treasury 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 UltraShort Lehman Brothers 20+ Year U.S. Treasury 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.

 

   

Debt Instrument Risk. Each Fund may invest in, or seek exposure to, debt instruments. Debt instruments may have varying levels of sensitivity to changes in interest rates, credit risk and other factors. Typically, the value of outstanding debt instruments fall when interest rates rise. Debt instruments with longer maturities may fluctuate more in response to interest rate changes than instruments with shorter maturities. Many types of debt instruments are subject to prepayment risk, which is the risk that the issuer of the security can repay principal prior to the maturity date. Debt instruments allowing prepayment may offer less potential for gains during a period of declining interest rates. In addition, changes in the credit quality of the issuer of a debt instrument can also affect the price of a debt instrument, as can an issuer’s default on its payment obligations. Such factors may cause the value of an investment in a Fund to decrease. Also, the securities of certain U.S. government agencies, authorities or instrumentalities in which a Fund may invest are neither issued by nor guaranteed as to principal and interest by the U.S. Government, and may be exposed to credit risk.

 

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Inverse Correlation Risk Shareholders in UltraShort Lehman Brothers 20+ Year U.S. Treasury 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.

 

   

Leverage Risk The UltraShort Lehman Brothers 20+ Year U.S. Treasury 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 UltraShort Lehman Brothers 20+ Year U.S. Treasury 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 UltraShort Lehman Brothers 20+ Year U.S. Treasury 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 UltraShort Lehman Brothers 20+ Year U.S. Treasury 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 UltraShort Lehman Brothers 20+ Year U.S. Treasury 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.

 

   

Short Sale Risk The UltraShort Lehman Brothers 20+ Year U.S. Treasury 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.

 

   

Volatility Risk UltraShort Lehman Brothers 20+ Year U.S. Treasury 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 UltraShort Lehman Brothers 20+ Year U.S. Treasury 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 UltraShort Lehman Brothers 20+ Year U.S. Treasury 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 UltraShort Lehman Brothers 20+ Year U.S. Treasury 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%

 

* 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 UltraShort Lehman Brothers 20+ Year U.S. Treasury 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.

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

   [   ]%
      

Total annual fund operating expenses

   [   ]%

Fee Waivers/Reimbursements B

   [   ]%
      

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 [        ], 2008. 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 UltraShort Lehman Brothers 20+ Year U.S. Treasury 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 UltraShort Lehman Brothers 20+ Year U.S. Treasury 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

   $ [   ]

3 years

   $ [   ]

 

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Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the UltraShort Lehman Brothers 20+ Year U.S. Treasury ProShares, as of [ ], 2007, 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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UltraShort IBoxx $ Liquid Investment Grade ProShares

Ticker: [ ]

CUSIP: [ ]

INVESTMENT OBJECTIVE

UltraShort IBoxx $ Liquid Investment Grade ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the IBoxx $ Liquid Investment Grade Index.

If UltraShort IBoxx $ Liquid Investment Grade ProShares is successful in meeting its objective, its net asset value should gain approximately twice as much, on a percentage basis, as any decrease in the IBoxx $ Liquid Investment Grade Index (Index) when the Index declines on a given day. Conversely, its net asset value should lose approximately twice as much, on a percentage basis, as any increase in the Index when the Index rises on a given day.

PRINCIPAL INVESTMENT STRATEGY

The UltraShort IBoxx $ Liquid Investment Grade 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 twice (200%) the inverse of the IBoxx $ Liquid Investment Grade 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 UltraShort IBoxx $ Liquid Investment Grade 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 UltraShort IBoxx $ Liquid Investment Grade 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

 

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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 UltraShort IBoxx $ Liquid Investment Grade ProShares is subject to the following principal risks:

 

   

Aggressive Investment Technique Risk The UltraShort IBoxx $ Liquid Investment Grade 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 UltraShort IBoxx $ Liquid Investment Grade 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 UltraShort IBoxx $ Liquid Investment Grade 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 UltraShort IBoxx $ Liquid Investment Grade 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.

 

   

Debt Instrument Risk. Each Fund may invest in, or seek exposure to, debt instruments. Debt instruments may have varying levels of sensitivity to changes in interest rates, credit risk and other factors. Typically, the value of outstanding debt instruments fall when interest rates rise. Debt instruments with longer maturities may fluctuate more in response to interest rate changes than instruments with shorter maturities. Many types of debt instruments are subject to prepayment risk, which is the risk that the issuer of the security can repay principal prior to the maturity date. Debt instruments allowing prepayment may offer less potential for gains during a period of declining interest rates. In addition, changes in the credit quality of the issuer of a debt instrument can also affect the price of a debt instrument, as can an issuer’s default on its payment obligations. Such factors may cause the value of an investment in a Fund to decrease. Also, the securities of certain U.S. government agencies, authorities or instrumentalities in which a Fund may invest are neither issued by nor guaranteed as to principal and interest by the U.S. Government, and may be exposed to credit risk.

 

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Inverse Correlation Risk Shareholders in UltraShort IBoxx $ Liquid Investment Grade 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.

 

   

Leverage Risk The UltraShort IBoxx $ Liquid Investment Grade 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 UltraShort IBoxx $ Liquid Investment Grade ProShares may not be able to dispose of positions within a reasonable time at a fair price.

 

   

Market Price Variance Risk The UltraShort IBoxx $ Liquid Investment Grade 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 UltraShort IBoxx $ Liquid Investment Grade 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 UltraShort IBoxx $ Liquid Investment Grade 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.

 

   

Short Sale Risk The UltraShort IBoxx $ Liquid Investment Grade 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.

 

   

Volatility Risk UltraShort IBoxx $ Liquid Investment Grade 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 UltraShort IBoxx $ Liquid Investment Grade 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 UltraShort IBoxx $ Liquid Investment Grade 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 UltraShort IBoxx $ Liquid Investment Grade 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%

 

* 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 UltraShort IBoxx $ Liquid Investment Grade 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.

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

   [   ]%
      

Total annual fund operating expenses

   [   ]%

Fee Waivers/Reimbursements B

   [   ]%
      

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 [        ], 2008. 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 UltraShort IBoxx $ Liquid Investment Grade 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

   $ [   ]

3 years

   $ [   ]

Creation and Redemption Transaction Fee Example

The approximate value of one Creation Unit of the UltraShort IBoxx $ Liquid Investment Grade ProShares, as of [ ], 2007, 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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UltraShort IBoxx $ Liquid High Yield ProShares

Ticker: [ ]

CUSIP: [ ]

INVESTMENT OBJECTIVE

UltraShort IBoxx $ Liquid High Yield ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the IBoxx $ Liquid High Yield Index.

If UltraShort IBoxx $ Liquid High Yield ProShares is successful in meeting its objective, its net asset value should gain approximately twice as much, on a percentage basis, as any decrease in the IBoxx $ Liquid High Yield Index (Index) when the Index declines on a given day. Conversely, its net asset value should lose approximately twice as much, on a percentage basis, as any increase in the Index when the Index rises on a given day.

PRINCIPAL INVESTMENT STRATEGY

The UltraShort IBoxx $ Liquid High Yield 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 twice (200%) the inverse of the IBoxx $ Liquid High Yield 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 UltraShort IBoxx $ Liquid High Yield 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 UltraShort IBoxx $ Liquid High Yield ProShares is subject to the following principal risks:

 

   

Aggressive Investment Technique Risk The UltraShort IBoxx $ Liquid High Yield 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 UltraShort IBoxx $ Liquid High Yield 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 UltraShort IBoxx $ Liquid High Yield 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 UltraShort IBoxx $ Liquid High Yield 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.

 

   

Debt Instrument Risk. Each Fund may invest in, or seek exposure to, debt instruments. Debt instruments may have varying levels of sensitivity to changes in interest rates, credit risk and other factors. Typically, the value of outstanding debt instruments fall when interest rates rise. Debt instruments with longer maturities may fluctuate more in response to interest rate changes than instruments with shorter maturities. Many types of debt instruments are subject to prepayment risk, which is the risk that the issuer of the security can repay principal prior to the maturity date. Debt instruments allowing prepayment may offer less potential for gains during a period of declining interest rates. In addition, changes in the credit quality of the issuer of a debt instrument can also affect the price of a debt instrument, as can an issuer’s default on its payment obligations. Such factors may cause the value of an investment in a Fund to decrease. Also, the securities of certain U.S. government agencies, authorities or instrumentalities in which a Fund may invest are neither issued by nor guaranteed as to principal and interest by the U.S. Government, and may be exposed to credit risk.

 

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Inverse Correlation Risk Shareholders in UltraShort IBoxx $ Liquid High Yield 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.

 

   

Leverage Risk The UltraShort IBoxx $ Liquid High Yield 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 UltraShort IBoxx $ Liquid High Yield ProShares may not be able to dispose of positions within a reasonable time at a fair price.

 

   

Market Price Variance Risk The UltraShort IBoxx $ Liquid High Yield 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 UltraShort IBoxx $ Liquid High Yield 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 UltraShort IBoxx $ Liquid High Yield 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.

 

   

Short Sale Risk The UltraShort IBoxx $ Liquid High Yield 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.

 

   

Volatility Risk UltraShort IBoxx $ Liquid High Yield 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 UltraShort IBoxx $ Liquid High Yield 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 UltraShort IBoxx $ Liquid High Yield 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 UltraShort IBoxx $ Liquid High Yield 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%

 

* 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 UltraShort IBoxx $ Liquid High Yield 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.

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

   [   ]%
      

Total annual fund operating expenses

   [   ]%

Fee Waivers/Reimbursements B

   [   ]%
      

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 [        ], 2008. 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 UltraShort IBoxx $ Liquid High Yield 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 UltraShort IBoxx $ Liquid High Yield 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

   $ [   ]

3 years

   $ [   ]

Creation and Redemption Transaction Fee Example

The approximate value of one creation unit of the UltraShort IBoxx $ Liquid High Yield Proshares, as of [ ], 2007, 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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More on Investment Objectives, Strategies and Risks

Investment Objectives:

Ultra ProShares

 

   

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

 

   

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

 

   

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

Short ProShares

 

   

Short NASDAQ Biotechnology ProShares seeks daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the NASDAQ Biotechnology Index.

 

   

Short Dow Jones Select Biotechnology ProShares seeks daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the Dow Jones Select Biotechnology Index.

 

   

Short Dow Jones Select Telecommunications ProShares seeks daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the Dow Jones Select Telecommunications Index.

 

   

Short MSCI Emerging Markets ProShares seeks daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the MSCI Emerging Markets Index.

 

   

Short MSCI Japan ProShares seeks daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the MSCI Japan Index.

 

   

Short MSCI EAFE ProShares seeks daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the MSCI EAFE Index.

 

   

Short FTSE/Xinhua China 25 ProShares seeks daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the FTSE/Xinhua China 25 Index.

 

   

UltraShort NASDAQ Biotechnology ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the NASDAQ Biotechnology Index.

 

   

UltraShort Dow Jones Select Biotechnology ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the Short Dow Jones Select Biotechnology Index.

 

   

UltraShort Dow Jones Select Telecommunications ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the Dow Jones Select Telecommunications Index.

 

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UltraShort MSCI Emerging Markets ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the MSCI Emerging Markets Index.

 

   

UltraShort MSCI Japan ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the MSCI Japan Index.

 

   

UltraShort MSCI EAFE ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the MSCI EAFE Index.

 

 

 

UltraShort FTSE/Xinhua China 25 ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the FTSE/Xinhua China 25 Index.

Short Non-Equity ProShares

 

   

Short Lehman Brothers 7-10 Year U.S. Treasury ProShares seeks daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the Lehman Brothers 7-10 Year U.S. Treasury Index.

 

   

Short Lehman Brothers 20+ Year U.S. Treasury ProShares seeks daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the Lehman Brothers 20+ Year U.S. Treasury Index.

 

   

Short iBoxx $ Liquid Investment Grade ProShares seeks daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the IBoxx $ Liquid Investment Grade Index.

 

   

Short iBoxx $ Liquid High Yield ProShares seeks daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the IBoxx $ Liquid High Yield Index. seeks daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the IBoxx $ Liquid Investment Grade Index.

 

   

UltraShort Lehman Brothers 7-10 Year U.S. Treasury ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the Lehman Brothers 7-10 Year U.S. Treasury Index.

 

   

UltraShort Lehman Brothers 20+ Year U.S. Treasury ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the Lehman Brothers 20+ Year U.S. Treasury Index.

 

   

UltraShort iBoxx $ Liquid Investment Grade ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the IBoxx $ Liquid Investment Grade Index.

 

   

UltraShort iBoxx $ Liquid High Yield ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the IBoxx $ Liquid High Yield Index.

The investment objective of each Fund is non-fundamental and may be changed without shareholder approval.

 

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More on Principal Investment Strategies

In seeking to achieve each Fund’s investment objective, ProShare Advisors uses a mathematical approach to investing. Using this approach, ProShare Advisors determines the type, quantity and mix of investment positions that a Fund should hold to approximate the performance of its benchmark.

Each Fund reserves the right to substitute a different index or security for the index underlying its benchmark (“underlying index”). ProShare Advisors does not invest the assets of the Funds in stocks or financial instruments based on ProShare Advisors’ view of the investment merit of a particular security, instrument, or company, nor does it conduct conventional stock research or analysis, or forecast stock market movement or trends, in managing the assets of the Funds. Ultra ProShares are designed to correspond to a multiple of the daily performance of an underlying index. The Short ProShares are designed to correspond to the inverse of the daily performance or twice (200%) the inverse of the daily performance of an underlying index. Each Fund seeks to remain fully invested at all times in securities and/or financial instruments that provide exposure to its underlying index without regard to market conditions, trends or direction. The Funds also do not take temporary defensive positions. The Funds do not seek to achieve their stated investment objective over a period of time greater than one day because mathematical compounding prevents the Funds from achieving such results.

The Funds employ investment techniques that ProShare Advisors believes should simulate the movement of their respective benchmarks. For example, the Funds may employ the following investment techniques in pursuit of their investment objective:

 

   

Leveraged Investment Techniques offer a means of magnifying market movements into larger changes in an investment’s value. Swap agreements, borrowing, futures contracts, forward contracts, options on securities indexes, reverse repurchase agreements and short sales, all may be used to create leverage. Short sales or selling short entails selling a stock, usually borrowed, and buying it back at a later date. The Funds may employ leverage through these various techniques for investment purposes. Use of leveraged investment techniques may involve additional costs and risks to a Fund.

 

   

Sampling Techniques Short ProShares may hold a representative sample of the securities in the underlying index, which have aggregate characteristics similar to those of the Index. The sampling process typically involves selecting a representative sample of securities in an index principally to enhance liquidity and reduce transaction costs while seeking to maintain high correlation with, and similar aggregate characteristics (market capitalization and industry weightings) to, the underlying index. In addition, each Short ProShares may obtain exposure to components not included in the underlying index, invest in securities that are not included in the underlying index or may overweight or underweight certain components contained in the underlying index.

Strategies Specific to the Ultra ProShares

Each Ultra ProShares invests 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 its underlying index. These instruments include:

 

   

Equity Securities are securities that include common stock, preferred stock, depositary receipts, convertible securities and rights and warrants. Stocks represent an ownership interest in a corporation.

 

   

Financial Instruments (including derivatives) are investment contracts whose value is derived from the value of an underlying asset, interest rate or index. The Ultra ProShares may invest in financial instruments as a substitute for investing directly in stocks or bonds in order to gain exposure to its underlying index. Financial Instruments may also be used to produce economically “leveraged” investment results. Financial instruments include:

 

   

Futures Contracts and Options on Futures Contracts Futures or futures contracts are contracts to pay a fixed price for an agreed-upon amount of commodities or securities, or the cash value of the commodity or securities on an agreed-upon date.

 

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Swap Agreements Swap agreements are two-party contracts entered into primarily by institutional investors for a specified period ranging from a day to more than one year. In a standard “swap” transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a “notional amount,” e.g., the return on or increase in value of a particular dollar amount invested in a “basket” of securities representing a particular index. The Funds are subject to credit or performance risk on the amount each Fund expects to receive from swap agreement counterparties. A swap counterparty default on its payment obligation to a Fund may cause the value of the Fund to decrease.

 

   

Forward Contracts Forward contracts are two-party contracts entered into with dealers or financial institutions where a purchase or sale of a specific quantity of a commodity, security, foreign currency or other financial instrument at a set price, with delivery and settlement at a specified future date. Forwards may also be structured for cash settlement, rather than physical delivery.

 

   

Options on Securities and Stock Indices and Investments Covering Such Positions Option contracts grant one party a right, for a price, either to buy or sell a security or futures contract at a fixed price during a specified period or on a specified day. Call options give investors the right to buy a stock at an agreed-upon price on or before a certain date. A put option gives the investor the right to sell a stock at an agreed-upon price on or before a certain date.

Pursuant to an exemptive order received from the SEC, each Ultra ProShares has committed to invest between 85% and 100% of its assets in the securities comprising the Underlying Index. This commitment is in addition to the any requirements of the SEC “names rule” (i.e., Rule 35d-1 under the 1940 Act). For those Ultra ProShares subject to the names rule, such Funds commit at least 80% of assets, under normal circumstances, to equity securities contained in the Underlying Index and/or financial instruments with similar economic characteristics.

In addition, each Ultra ProShares may use other securities, financial instruments and techniques in pursuit of its investment objective. Assets of each Ultra ProShares not invested in equity securities or financial instruments may be invested in debt securities and/or money market instruments, including repurchase agreements.

Strategies Specific to the Short ProShares

The Short ProShares invest in financial instruments (including derivatives) that ProShare Advisors believes, in combination, should have similar daily return characteristics as the inverse (opposite) or a multiple of the inverse of the underlying index. These instruments include:

 

   

Financial Instruments (including derivatives) are investment contracts whose value is derived from the value of an underlying asset, interest rate or index and may be used to produce economically “leveraged” investment results. Financial instruments include:

 

   

Futures Contracts and Options on Futures Contracts Futures or futures contracts are contracts to pay a fixed price for an agreed-upon amount of commodities or securities, or the cash value of the commodity or securities on an agreed-upon date.

 

   

Swap Agreements Swap agreements are two-party contracts entered into primarily by institutional investors for a specified period ranging from a day to more than one year. In a standard “swap” transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a “notional amount,” e.g., the return on or increase in value of a particular dollar amount invested in a “basket” of securities representing a particular index. The Funds are subject to credit or performance risk on the amount each Fund expects to receive from swap agreement counterparties. A swap counterparty default on its payment obligation to a Fund may cause the value of the Fund to decrease.

 

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Forward Contracts Forward contracts are two-party contracts entered into with dealers or financial institutions where a purchase or sale of a specific quantity of a commodity, security, foreign currency or other financial instrument at a set price, with delivery and settlement at a specified future date. Forward contracts may also be structured for cash settlement, rather than physical delivery.

 

   

Options on Securities and Stock Indices and Investments Covering Such Positions Option contracts grant one party a right, for a price, either to buy or sell a security or futures contract at a fixed price during a specified period or on a specified day. Call options give investors the right to buy a stock at an agreed-upon price on or before a certain date. A put option gives the investor the right to sell a stock at an agreed-upon price on or before a certain date.

Short ProShares generally do not invest in equity securities such as common stock. In addition, each Short ProShares may use other financial instruments and techniques in pursuit of its investment objective. Assets of the Short ProShares not invested in financial instruments may be invested in debt instruments and/or money market instruments, including repurchase agreements.

Important Concepts and Definitions

This section describes additional securities, instruments and strategies that may be utilized by a Fund.

 

 

Debt Instruments include bonds and other instruments, such as certificates of deposit, euro time deposits, commercial paper (including asset-backed commercial paper), notes, funding agreements and U.S. Government securities that are used by U.S. and foreign banks, financial institutions, corporations, or other entities, to borrow money from investors. Holders of debt instruments have a higher priority claim to assets than do holders of equity securities. Typically, the debt issuer pays the investor a fixed, variable or floating rate of interest and must repay the borrowed amount at maturity. Some debt instruments, such as zero coupon bonds, are sold at a discount from their face values instead of paying interest.

 

 

Depositary Receipts (DRs) include American Depositary Receipts (ADRs), Global Depositary Receipts (GDRs), and New York Shares (NYSs).

 

   

ADRs represent the right to receive securities of foreign issuers deposited in a bank or trust company. ADRs are an alternative to purchasing the underlying securities in their national markets and currencies. Investment in ADRs has certain advantages over direct investment in the underlying foreign securities since: (i) ADRs are U.S. dollar-denominated investments that are easily transferable and for which market quotations are readily available, and (ii) issuers whose securities are represented by ADRs are generally subject to auditing, accounting and financial reporting standards similar to those applied to domestic issuers.

 

   

GDRs are receipts for shares in a foreign-based corporation traded in capital markets around the world. While ADRs permit foreign corporations to offer shares to American citizens, GDRs allow companies in Europe, Asia, the United States and Latin America to offer shares in many markets around the world.

 

   

A NYS is a share of New York registry, representing equity ownership in a non-U.S. company, allowing for a part of the capital of the company to be outstanding in the U.S. and part in the home market. It is issued by a U.S. transfer agent and registrar on behalf of the company and created against the cancellation of the local share by the local registrar. One New York Share is always equal to one ordinary share. New York Share programs are typically managed by the same banks that manage ADRs, as the mechanics of the instrument are very similar. New York Shares are used primarily by Dutch companies.

 

 

Money Market Instruments are short-term debt instruments that have terms-to-maturity of less than 397 days and exhibit high quality credit profiles. Money market instruments include U.S. Government securities and repurchase agreements.

 

 

Repurchase Agreements are contracts in which the seller of securities, usually U.S. Government Securities or other Money Market Instruments, agrees to buy them back at a specified time and price. Repurchase Agreements are primarily used by the ProShares as a short-term investment vehicle for cash positions.

 

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Reverse Repurchase Agreements involve the sale of a security by a fund to another party (generally a bank or dealer) in return for cash and an agreement by the fund to buy the security back at a specified price and time. Reverse repurchase agreements may be considered a form of borrowing for some purposes and may create leverage.

 

 

Selling Short entails selling a stock or debt instrument, usually borrowed, and buying it back at a later date. Entering into short positions through financial instruments such as futures, options and swap agreements in intended to have similar investment results as selling short.

 

 

Structured Notes are debt obligations which may include components such as swaps, forwards, options, caps or floors which change its return pattern. Structured notes may be used to expose a portfolio, or alternatively may be used to expose a portfolio to asset classes or markets in which one does not desire to invest directly.

 

 

U.S. Government Securities are issued by the U.S. Government or one of its agencies or instrumentalities. Some, but not all, U.S. Government securities are backed by the full faith and credit of the federal government. Other U.S. Government securities are backed by the issuer’s right to borrow from the U.S. Treasury and some are backed only by the credit of the issuing organization.

More on Risks: Like all investments, investing in the Funds entails risks. Many factors affect the value of an investment in a Fund. A Fund’s NAV will change daily based on variations in market conditions, interest rates and other economic, political or financial developments. A Fund’s response to these developments will depend upon the types of securities in which the Fund invests, the Fund’s level of investment in particular issuers and other factors, including the financial condition, industry, economic sector and location of such issuers.

The factors most likely to have a significant impact on a Fund’s portfolio are called “principal risks.” The principal risks for each Fund are described in each Fund description. A Fund may be subject to risks in addition to those identified as principal risks and risks other than those described below. The SAI contains additional information about the Funds, their investment strategies and related risks.

The following risk factors are “principal risks” to the Funds noted in italics and can have a significant impact on a Fund’s performance:

 

 

Aggressive Investment Technique Risk (All Funds) The Funds use investment techniques 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. The Funds’ investment in financial instruments may involve a small investment relative to the amount of investment exposure assumed and may result in losses that exceed the amounts invested. Such instruments, particularly when used to create leverage, may expose the Funds to potentially dramatic changes (losses or gains) in the value of the instruments and imperfect correlation between the value of the instruments and the security or index. The use of aggressive investment techniques also exposes the Funds to risks different from, or possibly greater than, the risks associated with investing directly in securities contained in an index underlying a ProShares benchmark, including: 1) the risk that an instrument is mispriced; 2) credit or performance risk on the amount the Fund expects to receive from a counterparty; 3) the risk that securities prices, interest rates and currency markets will move adversely and the Fund will incur significant losses; 4) the risk that there may be imperfect correlation between the price of financial instruments and movements in the prices of the underlying securities; 5) the risk that the cost of holding a financial instrument might exceed its total return; and 6) the possible absence of a liquid secondary market for any particular instrument and/or possible exchange imposed price fluctuation limits, which may make it difficult or impossible to adjust a Fund’s position in a particular financial instrument when desired.

 

 

Correlation Risk (All Funds) A number of factors may affect a Fund’s ability to achieve a high degree of correlation with its benchmark, and there can be no guarantee that a Fund will achieve a high degree of correlation. A failure to achieve a high degree of correlation may prevent a Fund from achieving its investment objective. The following factors, including fees, expenses, transaction costs, costs associated with the use of leveraged investment techniques , may adversely affect the a Fund’s correlation with its benchmark and a Fund’s ability to meet its daily investment objective: 1) use of sampling techniques; 2) investment in securities or financial instruments not included in its underlying index; 3) large movements of assets; 4) the receipt of transaction information after the relevant exchange or market closes, potentially resulting in over- or under-

 

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exposure to the benchmark; 5) the early close or trading halt on an exchange or market; 6) a restriction on security transactions, which may result in the inability to buy or sell certain securities or financial instruments; or 7) a Fund may not have investment exposure to all securities in its underlying benchmark index, or its weighting of investment exposure to such stocks or industries may be different from that of the underlying index. In such circumstances, a Fund may be unable to rebalance its portfolio, accurately price its investments and may incur substantial trading losses.

 

 

Counterparty Risk (All Funds) Each Fund will be subject to credit risk with respect to the amount it expects to receive from counterparties to financial instruments entered into by a Fund or held by special purpose or structured vehicles. If a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the value of your investment in a Fund may decline. A Fund may experience significant delays in obtaining any recovery in a bankruptcy or other reorganization proceeding. A Fund may obtain only limited recovery or may obtain no recovery in such circumstances. The Funds typically enter into transactions with counterparties whose credit rating is investment grade, as determined by a nationally recognized statistical rating organization, or, if unrated, judged by ProShare Advisors to be of comparable quality.

 

 

Credit Risk (All Funds) 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 Fund performance. As described under “Counterparty Risk” above, the Funds 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 (All Funds except Short Non-Equity ProShares) 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. This volatility may cause the value of an investment in a Fund to decrease. The Short ProShares respond differently to these risks than funds that are positively correlated to the equity markets, such as the Short ProShares.

 

 

Inverse Correlation Risk (Short ProShares) Shareholders in Short ProShares should lose money when the underlying index rises – a result that is the opposite from traditional equity or bond funds.

 

 

Leverage Risk (Ultra ProShares and UltraShort ProShares) Leverage offers a means of magnifying market movements into larger changes in an investment’s value and provides greater investment exposure than an unleveraged investment. Swap agreements, borrowing, futures contracts, forward contracts, options on securities indexes, reverse repurchase agreements and short sales, all may be used to create leverage. While only the Ultra ProShares and certain Short ProShares employ leverage, each Fund 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 a 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. Consequently, the Funds that employ leverage will normally lose more money in adverse market environments than funds that do not employ leverage. (A falling market is considered an adverse market environment for the Ultra ProShares and a rising market is considered an adverse market environment for the Short ProShares.) The example previously provided under each Fund’s “Principal Investment Strategy” illustrates this point.

 

 

Liquidity Risk (All Funds) In certain circumstances, such as the disruption of the orderly markets for the securities or financial instruments in which a Fund invests, a 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. This may prevent a Fund from limiting losses, realizing gains or from achieving a high correlation or inverse correlation with its Underlying Benchmark.

 

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Market Price Variance Risk (All Funds) Individual Shares of a Fund will be listed for trading on the Exchange and can be bought and sold in the secondary market at market prices. The market prices of Shares will fluctuate in response to changes in NAV and supply and demand for Shares. ProShare Advisors cannot predict whether Shares will trade above, below or at their NAV. Differences between secondary market prices and NAV for Shares may be due largely to supply and demand forces in the secondary market, which forces may not be the same as those influencing prices for securities or instruments held by a Fund at a particular time. Given the fact that Shares can be created and redeemed in Creation Units, ProShare Advisors believes that large discounts or premiums to the NAV of Shares should not be sustained. There may, however, be times when the market price and the NAV vary significantly. Thus, you may pay more than NAV when buying Shares on the secondary market, and you may receive less than NAV when you sell those Shares. The market price of Shares, like the price of any exchange-traded security, includes a “bid-ask spread” charged by the exchange specialist, market makers or other participants that trade the particular security. In times of severe market disruption, the bid-ask spread often increases significantly. This means that Shares may trade at a discount to NAV, and the discount is likely to be greatest when the price of Shares is falling fastest, which may be the time that you most want to sell your Shares. A Fund’s investment results are measured based upon the daily NAV of the Fund. Investors purchasing and selling shares in the secondary market may not experience investment results consistent with those experienced by those creating and redeeming directly with a Fund.

 

 

Market Risk (All Funds) The Funds are subject to market risks that will affect the value of their shares, including, adverse issuer, political, regulatory, market or economic developments, as well as developments that impact specific economic sectors, industries or segments of the market. Investors in an Short ProShares should normally lose value on days when its underlying index declines. Investors in a Short ProShares should normally lose value on days when its underlying index increases. Each of the Funds seeks to remain fully invested regardless of market conditions.

 

 

Non-diversification Risk (All Funds) The Funds are classified as “non-diversified” under the federal securities laws. Each Fund has the ability to invest a relatively high percentage of its investments in the securities of a small number of issuers if ProShare Advisors determines that doing so is the most efficient means of meeting its objective. This would make the performance of the Funds susceptible to a single economic, political or regulatory event than a diversified fund might be.

 

 

Short Sale Risk (Short ProShares) Selling short is a technique that may be employed by the Short ProShares to achieve investment exposure consistent with its investment objective. Short selling is accomplished by borrowing a security and then selling it. If a Fund buys back the security at a price lower than the price at which it sold the security plus accrued interest, the Fund will earn a positive return (profit) on the difference. If the current market price is greater when the time comes to buy back the security plus accrued interest, the Fund will incur a negative return (loss) on the transaction. The Funds’ use of short sales may involve additional transaction costs and other expenses. As a result, the cost of maintaining a short position may exceed the return on the position, which may cause a Fund to lose money. Under certain market conditions, short sales can increase the volatility, and decrease the liquidity of certain securities or positions and may lower a Fund’s return or result in a loss.

 

 

Volatility Risk (UltraProShares and UltraShort ProShares) The Funds subject to volatility risk seek to achieve daily returns equal to multiple of an index. Therefore, they experience greater volatility than the indexes underlying their benchmarks and thus have the potential for greater losses.

In addition to the principal risks described above, the following risks may apply:

 

   

Concentration Risk Each Fund will concentrate its investments in issuers of one or more particular industries to the same extent that its underlying index is so concentrated and to the extent permitted by applicable regulatory guidance. There is a risk that those issuers (or industry sector) will perform poorly and negatively impact a Fund. Concentration risk results from maintaining exposure to issuers conducting business in a specific industry. The risk of concentrating investments in a limited number of issuers in a particular industry is that a Fund will be more susceptible to the risks associated with that industry than a fund that does not concentrate its investments.

 

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Debt Instrument Risk Each Fund may invest in, or seek exposure to, debt instruments. Debt instruments may have varying levels of sensitivity to changes in interest rates, credit risk and other factors. Typically, the value of outstanding debt instruments fall when interest rates rise. Debt instruments with longer maturities may fluctuate more in response to interest rate changes than instruments with shorter maturities. Many types of debt instruments are subject to prepayment risk, which is the risk that the issuer of the security can repay principal prior to the maturity date. Debt instruments allowing prepayment may offer less potential for gains during a period of declining interest rates. In addition, changes in the credit quality of the issuer of a debt instrument can also affect the price of a debt instrument, as can an issuer’s default on its payment obligations. Such factors may cause the value of an investment in a Fund to decrease. Also, the securities of certain U.S. government agencies, authorities or instrumentalities in which a Fund may invest are neither issued by nor guaranteed as to principal and interest by the U.S. Government, and may be exposed to credit risk.

 

   

Foreign Investment Risk Foreign stocks and financial instruments correlated to such stocks may be more volatile than their U.S. counterparts for a variety of reasons, including the effects of economic or political developments, public health and safety issues, demographic changes, market inefficiencies, or a higher risk that essential investment information is incomplete, unavailable or inaccurate. Additionally, certain countries may lack uniform accounting and disclosure standards, or have standards that differ from U.S. standards. Securities or financial instruments purchased by a Fund may be impacted by fluctuations in foreign currencies. The value of such securities or instruments could change significantly as the currencies strengthen or weaken relative to the U.S. dollar. ProShare Advisors does not engage in activities designed to hedge against foreign currency fluctuations.

 

   

Interest Rate Risk Interest rate risk is the risk that debt securities or certain financial instruments may fluctuate in value due to changes in interest rates and other factors. Commonly, investments subject to interest rate risk will decrease in value when interest rates rise and increase in value when interest rates decline. The value of securities with longer maturities may fluctuate more in response to interest rate changes than securities with shorter maturities.

 

   

Portfolio Turnover Risk The portfolio turnover rate for each Fund is expected to be greater than 100%. Active trading of Fund shares may cause more frequent creation or redemption activities and could increase the rate of portfolio turnover. A high level of portfolio turnover may negatively impact performance by increasing transaction expenses and generating taxable short-term capital gains. In addition, large movements of assets into and out of the Funds may negatively impact a Fund’s ability to achieve its investment objective or maintain a consistent level of operating expenses. In certain circumstances, a Fund’s expense ratio may vary from current estimates disclosed in this Prospectus.

Special Risks of Exchange-Traded Funds

Not Individually Redeemable Shares may be redeemed by a Fund at NAV only in large blocks known as Creation Units. You may incur brokerage costs purchasing enough Shares to constitute a Creation Unit.

Trading Issues Trading in Shares on the Exchange may be halted due to market conditions or for reasons that, in the view of the Exchange, make trading in Shares inadvisable. In addition, trading in Shares on the Exchange may be halted due to extraordinary market volatility or other reasons. There can be no assurance that Shares will continue to meet the listing requirements of the Exchange, as they may be amended from time to time.

Precautionary Notes

A Precautionary Note to Retail Investors The Depository Trust Company (“DTC”), a limited trust company and securities depositary that serves as a national clearinghouse for the settlement of trades for its participating banks and broker-dealers, or its nominee will be the registered owner of all outstanding Shares of each Fund of ProShares Trust. Your ownership of Shares will be shown on the records of DTC and the DTC Participant broker through whom you hold the Shares. PROSHARES TRUST WILL NOT HAVE ANY RECORD OF YOUR OWNERSHIP. Your account information will be maintained by your broker, who will provide you with account statements,

 

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confirmations of your purchases and sales of Shares, and tax information. Your broker also will be responsible for ensuring that you receive shareholder reports and other communications from the Fund whose Shares you own. You will receive other services (e.g., dividend reinvestment and average cost information) only if your broker offers these services.

A Precautionary Note to Purchasers of Creation Units You should be aware of certain legal risks unique to investors purchasing Creation Units directly from the issuing Fund. Because new Shares may be issued on an ongoing basis, a “distribution” of Shares could be occurring at any time. As a dealer, certain activities on your part could, depending on the circumstances, result in your being deemed a participant in the distribution, in a manner that could render you a statutory underwriter and subject you to the prospectus delivery and liability provisions of the Securities Act of 1933, as amended (“Securities Act”). For example, you could be deemed a statutory underwriter if you purchase Creation Units from an issuing Fund, break them down into the constituent Shares, and sell those Shares directly to customers, or if you choose to couple the creation of a supply of new Shares with an active selling effort involving solicitation of secondary market demand for Shares. Whether a person is an underwriter depends upon all of the facts and circumstances pertaining to that person’s activities, and the examples mentioned here should not be considered a complete description of all the activities that could cause you to be deemed an underwriter. Dealers who are not “underwriters,” but are participating in a distribution (as opposed to engaging in ordinary secondary market transactions), and thus dealing with Shares as part of an “unsold allotment” within the meaning of Section 4(3)(C) of the Securities Act, will be unable to take advantage of the prospectus delivery exemption provided by Section 4(3) of the Securities Act.

A Precautionary Note to Investment Companies For purposes of the Investment Company Act of 1940, each Fund is a registered investment company, and the acquisition of Shares by other investment companies is subject to the restrictions of Section 12(d)(1) thereof.

A Precautionary Note Regarding Unusual Circumstances ProShares Trust can postpone payment of redemption proceeds for any period during which (1) the New York Stock Exchange (the “NYSE”) is closed other than customary weekend and holiday closings, (2) trading on the NYSE is restricted, as determined by the U.S. Securities and Exchange Commission (the “SEC”), (3) any emergency circumstances exist, as determined by the SEC, or (4) the SEC by order permits for the protection of shareholders of a Fund.

Underlying Indexes

The Funds have entered into licensing agreements for the use of the indices underlying their benchmarks. A description of the indices currently underlying the Funds’ benchmarks follows:

Ultra NASDAQ Biotechnology ProShares, Short NASDAQ Biotechnology ProShares and UltraShort NASDAQ Biotechnology ProShares:

The NASDAQ Biotechnology Index The NASDAQ Biotechnology Index contains securities of NASDAQ-listed companies classified according to the Industry Classification Benchmark as either Biotechnology or Pharmaceuticals which also meet other eligibility criteria. The NASDAQ Biotechnology Index is calculated under a modified capitalization-weighted methodology. As of March 31, 2007, the NASDAQ Biotechnology Index included companies with capitalizations between $68.58 million and $38.27 billion. The average capitalization of the companies comprising the Index was approximately $14.85 million.

Ultra Dow Jones Select Biotechnology ProShares, Short Dow Jones Select Biotechnology ProShares and UltraShort Dow Jones Select Biotechnology ProShares:

The Dow Jones Select Biotechnology Index measures companies engaged in research into and development of biological substances for the purposes of drug discovery and diagnostic development, and which derive the majority of their revenue from either the sale or licensing of these drugs and diagnostic tools. As of March 31, 2007, the Dow Jones Select Biotechnology Index included companies with capitalizations between $[ ] million and $[ ] billion. The average capitalization of the companies comprising the Index was approximately $[ ] million.

 

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Ultra Dow Jones Select Telecommunications ProShares, Short Dow Jones Select Telecommunications ProShares and UltraShort Dow Jones Select Telecommunications ProShares:

The Dow Jones Select Telecommunications Index measures providers of fixed-line and mobile telephone services. Fixed-line includes regional and long-distance carriers. Mobile includes cellular, satellite and paging services. As of March 31, 2007, the Dow Jones Telecommunications Index included companies with capitalizations between $564.92 million and $247.23 billion. The average capitalization of the companies comprising the Index was approximately $149.40 billion.

Short MSCI Emerging Markets ProShares and UltraShort MSCI Emerging Markets ProShares:

The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. As of June 2006 the MSCI Emerging Markets Index consisted of the following 25 emerging market country indices: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey. As of March 31, 2007, the MSCI Emerging Markets Index included companies with capitalizations between $[ ] billion and $[ ] billion. The average capitalization of the companies comprising the Index was approximately $[ ] billion.

Short MSCI Japan ProShares and UltraShort MSCI Japan ProShares:

The MSCI Japan Index measures the performance of the Japanese equity market. It is a capitalization-weighted index that aims to capture 85% of the (publicly available) total market capitalization. Component companies are adjusted for available float and must meet objective criteria for inclusion to the Index, taking into consideration unavailable strategic shareholdings and limitations to foreign ownership. As of March 31, 2007, the MSCI Japan Index included companies with capitalizations between $ [ ] million and $ [ ] billion. The average capitalization of the companies comprising the Index was approximately $ [ ] billion.

Short MSCI EAFE ProShares and UltraShort MSCI EAFE ProShares:

The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the US & Canada. As of June 2006 the MSCI EAFE Index consisted of the following 21 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom. As of March 31, 2007, the MSCI EAFE Index included companies with capitalizations between $ [ ] million and $ [ ] billion. The average capitalization of the companies comprising the Index was approximately $ [ ] billion.

Short FTSE/Xinhua China 25 ProShares and UltraShort FTSE/Xinhua China 25 ProShares:

The FTSE/Xinhua China 25 Index is comprised of 25 of the largest and most liquid Chinese stocks listed at the Hong Kong Stock Exchange (HKEX). This free float adjusted Index caps the weight of any of constituent stock at 10 percent to ensure broad representation of the Chinese economy. As of March 31, 2007, the FTSE/Xinhua China 25 Index included companies with capitalizations between $ [ ] million and $ [ ] billion. The average capitalization of the companies comprising the Index was approximately $ [ ] million.

Short Lehman Brothers 7-10 Year U.S. Treasury ProShares and UltraShort Lehman Brothers 7-10 Year U.S. Treasury ProShares:

The Lehman Brothers 7-10 Year U.S. Treasury Index is market capitalization weighted and includes all of the securities that meet the index criteria. The index includes all publicly issued, U.S. Treasury securities that have a remaining maturity of between 7 and 10 years, are non-convertible, are denominated in US dollars, are rated Baa3 by Moody’s Investors Service or BBB- by S&P, are fixed rate, and have more than $250 million par outstanding, Excluded from the Index are certain special issues, such as flower bonds, targeted investor notes (TINs), and state and local government bonds (SLGs), and coupon issues that have been stripped from assets already included. As of March 31, 2007, the Lehman Brothers 7-10 Year U.S. Treasury Index included companies with capitalizations between $ [ ] million and $ [ ] billion. The average capitalization of the companies comprising the Index was approximately $ [ ] billion.

Short Lehman Brothers 20+ Year U.S. Treasury ProShares and UltraShort Lehman Brothers 20+ Year U.S. Treasury ProShares:

The Lehman Brothers 20+ Year U.S. Treasury Index is market capitalization weighted and includes all of the securities that meet the Index criteria. The index includes all publicly issued, U.S. Treasury securities that have a remaining maturity greater than 20 years, are non-convertible, are denominated in U.S. dollars, are rated investment

 

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grade (Baa3 or better) by Moody’s Investors Service, are fixed rate, and have more than $150 million par outstanding. Excluded from the Index are certain special issues, such as flower bonds, targeted investor notes (TINs), and state and local government series bonds (SLGs), and coupon issues that have been stropped from assets already included. As of March 31, 2007, the Lehman Brothers 20+ Year U.S. Treasury Index included companies with capitalizations between $ [ ] million and $ [ ] billion. The average capitalization of the companies comprising the Index was approximately $ [ ] billion.

Short iBoxx $ Liquid Investment Grade ProShares and UltraShort iBoxx $ Liquid Investment Grade ProShares:

The iBoxx $ Liquid Investment Grade Index is a basket of 100 bonds, re-balanced monthly following the close of the market on the last business day of each month. It is designed to provide balanced representation of the US dollar investment grade corporate market by the means of the most liquid corporate bonds available. All 100 bonds in the basket are equally price-weighted in returns (assuming equal quantity of each bond). As of March 31, 2007, the iBoxx $ Liquid Investment Grade Index included companies with capitalizations between $ [ ] million and $ [ ] billion. The average capitalization of the companies comprising the Index was approximately $ [ ] billion.

Short iBoxx $ Liquid High Yield ProShares and UltraShort iBoxx $ Liquid High Yield ProShares:

The iBoxx $ Liquid High Yield Index is a basket of 50 bonds, re-balanced monthly three business days prior to the re-balancing date. It is designed to provide a balanced representation of the US dollar high yield corporate market by the means of the most liquid high yield corporate bonds available. All 50 bonds in the basket are equally price-weighted in returns (assuming same quantity of each bond). As of March 31, 2007, the iBoxx $ Liquid High Yield Index included companies with capitalizations between $ [ ] million and $ [ ] billion. The average capitalization of the companies comprising the Index was approximately $ [ ] billion.

Nasdaq®, and NASDAQ® Biotechnology Index, are trade or service marks of The Nasdaq Stock Market, Inc. ® (which with its affiliates are the Corporations) and are licensed for use by ProShares Trust and its affiliates. The products have not been passed on by the Corporations as to their legality or suitability. The products are not issued, sponsored, endorsed, sold or promoted by the Corporations. THE CORPORATIONS MAKE NO WARANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE PRODUCTS.

MSCI, Morgan Stanley Capital International and MSCI Index are service marks of MSCI. All have been licensed for use by ProShares. ProShares have not been passed on by these entities or their affiliates as to their legality or suitability. ProShares are not sponsored, endorsed, sold or promoted by these entities or their affiliates, and they make no representation regarding the advisability of investing in these products. THESE ENTITIES AND THEIR AFFILIATES MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO PROSHARES.

“Dow Jones” is a service mark of Dow Jones & Company, Inc.

Dow Jones does not:

 

   

Sponsor, endorse, sell or promote any of the ProShares.

 

   

Recommend that any person invest in the ProShares or any other securities.

 

   

Have any responsibility or liability for or make any decisions about timing, amount or pricing of the ProShares.

 

   

Have any responsibility or liability for the administration, management of marketing of the ProShares.

 

   

Consider the needs of the ProShares or the owners of the ProShares in determining, composing or calculating the Dow Jones U.S. Indexes or have any obligation to do so.

 

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Dow Jones will not have any liability in connection with the ProShares. Specifically, Dow Jones does not make any warranty, express or implied, and Dow Jones disclaims any warranty about:

 

   

The results to be obtained by the ProShares, the owner of the ProShares or any other person in connection with the use of the Dow Jones U.S. Indexes and the data included in the Dow Jones U.S. Indexes;

 

   

The accuracy or completeness of the Dow Jones U.S. Indexes and their data; or

 

   

The merchantability and the fitness for a particular purpose or use of the Dow Jones U.S. Indexes and their data.

Dow Jones will have no liability for any errors, omission or interruptions in the Dow Jones U.S. Indexes or their data.

Under no circumstances will Dow Jones be liable for any lost profits or indirect, punitive, special or consequential damages or losses, even if Dow Jones knows that they might occur.

The licensing agreement between ProShares and Dow Jones is solely for their benefit and not for the benefit of the investors in the ProShares or any other third parties.

(Please see the SAI, which sets forth certain additional disclaimers and limitations of liabilities).

Creation and Redemption of Creation Units

Each Fund issues and redeems Shares only in bundles of a specified number of Shares. These bundles are known as “Creation Units.” To purchase or redeem a Creation Unit, you must be an Authorized Participant or you must do so through a broker that is an Authorized Participant. An Authorized Participant is a participant in the Depository Trust Company (“DTC”), a limited trust company and securities depository that serves as a national clearinghouse for the settlement of trades for its participating banks and broker-dealers, that has executed a Participant Agreement with the Funds’ distributor (“Distributor”). Because Creation Units likely will cost millions of dollars, it is expected that only institutional investors will purchase and redeem Shares directly with an issuing Fund.

Retail investors may acquire Shares on the secondary market (i.e., not from the issuing Fund) through a broker. Shares of each Fund are listed on the Exchange and are publicly traded. For information about acquiring Shares through a secondary market purchase, please contact your broker. If you want to sell Shares of a Fund on the secondary market, you must do so through your broker.

When you buy or sell Shares on the secondary market, your broker may charge you a commission or other transaction charges and you may pay some or all of the spread between the bid and the offered price for each purchase or sale transaction. Unless imposed by your broker, there is no minimum dollar amount you must invest and no minimum number of Shares you must buy in the secondary market. In addition, because secondary market transactions occur at market prices, you may pay more than NAV when you buy Shares, and receive less than NAV when you sell those Shares.

The Funds impose no restrictions on the frequency of purchases and redemptions directly with the Funds. In establishing this policy, the Board of Trustees noted that the Funds are expected to be attractive to arbitrageurs (where trading activity is critical to ensuring that shares trade at or close to net asset value per share) as well as active institutional and retail investors interested in buying and selling equity market basket index securities on a short-term basis. In addition, the Board considered that, unlike traditional mutual funds, each Fund issues and redeems its shares at net asset value per share in Creation Units plus applicable transaction fees and each Fund’s shares may be purchased and sold on the Exchange at prevailing market prices. Given this structure, the Board determined that the risks of frequent trading were less than in the case of a traditional mutual fund. Nevertheless, to the extent that purchases and redemptions directly with the Funds are effected in cash rather than through a contribution or redemption of portfolio securities, frequent purchases and redemptions could increase the rate of portfolio turnover. A high ratio of portfolio turnover may negatively impact a Fund’s performance by increasing transaction costs. In addition, large movements of cash into or out of the Funds may negatively impact a Fund’s ability to achieve its investment objective or maintain a consistent level of operating expenses.

Purchasing Shares Directly From a Fund

You can purchase Shares directly from a Fund only if you meet the following criteria and comply with purchase transaction procedures specified by the Trust.

 

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Eligible Investors To purchase Shares directly from a Fund, you must be an Authorized Participant or you must purchase through a broker that is an Authorized Participant. Investors should contact the Distributor for the names of Authorized Participants.

Creation Units You must purchase Shares in large blocks, known as “Creation Units.” For each Fund, a Creation Unit is comprised of 75,000 shares.

For any particular Fund, the number of Shares in a Creation Unit will not change, except in the event of a share split, reverse split or similar revaluation. The Funds will not issue fractional Creation Units.

Procedures Applicable to Purchase of Ultra ProShares

In-kind Deposits To purchase Shares directly from an Ultra ProShares, you must deposit with the Fund a basket of securities and cash. Each business day, prior to the opening of trading on the Exchange, an agent of the Fund (“Index Receipt Agent”) will make available through the NSCC a list of the names and number of shares of each security to be included in that day’s creation basket (“Deposit Securities”). The identity and number of shares of the Deposit Securities required for a Creation Unit changes as rebalancing adjustments and corporate action events are reflected from time to time by ProShare Advisors with a view to the investment objective of the Ultra ProShares. The composition of the Deposit Securities may also change in response to adjustments to the weighting or composition of the securities constituting the relevant securities index. The Fund reserves the right to permit or require the substitution of an amount of cash – i.e., a “cash in lieu” amount – to be added to the Balancing Amount (defined below) to replace any Deposit Security that may not be available in sufficient quantity for delivery or that may not be eligible for transfer through the Clearing Process (discussed below), or that may not be eligible for trading by an Authorized Participant or the investor for which it is acting.

Balancing Amount In addition to the in-kind deposit of securities, Authorized Participants will either pay to, or receive from an Ultra ProShares an amount of cash referred to as the “Balancing Amount.” The Balancing Amount is the amount equal to the differential, if any, between the market value of the Deposit Securities and the NAV of a Creation Unit. The Fund will publish, on a daily basis, information about the previous day’s Balancing Amount. The Balancing Amount may, at times, represent a significant portion of the aggregate purchase price (or in the case of redemptions, the redemption proceeds). This is because the mark-to-market value of the Financial Instruments held by the Funds will be included in the Balancing Amount (not in the Deposit Basket or Redemption Basket). The Balancing Amount may fluctuate significantly due to the leveraged nature of the Ultra ProShares. You also must pay a Transaction Fee, described below, in cash. For custom orders, “cash in lieu” may be added to the Balancing Amount to replace any Deposit Security that may not be available in sufficient quantity for delivery or that may not be eligible for transfer through the Clearing Process (discussed below), or that may not be eligible for trading by an Authorized Participant or the investor for which it is acting. The Balancing Amount must be paid to the Trust on the third Business Day following the Transmittal Date.

Placement of Purchase Orders All purchase orders for Shares must be placed by or through an Authorized Participant. Purchase orders will be processed either through a manual clearing process run at the DTC (“Manual Clearing Process”) or through an enhanced clearing process (“Enhanced Clearing Process”) that is available only to those DTC participants that also are participants in the Continuous Net Settlement System of the National Securities Clearing Corporation (“NSCC”). Authorized Participants that do not use the Enhanced Clearing Process will be charged a higher Transaction Fee (discussed below). A purchase order must be received by the Distributor by 4:00 p.m. New York time, if transmitted by mail or by 3:00 p.m. New York time if transmitted by telephone, facsimile or other electronic means permitted under the Participant Agreement, in order to receive that day’s closing NAV per Share. A custom order may be placed for one or more whole Creation Units of Shares of a Fund and must be received by the Distributor in proper form no later than 3:00 p.m. New York time in order to receive that day’s NAV per Share. All other procedures set forth in the Participant Agreement must be followed in order for you to receive the NAV determined on that day.

Shares may be issued in advance of receipt of Deposit Securities subject to various conditions including a requirement to maintain on deposit with the Trust cash in an amount up to 115% of the market value of the missing Deposit Securities. Any such transaction effected with the Trust must be effected using the Manual Clearing Process consistent with the terms of the Authorized Participant Agreement. See the “Summary of Transaction Fees and Charges” below for more information.