485APOS 1 d270139d485apos.htm 485APOS 485APOS
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As filed with the Securities and Exchange Commission on December 16, 2011

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. 50    x

and/or

REGISTRATION STATEMENT

UNDER

  THE INVESTMENT COMPANY ACT OF 1940    x
  Amendment No. 58    x

 

 

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, CEO

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 & Gray LLP

Prudential Tower

800 Boylston Street

Boston, MA 02199-3600

 

Amy R. Doberman

ProShare Advisors LLC

7501 Wisconsin Avenue, Suite 1000

Bethesda, MD 20814

 

 

Approximate date of Proposed Public Offering:

It is proposed that this filing will become effective:

  ¨ immediately upon filing 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 to the following funds: ProShares NASDAQ-100 – 15% Volatility Target, ProShares Dow 30 – 15% Volatility Target, ProShares Russell 2000 – 15% Volatility Target, Russell 1000 – 15% Volatility Target, ProShares MSCI EAFE – 15% Volatility Target, ProShares MSCI Emerging Markets – 15% Volatility Target and ProShares S&P MidCap400 – 15% Volatility Target, each a series of ProShares Trust. No information relating to any other series or class of series of ProShares Trust is amended or superseded hereby.


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LOGO

  

Prospectus

 

  February [    ], 2012

 

[Category Name]

 

 

[      ] ProShares NASDAQ-100 – 15% Volatility Target

 

[      ] ProShares Dow 30 – 15% Volatility Target

 

[      ] ProShares Russell 2000 – 15% Volatility Target

 

[      ] ProShares Russell 1000 – 15% Volatility Target

 

[      ] ProShares MSCI EAFE – 15% Volatility Target

 

[      ] ProShares MSCI Emerging Markets – 15% Volatility Target

 

[      ] ProShares S&P MidCap400 – 15% Volatility Target

 

   

ProShares Trust

  

Distributor: SEI Investments Distribution Co.

 

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.


Table of Contents

Table of Contents

 

3 Summary Section
   [Category Name]
4    ProShares NASDAQ-100 – 15% Volatility Target
10    ProShares Dow 30 – 15% Volatility Target
15    ProShares Russell 2000 – 15% Volatility Target
21    ProShares Russell 1000 – 15% Volatility Target
26    ProShares MSCI EAFE – 15% Volatility Target
32    ProShares MSCI Emerging Markets – 15% Volatility Target
38    ProShares S&P MidCap400 – 15% Volatility Target
44    Investment Objectives, Principal Investment Strategies and Related Risks
56    Management of ProShares Trust
57    Determination of NAV
58    Distributions
58    Dividend Reinvestment Services
58    Taxes

 

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Summary Section

 

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Investment Objective

ProShares NASDAQ 100 – 15% Volatility Target (the “Fund”) seeks investment results, before fees and expenses, that correspond to the performance of the NASDAQ 100 – 15% Volatility Index (the “Index,” Bloomberg ticker: [        ]).

The Index seeks to provide dynamic exposure to the stocks of the NASDAQ-100 Index® (the “NASDAQ 100”), which is a modified market capitalization-weighted index that includes 100 of the largest non-financial domestic and international issues listed on The NASDAQ Stock Market. The dynamic exposure is designed to target an overall volatility for the Index of 15%. The Index seeks to achieve this target volatility through leveraged exposure (i.e., 101—200%) to the NASDAQ 100 during periods when the realized volatility of the NASDAQ 100 is less than 15% and de-leveraged exposure (i.e., 0—99%) to the NASDAQ 100 during periods when the realized volatility of the NASDAQ 100 is greater than 15%. The Index adjusts exposure between the NASDAQ 100 and three-month U.S. Treasury Bills (the “T-Bill Component”) based upon realized historical volatility of the NASDAQ 100. As the historical realized volatility of the NASDAQ 100 increases relative to the target of 15%, exposure to the NASDAQ 100 will decrease and exposure to the T-Bill Component will increase. As the historical realized volatility of the NASDAQ 100 decreases relative to the target of 15%, exposure to the NASDAQ 100 will increase and exposure to the T-Bill Component will decrease. The Index will generally be rebalanced daily. The Fund’s returns will differ from the returns of the NASDAQ 100.

As of December 31, 2011, the NASDAQ 100 included companies with capitalizations between $[        ] and $[        ]. The average capitalization of the companies comprising the NASDAQ 100 was approximately $[        ]. The NASDAQ 100 is published under the Bloomberg ticker symbol “NDX.” The NASDAQ 100 has a historical annualized volatility rate for the five year period ended December 31, 2011 of [        ]%.

Fees and Expenses of the Fund

The table below describes the fees and expenses that you may pay if you buy or hold shares of the Fund.

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)

Investment Advisory Fees

     [         ]% 

Other Expenses

     [         ]% 
  

 

 

 

Total Annual Operating Expenses Before Fee Waivers and Expense Reimbursements

     [         ]% 

Fee Waiver/Reimbursement*

     [         ]% 
  

 

 

 

Total Annual Operating Expenses After Fee Waivers and Expense Reimbursements

     [         ]% 
  

 

 

 

 

* ProShare Advisors LLC (“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 Before Fee Waivers and Expense Reimbursements, as a percentage of average daily net assets, exceed [        ]% through [        ], 2013. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular contractual period may be recouped by ProShare Advisors within five years of the end of that contractual period to the extent that recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time. A waiver or reimbursement lowers the expense ratio and increases overall returns to investors.

Example: This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.

 

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The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of each period. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same, except that the fee waiver/expense reimbursement is assumed only to pertain to the first year. Although your actual cost may be higher or lower, based on these assumptions your approximate costs would be:

 

1 Year

   3 Years  

$            

   $                

The Fund pays transaction and financing costs associated with transacting in securities and derivatives. In addition, investors may pay brokerage commissions on their purchases and sales of the Fund’s shares. These costs are not reflected in the example or the table above.

Portfolio Turnover

The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when shares are held in a taxable account. These costs, which are not reflected in Annual Fund Operating Expenses or in the example, affect the Fund’s performance. The Fund’s portfolio turnover rate is calculated without regard to cash instruments or derivatives transactions. If such instruments were included, the Fund’s portfolio turnover rate would be significantly higher.

Principal Investment Strategies

The Fund seeks investment results, before fees and expenses, that correspond to the performance of the Index. Under normal circumstances, the Fund will invest at least 80% of its total assets in the equity and/or fixed income securities that comprise the Index at any given point in time. At times, the Fund will have leveraged exposure to the equity securities in the Index in a similar proportion as the Index.

The Fund invests in securities and derivatives that ProShare Advisors believes, in combination, should have similar return characteristics as the return of the Index. Cash balances arising from the use of derivatives will typically be held in money market instruments.

 

 

Equity Securities — The Fund invests in common stock issued by public companies.

 

 

Derivatives — The Fund invests in derivatives, which are financial instruments whose value is derived from the value of an underlying asset, interest rate or index. The Fund invests in derivatives as a substitute for investing directly in stocks in order to gain exposure to the Index. These derivatives principally include:

 

   

Swap Agreements — Contracts entered into primarily with major global financial institutions for a specified period ranging from a day to more than one year. In a standard “swap” transaction, two parties agree to exchange the return (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross return to be exchanged or “swapped” between the parties is calculated with respect to a “notional amount,” e.g., the return on or change in value of a particular dollar amount invested in a “basket” of securities representing a particular index.

 

   

Futures Contracts – Standardized contracts traded on, or subject to the rules of, an exchange that call for the future delivery of a specified quantity and type of a particular asset at a specified time and place or, alternatively, may call for cash settlement.

 

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Money Market Instruments — The Fund invests in short-term cash instruments that have a remaining maturity of 397 days or less and exhibit high quality credit profiles, including:

 

   

U.S. Treasury Bills — U.S. government securities that have initial maturities of one year or less, and are supported by the full faith and credit of the United States.

 

   

Repurchase Agreements — Contracts in which a 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 Fund as a short-term investment vehicle for cash positions.

ProShare Advisors uses a mathematical approach to investing. Using this approach, ProShare Advisors determines the type, quantity and mix of investment positions that the Fund should hold to approximate the performance of the Index. The Fund may gain exposure to only a representative sample of the securities in the Index, which are intended to have aggregate characteristics similar to those of the Index, and may invest in securities not contained in the Index. ProShare Advisors does not invest the assets of the Fund in securities or derivatives based on ProShare Advisors’ view of the investment merit of a particular security, instrument, or company, other than for cash management purposes, nor does it conduct conventional research or analysis (other than in determining counterparty creditworthiness), or forecast market movement or trends, in managing the assets of the Fund. The Fund seeks to remain fully invested at all times in securities and/or derivatives that, in combination, provide exposure to the Index without regard to market conditions, trends or direction.

Please see “Investment Objectives, Principal Investment Strategies, and Related Risks” in the Fund’s full prospectus for additional details.

[As of the close of business on December 31, 2011, the NASDAQ 100 was concentrated in the technology and communications industry groups, which comprised approximately [        ]% and [        ]%, respectively, of the market capitalization of the NASDAQ 100.]

The Fund will not directly short the securities of issuers contained in the NASDAQ 100.

Principal Risks

You could lose money by investing in the Fund.

 

 

Index Performance Risk — There is no guarantee or assurance that the methodology used to create the Index will result in the Fund achieving high, or even positive, returns, that the Fund will retain any appreciation in value over extended periods of time, or that the Fund’s returns will maintain, for any period of time, a 15% volatility or be less volatile than the returns of the NASDAQ 100. The Index may underperform more traditional indices, including the NASDAQ 100. In turn, the Fund could lose value while other indices or measures of market performance increase in value. The Index was formed in [2011]. Accordingly, the Index has limited historical performance.

In addition, the Index uses the 30 and 60 day historical volatility data of the NASDAQ 100 to determine realized volatility, which in turn is compared to the target volatility of 15% to determine the allocations to the NASDAQ 100 and the T-Bill Component. As such, a significant near-term change in the realized volatility of the NASDAQ 100 may not result in a commensurate repositioning of the Fund. As a result, the Fund may be more or less exposed to equity securities than short-term volatility might suggest, and this may result in losses.

 

 

Leveraged Exposure Risk — The Index may at times represent leveraged (i.e. greater than 100%) exposure to the NASDAQ 100, the Fund may at such times be subject to greater risk of loss than an unleveraged investment in the NASDAQ 100.

 

 

Risks Associated with the Use of Derivatives — The Fund uses investment techniques and derivatives that may be considered aggressive. Because the Fund’s investments in derivatives may involve a small investment relative to the amount of investment exposure assumed, losses may exceed the amounts invested in those instruments. The use of derivatives may expose the Fund to potentially dramatic changes (losses or gains) in the value of the instruments. There may be imperfect correlation between the value of

 

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the instruments and the Index, which may prevent the Fund from achieving its investment objective. Additionally, with respect to the use of swap agreements, if the Index has a dramatic intraday move that causes a material decline in the Fund’s net asset value (“NAV”), the terms of a swap agreement between the Fund and its counterparty may permit the counterparty to immediately close out the transaction with the Fund. In that event, the Fund may be unable to enter into another swap agreement or invest in other derivatives to achieve the desired exposure consistent with the Fund’s objective. This, in turn, may prevent the Fund from achieving its investment objective, even if the Index reverses all or a portion of its intraday move by the end of the day. The cost to use derivatives generally increases as interest rates increase, which will lower the Fund’s return.

 

 

Correlation Risk — A number of factors may affect the Fund’s ability to achieve a high degree of correlation with the Index, and there can be no guarantee that the Fund will achieve a high degree of correlation. Failure to achieve a high degree of correlation may prevent the Fund from achieving its investment objective. The factors that may adversely affect the Fund’s correlation with the Index include fees, expenses, transaction costs, financing costs associated with the use of derivatives, income items, valuation methodology, accounting standards and disruptions or illiquidity in the markets for the securities or financial instruments in which the Fund invests. The Fund may not have investment exposure to all securities in the Index, or its weighting of investment exposure to such stocks or industries may be different from that of the Index. In addition, the Fund may invest in securities or financial instruments not included in the Index. The Fund may be subject to large movements of assets into and out of the Fund, potentially resulting in the Fund being over- or under-exposed to the Index. Activities surrounding index reconstitutions and other index rebalancing or reconstitution events may hinder the Fund’s ability to meet its investment objective. Additionally, if the asset underlying a swap agreement has a dramatic intraday move, the terms of a swap agreement between the Fund and its counterparty may permit the counterparty to immediately close out the transaction with the Fund. This, in turn, may prevent the Fund from achieving its investment objective, even if the securities or assets underlying the swap agreement reverse all or a portion of their intraday move by the end of the day.

 

 

Counterparty Risk — The Fund will be subject to credit risk (i.e., the risk that a counterparty is unwilling or unable to make timely payments to meet its contractual obligations) with respect to the amount it expects to receive from counterparties to derivatives or repurchase agreements entered into by the Fund. If a counterparty becomes bankrupt or fails to perform its obligations, the value of your investment in the Fund may decline.

 

 

Early Close/Late Close/Trading Halt Risk — An exchange or market may close early, close late or issue trading halts on specific securities, or the ability to buy or sell certain securities or derivatives may be restricted, which may result in the Fund being unable to buy or sell certain securities or derivatives. In such circumstances, the Fund may be unable to rebalance its portfolio, may be unable to accurately price its investments, may be unable to meet its investment objective and/or may incur substantial trading losses.

 

 

Equity and Market Risk — The equity markets are volatile, and the value of securities, swaps, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day. Equity markets are subject to political, regulatory, market and economic developments, as well as developments that impact specific economic sectors, industries or segments of the market.

The Index may not rebalance frequently enough to account for short-term volatility in the markets, as described further under “Index Performance Risk” below. Adverse market developments may cause the value of an investment in the Fund to decrease.

 

 

Debt Instrument Risk — The 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. Many types of debt instruments are subject to call risk, which is the risk that the issuer of the security will call or repay principal prior to the maturity date. Callable debt instruments may offer less potential for gains during a period of declining interest rates, as the Fund may be required to reinvest the proceeds received at lower 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 the Fund to change. Also, the securities of certain U.S. government

 

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agencies, authorities or instrumentalities are neither issued by nor guaranteed as to principal and interest by the U.S. government, and may be exposed to more credit risk than securities issued by and guaranteed as to principal and interest by the U.S. government.

 

 

Liquidity Risk — In certain circumstances, such as the disruption of the orderly markets for the securities or derivatives in which the Fund 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. Such a situation may prevent the Fund from obtaining exposure to or achieving a high correlation with the Index.

 

 

Market Price Variance Risk — The Fund’s shares will be listed for trading on The NASDAQ Stock Market 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 net asset value (“NAV”) and supply and demand for shares. ProShare Advisors cannot predict whether shares will trade above, below or at their NAV. 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. The 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 the Fund.

 

 

Non-Diversification Risk — The Fund is classified as “non-diversified” under the Investment Company Act of 1940, as amended, and has the ability to invest a relatively high percentage of its investments in the securities of a small number of issuers susceptible to a single economic, political or regulatory event, or in derivative instruments with a single counterparty or if ProShare Advisors determines that doing so is the most efficient means of meeting the Fund’s objective. This makes the performance of the Fund more susceptible to adverse impact from credit risk relating to that counterparty than a diversified fund might be.

 

 

Portfolio Turnover Risk — Daily rebalancing of Fund holdings will cause a higher level of portfolio transactions than compared to most funds. Additionally, active market trading of the Fund’s shares may cause more frequent creation or redemption activities that could, in certain circumstances, increase the number of portfolio transactions. High levels of transactions increase brokerage costs and may result in increased taxable capital gains.

 

 

Technology Industry Risk — The Fund may be subject to risks faced by companies in the technology industry. Securities of technology companies may be subject to greater volatility than stocks of companies in other market sectors. Technology companies may be affected by intense competition, obsolescence of existing technology, general economic conditions and government regulation and may have limited product lines, markets, financial resources or personnel. Technology companies may experience dramatic and often unpredictable changes in growth rates and competition for qualified personnel. These companies also are heavily dependent on patent and intellectual property rights, the loss or impairment of which may adversely affect profitability. A small number of companies represent a large portion of the technology industries as a whole. Further, such stocks in the Index may underperform fixed-income investments and stock market indexes that track other markets, segments and sectors.

 

 

Telecommunications Industry Risk — The Fund may be 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 that may make various products and services obsolete. Further, such stocks in the Index may underperform fixed-income investments and stock market indexes that track other markets, segments and sectors.

Investment Results

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

 

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Management

The Fund is advised by ProShare Advisors. Hratch Najarian, Senior Portfolio Manager, has managed the Fund since 2012.

Purchase and Sale of Fund Shares

The Fund will issue and redeem shares only to Authorized Participants (typically broker-dealers) in exchange for the deposit or delivery of a basket of assets (securities and/or cash) in large blocks, known as Creation Units, each of which comprises 50,000 shares. Retail investors may only purchase and sell shares on a national securities exchange through a broker-dealer. Because the Fund’s shares trade at market prices rather than NAV, shares may trade at a price greater than NAV (premium) or less than NAV (discount).

Tax Information

Income and capital gain distributions you receive from the Fund are subject to federal income taxes and may also be subject to state and local taxes. Distributions for this Fund may be significantly higher than those of most exchange-traded funds.

 

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Investment Objective

ProShares Dow 30 – 15% Volatility Target (the “Fund”) seeks investment results, before fees and expenses, that correspond to the performance of the Dow 30 – 15% Volatility Index (the “Index,” Bloomberg ticker: [        ]).

The Index seeks to provide dynamic exposure to the stocks of the Dow Jones Industrial AverageSM Index (the “Dow Jones Industrial Average”), which is a price-weighted index maintained by editors of The Wall Street Journal. The dynamic exposure is designed to target an overall volatility for the Index of 15%. The Index seeks to achieve this target volatility through leveraged exposure (i.e., 101—200%) to the Dow Jones Industrial Average during periods when the realized volatility of the Dow Jones Industrial Average is less than 15% and de-leveraged exposure (i.e., 0—99%) during periods when the realized volatility of the Dow Jones Industrial Average is greater than 15%. The Index adjusts exposure between the Dow Jones Industrial Average and three-month U.S. Treasury Bills (the “T-Bill Component”) based upon realized historical volatility of the Dow Jones Industrial Average. As the historical realized volatility of the Dow Jones Industrial Average increases relative to the target of 15%, exposure to the Dow Jones Industrial Average will decrease and exposure to the T-Bill Component will increase. As the historical realized volatility of the Dow Jones Industrial Average decreases relative to the target of 15%, exposure to the Dow Jones Industrial Average will increase and exposure to the T-Bill Component will decrease. The Index will generally be rebalanced daily. The Fund’s returns will differ from the returns of the Dow Jones Industrial Average.

The Dow Jones Industrial Average includes 30 large-cap, “blue-chip” U.S. stocks, excluding utility and transportation companies. Components are selected through a discretionary process with no predetermined criteria except that components should be established U.S. companies that are leaders in their industries, have an excellent reputation, demonstrate sustained growth, are of interest to a large number of investors and accurately represent the sectors covered by the average. The Dow Jones Industrial Average is not limited to traditionally defined industrial stocks, instead, the Dow Jones Industrial Average serves as a measure of the entire U.S. market, covering such diverse industries as financial services, technology, retail, entertainment and consumer goods. Composition changes are rare, and generally occur only after corporate acquisitions or other dramatic shifts in a component’s core business. When such an event necessitates that one component be replaced, the entire Dow Jones Industrial Average is reviewed. As of December 31, 2011, the Dow Jones Industrial Average included companies with capitalizations between $[        ] and $[        ]. The average capitalization of the companies comprising the Dow Jones Industrial Average was approximately $[        ]. The Dow Jones Industrial Average is published under the Bloomberg ticker symbol “INDU.” The Dow Jones Industrial Average has a historical annualized volatility rate for the five year period ended December 31, 2011 of [        ]%.

Fees and Expenses of the Fund

The table below describes the fees and expenses that you may pay if you buy or hold shares of the Fund.

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)

 

Investment Advisory Fees

     [         ]% 

Other Expenses

     [         ]% 
  

 

 

 

Total Annual Operating Expenses Before Fee Waivers and Expense Reimbursements

     [         ]% 

Fee Waiver/Reimbursement*

     [         ]% 
  

 

 

 

Total Annual Operating Expenses After Fee Waivers and Expense Reimbursements

     [         ]% 
  

 

 

 

 

* ProShare Advisors LLC (“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 Before Fee Waivers and Expense Reimbursements, as a percentage of average daily net assets, exceed [        ]% through [        ], 2013. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular contractual period may be recouped by ProShare Advisors within five years of the end of that contractual period to the extent that recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time. A waiver or reimbursement lowers the expense ratio and increases overall returns to investors.

 

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Example: This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of each period. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same, except that the fee waiver/expense reimbursement is assumed only to pertain to the first year. Although your actual cost may be higher or lower, based on these assumptions your approximate costs would be:

 

1 Year

   3 Years  

$            

   $                

The Fund pays transaction and financing costs associated with transacting in securities and derivatives. In addition, investors may pay brokerage commissions on their purchases and sales of the Fund’s shares. These costs are not reflected in the example or the table above.

Portfolio Turnover

The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when shares are held in a taxable account. These costs, which are not reflected in Annual Fund Operating Expenses or in the example, affect the Fund’s performance. The Fund’s portfolio turnover rate is calculated without regard to cash instruments or derivatives transactions. If such instruments were included, the Fund’s portfolio turnover rate would be significantly higher.

Principal Investment Strategies

The Fund seeks investment results, before fees and expenses, that correspond to the performance of the Index. Under normal circumstances, the Fund will invest at least 80% of its total assets in the equity and/or fixed income securities that comprise the Index at any given point in time. At times, the Fund will have leveraged exposure to the equity securities in the Index in a similar proportion as the Index.

The Fund invests in securities and derivatives that ProShare Advisors believes, in combination, should have similar return characteristics as the return of the Index. Cash balances arising from the use of derivatives will typically be held in money market instruments.

 

 

Equity Securities — The Fund invests in common stock issued by public companies.

 

 

Derivatives — The Fund invests in derivatives, which are financial instruments whose value is derived from the value of an underlying asset, interest rate or index. The Fund invests in derivatives as a substitute for investing directly in stocks in order to gain exposure to the Index. These derivatives principally include:

 

   

Swap Agreements — Contracts entered into primarily with major global financial institutions for a specified period ranging from a day to more than one year. In a standard “swap” transaction, two parties agree to exchange the return (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross return to be exchanged or “swapped” between the parties is calculated with respect to a “notional amount,” e.g., the return on or change in value of a particular dollar amount invested in a “basket” of securities representing a particular index.

 

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Futures Contracts – Standardized contracts traded on, or subject to the rules of, an exchange that call for the future delivery of a specified quantity and type of a particular asset at a specified time and place or, alternatively, may call for cash settlement.

 

 

Money Market Instruments — The Fund invests in short-term cash instruments that have a remaining maturity of 397 days or less and exhibit high quality credit profiles, including:

 

   

U.S. Treasury Bills — U.S. government securities that have initial maturities of one year or less, and are supported by the full faith and credit of the United States.

 

   

Repurchase Agreements — Contracts in which a 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 Fund as a short-term investment vehicle for cash positions.

ProShare Advisors uses a mathematical approach to investing. Using this approach, ProShare Advisors determines the type, quantity and mix of investment positions that the Fund should hold to approximate the performance of the Index. The Fund may gain exposure to only a representative sample of the securities in the Index, which are intended to have aggregate characteristics similar to those of the Index, and may invest in securities not contained in the Index. ProShare Advisors does not invest the assets of the Fund in securities or derivatives based on ProShare Advisors’ view of the investment merit of a particular security, instrument, or company, other than for cash management purposes, nor does it conduct conventional research or analysis (other than in determining counterparty creditworthiness), or forecast market movement or trends, in managing the assets of the Fund. The Fund seeks to remain fully invested at all times in securities and/or derivatives that, in combination, provide exposure to the Index without regard to market conditions, trends or direction. Please see “Investment Objectives, Principal Investment Strategies, and Related Risks” in the Fund’s full prospectus for additional details.

Principal Risks

You could lose money by investing in the Fund.

 

 

Index Performance Risk — There is no guarantee or assurance that the methodology used to create the Index will result in the Fund achieving high, or even positive, returns, that the Fund will retain any appreciation in value over extended periods of time, or that the Fund’s returns will maintain, for any period of time, a 15% volatility or be less volatile than the returns of the Dow Jones Industrial Average. The Index may underperform more traditional indices, including the Dow Jones Industrial Average. In turn, the Fund could lose value while other indices or measures of market performance increase in value. The Index was formed in [2011]. Accordingly, the Index has limited historical performance.

In addition, the Index uses the 30 and 60 day historical volatility data of the Dow Jones Industrial Average to determine realized volatility, which in turn is compared to the target volatility of 15% to determine the allocations to the Dow Jones Industrial Average and the T-Bill Component. As such, a significant near-term change in the realized volatility of the Dow Jones Industrial Average may not result in a commensurate repositioning of the Fund. As a result, the Fund may be more or less exposed to equity securities than short-term volatility might suggest, and this may result in losses.

 

 

Leveraged Exposure Risk — The Index may at times represent leveraged (i.e. greater than 100%) exposure to the Dow Jones Industrial Average, the Fund may at such times be subject to greater risk of loss than an unleveraged investment in the Dow Jones Industrial Average.

 

 

Risks Associated with the Use of Derivatives — The Fund uses investment techniques and derivatives that may be considered aggressive. Because the Fund’s investments in derivatives may involve a small investment relative to the amount of investment exposure assumed, losses may exceed the amounts invested in those instruments. The use of derivatives may expose the Fund to potentially dramatic changes (losses or gains) in the value of the instruments. There may be imperfect correlation between the value of

 

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the instruments and the Index, which may prevent the Fund from achieving its investment objective. Additionally, with respect to the use of swap agreements, if the Index has a dramatic intraday move that causes a material decline in the Fund’s net asset value (“NAV”), the terms of a swap agreement between the Fund and its counterparty may permit the counterparty to immediately close out the transaction with the Fund. In that event, the Fund may be unable to enter into another swap agreement or invest in other derivatives to achieve the desired exposure consistent with the Fund’s objective. This, in turn, may prevent the Fund from achieving its investment objective, even if the Index reverses all or a portion of its intraday move by the end of the day. The cost to use derivatives generally increases as interest rates increase, which will lower the Fund’s return.

 

 

Correlation Risk — A number of factors may affect the Fund’s ability to achieve a high degree of correlation with the Index, and there can be no guarantee that the Fund will achieve a high degree of correlation. Failure to achieve a high degree of correlation may prevent the Fund from achieving its investment objective. The factors that may adversely affect the Fund’s correlation with the Index include fees, expenses, transaction costs, financing costs associated with the use of derivatives, income items, valuation methodology, accounting standards and disruptions or illiquidity in the markets for the securities or financial instruments in which the Fund invests. The Fund may not have investment exposure to all securities in the Index, or its weighting of investment exposure to such stocks or industries may be different from that of the Index. In addition, the Fund may invest in securities or financial instruments not included in the Index. The Fund may be subject to large movements of assets into and out of the Fund, potentially resulting in the Fund being over- or under-exposed to the Index. Activities surrounding index reconstitutions and other index rebalancing or reconstitution events may hinder the Fund’s ability to meet its investment objective. Additionally, if the asset underlying a swap agreement has a dramatic intraday move, the terms of a swap agreement between the Fund and its counterparty may permit the counterparty to immediately close out the transaction with the Fund. This, in turn, may prevent the Fund from achieving its investment objective, even if the securities or assets underlying the swap agreement reverse all or a portion of their intraday move by the end of the day.

 

 

Counterparty Risk — The Fund will be subject to credit risk (i.e., the risk that a counterparty is unwilling or unable to make timely payments to meet its contractual obligations) with respect to the amount it expects to receive from counterparties to derivatives or repurchase agreements entered into by the Fund. If a counterparty becomes bankrupt or fails to perform its obligations, the value of your investment in the Fund may decline.

 

 

Early Close/Late Close/Trading Halt Risk — An exchange or market may close early, close late or issue trading halts on specific securities, or the ability to buy or sell certain securities or derivatives may be restricted, which may result in the Fund being unable to buy or sell certain securities or derivatives. In such circumstances, the Fund may be unable to rebalance its portfolio, may be unable to accurately price its investments, may be unable to meet its investment objective and/or may incur substantial trading losses.

 

 

Equity and Market Risk — The equity markets are volatile, and the value of securities, swaps, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day. Equity markets are subject to political, regulatory, market and economic developments, as well as developments that impact specific economic sectors, industries or segments of the market.

The Index may not rebalance frequently enough to account for short-term volatility in the markets, as described further under “Index Performance Risk” below. Adverse market developments may cause the value of an investment in the Fund to decrease.

 

 

Debt Instrument Risk — The 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. Many types of debt instruments are subject to call risk, which is the risk that the issuer of the security will call or repay principal prior to the maturity date. Callable debt instruments may offer less potential for gains during a period of declining interest rates, as the Fund may be required to reinvest the proceeds received at lower 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 the Fund to change. Also, the securities of certain U.S. government

 

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agencies, authorities or instrumentalities are neither issued by nor guaranteed as to principal and interest by the U.S. government, and may be exposed to more credit risk than securities issued by and guaranteed as to principal and interest by the U.S. government.

 

 

Liquidity Risk — In certain circumstances, such as the disruption of the orderly markets for the securities or derivatives in which the Fund 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. Such a situation may prevent the Fund from obtaining exposure to or achieving a high correlation with the Index.

 

 

Market Price Variance Risk — The Fund’s shares will be listed for trading on the NYSE Arca 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 net asset value (“NAV”) and supply and demand for shares. ProShare Advisors cannot predict whether shares will trade above, below or at their NAV. 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. The 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 the Fund.

 

 

Non-Diversification Risk — The Fund is classified as “non-diversified” under the Investment Company Act of 1940, as amended, and has the ability to invest a relatively high percentage of its investments in the securities of a small number of issuers susceptible to a single economic, political or regulatory event, or in derivative instruments with a single counterparty or if ProShare Advisors determines that doing so is the most efficient means of meeting the Fund’s objective. This makes the performance of the Fund more susceptible to adverse impact from credit risk relating to that counterparty than a diversified fund might be.

 

 

Portfolio Turnover Risk — Daily rebalancing of Fund holdings will cause a higher level of portfolio transactions than compared to most funds. Additionally, active market trading of the Fund’s shares may cause more frequent creation or redemption activities that could, in certain circumstances, increase the number of portfolio transactions. High levels of transactions increase brokerage costs and may result in increased taxable capital gains.

Investment Results

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

Management

The Fund is advised by ProShare Advisors. Hratch Najarian, Senior Portfolio Manager, has managed the Fund since 2012.

Purchase and Sale of Fund Shares

The Fund will issue and redeem shares only to Authorized Participants (typically broker-dealers) in exchange for the deposit or delivery of a basket of assets (securities and/or cash) in large blocks, known as Creation Units, each of which comprises 50,000 shares. Retail investors may only purchase and sell shares on a national securities exchange through a broker-dealer. Because the Fund’s shares trade at market prices rather than NAV, shares may trade at a price greater than NAV (premium) or less than NAV (discount).

Tax Information

Income and capital gain distributions you receive from the Fund are subject to federal income taxes and may also be subject to state and local taxes. Distributions for this Fund may be significantly higher than those of most exchange-traded funds.

 

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Investment Objective

ProShares Russell 2000 – 15% Volatility Target (the “Fund”) seeks investment results, before fees and expenses, that correspond to the performance of the Russell 2000 – 15% Volatility Index (the “Index,” Bloomberg ticker: [        ]).

The Index seeks to provide dynamic exposure to the stocks of the Russell 2000® Index (the “Russell 2000”), which is a measure of small-cap U.S. stock market performance. The Russell 2000 is a float-adjusted, market capitalization-weighted index containing approximately 2000 of the smallest companies in the Russell 3000® Index or approximately 8% of the total market capitalization of the Russell 3000® Index, which in turn represents approximately 98% of the investable U.S. equity market. The dynamic exposure is designed to target an overall volatility for the Index of 15%. The Index seeks to achieve this target volatility through leveraged exposure (i.e., 101—200%) to the Russell 2000 during periods when the realized volatility of the Russell 2000 is less than 15% and de-leveraged exposure (i.e., 0—99%) to the Russell 2000 during periods when the realized volatility of the Russell 2000 is greater than 15%. The Index adjusts exposure between the Russell 2000 and three-month U.S. Treasury Bills (the “T-Bill Component”) based upon realized historical volatility of the Russell 2000. As the historical realized volatility of the Russell 2000 increases relative to the target of 15%, exposure to the Russell 2000 will decrease and exposure to the T-Bill Component will increase. As the historical realized volatility of the Russell 2000 decreases relative to the target of 15%, exposure to the Russell 2000 will increase and exposure to the T-Bill Component will decrease. The Index will generally be rebalanced daily. The Fund’s returns will differ from the returns of the Russell 2000.

As of December 31, 2011, the Russell 2000 included companies with capitalizations between $[        ] and $[        ]. The average capitalization of the companies comprising the Russell 2000 was approximately $[        ]. The Russell 2000 is published under the Bloomberg ticker symbol “RTY.” The Russell 2000 has a historical annualized volatility rate for the five year period ended December 31, 2011 of [        ]%.

Fees and Expenses of the Fund

The table below describes the fees and expenses that you may pay if you buy or hold shares of the Fund.

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)

 

Investment Advisory Fees

     [         ]% 

Other Expenses

     [         ]% 
  

 

 

 

Total Annual Operating Expenses Before Fee Waivers and Expense Reimbursements

     [         ]% 

Fee Waiver/Reimbursement*

     [         ]% 
  

 

 

 

Total Annual Operating Expenses After Fee Waivers and Expense Reimbursements

     [         ]% 
  

 

 

 

 

* ProShare Advisors LLC (“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 Before Fee Waivers and Expense Reimbursements, as a percentage of average daily net assets, exceed [        ]% through [        ], 2013. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular contractual period may be recouped by ProShare Advisors within five years of the end of that contractual period to the extent that recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time. A waiver or reimbursement lowers the expense ratio and increases overall returns to investors.

Example: This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.

 

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The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of each period. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same, except that the fee waiver/expense reimbursement is assumed only to pertain to the first year. Although your actual cost may be higher or lower, based on these assumptions your approximate costs would be:

 

1 Year

   3 Years  

$            

   $                

The Fund pays transaction and financing costs associated with transacting in securities and derivatives. In addition, investors may pay brokerage commissions on their purchases and sales of the Fund’s shares. These costs are not reflected in the example or the table above.

Portfolio Turnover

The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when shares are held in a taxable account. These costs, which are not reflected in Annual Fund Operating Expenses or in the example, affect the Fund’s performance. The Fund’s portfolio turnover rate is calculated without regard to cash instruments or derivatives transactions. If such instruments were included, the Fund’s portfolio turnover rate would be significantly higher.

Principal Investment Strategies

The Fund seeks investment results, before fees and expenses, that correspond to the performance of the Index. Under normal circumstances, the Fund will invest at least 80% of its total assets in the equity and/or fixed income securities that comprise the Index at any given point in time. At times, the Fund will have leveraged exposure to the equity securities in the Index in a similar proportion as the Index.

The Fund invests in securities and derivatives that ProShare Advisors believes, in combination, should have similar return characteristics as the return of the Index. Cash balances arising from the use of derivatives will typically be held in money market instruments.

 

 

Equity Securities — The Fund invests in common stock issued by public companies.

 

 

Derivatives — The Fund invests in derivatives, which are financial instruments whose value is derived from the value of an underlying asset, interest rate or index. The Fund invests in derivatives as a substitute for investing directly in stocks in order to gain exposure to the Index. These derivatives principally include:

 

   

Swap Agreements — Contracts entered into primarily with major global financial institutions for a specified period ranging from a day to more than one year. In a standard “swap” transaction, two parties agree to exchange the return (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross return to be exchanged or “swapped” between the parties is calculated with respect to a “notional amount,” e.g., the return on or change in value of a particular dollar amount invested in a “basket” of securities representing a particular index.

 

   

Futures Contracts – Standardized contracts traded on, or subject to the rules of, an exchange that call for the future delivery of a specified quantity and type of a particular asset at a specified time and place or, alternatively, may call for cash settlement.

 

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Money Market Instruments — The Fund invests in short-term cash instruments that have a remaining maturity of 397 days or less and exhibit high quality credit profiles, including:

 

   

U.S. Treasury Bills — U.S. government securities that have initial maturities of one year or less, and are supported by the full faith and credit of the United States.

 

   

Repurchase Agreements — Contracts in which a 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 Fund as a short-term investment vehicle for cash positions.

ProShare Advisors uses a mathematical approach to investing. Using this approach, ProShare Advisors determines the type, quantity and mix of investment positions that the Fund should hold to approximate the performance of the Index. The Fund may gain exposure to only a representative sample of the securities in the Index, which are intended to have aggregate characteristics similar to those of the Index, and may invest in securities not contained in the Index. ProShare Advisors does not invest the assets of the Fund in securities or derivatives based on ProShare Advisors’ view of the investment merit of a particular security, instrument, or company, other than for cash management purposes, nor does it conduct conventional research or analysis (other than in determining counterparty creditworthiness), or forecast market movement or trends, in managing the assets of the Fund. The Fund seeks to remain fully invested at all times in securities and/or derivatives that, in combination, provide exposure to the Index without regard to market conditions, trends or direction. Please see “Investment Objectives, Principal Investment Strategies, and Related Risks” in the Fund’s full prospectus for additional details.

Principal Risks

You could lose money by investing in the Fund.

 

 

Index Performance Risk — There is no guarantee or assurance that the methodology used to create the Index will result in the Fund achieving high, or even positive, returns, that the Fund will retain any appreciation in value over extended periods of time, or that the Fund’s returns will maintain, for any period of time, a 15% volatility or be less volatile than the returns of the Russell 2000. The Index may underperform more traditional indices, including the Russell 2000. In turn, the Fund could lose value while other indices or measures of market performance increase in value. The Index was formed in [2011]. Accordingly, the Index has limited historical performance.

In addition, the Index uses the 30 and 60 day historical volatility data of the Russell 2000 to determine realized volatility, which in turn is compared to the target volatility of 15% to determine the allocations to the Russell 2000 and the T-Bill Component. As such, a significant near-term change in the realized volatility of the Russell 2000 may not result in a commensurate repositioning of the Fund. As a result, the Fund may be more or less exposed to equity securities than short-term volatility might suggest, and this may result in losses.

 

 

Leveraged Exposure Risk — The Index may at times represent leveraged (i.e. greater than 100%) exposure to the Russell 2000, the Fund may at such times be subject to greater risk of loss than an unleveraged investment in the Russell 2000.

 

 

Risks Associated with the Use of Derivatives — The Fund uses investment techniques and derivatives that may be considered aggressive. Because the Fund’s investments in derivatives may involve a small investment relative to the amount of investment exposure assumed, losses may exceed the amounts invested in those instruments. The use of derivatives may expose the Fund to potentially dramatic changes (losses or gains) in the value of the instruments. There may be imperfect correlation between the value of the instruments and the Index, which may prevent the Fund from achieving its investment objective. Additionally, with respect to the use of swap agreements, if the Index has a dramatic intraday move that causes a material decline in the Fund’s net asset value (“NAV”), the terms of a swap agreement between the Fund and its counterparty may permit the counterparty to immediately close out the transaction with the Fund. In that event, the Fund may be unable to enter into another swap agreement or invest in other derivatives to achieve the desired exposure consistent with the Fund’s objective. This, in turn, may prevent the Fund from achieving its investment objective, even if the Index reverses all or a portion of its intraday move by the end of the day. The cost to use derivatives generally increases as interest rates increase, which will lower the Fund’s return.

 

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Correlation Risk — A number of factors may affect the Fund’s ability to achieve a high degree of correlation with the Index, and there can be no guarantee that the Fund will achieve a high degree of correlation. Failure to achieve a high degree of correlation may prevent the Fund from achieving its investment objective. The factors that may adversely affect the Fund’s correlation with the Index include fees, expenses, transaction costs, financing costs associated with the use of derivatives, income items, valuation methodology, accounting standards and disruptions or illiquidity in the markets for the securities or financial instruments in which the Fund invests. The Fund may not have investment exposure to all securities in the Index, or its weighting of investment exposure to such stocks or industries may be different from that of the Index. In addition, the Fund may invest in securities or financial instruments not included in the Index. The Fund may be subject to large movements of assets into and out of the Fund, potentially resulting in the Fund being over- or under-exposed to the Index. Activities surrounding index reconstitutions and other index rebalancing or reconstitution events may hinder the Fund’s ability to meet its investment objective. Additionally, if the asset underlying a swap agreement has a dramatic intraday move, the terms of a swap agreement between the Fund and its counterparty may permit the counterparty to immediately close out the transaction with the Fund. This, in turn, may prevent the Fund from achieving its investment objective, even if the securities or assets underlying the swap agreement reverse all or a portion of their intraday move by the end of the day.

 

 

Counterparty Risk — The Fund will be subject to credit risk (i.e., the risk that a counterparty is unwilling or unable to make timely payments to meet its contractual obligations) with respect to the amount it expects to receive from counterparties to derivatives or repurchase agreements entered into by the Fund. If a counterparty becomes bankrupt or fails to perform its obligations, the value of your investment in the Fund may decline.

 

 

Early Close/Late Close/Trading Halt Risk — An exchange or market may close early, close late or issue trading halts on specific securities, or the ability to buy or sell certain securities or derivatives may be restricted, which may result in the Fund being unable to buy or sell certain securities or derivatives. In such circumstances, the Fund may be unable to rebalance its portfolio, may be unable to accurately price its investments, may be unable to meet its investment objective and/or may incur substantial trading losses.

 

 

Equity and Market Risk — The equity markets are volatile, and the value of securities, swaps, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day. Equity markets are subject to political, regulatory, market and economic developments, as well as developments that impact specific economic sectors, industries or segments of the market.

The Index may not rebalance frequently enough to account for short-term volatility in the markets, as described further under “Index Performance Risk” below. Adverse market developments may cause the value of an investment in the Fund to decrease.

 

 

Debt Instrument Risk — The 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. Many types of debt instruments are subject to call risk, which is the risk that the issuer of the security will call or repay principal prior to the maturity date. Callable debt instruments may offer less potential for gains during a period of declining interest rates, as the Fund may be required to reinvest the proceeds received at lower 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 the Fund to change. Also, the securities of certain U.S. government agencies, authorities or instrumentalities are neither issued by nor guaranteed as to principal and interest by the U.S. government, and may be exposed to more credit risk than securities issued by and guaranteed as to principal and interest by the U.S. government.

 

 

Liquidity Risk — In certain circumstances, such as the disruption of the orderly markets for the securities or derivatives in which the Fund 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. Such a situation may prevent the Fund from obtaining exposure to or achieving a high correlation with the Index.

 

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Market Price Variance Risk — The Fund’s shares will be listed for trading on the NYSE Arca 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 net asset value (“NAV”) and supply and demand for shares. ProShare Advisors cannot predict whether shares will trade above, below or at their NAV. 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. The 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 the Fund.

 

 

Non-Diversification Risk — The Fund is classified as “non-diversified” under the Investment Company Act of 1940, as amended, and has the ability to invest a relatively high percentage of its investments in the securities of a small number of issuers susceptible to a single economic, political or regulatory event, or in derivative instruments with a single counterparty or if ProShare Advisors determines that doing so is the most efficient means of meeting the Fund’s objective. This makes the performance of the Fund more susceptible to adverse impact from credit risk relating to that counterparty than a diversified fund might be.

 

 

Portfolio Turnover Risk — Daily rebalancing of Fund holdings will cause a higher level of portfolio transactions than compared to most funds. Additionally, active market trading of the Fund’s shares may cause more frequent creation or redemption activities that could, in certain circumstances, increase the number of portfolio transactions. High levels of transactions increase brokerage costs and may result in increased taxable capital gains.

 

 

Small- and Mid-Cap Company Investment Risk — The Index, and by extension, the Fund is exposed to stocks of small- and mid-cap companies. The risk of equity investing may be particularly acute for securities of issuers with smaller market capitalizations. Small- and mid-cap company stocks may trade at greater spreads or lower trading volumes, and may be less liquid than the stocks of larger companies. Small- and mid-cap companies may have limited product lines or resources, may be dependent upon a particular market niche and may have greater fluctuations in price than the stocks of larger companies. Further, stocks of small- and mid-sized companies could be more difficult to liquidate during market downturns compared to larger, more widely traded companies. In addition, small-and mid-cap companies may lack the financial and personnel resources to handle economic or industry-wide setbacks and, as a result, such setbacks could have a greater effect on small- and mid-cap security prices.

Investment Results

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

Management

The Fund is advised by ProShare Advisors. Hratch Najarian, Senior Portfolio Manager, has managed the Fund since 2012.

Purchase and Sale of Fund Shares

The Fund will issue and redeem shares only to Authorized Participants (typically broker-dealers) in exchange for the deposit or delivery of a basket of assets (securities and/or cash) in large blocks, known as Creation Units, each of which comprises 50,000 shares. Retail investors may only purchase and sell shares on a national securities exchange through a broker-dealer. Because the Fund’s shares trade at market prices rather than NAV, shares may trade at a price greater than NAV (premium) or less than NAV (discount).

 

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Tax Information

Income and capital gain distributions you receive from the Fund are subject to federal income taxes and may also be subject to state and local taxes. Distributions for this Fund may be significantly higher than those of most exchange-traded funds.

 

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Investment Objective

ProShares Russell 1000 – 15% Volatility Target (the “Fund”) seeks investment results, before fees and expenses, that correspond to the performance of the Russell 1000 – 15% Volatility Index (the “Index,” Bloomberg ticker: [        ]).

The Index seeks to provide dynamic exposure to the stocks of the Russell 1000® Index (the “Russell 1000”), which is designed to provide a comprehensive measure of large-cap U.S. equity performance. The dynamic exposure is designed to target an overall volatility for the Index of 15%. The Index seeks to achieve this target volatility through leveraged exposure (i.e., 101—200%) to the Russell 1000 during periods when the realized volatility of the Russell 1000 is less than 15% and de-leveraged exposure (i.e., 0—99%) to the Russell 1000 during periods when the realized volatility of the Russell 1000 is greater than 15%. The Index adjusts exposure between the Russell 1000 and three-month U.S. Treasury Bills (the “T-Bill Component”) based upon realized historical volatility of the Russell 1000. As the historical realized volatility of the Russell 1000 increases relative to the target of 15%, exposure to the Russell 1000 will decrease and exposure to the T-Bill Component will increase. As the historical realized volatility of the Russell 1000 decreases relative to the target of 15%, exposure to the Russell 1000 will increase and exposure to the T-Bill Component will decrease. The Index will generally be rebalanced daily. The Fund’s returns will differ from the returns of the Russell 1000.

As of December 31, 2011, the Russell 1000 included companies with capitalizations between $[        ] and $[        ]. The average capitalization of the companies comprising the Index was approximately $[        ]. The Index is published under the Bloomberg ticker symbol “RIY.” The Russell 1000 has a historical annualized volatility rate for the five year period ended December 31, 2011 of [        ]%.

Fees and Expenses of the Fund

The table below describes the fees and expenses that you may pay if you buy or hold shares of the Fund.

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)

 

Investment Advisory Fees

     [         ]% 

Other Expenses

     [         ]% 
  

 

 

 

Total Annual Operating Expenses Before Fee Waivers and Expense Reimbursements

     [         ]% 

Fee Waiver/Reimbursement*

     [         ]% 
  

 

 

 

Total Annual Operating Expenses After Fee Waivers and Expense Reimbursements

     [         ]% 
  

 

 

 

 

* ProShare Advisors LLC (“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 Before Fee Waivers and Expense Reimbursements, as a percentage of average daily net assets, exceed [        ]% through [        ], 2013. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular contractual period may be recouped by ProShare Advisors within five years of the end of that contractual period to the extent that recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time. A waiver or reimbursement lowers the expense ratio and increases overall returns to investors.

Example: This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.

 

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The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of each period. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same, except that the fee waiver/expense reimbursement is assumed only to pertain to the first year. Although your actual cost may be higher or lower, based on these assumptions your approximate costs would be:

 

1 Year

   3 Years  

$            

   $                

The Fund pays transaction and financing costs associated with transacting in securities and derivatives. In addition, investors may pay brokerage commissions on their purchases and sales of the Fund’s shares. These costs are not reflected in the example or the table above.

Portfolio Turnover

The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when shares are held in a taxable account. These costs, which are not reflected in Annual Fund Operating Expenses or in the example, affect the Fund’s performance. The Fund’s portfolio turnover rate is calculated without regard to cash instruments or derivatives transactions. If such instruments were included, the Fund’s portfolio turnover rate would be significantly higher.

Principal Investment Strategies

The Fund seeks investment results, before fees and expenses, that correspond to the performance of the Index. Under normal circumstances, the Fund will invest at least 80% of its total assets in the equity and/or fixed income securities that comprise the Index at any given point in time. At times, the Fund will have leveraged exposure to the equity securities in the Index in a similar proportion as the Index.

The Fund invests in securities and derivatives that ProShare Advisors believes, in combination, should have return characteristics as the return of the Index. Cash balances arising from the use of derivatives will typically be held in money market instruments.

 

 

Equity Securities — The Fund invests in common stock issued by public companies.

 

 

Derivatives — The Fund invests in derivatives, which are financial instruments whose value is derived from the value of an underlying asset, interest rate or index. The Fund invests in derivatives as a substitute for investing directly in stocks in order to gain exposure to the Index. These derivatives principally include:

 

   

Swap Agreements — Contracts entered into primarily with major global financial institutions for a specified period ranging from a day to more than one year. In a standard “swap” transaction, two parties agree to exchange the return (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross return to be exchanged or “swapped” between the parties is calculated with respect to a “notional amount,” e.g., the return on or change in value of a particular dollar amount invested in a “basket” of securities representing a particular index.

 

   

Futures Contracts – Standardized contracts traded on, or subject to the rules of, an exchange that call for the future delivery of a specified quantity and type of a particular asset at a specified time and place or, alternatively, may call for cash settlement.

 

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Money Market Instruments — The Fund invests in short-term cash instruments that have a remaining maturity of 397 days or less and exhibit high quality credit profiles, including:

 

   

U.S. Treasury Bills — U.S. government securities that have initial maturities of one year or less, and are supported by the full faith and credit of the United States.

 

   

Repurchase Agreements — Contracts in which a 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 Fund as a short-term investment vehicle for cash positions.

ProShare Advisors uses a mathematical approach to investing. Using this approach, ProShare Advisors determines the type, quantity and mix of investment positions that the Fund should hold to approximate the performance of the Index. The Fund may gain exposure to only a representative sample of the securities in the Index, which are intended to have aggregate characteristics similar to those of the Index, and may invest in securities not contained in the Index. ProShare Advisors does not invest the assets of the Fund in securities or derivatives based on ProShare Advisors’ view of the investment merit of a particular security, instrument, or company, other than for cash management purposes, nor does it conduct conventional research or analysis (other than in determining counterparty creditworthiness), or forecast market movement or trends, in managing the assets of the Fund. The Fund seeks to remain fully invested at all times in securities and/or derivatives that, in combination, provide exposure to the Index without regard to market conditions, trends or direction. Please see “Investment Objectives, Principal Investment Strategies, and Related Risks” in the Fund’s full prospectus for additional details.

Principal Risks

You could lose money by investing in the Fund.

 

 

Index Performance Risk — There is no guarantee or assurance that the methodology used to create the Index will result in the Fund achieving high, or even positive, returns, that the Fund will retain any appreciation in value over extended periods of time, or that the Fund’s returns will maintain, for any period of time, a 15% volatility or be less volatile than the returns of the Russell 1000. The Index may underperform more traditional indices, including the Russell 1000. In turn, the Fund could lose value while other indices or measures of market performance increase in value. The Index was formed in [2011]. Accordingly, the Index has limited historical performance.

In addition, the Index uses the 30 and 60 day historical volatility data of the Russell 1000 to determine realized volatility, which in turn is compared to the target volatility of 15% to determine the allocations to the Russell 1000 and the T-Bill Component. As such, a significant near-term change in the realized volatility of the Russell 1000 may not result in a commensurate repositioning of the Fund. As a result, the Fund may be more or less exposed to equity securities than short-term volatility might suggest, and this may result in losses.

 

 

Leveraged Exposure Risk — The Index may at times represent leveraged (i.e. greater than 100%) exposure to the Russell 1000, the Fund may at such times be subject to greater risk of loss than an unleveraged investment in the Russell 1000.

 

 

Risks Associated with the Use of Derivatives — The Fund uses investment techniques and derivatives that may be considered aggressive. Because the Fund’s investments in derivatives may involve a small investment relative to the amount of investment exposure assumed, losses may exceed the amounts invested in those instruments. The use of derivatives may expose the Fund to potentially dramatic changes (losses or gains) in the value of the instruments. There may be imperfect correlation between the value of the instruments and the Index, which may prevent the Fund from achieving its investment objective. Additionally, with respect to the use of swap agreements, if the Index has a dramatic intraday move that causes a material decline in the Fund’s net asset value (“NAV”), the terms of a swap agreement between the Fund and its counterparty may permit the counterparty to immediately close out

 

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the transaction with the Fund. In that event, the Fund may be unable to enter into another swap agreement or invest in other derivatives to achieve the desired exposure consistent with the Fund’s objective. This, in turn, may prevent the Fund from achieving its investment objective, even if the Index reverses all or a portion of its intraday move by the end of the day. The cost to use derivatives generally increases as interest rates increase, which will lower the Fund’s return.

 

 

Correlation Risk — A number of factors may affect the Fund’s ability to achieve a high degree of correlation with the Index, and there can be no guarantee that the Fund will achieve a high degree of correlation. Failure to achieve a high degree of correlation may prevent the Fund from achieving its investment objective. The factors that may adversely affect the Fund’s correlation with the Index include fees, expenses, transaction costs, financing costs associated with the use of derivatives, income items, valuation methodology, accounting standards and disruptions or illiquidity in the markets for the securities or financial instruments in which the Fund invests. The Fund may not have investment exposure to all securities in the Index, or its weighting of investment exposure to such stocks or industries may be different from that of the Index. In addition, the Fund may invest in securities or financial instruments not included in the Index. The Fund may be subject to large movements of assets into and out of the Fund, potentially resulting in the Fund being over- or under-exposed to the Index. Activities surrounding index reconstitutions and other index rebalancing or reconstitution events may hinder the Fund’s ability to meet its investment objective. Additionally, if the asset underlying a swap agreement has a dramatic intraday move, the terms of a swap agreement between the Fund and its counterparty may permit the counterparty to immediately close out the transaction with the Fund. This, in turn, may prevent the Fund from achieving its investment objective, even if the securities or assets underlying the swap agreement reverse all or a portion of their intraday move by the end of the day.

 

 

Counterparty Risk — The Fund will be subject to credit risk (i.e., the risk that a counterparty is unwilling or unable to make timely payments to meet its contractual obligations) with respect to the amount it expects to receive from counterparties to derivatives or repurchase agreements entered into by the Fund. If a counterparty becomes bankrupt or fails to perform its obligations, the value of your investment in the Fund may decline.

 

 

Early Close/Late Close/Trading Halt Risk — An exchange or market may close early, close late or issue trading halts on specific securities, or the ability to buy or sell certain securities or derivatives may be restricted, which may result in the Fund being unable to buy or sell certain securities or derivatives. In such circumstances, the Fund may be unable to rebalance its portfolio, may be unable to accurately price its investments, may be unable to meet its investment objective and/or may incur substantial trading losses.

 

 

Equity and Market Risk — The equity markets are volatile, and the value of securities, swaps, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day. Equity markets are subject to political, regulatory, market and economic developments, as well as developments that impact specific economic sectors, industries or segments of the market.

The Index may not rebalance frequently enough to account for short-term volatility in the markets, as described further under “Index Performance Risk” below. Adverse market developments may cause the value of an investment in the Fund to decrease.

 

 

Debt Instrument Risk — The 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. Many types of debt instruments are subject to call risk, which is the risk that the issuer of the security will call or repay principal prior to the maturity date. Callable debt instruments may offer less potential for gains during a period of declining interest rates, as the Fund may be required to reinvest the proceeds received at lower 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 the Fund to change. Also, the securities of certain U.S. government agencies, authorities or instrumentalities are neither issued by nor guaranteed as to principal and interest by the U.S. government, and may be exposed to more credit risk than securities issued by and guaranteed as to principal and interest by the U.S. government.

 

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Liquidity Risk — In certain circumstances, such as the disruption of the orderly markets for the securities or derivatives in which the Fund 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. Such a situation may prevent the Fund from obtaining exposure to or achieving a high correlation with the Index.

 

 

Market Price Variance Risk — The Fund’s shares will be listed for trading on the NYSE Arca 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 net asset value (“NAV”) and supply and demand for shares. ProShare Advisors cannot predict whether shares will trade above, below or at their NAV. 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. The 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 the Fund.

 

 

Non-Diversification Risk — The Fund is classified as “non-diversified” under the Investment Company Act of 1940, as amended, and has the ability to invest a relatively high percentage of its investments in the securities of a small number of issuers susceptible to a single economic, political or regulatory event, or in derivative instruments with a single counterparty or if ProShare Advisors determines that doing so is the most efficient means of meeting the Fund’s objective. This makes the performance of the Fund more susceptible to adverse impact from credit risk relating to that counterparty than a diversified fund might be.

 

 

Portfolio Turnover Risk — Daily rebalancing of Fund holdings will cause a higher level of portfolio transactions than compared to most funds. Additionally, active market trading of the Fund’s shares may cause more frequent creation or redemption activities that could, in certain circumstances, increase the number of portfolio transactions. High levels of transactions increase brokerage costs and may result in increased taxable capital gains.

Investment Results

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

Management

The Fund is advised by ProShare Advisors. Hratch Najarian, Senior Portfolio Manager, has managed the Fund since 2012.

Purchase and Sale of Fund Shares

The Fund will issue and redeem shares only to Authorized Participants (typically broker-dealers) in exchange for the deposit or delivery of a basket of assets (securities and/or cash) in large blocks, known as Creation Units, each of which comprises 50,000 shares. Retail investors may only purchase and sell shares on a national securities exchange through a broker-dealer. Because the Fund’s shares trade at market prices rather than NAV, shares may trade at a price greater than NAV (premium) or less than NAV (discount).

Tax Information

Income and capital gain distributions you receive from the Fund are subject to federal income taxes and may also be subject to state and local taxes. Distributions for this Fund may be significantly higher than those of most exchange-traded funds.

 

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Investment Objective

ProShares MSCI EAFE – 15% Volatility Target (the “Fund”) seeks investment results, before fees and expenses, that correspond to the performance of the MSCI EAFE – 15% Volatility Index (the “Index,” Bloomberg ticker: [        ]).

The Index seeks to provide dynamic exposure to the stocks of the MSCI EAFE Index (the “MSCI EAFE”), which includes 85% of free float-adjusted, market capitalization in each industry group in developed market countries, excluding the U.S. and Canada. The dynamic exposure is designed to target an overall volatility for the Index of 15%. The Index seeks to achieve this target volatility through leveraged exposure (i.e., 101—200%) to the MSCI EAFE during periods when the realized volatility of the MSCI EAFE is less than 15% and de-leveraged exposure (i.e., 0—99%) to the MSCI EAFE during periods when the realized volatility of the MSCI EAFE is greater than 15%. The Index adjusts exposure between the MSCI EAFE and three-month U.S. Treasury Bills (the “T-Bill Component”) based upon realized historical volatility of the MSCI EAFE. As the historical realized volatility of the MSCI EAFE increases relative to the target of 15%, exposure to the MSCI EAFE will decrease and exposure to the T-Bill Component will increase. As the historical realized volatility of the MSCI EAFE decreases relative to the target of 15%, exposure to the MSCI EAFE will increase and exposure to the T-Bill Component will decrease. The Index will generally be rebalanced daily. The Fund’s returns will differ from the returns of the MSCI EAFE.

[As of December 31, 2011, the MSCI EAFE consisted of the following 22 developed market country indexes: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.] As of December 31, 2011, the MSCI EAFE included companies with capitalizations between $[        ] and $[        ]. The average capitalization of the companies comprising the MSCI EAFE was approximately $[        ]. The MSCI EAFE is published under the Bloomberg ticker symbol “MXEA.” The MSCI EAFE has a historical annualized volatility rate for the five year period ended December 31, 2011 of [        ]%.

Fees and Expenses of the Fund

The table below describes the fees and expenses that you may pay if you buy or hold shares of the Fund.

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)

 

Investment Advisory Fees

     [         ]% 

Other Expenses

     [         ]% 
  

 

 

 

Total Annual Operating Expenses Before Fee Waivers and Expense Reimbursements

     [         ]% 

Fee Waiver/Reimbursement*

     [         ]% 
  

 

 

 

Total Annual Operating Expenses After Fee Waivers and Expense Reimbursements

     [         ]% 
  

 

 

 

 

* ProShare Advisors LLC (“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 Before Fee Waivers and Expense Reimbursements, as a percentage of average daily net assets, exceed [        ]% through [        ], 2013. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular contractual period may be recouped by ProShare Advisors within five years of the end of that contractual period to the extent that recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time. A waiver or reimbursement lowers the expense ratio and increases overall returns to investors.

Example: This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.

 

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The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of each period. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same, except that the fee waiver/expense reimbursement is assumed only to pertain to the first year. Although your actual cost may be higher or lower, based on these assumptions your approximate costs would be:

 

1 Year

   3 Years  

$            

   $                

The Fund pays transaction and financing costs associated with transacting in securities and derivatives. In addition, investors may pay brokerage commissions on their purchases and sales of the Fund’s shares. These costs are not reflected in the example or the table above.

Portfolio Turnover

The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when shares are held in a taxable account. These costs, which are not reflected in Annual Fund Operating Expenses or in the example, affect the Fund’s performance. The Fund’s portfolio turnover rate is calculated without regard to cash instruments or derivatives transactions. If such instruments were included, the Fund’s portfolio turnover rate would be significantly higher.

Principal Investment Strategies

The Fund seeks investment results, before fees and expenses, that correspond to the performance of the Index. Under normal circumstances, the Fund will invest at least 80% of its total assets in the equity and/or fixed income securities that comprise the Index at any given point in time. At times, the Fund will have leveraged exposure to the equity securities in the Index in a similar proportion as the Index.

The Fund invests in securities and derivatives that ProShare Advisors believes, in combination, should have similar return characteristics as the return of the Index. Cash balances arising from the use of derivatives will typically be held in money market instruments.

 

 

Equity Securities — The Fund invests in common stock issued by public companies.

 

 

Derivatives — The Fund invests in derivatives, which are financial instruments whose value is derived from the value of an underlying asset, interest rate or index. The Fund invests in derivatives as a substitute for investing directly in stocks in order to gain exposure to the Index. These derivatives principally include:

 

   

Swap Agreements — Contracts entered into primarily with major global financial institutions for a specified period ranging from a day to more than one year. In a standard “swap” transaction, two parties agree to exchange the return (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross return to be exchanged or “swapped” between the parties is calculated with respect to a “notional amount,” e.g., the return on or change in value of a particular dollar amount invested in a “basket” of securities representing a particular index.

 

   

Futures Contracts – Standardized contracts traded on, or subject to the rules of, an exchange that call for the future delivery of a specified quantity and type of a particular asset at a specified time and place or, alternatively, may call for cash settlement.

 

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Money Market Instruments — The Fund invests in short-term cash instruments that have a remaining maturity of 397 days or less and exhibit high quality credit profiles, including:

 

   

U.S. Treasury Bills — U.S. government securities that have initial maturities of one year or less, and are supported by the full faith and credit of the United States.

 

   

Repurchase Agreements — Contracts in which a 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 Fund as a short-term investment vehicle for cash positions.

ProShare Advisors uses a mathematical approach to investing. Using this approach, ProShare Advisors determines the type, quantity and mix of investment positions that the Fund should hold to approximate the performance of the Index. The Fund may gain exposure to only a representative sample of the securities in the Index, which are intended to have aggregate characteristics similar to those of the Index, and may invest in securities not contained in the Index. ProShare Advisors does not invest the assets of the Fund in securities or derivatives based on ProShare Advisors’ view of the investment merit of a particular security, instrument, or company, other than for cash management purposes, nor does it conduct conventional research or analysis (other than in determining counterparty creditworthiness), or forecast market movement or trends, in managing the assets of the Fund. The Fund seeks to remain fully invested at all times in securities and/or derivatives that, in combination, provide exposure to the Index without regard to market conditions, trends or direction. Please see “Investment Objectives, Principal Investment Strategies, and Related Risks” in the Fund’s full prospectus for additional details.

Principal Risks

You could lose money by investing in the Fund.

 

 

Index Performance Risk — There is no guarantee or assurance that the methodology used to create the Index will result in the Fund achieving high, or even positive, returns, that the Fund will retain any appreciation in value over extended periods of time, or that the Fund’s returns will maintain, for any period of time, a 15% volatility or be less volatile than the returns of the MSCI EAFE. The Index may underperform more traditional indices, including the MSCI EAFE. In turn, the Fund could lose value while other indices or measures of market performance increase in value. The Index was formed in [2011]. Accordingly, the Index has limited historical performance.

In addition, the Index uses the 30 and 60 day historical volatility data of the MSCI EAFE to determine realized volatility, which in turn is compared to the target volatility of 15% to determine the allocations to the MSCI EAFE and the T-Bill Component. As such, a significant near-term change in the realized volatility of the MSCI EAFE may not result in a commensurate repositioning of the Fund. As a result, the Fund may be more or less exposed to equity securities than short-term volatility might suggest, and this may result in losses.

 

 

Leveraged Exposure Risk — The Index may at times represent leveraged (i.e. greater than 100%) exposure to the MSCI EAFE, the Fund may at such times be subject to greater risk of loss than an unleveraged investment in the MSCI EAFE.

 

 

Risks Associated with the Use of Derivatives — The Fund uses investment techniques and derivatives that may be considered aggressive. Because the Fund’s investments in derivatives may involve a small investment relative to the amount of investment exposure assumed, losses may exceed the amounts invested in those instruments. The use of derivatives may expose the Fund to potentially dramatic changes (losses or gains) in the value of the instruments. There may be imperfect correlation between the value of the instruments and the Index, which may prevent the Fund from achieving its investment objective. Additionally, with respect to the use of swap agreements, if the Index has a dramatic intraday move that causes a material decline in the Fund’s net asset value (“NAV”), the terms of a swap agreement between the Fund and its counterparty may permit the counterparty to immediately close out the transaction with the Fund. In that event, the Fund may be unable to enter into another swap agreement or invest in other derivatives to achieve the desired exposure consistent with the Fund’s objective. This, in turn, may prevent the Fund from achieving its investment objective, even if the Index reverses all or a portion of its intraday move by the end of the day. The cost to use derivatives generally increases as interest rates increase, which will lower the Fund’s return.

 

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Correlation Risk — A number of factors may affect the Fund’s ability to achieve a high degree of correlation with the Index, and there can be no guarantee that the Fund will achieve a high degree of correlation. Failure to achieve a high degree of correlation may prevent the Fund from achieving its investment objective. The factors that may adversely affect the Fund’s correlation with the Index include fees, expenses, transaction costs, financing costs associated with the use of derivatives, income items, valuation methodology, accounting standards and disruptions or illiquidity in the markets for the securities or financial instruments in which the Fund invests. The Fund may not have investment exposure to all securities in the Index, or its weighting of investment exposure to such stocks or industries may be different from that of the Index. In addition, the Fund may invest in securities or financial instruments not included in the Index. The Fund may be subject to large movements of assets into and out of the Fund, potentially resulting in the Fund being over- or under-exposed to the Index. Activities surrounding index reconstitutions and other index rebalancing or reconstitution events may hinder the Fund’s ability to meet its investment objective. Additionally, if the asset underlying a swap agreement has a dramatic intraday move, the terms of a swap agreement between the Fund and its counterparty may permit the counterparty to immediately close out the transaction with the Fund. This, in turn, may prevent the Fund from achieving its investment objective, even if the securities or assets underlying the swap agreement reverse all or a portion of their intraday move by the end of the day.

 

 

Counterparty Risk — The Fund will be subject to credit risk (i.e., the risk that a counterparty is unwilling or unable to make timely payments to meet its contractual obligations) with respect to the amount it expects to receive from counterparties to derivatives or repurchase agreements entered into by the Fund. If a counterparty becomes bankrupt or fails to perform its obligations, the value of your investment in the Fund may decline.

 

 

Early Close/Late Close/Trading Halt Risk — An exchange or market may close early, close late or issue trading halts on specific securities, or the ability to buy or sell certain securities or derivatives may be restricted, which may result in the Fund being unable to buy or sell certain securities or derivatives. In such circumstances, the Fund may be unable to rebalance its portfolio, may be unable to accurately price its investments, may be unable to meet its investment objective and/or may incur substantial trading losses.

 

 

Equity and Market Risk — The equity markets are volatile, and the value of securities, swaps, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day. Equity markets are subject to political, regulatory, market and economic developments, as well as developments that impact specific economic sectors, industries or segments of the market.

The Index may not rebalance frequently enough to account for short-term volatility in the markets, as described further under “Index Performance Risk” below. Adverse market developments may cause the value of an investment in the Fund to decrease.

 

 

Debt Instrument Risk — The 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. Many types of debt instruments are subject to call risk, which is the risk that the issuer of the security will call or repay principal prior to the maturity date. Callable debt instruments may offer less potential for gains during a period of declining interest rates, as the Fund may be required to reinvest the proceeds received at lower 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 the Fund to change. Also, the securities of certain U.S. government agencies, authorities or instrumentalities are neither issued by nor guaranteed as to principal and interest by the U.S. government, and may be exposed to more credit risk than securities issued by and guaranteed as to principal and interest by the U.S. government.

 

 

Exposure to Foreign Currency Risk — Investments linked to or denominated in foreign currencies are exposed to risk factors in addition to investments denominated in U.S. dollars. The value of an investment linked to or denominated in a foreign currency could change significantly as foreign currencies strengthen

 

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or weaken relative to the U.S. dollar. Risks related to foreign currencies also include those related to economic or political developments, market inefficiencies or a higher risk that essential investment information may be incomplete, unavailable, or inaccurate. A U.S. dollar investment in Depositary Receipts or ordinary shares of foreign issuers traded on U.S. exchanges or an investment in an instrument linked to a foreign currency are subject to foreign currency risk.

 

 

Exposure to Foreign Investments Risk — Exposure to securities of foreign issuers provides the Fund with increased risk. Various factors related to foreign investments may negatively impact the Index’s performance, such as: i) fluctuations in the value of the local foreign currency; ii) differences in securities settlement practices; iii) uncertainty associated with evidence of ownership of investments in countries that lack centralized custodial services; iv) possible regulation of, or other limitations on, investments by U.S. investors in foreign investments; v) potentially higher brokerage commissions; vi) the possibility that a foreign government may withhold portions of interest and dividends at the source; vii) taxation of income earned in foreign countries or other foreign taxes imposed; viii) foreign exchange controls, which may include suspension of the ability to transfer currency from a foreign country; ix) less publicly available information about foreign issuers; x) changes in the denomination currency of a foreign investment; and xi) less certain legal systems in which the Fund might encounter difficulties or be unable to pursue legal remedies. Foreign investments also may be more susceptible to political, social, economic and regional factors than might be the case with U.S. securities.

Because the Fund’s foreign investments will be in developing or “emerging market” countries, all the aforementioned factors are heightened and foreign investments risk is higher.

 

 

Geographic Concentration Risk — Because the Fund will typically focus its investments in particular foreign countries or geographic regions, it may be more volatile than a more geographically diversified fund. The performance of the Fund will be affected by the political, social and economic conditions in those foreign countries and geographic regions and subject to the related risks.

 

 

Liquidity Risk — In certain circumstances, such as the disruption of the orderly markets for the securities or derivatives in which the Fund 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. Such a situation may prevent the Fund from obtaining exposure to or achieving a high correlation with the Index.

 

 

Market Price Variance Risk — The Fund’s shares will be listed for trading on the NYSE Arca 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 net asset value (“NAV”) and supply and demand for shares. ProShare Advisors cannot predict whether shares will trade above, below or at their NAV. 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. The 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 the Fund.

 

 

Non-Diversification Risk — The Fund is classified as “non-diversified” under the Investment Company Act of 1940, as amended, and has the ability to invest a relatively high percentage of its investments in the securities of a small number of issuers susceptible to a single economic, political or regulatory event, or in derivative instruments with a single counterparty or if ProShare Advisors determines that doing so is the most efficient means of meeting the Fund’s objective. This makes the performance of the Fund more susceptible to adverse impact from credit risk relating to that counterparty than a diversified fund might be.

 

 

Portfolio Turnover Risk — Daily rebalancing of Fund holdings will cause a higher level of portfolio transactions than compared to most funds. Additionally, active market trading of the Fund’s shares may cause more frequent creation or redemption activities that could, in certain circumstances, increase the number of portfolio transactions. High levels of transactions increase brokerage costs and may result in increased taxable capital gains.

 

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Valuation Time Risk — The Fund typically values its portfolio at 4:00 p.m. (Eastern time). In certain cases, foreign securities markets close before such time or may not be open for business on the same calendar days as the Fund. As a result, the daily performance of the Fund may vary, perhaps significantly, from the daily performance of the Index.

Investment Results

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

Management

The Fund is advised by ProShare Advisors. Alexander Ilyasov, Portfolio Manager, has managed the Fund since 2012.

Purchase and Sale of Fund Shares

The Fund will issue and redeem shares only to Authorized Participants (typically broker-dealers) in exchange for the deposit or delivery of a basket of assets (securities and/or cash) in large blocks, known as Creation Units, each of which comprises 50,000 shares. Retail investors may only purchase and sell shares on a national securities exchange through a broker-dealer. Because the Fund’s shares trade at market prices rather than NAV, shares may trade at a price greater than NAV (premium) or less than NAV (discount).

Tax Information

Income and capital gain distributions you receive from the Fund are subject to federal income taxes and may also be subject to state and local taxes. Distributions for this Fund may be significantly higher than those of most exchange-traded funds.

 

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Investment Objective

ProShares MSCI Emerging Markets – 15% Volatility Target (the “Fund”) seeks investment results, before fees and expenses, that correspond to the performance of the MSCI Emerging Markets – 15% Volatility Index (the “Index,” Bloomberg ticker: [    ]).

The Index seeks to provide dynamic exposure to the stocks of the MSCI Emerging Markets Index (the “MSCI EM”), which is a free float-adjusted market capitalization index designed to measure equity market performance in the global emerging markets. The dynamic exposure is designed to target an overall volatility for the Index of 15%. The Index seeks to achieve this target volatility through leveraged exposure (i.e., 101—200%) to the MSCI EM during periods when the realized volatility of the MSCI EM is less than 15% and de-leveraged exposure (i.e., 0—99%) to the MSCI EM during periods when the realized volatility of the MSCI EM is greater than 15%. The Index adjusts exposure between the MSCI EM and three-month U.S. Treasury Bills (the “T-Bill Component”) based upon realized historical volatility of the MSCI EM. As the historical realized volatility of the MSCI EM increases relative to the target of 15%, exposure to the MSCI EM will decrease and exposure to the T-Bill Component will increase. As the historical realized volatility of the MSCI EM decreases relative to the target of 15%, exposure to the MSCI EM will increase and exposure to the T-Bill Component will decrease. The Index will generally be rebalanced daily. The Fund’s returns will differ from the returns of the MSCI EM.

[As of December 31, 2011, the MSCI EM consisted of the following 21 emerging market country indexes: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand and Turkey.] As of December 31, 2011, the MSCI EM included companies with capitalizations between $[        ] and $[        ]. The average capitalization of the companies comprising the MSCI EM was approximately $[        ]. The MSCI EM is published under the Bloomberg ticker symbol “MXEF.” The MSCI EM has a historical annualized volatility rate for the five year period ended December 31, 2011 of [        ]%.

Fees and Expenses of the Fund

The table below describes the fees and expenses that you may pay if you buy or hold shares of the Fund.

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)

 

Investment Advisory Fees

     [         ]% 

Other Expenses

     [         ]% 
  

 

 

 

Total Annual Operating Expenses Before Fee Waivers and Expense Reimbursements

     [         ]% 

Fee Waiver/Reimbursement*

     [         ]% 
  

 

 

 

Total Annual Operating Expenses After Fee Waivers and Expense Reimbursements

     [         ]% 
  

 

 

 

 

* ProShare Advisors LLC (“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 Before Fee Waivers and Expense Reimbursements, as a percentage of average daily net assets, exceed [        ]% through [        ], 2013. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular contractual period may be recouped by ProShare Advisors within five years of the end of that contractual period to the extent that recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time. A waiver or reimbursement lowers the expense ratio and increases overall returns to investors.

Example: This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.

 

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The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of each period. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same, except that the fee waiver/expense reimbursement is assumed only to pertain to the first year. Although your actual cost may be higher or lower, based on these assumptions your approximate costs would be:

 

1 Year

   3 Years  

$            

   $                

The Fund pays transaction and financing costs associated with transacting in securities and derivatives. In addition, investors may pay brokerage commissions on their purchases and sales of the Fund’s shares. These costs are not reflected in the example or the table above.

Portfolio Turnover

The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when shares are held in a taxable account. These costs, which are not reflected in Annual Fund Operating Expenses or in the example, affect the Fund’s performance. The Fund’s portfolio turnover rate is calculated without regard to cash instruments or derivatives transactions. If such instruments were included, the Fund’s portfolio turnover rate would be significantly higher.

Principal Investment Strategies

The Fund seeks investment results, before fees and expenses, that correspond to the performance of the Index. Under normal circumstances, the Fund will invest at least 80% of its total assets in the equity and/or fixed income securities that comprise the Index at any given point in time. At times, the Fund will have leveraged exposure to the equity securities in the Index in a similar proportion as the Index.

The Fund invests in securities, derivatives and depositary receipts that ProShare Advisors believes, in combination, should have return characteristics as the return of the Index. Cash balances arising from the use of derivatives will typically be held in money market instruments.

 

 

Equity Securities — The Fund invests in common stock issued by public companies.

 

 

Derivatives — The Fund invests in derivatives, which are financial instruments whose value is derived from the value of an underlying asset, interest rate or index. The Fund invests in derivatives as a substitute for investing directly in stocks in order to gain exposure to the Index. These derivatives principally include:

 

   

Swap Agreements — Contracts entered into primarily with major global financial institutions for a specified period ranging from a day to more than one year. In a standard “swap” transaction, two parties agree to exchange the return (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross return to be exchanged or “swapped” between the parties is calculated with respect to a “notional amount,” e.g., the return on or change in value of a particular dollar amount invested in a “basket” of securities representing a particular index.

 

   

Futures Contracts – Standardized contracts traded on, or subject to the rules of, an exchange that call for the future delivery of a specified quantity and type of a particular asset at a specified time and place or, alternatively, may call for cash settlement.

 

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Depositary Receipts — The Fund may invest in depositary receipts, which principally include:

 

   

American Depositary Receipts (ADRs), which represent the right to receive securities of foreign issuers deposited in a bank or trust company and are an alternative to purchasing the underlying securities in their national markets and currencies.

 

   

Global Depositary Receipts (GDRs), which are receipts for shares in a foreign-based corporation traded in capital markets around the word.

 

 

Money Market Instruments — The Fund invests in short-term cash instruments that have a remaining maturity of 397 days or less and exhibit high quality credit profiles, including:

 

   

U.S. Treasury Bills — U.S. government securities that have initial maturities of one year or less, and are supported by the full faith and credit of the United States.

 

   

Repurchase Agreements — Contracts in which a 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 Fund as a short-term investment vehicle for cash positions.

ProShare Advisors uses a mathematical approach to investing. Using this approach, ProShare Advisors determines the type, quantity and mix of investment positions that the Fund should hold to approximate the performance of the Index. The Fund may gain exposure to only a representative sample of the securities in the Index, which are intended to have aggregate characteristics similar to those of the Index, and may invest in securities not contained in the Index. ProShare Advisors does not invest the assets of the Fund in securities or derivatives based on ProShare Advisors’ view of the investment merit of a particular security, instrument, or company, other than for cash management purposes, nor does it conduct conventional research or analysis (other than in determining counterparty creditworthiness), or forecast market movement or trends, in managing the assets of the Fund. The Fund seeks to remain fully invested at all times in securities and/or derivatives that, in combination, provide exposure to the Index without regard to market conditions, trends or direction.

Please see “Investment Objectives, Principal Investment Strategies, and Related Risks” in the Fund’s full prospectus for additional details.

Principal Risks

You could lose money by investing in the Fund.

 

 

Index Performance Risk — There is no guarantee or assurance that the methodology used to create the Index will result in the Fund achieving high, or even positive, returns, that the Fund will retain any appreciation in value over extended periods of time, or that the Fund’s returns will maintain, for any period of time, a 15% volatility or be less volatile than the returns of the MSCI EM. The Index may underperform more traditional indices, including the MSCI EM. In turn, the Fund could lose value while other indices or measures of market performance increase in value. The Index was formed in [2011]. Accordingly, the Index has limited historical performance.

In addition, the Index uses the 30 and 60 day historical volatility data of the MSCI EM to determine realized volatility, which in turn is compared to the target volatility of 15% to determine the allocations to the MSCI EM and the T-Bill Component. As such, a significant near-term change in the realized volatility of the MSCI EM may not result in a commensurate repositioning of the Fund. As a result, the Fund may be more or less exposed to equity securities than short-term volatility might suggest, and this may result in losses.

 

 

Leveraged Exposure Risk — The Index may at times represent leveraged (i.e. greater than 100%) exposure to the MSCI EM, the Fund may at such times be subject to greater risk of loss than an unleveraged investment in the MSCI EM.

 

 

Risks Associated with the Use of Derivatives — The Fund uses investment techniques and derivatives that may be considered aggressive. Because the Fund’s investments in derivatives may involve a small investment relative to the amount of investment exposure assumed, losses may exceed the amounts

 

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invested in those instruments. The use of derivatives may expose the Fund to potentially dramatic changes (losses or gains) in the value of the instruments. There may be imperfect correlation between the value of the instruments and the Index, which may prevent the Fund from achieving its investment objective. Additionally, with respect to the use of swap agreements, if the Index has a dramatic intraday move that causes a material decline in the Fund’s net asset value (“NAV”), the terms of a swap agreement between the Fund and its counterparty may permit the counterparty to immediately close out the transaction with the Fund. In that event, the Fund may be unable to enter into another swap agreement or invest in other derivatives to achieve the desired exposure consistent with the Fund’s objective. This, in turn, may prevent the Fund from achieving its investment objective, even if the Index reverses all or a portion of its intraday move by the end of the day. The cost to use derivatives generally increases as interest rates increase, which will lower the Fund’s return.

 

 

Correlation Risk — A number of factors may affect the Fund’s ability to achieve a high degree of correlation with the Index, and there can be no guarantee that the Fund will achieve a high degree of correlation. Failure to achieve a high degree of correlation may prevent the Fund from achieving its investment objective. The factors that may adversely affect the Fund’s correlation with the Index include fees, expenses, transaction costs, financing costs associated with the use of derivatives, income items, valuation methodology, accounting standards and disruptions or illiquidity in the markets for the securities or financial instruments in which the Fund invests. The Fund may not have investment exposure to all securities in the Index, or its weighting of investment exposure to such stocks or industries may be different from that of the Index. In addition, the Fund may invest in securities or financial instruments not included in the Index. The Fund may be subject to large movements of assets into and out of the Fund, potentially resulting in the Fund being over- or under-exposed to the Index. Activities surrounding index reconstitutions and other index rebalancing or reconstitution events may hinder the Fund’s ability to meet its investment objective. Additionally, if the asset underlying a swap agreement has a dramatic intraday move, the terms of a swap agreement between the Fund and its counterparty may permit the counterparty to immediately close out the transaction with the Fund. This, in turn, may prevent the Fund from achieving its investment objective, even if the securities or assets underlying the swap agreement reverse all or a portion of their intraday move by the end of the day.

 

 

Counterparty Risk — The Fund will be subject to credit risk (i.e., the risk that a counterparty is unwilling or unable to make timely payments to meet its contractual obligations) with respect to the amount it expects to receive from counterparties to derivatives or repurchase agreements entered into by the Fund. If a counterparty becomes bankrupt or fails to perform its obligations, the value of your investment in the Fund may decline.

 

 

Early Close/Late Close/Trading Halt Risk — An exchange or market may close early, close late or issue trading halts on specific securities, or the ability to buy or sell certain securities or derivatives may be restricted, which may result in the Fund being unable to buy or sell certain securities or derivatives. In such circumstances, the Fund may be unable to rebalance its portfolio, may be unable to accurately price its investments, may be unable to meet its investment objective and/or may incur substantial trading losses.

 

 

Equity and Market Risk — The equity markets are volatile, and the value of securities, swaps, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day. Equity markets are subject to political, regulatory, market and economic developments, as well as developments that impact specific economic sectors, industries or segments of the market.

The Index may not rebalance frequently enough to account for short-term volatility in the markets, as described further under “Index Performance Risk” below. Adverse market developments may cause the value of an investment in the Fund to decrease.

 

 

Debt Instrument Risk — The 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. Many types of debt instruments are subject to call risk, which is the risk that the issuer of the security will call or repay principal prior to the maturity date. Callable debt instruments may offer less potential for gains during a period of declining interest rates, as the Fund may be required to reinvest the proceeds received at lower interest rates. In addition, changes in the credit quality of the issuer of a debt instrument can also affect

 

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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 the Fund to change. Also, the securities of certain U.S. government agencies, authorities or instrumentalities are neither issued by nor guaranteed as to principal and interest by the U.S. government, and may be exposed to more credit risk than securities issued by and guaranteed as to principal and interest by the U.S. government.

 

 

Exposure to Foreign Currency Risk — Investments linked to or denominated in foreign currencies are exposed to risk factors in addition to investments denominated in U.S. dollars. The value of an investment linked to or denominated in a foreign currency could change significantly as foreign currencies strengthen or weaken relative to the U.S. dollar. Risks related to foreign currencies also include those related to economic or political developments, market inefficiencies or a higher risk that essential investment information may be incomplete, unavailable, or inaccurate. A U.S. dollar investment in Depositary Receipts or ordinary shares of foreign issuers traded on U.S. exchanges or an investment in an instrument linked to a foreign currency are subject to foreign currency risk.

 

 

Exposure to Foreign Investments Risk — Exposure to securities of foreign issuers provides the Fund with increased risk. Various factors related to foreign investments may negatively impact the Index’s performance, such as: i) fluctuations in the value of the local foreign currency; ii) differences in securities settlement practices; iii) uncertainty associated with evidence of ownership of investments in countries that lack centralized custodial services; iv) possible regulation of, or other limitations on, investments by U.S. investors in foreign investments; v) potentially higher brokerage commissions; vi) the possibility that a foreign government may withhold portions of interest and dividends at the source; vii) taxation of income earned in foreign countries or other foreign taxes imposed; viii) foreign exchange controls, which may include suspension of the ability to transfer currency from a foreign country; ix) less publicly available information about foreign issuers; x) changes in the denomination currency of a foreign investment; and xi) less certain legal systems in which the Fund might encounter difficulties or be unable to pursue legal remedies. Foreign investments also may be more susceptible to political, social, economic and regional factors than might be the case with U.S. securities.

Because the Fund’s foreign investments will be in developing or “emerging market” countries, all the aforementioned factors are heightened and foreign investments risk is higher.

 

 

Financial Services Industry Risk — The Fund may be subject to risks faced by companies in the financial services economic sector, including: extensive governmental regulation and/or nationalization that affects the scope of their activities, the prices they can charge and the amount of capital they must maintain; adverse effects from increases in interest rates; effects on profitability by loan losses, which usually increase in economic downturns; the severe competition to which banks, insurance, and financial services companies may be subject; and increased inter-industry consolidation and competition in the financial sector. Further, such stocks in the Index may underperform fixed-income investments and stock market indexes that track other markets, segments and sectors.

 

 

Geographic Concentration Risk — Because the Fund will typically focus its investments in particular foreign countries or geographic regions, it may be more volatile than a more geographically diversified fund. The performance of the Fund will be affected by the political, social and economic conditions in those foreign countries and geographic regions and subject to the related risks.

 

 

Liquidity Risk — In certain circumstances, such as the disruption of the orderly markets for the securities or derivatives in which the Fund 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. Such a situation may prevent the Fund from obtaining exposure to or achieving a high correlation with the Index.

 

 

Market Price Variance Risk — The Fund’s shares will be listed for trading on the NYSE Arca 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 net asset value (“NAV”) and supply and demand for shares. ProShare Advisors cannot predict whether shares will trade above, below or at their NAV. 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. The 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 the Fund.

 

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Non-Diversification Risk — The Fund is classified as “non-diversified” under the Investment Company Act of 1940, as amended, and has the ability to invest a relatively high percentage of its investments in the securities of a small number of issuers susceptible to a single economic, political or regulatory event, or in derivative instruments with a single counterparty or if ProShare Advisors determines that doing so is the most efficient means of meeting the Fund’s objective. This makes the performance of the Fund more susceptible to adverse impact from credit risk relating to that counterparty than a diversified fund might be.

 

 

Portfolio Turnover Risk — Daily rebalancing of Fund holdings will cause a higher level of portfolio transactions than compared to most funds. Additionally, active market trading of the Fund’s shares may cause more frequent creation or redemption activities that could, in certain circumstances, increase the number of portfolio transactions. High levels of transactions increase brokerage costs and may result in increased taxable capital gains.

 

 

Valuation Time Risk — The Fund typically values its portfolio at 4:00 p.m. (Eastern time). In certain cases, foreign securities markets close before such time or may not be open for business on the same calendar days as the Fund. As a result, the daily performance of the Fund may vary, perhaps significantly, from the daily performance of the Index.

Investment Results

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

Management

The Fund is advised by ProShare Advisors. Alexander Ilyasov, Portfolio Manager, has managed the Fund since 2012.

Purchase and Sale of Fund Shares

The Fund will issue and redeem shares only to Authorized Participants (typically broker-dealers) in exchange for the deposit or delivery of a basket of assets (securities and/or cash) in large blocks, known as Creation Units, each of which comprises 50,000 shares. Retail investors may only purchase and sell shares on a national securities exchange through a broker-dealer. Because the Fund’s shares trade at market prices rather than NAV, shares may trade at a price greater than NAV (premium) or less than NAV (discount).

Tax Information

Income and capital gain distributions you receive from the Fund are subject to federal income taxes and may also be subject to state and local taxes. Distributions for this Fund may be significantly higher than those of most exchange-traded funds.

 

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Investment Objective

ProShares S&P MidCap400 – 15% Volatility Target (the “Fund”) seeks investment results, before fees and expenses, that correspond to the performance of the S&P MidCap400 – 15% Volatility Index (the “Index,” Bloomberg ticker: [        ]).

The Index seeks to provide dynamic exposure to the stocks of the S&P MidCap400® Index (the “S&P MidCap400”), which is a float-adjusted, market capitalization-weighted index of 400 U.S. operating companies and real estate investment trusts selected through a process that factors criteria such as liquidity, price, market capitalization and financial viability. The dynamic exposure is designed to target an overall volatility for the Index of 15%. The Index seeks to achieve this target volatility through leveraged exposure (i.e., 101—200%) to the S&P MidCap400 during periods when the realized volatility of the S&P MidCap400 is less than 15% and de-leveraged exposure (i.e., 0—99%) to the S&P MidCap400 during periods when the realized volatility of the S&P MidCap400 is greater than 15%. The Index adjusts exposure between the S&P MidCap400 and three-month U.S. Treasury Bills (the “T-Bill Component”) based upon realized historical volatility of the S&P MidCap400. As the historical realized volatility of the S&P MidCap400 increases relative to the target of 15%, exposure to the S&P MidCap400 will decrease and exposure to the T-Bill Component will increase. As the historical realized volatility of the S&P MidCap400 decreases relative to the target of 15%, exposure to the S&P MidCap400 will increase and exposure to the T-Bill Component will decrease. The Index will generally be rebalanced daily. The Fund’s returns will differ from the returns of the S&P MidCap400.

As of December 31, 2011, the S&P MidCap400 included companies with capitalizations between $[        ] and $[        ]. The average capitalization of the companies comprising the S&P MidCap400 was approximately $[        ]. The S&P MidCap400 is published under the Bloomberg ticker symbol “MID.” The S&P MidCap400 has a historical annualized volatility rate for the five year period ended December 31, 2011 of [        ]%.

Fees and Expenses of the Fund

The table below describes the fees and expenses that you may pay if you buy or hold shares of the Fund.

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)

 

Investment Advisory Fees

     [         ]% 

Other Expenses

     [         ]% 
  

 

 

 

Total Annual Operating Expenses Before Fee Waivers and Expense Reimbursements

     [         ]% 

Fee Waiver/Reimbursement*

     [         ]% 
  

 

 

 

Total Annual Operating Expenses After Fee Waivers and Expense Reimbursements

     [         ]% 
  

 

 

 

 

* ProShare Advisors LLC (“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 Before Fee Waivers and Expense Reimbursements, as a percentage of average daily net assets, exceed [        ]% through [        ], 2013. After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular contractual period may be recouped by ProShare Advisors within five years of the end of that contractual period to the extent that recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time. A waiver or reimbursement lowers the expense ratio and increases overall returns to investors.

Example: This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.

 

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The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of each period. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same, except that the fee waiver/expense reimbursement is assumed only to pertain to the first year. Although your actual cost may be higher or lower, based on these assumptions your approximate costs would be:

 

1 Year

   3 Years  

$            

   $                

The Fund pays transaction and financing costs associated with transacting in securities and derivatives. In addition, investors may pay brokerage commissions on their purchases and sales of the Fund’s shares. These costs are not reflected in the example or the table above.

Portfolio Turnover

The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when shares are held in a taxable account. These costs, which are not reflected in Annual Fund Operating Expenses or in the example, affect the Fund’s performance. The Fund’s portfolio turnover rate is calculated without regard to cash instruments or derivatives transactions. If such instruments were included, the Fund’s portfolio turnover rate would be significantly higher.

Principal Investment Strategies

The Fund seeks investment results, before fees and expenses, that correspond to the performance of the Index. Under normal circumstances, the Fund will invest at least 80% of its total assets in the equity and/or fixed income securities that comprise the Index at any given point in time. At times, the Fund will have leveraged exposure to the equity securities in the Index in a similar proportion as the Index.

The Fund invests in securities and derivatives that ProShare Advisors believes, in combination, should have similar return characteristics as the return of the Index. Cash balances arising from the use of derivatives will typically be held in money market instruments.

 

 

Equity Securities — The Fund invests in common stock issued by public companies.

 

 

Derivatives — The Fund invests in derivatives, which are financial instruments whose value is derived from the value of an underlying asset, interest rate or index. The Fund invests in derivatives as a substitute for investing directly in stocks in order to gain exposure to the Index. These derivatives principally include:

 

   

Swap Agreements — Contracts entered into primarily with major global financial institutions for a specified period ranging from a day to more than one year. In a standard “swap” transaction, two parties agree to exchange the return (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross return to be exchanged or “swapped” between the parties is calculated with respect to a “notional amount,” e.g., the return on or change in value of a particular dollar amount invested in a “basket” of securities representing a particular index.

 

   

Futures Contracts — Standardized contracts traded on, or subject to the rules of, an exchange that call for the future delivery of a specified quantity and type of a particular asset at a specified time and place or, alternatively, may call for cash settlement.

 

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Money Market Instruments — The Fund invests in short-term cash instruments that have a remaining maturity of 397 days or less and exhibit high quality credit profiles, including:

 

   

U.S. Treasury Bills — U.S. government securities that have initial maturities of one year or less, and are supported by the full faith and credit of the United States.

 

   

Repurchase Agreements — Contracts in which a 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 Fund as a short-term investment vehicle for cash positions.

ProShare Advisors uses a mathematical approach to investing. Using this approach, ProShare Advisors determines the type, quantity and mix of investment positions that the Fund should hold to approximate the performance of the Index. The Fund may gain exposure to only a representative sample of the securities in the Index, which are intended to have aggregate characteristics similar to those of the Index, and may invest in securities not contained in the Index. ProShare Advisors does not invest the assets of the Fund in securities or derivatives based on ProShare Advisors’ view of the investment merit of a particular security, instrument, or company, other than for cash management purposes, nor does it conduct conventional research or analysis (other than in determining counterparty creditworthiness), or forecast market movement or trends, in managing the assets of the Fund. The Fund seeks to remain fully invested at all times in securities and/or derivatives that, in combination, provide exposure to the Index without regard to market conditions, trends or direction. Please see “Investment Objectives, Principal Investment Strategies, and Related Risks” in the Fund’s full prospectus for additional details.

Principal Risks

You could lose money by investing in the Fund.

 

 

Index Performance Risk — There is no guarantee or assurance that the methodology used to create the Index will result in the Fund achieving high, or even positive, returns, that the Fund will retain any appreciation in value over extended periods of time, or that the Fund’s returns will maintain, for any period of time, a 15% volatility or be less volatile than the returns of the S&P MidCap400. The Index may underperform more traditional indices, including the S&P MidCap400. In turn, the Fund could lose value while other indices or measures of market performance increase in value. The Index was formed in [2011]. Accordingly, the Index has limited historical performance.

In addition, the Index uses the 30 and 60 day historical volatility data of the S&P MidCap400 to determine realized volatility, which in turn is compared to the target volatility of 15% to determine the allocations to the S&P MidCap400 and the T-Bill Component. As such, a significant near-term change in the realized volatility of the S&P MidCap400 may not result in a commensurate repositioning of the Fund. As a result, the Fund may be more or less exposed to equity securities than short-term volatility might suggest, and this may result in losses.

 

 

Leveraged Exposure Risk — The Index may at times represent leveraged (i.e. greater than 100%) exposure to the S&P MidCap400, the Fund may at such times be subject to greater risk of loss than an unleveraged investment in the S&P MidCap400.

 

 

Risks Associated with the Use of Derivatives — The Fund uses investment techniques and derivatives that may be considered aggressive. Because the Fund’s investments in derivatives may involve a small investment relative to the amount of investment exposure assumed, losses may exceed the amounts invested in those instruments. The use of derivatives may expose the Fund to potentially dramatic changes (losses or gains) in the value of the instruments. There may be imperfect correlation between the value of the instruments and the Index, which may prevent the Fund from achieving its investment objective. Additionally, with respect to the use of swap agreements, if the Index has a dramatic intraday move that causes a material decline in the Fund’s net asset value (“NAV”), the terms of a swap agreement between the Fund and its counterparty may permit the counterparty to immediately close out the transaction with the Fund. In that event, the Fund may be unable to enter into another swap agreement or invest in other derivatives to achieve the desired exposure consistent with the Fund’s objective. This, in turn, may prevent the Fund from achieving its investment objective, even if the Index reverses all or a portion of its intraday move by the end of the day. The cost to use derivatives generally increases as interest rates increase, which will lower the Fund’s return.

 

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Correlation Risk — A number of factors may affect the Fund’s ability to achieve a high degree of correlation with the Index, and there can be no guarantee that the Fund will achieve a high degree of correlation. Failure to achieve a high degree of correlation may prevent the Fund from achieving its investment objective. The factors that may adversely affect the Fund’s correlation with the Index include fees, expenses, transaction costs, financing costs associated with the use of derivatives, income items, valuation methodology, accounting standards and disruptions or illiquidity in the markets for the securities or financial instruments in which the Fund invests. The Fund may not have investment exposure to all securities in the Index, or its weighting of investment exposure to such stocks or industries may be different from that of the Index. In addition, the Fund may invest in securities or financial instruments not included in the Index. The Fund may be subject to large movements of assets into and out of the Fund, potentially resulting in the Fund being over- or under-exposed to the Index. Activities surrounding index reconstitutions and other index rebalancing or reconstitution events may hinder the Fund’s ability to meet its investment objective. Additionally, if the asset underlying a swap agreement has a dramatic intraday move, the terms of a swap agreement between the Fund and its counterparty may permit the counterparty to immediately close out the transaction with the Fund. This, in turn, may prevent the Fund from achieving its investment objective, even if the securities or assets underlying the swap agreement reverse all or a portion of their intraday move by the end of the day.

 

 

Counterparty Risk — The Fund will be subject to credit risk (i.e., the risk that a counterparty is unwilling or unable to make timely payments to meet its contractual obligations) with respect to the amount it expects to receive from counterparties to derivatives or repurchase agreements entered into by the Fund. If a counterparty becomes bankrupt or fails to perform its obligations, the value of your investment in the Fund may decline.

 

 

Early Close/Late Close/Trading Halt Risk — An exchange or market may close early, close late or issue trading halts on specific securities, or the ability to buy or sell certain securities or derivatives may be restricted, which may result in the Fund being unable to buy or sell certain securities or derivatives. In such circumstances, the Fund may be unable to rebalance its portfolio, may be unable to accurately price its investments, may be unable to meet its investment objective and/or may incur substantial trading losses.

 

 

Equity and Market Risk — The equity markets are volatile, and the value of securities, swaps, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day. Equity markets are subject to political, regulatory, market and economic developments, as well as developments that impact specific economic sectors, industries or segments of the market.

The Index may not rebalance frequently enough to account for short-term volatility in the markets, as described further under “Index Performance Risk” below. Adverse market developments may cause the value of an investment in the Fund to decrease.

 

 

Debt Instrument Risk — The 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. Many types of debt instruments are subject to call risk, which is the risk that the issuer of the security will call or repay principal prior to the maturity date. Callable debt instruments may offer less potential for gains during a period of declining interest rates, as the Fund may be required to reinvest the proceeds received at lower 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 the Fund to change. Also, the securities of certain U.S. government agencies, authorities or instrumentalities are neither issued by nor guaranteed as to principal and interest by the U.S. government, and may be exposed to more credit risk than securities issued by and guaranteed as to principal and interest by the U.S. government.

 

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Liquidity Risk — In certain circumstances, such as the disruption of the orderly markets for the securities or derivatives in which the Fund 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. Such a situation may prevent the Fund from obtaining exposure to or achieving a high correlation with the Index.

 

 

Market Price Variance Risk — The Fund’s shares will be listed for trading on The NASDAQ Stock Market 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 net asset value (“NAV”) and supply and demand for shares. ProShare Advisors cannot predict whether shares will trade above, below or at their NAV. 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. The 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 the Fund.

 

 

Non-Diversification Risk — The Fund is classified as “non-diversified” under the Investment Company Act of 1940, as amended, and has the ability to invest a relatively high percentage of its investments in the securities of a small number of issuers susceptible to a single economic, political or regulatory event, or in derivative instruments with a single counterparty or if ProShare Advisors determines that doing so is the most efficient means of meeting the Fund’s objective. This makes the performance of the Fund more susceptible to adverse impact from credit risk relating to that counterparty than a diversified fund might be.

 

 

Portfolio Turnover Risk — Daily rebalancing of Fund holdings will cause a higher level of portfolio transactions than compared to most funds. Additionally, active market trading of the Fund’s shares may cause more frequent creation or redemption activities that could, in certain circumstances, increase the number of portfolio transactions. High levels of transactions increase brokerage costs and may result in increased taxable capital gains.

 

 

Small- and Mid-Cap Company Investment Risk — The Index, and by extension, the Fund is exposed to stocks of small- and mid-cap companies. The risk of equity investing may be particularly acute for securities of issuers with smaller market capitalizations. Small- and mid-cap company stocks may trade at greater spreads or lower trading volumes, and may be less liquid than the stocks of larger companies. Small- and mid-cap companies may have limited product lines or resources, may be dependent upon a particular market niche and may have greater fluctuations in price than the stocks of larger companies. Further, stocks of small- and mid-sized companies could be more difficult to liquidate during market downturns compared to larger, more widely traded companies. In addition, small-and mid-cap companies may lack the financial and personnel resources to handle economic or industry-wide setbacks and, as a result, such setbacks could have a greater effect on small- and mid-cap security prices.

Investment Results

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

Management

The Fund is advised by ProShare Advisors. Hratch Najarian, Senior Portfolio Manager, has managed the Fund since 2012.

Purchase and Sale of Fund Shares

The Fund will issue and redeem shares only to Authorized Participants (typically broker-dealers) in exchange for the deposit or delivery of a basket of assets (securities and/or cash) in large blocks, known as Creation Units, each of which comprises 50,000 shares. Retail investors may only purchase and sell shares on a national securities exchange through a broker-dealer. Because the Fund’s shares trade at market prices rather than NAV, shares may trade at a price greater than NAV (premium) or less than NAV (discount).

 

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Tax Information

Income and capital gain distributions you receive from the Fund are subject to federal income taxes and may also be subject to state and local taxes. Distributions for this Fund may be significantly higher than those of most exchange-traded funds.

 

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Investment Objectives, Principal Investment Strategies and Related Risks

 

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Investment Objectives, Principal Investment Strategies and Related Risks

This section contains additional detail about the principal investment strategies and the related risks you would face as a shareholder of ProShares NASDAQ-100 – 15% Volatility Target, ProShares Dow 30 – 15% Volatility Target, ProShares Russell 2000 – 15% Volatility Target, ProShares Russell 1000 – 15% Volatility Target, ProShares MSCI EAFE – 15% Volatility Target, ProShares MSCI Emerging Markets – 15% Volatility Target or ProShares S&P MidCap400 – 15% Volatility Target (each, a “Fund,” and collectively, the “Funds” or the “Volatility Target ProShares”) as well as information about how to find out more about the Funds’ portfolio holdings disclosure policy.

Investment Objectives

Each Fund is designed to seek investment results that, before fees and expenses, correspond to the performance of each Fund’s Index. Under normal circumstances, each Fund will invest at least 80% of its total assets in equity and/or fixed income securities that comprise the Fund’s Index. At times, a Fund will have leveraged exposure to the equity securities in the Fund’s Index in a similar proportion as the Index. Each Fund’s investment objective is non-fundamental, meaning it may be changed by the Board of Trustees (the “Board”) of ProShares Trust (the “Trust”), without the approval of Fund shareholders. Each Fund reserves the right to substitute a different index or security for the index.

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 the Index. Each Fund employs investment techniques that ProShare Advisors believes should, in the aggregate, simulate the movement of each Fund’s Index.

The investment techniques utilized to simulate the movement of each applicable Index are intended to enhance liquidity, maintain a tax-efficient portfolio and reduce transactions costs, while, at the same time, seeking to maintain high correlation with, and similar aggregate characteristics (for example, with respect to equity funds, market capitalization and industry weightings) to, such Index. For example, a Fund may gain exposure directly or indirectly to only a representative sample of the securities in the Index, which are intended to have aggregate characteristics similar to the Index. Similarly, a Fund may overweight or underweight certain components contained in its Index, invest in securities and/or financial instruments that are not included in the Index, or invest in investments not included in the Index but that are designed to provide the requisite exposure to the Index. ProShare Advisors does not invest the assets of a Fund in securities or financial instruments based on ProShare Advisors’ view of the investment merit of a particular security, instrument, or company, other than for cash management purposes, not does it conduct conventional research or analysis, or forecast market movement or trends, in managing the assets of the Fund. Each Fund generally seeks to remain fully invested at all times in securities, money market instruments and other securities and/or financial instruments that, in combination, provide exposure to its Index without regard to market conditions, trends or direction. The Funds do not take temporary defensive positions.

Strategies Specific to the Volatility Target ProShares

As described in its Summary Prospectus, each Volatility Target ProShares Fund invests in, as a principal investment strategy, equity securities, fixed income securities and/or derivatives that ProShare Advisors believes, in combination, should have similar return characteristics as the return of its Index. Cash balances arising from the use of derivatives will typically be held in money market instruments.

 

 

Equity Securities— Each Volatility Target ProShares Fund will generally invest in common stock issued by public companies.

 

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Derivatives — Each Volatility Target ProShares Fund invests in derivatives, which are financial instruments whose value is derived from the value of an underlying asset, interest rate or index. A Volatility Target ProShares Fund invests in derivatives as a substitute for investing directly in stocks or debt. These derivatives principally include:

 

   

Swap Agreements — Contracts entered into primarily with major global financial institutions for a specified period ranging from a day to more than one year. In a standard “swap” transaction, two parties agree to exchange the return (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross return to be exchanged or “swapped” between the parties is calculated with respect to a “notional amount,” e.g., the return on or change in value of a particular dollar amount invested in a “basket” of securities representing a particular index.

 

   

Futures Contracts— A standardized contract traded on, or subject to the rules of, an exchange that calls for the future delivery of a specified quantity and type of commodity at a specified time and place or, alternatively, may call for a cash settlement.

 

 

Depositary Receipts (“DRs”) — ProShares Emerging Markets – 15% Volatility Target may, as a principal investment strategy, invest in depository receipts, which include:

 

   

American Depositary Receipts (ADRs), which represent the right to receive securities of foreign issuers deposited in a bank or trust company.

 

   

Global Depositary Receipts (GDRs), which are receipts for shares in a foreign-based corporation traded in capital markets around the world.

 

 

Money Market Instruments —Each Volatility Target ProShares Fund invests in short-term cash instruments that have a remaining maturity of 397 days or less and exhibit high quality credit profiles.

 

   

U.S. Treasury Bills — Each Volatility Target ProShares Fund may invest in U.S. government securities that have initial maturities of one year or less, and are supported by the full faith and credit of the United States.

 

   

Repurchase Agreements — Contracts in which a 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 a Fund as a short-term investment vehicle for cash positions.

Each Volatility Target ProShares Fund subject to the SEC “names rule” (Rule 35d-1 under the 1940 Act) commits to invest at least 80% of its assets (i.e., net assets plus borrowings for investment purposes), under normal circumstances, in investments that, in combination, have economic characteristics similar to securities contained in its index and/or financial instruments with similar economic characteristics.

Principal Risks

Like all investments, investing in the Funds entail risks. The factors most likely to have a significant impact on each Fund’s portfolio are called “principal risks.” The principal risks for each Fund are noted in the summary section and additional information regarding certain of these risks, as well as information related to other potential risks to which the Funds may be subject, is provided below. The SAI contains additional information about the Funds, their investment strategies and related risks. The Funds may be subject to other risks in addition to those identified as principal risks.

 

   

Index Performance Risk — (All Funds) There is no guarantee or assurance that the methodology used to create each Index will result in a Fund achieving high, or even positive, returns, that a Fund will retain any appreciation in value over extended periods of time, or that a Fund’s returns will maintain, for any period of time, a 15% volatility or be less volatile than the returns of a Fund’s underlying index. Each Index may underperform more traditional indices, including a Fund’s underlying index. In turn, each Fund could lose value while other indices or measures of market performance increase in value. Each Fund’s Index was formed in [2011]. Accordingly, each Index has limited historical performance.

 

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In addition, each Fund’s Index uses the 30 and 60 day historical volatility data of the Fund’s underlying index to determine realized volatility, which in turn is compared to the target volatility of 15% to determine the allocations to the underlying index and the T-Bill Component. As such, a significant near-term change in the realized volatility of the underlying index may not result in a commensurate repositioning of a Fund. As a result, a Fund may be more or less exposed to equity securities than short-term volatility might suggest, and this may result in losses.

 

 

Leveraged Exposure Risk —(All Funds) Each Index may at times represent leveraged (i.e. greater than 100%) exposure to the Fund’s underlying index, a Fund may at such times be subject to greater risk of loss than an unleveraged investment in the Fund’s underlying index.

 

 

Risk Associated with the Use of Derivatives — (All Funds) The Funds use investment techniques that may be considered aggressive, including the use of swap agreements, futures contracts, options on futures contracts, securities and indexes, forward contracts, and similar instruments. 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 the Index, including: 1) the risk that there may be imperfect correlation between the price of financial instruments and movements in the prices of the underlying securities; 2) the risk that an instrument is mispriced; 3) credit or counterparty risk on the amount a Fund expects to receive from a counterparty; 4) the risk that securities prices, interest rates and currency markets will move adversely and a Fund will incur significant losses; 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 Index, and there can be no guarantee that a Fund will achieve a high degree of correlation. Failure to achieve a high degree of correlation may prevent a Fund from achieving its investment objective. A number of factors may adversely affect a Fund’s correlation with its benchmark, including fees, expenses, transaction costs, costs and risks associated with the use of derivatives and income items, accounting standards and disruptions or illiquidity in the markets for the securities or financial instruments in which a Fund invests. A Fund may not have investment exposure to all securities in its underlying index, may have exposure to securities not included in the Index, or its weighting of investment exposure to such securities or industries may be different from that of the Index. In addition, a Fund may invest in securities or financial instruments not included in its Index. A Fund may be subject to large movements of assets into and out of the Fund, potentially resulting in the Fund being over- or under-exposed to its Index. Activities surrounding periodic index reconstitutions and other index rebalancing or reconstitution events may hinder a Fund’s ability to meet its investment objective. Additionally, if the asset underlying a swap agreement has a dramatic intraday move, the terms of a swap agreement between a Fund and its counterparty may permit the counterparty to immediately close out the transaction with the Fund. This, in turn, may prevent a Fund from achieving its investment objective, even if the securities or assets underlying the swap agreement reverse all or a portion of their intraday move by the end of the day.

 

 

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 and repurchase agreements 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 and the Fund may obtain only limited recovery or may obtain no recovery in such circumstances. A Fund typically enters into transactions with counterparties, typically major global financial institutions, whose credit rating, at the time of the transaction, is investment grade, as determined by a nationally recognized statistical rating organization, or, if unrated, judged by ProShare Advisors to be of comparable quality.

 

 

Debt Instrument Risk — (All Funds) 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. Many types of debt instruments are subject to prepayment risk, which is the risk that the issuer of the security will repay principal prior to the maturity date. Debt instruments allowing prepayment may offer less

 

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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 are neither issued by nor guaranteed as to principal and interest by the U.S. government, and may be exposed to more credit risk than securities issued by and guaranteed as to principal and interest by the U.S. government.

 

 

Equity and Market Risk — (All Funds) The equity markets are volatile, and the value of securities, swaps, futures, options contracts and other instruments correlated with the equity markets may fluctuate dramatically from day-to-day. Equity markets are subject to political, regulatory, market and economic developments, as well as developments that impact specific economic sectors, industries or segments of the market.

Each Fund’s Index may not rebalance frequently enough to account for short-term volatility in the markets, as described further under “Index Performance Risk” below. Adverse market developments may cause the value of an investment in a Fund to decrease.

 

 

Market Price Variance Risk — (All Funds) Individual shares of each Fund will be listed for trading on the NYSE Arca or the NASDAQ 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 your 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 may not be the same forces as those influencing prices for securities or instruments held by any Fund at a particular time. Given the fact that the 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 and 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 the Funds.

 

 

Trading Risks — (All Funds) Although shares of each Fund are listed for trading on an Exchange and may be listed or traded on U.S. and non-U.S. stock exchanges other than an Exchange, there can be no assurance that an active trading market for such shares will develop or be maintained. Trading in shares on an Exchange may be halted due to market conditions or for reasons that, in the view of an Exchange, make trading in shares inadvisable. In addition, trading in shares on an Exchange is subject to trading halts caused by extraordinary market volatility pursuant to Exchange “circuit breaker” rules. There can be no assurance that the requirements of the Exchange necessary to maintain the listing of a Fund will continue to be met or will remain unchanged or that the shares will trade with any volume, or at all, on any stock exchange.

 

 

Early Close/Late Close/Trading Halt Risk — (All Funds) An exchange or market may close early, close late or issue trading halts on specific securities, or the ability to buy or sell certain securities or derivatives may be restricted, which may result in a Fund being unable to buy or sell certain securities or derivatives. In such circumstances, a Fund may be unable to rebalance its portfolio, may be unable to accurately price its investments, may be unable to meet its investment objective, and/or may incur substantial trading losses.

 

 

Liquidity Risk —(All Funds) In certain circumstances, such as the disruption of the orderly markets for the securities or derivatives in which a Funds 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. Such a situation may prevent a Fund from obtaining exposure to or achieving a high correlation with its Index.

 

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Non-Diversification Risk — (All Funds) Each Fund is classified as “non-diversified” under the Investment Company Act of 1940, as amended, and has the ability to invest a relatively high percentage of its investments in the securities of a small number of issuers susceptible to a single economic, political or regulatory event, or in derivative instruments with a single counterparty or if ProShare Advisors determines that doing so is the most efficient means of meeting that Fund’s investment objective. This makes the performance of a Fund more susceptible to adverse impact from credit risk relating to that counterparty than a diversified fund might be.

 

 

Portfolio Turnover Risk — (All Funds) Daily rebalancing of a Fund’s holdings will cause a higher level of portfolio transactions than compared to most funds. Additionally, active market trading of a Fund’s shares may cause more frequent creation or redemption activities that could, in certain circumstances, increase the number of portfolio transactions. High levels of transactions increase brokerage costs and may result in increased taxable capital gains.

 

 

Geographic Concentration Risk — (ProShares MSCI Emerging Markets – 15% Volatility Target and ProShares MSCI EAFE – 15% Volatility Target) Certain Funds that focus their investments in companies economically tied to a particular foreign countries or geographical regions may be particularly susceptible to economic, political or regulatory events affecting those countries or regions. In addition, currency devaluations could occur in countries that have not yet experienced currency devaluation to date, or could continue to occur in foreign countries that have already experienced such devaluations. As a result, Funds that focus their investments in companies economically tied to a particular foreign geographic region or country may be more volatile than a more geographically diversified fund.

 

 

Exposure to Foreign Investments Risk — (ProShares MSCI Emerging Markets – 15% Volatility Target and ProShares MSCI EAFE – 15% Volatility Target) Certain Funds may invest in securities of foreign issuers or other investments that provide those Funds with exposure to foreign issuers (collectively, “foreign investments”). Certain factors related to foreign investments may prevent a Fund from achieving its goals. These factors include the effect of (i) fluctuations in the value of the local currency versus the U.S. dollar and the uncertainty associated with the cost of converting between various currencies, particularly when currency hedging techniques are unavailable; (ii) differences in settlement practices, as compared to U.S. investments, or delayed settlements in some foreign markets; (iii) the uncertainty associated with evidence of ownership of investments in many foreign countries, which may lack the centralized custodial services and rigorous proofs of ownership required by many U.S. investments; (iv) possible regulation of, or other limitations on, investments by U.S. investors in foreign investments; (v) brokerage commissions and fees and other investment related costs that may be higher than those applicable to U.S. investments; (vi) the possibility that a foreign government may withhold portions of interest and dividends at the source; (vii) taxation of income earned in foreign nations or other taxes imposed with respect to investments in foreign nations; (viii) foreign exchange controls, which may include suspension of the ability to transfer currency from a given country; and (ix) changes in the denomination of currency of a foreign investment. In addition, markets for foreign investments are usually less liquid, more volatile and significantly smaller than markets for U.S. securities, which may affect, among other things, a Fund’s ability to purchase or sell foreign investments at appropriate times.

A Fund’s ability to achieve its investment objectives also may be affected by factors related to its ability to obtain information about foreign investments. In many foreign countries, there is less publicly available information about issuers than is available in reports about U.S. issuers. Markets for foreign investments are usually not subject to the degree of government supervision and regulation that exists for U.S. investments. Foreign issuers are not generally subject to uniform accounting, auditing and financial reporting standards, and auditing practices and requirements may not be comparable to those applicable to U.S. issuers. Furthermore, the issuers of foreign investments may be closely controlled by a small number of families, institutional investors or foreign governments whose investment decisions might be difficult to predict. To the extent a Fund’s assets are exposed to contractual and other legal obligations in a foreign country, e.g., swap agreements with foreign counterparties, these factors may affect the Funds’ ability to achieve their investment objectives. A Fund may encounter difficulties or be unable to pursue legal remedies and obtain judgments in foreign courts. In some countries, information about decisions of the judiciary, other government branches, regulatory agencies and tax authorities may be less transparent than decisions by comparable institutions in the U.S., particularly in countries that are politically dominated by a single party or individual. Moreover, enforcement of such decisions may be inconsistent or uncertain.

 

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Foreign investments also may be more susceptible to political, social, economic and regional factors than might be the case for U.S. securities. These factors include the effect of (i) expropriation, nationalization or confiscatory taxation of foreign investments; (ii) changes in credit conditions related to foreign counterparties, including foreign governments and foreign financial institutions; (iii) trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures; and (iv) increased correlation between the value of foreign investments and changes in the commodities markets. To the extent a Fund focuses its investments on a particular country or region, the Fund’s ability to meet its investment objectives may be especially subject to factors and developments related to such country or region.

Because ProShares MSCI Emerging Markets – 15% Volatility Target’s foreign investments will be in developing or “emerging market” countries, all the aforementioned factors are heightened and foreign investments risk is higher.

 

 

Exposure to Foreign Currency Risk — (ProShares MSCI Emerging Markets – 15% Volatility Target and ProShares MSCI EAFE – 15% Volatility Target) 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. Risks related to foreign currencies also include those related to economic or political developments, market inefficiencies or a higher risk that essential investment information may be incomplete, unavailable, or inaccurate.

 

 

Financial Services Industry Risk — (ProShares MSCI Emerging Markets – 15% Volatility Target) The Fund may be subject to risks faced by companies in the financial services economic sector, including: extensive governmental regulation and/or nationalization that affects the scope of their activities, the prices they can charge and the amount of capital they must maintain; adverse effects from increases in interest rates; effects on profitability by loan losses, which usually increase in economic downturns; the severe competition to which banks, insurance, and financial services companies may be subject; and increased inter-industry consolidation and competition in the financial sector. Further, such stocks in the Index may underperform fixed-income investments and stock market indexes that track other markets, segments and sectors.

 

 

Small- and Mid-Cap Company Investment Risk — (ProShares Russell 2000 – 15% Volatility Target and S&P MidCap400 – 15% Volatility Target) An Index, and by extension, a Fund is exposed to stocks of small- and mid-cap companies. The risk of equity investing may be particularly acute for securities of issuers with smaller market capitalizations. Small- and mid-cap company stocks may trade at greater spreads or lower trading volumes, and may be less liquid than the stocks of larger companies. Small- and mid-cap companies may have limited product lines or resources, may be dependent upon a particular market niche and may have greater fluctuations in price than the stocks of larger companies. Further, stocks of small- and mid-sized companies could be more difficult to liquidate during market downturns compared to larger, more widely traded companies. In addition, small- and mid-cap companies may lack the financial and personnel resources to handle economic or industry-wide setbacks and, as a result, such setbacks could have a greater effect on small- and mid-cap security prices.

 

 

Technology Industry Risk — (ProShares NASDAQ-100 – 15% Volatility Target) The Fund is subject to risks faced by companies in the technology industry to the same extent as the Index is so concentrated. Securities of technology companies may be subject to greater volatility than stocks of companies in other market sectors. Technology companies may be affected by intense competition, obsolescence of existing technology, general economic conditions and government regulation and may have limited product lines, markets, financial resources or personnel. Technology companies may experience dramatic and often unpredictable changes in growth rates and competition for qualified personnel. These companies also are heavily dependent on patent and intellectual property rights, the loss or impairment of which may adversely affect profitability. A small number of companies represent a large portion of the technology industries as a whole. Further, such stocks in the Index may underperform fixed-income investments and stock market indexes that track other markets, segments and sectors.

 

 

Telecommunications Industry Risk — (ProShares NASDAQ-100 – 15% Volatility Target) The Fund is subject to risks faced by companies in the telecommunications economic sector to the same extent as the Index is

 

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so concentrated, 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 that may make various products and services obsolete. Further, such stocks in the Index may underperform fixed-income investments and stock market indexes that track other markets, segments and sectors.

 

 

Valuation Time Risk — (ProShares MSCI Emerging Markets – 15% Volatility Target and ProShares MSCI EAFE – 15% Volatility Target) The Funds typically value their portfolios at 4:00 p.m. (Eastern time). In certain cases, foreign securities markets close before such time or may not be open for business on the same calendar days as the Fund. As a result, the daily performance of a Fund may vary, perhaps significantly, from the daily performance of the Index.

Additional Securities, Instruments and Strategies

This section describes additional securities, instruments and strategies that may be utilized by the Funds which are not principal investment strategies of the Funds unless otherwise noted in the Funds’ description of principal strategies.

 

 

Depositary Receipts include ADRs and GDRs.

 

   

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 because: (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.

 

 

Leveraged Investment Techniques include investing in swap agreements, reverse repurchase agreements, futures contracts and options on securities indexes and forward contracts and engaging in borrowing, which may be used to create leverage. Use of leveraged investment techniques may involve additional costs and risks to a Fund.

 

   

Futures Contracts — A standardized contract traded on, or subject to the rules of, an exchange that calls for the future delivery of a specified quantity and type of asset at a specified time and place or, alternatively, may call for a cash settlement.

 

 

Money Market Instruments are short-term debt instruments that have a remaining maturity of 397 days or less and exhibit high quality credit profiles. Money market instruments may include U.S. Treasury Bills, U.S. government securities, securities issued by governments of other developed countries and repurchase agreements.

 

   

U.S. Treasury Bills — U.S. government securities that have initial maturities of one year or less, and are supported by the full faith and credit of the United States.

 

   

Repurchase Agreements are contracts in which a 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 Funds as short-term investments for cash positions.

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.

 

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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 a Fund. 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, confirmations of your purchases and sales of shares, and tax information. Your broker also will be responsible for furnishing certain cost basis information and ensuring that you receive shareholder reports and other communications from a Fund. Typically, you will receive other services 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 (the “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 1940 Act, the Funds are registered investment companies, and the acquisition of shares by other investment companies is subject to the restrictions of Section 12(d)(1) thereof.

The Trust and the Funds have obtained an exemptive order from the SEC allowing a registered investment company to invest in the Funds beyond the limits of Section 12(d)(1) subject to certain conditions, including that a registered investment company enters into a Participation Agreement with ProShares Trust regarding the terms of the investment. Any investment company considering purchasing shares of a Fund in amounts that would cause it to exceed the restrictions of Section 12(d)(1) should contact the Trust.

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”) or The NASDAQ Stock Market is closed other than customary weekend and holiday closings, (2) trading on the NYSE or The NASDAQ Stock Market is restricted, (3) any emergency circumstances exist, as determined by the SEC, and (4) the SEC by order permits for the protection of shareholders of the Funds, as further described in the SAI.

A Precautionary Note Regarding Regulatory Initiatives — There is a possibility of future regulatory changes altering, perhaps to a material extent, the nature of an investment in the Funds or the ability of the Funds to continue to implement their investment strategies.

The futures markets are subject to comprehensive statutes, regulations, and margin requirements. In addition, the SEC, CFTC and the exchanges are authorized to take extraordinary actions in the event of a market emergency, including, for example, the retroactive implementation of speculative position limits or higher margin requirements, the establishment of daily price limits and the suspension of trading. The regulation of swaps and futures transactions in the United States is a rapidly changing area of law and is subject to modification by government and judicial action. The effect of any future regulatory change on the Funds is impossible to predict, but could be substantial and adverse.

 

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In particular, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act’) was signed into law on July 21, 2010. The Dodd-Frank Act will change the way in which the U.S. financial system is supervised and regulated. Title VII of the Dodd-Frank Act sets forth a new legislative framework for OTC derivatives, including Financial Instruments, such as swaps, in which the Funds may invest. Title VII of the Dodd-Frank Act makes broad changes to the OTC derivatives market, grants significant new authority to the SEC and the CFTC to regulate OTC derivatives and market participants, and will require clearing and exchange trading of many OTC derivatives transactions.

Provisions in the Dodd-Frank Act include new registration, recordkeeping, capital and margin requirements for “swap dealers” and “major swap participants” as determined by the Dodd-Frank Act and applicable regulations; and the forced use of clearinghouse mechanisms for many OTC derivative transactions. The CFTC, SEC and other federal regulators have been tasked with developing the rules and regulations enacting the provisions of the Dodd-Frank Act. Although the original one-year period prescribed for rulemaking and regulations has been extended by both the SEC and CFTC, it is not possible at this time to gauge the exact nature and scope of the impact of the Dodd-Frank Act on the Funds. However, it is expected that swap dealers, major market participants and swap counterparties, including the Funds, will experience new and/or additional regulations, requirements, compliance burdens and associated costs. The new law and the rules to be promulgated may negatively impact the Funds’ ability to meet their investment objective either through limits or requirements imposed on it or upon its counterparties. In particular, new position limits imposed on the Funds or their counterparties may impact the Funds’ ability to invest in a manner that efficiently meets its investment objective, and new requirements, including capital and mandatory clearing, may increase the cost of the Funds’ investments and cost of doing business, which could adversely affect investors.

Description of the Index

The Funds will enter into a licensing agreement for the use of the Indexes.

[To be provided.]

Information About the Index Licensors

Dow Jones

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

DowJones does not:

 

 

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

 

 

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

 

 

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

 

 

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

 

 

Consider the needs of the Funds or the owners of the Funds 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 Funds. 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 Funds, the owners of the Funds or any other persons 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, omissions 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.

MSCI

ProShares MSCI EAFE – 15% Volatility Target and ProShares MSCI Emerging Markets – 15% Volatility Target (the “MSCI Funds”) are not sponsored, endorsed, sold or promoted by Morgan Stanley Capital International Inc. (“MSCI”), any of its affiliates, any of its information providers or any other third party involved in, or related to, compiling, computing or creating any MSCI index (collectively, the “MSCI Parties”). The MSCI indexes are the exclusive property of MSCI. MSCI and the MSCI index names are service marks of MSCI or its affiliates and have been licensed for use for certain purposes by the Trust. None of the MSCI Parties makes any representation or warranty, express or implied, to the issuer or shareholders of the MSCI Funds or any other person or entity regarding the advisability of investing in the MSCI Funds generally or in the MSCI Funds particularly or the ability of any MSCI index to track corresponding stock market performance.

MSCI or its affiliates are the licensors of certain trademarks, service marks and trade names and of the MSCI indexes which are determined, composed and calculated by MSCI without regard to the MSCI Funds or the issuer or shareholders of the MSCI Funds or any other person or entity into consideration in determining, composing or calculating the MSCI indexes. None of the MSCI Parties is responsible for or has participated in the determination of the timing of, prices at, or quantities of the MSCI Funds to be issued or in the determination or calculation of the equation by or the consideration into which the MSCI Funds are redeemable. Further, none of the MSCI Parties has any obligation or liability to the issuer or owners of the MSCI Funds or any other person or entity in connection with the administration, marketing or offering of the MSCI Funds.

Although MSCI shall obtain information for inclusion in or for use in the calculation of the MSCI indexes from sources that MSCI considers reliable, none of the MSCI Parties warrants or guarantees the originality, accuracy and/or the completeness of any MSCI index or any data included therein. None of the MSCI Parties makes any warranty, express or implied, as to results to be obtained by the issuer of the MSCI Funds, shareholders of the MSCI Funds, or any other person or entity, from the use of any MSCI index or any data included therein. None of the MSCI Parties shall have any liability for any errors, omissions or interruptions of or in connection with any MSCI index or any data included therein. Further, none of the MSCI Parties makes any express or implied warranties of any kind, and the MSCI Parties hereby expressly disclaim all warranties of merchantability and fitness for a particular purpose, with respect to each MSCI index and any data included therein. Without limiting any of the foregoing, in no event shall any of the MSCI Parties have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.

NASDAQ

ProShares NASDAQ-100 – 15% Volatility Target (the “Nasdaq Fund”) is not sponsored, endorsed, sold or promoted by The NASDAQ OMX Group, Inc. or its affiliates or subsidiaries. (The NASDAQ OMX Group, Inc., collectively with its affiliates and subsidiaries, are referred to as “NASDAQ OMX”). NASDAQ OMX has not passed on the legality or suitability of, or the accuracy or adequacy of descriptions and disclosures relating to, the Nasdaq Fund. NASDAQ OMX makes no representation or warranty, express or implied, to the owners of the Nasdaq Fund or any member of the public regarding the advisability of investing in securities generally or in the Nasdaq Fund particularly. NASDAQ OMX has no liability in connection with the administration, marketing or trading of the Nasdaq Fund.

 

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NASDAQ OMX does not guarantee the accuracy or completeness of the date on which the intra-day portfolio value (the “IPV”) calculations are based or the actual computation of the value of the IPV, nor shall NASDAQ OMX be responsible for any delays in the computation or dissemination of the IPV values. NASDAQ OMX makes no warranty, express or implied, as to results to be obtained by the Nasdaq Fund, or any other person or entity from the use of the IPVs or any data included therein. NASDAQ OMX makes no express or implied warranties, and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the IPVs or any data included therein. Without limiting any of the foregoing, in no event shall NASDAQ OMX have any liability for any lost profits or special, incidental, punitive, indirect, or consequential damages, even if notified of the possibility of such damages.

Russell

ProShares Russell 1000 – 15% Volatility Target and ProShares Russell 2000 – 15% Volatility Target (the “Russell Funds”) are not sponsored, endorsed, sold or promoted by Russell Investments (“Russell”) or Nomura Securities Co., Ltd. (“NSC”). Neither Russell nor NSC makes any representation or warranty, express or implied, to the owners of the Russell Funds or any member of the public regarding the advisability of investing in securities generally or in the Russell Funds particularly or the ability of the Russell indexes to track general stock market performance or a segment of the same. Russell’s publication of the Russell indexes in no way suggests or implies an opinion by Russell or NSC as to the advisability of investment in any or all of the securities upon which the Russell indexes are based. Russell’s only relationship to ProShares Trust is the licensing of certain trademarks and trade names of Russell and NSC, and Russell and NCS are not responsible for and have not reviewed the Russell Funds nor any associated literature or publications and Russell and NSC make no representation or warranty express or implied as to their accuracy or completeness, or otherwise. Russell and NSC reserve the right, at any time and without notice, to alter, amend, terminate or in any way change the Russell indexes.

Russell and NSC have no obligation or liability in connection with the administration, marketing or trading of the Russell Funds.

RUSSELL AND NSC DO NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE RUSSELL INDEXES OR ANY DATA INCLUDED THEREIN AND RUSSELL AND NSC SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. RUSSELL AND NSC MAKE NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY PROSHARES TRUST, INVESTORS, OWNERS OF THE RUSSELL FUNDS OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE RUSSELL INDEXES OR ANY DATA INCLUDED THEREIN. RUSSELL AND NSC MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES OR MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE RUSSELL INDEXES OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL RUSSELL OR NSC HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.

STANDARD & POOR’S® “S&P®” “STANDARD & POOR’S®,” “S&P®,” “S&P MIDCAP400,” “STANDARD & POOR’S MIDCAP400,” ARE TRADEMARKS OF THE MCGRAW-HILL COMPANIES, INC. AND HAVE BEEN LICENSED FOR USE BY PROSHARES FUNDS. PROSHARES FUNDS ARE NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY STANDARD & POOR’S AND STANDARD & POOR’S DOES NOT MAKE ANY REPRESENTATION REGARDING THE ADVISABILITY OF INVESTING IN THE FUNDS.

Portfolio Holdings Information

A description of the Trust’s policies and procedures with respect to the disclosure of a Fund’s portfolio holdings is available in the Funds’ SAI. The top ten holdings of the Funds are posted on a daily basis to the Trust’s website at proshares.com.

 

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Management of ProShares Trust

 

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Board of Trustees and Officers

The Board is responsible for the general supervision of the Funds. The officers of the Trust are responsible for the day-to-day operations of the Funds.

Investment Adviser

ProShare Advisors, located at 7501 Wisconsin Avenue, Suite 1000, Bethesda, Maryland 20814, serves as the investment adviser to the Funds and provides investment advice and management services to the Funds. ProShare Advisors oversees the investment and reinvestment of the assets in the Funds. For its investment advisory services, [each Fund pays ProShare Advisors a fee at an annualized rate based on its average daily net assets, as follows: 0.75% of the first $6.0 billion of average daily net assets of the Fund; 0.70% of the next $4.0 billion of average daily net assets of the Fund, and 0.65% of average daily net assets of the Fund in excess of $10.0 billion]. A discussion regarding the basis for the Board approving the investment advisory agreement for the Funds will be included in the Trust’s semi-annual or annual report to shareholders that covers the period during which the approval occurred. To the extent the Funds invest in exchange-traded funds (ETFs) sponsored by ProShare Advisors and /or common units of beneficial interest of one or more separate series of a trust sponsored by an affiliate of ProShare Advisors, ProShare Advisors has agreed to waive its investment advisory fees in an amount equal to the investment advisory fees and management services fees applicable to Fund assets invested in such ETFs and/or trust securities.

Portfolio Management

The following individuals have responsibility for the day-to-day management of the Funds, as set forth in the summary section.

Hratch Najarian, ProShare Advisors—Senior Portfolio Manager since December 2009. ProFund Advisors—Senior Portfolio Manager since December 2009; Portfolio Manager from May 2007 through November 2009 and Associate Portfolio Manager from November 2004 through April 2007.

Alexander Ilyasov, ProShare Advisors—Portfolio Manager since November 2009. ProFund Advisors—Portfolio Manager since November 2009. World Asset Management—Portfolio Manager from January 2006 through November 2009; Portfolio Analyst from July 2005 through January 2006.

Determination of NAV

The NAV per Share of each Fund is computed by dividing the value of the net assets of such Fund (i.e., the value of its total assets less total liabilities) by its total number of shares outstanding. Expenses and fees are accrued daily and taken into account for purposes of determining NAV. The NAV of each Fund is calculated by J.P. Morgan Investor Services Co. and determined each business day at the close of regular trading of the NYSE (ordinarily 4:00 p.m. New York time).

Securities and other assets are generally valued at their market value using information provided by a pricing service or market quotations. Certain short-term securities are valued on the basis of amortized cost. When a market price is not readily available, securities and other assets are valued at fair value in good faith under procedures established by, and under the general supervision and responsibility of, the Board. The use of a fair valuation method may be appropriate if, for example: (i) market quotations do not accurately reflect fair value of an investment; (ii) an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (for example, a foreign exchange or market); (iii) a trading halt closes an exchange or market early; or (iv) other events result in an exchange or market delaying its normal close. This procedure incurs the unavoidable risk that the valuation may be higher or lower than the securities might actually command if the Funds sold them. See the SAI for more details.

The NYSE is open every week, Monday through Friday, except when the following holidays are celebrated: New Year’s Day, Martin Luther King, Jr. Day (the third Monday in January), Presidents’ Day (the third Monday in February), Good Friday, Memorial Day (the last Monday in May), July 4th, Labor Day (the first Monday in September), Thanksgiving Day (the fourth Thursday in November) and Christmas Day. The NYSE may close

 

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early on the business day before each of these holidays and on the day after Thanksgiving Day. Exchange holiday schedules are subject to change without notice. If the exchange or market on which the Funds’ investments are primarily traded closes early, the net asset value may be calculated prior to its normal calculation time. Creation/redemption transaction order time cutoffs would also be accelerated.

Distributions

As a shareholder, you will earn a share of the investment income and net realized capital gains derived from a Fund’s direct security holdings and derivative instruments. You will receive such earnings as either an income dividend or a capital gains distribution. Each Fund intends to declare and distribute to its shareholders at least annually virtually all of its net income, as well as net realized capital gains, unless they elect to receive cash. Subject to Board approval, some or all of any net capital gains distribution may be declared payable in either additional shares of a Fund or in cash. If such a distribution is declared payable in that fashion, holders of shares will receive additional shares of such Fund unless they elect to receive cash. Dividends may be declared and paid more frequently to comply with the distribution requirements of the Internal Revenue Code or for other reasons.

Dividend Reinvestment Services

As noted above under “Distributions”, a Fund may declare a net capital gain distribution to be payable in additional shares or cash. Even if a Fund does not declare a dividend to be payable in shares, brokers may make available to their customers who own shares the DTC book-entry dividend reinvestment service. If this service is available and used, dividend distributions of both income and capital gains will automatically be reinvested in additional whole shares of the same Fund. Without this service, investors would have to take their distributions in cash. To determine whether the dividend reinvestment service is available and whether there is a commission or other charge for using this service, please consult your broker.

Frequent Purchases and Redemption of Shares

The Trust’s Board of Trustees has not adopted a policy of monitoring for frequent purchases and redemptions of shares (“frequent trading”) that appear to attempt to take advantage of potential arbitrage opportunities presented by a lag between a change in the value of a Fund’s portfolio securities after the close of the primary markets for a Fund’s portfolio securities and the reflection of that change in the Fund’s NAV (“market timing”). The Trust believes this is appropriate because an ETF, such as the Funds, is intended to be attractive to arbitrageurs, as trading activity is critical to ensuring that the market price of shares remains at or close to NAV. Since each Fund issues and redeems Creation Units at NAV plus applicable transaction fees, and a Fund’s shares may be purchased and sold on the NYSE Arca or the NASDAQ at prevailing market prices, the risks of frequent trading are limited.

Taxes

The following is certain general information about taxation of the Funds and their shareholders:

 

 

Each Fund intends to qualify for treatment as a “regulated investment company” for U.S. federal income tax purposes. In order to so qualify, a Fund must meet certain tests with respect to the sources and types of its income, the nature and diversification of its assets, and the timing and amount of its distributions.

 

 

If a Fund qualifies for treatment as a regulated investment company, it is not subject to federal income tax on net investment income and net realized capital gains that such Fund timely distributes to its shareholders.

 

 

Investments by a Fund in options, futures, forward contracts, swaps and other derivative financial instruments are subject to numerous special and complex tax rules. These rules could affect the amount, timing or character of the income distributed to shareholders by a Fund. In addition, because the application of these rules may be uncertain under current law, an adverse determination or future Internal Revenue Service guidance with respect to these rules may affect whether a Fund has made sufficient distributions, and otherwise satisfied the relevant requirements, to maintain its qualification as a regulated investment company and avoid a Fund-level tax.

 

 

Investments by a Fund in debt obligations issued or purchased at a discount and certain derivative investments could cause the Fund to recognize taxable income in excess of the cash generated by such investments, potentially requiring the Fund to dispose of investments (including when otherwise disadvantageous to do so) in order to meet its distribution requirements, and could affect the amount, timing or character of the income distributed to shareholders by the Fund.

 

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Taxable investors should be aware of the following basic tax points:

 

 

Distributions are taxable to you for federal income tax purposes whether you receive them in cash or reinvest them in additional shares.

 

 

Distributions declared in October, November or December of one year—if paid to you by the end of January of the following year—are taxable for federal income tax purposes as if received in the calendar year in which the distributions were declared.

 

 

Any distributions from income or short-term capital gains that you receive generally are taxable to you as ordinary dividends for federal income tax purposes. Currently, ordinary dividends you receive that are reported as “qualified dividend income” may be taxed at the same rates as long -term capital gains. However, income received in the form of ordinary dividends will not be considered long-term capital gains for other-federal income tax purposes, including the calculation of net capital losses. The special tax treatment of qualified dividend income will apply only to taxable years beginning before January 1, 2013, unless Congress enacts tax legislation providing otherwise.

 

 

Any distributions of net long-term capital gains are taxable to you as long-term capital gains for federal income tax purposes, no matter how long you have owned your shares.

 

 

Capital gain distributions may vary considerably from year to year as a result of a Fund’s normal investment activities and cash flows.

 

 

A sale or exchange of shares is a taxable event. This means that you may have a capital gain to report as income, or a capital loss to report as a deduction, when you complete your federal income tax return.

 

 

Dividend and capital gain distributions that you receive, as well as your gains or losses from any sale or exchange of shares, may be subject to state and local income taxes.

 

 

If you are not a citizen or a permanent resident of the United States, or if you are a foreign entity, any dividends and short -term capital gains that you receive will generally be subject to a 30% U.S. withholding tax, unless a lower treaty rate or a statutory exemption applies.

 

 

Dividends and interest received by a Fund from sources outside the U.S. may be subject to withholding and other taxes imposed by foreign countries, which would reduce returns from an investment in such Fund. Tax conventions between certain countries and the United States may reduce or eliminate such taxes. If more than 50% of the value of a Fund’s total assets at the close of a taxable year consists of securities of foreign corporations, the Fund will be eligible to elect to “pass through” to you foreign income taxes that it pays. If this election is made, you will be required to include your share of those taxes in gross income as a distribution from that Fund and you generally will be allowed to claim a credit (or a deduction, if you itemize deductions) for such amounts on your federal U.S. income tax return, subject to certain limitations.

 

 

By law, a Fund must generally withhold a percentage of your distributions and proceeds if you have not provided a taxpayer identification number or social security number, have under-reported dividend or interest income or have failed to certify to the Fund that you are not subject to such withholding. The backup withholding rate is currently 28% for amounts paid through December 31, 2012. Under current law, the backup withholding rate will increase to 31% for amounts paid after December 31, 2012.

In addition, taxable investors who purchase or redeem Creation Units should be aware of the following additional basic tax points:

 

 

A person who exchanges securities for Creation Units generally will recognize a gain or loss equal to the difference between the market value of the Creation Units at the time of the exchange and the exchanger’s aggregate basis in the securities surrendered and any cash amount paid.

 

 

A person who exchanges Creation Units for securities generally will recognize a gain or loss equal to the difference between the exchanger’s basis in the Creation Units and the aggregate market value of the securities received and any cash received. However, all or a portion of any loss a person realizes upon an exchange of Creation Units for securities will be disallowed by the Internal Revenue Service if such person purchases other substantially identical shares of a Fund within 30 days before or after the exchange. In such case, the basis of the newly purchased shares will be adjusted to reflect the disallowed loss.

Note: This Prospectus provides general U.S. federal income tax information only. Your investment in a Fund may have other tax implications. If you are investing through a tax-deferred retirement account, such as an individual retirement account, special tax rules apply. Please consult your tax advisor for detailed information about a Fund’s tax consequences for you. See “Taxation” in the SAI for more information.

 

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Premium/Discount Information

The Trust’s website has information about the premiums and discounts for each Fund. Premiums or discounts are the differences between the NAV and market price of a Fund on a given day, generally at the time NAV is calculated. A premium is the amount that a Fund is trading above the NAV. A discount is the amount that a Fund is trading below the NAV.

Distribution (12b-1) Plan

Under a Rule 12b-1 Distribution Plan (the “Plan”) adopted by the Board, the Funds may pay the Funds’ distributor and financial intermediaries, such as broker-dealers and investment advisors, up to 0.25% on an annualized basis of the average daily net assets of the Funds as reimbursement or compensation for distribution related activities with respect to the Funds. Because these fees are paid out of the Funds’ assets on an on-going basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges. For the prior fiscal year, no payments were made by any Fund under the Plan.

 

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LOGO

   Investment Company Act file number 811-21114

ProShares®

ProShares Trust

7501 Wisconsin Avenue, Suite 1000 Bethesda, MD 20814

866.PRO.5125    866.776.5125

proshares.com

You can find additional information about the Funds in the current Statement of Additional Information (“SAI”), dated [    ], which has been filed electronically with the Securities and Exchange Commission (“SEC”) and is incorporated by reference into, and is legally a part of, this Prospectus. A copy of the Statement of Additional Information is available, free of charge, online at proshares.com. You may also receive a free copy of the SAI or make inquiries to ProShares by writing us at the address set forth above or calling us toll-free at the telephone number set forth above.

You can find other information about ProShares on the SEC’s website (www.sec.gov) or you can get copies of this information after payment of a duplicating fee by electronic request at publicinfo@sec.gov or by writing to the Public Reference Section of the SEC, Washington, D.C. 20549-0102. Information about ProShares, including their SAI, can be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. For information on the Public Reference Room, call the SEC at (202) 551-8090.


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STATEMENT OF ADDITIONAL INFORMATION

February [    ], 2012

ProShares Trust

7501 WISCONSIN AVENUE, SUITE 1000—EAST TOWER

BETHESDA, MD 20814

866.PRO.5125    866.776.5125

 

Ultra ProShares    Short ProShares     
Ultra MarketCap    Short MarketCap      Short International
QLD    Ultra QQQ®    PSQ    Short QQQ®      EFZ    Short MSCI EAFE
DDM    Ultra Dow30SM    DOG    Short Dow30SM      EUM    Short MSCI Emerging Markets
SSO    Ultra S&P500®    SH    Short S&P500®      YXI    Short FTSE China 25
UWC    Ultra Russell3000    MYY    Short MidCap400      EFU    UltraShort MSCI EAFE
MVV    Ultra MidCap400    SBB    Short SmallCap600      EEV    UltraShort MSCI Emerging Markets
SAA    Ultra SmallCap600    RWM    Short Russell2000      EPV    UltraShort MSCI Europe
UWM    Ultra Russell2000    QID    UltraShort QQQ®      JPX    UltraShort MSCI Pacific ex-Japan
TQQQ    UltraPro QQQ®    DXD    UltraShort Dow30SM      BZQ    UltraShort MSCI Brazil
UDOW    UltraPro Dow30 SM    SDS    UltraShort S&P500®      FXP    UltraShort FTSE China 25
UPRO    UltraPro S&P500®    TWQ    UltraShort Russell3000      EWV    UltraShort MSCI Japan
UMDD    UltraPro MidCap400    MZZ    UltraShort MidCap400      SMK    UltraShort MSCI Mexico
URTY    UltraPro Russell2000    SDD    UltraShort SmallCap600         Investable Market
      TWM    UltraShort Russell2000        
Ultra Style    SQQQ    UltraPro Short QQQ®      Short Fixed-Income
UVG    Ultra Russell1000 Value    SDOW    UltraPro Short Dow30SM      TBF    Short 20+ Year Treasury
UKF    Ultra Russell1000 Growth    SPXU    UltraPro Short S&P500®      SJB    Short High Yield
              IGS    Short Investment Grade Corporate
UVU    Ultra Russell MidCap Value    SMDD    UltraPro Short MidCap400      TBX    Short 7-10 Year Treasury
UKW    Ultra Russell MidCap Growth    SRTY    UltraPro Short Russell2000      TBZ    UltraShort 3-7 Year Treasury
UVT    Ultra Russell2000 Value            PST    UltraShort 7-10 Year Treasury
UKK    Ultra Russell2000 Growth    Short Style      TBT    UltraShort 20+ Year Treasury
      SJF    UltraShort Russell1000 Value      TPS    UltraShort TIPS
Ultra Sector    SFK    UltraShort Russell1000 Growth        
UYM    Ultra Basic Materials    SJL    UltraShort Russell MidCap Value      Alpha ProShares
BIB    Ultra Nasdaq Biotechnology    SDK    UltraShort Russell MidCap Growth      CSM    Credit Suisse 130/30
UGE    Ultra Consumer Goods    SJH    UltraShort Russell2000 Value      RALS    RAFI® Long/Short
UCC    Ultra Consumer Services    SKK    UltraShort Russell2000 Growth      HDG    Hedge Replication ETF
UYG    Ultra Financials            [        ]    Sovereign Fiscal Strength ETF
RXL    Ultra Health Care    Short Sector      [Volatility Target ProShares]
UXI    Ultra Industrials    SBM    Short Basic Materials      [        ]    MSCI Emerging Markets – 15% Volatility Target
DIG    Ultra Oil & Gas    SEF    Short Financials      [        ]    Russell 1000 – 15% Volatility Target
URE    Ultra Real Estate    DDG    Short Oil & Gas      [        ]    Russell 2000 – 15% Volatility Target
KRU    Ultra KBW Regional Banking    REK    Short Real Estate      [        ]    Dow 30 – 15% Volatility Target
USD    Ultra Semiconductors    KRS    Short KBW Regional Banking      [        ]    MSCI EAFE – 15% Volatility Target
ROM    Ultra Technology    SMN    UltraShort Basic Materials      [        ]    NASDAQ-100 – 15% Volatility Target
LTL    Ultra Telecommunications    BIS    UltraShort Nasdaq Biotechnology      [        ]    S&P MidCap400 – 15% Volatility Target
UPW    Ultra Utilities    SZK    UltraShort Consumer Goods      [Category Name: ]   
      SCC    UltraShort Consumer Services      [         ]    USD Covered Bond
Ultra International    SKF    UltraShort Financials      [        ]    German Sovereign / Sub-Sovereign ETF
EFO    Ultra MSCI EAFE    RXD    UltraShort Health Care        
EET    Ultra MSCI Emerging Markets    SIJ    UltraShort Industrials        
UPV    Ultra MSCI Europe    DUG    UltraShort Oil & Gas        
UXJ    Ultra MSCI Pacific ex-Japan    SRS    UltraShort Real Estate        
UBR    Ultra MSCI Brazil    SSG    UltraShort Semiconductors        
XPP    Ultra FTSE China 25    REW    UltraShort Technology        
EZJ    Ultra MSCI Japan    TLL    UltraShort Telecommunications        
UMX    Ultra MSCI Mexico Investable    SDP    UltraShort Utilities        
   Market              
Ultra Fixed-Income              
UJB    Ultra High Yield              
IGU    Ultra Investment Grade Corporate              
TPU    Ultra TIPS              
UST    Ultra 7-10 Year Treasury              
UBT    Ultra 20+ Year Treasury              

This Statement of Additional Information (“SAI”) is not a prospectus. It should be read in conjunction with the prospectus of ProShares Trust dated October 1, 2011 (the “Prospectus”), as supplemented on October 7th, 2011, October 25, 2011, and [    ] which incorporates this SAI by reference. A copy of the Prospectus and a copy of the Annual Report to shareholders for the Funds that have completed a fiscal year are available, without charge, upon request to the address above, by telephone at the number, or on the Trust’s website at www.proshares.com. The Financial Statements and Notes contained in the Annual Report to Shareholders for the fiscal year ended May 31, 2011 are incorporated by reference into and are deemed part of this SAI. The principal U.S. national stock exchange on which all Funds (except those noted below) identified in this SAI are listed is NYSE Arca. Ultra Nasdaq Biotechnology, UltraShort Nasdaq Biotechnology, UltraProQQQ, UltraPro Short QQQ and NASDAQ-100 – 15% Volatility Target are listed on The NASDAQ Stock Market.


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TABLE OF CONTENTS

 

     Page  

PROSHARES TRUST

     1   

INVESTMENT POLICIES, TECHNIQUES AND RELATED RISKS

     2   

SPECIAL CONSIDERATIONS

     14   

INVESTMENT RESTRICTIONS

     21   

PORTFOLIO TRANSACTIONS AND BROKERAGE

     22   

MANAGEMENT OF PROSHARES TRUST

     28   

INVESTMENT ADVISOR

     32   

DISCLOSURE OF PORTFOLIO HOLDINGS POLICY

     41   

OTHER SERVICE PROVIDERS

     42   

COSTS AND EXPENSES

     54   

ADDITIONAL INFORMATION CONCERNING SHARES

     54   

PROXY VOTING POLICY AND PROCEDURES

     56   

PURCHASE AND REDEMPTION OF SHARES

     57   

TAXATION

     64   

OTHER INFORMATION

     77   

FINANCIAL STATEMENTS

     86   

APPENDIX A

     A-1   


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GLOSSARY OF TERMS

For ease of use, certain terms or names that are used in this SAI have been shortened or abbreviated. A list of these terms and their corresponding full names or definitions can be found below. An investor may find it helpful to review the terms and names before reading the SAI.

 

Term

  

Definition

1933 Act    Securities Act of 1933, as amended
1934 Act    Securities Exchange Act of 1934, as amended
1940 Act    Investment Company Act of 1940, as amended
The Advisor or ProShare Advisors    ProShare Advisors LLC
Board of Trustees or Board    Board of Trustees of ProShares Trust
CFTC    U.S. Commodity Futures Trading Commission
Code or Internal Revenue Code    Internal Revenue Code of 1986, as amended
Distributor or SEI    SEI Investments Distribution Co.
Exchange Fund(s)   

NYSE Arca or The NASDAQ Stock Market

One or more of the series of the Trust identified on the front cover of this SAI

Independent Trustee(s)    Trustees who are not “Interested Persons” of the Advisor or Trust as defined under Section 2(a)(19) of the 1940 Act
New Funds    MSCI Emerging Markets – 15% Volatility Target, Russell 1000 – 15% Volatility Target, Russell 2000 – 15% Volatility Target, MSCI EAFE – 15% Volatility Target, NASDAQ-100 – 15% Volatility Target, Dow 30 – 15% Volatility Target, and S&P MidCap400 – 15% Volatility Target (each of the foregoing, a “Volatility Target ProShares,” and collectively, the “Volatility Target ProShares”) and the USD Covered Bond, Sovereign Fiscal Strength ETF and German Sovereign / Sub-Sovereign ETF.
SAI    The Trust’s Statement of Additional Information dated [October 1, 2011 (as supplemented October 25, 2011 and [    ] )]
SEC    U.S. Securities and Exchange Commission
Shares    The shares of the Funds
Trust    ProShares Trust
Trustee(s)    One or more of the trustees of the Trust

PROSHARES TRUST

The Trust is a Delaware statutory trust and is registered with the SEC as an open-end management investment company under the 1940 Act. The Trust was organized on May 29, 2002 and consists of multiple series, including the 119 Funds listed on the front cover of this SAI.

Other funds may be added in the future. Each of the Funds is registered as a non-diversified management investment company.

The Funds are exchange-traded funds (“ETFs”) and the Shares are listed on an Exchange. The Shares trade on the relevant Exchange at market prices that may differ to some degree from the Shares’ net asset values (“NAV”). 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 ProShares Funds, Alpha ProShares Funds and the New Funds are issued and redeemed in-kind for securities included in the relevant index (for purposes of this SAI, the term “index” includes the Merrill Lynch Factor Model – Exchange Series benchmark) and an amount of cash or entirely in cash, in each case at the discretion of the Advisor. Creation Units of the Short ProShares Funds 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 the Shares directly. Rather, most retail investors will purchase Shares in the secondary market with the assistance of a broker.

Reference is made to the Prospectus for a discussion of the investment objectives and policies of each of the Funds. The discussion below supplements, and should be read in conjunction with, the applicable Prospectus. Portfolio management is provided to the Funds by ProShare Advisors, a Maryland limited liability company with offices at 7501 Wisconsin Avenue, Suite 1000, Bethesda, Maryland 20814.


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The investment restrictions of the Funds specifically identified as fundamental policies may not be changed without the affirmative vote of at least a majority of the outstanding voting securities of that Fund, as defined in the 1940 Act. The investment objectives and all other investment policies of the Funds not specified as fundamental (including the index of the Funds) may be changed by the Trustees without the approval of shareholders.

The investment techniques and strategies discussed below may be used by a Fund if, in the opinion of the Advisor, the techniques or strategies may be advantageous to the Fund. A Fund is free to reduce or eliminate its use of any of these techniques or strategies without changing the Fund’s fundamental policies. There is no assurance that any of the techniques or strategies listed below, or any of the other methods of investment available to a Fund, will result in the achievement of the Fund’s objectives. Also, there can be no assurance that any Fund will grow to, or maintain, an economically viable size, in which case management may determine to liquidate the Fund at a time that may not be opportune for shareholders.

Exchange Listing and Trading

There can be no assurance that the requirements of the Exchange necessary to maintain the listing of Shares of any Fund will continue to be met. The Exchange may remove a Fund from listing under certain circumstances.

As in the case of all equities traded on the Exchange, the brokers’ commission on transactions in the Funds will be based on negotiated commission rates at customary levels for retail customers.

In order to provide current Share pricing information, the Exchange disseminates an updated Indicative Optimized Portfolio Value (“IOPV”) for each Fund. The Trust is not involved in or responsible for any aspect of the calculation or dissemination of the IOPVs and makes no warranty as to the accuracy of the IOPVs. IOPVs are expected to be disseminated on a per Fund basis every 15 seconds during regular trading hours of the Exchange.

INVESTMENT POLICIES, TECHNIQUES AND RELATED RISKS

General

A Fund may consider changing its index at any time, including if, for example, the current index becomes unavailable; the Board of Trustees believes that the current index no longer serves the investment needs of a majority of shareholders or that another index may better serve their needs; or if the financial or economic environment makes it difficult for the Fund’s investment results to correspond sufficiently to its current index. If believed appropriate, a Fund may specify an index for itself that is “leveraged” or proprietary. Of course, there can be no assurance that a Fund will achieve its objective.

Fundamental securities analysis is not used by ProShare Advisors in seeking to correlate a Fund’s investment returns with its index. Rather, ProShare Advisors primarily uses a mathematical approach to determine the investments a Fund makes and techniques it employs. While ProShare Advisors attempts to minimize any “tracking error,” certain factors tend to cause a Fund’s investment results to vary from a perfect correlation to its index. See “Special Considerations” below for additional details.

For purposes of this SAI, the word “invest” refers to a Fund directly and indirectly investing in securities or other instruments. Similarly, when used in this SAI, the word “investment” refers to a Fund’s direct and indirect investments in securities and other instruments. For example, the Funds typically invest indirectly in securities or instruments by using financial instruments with economic exposure similar to those securities or instruments.

Additional information concerning the Funds, their investments policies and techniques, and the securities and financial instruments in which they may invest is set forth below.

Name Policies

The Ultra ProShares Funds, the Alpha ProShares Funds and the New Funds subject to the SEC “names rule” (Rule 35d-1 under the 1940 Act), have adopted non-fundamental investment policies obligating them to commit, under normal market conditions, at least 80% of their assets to investments that, in combination, have economic characteristics similar to securities contained in its index and/or financial instruments with similar economic characteristics. The Short ProShares Funds subject to the SEC “names rule” (Rule 35d-1 under the 1940 Act) have adopted non-fundamental investment policies obligating them to commit, under normal market conditions, at least 80% of their assets to investments that, in combination, have economic characteristics that correlate to the inverse of its index. For purposes of each such investment policy, “assets” includes a Fund’s net assets, as well as amounts borrowed for investment purposes, if any. In addition, for

 

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purposes of such an investment policy, “assets” includes not only the amount of a Fund’s net assets attributable to investments directly providing investment exposure to the type of investments suggested by its name (e.g., the value of stocks, or the value of derivative instruments such as futures, options or options on futures), but also the amount of the Fund’s net assets that are segregated on the Fund’s books and records, as required by applicable regulatory guidance, or otherwise used to cover such investment exposure. The Board has adopted a policy to provide investors with at least 60 days’ notice prior to changes in a Fund’s name policy.

 

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Equity Securities

The market price of securities owned by a Fund may go up or down, sometimes rapidly or unpredictably. Securities may decline in value due to factors affecting securities markets generally or particular industries represented in the securities markets. The value of a security may decline due to general market conditions not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates, or adverse investor sentiment generally. They may also decline due to factors that affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry. The value of a security may also decline for a number of reasons that directly relate to the issuer, such as management performance, financial leverage and reduced demand for the issuer’s goods or services. Equity securities generally have greater price volatility than fixed-income securities, and the Funds are particularly sensitive to these market risks.

Foreign Securities

Certain of the Funds may invest in foreign issuers, securities traded principally in securities markets outside the United States, U.S.-traded securities of foreign issuers and/or securities denominated in foreign currencies (together “foreign securities”). Also, each Fund may seek exposure to foreign securities by investing in Depositary Receipts (discussed below). Foreign securities may involve special risks due to foreign economic, political and legal developments, including unfavorable changes in currency exchange rates, exchange control regulation (including currency blockage), expropriation or nationalization of assets, confiscatory taxation, taxation of income earned in foreign nations, withholding of portions of interest and dividends in certain countries and the possible difficulty of obtaining and enforcing judgments against foreign entities. Default in foreign government securities, political or social instability or diplomatic developments could affect investments in securities of issuers in foreign nations. In addition, in many countries there is less publicly available information about issuers than is available in reports about companies in the United States. Foreign companies are not generally subject to uniform accounting, auditing and financial reporting standards, and auditing practices and requirements may differ from those applicable to U.S. companies. The growing interconnectivity of global economies and financial markets has increased the possibilities that conditions in any one country or region could have an adverse impact on issuers of securities in a different country or region.

In addition, the securities of some foreign governments, companies and securities markets are less liquid, and may be more volatile, than comparable domestic government securities, companies and markets. Some foreign investments may be subject to brokerage commissions and fees that are higher than those applicable to U.S. investments. A Fund also may be affected by different settlement practices or delayed settlements in some foreign markets. Furthermore, some foreign jurisdictions regulate and limit U.S. investments in the securities of certain issuers.

A Fund’s foreign investments that are related to developing (or “emerging market”) countries may be particularly volatile due to the aforementioned factors.

A Fund may value its financial instruments based upon foreign securities by using market prices of domestically-traded financial instruments with comparable foreign securities market exposure.

Exposure to Securities or Issuers in Specific Foreign Countries or Regions

Some Funds focus their investments in particular foreign geographical regions or countries. In addition to the risks of investing in foreign securities discussed above, the investments of such Funds may be exposed to special risks that are specific to the country or region in which the investments are focused. Furthermore, Funds with such a focus may be subject to additional risks associated with events in nearby countries or regions or those of a country’s principal trading partners. Additionally, some Funds have an investment focus in a foreign country or region that is an emerging market and, therefore, are subject to heightened risks relative to Funds that focus their investments in more developed countries or regions.

Futures Contracts and Related Options

The Funds may purchase or sell futures contracts and options thereon as a substitute for a comparable market position in the underlying securities or to satisfy regulatory requirements. Cash-settled futures contracts obligate the seller to deliver (and the purchaser to accept) an amount of cash equal to a specific dollar amount (the contract multiplier) multiplied by the difference between the final settlement price of a specific futures contract and the price at which the agreement is made. No physical delivery of the underlying asset is made. A physical-settlement futures contract generally obligates the seller to deliver (and the purchaser to take delivery of) the specified asset on the expiration date of the contract.

 

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The Funds generally choose to engage in closing or offsetting transactions before final settlement of a futures contract wherein a second identical futures contract is sold to offset a long position (or bought to offset a short position). In such cases the obligation is to deliver (or take delivery of) cash equal to a specific dollar amount (the contract multiplier) multiplied by the difference between the price of the offsetting transaction and the price at which the original contract was entered into. If the original position entered into is a long position (futures contract purchased) there will be a gain (loss) if the offsetting sell transaction is done at a higher (lower) price, inclusive of commissions. If the original position entered into is a short position (futures contract sold) there will be a gain (loss) if the offsetting buy transaction is done at a lower (higher) price, inclusive of commissions.

Whether a Fund realizes a gain or loss from futures activities depends generally upon movements in the underlying security. The extent of the Fund’s loss from an unhedged short position in futures contracts is potentially unlimited. The Funds may engage in related closing transactions with respect to options on futures contracts.

The CFTC has eliminated limitations on futures trading by certain regulated entities, including registered investment companies, and consequently registered investment companies may engage in unlimited futures transactions and options thereon provided that the investment advisor to the company claims an exclusion from regulation as a commodity pool operator. In connection with its management of the Trust, the Advisor has claimed such an exclusion from registration as a commodity pool trading adviser under the Commodity Exchange Act, as amended (the “CEA”). Therefore, neither the Trust nor the Advisor is subject to the registration and regulatory requirements of the CEA. There are no limitations on the extent to which each Fund may engage in transactions involving futures and options thereon, except as set forth in the Funds’ Prospectus and this SAI. The foregoing is as of the date of this SAI, and may change in the future.

Upon entering into a futures contract, each Fund will be required to deposit with the broker an amount of cash or cash equivalents in the range of approximately 5% to 10% of the contract amount (this amount is subject to change by the exchange on which the contract is traded). This amount, known as “initial margin,” is in the nature of a performance bond or good faith deposit on the contract and is returned to the Fund upon termination of the futures contract, assuming all contractual obligations have been satisfied. Subsequent payments, known as “variation margin,” to and from the broker will be made daily as the price of the index underlying the futures contract fluctuates, making the long and short positions in the futures contract more or less valuable, a process known as “marking-to-market.” At any time prior to expiration of a futures contract, a Fund may elect to close its position by taking an opposite position, which will operate to terminate the Fund’s existing position in the contract.

When a Fund purchases or sells a futures contract, or buys or sells an option thereon, the Fund “covers” its position. To cover its position, a Fund may enter into an offsetting position or segregate with its custodian bank or on the books and records of the Fund (and mark-to-market on a daily basis) cash or liquid instruments that, when added to any amounts deposited with a futures commission merchant as margin, are equal to the market value of the futures contract or otherwise “cover” its position. For example, a Fund may “cover” its long position in a futures contract by taking a short position in the instruments underlying the futures contract, or by taking positions in instruments the prices of which are expected to move relatively consistently inversely with the futures contract. A Fund may “cover” its short position in a futures contract by taking a long position in the instruments underlying the futures contract, or by taking positions in instruments, the prices of which are expected to move relatively consistently to the futures contract. A Fund may also “cover” its short position in a futures contract by purchasing a call option on the same futures contract with a strike price (i.e., an exercise price) as low or lower than the price of the futures contract, or, if the strike price of the call is greater than the price of the futures contract, the Fund will earmark or segregate cash or liquid instruments equal in value to the difference between the strike price of the call and the price of the future. A Fund may cover its long or short positions in futures by earmarking or segregating with its custodian bank or on the books and records of the Funds (and mark-to-market on a daily basis) cash or liquid instruments that, when added to any amounts deposited with a futures commission merchant as margin, are equal to the market value of the futures contract or otherwise “cover” its position.

A Fund may cover its sale of a call option on a futures contract by taking a long position in the underlying futures contract at a price less than or equal to the strike price of the call option, or, if the long position in the underlying futures contract is established at a price greater than the strike price of the written (sold) call, the Fund will earmark or maintain in a segregated account liquid instruments equal in value to the difference between the strike price of the call and the price of the future. A Fund may also cover its sale of a call option by taking positions in instruments, the prices of which are expected to move relatively consistently with the call option. A Fund may cover its sale of a put option on a futures contract by taking a short position in the underlying futures contract at a price greater than or equal to the strike price of the put option, or, if the short position in the underlying futures contract is established at a price less than the strike price of the written put, the Fund will segregate cash or liquid instruments equal in value to the difference between the strike price of the put and the price of the future. A Fund may also cover its sale of a put option by taking positions in instruments the prices of which are expected to move relatively consistently with the put option. Obligations under futures contracts so covered will not be considered senior securities for purposes of a Fund’s investment restriction concerning senior securities.

 

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Although the Funds intend to sell futures contracts only if there is an active market for such contracts, no assurance can be given that a liquid market will exist for any particular contract at any particular time. Many futures exchanges and boards of trade limit the amount of fluctuation permitted in futures contract prices during a single trading day. Once the daily limit has been reached in a particular contract, no trades may be made that day at a price beyond that limit or trading may be suspended for specified periods during the day. Futures contract prices could move to the limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of futures positions and potentially subjecting a Fund to substantial losses. If trading is not possible, or if a Fund determines not to close a futures position in anticipation of adverse price movements, the Fund will be required to make daily cash payments of variation margin. The risk that the Fund will be unable to close out a futures position will be minimized by entering into such transactions on a national securities exchange with an active and liquid secondary market.

Forward Contracts

The Funds may enter into forward contracts for purposes of attempting to gain exposure to an index or asset without actually purchasing such asset, or to hedge a position. Forward contracts are two-party contracts pursuant to which one party agrees to pay the counterparty a fixed price for an agreed-upon amount of an underlying asset or the cash value of the underlying asset at an agreed-upon date. When required by law, a Fund will segregate liquid assets in an amount equal to the value of the Fund’s total assets committed to the consummation of such forward contracts. Obligations under forward contracts so covered will not be considered senior securities for purposes of a Fund’s investment restriction concerning senior securities. Forward contracts with terms greater than seven days may be considered to be illiquid for purposes of the Fund’s illiquid investment limitations. A Fund will not enter into a forward contract unless the Advisor believes that the other party to the transaction is creditworthy. A Fund bears the risk of loss of the amount expected to be received under a forward contract in the event of the default or bankruptcy of a counterparty. If such a default occurs, a Fund will have contractual remedies pursuant to the forward contract, but such remedies may be subject to bankruptcy and insolvency laws, which could affect the Fund’s rights as a creditor.

Options

The Funds may buy and write (sell) options for the purpose of realizing their investment objective. By buying a call option, a Fund has the right, in return for a premium paid during the term of the option, to buy the asset underlying the option at the exercise price. By writing a call option a Fund becomes obligated during the term of the option to sell the asset underlying the option at the exercise price if the option is exercised. By buying a put option, a Fund has the right, in return for a premium paid during the term of the option, to sell the asset underlying the option at the exercise price. By writing a put option, a Fund becomes obligated during the term of the option to purchase the asset underlying the option at the exercise price if the option is exercised. During the term of the option, the writer may be assigned an exercise notice by the broker-dealer through whom the option was sold. The exercise notice would require the writer to deliver, in the case of a call, or take delivery of, in the case of a put, the underlying asset against payment of the exercise price. This obligation terminates upon expiration of the option, or at such earlier time that the writer effects a closing purchase transaction by purchasing an option covering the same underlying asset and having the same exercise price and expiration date as the one previously sold. Once an option has been exercised, the writer may not execute a closing purchase transaction. To secure the obligation to deliver the underlying asset in the case of a call option, the writer of a call option is required to deposit in escrow the underlying security or other assets in accordance with the rules of the Options Clearing Corporation (the “OCC”), an institution created to interpose itself between buyers and sellers of options. The OCC assumes the other side of every purchase and sale transaction on an exchange and, by doing so, gives its guarantee to the transaction. When writing call options on an asset, a Fund may cover its position by owning the underlying asset on which the option is written. Alternatively, the Fund may cover its position by owning a call option on the underlying asset, on a share-for-share basis, which is deliverable under the option contract at a price no higher than the exercise price of the call option written by the Fund or, if higher, by owning such call option and depositing and segregating cash or liquid instruments equal in value to the difference between the two exercise prices. In addition, a Fund may cover its position by segregating cash or liquid instruments equal in value to the exercise price of the call option written by the Fund. When a Fund writes a put option, the Fund will segregate with its custodian bank cash or liquid instruments having a value equal to the exercise value of the option. The principal reason for a Fund to write call options on assets held by the Fund is to attempt to realize, through the receipt of premiums, a greater return than would be realized on the underlying assets alone.

If a Fund that writes an option wishes to terminate the Fund’s obligation, the Fund may effect a “closing purchase transaction.” The Fund accomplishes this by buying an option of the same series as the option previously written by the Fund. The effect of the purchase is that the writer’s position will be canceled by the OCC. However, a writer may not effect a closing purchase transaction after the writer has been notified of the exercise of an option. Likewise, a Fund which is the holder of an option may liquidate its position by effecting a “closing sale transaction.” The Fund accomplishes this by

 

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selling an option of the same series as the option previously purchased by the Fund. There is no guarantee that either a closing purchase or a closing sale transaction can be effected. If any call or put option is not exercised or sold, the option will become worthless on its expiration date. A Fund will realize a gain (or a loss) on a closing purchase transaction with respect to a call or a put option previously written by the Fund if the premium, plus commission costs, paid by the Fund to purchase the call or put option to close the transaction is less (or greater) than the premium, less commission costs, received by the Fund on the sale of the call or the put option. The Fund also will realize a gain if a call or put option which the Fund has written lapses unexercised, because the Fund would retain the premium.

Although certain securities exchanges attempt to provide continuously liquid markets in which holders and writers of options can close out their positions at any time prior to the expiration of the option, no assurance can be given that a market will exist at all times for all outstanding options purchased or sold by a Fund. If an options market were to become unavailable, the Fund would be unable to realize its profits or limit its losses until the Fund could exercise options it holds, and the Fund would remain obligated until options it wrote were exercised or expired. Reasons for the absence of liquid secondary market on an exchange include the following: (i) there may be insufficient trading interest in certain options; (ii) restrictions may be imposed by an exchange on opening or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of options; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or the OCC may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of options (or a particular class or series of options) and those options would cease to exist, although outstanding options on that exchange that had been issued by the OCC as a result of trades on that exchange would continue to be exercisable in accordance with their terms.

Index Options

The Funds may purchase and write options on stock indexes to create investment exposure consistent with their investment objectives, to hedge or limit the exposure of their positions, or to create synthetic money market positions.

A stock index fluctuates with changes in the market values of the stocks included in the index. Options on stock indexes give the holder the right to receive an amount of cash upon exercise of the option. Receipt of this cash amount will depend upon the closing level of the stock index upon which the option is based being greater than (in the case of a call) or less than (in the case of a put) the exercise price of the option. The amount of cash received, if any, will be the difference between the closing price of the index and the exercise price of the option, multiplied by a specified dollar multiple. The writer (seller) of the option is obligated, in return for the premiums received from the purchaser of the option, to make delivery of this amount to the purchaser. All settlements of index options transactions are in cash.

Index options are subject to substantial risks, including the risk of imperfect correlation between the option price and the value of the underlying securities composing the stock index selected and the risk that there might not be a liquid secondary market for the option. Because the value of an index option depends upon movements in the level of the index rather than the price of a particular stock, whether a Fund will realize a gain or loss from the purchase or writing (sale) of options on an index depends upon movements in the level of stock prices in the stock market generally or, in the case of certain indexes, in an industry or market segment, rather than upon movements in the price of a particular stock. This requires different skills and techniques than are required for predicting changes in the price of individual stocks. A Fund will not enter into an option position that exposes the Fund to an obligation to another party, unless the Fund either (i) owns an offsetting position in securities or other options and/or (ii) earmarks or segregates with the Fund’s custodian bank cash or liquid instruments that, when added to the premiums deposited with respect to the option, are equal to the market value of the underlying stock index not otherwise covered.

The Funds may engage in transactions in stock index options listed on national securities exchanges or traded in the over-the-counter (“OTC”) market as an investment vehicle for the purpose of realizing the Fund’s investment objective. The exercising holder of an index option receives, instead of a security, cash equal to the difference between the closing price of the securities index and the exercise price of the option.

Some stock index options are based on a broad market index such as the S&P 500®, the New York Stock Exchange, Inc. (“NYSE”) Composite Index or on a narrower index such as the Philadelphia Stock Exchange Over-the-Counter Index. Options currently are traded on the Chicago Board Options Exchange (the “CBOE”) and other exchanges (“Options Exchanges”). Purchased OTC options and the cover for written OTC options will be subject to the relevant Fund’s 15% limitation on investment in illiquid securities. See “Illiquid Securities” below. When required by law, a Fund will segregate liquid assets in an amount equal to the value of the Fund’s total assets committed to the consummation of such options. Obligations under options so covered will not be considered senior securities for purposes of a Fund’s investment restriction concerning senior securities.

 

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Each of the Options Exchanges has established limitations governing the maximum number of call or put options on the same index which may be bought or written (sold) by a single investor, whether acting alone or in concert with others (regardless of whether such options are written on the same or different Options Exchanges or are held or written on one or more accounts or through one or more brokers). Under these limitations, option positions of all investment companies advised by the same investment advisor are combined for purposes of these limits. Pursuant to these limitations, an Options Exchange may order the liquidation of positions and may impose other sanctions or restrictions. These position limits may restrict the number of listed options which a Fund may buy or sell. The Advisor intends to comply with all limitations.

Swap Agreements

A principal investment strategy of the Funds is to invest in financial instruments whose value is derived from the value of an underlying asset, interest rate or index, which may include swap agreements, and, for the Short ProShares, which may be the primary or sole investment strategy (along with selling securities short). The Funds may enter into swap agreements for purposes of attempting to gain exposure to an underlying asset without actually purchasing such asset or to hedge a position. Swap agreements are two-party contracts entered into primarily by institutional investors for periods 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 or an ETF representing a particular index or group of securities. Forms of swap agreements include interest rate caps, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified rate, or “cap”; interest rate floors, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates fall below a specified level, or “floor”; and interest rate collars, under which a party sells a cap and purchases a floor or vice versa in an attempt to protect itself against interest rate movements exceeding given minimum or maximum levels.

Most swap agreements entered into by the Funds calculate the obligations of the parties to the agreement on a “net basis.” Consequently, a Fund’s current obligations (or rights) under a swap agreement will generally be equal only to the net amount to be paid or received under the agreement based on the relative values of the positions held by each party to the agreement (the “net amount”).

A Fund’s current obligations under a swap agreement will be accrued daily (offset against any amounts owed to the Fund) and any accrued but unpaid net amounts owed to a swap counterparty will be covered by segregating or earmarking assets determined to be liquid. Obligations under swap agreements so covered will not be construed to be senior securities for purposes of a Fund’s investment restriction concerning senior securities. Swap agreements with terms greater than seven days may be considered to be illiquid for purposes of the Fund’s illiquid investment limitations. A Fund will not enter into any swap agreement unless the Advisor believes that the other party to the transaction is creditworthy. A Fund bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty. If such a default occurs, a Fund will have contractual remedies pursuant to the swap agreements, but such remedies may be subject to bankruptcy and insolvency laws which could affect the Fund’s right as a creditor.

Each Fund may enter into swap agreements to invest in a market without owning or taking physical custody of securities in circumstances in which direct investment is restricted for legal reasons or is otherwise impracticable. The counterparty to any swap agreement will typically be a major global financial institution. On a long swap, the counterparty will generally agree to pay the Fund the amount, if any, by which the notional amount of the swap agreement would have increased in value had it been invested in the particular underlying assets (e.g., securities comprising the relevant index), plus the dividends or interest that would have been received on those assets. The Fund will agree to pay to the counterparty a floating rate of interest on the notional amount of the swap agreement plus the amount, if any, by which the notional amount would have decreased in value had it been invested in such assets. Therefore, the return to the Fund on any swap agreement should be the gain or loss on the notional amount plus dividends or interest on the assets less the interest paid by the Fund on the notional amount. As a trading technique, the Advisor may substitute physical securities with a swap agreement having risk characteristics substantially similar to the underlying securities.

Swap agreements typically are settled on a net basis, which means that the two payment streams are netted out, with the Fund receiving or paying, as the case may be, only the net amount of the two payments. Payments may be made at the conclusion of a swap agreement or periodically during its term. Swap agreements do not involve the delivery of securities or other underlying assets. Accordingly, the risk of loss with respect to swap agreements is limited to the net amount of payments that a Fund is contractually obligated to make. If the other party to a swap agreement defaults, a Fund’s risk of loss consists of the net amount of payments that such Fund is contractually entitled to receive, if any. The net amount of the excess, if any, of a Fund’s obligations over its entitlements with respect to each equity swap will be

 

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accrued on a daily basis and an amount of cash or liquid assets, having an aggregate NAV at least equal to such accrued excess will be earmarked or segregated by a Fund’s custodian. Inasmuch as these transactions are entered into for hedging purposes or are offset by earmarked or segregated cash or liquid assets, as permitted by applicable law, the Funds and their Advisor believe that these transactions do not constitute senior securities within the meaning of the 1940 Act, and, accordingly, will not treat them as being subject to a Fund’s borrowing restrictions.

The Funds seek to mitigate risks by generally requiring that the counterparties for each Fund agree to post collateral for the benefit of the Fund, marked to market daily, in an amount approximately equal to what the counterparty owes the Fund, although the Funds may not always be successful. To the extent any such collateral is insufficient or there are delays in accessing the collateral, the Funds will be exposed to the risks described above, including possible delays in recovering amounts as a result of bankruptcy proceedings.

The swap market has grown substantially in recent years with a large number of banks and investment banking firms acting both as principals and as agents utilizing standardized swap documentation. As a result, the swap market has become relatively liquid in comparison with the markets for other similar instruments which are traded in the OTC market. The Advisor, under the supervision of the Board of Trustees, is responsible for determining and monitoring the liquidity of the Funds’ transactions in swap agreements.

The use of swaps is a highly specialized activity which involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. The foregoing is as of the date of this SAI, and may change in the future.

Short Sales

The Funds may engage in short sales transactions. A short sale is a transaction in which a Fund sells a security it does not own in anticipation that the market price of that security will decline. To complete such a transaction, a Fund must borrow the security to make delivery to the buyer. The Fund is then obligated to replace the security borrowed by borrowing the same security from another lender, purchasing it at the market price at the time of replacement or paying the lender an amount equal to the cost of purchasing the security. The price at such time may be more or less than the price at which the security was sold by the Fund. Until the security is replaced, the Fund is required to repay the lender any dividends it receives, or interest which accrues, during the period of the loan. To borrow the security, the Fund also may be required to pay a premium, which would increase the cost of the security sold. The net proceeds of the short sale will be retained by the broker, to the extent necessary to meet the margin requirements, until the short position is closed out. A Fund also will incur transaction costs in effecting short sales.

The Funds may make short sales “against the box,” i.e., when a security identical to or convertible or exchangeable into one owned by a Fund is borrowed and sold short. Whenever a Fund engages in short sales, it earmarks or segregates liquid securities or cash in an amount that, when combined with the amount of collateral deposited with the broker in connection with the short sale, equals the current market value of the security sold short. The earmarked or segregated assets are marked-to-market daily.

A Fund will incur a loss as a result of a short sale if the price of the security increases between the date of the short sale and the date on which the Fund replaces the borrowed security. A Fund will realize a gain if the price of the security declines in price between those dates. The amount of any gain will be decreased, and the amount of any loss increased, by the amount of the premium, dividends or interest a Fund may be required to pay, if any, in connection with a short sale.

Short QQQ, UltraShort QQQ, UltraPro Short QQQ, Ultra QQQ and UltraPro QQQ will not sell short the equity securities of issuers contained in the Nasdaq-100 Index. Ultra and UltraShort Nasdaq Biotechnology will not sell short the securities of issues contained in the Nasdaq Biotechnology Index.

Depositary Receipts

The Funds may invest in depository receipts, including American Depositary Receipts (“ADRs”). ADRs represent the right to receive securities of foreign issuers deposited in a domestic bank or a correspondent bank. For many foreign securities, U.S. dollar-denominated ADRs, which are traded in the United States on exchanges or OTC, are issued by domestic banks. ADRs do not eliminate all the risk inherent in investing in the securities of foreign issuers. However, by investing in ADRs rather than directly in foreign issuers’ stock outside the U.S., the Funds can avoid certain risks related to investing in foreign securities on non-U.S. markets.

In general, there is a large, liquid market in the United States for many ADRs. The information available for ADRs is subject to the accounting, auditing and financial reporting standards of the domestic market or exchange on which they are traded, which standards are more uniform and more exacting than those to which many foreign issuers may be subject. Certain ADRs, typically those denominated as unsponsored, require the holders thereof to bear most of the costs of such

 

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facilities, while issuers of sponsored facilities normally pay more of the costs thereof. The depository of an unsponsored facility frequently is under no obligation to distribute shareholder communications received from the issuer of the deposited securities or to pass through the voting rights to facility holders with respect to the deposited securities, whereas the depository of a sponsored facility typically distributes shareholder communications and passes through the voting rights.

The Funds may invest in both sponsored and unsponsored ADRs. Unsponsored ADR programs are organized independently and without the cooperation of the issuer of the underlying securities. As a result, available information concerning the issuers may not be as current for sponsored ADRs, and the prices of unsponsored depository receipts may be more volatile than if such instruments were sponsored by the issuer.

The Funds may also invest in Global Depositary Receipts (“GDRs”). 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 American to offer shares in many markets around the world.

U.S. Government Securities

The Funds may invest in U.S. government securities in pursuit of their investment objectives, as “cover” for the investment techniques these Funds employ, or for liquidity purposes.

U.S. government securities include U.S. Treasury securities, which are backed by the full faith and credit of the U.S. Treasury and which differ only in their interest rates, maturities, and times of issuance. U.S. Treasury bills have initial maturities of one year or less; U.S. Treasury notes have initial maturities of one to ten years; and U.S. Treasury bonds generally have initial maturities of greater than ten years. In addition, U.S. government securities include Treasury Inflation-Protected Securities (“TIPS”). TIPS are inflation-protected public obligations of the U.S. Treasury. These securities are designed to provide inflation protection to investors. TIPS are income-generating instruments whose interest and principal payments are adjusted for inflation – a sustained increase in prices that erodes the purchasing power of money. The inflation adjustment, which is typically applied monthly to the principal of the bond, follows a designated inflation index such as the Consumer Price Index (“CPI”). A fixed-coupon rate is applied to the inflation-adjusted principal so that as inflation rises, both the principal value and the interest payments increase. This can provide investors with a hedge against inflation, as it helps preserve the purchasing power of an investment. Because of the inflation adjustment feature, inflation-protected bonds typically have lower yields than conventional fixed-rate bonds. In addition, TIPS decline in value when real interest rates rise. However, in certain interest rate environments, such as when real interest rates are rising faster than nominal interest rates, TIPS may experience greater losses than other fixed income securities with similar duration.

Certain U.S. government securities are issued or guaranteed by agencies or instrumentalities of the U.S. government including, but not limited to, obligations of U.S. government agencies or instrumentalities, such as the Federal National Mortgage Association, the Government National Mortgage Association, the Small Business Administration, the Federal Farm Credit Administration, the Federal Home Loan Banks, Banks for Cooperatives (including the Central Bank for Cooperatives), the Federal Land Banks, the Federal Intermediate Credit Banks, the Tennessee Valley Authority, the Export-Import Bank of the United States, the Commodity Credit Corporation, the Federal Financing Bank, the Student Loan Marketing Association, and the National Credit Union Administration. Some obligations issued or guaranteed by U.S. government agencies and instrumentalities, including, for example, Government National Mortgage Association pass-through certificates, are supported by the full faith and credit of the U.S. Treasury. On September 7, 2008, FNMA and the Federal Home Loan Mortgage Corporation (“Freddie Mac” or “FHLMC”), a similar U.S. government instrumentality, were placed into conservatorship by their new regulator, the Federal Housing Finance Agency. Simultaneously, the U.S. Treasury made a commitment of indefinite duration to maintain the positive net worth of both entities. No assurance can be given that the initiatives discussed above with respect to the debt and mortgage-backed securities issued by FNMA and FHLMC will be successful. Other obligations issued by or guaranteed by federal agencies, such as those securities issued by the Federal National Mortgage Association, are supported by the discretionary authority of the U.S. government to purchase certain obligations of the federal agency but are not backed by the full faith and credit of the U.S. government, while other obligations issued by or guaranteed by federal agencies, such as those of the Federal Home Loan Banks, are supported by the right of the issuer to borrow from the U.S. Treasury. While the U.S. government provides financial support to such U.S. government-sponsored federal agencies, no assurance can be given that the U.S. government will always do so, since the U.S. government is not so obligated by law. U.S. Treasury notes and bonds typically pay coupon interest semi-annually and repay the principal at maturity. All U.S. government securities are subject to credit risk.

Yields on U.S. government securities are dependent on a variety of factors, including the general conditions of the money and bond markets, the size of a particular offering, and the maturity of the obligation. Debt securities with longer maturities tend to produce higher yields and are generally subject to potentially greater capital appreciation and depreciation than obligations with shorter maturities and lower yields. The market value of U.S. government securities generally varies inversely with changes in market interest rates. An increase in interest rates, therefore, would generally reduce the market value of a Fund’s portfolio investments in U.S. government securities, while a decline in interest rates would generally increase the market value of a Fund’s portfolio investments in these securities.

 

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Repurchase Agreements

Each of the Funds may enter into repurchase agreements with financial institutions in pursuit of its investment objectives, as “cover” for the investment techniques it employs, or for liquidity purposes. Under a repurchase agreement, a Fund purchases a debt security and simultaneously agrees to sell the security back to the seller at a mutually agreed-upon future price and date, normally one day or a few days later. The resale price is greater than the purchase price, reflecting an agreed-upon market interest rate during the purchaser’s holding period. While the maturities of the underlying securities in repurchase transactions may be more than one year, the term of each repurchase agreement will always be less than one year. The Funds follow certain procedures designed to minimize the risks inherent in such agreements. These procedures include effecting repurchase transactions only with large, well-capitalized and well-established financial institutions whose condition will be continually monitored by ProShare Advisors. In addition, the value of the collateral underlying the repurchase agreement will always be at least equal to the repurchase price, including any accrued interest earned on the repurchase agreement. In the event of a default or bankruptcy by a selling financial institution, a Fund will seek to liquidate such collateral which could involve certain costs or delays and, to the extent that proceeds from any sale upon a default of the obligation to repurchase were less than the repurchase price, the Fund could suffer a loss. A Fund also may experience difficulties and incur certain costs in exercising its rights to the collateral and may lose the interest the Fund expected to receive under the repurchase agreement. Repurchase agreements usually are for short periods, such as one week or less, but may be longer. It is the current policy of the Funds not to invest in repurchase agreements that do not mature within seven days if any such investment, together with any other illiquid assets held by the Fund, amounts to more than 15% of the Fund’s total net assets. The investments of each of the Funds in repurchase agreements at times may be substantial when, in the view of ProShare Advisors, liquidity, investment, regulatory, or other considerations so warrant.

Money Market Instruments

To seek its investment objective, as a cash reserve, for liquidity purposes, or as “cover” for positions it has taken, a Fund may invest all or part of its assets in cash or cash equivalents, which include, but are not limited to, short-term money market instruments, U.S. government securities, certificates of deposit, bankers acceptances or repurchase agreements secured by U.S. government securities.

Other Fixed Income Securities

Each Fund may invest in a wide range of fixed-income securities, which may include foreign sovereign, sub-sovereign and supranational bonds, as well as any other obligations of any rating or maturity such as foreign and domestic investment grade corporate debt securities and lower-rated corporate debt securities (commonly known as “junk bonds”). Lower-rated or high yield debt securities include corporate high yield debt securities, zero-coupon securities, payment-in-kind securities, and STRIPS. Investment grade corporate bonds are those rated BBB or better by S&P or Baa or better by Moody’s. Securities rated BBB by S&P are considered investment grade, but Moody’s considers securities rated Baa to have speculative characteristics. The Funds may also invest in unrated securities.

FOREIGN SOVEREIGN, SUB-SOVEREIGN AND SUPRANATIONAL SECURITIES. The Funds may invest in fixed-rate debt securities issued by non-U.S. governments (foreign sovereign bonds), local governments, entities or agencies of non-U.S. country (foreign sub-sovereign bonds) as well as by two or more central governments or institutions (supranational bonds). These types of debt securities are typically general obligations of the issuer and are typically guaranteed by such issuer. Despite this guarantee, such debt securities are subject to default, restructuring or changes to the terms of the debt to the detriment of security holders. Such an event impacting a security held by a Fund would likely have an adverse impact on the Fund’s returns. Also, due to demand from other investors, certain types of these debt securities may be less accessible to the capital markets and may be difficult for a Fund to source. This may cause a Fund, at times, to pay a premium to obtain such securities for its own portfolio. For more information related to foreign sovereign, sub-sovereign and supranational securities, see “Foreign Securities” and “Exposure to Securities or Issuers in Specific Foreign Countries or Regions” above.

CORPORATE DEBT SECURITIES. Corporate debt securities are fixed-income securities issued by businesses to finance their operations, although corporate debt instruments may also include bank loans to companies. Notes, bonds, debentures and commercial paper are the most common types of corporate debt securities, with the primary difference being their maturities and secured or unsecured status. Commercial paper has the shortest term and is usually unsecured. The broad category of corporate debt securities includes debt issued by domestic or foreign companies of all kinds, including those with small-, mid- and large-capitalizations. Corporate debt may be rated investment-grade or below investment-grade and may carry variable or floating rates of interest.

 

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Because of the wide range of types and maturities of corporate debt securities, as well as the range of creditworthiness of its issuers, corporate debt securities have widely varying potentials for return and risk profiles. For example, commercial paper issued by a large established domestic corporation that is rated investment-grade may have a modest return on principal, but carries relatively limited risk. On the other hand, a long-term corporate note issued by a small foreign corporation from an emerging market country that has not been rated may have the potential for relatively large returns on principal, but carries a relatively high degree of risk.

Corporate debt securities carry both credit risk and interest rate risk. Credit risk is the risk that a Fund could lose money if the issuer of a corporate debt security is unable to pay interest or repay principal when it is due. Some corporate debt securities that are rated below investment-grade are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. The credit risk of a particular issuer’s debt security may vary based on its priority for repayment. For example, higher ranking (senior) debt securities have a higher priority than lower ranking (subordinated) securities. This means that the issuer might not make payments on subordinated securities while continuing to make payments on senior securities. In addition, in the event of bankruptcy, holders of higher-ranking senior securities may receive amounts otherwise payable to the holders of more junior securities. Interest rate risk is the risk that the value of certain corporate debt securities will tend to fall when interest rates rise. In general, corporate debt securities with longer terms tend to fall more in value when interest rates rise than corporate debt securities with shorter terms.

JUNK BONDS. “Junk Bonds” generally offer a higher current yield than that available for higher-grade issues. However, lower-rated securities involve higher risks, in that they are especially subject to adverse changes in general economic conditions and in the industries in which the issuers are engaged, to changes in the financial condition of the issuers and to price fluctuations in response to changes in interest rates. During periods of economic downturn or rising interest rates, highly leveraged issuers may experience financial stress that could adversely affect their ability to make payments of interest and principal and increase the possibility of default. In addition, the market for lower-rated debt securities has expanded rapidly in recent years, and its growth paralleled a long economic expansion. At times in recent years, the prices of many lower-rated debt securities declined substantially, reflecting an expectation that many issuers of such securities might experience financial difficulties. As a result, the yields on lower-rated debt securities rose dramatically, but such higher yields did not reflect the value of the income stream that holders of such securities expected, but rather, the risk that holders of such securities could lose a substantial portion of their value as a result of the issuers’ financial restructuring or default. There can be no assurance that such declines will not recur. The market for lower-rated debt issues generally is thinner and less active than that for higher quality securities, which may limit each Fund’s ability to sell such securities at fair value in response to changes in the economy or financial markets. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may also decrease the values and liquidity of lower-rated securities, especially in a thinly traded market. Changes by recognized rating services in their rating of a fixed-income security may affect the value of these investments. Each Fund will not necessarily dispose of a security when its rating is reduced below its rating at the time of purchase. However, the Advisor will monitor the investment to determine whether continued investment in the security will assist in meeting each Fund’s investment objective.

UNRATED DEBT SECURITIES. The Funds may also invest in unrated debt securities. Unrated debt, while not necessarily lower in quality than rated securities, may not have as broad a market. Because of the size and perceived demand for the issue, among other factors, certain issuers may decide not to pay the cost of getting a rating for their bonds. The creditworthiness of the issuer, as well as any financial institution or other party responsible for payments on the security, will be analyzed to determine whether to purchase unrated bonds.

COVERED BONDS. The Funds may invest in covered bonds, which are debt securities issued by banks or other credit institutions that are backed by both the issuing institution and underlying pool of assets that compose the bond (a “cover pool”). The cover pool for a covered bond is typically composed of residential or commercial mortgage loans or loans to public sector institutions. A covered bond may lose value if the credit rating of the issuing bank or credit institution is downgraded or the quality of the assets in the cover pool deteriorates.

Borrowing

The Funds may borrow money for cash management purposes or investment purposes. Borrowing for investment is known as leveraging. Leveraging investments, by purchasing securities with borrowed money, is a speculative technique which increases investment risk, but also increases investment opportunity. Since substantially all of a Fund’s assets will fluctuate in value, whereas the interest obligations on borrowings may be fixed, the NAV per Share of the Fund will fluctuate more when the Fund is leveraging its investments than would otherwise be the case. Moreover, interest costs on borrowings may fluctuate with changing market rates of interest and may partially offset or exceed the returns on the borrowed funds. Under adverse market conditions, a Fund might have to sell portfolio securities to meet interest or principal payments at a time when investment considerations would not favor such sales.

 

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As required by the 1940 Act, a Fund must maintain continuous asset coverage (total assets, including assets acquired with borrowed funds, less liabilities exclusive of borrowings) of 300% of all amounts borrowed. If at any time the value of a Fund’s assets should fail to meet this 300% coverage test, the Fund, within three days (not including weekends and holidays), will reduce the amount of the Fund’s borrowings to the extent necessary to meet this 300% coverage requirement. Maintenance of this percentage limitation may result in the sale of portfolio securities at a time when investment considerations would not favor such sale. In addition to the foregoing, the Funds are authorized to borrow money as a temporary measure for extraordinary or emergency purposes in amounts not in excess of 5% of the value of each Fund’s total assets. This borrowing is not subject to the foregoing 300% asset coverage requirement. The Funds are authorized to pledge portfolio securities as ProShare Advisors deems appropriate in connection with any borrowings.

Each Fund may also enter into reverse repurchase agreements, which may be viewed as a form of borrowing, with financial institutions. However, to the extent a Fund “covers” its repurchase obligations: such agreement will not be considered to be a senior security and, therefore, will not be subject to the 300% asset coverage requirement otherwise applicable to borrowings by that Fund.

When-Issued and Delayed-Delivery Securities

Each Fund, from time to time, in the ordinary course of business, may purchase securities on a when-issued or delayed-delivery basis (i.e., delivery and payment can take place between a month and 120 days after the date of the transaction). These securities are subject to market fluctuations and no interest accrues to the purchaser during this period. At the time a Fund makes the commitment to purchase securities on a when-issued or delayed-delivery basis, the Fund will record the transaction and thereafter reflect the value of the securities, each day, in determining the Fund’s NAV. Each Fund will not purchase securities on a when-issued or delayed-delivery basis if, as a result, more than 15% of the Fund’s net assets would be so invested. At the time of delivery of the securities, the value of the securities may be more or less than the purchase price.

The Trust will earmark or segregate cash or liquid instruments equal to or greater in value than the Fund’s purchase commitments for such when-issued or delayed-delivery securities.

Investments in Other Investment Companies

The Funds may invest in the securities of other investment companies, including ETFs, to the extent that such an investment would be consistent with the requirements of the 1940 Act or any exemptive order issued by the SEC. If a Fund invests in, and, thus, is a shareholder of, another investment company, the Fund’s shareholders will indirectly bear the Fund’s proportionate share of the fees and expenses paid by such other investment company, including advisory fees, in addition to both the management fees payable directly by the Fund to the Fund’s own investment advisor and the other expenses that the Fund bears directly in connection with the Fund’s own operations.

Because most ETFs are investment companies, absent exemptive relief, investments in such funds generally would be limited under applicable federal statutory provisions. Those provisions restrict a fund’s investment in the shares of another investment company to up to 5% of its assets (which may represent no more than 3% of the securities of such other investment company) and limit aggregate investments in all investment companies to 10% of assets. A Fund may invest in certain ETFs in excess of the statutory limit in reliance on an exemptive order issued by the SEC to those entities and pursuant to procedures approved by the Board provided that the Fund complies with the conditions of the exemptive relief, as they may be amended from time to time, and any other applicable investment limitations.

Real Estate Investment Trusts

Each Fund may invest in real estate investment trusts (“REITs”). Equity REITs invest primarily in real property while mortgage REITs invest in construction, development and long-term mortgage loans. Their value may be affected by changes in the value of the underlying property of the REIT, the creditworthiness of the issuer, property taxes, interest rates, and tax and regulatory requirements, such as those relating to the environment. REITs are dependent upon management skill, are not diversified and are subject to heavy cash flow dependency, default by borrowers, self-liquidation and the possibility of failing to qualify for tax-free pass-through of income under the Code and failing to maintain exempt status under the 1940 Act.

Illiquid Securities

Each Fund may purchase illiquid securities, including securities that are not readily marketable and securities that are not registered (“restricted securities”) under the 1933 Act, but which can be sold to qualified institutional buyers under Rule 144A under the 1933 Act. A Fund will not invest more than 15% of the Fund’s net assets in illiquid securities. The term “illiquid securities” for this purpose means securities that cannot be disposed of within seven days in the ordinary course of

 

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business at approximately the amount at which the Fund has valued the securities. Under the current guidelines of the staff of the SEC, illiquid securities also are considered to include, among other securities, purchased OTC options, certain cover for OTC options, repurchase agreements with maturities in excess of seven days, and certain securities whose disposition is restricted under the federal securities laws. The Fund may not be able to sell illiquid securities when ProShare Advisors considers it desirable to do so or may have to sell such securities at a price that is lower than the price that could be obtained if the securities were more liquid. In addition, the sale of illiquid securities also may require more time and may result in higher dealer discounts and other selling expenses than does the sale of securities that are not illiquid. Illiquid securities also may be more difficult to value due to the unavailability of reliable market quotations for such securities, and investments in illiquid securities may have an adverse impact on NAV.

Institutional markets for restricted securities have developed as a result of the promulgation of Rule 144A under the 1933 Act, which provides a safe harbor from 1933 Act registration requirements for qualifying sales to institutional investors. When Rule 144A securities present an attractive investment opportunity and otherwise meet selection criteria, a Fund may make such investments. Whether or not such securities are illiquid depends on the market that exists for the particular security. The staff of the SEC has taken the position that the liquidity of Rule 144A restricted securities is a question of fact for a board of trustees to determine, such determination to be based on a consideration of the readily-available trading markets and the review of any contractual restrictions. The staff also has acknowledged that, while a board of trustees retains ultimate responsibility, trustees may delegate this function to an investment advisor. The Board of Trustees has delegated this responsibility for determining the liquidity of Rule 144A restricted securities which may be invested in by a Fund to ProShare Advisors. It is not possible to predict with assurance exactly how the market for Rule 144A restricted securities or any other security will develop. A security which when purchased enjoyed a fair degree of marketability may subsequently become illiquid and, accordingly, a security which was deemed to be liquid at the time of acquisition may subsequently become illiquid. In such event, appropriate remedies will be considered to minimize the effect on the Fund’s liquidity.

Portfolio Turnover

A Fund’s portfolio turnover may vary from year to year, as well as within a year. The nature of the Funds may cause the Funds to experience substantial differences in brokerage commissions from year to year. High portfolio turnover and correspondingly greater brokerage commissions, to a great extent, depend on the purchase, redemption, and exchange activity of a Fund’s investors, as well as each Fund’s investment objective and strategies. The overall reasonableness of brokerage commissions is evaluated by ProShare Advisors based upon its knowledge of available information as to the general level of commissions paid by other institutional investors for comparable services. In addition, a Fund’s portfolio turnover level may adversely affect the ability of the Fund to achieve its investment objective. “Portfolio Turnover Rate” is defined under the rules of the SEC as the lesser of the value of the securities purchased or securities sold, excluding all securities whose maturities at time of acquisition were one year or less, divided by the average monthly value of such securities owned during the year. Based on this definition, instruments with remaining maturities of less than one year are excluded from the calculation of the Portfolio Turnover Rate. Instruments excluded from the calculation of portfolio turnover generally would include future contracts, swap agreements and option contracts in which the Funds invest since such contracts generally have a remaining maturity of less than one year. ETFs, such as the Funds, may incur very low levels of portfolio turnover (or none at all in accordance with the SEC methodology described above) because of the way in which they operate and the way shares are created in creation units. However, a low or zero Portfolio Turnover Rate should not be assumed to be indicative of the amount of gains that a Fund may or may not distribute to shareholders, as the instruments excluded from the calculation described above may have generated taxable gains upon their sale or maturity. For those Funds that commenced operations prior to May 31, 2011, each such Fund’s turnover rate for the period from that Fund’s commencement of operations to May 31, 2011 is set forth in the Annual Report to shareholders. Annual Portfolio turnover rates are also shown in each Fund’s summary prospectus.

SPECIAL CONSIDERATIONS

As discussed above and in the Prospectus, the Funds present certain risks, some of which are further described below.

Tracking and Correlation

Several factors may affect a Fund’s ability to achieve a high degree of correlation within its Index. Among these factors are: (1) a Fund’s fees and expenses, including brokerage (which may be increased by high portfolio turnover) and the cost of the investment techniques employed by that Fund; (2) less than all of the securities in the index being held by a Fund and securities not included in the index being held by a Fund; (3) an imperfect correlation between the performance of instruments held by a Fund, such as futures contracts, and the performance of the underlying securities in the cash market; (4) bid-ask spreads (the effect of which may be increased by portfolio turnover); (5) holding instruments traded in a

 

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market that has become illiquid or disrupted; (6) a Fund’s Share prices being rounded to the nearest cent; (7) changes to the index that are not disseminated in advance; (8) the need to conform a Fund’s portfolio holdings to comply with investment restrictions or policies or regulatory or tax law requirements; (9) actual purchases and sales of the shares of a Fund may differ from estimated transactions reported prior to the time share prices are calculated; (10) limit up or limit down trading halts on options or futures contracts which may prevent a Fund from purchasing or selling options or futures contracts; (11) early and unanticipated closings of the markets on which the holdings of a Fund trade, resulting in the inability of the Fund to execute intended portfolio transactions; and (12) fluctuations in currency exchange rates. Each Fund, except the Alpha ProShares Funds or the New Funds, has a single day investment objective to match a multiple (2x or 3x), the inverse (-1x) or a multiple of the inverse (-2x or -3x) of the performance of an index on a single day. A “single day” is measured from the time the Fund calculates its NAV to the time of the Fund’s next NAV calculation. These Funds are subject to the correlation risks described above. In addition, while a close correlation of any Fund to its index may be achieved on any single trading day for certain Funds, over time, the cumulative percentage increase or decrease in the NAV of the Shares may diverge, in some cases significantly, from the cumulative percentage decrease or increase in the index due to a compounding effect as further described in the Prospectus. Under normal circumstances, each Volatility Target ProShares and the USD Covered Bond will invest at least 80% of its total assets in the component securities of its Index. At times this means that each Volatility Target ProShares will have leveraged exposure to the equity securities in its Index in the same proportions at the Index.

Leverage

Each Fund, except the inverse (-1x) Funds, the RAFI Long/Short and the Hedge Replication ETF, the USD Covered Bond, the German Sovereign / Sub-Sovereign ETF and the Sovereign Fiscal Strength ETF, intends to use, on a regular basis, leverage in pursuing its investment objectives. Leverage exists when a Fund achieves the right to a return on a capital base that exceeds the amount the Fund has invested. Utilization of leverage involves special risks and should be considered to be speculative. Specifically, leverage creates the potential for greater gains to Fund shareholders during favorable market conditions (i.e., rising markets for the Ultra ProShares Funds and the Credit Suisse 130/30, and falling markets for the Short ProShares Funds), and the risk of magnified losses during adverse market conditions (i.e., falling markets for UltraProShares Funds and the Credit Suisse 130/30, and rising markets for the Short and ProShares Funds). Leverage is likely to cause higher volatility of the NAVs of these Funds’ Shares. Leverage may also involve the creation of a liability that does not entail any interest costs or the creation of a liability that requires the Fund to pay interest which would decrease the Fund’s total return to shareholders. Each Volatility Target ProShares will have leveraged exposure through the use of derivatives because its Index may include greater than 100% exposure to the component securities; therefore, these Funds may be subject to additional risks, including derivatives risk. If these Funds achieve their investment objectives, during adverse market conditions, shareholders should experience a loss greater than they would have incurred had these Funds not been leveraged.

•Special Note Regarding the Correlation Risks of Leveraged, Inverse or Inverse Leveraged Funds (all Funds except Alpha ProShares, Volatility Target ProShares, the USD Covered Bond, the German Sovereign / Sub-Sovereign ETF, and the Sovereign Fiscal Strength ETF). As a result of compounding, for periods greater than one day, the use of leverage tends to cause the performance of a Fund to vary from its index’s performance times the stated multiple in the Fund’s investment objective. Compounding affects all investments, but has a more significant impact on leveraged, inverse and inverse leveraged funds. Four factors significantly affect how close daily compounded returns are to longer-term index returns times the fund’s multiple: the length of the holding period, index volatility, whether the multiple is positive or inverse, and its leverage level. Longer holding periods, higher index volatility, inverse multiples and greater leverage each can lead to returns farther from the multiple times the index return. As the tables below show, particularly during periods of higher index volatility, compounding will cause longer term results to vary from the index performance times the stated multiple in the Fund’s investment objective. This effect becomes more pronounced as volatility increases.

A leveraged, inverse, and inverse leveraged Fund’s return for periods longer than one day is primarily a function of the following:

 

  a) index performance;

 

  b) index volatility;

 

  c) period of time;

 

  d) financing rates associated with leverage or inverse exposure;

 

  e) other Fund expenses; and

 

  f) dividends or interest paid with respect to securities included in the index.

The performance for a leveraged, inverse or inverse leveraged Fund can be estimated given any set of assumptions for the factors described above. The tables on the next five pages illustrate the impact of two factors, index volatility and

 

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index performance, on a leveraged, inverse or inverse leveraged fund. Index volatility is a statistical measure of the magnitude of fluctuations in the returns of an index and is calculated as the standard deviation of the natural logarithms of one plus the index return (calculated daily), multiplied by the square root of the number of trading days per year (assumed to be 252). The tables show estimated Fund returns for a number of combinations of index performance and index volatility over a one-year period. Assumptions used in the tables include: (a) no dividends paid with respect to equity securities included in the index; (b) no Fund expenses; and (c) borrowing/lending rates (to obtain leverage or inverse exposure) of zero percent. If Fund expenses and/or actual borrowing lending rates were reflected, the Fund’s performance would be lower than shown.

 

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The first table below shows a performance example of an Ultra ProShares Fund (which has an investment objective to correspond to twice (2x) the daily performance of an index). The Ultra ProShares Fund could be expected to achieve a 20% return on a yearly basis if the index performance was 10%, absent any costs, the correlation risk or other factors described above and in the Prospectus under “Correlation Risk” and “Compounding Risk.” However, as the table shows, with an index volatility of 20%, such a Fund would return 16.3%, again absent any costs or other factors described above and in the Prospectus under “Correlation Risk” and “Compounding Risk.” In the charts below, areas shaded lighter represent those scenarios where a leveraged Fund with the investment objective described will return the same as or outperform (i.e., return more than) the index performance times the stated multiple in the Fund’s investment objective; conversely, areas shaded darker represent those scenarios where the Fund will underperform (i.e., return less than) the index performance times the stated multiple in the Fund’s investment objective.

Estimated Fund Return Over One Year When the Fund Objective is to Seek Daily Investment Results, Before Fund Fees and Expenses and Leverage Costs, that Correspond to Twice (2x) the Daily Performance of an Index.

 

One Year  Index

Performance

  200%

One Year Index

Performance

    Index Volatility   
    0%     5%     10%     15%     20%     25%     30%     35%     40%     45%     50%     55%     60%  
-60%   -120%     -84.0%        -84.0%        -84.2%        -84.4%        -84.6%        -85.0%        -85.4%        -85.8%        -86.4%        -86.9%        -87.5%        -88.2%        -88.8%   
-55%   -110%     -79.8%        -79.8%        -80.0%        -80.2%        -80.5%        -81.0%        -81.5%        -82.1%        -82.7%        -83.5%        -84.2%        -85.0%        -85.9%   
-50%   -100%     -75.0%        -75.1%        -75.2%        -75.6%        -76.0%        -76.5%        -77.2%        -77.9%        -78.7%        -79.6%        -80.5%        -81.5%        -82.6%   
-45%   -90%     -69.8%        -69.8%        -70.1%        -70.4%        -70.9%        -71.6%        -72.4%        -73.2%        -74.2%        -75.3%        -76.4%        -77.6%        -78.9%   
-40%   -80%     -64.0%        -64.1%        -64.4%        -64.8%        -65.4%        -66.2%        -67.1%        -68.2%        -69.3%        -70.6%        -72.0%        -73.4%        -74.9%   
-35%   -70%     -57.8%        -57.9%        -58.2%        -58.7%        -59.4%        -60.3%        -61.4%        -62.6%        -64.0%        -65.5%        -67.1%        -68.8%        -70.5%   
-30%   -60%     -51.0%        -51.1%        -51.5%        -52.1%        -52.9%        -54.0%        -55.2%        -56.6%        -58.2%        -60.0%        -61.8%        -63.8%        -65.8%   
-25%   -50%     -43.8%        -43.9%        -44.3%        -45.0%        -46.0%        -47.2%        -48.6%        -50.2%        -52.1%        -54.1%        -56.2%        -58.4%        -60.8%   
-20%   -40%     -36.0%        -36.2%        -36.6%        -37.4%        -38.5%        -39.9%        -41.5%        -43.4%        -45.5%        -47.7%        -50.2%        -52.7%        -55.3%   
-15%   -30%     -27.8%        -27.9%        -28.5%        -29.4%        -30.6%        -32.1%        -34.0%        -36.1%        -38.4%        -41.0%        -43.7%        -46.6%        -49.6%   
-10%   -20%     -19.0%        -19.2%        -19.8%        -20.8%        -22.2%        -23.9%        -26.0%        -28.3%        -31.0%        -33.8%        -36.9%        -40.1%        -43.5%   
-5%   -10%     -9.8%        -10.0%        -10.6%        -11.8%        -13.3%        -15.2%        -17.5%        -20.2%        -23.1%        -26.3%        -29.7%        -33.3%        -37.0%   
0%   0%     0.0%        -0.2%        -1.0%        -2.2%        -3.9%        -6.1%        -8.6%        -11.5%        -14.8%        -18.3%        -22.1%        -26.1%        -30.2%   
5%   10%     10.3%        10.0%        9.2%        7.8%        5.9%        3.6%        0.8%        -2.5%        -6.1%        -10.0%        -14.1%        -18.5%        -23.1%   
10%   20%     21.0%        20.7%        19.8%        18.3%        16.3%        13.7%        10.6%        7.0%        3.1%        -1.2%        -5.8%        -10.6%        -15.6%   
15%   30%     32.3%        31.9%        30.9%        29.3%        27.1%        24.2%        20.9%        17.0%        12.7%        8.0%        3.0%        -2.3%        -7.7%   
20%   40%     44.0%        43.6%        42.6%        40.8%        38.4%        35.3%        31.6%        27.4%        22.7%        17.6%        12.1%        6.4%        0.5%   
25%   50%     56.3%        55.9%        54.7%        52.8%        50.1%        46.8%        42.8%        38.2%        33.1%        27.6%        21.7%        15.5%        9.0%   
30%   60%     69.0%        68.6%        67.3%        65.2%        62.4%        58.8%        54.5%        49.5%        44.0%        38.0%        31.6%        24.9%        17.9%   
35%   70%     82.3%        81.8%        80.4%        78.2%        75.1%        71.2%        66.6%        61.2%        55.3%        48.8%        41.9%        34.7%        27.2%   
40%   80%     96.0%        95.5%        94.0%        91.6%        88.3%        84.1%        79.1%        73.4%        67.0%        60.1%        52.6%        44.8%        36.7%   
45%   90%     110.3%        109.7%        108.2%        105.6%        102.0%        97.5%        92.2%        86.0%        79.2%        71.7%        63.7%        55.4%        46.7%   
50%   100%     125.0%        124.4%        122.8%        120.0%        116.2%        111.4%        105.6%        99.1%        91.7%        83.8%        75.2%        66.3%        57.0%   
55%   110%     140.3%        139.7%        137.9%        134.9%        130.8%        125.7%        119.6%        112.6%        104.7%        96.2%        87.1%        77.5%        67.6%   
60%   120%     156.0%        155.4%        153.5%        150.3%        146.0%        140.5%        134.0%        126.5%        118.1%        109.1%        99.4%        89.2%        78.6%   

 

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The table below shows a performance example of a Short ProShares Fund (which has an investment objective to correspond to the inverse (-1x) of the daily performance of an index). In the chart below, areas shaded lighter represent those scenarios where a Short ProShares Fund will return the same or outperform (i.e., return more than) the index performance; conversely areas shaded darker represent those scenarios where a Short ProShares Fund will underperform (i.e., return less than) the index performance.

Estimated Fund Return Over One Year When the Fund Objective is to Seek Daily Investment Results, Before Fees and Expenses, that Correspond to the Inverse (-1x) of the Daily Performance of an Index.

 

One Year  Index

Performance

  Inverse of

One Year Index

Performance

    Index Volatility   
    0%     5%     10%     15%     20%     25%     30%     35%     40%     45%     50%     55%     60%  
-60%   60%     150.0%        149.4%        147.5%        144.4%        140.2%        134.9%        128.5%        121.2%        113.0%        104.2%        94.7%        84.7%        74.4%   
-55%   55%     122.2%        121.7%        120.0%        117.3%        113.5%        108.8%        103.1%        96.6%        89.4%        81.5%        73.1%        64.2%        55.0%   
-50%   50%     100.0%        99.5%        98.0%        95.6%        92.2%        87.9%        82.8%        76.9%        70.4%        63.3%        55.8%        47.8%        39.5%   
-45%   45%     81.8%        81.4%        80.0%        77.8%        74.7%        70.8%        66.2%        60.9%        54.9%        48.5%        41.6%        34.4%        26.9%   
-40%   40%     66.7%        66.3%        65.0%        63.0%        60.1%        56.6%        52.3%        47.5%        42.0%        36.1%        29.8%        23.2%        16.3%   
-35%   35%     53.8%        53.5%        52.3%        50.4%        47.8%        44.5%        40.6%        36.1%        31.1%        25.6%        19.8%        13.7%        7.3%   
-30%   30%     42.9%        42.5%        41.4%        39.7%        37.3%        34.2%        30.6%        26.4%        21.7%        16.7%        11.3%        5.6%        -0.3%   
-25%   25%     33.3%        33.0%        32.0%        30.4%        28.1%        25.3%        21.9%        18.0%        13.6%        8.9%        3.8%        -1.5%        -7.0%   
-20%   20%     25.0%        24.7%        23.8%        22.2%        20.1%        17.4%        14.2%        10.6%        6.5%        2.1%        -2.6%        -7.6%        -12.8%   
-15%   15%     17.6%        17.4%        16.5%        15.0%        13.0%        10.5%        7.5%        4.1%        0.3%        -3.9%        -8.4%        -13.1%        -17.9%   
-10%   10%     11.1%        10.8%        10.0%        8.6%        6.8%        4.4%        1.5%        -1.7%        -5.3%        -9.3%        -13.5%        -17.9%        -22.5%   
-5%   5%     5.3%        5.0%        4.2%        2.9%        1.1%        -1.1%        -3.8%        -6.9%        -10.3%        -14.0%        -18.0%        -22.2%        -26.6%   
0%   0%     0.0%        -0.2%        -1.0%        -2.2%        -3.9%        -6.1%        -8.6%        -11.5%        -14.8%        -18.3%        -22.1%        -26.1%        -30.2%   
5%   -5%     -4.8%        -5.0%        -5.7%        -6.9%        -8.5%        -10.5%        -13.0%        -15.7%        -18.8%        -22.2%        -25.8%        -29.6%        -33.6%   
10%   -10%     -9.1%        -9.3%        -10.0%        -11.1%        -12.7%        -14.6%        -16.9%        -19.6%        -22.5%        -25.8%        -29.2%        -32.8%        -36.6%   
15%   -15%     -13.0%        -13.3%        -13.9%        -15.0%        -16.5%        -18.3%        -20.5%        -23.1%        -25.9%        -29.0%        -32.3%        -35.7%        -39.3%   
20%   -20%     -16.7%        -16.9%        -17.5%        -18.5%        -19.9%        -21.7%        -23.8%        -26.3%        -29.0%        -31.9%        -35.1%        -38.4%        -41.9%   
25%   -25%     -20.0%        -20.2%        -20.8%        -21.8%        -23.1%        -24.8%        -26.9%        -29.2%        -31.8%        -34.7%        -37.7%        -40.9%        -44.2%   
30%   -30%     -23.1%        -23.3%        -23.8%        -24.8%        -26.1%        -27.7%        -29.7%        -31.9%        -34.5%        -37.2%        -40.1%        -43.2%        -46.3%   
35%   -35%     -25.9%        -26.1%        -26.7%        -27.6%        -28.8%        -30.4%        -32.3%        -34.5%        -36.9%        -39.5%        -42.3%        -45.3%        -48.3%   
40%   -40%     -28.6%        -28.7%        -29.3%        -30.2%        -31.4%        -32.9%        -34.7%        -36.8%        -39.1%        -41.7%        -44.4%        -47.2%        -50.2%   
45%   -45%     -31.0%        -31.2%        -31.7%        -32.6%        -33.7%        -35.2%        -37.0%        -39.0%        -41.2%        -43.7%        -46.3%        -49.0%        -51.9%   
50%   -50%     -33.3%        -33.5%        -34.0%        -34.8%        -35.9%        -37.4%        -39.1%        -41.0%        -43.2%        -45.6%        -48.1%        -50.7%        -53.5%   
55%   -55%     -35.5%        -35.6%        -36.1%        -36.9%        -38.0%        -39.4%        -41.0%        -42.9%        -45.0%        -47.3%        -49.8%        -52.3%        -55.0%   
60%   -60%     -37.5%        -37.7%        -38.1%        -38.9%        -40.0%        -41.3%        -42.9%        -44.7%        -46.7%        -49.0%        -51.3%        -53.8%        -56.4%   

 

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The table below shows a performance example of an UltraShort ProShares Fund (which has an investment objective to correspond to twice the inverse (-2x) of the daily performance of an index). In the chart below, areas shaded lighter represent those scenarios where an UltraShort ProShares Fund will return the same or outperform (i.e., return more than) the index performance; conversely areas shaded darker represent those scenarios where an UltraShort ProShares Fund will underperform (i.e., return less than) the index performance.

Estimated Fund Return Over One Year When the Fund Objective is to Seek Daily Investment Results, Before Fees and Expenses, that Correspond to Twice the Inverse (-2x) of the Daily Performance of an Index.

 

One Year  Index

Performance

  200% Inverse of

One Year Index

Performance

    Index Volatility   
    0%     5%     10%     15%     20%     25%     30%     35%     40%     45%     50%     55%     60%  
-60%   120%     525.0%        520.3%        506.5%        484.2%        454.3%        418.1%        377.1%        332.8%        286.7%        240.4%        195.2%        152.2%        112.2%   
-55%   110%     393.8%        390.1%        379.2%        361.6%        338.0%        309.4%        277.0%        242.0%        205.6%        169.0%        133.3%        99.3%        67.7%   
-50%   100%     300.0%        297.0%        288.2%        273.9%        254.8%        231.6%        205.4%        177.0%        147.5%        117.9%        88.9%        61.4%        35.8%   
-45%   90%     230.6%        228.1%        220.8%        209.0%        193.2%        174.1%        152.4%        128.9%        104.6%        80.1%        56.2%        33.4%        12.3%   
-40%   80%     177.8%        175.7%        169.6%        159.6%        146.4%        130.3%        112.0%        92.4%        71.9%        51.3%        31.2%        12.1%        -5.7%   
-35%   70%     136.7%        134.9%        129.7%        121.2%        109.9%        96.2%        80.7%        63.9%        46.5%        28.9%        11.8%        -4.5%        -19.6%   
-30%   60%     104.1%        102.6%        98.1%        90.8%        81.0%        69.2%        55.8%        41.3%        26.3%        11.2%        -3.6%        -17.6%        -30.7%   
-25%   50%     77.8%        76.4%        72.5%        66.2%        57.7%        47.4%        35.7%        23.1%        10.0%        -3.2%        -16.0%        -28.3%        -39.6%   
-20%   40%     56.3%        55.1%        51.6%        46.1%        38.6%        29.5%        19.3%        8.2%        -3.3%        -14.9%        -26.2%        -36.9%        -46.9%   
-15%   30%     38.4%        37.4%        34.3%        29.4%        22.8%        14.7%        5.7%        -4.2%        -14.4%        -24.6%        -34.6%        -44.1%        -53.0%   
-10%   20%     23.5%        22.5%        19.8%        15.4%        9.5%        2.3%        -5.8%        -14.5%        -23.6%        -32.8%        -41.7%        -50.2%        -58.1%   
-5%   10%     10.8%        10.0%        7.5%        3.6%        -1.7%        -8.1%        -15.4%        -23.3%        -31.4%        -39.6%        -47.7%        -55.3%        -62.4%   
0%   0%     0.0%        -0.7%        -3.0%        -6.5%        -11.3%        -17.1%        -23.7%        -30.8%        -38.1%        -45.5%        -52.8%        -59.6%        -66.0%   
5%   -10%     -9.3%        -10.0%        -12.0%        -15.2%        -19.6%        -24.8%        -30.8%        -37.2%        -43.9%        -50.6%        -57.2%        -63.4%        -69.2%   
10%   -20%     -17.4%        -18.0%        -19.8%        -22.7%        -26.7%        -31.5%        -36.9%        -42.8%        -48.9%        -55.0%        -61.0%        -66.7%        -71.9%   
15%   -30%     -24.4%        -25.0%        -26.6%        -29.3%        -32.9%        -37.3%        -42.3%        -47.6%        -53.2%        -58.8%        -64.3%        -69.5%        -74.3%   
20%   -40%     -30.6%        -31.1%        -32.6%        -35.1%        -38.4%        -42.4%        -47.0%        -51.9%        -57.0%        -62.2%        -67.2%        -72.0%        -76.4%   
25%   -50%     -36.0%        -36.5%        -37.9%        -40.2%        -43.2%        -46.9%        -51.1%        -55.7%        -60.4%        -65.1%        -69.8%        -74.2%        -78.3%   
30%   -60%     -40.8%        -41.3%        -42.6%        -44.7%        -47.5%        -50.9%        -54.8%        -59.0%        -63.4%        -67.8%        -72.0%        -76.1%        -79.9%   
35%   -70%     -45.1%        -45.5%        -46.8%        -48.7%        -51.3%        -54.5%        -58.1%        -62.0%        -66.0%        -70.1%        -74.1%        -77.9%        -81.4%   
40%   -80%     -49.0%        -49.4%        -50.5%        -52.3%        -54.7%        -57.7%        -61.1%        -64.7%        -68.4%        -72.2%        -75.9%        -79.4%        -82.7%   
45%   -90%     -52.4%        -52.8%        -53.8%        -55.5%        -57.8%        -60.6%        -63.7%        -67.1%        -70.6%        -74.1%        -77.5%        -80.8%        -83.8%   
50%   -100%     -55.6%        -55.9%        -56.9%        -58.5%        -60.6%        -63.2%        -66.1%        -69.2%        -72.5%        -75.8%        -79.0%        -82.1%        -84.9%   
55%   -110%     -58.4%        -58.7%        -59.6%        -61.1%        -63.1%        -65.5%        -68.2%        -71.2%        -74.2%        -77.3%        -80.3%        -83.2%        -85.9%   
60%   -120%     -60.9%        -61.2%        -62.1%        -63.5%        -65.4%        -67.6%        -70.2%        -73.0%        -75.8%        -78.7%        -81.5%        -84.2%        -86.7%   

 

19


Table of Contents

The tables below show performance examples of an UltraPro and UltraPro Short ProShares Fund (which have investment objectives to correspond to three times (3x) and three times the inverse of (-3x), respectively, the daily performance of an index). In the charts below, areas shaded lighter represent those scenarios where a Fund will return the same as or outperform (i.e., return more than) the index performance times the stated multiple in the Fund’s investment objective; conversely, areas shaded darker represent those scenarios where the Fund will underperform (i.e., return less than) the index performance times the stated multiple in the Fund’s investment objective.

Estimated Fund Return Over One Year When the Fund Objective is to Seek Daily Investment Results, Before Fund Fees and Expenses and Leverage Costs, that Correspond to Three Times (3x) the Daily Performance of an Index.

 

One Year  Index
Performance
  300%

One Year Index
Performance

    Index Volatility   
    0%     5%     10%     15%     20%     25%     30%     35%     40%     45%     50%     55%     60%  
-60%   -180%     -93.6%        -93.6%        -93.8%        -94.0%        -94.3%        -94.7%        -95.1%        -95.6%        -96.0%        -96.5%        -97.0%        -97.4%        -97.8%   
-55%   -165%     -90.9%        -91.0%        -91.2%        -91.5%        -91.9%        -92.4%        -93.0%        -93.7%        -94.4%        -95.0%        -95.7%        -96.3%        -96.9%   
-50%   -150%     -87.5%        -87.6%        -87.9%        -88.3%        -88.9%        -89.6%        -90.5%        -91.3%        -92.3%        -93.2%        -94.1%        -95.0%        -95.8%   
-45%   -135%     -83.4%        -83.5%        -83.9%        -84.4%        -85.2%        -86.2%        -87.3%        -88.5%        -89.7%        -90.9%        -92.1%        -93.3%        -94.3%   
-40%   -120%     -78.4%        -78.6%        -79.0%        -79.8%        -80.8%        -82.1%        -83.5%        -85.0%        -86.6%        -88.2%        -89.8%        -91.3%        -92.7%   
-35%   -105%     -72.5%        -72.7%        -73.3%        -74.3%        -75.6%        -77.2%        -79.0%        -81.0%        -83.0%        -85.0%        -87.0%        -88.9%        -90.7%   
-30%   -90%     -65.7%        -66.0%        -66.7%        -67.9%        -69.6%        -71.6%        -73.8%        -76.2%        -78.8%        -81.3%        -83.8%        -86.2%        -88.4%   
-25%   -75%     -57.8%        -58.1%        -59.1%        -60.6%        -62.6%        -65.0%        -67.8%        -70.8%        -73.9%        -77.0%        -80.1%        -83.0%        -85.7%   
-20%   -60%     -48.8%        -49.2%        -50.3%        -52.1%        -54.6%        -57.6%        -60.9%        -64.5%        -68.3%        -72.1%        -75.8%        -79.3%        -82.6%   
-15%   -45%     -38.6%        -39.0%        -40.4%        -42.6%        -45.5%        -49.1%        -53.1%        -57.5%        -62.0%        -66.5%        -71.0%        -75.2%        -79.1%   
-10%   -30%     -27.1%        -27.6%        -29.3%        -31.9%        -35.3%        -39.6%        -44.3%        -49.5%        -54.9%        -60.3%        -65.6%        -70.6%        -75.2%   
-5%   -15%     -14.3%        -14.9%        -16.8%        -19.9%        -24.0%        -28.9%        -34.5%        -40.6%        -46.9%        -53.3%        -59.5%        -65.4%        -70.9%   
0%   0%     0.0%        -0.7%        -3.0%        -6.5%        -11.3%        -17.1%        -23.7%        -30.8%        -38.1%        -45.5%        -52.8%        -59.6%        -66.0%   
5%   15%     15.8%        14.9%        12.3%        8.2%        2.7%        -4.0%        -11.6%        -19.8%        -28.4%        -36.9%        -45.3%        -53.3%        -60.7%   
10%   30%     33.1%        32.1%        29.2%        24.4%        18.0%        10.3%        1.6%        -7.8%        -17.6%        -27.5%        -37.1%        -46.3%        -54.8%   
15%   45%     52.1%        51.0%        47.6%        42.2%        34.9%        26.1%        16.1%        5.3%        -5.9%        -17.2%        -28.2%        -38.6%        -48.4%   
20%   60%     72.8%        71.5%        67.7%        61.5%        53.3%        43.3%        31.9%        19.7%        6.9%        -5.9%        -18.4%        -30.3%        -41.3%   
25%   75%     95.3%        93.9%        89.5%        82.6%        73.2%        61.9%        49.1%        35.2%        20.9%        6.4%        -7.7%        -21.2%        -33.7%   
30%   90%     119.7%        118.1%        113.2%        105.4%        94.9%        82.1%        67.7%        52.1%        35.9%        19.7%        3.8%        -11.3%        -25.4%   
35%   105%     146.0%        144.2%        138.8%        130.0%        118.2%        104.0%        87.8%        70.4%        52.2%        34.0%        16.2%        -0.7%        -16.4%   
40%   120%     174.4%        172.3%        166.3%        156.5%        143.4%        127.5%        109.5%        90.0%        69.8%        49.5%        29.6%        10.7%        -6.8%   
45%   135%     204.9%        202.6%        195.9%        185.0%        170.4%        152.7%        132.7%        111.1%        88.6%        66.1%        44.0%        23.0%        3.5%   
50%   150%     237.5%        235.0%        227.5%        215.5%        199.3%        179.8%        157.6%        133.7%        108.8%        83.8%        59.4%        36.2%        14.6%   
55%   165%     272.4%        269.6%        261.4%        248.1%        230.3%        208.7%        184.3%        157.9%        130.4%        102.8%        75.9%        50.3%        26.5%   
60%   180%     309.6%        306.5%        297.5%        282.9%        263.3%        239.6%        212.7%        183.6%        153.5%        123.1%        93.5%        65.3%        39.1%   

 

20


Table of Contents

Estimated Fund Return Over One Year When the Fund Objective is to Seek Daily Investment Results, Before Fees and Expenses, that Correspond to Three Times the Inverse (-3x) of the Daily Performance of an Index.

 

One Year  Index
Performance
  300% Inverse of
One Year  Index
Performance
    Index Volatility   
    0%     5%     10%     15%     20%     25%     30%     35%     40%     45%     50%     55%     60%  
-60%   180%     1462.5%        1439.2%        1371.5%        1265.2%        1129.1%        973.9%        810.5%        649.2%        498.3%        363.6%        248.6%        154.4%        80.2%   
-55%   165%     997.4%        981.1%        933.5%        858.8%        763.2%        654.2%        539.5%        426.2%        320.2%        225.6%        144.9%        78.7%        26.6%   
-50%   150%     700.0%        688.1%        653.4%        599.0%        529.3%        449.8%        366.2%        283.6%        206.3%        137.4%        78.5%        30.3%        -7.7%   
-45%   135%     501.1%        492.1%        466.0%        425.1%        372.8%        313.1%        250.3%        188.2%        130.1%        78.3%        34.1%        -2.1%        -30.7%   
-40%   120%     363.0%        356.1%        336.0%        304.5%        264.2%        218.2%        169.8%        122.0%        77.3%        37.4%        3.3%        -24.6%        -46.6%   
-35%   105%     264.1%        258.7%        242.9%        218.1%        186.4%        150.3%        112.2%        74.6%        39.4%        8.0%        -18.8%        -40.7%        -58.0%   
-30%   90%     191.5%        187.2%        174.6%        154.7%        129.3%        100.4%        69.9%        39.8%        11.6%        -13.5%        -34.9%        -52.5%        -66.4%   
-25%   75%     137.0%        133.5%        123.2%        107.1%        86.5%        62.9%        38.1%        13.7%        -9.2%        -29.7%        -47.1%        -61.4%        -72.7%   
-20%   60%     95.3%        92.4%        83.9%        70.6%        53.6%        34.2%        13.8%        -6.3%        -25.2%        -42.0%        -56.4%        -68.2%        -77.5%   
-15%   45%     62.8%        60.4%        53.4%        42.3%        28.1%        11.9%        -5.1%        -21.9%        -37.7%        -51.7%        -63.7%        -73.5%        -81.2%   
-10%   30%     37.2%        35.1%        29.2%        19.9%        7.9%        -5.7%        -20.1%        -34.2%        -47.5%        -59.3%        -69.4%        -77.7%        -84.2%   
-5%   15%     16.6%        14.9%        9.8%        1.9%        -8.3%        -19.8%        -32.0%        -44.1%        -55.3%        -65.4%        -74.0%        -81.0%        -86.5%   
0%   0%     0.0%        -1.5%        -5.8%        -12.6%        -21.3%        -31.3%        -41.7%        -52.0%        -61.7%        -70.3%        -77.7%        -83.7%        -88.5%   
5%   -15%     -13.6%        -14.9%        -18.6%        -24.5%        -32.0%        -40.6%        -49.7%        -58.6%        -66.9%        -74.4%        -80.7%        -85.9%        -90.0%   
10%   -30%     -24.9%        -26.0%        -29.2%        -34.4%        -40.9%        -48.4%        -56.2%        -64.0%        -71.2%        -77.7%        -83.2%        -87.8%        -91.3%   
15%   -45%     -34.2%        -35.2%        -38.1%        -42.6%        -48.3%        -54.8%        -61.7%        -68.5%        -74.8%        -80.5%        -85.3%        -89.3%        -92.4%   
20%   -60%     -42.1%        -43.0%        -45.5%        -49.4%        -54.5%        -60.2%        -66.3%        -72.3%        -77.8%        -82.8%        -87.1%        -90.6%        -93.3%   
25%   -75%     -48.8%        -49.6%        -51.8%        -55.3%        -59.7%        -64.8%        -70.2%        -75.4%        -80.4%        -84.8%        -88.6%        -91.7%        -94.1%   
30%   -90%     -54.5%        -55.2%        -57.1%        -60.2%        -64.2%        -68.7%        -73.5%        -78.2%        -82.6%        -86.5%        -89.8%        -92.6%        -94.8%   
35%   -105%     -59.4%        -60.0%        -61.7%        -64.5%        -68.0%        -72.1%        -76.3%        -80.5%        -84.4%        -87.9%        -90.9%        -93.4%        -95.3%   
40%   -120%     -63.6%        -64.1%        -65.7%        -68.2%        -71.3%        -75.0%        -78.8%        -82.5%        -86.0%        -89.2%        -91.9%        -94.1%        -95.8%   
45%   -135%     -67.2%        -67.7%        -69.1%        -71.3%        -74.2%        -77.5%        -80.9%        -84.3%        -87.4%        -90.3%        -92.7%        -94.7%        -96.2%   
50%   -150%     -70.4%        -70.8%        -72.1%        -74.1%        -76.7%        -79.6%        -82.7%        -85.8%        -88.7%        -91.2%        -93.4%        -95.2%        -96.6%   
55%   -165%     -73.1%        -73.5%        -74.7%        -76.5%        -78.9%        -81.5%        -84.4%        -87.1%        -89.7%        -92.0%        -94.0%        -95.6%        -96.9%   
60%   -180%     -75.6%        -75.9%        -77.0%        -78.7%        -80.8%        -83.2%        -85.8%        -88.3%        -90.7%        -92.8%        -94.6%        -96.0%        -97.2%   

The foregoing tables are intended to isolate the effect of index volatility and index performance on the return of a leveraged, inverse or inverse leveraged Fund. The Fund’s actual returns may be significantly greater or less than the returns shown above as a result of any of factors discussed above or under “Correlation Risk” and “Compounding Risk” in the Prospectus.

Non-Diversified Status

Each Fund is a “non-diversified” series of the Trust. A Fund’s classification as a “non-diversified” investment company means that the proportion of the Fund’s assets that may be invested in the securities of a single issuer is not limited by the 1940 Act. Each Fund, however, intends to seek to qualify as a “regulated investment company” (“RIC”) for purposes of the Code, which imposes diversification requirements on these Funds that are less restrictive than the requirements applicable to the “diversified” investment companies under the 1940 Act. With respect to a “non-diversified” Fund, a relatively high percentage of such a Fund’s assets may be invested in the securities of a limited number of issuers, primarily within the same economic sector. That Fund’s portfolio securities, therefore, may be more susceptible to any single economic, political, or regulatory occurrence than the portfolio securities of a more diversified investment company. Under current law, a Fund that is “non-diversified” but operates continuously as a “diversified” fund for three years shall become “diversified,” and thereafter may not operate as a “non-diversified” fund absent a shareholder vote.

INVESTMENT RESTRICTIONS

Each Fund has adopted certain investment restrictions as fundamental policies which cannot be changed without the approval of the holders of a majority of the outstanding voting securities of the Fund, as that term is defined in the 1940 Act. As defined in the 1940 Act, the vote of a majority of the outstanding voting securities means the lesser of: (i) 67% or more of the voting securities of the series present at a duly called meeting of shareholders, if the holders of more than 50% of the outstanding voting securities of the Fund are present or represented by proxy; or (ii) more than 50% of the outstanding voting securities of the series. (All policies of a Fund not specifically identified in this SAI or its Prospectus as fundamental may be changed without a vote of the shareholders of the Fund, upon approval of a majority of the Trustees.) For purposes of the following limitations, all percentage limitations apply immediately after a purchase or initial investment.

 

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A Fund may not:

 

  1. Make investments for the purpose of exercising control or management.

 

  2. Purchase or sell real estate, except that, to the extent permitted by applicable law, the Fund may invest in securities directly or indirectly secured by real estate or interests therein or issued by companies that invest in real estate or interests therein.

 

  3. Make loans to other persons, except that the acquisition of bonds, debentures or other corporate debt securities and investment in government obligations, commercial paper, pass-through instruments, certificates of deposit, bankers’ acceptances and repurchase agreements and purchase and sale contracts and any similar instruments shall not be deemed to be the making of a loan, and except, further, that the Fund may lend its portfolio securities, provided that the lending of portfolio securities may be made only in accordance with applicable law and the guidelines set forth in the Prospectus and this SAI, as they may be amended from time to time.

 

  4. Issue senior securities to the extent such issuance would violate applicable law.

 

  5.

Borrow money, except that the Fund (i) may borrow from banks (as defined in the 1940 Act) in amounts up to 33 1/3% of its total assets (including the amount borrowed), (ii) may, to the extent permitted by applicable law, borrow up to an additional 5% of its total assets for temporary purposes, (iii) may obtain such short-term credit as may be necessary for the clearance of purchases and sales of portfolio securities, (iv) may purchase securities on margin to the extent permitted by applicable law and (v) may enter into reverse repurchase agreements. The Fund may not pledge its assets other than to secure such borrowings or, to the extent permitted by the Fund’s investment policies as set forth in the Prospectus and SAI, as they may be amended from time to time, in connection with hedging transactions, short sales, when-issued and forward commitment transactions and similar investment strategies.

 

  6. Underwrite securities of other issuers, except insofar as the Fund technically may be deemed an underwriter under the 1933 Act, in selling portfolio securities.

 

  7. Purchase or sell commodities or contracts on commodities, except to the extent the Fund may do so in accordance with applicable law and the Fund’s Prospectus and SAI, as they may be amended from time to time.

No Fund will concentrate (i.e., hold more than 25% of its assets in the stocks of a single industry or group of industries) its investments in issuers of one or more particular industries, except that a Fund will concentrate to approximately the same extent that its index concentrates in the stocks of such particular industry or industries. For purposes of this limitation, securities of the U.S. government (including its agencies and instrumentalities) and tax-free securities of state or municipal governments and their political subdivisions (and repurchase agreements collateralized by government securities) are not considered to be issued by members of any industry.

Obligations under futures contracts so covered will not be considered senior securities for purposes of a Fund’s investment restriction concerning senior securities.

PORTFOLIO TRANSACTIONS AND BROKERAGE

Subject to the general supervision by the Board, the Advisor is responsible for decisions to buy and sell securities and derivatives for each of the Funds and the selection of brokers and dealers to effect transactions. Purchases from dealers serving as market makers may include a dealer’s mark-up or reflect a dealer’s mark-down. Purchases and sales of U.S. government securities are normally transacted through issuers, underwriters or major dealers in U.S. government securities acting as principals. Such transactions, along with other fixed-income securities transactions, are made on a net basis and do not typically involve payment of brokerage commissions. The cost of securities purchased from an underwriter usually includes a commission paid by the issuer to the underwriters; transactions with dealers normally reflect the spread between bid and asked prices; and transactions involving baskets of equity securities typically include brokerage commissions. As an alternative to directly purchasing securities, the Advisor may find efficiencies and cost savings by purchasing futures or using other derivative instruments like a total return swap or forward agreement. The Advisor may also choose to cross trade securities between clients to save costs where allowed under applicable law.

The policy for each Fund regarding purchases and sales of securities is that primary consideration will be given to obtaining the most favorable prices and efficient executions of transactions. Consistent with this policy, when securities transactions are effected on a stock exchange, the policy is to pay commissions that are considered fair and reasonable without necessarily determining that the lowest possible commissions are paid in all circumstances. The Advisor believes that a requirement always to seek the lowest possible commission cost could impede effective portfolio management and preclude the Fund and the Advisor from obtaining a high quality of brokerage and execution services. In seeking to

 

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determine the reasonableness of brokerage commissions paid in any transaction, the Advisor relies upon its experience and knowledge regarding commissions generally charged by various brokers and on its judgment in evaluating the brokerage and execution services received from the broker. Such determinations are necessarily subjective and imprecise, as in most cases an exact dollar value for those services is not ascertainable. In addition to commission rates, when selecting a broker for a particular transaction, the Advisor considers but is not limited to the following efficiency factors: the broker’s availability, willingness to commit capital, reputation and integrity, facilities reliability, access to research, execution capacity, and responsiveness.

The Advisor may give consideration to placing portfolio transactions with those brokers and dealers that also furnish research and other execution related services to the Fund or the Advisor. Such services may include, but are not limited to, any one or more of the following: information as to the availability of securities for purchase or sale; statistical or factual information or opinions pertaining to investment; information about market conditions generally; equipment that facilitates and improves trade execution; and appraisals or evaluations of portfolio securities.

For purchases and sales of derivatives (i.e., financial instruments whose value is derived from the value of an underlying asset, interest rate or index) the Advisor evaluates counterparties on the following factors: reputation and financial strength; execution prices; commission costs; ability to handle complex orders; ability to give prompt and full execution, including the ability to handle difficult trades; accuracy of reports and confirmations provided; reliability, type and quality of research provided; financing costs and other associated costs related to the transaction; and whether the total cost or proceeds in each transaction is the most favorable under the circumstances.

Consistent with a client’s investment objective, the Advisor may enter into guarantee close agreements with certain brokers. In all such cases, the agreement calls for the execution price at least to match the closing price of the security. In some cases, depending upon the circumstances, the broker may obtain a price that is better than the closing price and which under the agreement provides additional benefits to clients. The Advisor will generally distribute such benefits pro rata to applicable client trades.

 

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Table of Contents

In addition, the Advisor, any of its affiliates or employees and the Funds have a policy not to enter into any agreement or other understanding- whether written or oral- under which brokerage transactions or remuneration are directed to a broker to pay for distribution of a Fund’s shares. Because the New Funds were not operational at the end of the Trust’s last fiscal year, information on brokerage commissions paid by the New Funds is not included in this SAI. The table below sets forth the brokerage commissions paid by each Fund for the period noted for each Fund that was operational during that period:

 

Fund

   Commissions
Paid
During Fiscal
Year
Ended
May 31, 2009
     Commissions Paid
During  Fiscal Year
Ended
May 31, 2010
     Commissions Paid
During  Fiscal Year
Ended
May 31, 2011
     Aggregate
Total
 

Ultra S&P 500

   $ 1,080,013.76       $ 563,636.35       $ 137,783.66       $ 1,781,433.77   

Ultra QQQ

   $ 708,542.74       $ 249,875.23       $ 152,483.09       $ 1,110,901.06   

Ultra Dow 30

   $ 250,438.16       $ 98,056.18       $ 40,269.36       $ 338,763.70   

Ultra MidCap 400

   $ 57,697.68       $ 29,258.26       $ 7,076.48       $ 94,032.42   

Short S&P 500

   $ 133,681.40       $ 192,475.70       $ 140,276.00       $ 466,433.10   

Short QQQ

   $ 41,228.00       $ 46,747.30       $ 40,070.41       $ 128,045.71   

Short Dow 30

   $ 40,539.20       $ 35,127.95       $ 31,401.84       $ 107,068.99   

Short MidCap 400

   $ 6,273.47       $ 5,608.80       $ 1,878.08       $ 13,760.35   

UltraShort S&P 500

   $ 1,484,553.60       $ 672,801.40       $ 336,956.84       $ 2,494,311.84   

UltraShort QQQ

   $ 799,626.70       $ 321,594.50       $ 178,515.26       $ 1,299,736.46   

UltraShort Dow 30

   $ 246,390.40       $ 107,638.65       $ 64,858.64       $ 418,887.69   

UltraShort MidCap 400

   $ 27,891.65       $ 11,006.70       $ 2,978.74       $ 41,877.09   

Ultra Russell 2000

   $ 188,631.55       $ 78,741.38       $ 39,674.80       $ 307,047.73   

UltraShort Russell 2000

   $ 232,961.52       $ 101,717.00       $ 76,059.39       $ 410,737.91   

Short Russell 2000

   $ 18,916.78       $ 23,019.50       $ 32,740.83       $ 74,677.11   

Ultra SmallCap 600

   $ 17,884.75       $ 8,839.95       $ 3,620.55       $ 30,345.25   

UltraShort SmallCap 600

   $ 0.00       $ 2,038.70       $ 2,297.10       $ 4,335.80   

Short SmallCap 600

   $ 0.00       $ 1,369.90       $ 1,480.10       $ 2,850.00   

Ultra Basic Materials

   $ 139,868.66       $ 76,885.54       $ 16,598.49       $ 233,352.69   

Ultra Consumer Goods

   $ 3,010.05       $ 2,384.55       $ 602.93       $ 5,997.53   

Ultra Consumer Services

   $ 1,951.95       $ 1,383.71       $ 201.14       $ 3,536.80   

Ultra Financials

   $ 1,130,262.48       $ 204,128.28       $ 24,441.05       $ 1,358,831.81   

Ultra Health Care

   $ 8,877.99       $ 5,462.41       $ 1,176.13       $ 15,516.53   

Ultra Industrials

   $ 5,945.38       $ 2,848.56       $ 2,647.71       $ 11,441.65   

Ultra Oil & Gas

   $ 315,949.93       $ 103,965.25       $ 13,838.36       $ 433,753.54   

Ultra Technology

   $ 24,421.24       $ 16,029.49       $ 1,762.61       $ 42,213.34   

Ultra Utilities

   $ 5,996.95       $ 1,346.75       $ 1,439.03       $ 8,782.73   

Ultra Real Estate

   $ 109,480.25       $ 65,693.70       $ 21,071.19       $ 196,245.14   

Ultra Semiconductors

   $ 31,145.16       $ 15,089.99       $ 1,867.22       $ 48,102.37   

UltraShort Basic Materials

   $ 0.00       $ 0.00       $ 0.00       $ 0.00   

UltraShort Consumer Goods

   $ 0.00       $ 0.00       $ 0.00       $ 0.00   

UltraShort Consumer Services

   $ 0.00       $ 0.00       $ 0.00       $ 0.00   

UltraShort Financials

   $ 74,976.00       $ 0.00       $ 0.00       $ 74,976.00   

UltraShort Health Care

   $ 0.00       $ 0.00       $ 0.00       $ 0.00   

UltraShort Industrials

   $ 0.00       $ 0.00       $ 0.00       $ 0.00   

UltraShort Oil & Gas

   $ 0.00       $ 0.00       $ 0.00       $ 0.00   

UltraShort Technology

   $ 0.00       $ 0.00       $ 0.00       $ 0.00   

UltraShort Utilities

   $ 0.00       $ 0.00       $ 0.00       $ 0.00   

 

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Table of Contents

UltraShort Real Estate

   $ 0.00       $ 0.00       $ 0.00       $ 0.00   

UltraShort Semiconductors

   $ 0.00       $ 0.00       $ 0.00       $ 0.00   

Ultra Russell 1000 Growth

   $ 7,923.16       $ 2,897.62       $ 1,047.00       $ 11,867.78   

Ultra Russell 1000 Value

   $ 6,417.18       $ 2,530.75       $ 509.84       $ 9,457.77   

Ultra Russell MidCap Growth

   $ 4,919.34       $ 1,988.41       $ 937.00       $ 7,844.75   

Ultra Russell MidCap Value

   $ 3,007.51       $ 2,202.35       $ 899.56       $ 6,109.42   

Ultra Russell 2000 Growth

   $ 7,105.84       $ 3,474.72       $ 959.59       $ 11,540.15   

Ultra Russell 2000 Value

   $ 7,849.23       $ 3,322.40       $ 632.88       $ 11,804.51   

UltraShort Russell 1000 Growth

   $ 0.00       $ 0.00       $ 0.00       $ 0.00   

UltraShort Russell 1000 Value

   $ 0.00       $ 0.00       $ 0.00       $ 0.00   

UltraShort Russell MidCap Growth

   $ 0.00       $ 0.00       $ 0.00       $ 0.00   

UltraShort Russell MidCap Value

   $ 0.00       $ 0.00       $ 0.00       $ 0.00   

UltraShort Russell 2000 Growth

   $ 0.00       $ 0.00       $ 0.00       $ 0.00   

UltraShort Russell 2000 Value

   $ 0.00       $ 0.00       $ 0.00       $ 0.00   

Short MSCI EAFE

   $ 0.00       $ 0.00       $ 0.00       $ 0.00   

UltraShort MSCI EAFE

   $ 0.00       $ 0.00       $ 0.00       $ 0.00   

Short MSCI Emerging Markets

   $ 0.00       $ 0.00       $ 0.00       $ 0.00   

UltraShort MSCI Emerging Markets

   $ 0.00       $ 0.00       $ 0.00       $ 0.00   

UltraShort MSCI Japan

   $ 0.00       $ 0.00       $ 0.00       $ 0.00   

UltraShort FTSE China 25

   $ 0.00       $ 0.00       $ 0.00       $ 0.00   

Ultra Telecommunications

   $ 3,924.53       $ 1,128.69       $ 280.42       $ 5,333.64   

UltraShort Telecommunications

   $ 0.00       $ 0.00       $ 0.00       $ 0.00   

UltraShort 7-10 Year U.S. Treasury

   $ 23,713.47       $ 16,566.04       $ 17,942.19       $ 58,221.70   

UltraShort 20+ Year U.S. Treasury

   $ 248,544.18       $ 223,699.08       $ 228,379.33       $ 700,622.59   

Short Financials

   $ 488.00       $ 0.00       $ 0.00       $ 488.00   

Short Oil & Gas

   $ 0.00       $ 0.00       $ 0.00       $ 0.00   

Ultra MSCI EAFE

   $ 0.00       $ 1,541.52       $ 0.00       $ 1,541.52   

Ultra MSCI Emerging Markets

   $ 0.00       $ 3,912.23       $ 3,094.67       $ 7,006.90   

Ultra FTSE China 25

   $ 0.00       $ 0.00       $ 0.00       $ 0.00   

Ultra MSCI Japan

   $ 0.00       $ 0.00       $ 0.00       $ 0.00   

UltraShort MSCI Europe

   $ 0.00       $ 0.00       $ 0.00       $ 0.00   

UltraShort MSCI Pacific ex-Japan

   $ 0.00       $ 0.00       $ 0.00       $ 0.00   

UltraShort MSCI Brazil

   $ 0.00       $ 0.00       $ 0.00       $ 0.00   

UltraShort MSCI Mexico Investable Market

   $ 0.00       $ 0.00       $ 0.00       $ 0.00   

UltraPro S&P500

   $ 0.00       $ 45,197.05       $ 76,489.45       $ 121,686.50   

UltraPro Short S&P500

   $ 0.00       $ 50,925.70       $ 77,064.62       $ 127,990.32   

Ultra Russell3000

   $ 0.00       $ 1,530.41       $ 421.00       $ 1,951.41   

UltraShort Russell3000

   $ 0.00       $ 0.00       $ 0.00       $ 0.00   

Credit Suisse 130/30

   $ 0.00       $ 13,221.54       $ 14,780.32       $ 28,001.86   

Short 20+ Year Treasury

   $ 0.00       $ 5,311.46       $ 17,712.65       $ 23,024.11   

Ultra 7-10 Year Treasury

   $ 0.00       $ 193.17       $ 384.49       $ 577.66   

Ultra 20+ Year Treasury

   $ 0.00       $ 360.31       $ 963.41       $ 1,323.72   

UltraPro MidCap400

   $ 0.00       $ 3,316.17       $ 7,006.41       $ 10,322.58   

UltraPro Short MidCap400

   $ 0.00       $ 1,212.20       $ 1,203.34       $ 2,415.54   

UltraPro QQQ

   $ 0.00       $ 5,174.91       $ 34,043.92       $ 39,218.83   

UltraPro Short QQQ

   $ 0.00       $ 1,448.85       $ 12,434.34       $ 13,883.19   

UltraPro Dow30

   $ 0.00       $ 1,859.67       $ 5,657.41       $ 7,517.08   

UltraPro Short Dow30

   $ 0.00       $ 641.55       $ 3,935.44       $ 4,576.99   

UltraPro Russell2000

   $ 0.00       $ 2,638.80       $ 13,022.41       $ 15,661.21   

UltraPro Short Russell2000

   $ 0.00       $ 572.25       $ 5,872.49       $ 6,444.74   

UltraShort Nasdaq Biotechnology

   $ 0.00       $ 0.00       $ 0.00       $ 0.00   

 

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Table of Contents

Ultra Nasdaq Biotechnology

   $ 0.00       $ 629.25       $ 226.49       $ 855.74   

Short Basic Materials

   $ 0.00       $ 0.00       $ 0.00       $ 0.00   

Short Real Estate

   $ 0.00       $ 0.00       $ 0.00       $ 0.00   

Short KBW Regional Banking

   $ 0.00       $ 0.00       $ 0.00       $ 0.00   

Short FTSE China 25

   $ 0.00       $ 0.00       $ 0.00       $ 0.00   

Ultra MSCI Europe

   $ 0.00       $ 0.00       $ 0.00       $ 0.00   

Ultra MSCI Pacific ex-Japan

   $ 0.00       $ 0.00       $ 0.00       $ 0.00   

Ultra MSCI Brazil

   $ 0.00       $ 0.00       $ 0.00       $ 0.00   

Ultra MSCI Mexico Investable Market

   $ 0.00       $ 0.00       $ 0.00       $ 0.00   

Ultra KBW Regional Banking

   $ 0.00       $ 884.75       $ 532.47       $ 1,417.22   

RAFI Long/Short

   $ 0.00         0.00       $ 2,499.06       $ 2,499.06   

UltraShort TIPS

   $ 0.00         0.00       $ 0.00       $ 0.00   

Short High Yield

   $ 0.00         0.00       $ 0.00       $ 0.00   

Short Investment Grade Corporate

   $ 0.00         0.00       $ 0.00       $ 0.00   

UltraShort 3-7 Year Treasury

   $ 0.00         0.00       $ 0.00       $ 0.00   

Short 7-10 Year Treasury

   $ 0.00         0.00       $ 19.20       $ 19.20   

Ultra High Yield

   $ 0.00         0.00       $ 0.00       $ 0.00   

Ultra Investment Grade Corporate

   $ 0.00         0.00       $ 0.00       $ 0.00   

Securities of “Regular Broker-Dealers.” The Funds are required to identify any securities of its “regular brokers and dealers” (as such term is defined in the 1940 Act) which they may hold at the close of their most recent fiscal year. “Regular brokers or dealers” of the Trust are the ten brokers or dealers that, during the most recent fiscal year: (i) received the greatest dollar amounts of brokerage commissions from the Trust’s portfolio transactions; (ii) engaged as principal in the largest dollar amounts of portfolio transactions of the Trust; or (iii) sold the largest dollar amounts of the Trust’s Shares. Because the New Funds were not operational at the end of the Trust’s last fiscal year, information on holdings of the New Funds in shares of regular broker dealers is not included in this SAI. Holdings in Shares of Regular Broker-Dealers as of May 31, 2011:

 

Fund

  

Broker Dealer

   Dollar Amount of Holdings  

Ultra Dow30

  

Bank of America Corp.

J.P. Morgan Securities, Inc.

   $

$

1,206,000

4,437,000

  

  

Ultra S&P500

  

Bank of America Corp.

Citigroup, Inc.

J.P. Morgan Securities, Inc.

Prudential Securities, Inc.

   $

$

$

$

10,253,000

10,283,000

14,850,000

2,662,000

  

  

  

  

Ultra Russell3000

  

Bank of America Corp.

Citigroup, Inc.

J.P. Morgan Securities, Inc.

National Financial Services LLC

Prudential Securities, Inc.

   $

$

$

$

$

28,000

$21,000

41,000

1,000

7,000

  

  

  

  

  

Ultra MidCap400

   National Financial Services LLC    $ 243,000   

Ultra SmallCap600

   Stifel, Nicolaus & Co., Inc.    $ 101,000   

Ultra Russell2000

  

Knight Securities, LP

Stifel, Nicolaus & Co., Inc.

   $

$

150,000

248,000

  

  

 

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Table of Contents

Fund

  

Broker Dealer

   Dollar Amount of Holdings  

UltraPro Dow30

  

Bank of America Corp.

J.P. Morgan Securities, Inc.

   $

$

209,000

770,000

  

  

UltraPro S&P500

  

Bank of America Corp.

Citigroup, Inc.

J.P. Morgan Securities, Inc.

Prudential Securities, Inc.

   $

$

$

$

1,546,000

1,554,000

2,239,000

403,000

  

  

  

  

UltraPro MidCap400

   National Financial Services LLC    $ 86,000   

UltraPro Russell2000

  

Knight Securities, LP

Stifel, Nicolaus & Co., Inc.

   $

$

46,000

76,000

  

  

Ultra Russell1000 Value

  

Bank of America Corp.

Citigroup, Inc.

J.P. Morgan Securities, Inc.

National Financial Services LLC

Prudential Securities, Inc.

   $

$

$

$

$

155,000

114,000

226,000

5,000

39,000

  

  

  

  

  

Ultra Russell MidCap Value

   National Financial Services LLC    $ 7,000   

Ultra Russell2000 Value

  

Knight Securities, LP

Sttifel, Nicolaus & Co., Inc.

   $

$

16,000

2,000

  

  

UltraRussell2000 Growth

   Stifel, Nicolaus & Co., Inc.    $ 54,000   

Ultra Financials

  

Bank of America Corp.

Citigroup, Inc.

J.P. Morgan Securities, Inc.

Knight Securities, LP

National Financial Services LLC

Prudential Securities, Inc.

Stifel, Nicolaus & Co., Inc.

   $

$

$

$

$

$

$

39,386,000

39,636,000

56,182,000

403,000

1,212,000

10,246,000

713,000

  

  

  

  

  

  

  

Credit Suisse 130/30

  

Bank of America Corp.

Citigroup, Inc.

J.P. Morgan Securities, Inc.

Prudential Securities, Inc.

   $

$

$

$

519,000

569,000

910,000

359,000

  

  

  

  

RAFI Long/Short

  

Bank of America, Corp.

Citigroup, Inc.

J.P. Morgan Securities, Inc.

National Financial Services LLC

Prudential Securities, Inc.

   $

$

$

$

$

309,000

222,000

155,000

105,000

42,000

  

  

  

  

  

The nature of the Funds may cause the Funds to experience substantial differences in brokerage commissions from year to year. High portfolio turnover and correspondingly greater brokerage commissions, to a great extent, depend on the purchase, redemption, and exchange activity of a Fund’s investors, as well as each Fund’s investment objective and strategies.

 

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Table of Contents

MANAGEMENT OF PROSHARES TRUST

Trustees and Officers

The Board has general oversight responsibility with respect to the operation of the Trust and the Funds. The Board has engaged the Advisor to manage the Funds and is responsible for overseeing the Advisor and other service providers to the Trust and the Funds in accordance with the provisions of the federal securities laws.

The Board is currently composed of four Trustees, including three Independent Trustees, one of whom was added within the past year. In addition to four regularly scheduled meetings per year, the Board holds executive sessions (with and without employees of the Advisor), special meetings, and/or informal conference calls relating to specific matters that may require discussion or action prior to its next regular meeting. The Independent Trustees have retained “independent legal counsel” as defined in the 1940 Act.

The Board has appointed Michael L. Sapir to serve as Chairman of the Board. Mr. Sapir is also the Chairman and Chief Executive Officer of the Advisor and, as such, is not an Independent Trustee. The Chairman’s primary role is to participate in the preparation of the agenda for Board meetings, determine (with the advice of counsel) which matters need to be acted upon by the Board, and to ensure that the Board obtains all the information necessary to perform its functions and take action. The Chairman also presides at all meetings of the Board and acts, with the assistance of staff, as a liaison with service providers, officers, attorneys and the Independent Trustees between meetings. The Chairman may perform such other functions as may be requested by the Board from time to time. The Board does not have a lead Independent Trustee.

The Board has determined that its leadership structure is appropriate in light of the characteristics of the Trust and each of the Funds in the Fund Complex. These characteristics include, among other things, the fact that all the Funds are organized under one Trust; all Funds are exchange-traded funds; all Funds have common service providers; and virtually all of the Funds are leveraged, inverse or inverse leveraged funds, with similar principal investment strategies. As a result, the Board addresses governance and management issues that are often common to all or most of the Funds. In light of these characteristics, the Board has determined that a four-member Board, including three Independent Trustees, is of an adequate size to oversee the operations of the Trust, and that, in light of the small size of the Board, a complex Board leadership structure is not necessary or desirable. The relatively small size of the Board facilitates ready communication among the Board members, and between the Board and management, both at Board meetings and between meetings, further leading to the determination that a complex board structure was unnecessary. In view of the small size of the Board, the Board has concluded that designating one of the three Independent Trustees as the “lead Independent Trustee” would not be likely to meaningfully enhance the effectiveness of the Board. The Board reviews its leadership structure periodically and believes that its structure is appropriate to enable the Board to exercise its oversight of the funds in the Fund Complex.

The Board oversight of the Trust and the Funds extends to the Trust’s risk management processes. The Board and its Audit Committee consider risk management issues as part of their responsibilities throughout the year at regular and special meetings. The Advisor and other service providers prepare regular reports for Board and Audit Committee meetings that address a variety of risk–related matters, and the Board as a whole or the Audit Committee may also receive special written reports or presentations on a variety of risk issues at the request of the Board or the Audit Committee. For example, the portfolio managers of the Funds meet regularly with the Board to discuss portfolio performance, including investment risk, counterparty risk and the impact on the Funds of investments in particular securities or derivatives. As noted above, given the relatively small size of the Board, the Board determined it is not necessary to adopt a complex leadership structure in order for the Board to effectively exercise its risk oversight function.

The Board has appointed a chief compliance officer (“CCO”) for the Trust (who is also the Chief Compliance Officer for the Advisor). The CCO reports directly to the Board and participates in the Board’s meetings. The Independent Trustees meet at least annually in executive session with the CCO, and the Funds’ CCO prepares and presents an annual written compliance report to the Board. The CCO also provides updates to the Board on the operation of the Trust’s compliance policies and procedures and on how these procedures are designed to mitigate risk. Finally, the CCO and/or other Officers or employees of the Advisor report to the Board in the event any material risk issues arise.

In addition, the Audit Committee of the Board meets regularly with the Trust’s independent public accounting firm to review reports on, among other things, the Funds’ controls over financial reporting.

 

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Table of Contents

The Trustees, their age, term of office and length of time served, principal business occupations during the past five years and the number of portfolios in the Fund Complex overseen and other directorships, if any, held by each Trustee, are shown below. Unless noted otherwise, the addresses of each Trustee is: c/o ProShares Trust, 7501 Wisconsin Avenue, Suite 1000, Bethesda, MD 20814.

 

Name, and Age

  

Term of Office

and Length of

Time Served

  

Principal Occupation(s) During

the Past 5 Years

  

Number of

Operational

Portfolios in

Fund Complex*
Overseen by

Trustee

  

Other Directorships

Held by Trustee During

Past 5 Years

Independent Trustees

           

William D. Fertig

Birth Date: 9/56

  

Indefinite;

June 2011 to

present

  

Context Capital Management

(Alternative Asset

Management): Chief

Investment Officer (September

2002 – present)

  

ProShares (109)

ProFunds (112)

Access One

Trust (3)

   Key Energy Services

Russell S. Reynolds, III

Birth Date: 7/57

  

Indefinite;

October 1997

to present

  

RSR Partners (Executive

Recruitment): Managing

Director (May 2007 to

present); Directorship Search

Group, Inc. (Executive

Recruitment): President (May

2004 to May 2007)

  

ProShares (109)

ProFunds (112)

Access One

Trust (3)

   RSR Partners, Inc.

Michael C. Wachs

Birth Date: 10/61

  

Indefinite;

October 1997

to present

  

Spring Mill Capital

Management, LLC

(Commercial Real Estate

Investment): Principal (July

2009 to present); AMC

Delancey Group, Inc. (Real

Estate Development):

President (January 2001 to

May 2009)

  

ProShares (109)

ProFunds (112)

Access One

Trust (3)

  

AMC Delancey Group,

Inc.

Interested Trustee

           

Michael L. Sapir**

Birth Date: 5/58

  

Indefinite;

April 1997 to

present

  

Chairman and Chief Executive

Officer of the Advisor

(November 2005 to present);

and of ProFund Advisors (April

1997 to present); ProShare

Capital Management LLC;

Managing Partner (June 2008

to present).

  

ProShares (109)

ProFunds (112)

Access One

Trust (3)

   None

 

* The “Fund Complex” consists of all funds registered under the 1940 Act that are advised by ProFund Advisors LLC (“ProFund Advisors”) and ProShare Advisors LLC.
** Mr. Sapir is an “interested person,” as defined by the 1940 Act, because of his ownership interest in the Advisor.

 

29


Table of Contents

The Board formed in 2002 prior to the inception of the Trust’s operations. Messrs. Reynolds, Wachs and Sapir had for several years prior to the Board’s initial formation worked successfully together as Trustees for ProFunds and Access One Trust – a complex of index funds and leveraged and inverse mutual funds managed by an affiliate of the Advisor. Each was believed to possess the specific experience, qualifications, attributes and skills necessary to serve as a Trustee of the Trust. In addition to their years of service as Trustees to ProFunds and Access One Trust, and gathering experience with funds with investment objectives and principal investment strategies similar to the Trust’s Funds, each individual brought experience and qualifications from other areas. In particular, Mr. Reynolds had previous significant senior executive experience in the areas of human resources and recruitment and executive organization; Mr. Wachs had previous significant experience in the areas of investment and real estate development; and Mr. Sapir had significant experience in the field of investment management, both as an executive and as an attorney. Mr. Fertig, who joined the Board in June 2011, has significant experience in the areas of investment and asset management.

 

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Table of Contents

Executive Officers

 

Name and Age

  

Position(s) Held
with Trust

  

Term of Office and

Length of Time Served

  

Principal Occupation(s)

During the Past 5 Years

Louis M. Mayberg

Birth Date: 8/62

   President    Indefinite; November 2005 to present   

President of the Advisor

(November 2005 to present);

ProFund Advisors (April 1997 to

present); and ProShare Capital

Management LLC (June 2008 to

present).

Charles S. Todd

Three Canal Plaza, Suite 100

Portland, ME 04101

Birth Date: 9/71

   Treasurer    Indefinite; December 2008 to present   

Director, Foreside Management Services, LLC (December 2008 to

present); Vice President/Assistant

Vice President within the Fund

Administration Department of J.P.

Morgan Investor Services Co.

(June 2000 to December 2008).

Victor M. Frye, Esq.

Birth Date: 10/58

  

Chief

Compliance

Officer and

AML Officer

   Indefinite; December 2004 to present   

Counsel and Chief Compliance

Officer of the Advisor (December

2004 to present) and ProFund

Advisors (October 2002 to

present).

Amy R. Doberman

Birth Date: 3/62

  

Chief Legal

Officer and

Secretary

   Indefinite; June 2009 to present   

General Counsel of the Advisor,

ProFund Advisors and ProShare

Capital Management LLC (April

2009 to present); Managing

Director, Morgan Stanley

Investment Management (July

2004 to April 2009).

Listed below for each Trustee is a dollar range of securities beneficially owned in the Trust, together with the aggregate dollar range of equity securities in all registered investment companies overseen by each Trustee that are in the same family of investment companies as the Trust, as of December 31, 2010.

 

Name of Trustee

  

Dollar Range of Equity Securities in

the Trust

   Aggregate Dollar Range of Equity
Securities in All Registered  Investment
Companies Overseen by Trustee in

Family of Investment Companies

Independent Trustees

     
William D. Fertig    None*    None*
Russell S. Reynolds, III, Trustee    None    $10,001 – $50,000
Michael C. Wachs, Trustee    None    $10,001 – $50,000

Interested Trustee

     

Michael L. Sapir, Trustee and Chairman

   None    $10,001 – $50,000

 

* Mr. Fertig joined the Board in June 2011.

Committees

The Board of Trustees has an Audit Committee. The Audit Committee is composed entirely of Independent Trustees. Currently, the Audit Committee is composed of Messrs. Fertig, Wachs and Reynolds. The Audit Committee makes recommendations to the full Board of Trustees with respect to the engagement of an independent registered public accounting firm and reviews with the independent registered public accounting firm the plan and results of the internal controls, audit engagement and matters having a material effect on the Trust’s financial operations. During the past fiscal year, the Audit Committee met twice, and the Board of Trustees met five times.

 

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Table of Contents

Compensation of Trustees and Officers

During 2011, each Independent Trustee, except Mr. Fertig who joined the Board in June 2011, was paid a $155,000 annual retainer for service as Trustee on the Board of Trustees and for service as Trustee for other funds in the Fund Complex, $7,500 for attendance at each quarterly in-person meeting of the Board of Trustees, $3,000 for attendance at each special meeting of the Board of Trustees, and $3,000 for attendance at telephonic meetings. Trustees who are also Officers or affiliated persons receive no remuneration from the Trust for their services as Trustees. The Officers, other than the CCO, receive no compensation directly from the Trust for performing the duties of their offices.

The Trust does not accrue pension or retirement benefits as part of each Fund’s expenses, and Trustees are not entitled to benefits upon retirement from the Board of Trustees.

The following table shows aggregate compensation paid to the Trustees for their service on the Board for the fiscal year ended May 31, 2011.

 

Name

   Aggregate
Compensation
From Funds
    Pension or
Retirement
Benefits
Accrued

as Part of
Trust
Expenses
    Estimated
Annual
Benefits
Upon
Retirement
    Total
Compensation
From Trust
and

Fund
Complex

Paid to
Trustees
 

Independent Trustees

        

William D. Fertig

     N/A*        N/A*        N/A*        N/A*   

Russell S. Reynolds, III, Trustee

   $ 113,123.45      $ 0      $ 0      $ 113,123.45   

Michael C. Wachs, Trustee

   $ 113,123.45      $ 0      $ 0      $ 113,123.45   

Interested Trustee

        

Michael L. Sapir, Trustee and Chairman

   $ 0      $ 0      $ 0      $ 0   

 

* Mr. Fertig joined the Board in June 2011.

Control Persons and Principal Holders of Securities

As of September 1, 2011, the Trustees and Officers of the Trust owned in the aggregate less than 1% of the shares of the Funds of the Trust (all series taken together).

See Appendix A to this SAI for a list of the Principal Holders of each Fund.

INVESTMENT ADVISOR

ProShare Advisors, located at 7501 Wisconsin Avenue, Suite 1000, Bethesda, Maryland 20814, serves as the investment adviser to all of the Funds and provides investment advice and management services to the Funds. ProShare Advisors is owned by Michael L. Sapir, Louis M. Mayberg and William E. Seale.

Michael L. Sapir, Chairman and Chief Executive Officer of ProShare Advisors since inception and ProFund Advisors since April 1997. Mr. Sapir formerly practiced law, primarily representing financial institutions for over 13 years, most recently as a partner in a Washington, D.C.-based law firm. He holds degrees from Georgetown University Law Center (J.D.) and the University of Miami (M.B.A. and B.A.).

Louis M. Mayberg, President of ProShare Advisors since inception and ProFund Advisors since April 1997, co-founded National Capital Companies, L.L.C., an investment bank specializing in financial services companies mergers and acquisitions and equity underwritings in 1986, and managed its financial services hedge fund. He holds a Bachelor of Business Administration degree with a major in Finance from The George Washington University.

William E. Seale, Ph.D., Chief Economist of ProFund Advisors since 2005, Chief Investment Officer from 2003-2004 and from October 2006-June 2008 and Director of Portfolio from 1997-2003. Dr. Seale has more than 30 years of experience in the financial markets. His background includes a five-year presidential appointment as a commissioner of the U.S. Commodity Futures Trading Commission and an appointment as Chairman of the Finance Department at The George Washington University. He earned his degrees at the University of Kentucky.

 

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Table of Contents

Portfolio Management

Listed below for each portfolio manager is a dollar range of securities beneficially owned in the Funds managed by the portfolio manager, together with the aggregate dollar range of equity securities in all registered investment companies in the Fund Complex as of May 31, 2011.

 

Name of Portfolio Manager

   Dollar Range of
Funds Currently
Owned

Ryan Dofflemeyer

   None

Alexander Ilyasov

   $1-$10,000

Michelle Liu

   None

Hratch Najarian

   None

Michael Neches

   $1-$10,000

Jeffrey Ploshnick

   $1-$10,000

Portfolio Managers’ Compensation

ProShare Advisors believes that its compensation program is competitively positioned to attract and retain high-caliber investment professionals. The compensation package for portfolio managers consists of a fixed-base salary, an annual incentive bonus opportunity and a competitive benefits package. A portfolio manager’s salary compensation is designed to be competitive with the marketplace and reflect a portfolio manager’s relative experience and contribution to the firm. Fixed-base salary compensation is reviewed and adjusted annually to reflect increases in the cost of living and market rates.

The annual incentive bonus opportunity provides cash bonuses based upon the overall firm’s performance and individual contributions. Principal consideration is given to appropriate risk management, teamwork and investment support activities in determining the annual bonus amount.

Portfolio managers are eligible to participate in the firm’s standard employee benefits programs, which include a competitive 401(k) retirement savings program with employer match, life insurance coverage, and health and welfare programs.

Other Accounts Managed by Portfolio Managers

Portfolio managers are generally responsible for multiple investment company accounts. Listed below for each portfolio manager are the number and type of accounts managed or overseen by such portfolio manager as of May 31, 2011.

 

Name of Portfolio Manager

   Number of All Registered
Investment Companies
Managed/Total Assets
   Number of All Other Pooled
Investment Vehicles
Managed/Total Assets
   Number of All Other
Accounts Managed/
Total Assets

Ryan Dofflemeyer

   2/$133.61 million    10/$2.64 billion    47/$1.87 billion

Alexander Ilyasov

   37/$1.25 billion    0/$0    0/$0

Michelle Liu

   13/$7.82 billion    0/$0    0/$0

Hratch Najarian

   87/$12.04 billion`    0/$0    1/$14.88 million

Michael Neches

   71/$4.9 billion    0/$0    0/$0

Jeffrey Ploshnick

   10/$282 million    4/$892 million    0 /$0 million

In the course of providing advisory services, the Advisor may simultaneously recommend the sale of a particular security for one account while recommending the purchase of the same security for another account if such recommendations are consistent with each client’s investment strategies. The Advisor also may recommend the purchase or sale of securities that may also be recommended by ProFund Advisors, an affiliate of the Advisor.

The Advisor, its principals, officers and employees (and members of their families) and affiliates may participate directly or indirectly as investors in the Advisor’s clients, such as the Funds. Thus the Advisor may recommend to clients the purchase or sale of securities in which it, or its officers, employees or related persons have a financial interest. The

 

33


Table of Contents

Advisor may give advice and take actions in the performance of its duties to its clients that differ from the advice given or the timing and nature of actions taken, with respect to other clients’ accounts and/or employees’ accounts that may invest in some of the same securities recommended to clients. In addition, the Advisor, its affiliates and principals may trade for their own accounts. Consequently, non-customer and proprietary trades may be executed and cleared through any prime broker or other broker utilized by clients. It is possible that officers or employees of the Advisor may buy or sell securities or other instruments that the Advisor has recommended to, or purchased for, its clients and may engage in transactions for their own accounts in a manner that is inconsistent with the Advisor’s recommendations to a client. Personal securities transactions by employees may raise potential conflicts of interest when such persons trade in a security that is owned by, or considered for purchase or sale for, a client. The Advisor has adopted policies and procedures designed to detect and prevent such conflicts of interest and, when they do arise, to ensure that it effects transactions for clients in a manner that is consistent with its fiduciary duty to its clients and in accordance with applicable law.

Any Access Person, as such term is defined under the 1940 Act or the Investment Advisers Act of 1940, as amended, of the Advisor may make security purchases subject to the terms of the ProShare Advisors Code of Ethics, which is consistent with the requirements of Rule 17j-1 under the 1940 Act.

The Advisor and its affiliated persons may come into possession from time to time of material nonpublic and other confidential information about companies which, if disclosed, might affect an investor’s decision to buy, sell, or hold a security. Under applicable law, the Advisor and its affiliated persons would be prohibited from improperly disclosing or using this information for their personal benefit or for the benefit of any person, regardless of whether the person is a client of the Advisor. Accordingly, should the Advisor or any affiliated person come into possession of material nonpublic or other confidential information with respect to any company, the Advisor and its affiliated persons will have no responsibility or liability for failing to disclose the information to clients as a result of following its policies and procedures designed to comply with applicable law.

Investment Advisory Agreement

Under an investment advisory agreement between ProShare Advisors and the Trust, on behalf of each Fund (the “Agreement” or “Advisory Agreement”), each Fund (other than German Sovereign / Sub-Sovereign ETF) pays ProShare Advisors a fee at an annualized rate, based on its average daily net assets, as follows: 0.75% of the first $6.0 billion of the Fund’s average daily net assets; 0.70% of average daily net assets for the next $4.0 billion; and 0.65% of the Fund’s average daily net assets in excess of $10 billion. The German Sovereign / Sub-Sovereign ETF pays ProShare Advisors a fee at an annualized rate, based on its average daily net assets, of [        ]%. ProShare Advisors manages the investment and the reinvestment of the assets of each of the Funds, in accordance with the investment objectives, policies, and limitations of the Fund, subject to the general supervision and control of the Trustees and the Officers of the Funds. ProShare Advisors bears all costs associated with providing these advisory services. ProShare Advisors has contractually agreed to waive investment advisory and management services fees and to reimburse other expenses (exclusive of transaction costs, interest, taxes, dividends (including dividend expenses on securities sold short), litigation, indemnification, expenses associated with investment in other funds as permitted by the then current registration statement, and extraordinary expenses as determined under generally accepted accounting principles) to the extent total annual Fund operating expenses, as a percentage of average daily net assets, exceed 0.95% through September 30, 2012 ([        ]% for German Sovereign / Sub-Sovereign ETF through [            ];[        ]% for USD Covered Bond through [            ];[        ]% for Sovereign Fiscal Strength ETF through [            ] and [        ]% for Volatility Target ProShares through [            ]). After such date, the expense limitation may be terminated or revised. Amounts waived or reimbursed in a particular contractual period may be recouped by ProShare Advisors within five years of the end of that contractual period to the extent that recoupment will not cause a Fund’s expenses to exceed any expense limitation in place at that time. ProShare Advisors, from its own resources, including profits from advisory fees received from the Funds, also may make payments to broker-dealers and other financial institutions for their expenses in connection with the distribution of the Funds’ Shares. A discussion regarding the basis for the Board of Trustees approving the Advisory Agreement of the Trust will be (or is) available in the Trust’s Annual and/or Semi-Annual Report to shareholders. The Investment Advisory fees paid, as well as any amounts reimbursed pursuant to the Expense Limitation Agreement, for the fiscal years ended May 31, 2009, May 31, 2010 and May 31, 2011 for each Fund that was operational as of each date are set forth below. Because the New Funds were not operational at the end of the Trust’s last fiscal year, information on investment advisory fees paid by the New Funds is not included in this SAI.

 

34


Table of Contents

USD Covered Bond, the Sovereign Fiscal Strength ETF and the German Sovereign / Sub-Sovereign ETF

 

Fund

   Investment Advisory Fees Paid
during the Year Ended May  31,
2011
   Reimbursements and Waivers by
the Advisor during the Fiscal Year
Ended May 31, 2011

Ultra QQQ®

   $6,135,784    ($631,542)

Ultra Dow30SM

   $2,387,779    ($162,843)

Ultra S&P500®

   $11,807,118    $0.00

Ultra Russell3000

   $54,217    ($198,784)

Ultra MidCap400

   $936,017    ($154,125)

Ultra SmallCap600

   $341,532    ($167,686)

Ultra Russell2000

   $1,817,569    ($502,535)

UltraPro QQQ®

   $857,592    ($231,024)

UltraPro Dow30SM

   $179,634    ($88,736)

UltraPro S&P500®

   $1,696,905    ($188,340)

UltraPro MidCap400

   $231,365    ($99,534)

UltraPro Russell2000

   $338,842    ($265,290)

Ultra Russell1000 Value

   $100,967    ($133,156)

Ultra Russell1000 Growth

   $111,365    ($132,678)

Ultra Russell MidCap Value

   $65,450    ($163,373)

Ultra Russell MidCap Growth

   $101,088    ($145,813)

Ultra Russell2000 Value

   $152,099    ($148,681)

Ultra Russell2000 Growth

   $192,510    ($150,783)

Ultra Basic Materials

   $2,488,627    ($163,400)

Ultra Nasdaq Biotechnology

   $49,918    ($64,796)

Ultra Consumer Goods

   $148,578    ($135,314)

Ultra Consumer Services

   $106,662    ($143,082)

Ultra Financials

   $9,735,409    ($39,855)

Ultra Health Care

   $329,614    ($134,748)

Ultra Industrials

   $313,385    ($152,434)

Ultra Oil & Gas

   $2,917,683    ($193,875)

Ultra Real Estate

   $3,879,414    ($149,442)

Ultra KBW Regional Banking

   $50,744    ($60,984)

Ultra Semiconductors

   $532,661    ($129,490)

Ultra Technology

   $1,018,435    ($156,226)

Ultra Telecommunications

   $54,915    ($132,914)

Ultra Utilities

   $149,506    ($131,276)

Ultra MSCI EAFE

   $69,005    ($135,108)

Ultra MSCI Emerging Markets

   $278,245    ($141,294)

Ultra MSCI Europe

   $26,692    ($74,746)

Ultra MSCI Pacific ex-Japan

   $25,054    ($70,425)

Ultra MSCI Brazil

   $79,584    ($79,871)

Ultra FTSE China 25

   $335,000    ($142,332)

Ultra MSCI Japan

   $139,868    ($172,452)

Ultra Mexico Investable Market

   $16,859    ($69,357)

Ultra 7-10 Year Treasury

   $94,309    ($85,486)

Ultra 20+ Year Treasury

   $141,379    ($88,276)

Ultra High Yield

   $3,988    ($27,371)

Ultra Investment Grade Corporate

   $4,087    ($26,156)

Short QQQ®

   $1,758,163    ($261,393)

Short Dow30SM

   $2,028,432    ($110,472)

Short S&P500®

   $14,056,819    $0.00

Short MidCap400

   $238,333    ($94,233)

Short SmallCap600

   $287,851    ($96,953)

Short Russell2000

   $2,346,797    ($286,218)

 

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Table of Contents

Fund

   Investment Advisory Fees Paid
during the Year Ended May  31,
2011
   Reimbursements and Waivers by
the Advisor during the Fiscal Year
Ended May 31, 2011

UltraShort QQQ®

   $5,867,032    ($581,066)

UltraShort Dow30SM

   $3,280,523    ($91,456)

UltraShort S&P500®

   $20,614,695    $0.00

UltraShort Russell3000

   $15,046    ($106,140)

UltraShort MidCap400

   $237,240    ($96,924)

UltraShort SmallCap600

   $138,435    ($106,976)

UltraShort Russell2000

   $3,272,015    ($395,377)

UltraPro Short QQQ®

   $426,421    ($143,960)

UltraPro Short Dow30SM

   $212,990    ($85,926)

UltraPro Short S&P500®

   $2,480,725    $0.00

UltraPro Short MidCap400

   $32,099    ($62,186)

UltraPro Short Russell2000

   $245,454    ($92,207)

UltraShort Russell1000 Value

   $36,696    ($108,533)

UltraShort Russell1000 Growth

   $50,932    ($107,639)

UltraShort Russell MidCap Value

   $27,455    ($111,233)

UltraShort Russell MidCap Growth

   $35,713    ($110,170)

UltraShort Russell2000 Value

   $71,431    ($106,719)

UltraShort Russell2000 Growth

   $91,995    ($105,297)

Short Basic Materials

   $32,441    ($54,438)

Short Financials

   $809,458    ($106,469)

Short Oil & Gas

   $86,021    ($110,049)

Short Real Estate

   $145,827    ($74,508)

Short KBW Regional Banking

   $187,784    ($73,210)

UltraShort Basic Materials

   $724,106    ($106,217)

UltraShort Nasdaq Biotechnology

   $31,845    ($53,065)

UltraShort Consumer Goods

   $78,341    ($111,320)

UltraShort Consumer Services

   $205,127    ($108,108)

UltraShort Financials

   $3,392,248    ($72,256)

UltraShort Health Care

   $34,453    ($110,824)

UltraShort Industrials

   $78,272    ($111,437)

UltraShort Oil & Gas

   $812,165    ($109,894)

UltraShort Real Estate

   $2,305,697    ($124,731)

UltraShort Semiconductors

   $191,749    ($113,695)

UltraShort Technology

   $150,641    ($111,667)

UltraShort Telecommunications

   $15,605    ($113,209)

UltraShort Utilities

   $42,189    ($112,417)

Short MSCI EAFE

   $859,510    ($110,510)

Short MSCI Emerging Markets

   $1,760,242    ($208,866)

Short FTSE China 25

   $57,412    ($60,357)

UltraShort MSCI EAFE

   $179,849    ($122,033)

UltraShort MSCI Emerging Markets

   $1,070,173    ($64,428)

UltraShort MSCI Europe

   $497,813    ($118,724)

UltraShort MSCI Pacific ex-Japan

   $24,106    ($133,958)

UltraShort MSCI Brazil

   $199,503    ($120,105)

UltraShort FTSE China 25

   $1,787,892    ($214,937)

UltraShort MSCI Japan

   $165,443    ($151,340)

UltraShort MSCI Mexico Investable Market

   $26,588    ($133,199)

Short 20+ Year Treasury

   $5,291,725    ($109,586)

Short High Yield

   $8,334    ($30,085)

Short Investment Grade Corporate

   $5,169    ($27,101)

 

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Table of Contents

Fund

   Investment Advisory Fees  Paid
during the Year Ended May 31,
2011
   Reimbursements and Waivers by
the Advisor during the Fiscal Year
Ended May 31, 2011

Short 7-10 Year Treasury

   $6,648    ($24,855)

UltraShort 3-7 Year Treasury

   $4,567    ($24,549)

UltraShort 7-10 Year Treasury

   $3,109,213    ($106,802)

UltraShort 20+ Year Treasury

   $39,311,104    $0.00

UltraShort TIPS

   $8,414    ($27,050)

Credit Suisse 130/30

   $521,637    ($147,638)

RAFI® Long/Short

   $37,143    ($52,180)

 

Fund

   Investment Advisory Fees Paid
during the Year Ended

May 31, 2010
     Reimbursements and Waivers
by the Advisor during the Fiscal
Year Ended May 31, 2010
 

Ultra QQQ®

   $ 6,866,006       $ 743,592   

Ultra Dow30SM

   $ 3,327,459       $ 178,395   

Ultra S&P500®

   $ 13,434,380       $ 0.00   

Ultra Russell3000

   $ 44,881       $ 192,880   

Ultra MidCap400

   $ 1,013,272       $ 145,319   

Ultra SmallCap600

   $ 435,248       $ 165,631   

Ultra Russell2000

   $ 1,741,745       $ 593,799   

UltraPro QQQ®

   $ 70,918       $ 65,492   

UltraPro Dow30SM

   $ 31,337       $ 37,666   

UltraPro S&P500®

   $ 615,080       $ 258,676   

UltraPro MidCap400

   $ 48,941       $ 80,364   

UltraPro Russell2000

   $ 39,154       $ 108,982   

Ultra Russell1000 Value

   $ 150,823       $ 184,717   

Ultra Russell1000 Growth

   $ 213,973       $ 160,026   

Ultra Russell MidCap Value

   $ 149,301       $ 164,048   

Ultra Russell MidCap Growth

   $ 142,443       $ 152,367   

Ultra Russell2000 Value

   $ 164,780       $ 256,653   

Ultra Russell2000 Growth

   $ 205,056       $ 232,486   

Ultra Basic Materials

   $ 3,128,213       $ 187,851   

Ultra Nasdaq Biotechnology

   $ 5,976       $ 27,324   

Ultra Consumer Goods

   $ 211,619       $ 136,987   

Ultra Consumer Services

   $ 118,498       $ 140,353   

Ultra Financials

   $ 15,265,950       $ 92,453   

Ultra Health Care

   $ 324,378       $ 129,466   

Ultra Industrials

   $ 304,341       $ 149,310   

Ultra Oil & Gas

   $ 3,697,305       $ 195,389   

Ultra Real Estate

   $ 4,422,639       $ 208,611   

Ultra KBW Regional Banking

   $ 5,201       $ 27,385   

Ultra Semiconductors

   $ 683,037       $ 148,952   

Ultra Technology

   $ 1,111,251       $ 168,085   

Ultra Telecommunications

   $ 95,517       $ 131,102   

Ultra Utilities

   $ 199,366       $ 132,043   

Ultra MSCI EAFE

   $ 71,970       $ 100,129   

Ultra MSCI Emerging Markets

   $ 166,890       $ 134,420   

Ultra MSCI Europe

   $ 1,873       $ 26,332   

Ultra MSCI Pacific ex-Japan

   $ 1,752       $ 26,289   

Ultra MSCI Brazil

   $ 1,928       $ 26,340   

Ultra FTSE China 25

   $ 233,497       $ 112,699   

 

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Table of Contents

Fund

   Investment Advisory Fees
Paid during the Year Ended
May 31, 2010
     Reimbursements and Waivers
by the Advisor during the Fiscal
Year Ended May 31, 2010
 

Ultra MSCI Japan

   $ 70,557       $ 102,252   

Ultra Mexico Investable Market

   $ 1,895       $ 26,308   

Ultra 7-10 Year Treasury

   $ 33,911       $ 59,593   

Ultra 20+ Year Treasury

   $ 36,996       $ 59,551   

Short QQQ®

   $ 1,401,686       $ 235,706   

Short Dow30SM

   $ 1,956,180       $ 127,797   

Short S&P500®

   $ 11,621,461       $ 0.00   

Short MidCap400

   $ 301,533       $ 94,165   

Short SmallCap600

   $ 272,555       $ 92,571   

Short Russell2000

   $ 1,266,465       $ 209,335   

UltraShort QQQ®

   $ 7,277,365       $ 701,390   

UltraShort Dow30SM

   $ 4,381,624       $ 133,594   

UltraShort S&P500®

   $ 25,901,387       $ 0.00   

UltraShort Russell3000

   $ 24,317       $ 39,561   

UltraShort MidCap400

   $ 371,792       $ 93,592   

UltraShort SmallCap600

   $ 185,342       $ 101,322   

UltraShort Russell2000

   $ 3,567,071       $ 425,406   

UltraPro Short QQQ®

   $ 30,330       $ 36,700   

UltraPro Short Dow30SM

   $ 20,346       $ 32,482   

UltraPro Short S&P500®

   $ 1,086,216       $ 81,157   

UltraPro Short MidCap400

   $ 12,874       $ 30,556   

UltraPro Short Russell2000

   $ 20,391       $ 31,649   

UltraShort Russell1000 Value

   $ 79,770       $ 107,041   

UltraShort Russell1000 Growth

   $ 85,347       $ 106,588   

UltraShort Russell MidCap Value

   $ 31,753       $ 109,395   

UltraShort Russell MidCap Growth

   $ 53,137       $ 108,411   

UltraShort Russell2000 Value

   $ 88,475       $ 106,062   

UltraShort Russell2000 Growth

   $ 95,379       $ 107,392   

Short Basic Materials

   $ 7,915       $ 27,199   

Short Financials

   $ 862,817       $ 108,467   

Short Oil & Gas

   $ 95,302       $ 109,400   

Short Real Estate

   $ 7,526       $ 27,355   

Short KBW Regional Banking

   $ 8,122       $ 26,502   

UltraShort Basic Materials

   $ 942,049       $ 120,147   

UltraShort Nasdaq Biotechnology

   $ 7,349       $ 25,558   

UltraShort Consumer Goods

   $ 150,971       $ 108,861   

UltraShort Consumer Services

   $ 402,067       $ 104,878   

UltraShort Financials

   $ 6,189,528       $ 116,850   

UltraShort Health Care

   $ 52,811       $ 110,194   

UltraShort Industrials

   $ 175,290       $ 108,857   

UltraShort Oil & Gas

   $ 1,992,759       $ 130,731   

UltraShort Real Estate

   $ 6,192,224       $ 131,851   

UltraShort Semiconductors

   $ 223,535       $ 107,126   

UltraShort Technology

   $ 193,192       $ 109,006   

UltraShort Telecommunications

   $ 13,576       $ 110,202   

UltraShort Utilities

   $ 64,747       $ 110,305   

Short MSCI EAFE

   $ 461,622       $ 125,927   

Short MSCI Emerging Markets

   $ 1,614,339       $ 209,833   

Short FTSE China 25

   $ 8,528       $ 27,924   

UltraShort MSCI EAFE

   $ 270,065       $ 123,457   

 

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Table of Contents

Fund

   Investment Advisory Fees
Paid during the Year Ended
May 31, 2010
     Reimbursements and Waivers
by the Advisor during the Fiscal
Year Ended May 31, 2010
 

UltraShort MSCI Emerging Markets

   $ 1,562,166       $ 211,021   

UltraShort MSCI Europe

   $ 182,654       $ 83,222   

UltraShort MSCI Pacific ex-Japan

   $ 23,719       $ 64,966   

UltraShort MSCI Brazil

   $ 107,132       $ 80,219   

UltraShort FTSE China 25

   $ 2,555,995       $ 282,662   

UltraShort MSCI Japan

   $ 113,528       $ 150,974   

UltraShort MSCI Mexico Investable Market

   $ 51,338       $ 69,872   

Short 20+ Year Treasury

   $ 1,532,139       $ 164,825   

UltraShort 7-10 Year Treasury

   $ 2,825,276       $ 134,699   

UltraShort 20+ Year Treasury

   $ 33,461,662       $ 0.00   

Credit Suisse 130/30

   $ 200,642       $ 173,142   

 

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Table of Contents

Fund

   Investment Advisory Fees Paid
during the Fiscal Year

Ended May 31, 2009
     Reimbursements and
Waivers by the
Advisor during the
Fiscal Year Ended
May 31, 2009
 

Ultra Financials

   $ 14,803,443       $ 660,796   

Ultra Health Care

   $ 309,458       $ 151,296   

Ultra Industrials

   $ 107,305       $ 183,848   

Ultra Oil & Gas

   $ 4,213,221       $ 305,096   

Ultra Real Estate

   $ 1,065,299       $ 220,264   

Ultra Semiconductors

   $ 514,260       $ 153,366   

Ultra Technology

   $ 667,053       $ 206,003   

Ultra Telecommunications

   $ 67,615       $ 64,992   

Ultra Utilities

   $ 174,654       $ 137,432   

Short QQQ®

   $ 692,522       $ 190,047   

Short Dow30SM

   $ 1,548,368       $ 150,771   

Short S&P500®

   $ 4,088,840       $ 0.00   

Short MidCap400

   $ 269,348       $ 111,213   

Short SmallCap600

   $ 147,461       $ 99,413   

Short Russell2000

   $ 526,689       $ 130,679   

UltraShort QQQ®

   $ 7,966,960       $ 784,846   

UltraShort Dow30SM

   $ 4,199,894       $ 178,268   

UltraShort S&P500®

   $ 20,896,604       $ 0.00   

UltraShort MidCap400

   $ 859,432       $ 90,076   

UltraShort SmallCap600

   $ 374,625       $ 79,823   

UltraShort Russell2000

   $ 5,559,853       $ 507,230   

UltraShort Russell1000 Value

   $ 155,434       $ 104,226   

UltraShort Russell1000 Growth

   $ 183,945       $ 105,248   

UltraShort Russell MidCap Value

   $ 61,013       $ 127,107   

UltraShort Russell MidCap Growth

   $ 98,207       $ 109,565   

UltraShort Russell2000 Value

   $ 153,626       $ 105,440   

UltraShort Russell2000 Growth

   $ 194,129       $ 170,552   

Short Financials

   $ 379,396       $ 121,021   

Short Oil & Gas

   $ 61,664       $ 62,034   

UltraShort Basic Materials

   $ 1,416,180       $ 109,223   

UltraShort Consumer Goods

   $ 316,620       $ 100,209   

UltraShort Consumer Services

   $ 1,077,757       $ 117,126   

UltraShort Financials

   $ 12,429,007       $ 0.00   

UltraShort Health Care

   $ 95,887       $ 105,918   

UltraShort Industrials

   $ 570,982       $ 105,915   

UltraShort Oil & Gas

   $ 6,608,975       $ 19,222   

UltraShort Real Estate

   $ 8,613,202       $ 116,505   

UltraShort Semiconductors

   $ 258,032       $ 102,897   

UltraShort Technology

   $ 417,349       $ 101,131   

UltraShort Telecommunications

   $ 48,040       $ 83,098   

UltraShort Utilities

   $ 141,218       $ 237,276   

Short MSCI EAFE

   $ 379,512       $ 99,505   

Short MSCI Emerging Markets

   $ 346,694       $ 112,787   

UltraShort MSCI EAFE

   $ 880,933       $ 186,761   

UltraShort MSCI Emerging Markets

   $ 2,995,638       $ 501,700   

UltraShort FTSE China 25

   $ 2,559,981       $ 225,733   

UltraShort MSCI Japan

   $ 155,635       $ 181,777   

UltraShort 7-10 Year Treasury

   $ 1,505,802       $ 126,711   

UltraShort 20+ Year Treasury

   $ 11,722,122       $ 245,463   

During the fiscal year ended May 31, 2011, the Advisor recouped $14,546 from the UltraPro Short S&P500® pursuant to an Investment Advisory Agreement between the Advisor and the Trust, on behalf of the Fund. Amounts waived or reimbursed in a particular contractual period may be recouped by the Advisor within five years of the end of that contractual period to the extent that the recoupment will not cause the Fund’s expenses to exceed any expense limitation in place at that time.

Codes of Ethics

The Trust, ProShare Advisors and the Distributor each have adopted a consolidated code of ethics (the “COE”), as required by applicable law, which is designed to prevent affiliated persons of the Trust, ProShare Advisors and the

 

40


Table of Contents

Distributor from engaging in deceptive, manipulative, or fraudulent activities in connection with securities held or to be acquired by the Funds. There can be no assurance that the COE will be effective in preventing such activities. The COE permits personnel subject to it to invest in securities, including securities that may be held or purchased by a Fund. The COE is on file with the SEC and is available to the public.

DISCLOSURE OF PORTFOLIO HOLDINGS POLICY

The Trust has adopted a policy regarding the disclosure of information about each Fund’s portfolio holdings, which is reviewed on an annual basis. The Board of Trustees must approve all material amendments to this policy. A complete schedule of each Fund’s portfolio holdings as of the end of each fiscal quarter will be filed with the SEC (and publicly available) within 60 days of the end of the first and third fiscal quarters and within 70 days of the second and fourth quarters. In addition, each Fund’s portfolio holdings will be publicly disseminated each day the Funds are open for business via the Funds’ website at www.proshares.com.

The portfolio composition file (“PCF”) and the IOPV file, which contain equivalent portfolio holdings information, will be made available as frequently as daily to the Funds’ service providers to facilitate the provision of services to the Funds and to certain other entities (“Entities”) in connection with the dissemination of information necessary for transactions in Creation Units, as contemplated by exemptive orders issued by the SEC and other legal and business requirements pursuant to which the Funds create and redeem Shares. Entities are generally limited to National Securities Clearing Corporation (“NSCC”) members and subscribers to various fee-based services, including large institutional investors (“Authorized Participants”) that have been authorized by the Distributor to purchase and redeem Creation Units and other institutional market participants that provide information services. Each business day, Fund portfolio holdings information will be provided to the Distributor or other agent for dissemination through the facilities of the NSCC and/or through other fee-based services to NSCC members and/or subscribers to the fee-based services, including Authorized Participants, and to entities that publish and/or analyze such information in connection with the process of purchasing or redeeming Creation Units or trading Shares of Funds in the secondary market.

Daily access to the PCF and IOPV file is permitted (i) to certain personnel of those service providers that are involved in portfolio management and providing administrative, operational, or other support to portfolio management, including Authorized Participants, and (ii) to other personnel of the Advisor and the Funds’ distributor, administrator, custodian and fund accountant who are involved in functions which may require such information to conduct business in the ordinary course. Portfolio holdings information may not be provided prior to its public availability (“Non-Standard Disclosure”) in other circumstances except where appropriate confidentiality arrangements limiting the use of such information are in effect. Non-Standard Disclosure may be authorized by the Trust’s CCO or, in his absence, any other authorized officer of the Trust if he determines that such disclosure is in the best interests of the Fund’s shareholders, no conflict exists between the interests of the Fund’s shareholders and those of the Advisor or Distributor and such disclosure serves a legitimate business purpose. The length of lag, if any, between the date of the information and the date on which the information is disclosed shall be determined by the officer authorizing the disclosure.

 

41


Table of Contents

OTHER SERVICE PROVIDERS

Administrator, Index Receipt Agent, and Fund Accounting Agent

J.P. Morgan Investor Services Co., One Beacon Street, 19th Floor, Boston, MA 02108, acts as Administrator to the Funds pursuant to an administration agreement dated June 16, 2006, as amended from time to time. The Administrator provides the Funds with all required general administrative services, including, without limitation, office space, equipment, and personnel; clerical and general back office services; bookkeeping, internal accounting, and secretarial services; the determination of NAVs; and the preparation and filing of all reports, registration statements, proxy statements, and all other materials required to be filed or furnished by the Funds under federal and state securities laws. The Administrator pays all fees and expenses that are directly related to the services provided by the Administrator to the Funds; each Fund reimburses the Administrator for all fees and expenses incurred by the Administrator which are not directly related to the services the Administrator provides to the Funds under the service agreement. Each Fund may also reimburse the Administrator for such out-of-pocket expenses as incurred by the Administrator in the performance of its duties. Because the New Funds were not operational at the end of the Trust’s last fiscal year, information on fees paid to the New Funds’ service provider is not included in this SAI. For these services, each Fund that was operational for the period indicated paid the Administrator the amounts set forth below.

 

Fund

   Fees Paid during the Fiscal Year
Ended May 31, 2011
 

Ultra QQQ®

   $ 253,291   

Ultra Dow30SM

   $ 184,701   

Ultra S&P500®

   $ 287,477   

Ultra Russell3000

   $ 105,210   

Ultra MidCap400

   $ 134,368   

Ultra SmallCap600

   $ 103,147   

Ultra Russell2000

   $ 175,170   

UltraPro QQQ®

   $ 126,822   

UltraPro Dow30SM

   $ 53,858   

UltraPro S&P500®

   $ 164,947   

UltraPro MidCap400

   $ 68,482   

UltraPro Russell2000

   $ 89,561   

Ultra Russell1000 Value

   $ 103,421   

Ultra Russell1000 Growth

   $ 103,216   

Ultra Russell MidCap Value

   $ 102,938   

Ultra Russell MidCap Growth

   $ 102,731   

Ultra Russell2000 Value

   $ 105,869   

Ultra Russell2000 Growth

   $ 105,720   

Ultra Basic Materials

   $ 187,550   

Ultra Nasdaq Biotechnology

   $ 24,812   

Ultra Consumer Goods

   $ 101,344   

Ultra Consumer Services

   $ 101,623   

Ultra Financials

   $ 279,237   

Ultra Health Care

   $ 101,388   

Ultra Industrials

   $ 101,807   

Ultra Oil & Gas

   $ 198,960   

Ultra Real Estate

   $ 222,643   

Ultra KBW Regional Banking

   $ 23,727   

Ultra Semiconductors

   $ 111,613   

Ultra Technology

   $ 137,196   

Ultra Telecommunications

   $ 101,013   

Ultra Utilities

   $ 101,181   

Ultra MSCI EAFE

   $ 100,626   

Ultra MSCI Emerging Markets

   $ 101,102   

Ultra MSCI Europe

   $ 15,509   

Ultra MSCI Pacific ex-Japan

   $ 15,109   

 

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Table of Contents

Fund

   Fees Paid during the Fiscal Year
Ended May 31, 2011
 

Ultra MSCI Brazil

   $ 27,589   

Ultra FTSE China 25

   $ 101,131   

Ultra MSCI Japan

   $ 100,719   

Ultra Mexico Investable Market

   $ 13,287   

Ultra 7-10 Year Treasury

   $ 55,343   

Ultra 20+ Year Treasury

   $ 57,556   

Ultra High Yield

   $ 1,074   

Ultra Investment Grade Corporate

   $ 1,100   

Short QQQ®

   $ 129,486   

Short Dow30SM

   $ 137,213   

Short S&P500®

   $ 256,460   

Short MidCap400

   $ 80,907   

Short SmallCap600

   $ 80,900   

Short Russell2000

   $ 146,164   

UltraShort QQQ®

   $ 211,737   

UltraShort Dow30SM

   $ 169,658   

UltraShort S&P500®

   $ 278,327   

UltraShort Russell3000

   $ 74,903   

UltraShort MidCap400

   $ 80,899   

UltraShort SmallCap600

   $ 80,898   

UltraShort Russell2000

   $ 169,274   

UltraPro Short QQQ®

   $ 76,407   

UltraPro Short Dow30SM

   $ 54,732   

UltraPro Short S&P500®

   $ 150,054   

UltraPro Short MidCap400

   $ 28,528   

UltraPro Short Russell2000

   $ 56,087   

UltraShort Russell1000 Value

   $ 80,896   

UltraShort Russell1000 Growth

   $ 80,896   

UltraShort Russell MidCap Value

   $ 80,896   

UltraShort Russell MidCap Growth

   $ 80,896   

UltraShort Russell2000 Value

   $ 80,898   

UltraShort Russell2000 Growth

   $ 80,902   

Short Basic Materials

   $ 22,129   

Short Financials

   $ 97,740   

Short Oil & Gas

   $ 80,900   

Short Real Estate

   $ 42,741   

Short KBW Regional Banking

   $ 44,770   

UltraShort Basic Materials

   $ 94,471   

UltraShort Nasdaq Biotechnology

   $ 18,531   

UltraShort Consumer Goods

   $ 80,894   

UltraShort Consumer Services

   $ 80,890   

UltraShort Financials

   $ 170,481   

UltraShort Health Care

   $ 80,896   

UltraShort Industrials

   $ 80,890   

UltraShort Oil & Gas

   $ 97,535   

UltraShort Real Estate

   $ 143,864   

UltraShort Semiconductors

   $ 80,900   

UltraShort Technology

   $ 80,901   

UltraShort Telecommunications

   $ 80,897   

UltraShort Utilities

   $ 80,895   

Short MSCI EAFE

   $ 99,508   

Short MSCI Emerging Markets

   $ 129,423   

 

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Table of Contents

Fund

   Fees Paid during the Fiscal Year
Ended May 31, 2011
 

Short FTSE China 25

   $ 25,306   

UltraShort MSCI EAFE

   $ 80,911   

UltraShort MSCI Emerging Markets

   $ 106,585   

UltraShort MSCI Europe

   $ 82,613   

UltraShort MSCI Pacific ex-Japan

   $ 77,876   

UltraShort MSCI Brazil

   $ 81,022   

UltraShort FTSE China 25

   $ 129,620   

UltraShort MSCI Japan

   $ 80,902   

UltraShort MSCI Mexico Investable Market

   $ 77,972   

Short 20+ Year Treasury

   $ 203,136   

Short High Yield

   $ 1,788   

Short Investment Grade Corporate

   $ 1,113   

Short 7-10 Year Treasury

   $ 1,428   

UltraShort 3-7 Year Treasury

   $ 985   

UltraShort 7-10 Year Treasury

   $ 166,484   

UltraShort 20+ Year Treasury

   $ 341,730   

UltraShort TIPS

   $ 1,805   

Credit Suisse 130/30

   $ 111,044   

RAFI® Long/Short

   $ 9,925   

 

Fund

   Fees Paid during the Fiscal Year
Ended May 31, 2010
 

Ultra QQQ®

   $ 263,207   

Ultra Dow30SM

   $ 208,871   

Ultra S&P500®

   $ 295,386   

Ultra Russell3000

   $ 22,968   

Ultra MidCap400

   $ 138,560   

Ultra SmallCap600

   $ 107,412   

Ultra Russell2000

   $ 174,738   

UltraPro QQQ®

   $ 19,412   

UltraPro Dow30SM

   $ 8,857   

UltraPro S&P500®

   $ 104,946   

UltraPro MidCap400

   $ 13,551   

UltraPro Russell2000

   $ 10,941   

Ultra Russell1000 Value

   $ 104,194   

Ultra Russell1000 Growth

   $ 104,046   

Ultra Russell MidCap Value

   $ 103,569   

Ultra Russell MidCap Growth

   $ 103,327   

Ultra Russell2000 Value

   $ 107,778   

Ultra Russell2000 Growth

   $ 107,202   

Ultra Basic Materials

   $ 205,107   

Ultra Nasdaq Biotechnology

   $ 1,802   

Ultra Consumer Goods

   $ 101,428   

Ultra Consumer Services

   $ 101,768   

Ultra Financials

   $ 301,254   

Ultra Health Care

   $ 101,468   

Ultra Industrials

   $ 102,114   

Ultra Oil & Gas

   $ 215,774   

Ultra Real Estate

   $ 230,484   

Ultra KBW Regional Banking

   $ 1,549   

Ultra Semiconductors

   $ 121,181   

 

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Table of Contents

Fund

   Fees Paid during the Fiscal Year
Ended May 31, 2010
 

Ultra Technology

   $ 141,354   

Ultra Telecommunications

   $ 101,385   

Ultra Utilities

   $ 101,135   

Ultra MSCI EAFE

   $ 19,692   

Ultra MSCI Emerging Markets

   $ 45,904   

Ultra MSCI Europe

   $ 653   

Ultra MSCI Pacific ex-Japan

   $ 622   

Ultra MSCI Brazil

   $ 667   

Ultra FTSE China 25

   $ 62,292   

Ultra MSCI Japan

   $ 18,845   

Ultra Mexico Investable Market

   $ 659   

Ultra 7-10 Year Treasury

   $ 9,543   

Ultra 20+ Year Treasury

   $ 10,366   

Short QQQ®

   $ 117,741   

Short Dow30SM

   $ 135,702   

Short S&P500®

   $ 249,812   

Short MidCap400

   $ 80,775   

Short SmallCap600

   $ 80,776   

Short Russell2000

   $ 113,106   

UltraShort QQQ®

   $ 225,291   

UltraShort Dow30SM

   $ 192,536   

UltraShort S&P500®

   $ 300,331   

UltraShort Russell3000

   $ 5,208   

UltraShort MidCap400

   $ 80,777   

UltraShort SmallCap600

   $ 80,746   

UltraShort Russell2000

   $ 177,115   

UltraPro Short QQQ®

   $ 6,970   

UltraPro Short Dow30SM

   $ 4,841   

UltraPro Short S&P500®

   $ 99,494   

UltraPro Short MidCap400

   $ 3,247   

UltraPro Short Russell2000

   $ 4,850   

UltraShort Russell1000 Value

   $ 80,717   

UltraShort Russell1000 Growth

   $ 80,719   

UltraShort Russell MidCap Value

   $ 80,713   

UltraShort Russell MidCap Growth

   $ 80,717   

UltraShort Russell2000Value

   $ 80,726   

UltraShort Russell2000 Growth

   $ 80,724   

Short Basic Materials

   $ 1,889   

Short Financials

   $ 100,077   

Short Oil & Gas

   $ 79,231   

Short Real Estate

   $ 1,806   

Short KBW Regional Banking

   $ 1,877   

UltraShort Basic Materials

   $ 102,218   

UltraShort Nasdaq Biotechnology

   $ 1,761   

UltraShort Consumer Goods

   $ 80,732   

UltraShort Consumer Services

   $ 80,763   

UltraShort Financials

   $ 215,047   

UltraShort Health Care

   $ 80,718   

UltraShort Industrials

   $ 80,732   

UltraShort Oil & Gas

   $ 135,577   

UltraShort Real Estate

   $ 213,396   

UltraShort Semiconductors

   $ 80,758   

 

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Fund

   Fees Paid during the Fiscal Year
Ended May 31, 2010
 

UltraShort Technology

   $ 80,733   

UltraShort Telecommunications

   $ 81,209   

UltraShort Utilities

   $ 80,720   

Short MSCI EAFE

   $ 82,361   

Short MSCI Emerging Markets

   $ 124,594   

Short FTSE China 25

   $ 2,019   

UltraShort MSCI EAFE

   $ 80,736   

UltraShort MSCI Emerging Markets

   $ 122,834   

UltraShort MSCI Europe

   $ 29,181   

UltraShort MSCI Pacific ex-Japan

   $ 5,080   

UltraShort MSCI Brazil

   $ 22,882   

UltraShort FTSE China 25

   $ 151,479   

UltraShort MSCI Japan

   $ 80,729   

UltraShort MSCI Mexico Investable Market

   $ 10,982   

Short 20+ Year Treasury

   $ 97,527   

UltraShort 7-10 Year Treasury

   $ 159,680   

UltraShort 20+ Year Treasury

   $ 327,877   

Credit Suisse 130/30

   $ 53,012   

 

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Fund

   Fees Paid during  the
Fiscal Year Ended
May 31, 2009
 

Ultra QQQ®

   $ 276,814   

Ultra Dow30SM

   $ 233,934   

Ultra S&P500®

   $ 309,908   

Ultra MidCap400

   $ 134,948   

Ultra SmallCap600

   $ 106,626   

Ultra Russell2000

   $ 180,322   

Ultra Russell1000 Value

   $ 106,996   

Ultra Russell1000 Growth

   $ 107,061   

Ultra Russell MidCap Value

   $ 106,093   

Ultra Russell MidCap Growth

   $ 106,041   

Ultra Russell2000 Value

   $ 111,231   

Ultra Russell2000 Growth

   $ 110,695   

Ultra Basic Materials

   $ 146,535   

Ultra Consumer Goods

   $ 103,420   

Ultra Consumer Services

   $ 103,938   

Ultra Financials

   $ 300,422   

Ultra Health Care

   $ 103,424   

Ultra Industrials

   $ 104,251   

Ultra Oil & Gas

   $ 214,351   

Ultra Real Estate

   $ 135,731   

Ultra Semiconductors

   $ 111,328   

Ultra Technology

   $ 122,202   

Ultra Telecommunications

   $ 32,652   

Ultra Utilities

   $ 102,926   

Short QQQ®

   $ 94,167   

Short Dow30SM

   $ 123,390   

Short S&P500®

   $ 181,439   

Short MidCap400

   $ 81,753   

Short SmallCap600

   $ 82,379   

Short Russell2000

   $ 87,464   

UltraShort QQQ®

   $ 222,969   

UltraShort Dow30SM

   $ 187,995   

UltraShort S&P500®

   $ 276,868   

UltraShort MidCap400

   $ 98,082   

UltraShort SmallCap600

   $ 82,300   

UltraShort Russell2000

   $ 200,039   

UltraShort Russell1000 Value

   $ 82,397   

UltraShort Russell1000 Growth

   $ 82,398   

UltraShort Russell MidCap Value

   $ 82,382   

UltraShort Russell MidCap Growth

   $ 82,375   

UltraShort Russell2000 Value

   $ 82,359   

UltraShort Russell2000 Growth

   $ 82,337   

Short Financials

   $ 60,282   

Short Oil & Gas

   $ 13,167   

UltraShort Basic Materials

   $ 117,144   

UltraShort Consumer Goods

   $ 82,405   

UltraShort Consumer Services

   $ 107,972   

UltraShort Financials

   $ 242,807   

UltraShort Health Care

   $ 82,352   

UltraShort Industrials

   $ 82,443   

UltraShort Oil & Gas

   $ 189,218   

UltraShort Real Estate

   $ 235,783   

UltraShort Semiconductors

   $ 82,389   

UltraShort Technology

   $ 82,390   

UltraShort Telecommunications

   $ 24,171   

UltraShort Utilities

   $ 82,366   

Short MSCI EAFE

   $ 71,036   

Short MSCI Emerging Markets

   $ 81,180   

UltraShort MSCI EAFE

   $ 100,173   

UltraShort MSCI Emerging Markets

   $ 161,181   

UltraShort FTSE China 25

   $ 147,758   

UltraShort MSCI Japan

   $ 66,732   

UltraShort 7-10 Year Treasury

   $ 116,887   

UltraShort 20+ Year Treasury

   $ 212,623   

 

 

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ProShare Advisors, pursuant to a separate Management Services Agreement, performs certain administrative services on behalf of the Funds, such as negotiating, coordinating and implementing the Trust’s contractual obligations with the Funds’ service providers; monitoring, overseeing and reviewing the performance of such service providers to ensure adherence to applicable contractual obligations and preparing or coordinating reports and presentations to the Board of Trustees with respect to such service providers as requested or as deemed necessary. For these services, the Trust pays to ProShare Advisors a fee at the annual rate of 0.10% of average daily net assets for all of the Funds. For the three most recent fiscal years, each Fund that was operational for the period indicated paid ProShare Advisors the amount set forth below pursuant to the Management Services Agreement.

Because the New Funds were not operational at the end of the Trust’s last fiscal year, information on fees paid pursuant to the Management Services Agreement by the New Funds is not included in this SAI.

 

Fund

   Fees Paid during the Fiscal Year
Ended May 31, 2011
 

Ultra QQQ®

   $ 818,099   

Ultra Dow30SM

   $ 318,368   

Ultra S&P500®

   $ 1,574,271   

Ultra Russell3000

   $ 7,229   

Ultra MidCap400

   $ 124,801   

Ultra SmallCap600

   $ 45,537   

Ultra Russell2000

   $ 242,341   

UltraPro QQQ®

   $ 114,345   

UltraPro Dow30SM

   $ 23,951   

UltraPro S&P500®

   $ 226,252   

UltraPro MidCap400

   $ 30,848   

UltraPro Russell2000

   $ 45,178   

Ultra Russell1000 Value

   $ 13,462   

Ultra Russell1000 Growth

   $ 14,849   

Ultra Russell MidCap Value

   $ 8,726   

Ultra Russell MidCap Growth

   $ 13,478   

Ultra Russell2000 Value

   $ 20,280   

Ultra Russell2000 Growth

   $ 25,668   

Ultra Basic Materials

   $ 331,814   

Ultra Nasdaq Biotechnology

   $ 6,656   

Ultra Consumer Goods

   $ 19,811   

Ultra Consumer Services

   $ 14,222   

Ultra Financials

   $ 1,298,045   

Ultra Health Care

   $ 43,948   

Ultra Industrials

   $ 41,784   

Ultra Oil & Gas

   $ 389,022   

Ultra Real Estate

   $ 517,251   

Ultra KBW Regional Banking

   $ 6,766   

Ultra Semiconductors

   $ 71,021   

Ultra Technology

   $ 135,790   

Ultra Telecommunications

   $ 7,322   

Ultra Utilities

   $ 19,934   

Ultra MSCI EAFE

   $ 9,201   

Ultra MSCI Emerging Markets

   $ 37,099   

Ultra MSCI Europe

   $ 3,556   

Ultra MSCI Pacific ex-Japan

   $ 3,341   

Ultra MSCI Brazil

   $ 10,607   

Ultra FTSE China 25

   $ 44,666   

Ultra MSCI Japan

   $ 18,649   

 

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Table of Contents

Fund

   Fees Paid during the Fiscal Year
Ended May 31, 2011
 

Ultra Mexico Investable Market

   $ 2,248   

Ultra 7-10 Year Treasury

   $ 12,575   

Ultra 20+ Year Treasury

   $ 18,850   

Ultra High Yield

   $ 532   

Ultra Investment Grade Corporate

   $ 545   

Short QQQ®

   $ 234,420   

Short Dow30SM

   $ 270,456   

Short S&P500®

   $ 1,874,229   

Short MidCap400

   $ 31,777   

Short SmallCap600

   $ 38,380   

Short Russell2000

   $ 312,904   

UltraShort QQQ®

   $ 782,265   

UltraShort Dow30SM

   $ 437,400   

UltraShort S&P500®

   $ 2,748,606   

UltraShort Russell3000

   $ 2,006   

UltraShort MidCap400

   $ 31,632   

UltraShort SmallCap600

   $ 18,458   

UltraShort Russell2000

   $ 436,266   

UltraPro Short QQQ®

   $ 56,856   

UltraPro Short Dow30SM

   $ 28,399   

UltraPro Short S&P500®

   $ 330,761   

UltraPro Short MidCap400

   $ 4,280   

UltraPro Short Russell2000

   $ 32,727   

UltraShort Russell1000 Value

   $ 4,893   

UltraShort Russell1000 Growth

   $ 6,791   

UltraShort Russell MidCap Value

   $ 3,660   

UltraShort Russell MidCap Growth

   $ 4,762   

UltraShort Russell2000 Value

   $ 9,524   

UltraShort Russell2000 Growth

   $ 12,266   

Short Basic Materials

   $ 4,325   

Short Financials

   $ 107,927   

Short Oil & Gas

   $ 11,470   

Short Real Estate

   $ 19,443   

Short KBW Regional Banking

   $ 25,038   

UltraShort Basic Materials

   $ 96,547   

UltraShort Nasdaq Biotechnology

   $ 4,246   

UltraShort Consumer Goods

   $ 10,445   

UltraShort Consumer Services

   $ 27,350   

UltraShort Financials

   $ 452,296   

UltraShort Health Care

   $ 4,594   

UltraShort Industrials

   $ 10,436   

UltraShort Oil & Gas

   $ 108,288   

UltraShort Real Estate

   $ 307,424   

UltraShort Semiconductors

   $ 25,566   

UltraShort Technology

   $ 20,085   

UltraShort Telecommunications

   $ 2,081   

UltraShort Utilities

   $ 5,625   

Short MSCI EAFE

   $ 114,600   

Short MSCI Emerging Markets

   $ 234,697   

Short FTSE China 25

   $ 7,655   

UltraShort MSCI EAFE

   $ 23,980   

UltraShort MSCI Emerging Markets

   $ 142,689   

 

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Table of Contents

Fund

   Fees Paid during the Fiscal Year
Ended May 31, 2011
 

UltraShort MSCI Europe

   $ 66,374   

UltraShort MSCI Pacific ex-Japan

   $ 3,214   

UltraShort MSCI Brazil

   $ 26,600   

UltraShort FTSE China 25

   $ 238,384   

UltraShort MSCI Japan

   $ 22,059   

UltraShort MSCI Mexico Investable Market

   $ 3,545   

Short 20+ Year Treasury

   $ 705,558   

Short High Yield

   $ 1,111   

Short Investment Grade Corporate

   $ 689   

Short 7-10 Year Treasury

   $ 886   

UltraShort 3-7 Year Treasury

   $ 609   

UltraShort 7-10 Year Treasury

   $ 414,559   

UltraShort 20+ Year Treasury

   $ 5,241,442   

UltraShort TIPS

   $ 1,122   

Credit Suisse 130/30

   $ 69,551   

RAFI® Long/Short

   $ 4,953   

 

Fund

   Fees Paid
during the
Fiscal Year May 31,
2010
 

Ultra QQQ®

   $ 915,461   

Ultra Dow30SM

   $ 443,658   

Ultra S&P500®

   $ 1,791,238   

Ultra Russell3000

   $ 5,984   

Ultra MidCap400

   $ 135,102   

Ultra SmallCap600

   $ 58,033   

Ultra Russell2000

   $ 232,231   

UltraPro QQQ®

   $ 9,456   

UltraPro Dow30SM

   $ 4,178   

UltraPro S&P500®

   $ 82,010   

UltraPro MidCap400

   $ 6,526   

UltraPro Russell2000

   $ 5,220   

Ultra Russell1000 Value

   $ 20,110   

Ultra Russell1000 Growth

   $ 28,530   

Ultra Russell MidCap Value

   $ 19,907   

Ultra Russell MidCap Growth

   $ 18,992   

Ultra Russell2000 Value

   $ 21,971   

Ultra Russell2000 Growth

   $ 27,340   

Ultra Basic Materials

   $ 417,092   

Ultra Nasdaq Biotechnology

   $ 801   

Ultra Consumer Goods

   $ 28,216   

Ultra Consumer Services

   $ 15,800   

Ultra Financials

   $ 2,035,445   

Ultra Health Care

   $ 43,250   

Ultra Industrials

   $ 40,578   

Ultra KBW Regional Banking

   $ 699   

Ultra Oil & Gas

   $ 492,970   

Ultra Real Estate

   $ 589,681   

Ultra Semiconductors

   $ 91,071   

Ultra Technology

   $ 148,166   

Ultra Telecommunications

   $ 12,736   

Ultra Utilities

   $ 26,582   

 

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Fund

   Fees Paid
during  the
Fiscal Year May 31,
2011
 

Ultra MSCI EAFE

   $ 9,596   

Ultra MSCI Emerging Markets

   $ 22,252   

Ultra MSCI Europe

   $ 251   

Ultra MSCI Pacific ex-Japan

   $ 236   

Ultra MSCI Brazil

   $ 258   

Ultra FTSE China 25

   $ 31,133   

Ultra MSCI Japan

   $ 9,407   

Ultra Mexico Investable Market

   $ 254   

Ultra 7-10 Year Treasury

   $ 4,521   

Ultra 20+ Year Treasury

   $ 4,933   

Short QQQ®

   $ 186,890   

Short Dow30SM

   $ 260,822   

Short S&P500®

   $ 1,549,517   

Short MidCap400

   $ 40,204   

Short SmallCap600

   $ 36,340   

Short Russell2000

   $ 168,861   

UltraShort QQQ®

   $ 970,308   

UltraShort Dow30SM

   $ 584,212   

UltraShort S&P500®

   $ 3,453,493   

UltraShort Russell3000

   $ 3,242   

UltraShort MidCap400

   $ 49,572   

UltraShort SmallCap600

   $ 24,712   

UltraShort Russell2000

   $ 475,606   

UltraPro Short QQQ®

   $ 4,044   

UltraPro Short Dow30SM

   $ 2,713   

UltraPro Short S&P500®

   $ 144,828   

UltraPro Short MidCap400

   $ 1,717   

UltraPro Short Russell2000

   $ 2,719   

UltraShort Russell1000 Value

   $ 10,636   

UltraShort Russell1000 Growth

   $ 11,380   

UltraShort Russell MidCap Value

   $ 4,233   

UltraShort Russell MidCap Growth

   $ 7,085   

UltraShort Russell2000 Value

   $ 11,797   

UltraShort Russell2000 Growth

   $ 12,717   

Short Basic Materials

   $ 1,055   

Short Financials

   $ 115,041   

Short Oil & Gas

   $ 12,707   

Short Real Estate

   $ 1,004   

Short KBW Regional Banking

   $ 1,079   

UltraShort Basic Materials

   $ 125,606   

UltraShort Nasdaq Biotechnology

   $ 976   

UltraShort Consumer Goods

   $ 20,129   

UltraShort Consumer Services

   $ 53,608   

UltraShort Financials

   $ 825,265   

UltraShort Health Care

   $ 7,041   

UltraShort Industrials

   $ 23,372   

UltraShort Oil & Gas

   $ 265,699   

UltraShort Real Estate

   $ 825,624   

UltraShort Semiconductors

   $ 29,805   

UltraShort Technology

   $ 25,759   

UltraShort Telecommunications

   $ 1,810   

 

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Fund

   Fees Paid
during  the
Fiscal Year May 31,
2010
 

UltraShort Utilities

   $ 8,633   

Short MSCI EAFE

   $ 61,549   

Short MSCI Emerging Markets

   $ 215,243   

Short FTSE China 25

   $ 1,137   

UltraShort MSCI EAFE

   $ 36,008   

UltraShort MSCI Emerging Markets

   $ 208,288   

UltraShort MSCI Europe

   $ 24,354   

UltraShort MSCI Pacific ex-Japan

   $ 3,162   

UltraShort MSCI Brazil

   $ 14,284   

UltraShort FTSE China 25

   $ 340,797   

UltraShort MSCI Japan

   $ 15,137   

UltraShort MSCI Mexico Investable Market

   $ 6,845   

Short 20+ Year Treasury

   $ 204,284   

UltraShort 7-10 Year Treasury

   $ 376,701   

UltraShort 20+ Year Treasury

   $ 4,461,523   

Credit Suisse 130/30

   $ 26,752   

 

Fund

   Fees Paid during  the
Fiscal Year Ended
May 31, 2009
 

Ultra QQQ®

   $ 1,211,622   

Ultra Dow30SM

   $ 635,842   

Ultra S&P500®

   $ 2,355,875   

Ultra MidCap400

   $ 119,983   

Ultra SmallCap600

   $ 38,043   

Ultra Russell2000

   $ 240,435   

Ultra Russell1000 Value

   $ 13,555   

Ultra Russell1000 Growth

   $ 23,560   

Ultra Russell MidCap Value

   $ 7,522   

Ultra Russell MidCap Growth

   $ 12,058   

Ultra Russell2000 Value

   $ 15,139   

Ultra Russell2000 Growth

   $ 16,256   

Ultra Basic Materials

   $ 218,956   

Ultra Consumer Goods

   $ 11,389   

Ultra Consumer Services

   $ 7,217   

Ultra Financials

   $ 1,973,770   

Ultra Health Care

   $ 41,260   

Ultra Industrials

   $ 14,307   

Ultra Oil & Gas

   $ 561,757   

Ultra Real Estate

   $ 142,039   

Ultra Semiconductors

   $ 68,567   

Ultra Technology

   $ 88,940   

Ultra Telecommunications

   $ 9,015   

Ultra Utilities

   $ 23,287   

Short QQQ®

   $ 92,335   

Short Dow30 SM

   $ 206,447   

Short S&P500®

   $ 545,173   

Short MidCap400

   $ 35,913   

Short SmallCap600

   $ 19,661   

Short Russell2000

   $ 70,224   

UltraShort QQQ®

   $ 1,062,248   

UltraShort Dow30SM

   $ 559,979   

UltraShort S&P500®

   $ 2,786,182   

UltraShort MidCap400

   $ 114,589   

UltraShort SmallCap600

   $ 49,949   

UltraShort Russell2000

   $ 741,304   

UltraShort Russell1000 Value

   $ 20,724   

UltraShort Russell1000 Growth

   $ 24,525   

UltraShort Russell MidCap Value

   $ 8,135   

 

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Fund

   Fees Paid during  the
Fiscal Year Ended
May 31, 2009
 

UltraShort Russell MidCap Growth

   $ 13,094   

UltraShort Russell2000 Value

   $ 20,483   

UltraShort Russell2000 Growth

   $ 25,884   

Short Financials

   $ 50,586   

Short Oil & Gas

   $ 8,222   

UltraShort Basic Materials

   $ 188,822   

UltraShort Consumer Goods

   $ 42,216   

UltraShort Consumer Services

   $ 143,699   

UltraShort Financials

   $ 1,657,180   

UltraShort Health Care

   $ 12,785   

UltraShort Industrials

   $ 76,130   

UltraShort Oil & Gas

   $ 881,184   

UltraShort Real Estate

   $ 1,148,414   

UltraShort Semiconductors

   $ 34,404   

UltraShort Technology

   $ 55,646   

UltraShort Telecommunications

   $ 6,406   

UltraShort Utilities

   $ 18,829   

Short MSCI EAFE

   $ 50,601   

Short MSCI Emerging Markets

   $ 46,225   

UltraShort MSCI EAFE

   $ 117,456   

UltraShort MSCI Emerging Markets

   $ 399,413   

UltraShort FTSE China 25

   $ 341,326   

UltraShort MSCI Japan

   $ 20,751   

UltraShort 7-10 Year Treasury

   $ 200,772   

UltraShort 20+ Year Treasury

   $ 1,562,936   

Custodian

JPMorgan Chase Bank, N.A. acts as custodian to the Funds. JPMorgan Chase Bank is located at 4 MetroTech Center, Brooklyn, NY 11245.

The custodian is responsible for safeguarding the Fund’s cash and securities, receiving and delivering securities, collecting the Funds’ interest and dividends, and performing certain administrative duties, all as directed by authorized persons. The custodian is also responsible for the appointment and oversight of any subcustodian banks and for providing reports regarding such subcustodian banks and clearing agencies.

Independent Registered Public Accounting Firm

PricewaterhouseCoopers LLP (“PwC”) serves as independent registered public accounting firm to the Fund. PwC provides audit services, tax return preparation and assistance, and consultation in connection with certain SEC filings. PwC’s address is 41 South High Street, Suite 2500, Columbus, OH 43215.

Legal Counsel

Ropes & Gray LLP, Prudential Tower, 800 Boylston Street, Boston, MA 02199-3600, serves as counsel to the Funds.

Distributor

SEI Investments Distribution Co. serves as the distributor and principal underwriter in all fifty states and the District of Columbia. Its address is One Freedom Valley Drive, Oaks, PA 19456. The Distributor has no role in determining the investment policies of the Trust or any of the Funds, or which securities are to be purchased or sold by the Trust or any of the Funds. For the fiscal years ended May 31, 2009, May 31, 2010 and May 31, 2011, ProShare Advisors paid $1,358,368, $1,188,117 and $1,450,000, respectively, to the Distributor as compensation for services.

Principal Financial Officer/Treasurer Services

The Trust has entered into an agreement with Foreside Management Services, LLC (“Foreside”), pursuant to which Foreside provides the Trust with the services of an individual to serve as the Trust’s Principal Financial Officer and Treasurer. Neither Foreside nor the Treasurer have a role in determining the investment policies of the Trust or Funds, or which securities are to be purchased or sold by the Trust or a Fund. The Trust pays Foreside an annual flat fee of

 

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$100,000 per year and an additional annual flat fee of $3,500 per Fund, and will reimburse Foreside for certain out-of-pocket expenses incurred by Foreside in providing services to the Trust. Foreside is located at Three Canal Plaza, Suite 100, Portland, ME 04101. For the fiscal years ended May 31, 2009, May 31, 2010 and May 31, 2011, the Trust paid $353,560, $378,951, and $453,658, respectively, to Foreside for services pursuant to its agreement.

Distribution and Service Plan

Shares will be continuously offered for sale by the Trust through the Distributor only in Creation Units, as described below under “Purchase and Issuance of Creation Units.” Shares in less than Creation Units are not distributed by the Distributor. The Distributor also acts as agent for the Trust. The Distributor will deliver a Prospectus to persons purchasing Shares in Creation Units and will maintain records of both orders placed with it and confirmations of acceptance furnished by it. The Distributor is a broker-dealer registered under the 1934 Act and a member of the Financial Industry Regulatory Authority, Inc. The Distributor has no role in determining the investment policies of the Funds or which securities are to be purchased or sold by the Funds.

The Board has approved a Distribution and Service Plan under which each Fund may pay financial intermediaries such as broker-dealers and investment advisors (“Authorized Firms”) up to 0.25%, on an annualized basis, of average daily net assets of the Fund as reimbursement or compensation for distribution-related activities with respect to the Shares of the Fund and shareholder services. Under the Distribution and Service Plan, the Trust or the Distributor may enter into agreements (“Distribution and Service Agreements”) with Authorized Firms that purchase Shares on behalf of their clients.

The Distribution and Service Plan and Distribution and Service Agreements will remain in effect for a period of one year and will continue in effect thereafter only if such continuance is specifically approved annually by a vote of the Trustees. All material amendments of the Distribution and Service Plan must also be approved by the Board. The Distribution and Service Plan may be terminated at any time by a majority of the Board or by a vote of a majority of the outstanding Shares, as defined under the 1940 Act, of the affected Fund. The Distribution and Service Agreements may be terminated at any time, without payment of any penalty, by vote of a majority of the Trustees or by a vote of a majority of the outstanding Shares, as defined under the 1940 Act, of the affected Fund on not less than 60 days’ written notice to any other party to the Distribution and Service Agreements. The Distribution and Service Agreements shall terminate automatically if assigned. The Board has determined that, in its judgment, there is a reasonable likelihood that the Distribution and Service Plan will benefit the Funds and holders of Shares of the Funds. In the Board’s quarterly review of the Distribution and Service Plan and Distribution and Service Agreements, the Trustees will consider their continued appropriateness and the level of compensation and/or reimbursement provided therein.

The Distribution and Service Plan is intended to permit the financing of a broad array of distribution-related activities and services, as well as shareholder services, for the benefit of investors. These activities and services are intended to make the Shares an attractive investment alternative, which may lead to increased assets, increased investment opportunities and diversification, and reduced per share operating expenses. There are currently no plans to impose distribution fees.

COSTS AND EXPENSES

Each Fund bears all expenses of its operations other than those assumed by ProShare Advisors or the Administrator. Fund expenses include: the investment advisory fee; management services fee; administrative fees, index receipt agent fees, principal financial officer/treasurer services fees; compliance service fees, anti-money laundering administration fees; custodian and accounting fees and expenses, legal and auditing fees; securities valuation expenses; fidelity bonds and other insurance premiums; expenses of preparing and printing prospectuses, proxy statements, and shareholder reports and notices; registration fees and expenses; proxy and annual meeting expenses, if any; licensing fees; listing fees; all federal, state, and local taxes (including, without limitation, stamp, excise, income, and franchise taxes); organizational costs; and Independent Trustees’ fees and expenses.

ADDITIONAL INFORMATION CONCERNING SHARES

Organization and Description of Shares of Beneficial Interest

The Trust is a Delaware statutory trust and registered investment company. The Trust was organized on May 29, 2002, and has authorized capital of unlimited Shares of beneficial interest of no par value which may be issued in more than one class or series. Currently, the Trust consists of multiple separately managed series. The Board of Trustees may designate additional series of beneficial interest and classify Shares of a particular series into one or more classes of that series.

All Shares of the Trust are freely transferable. The Shares do not have preemptive rights or cumulative voting rights, and none of the Shares have any preference to conversion, exchange, dividends, retirements, liquidation, redemption or any other feature. Shares have equal voting rights, except that, in a matter affecting a particular series or class of Shares,

 

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only Shares of that series or class may be entitled to vote on the matter. Trust shareholders are entitled to require the Trust to redeem Creation Units of their Shares. The Declaration of Trust confers upon the Board of Trustees the power, by resolution, to alter the number of Shares constituting a Creation Unit or to specify that Shares may be individually redeemable. The Trust reserves the right to adjust the stock prices of Shares to maintain convenient trading ranges for investors. Any such adjustments would be accomplished through stock splits or reverse stock splits which would have no effect on the net assets of the applicable Fund.

Under Delaware law, the Trust is not required to hold an annual shareholders meeting if the 1940 Act does not require such a meeting. Generally, there will not be annual meetings of Trust shareholders. Trust shareholders may remove Trustees from office by votes cast at a meeting of Trust shareholders or by written consent. If requested by shareholders of at least 10% of the outstanding Shares of the Trust, the Trust will call a meeting of Funds’ shareholders for the purpose of voting upon the question of removal of a Trustee of the Trust and will assist in communications with other Trust shareholders.

The Declaration of Trust of the Trust disclaims liability of the shareholders or the Officers of the Trust for acts or obligations of the Trust which are binding only on the assets and property of the Trust. The Declaration of Trust provides for indemnification of the Trust’s property for all loss and expense of any Funds shareholder held personally liable for the obligations of the Trust. The risk of a Trust shareholder incurring financial loss on account of shareholder liability is limited to circumstances where the Funds would not be able to meet the Trust’s obligations and this risk, thus, should be considered remote.

If a Fund does not grow to a size to permit it to be economically viable, the Fund may cease operations. In such an event, investors may be required to liquidate or transfer their investments at an inopportune time.

Book Entry Only System

The Depository Trust Company (“DTC”) acts as securities depositary for the Shares. The Shares of each Fund are represented by global securities registered in the name of DTC or its nominee and deposited with, or on behalf of, DTC. Except as provided below, certificates will not be issued for Shares.

DTC has advised the Trust as follows: it is a limited-purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code and a “clearing agency” registered pursuant to the provisions of Section 17A of the 1934 Act. DTC was created to hold securities of its participants (“DTC Participants”) and to facilitate the clearance and settlement of securities transactions among the DTC Participants in such securities through electronic book-entry changes in accounts of the DTC Participants, thereby eliminating the need for physical movement of securities certificates. DTC Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations, some of whom (and/or their representatives) own DTC. More specifically, DTC is owned by a number of its DTC Participants and by the NYSE and the Financial Industry Regulatory Authority, Inc. Access to the DTC system is also available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly (“Indirect Participants”). DTC agrees with and represents to DTC Participants that it will administer its book-entry system in accordance with its rules and by-laws and requirements of law. Beneficial ownership of Shares is limited to DTC Participants, Indirect Participants and persons holding interests through DTC Participants and Indirect Participants. Ownership of beneficial interests in Shares (owners of such beneficial interests are referred to herein as “Beneficial owners”) is shown on, and the transfer of ownership is effected only through, records maintained by DTC (with respect to DTC Participants) and on the records of DTC Participants (with respect to Indirect Participants and Beneficial owners that are not DTC Participants). Beneficial owners will receive from or through the DTC Participant a written confirmation relating to their purchase of Shares. The laws of some jurisdictions may require that certain purchasers of securities take physical delivery of such securities in definitive form. Such laws may impair the ability of certain investors to acquire beneficial interests in Shares.

Beneficial owners of Shares are not entitled to have Shares registered in their names, will not receive or be entitled to receive physical delivery of certificates in definitive form and are not considered the registered holder thereof. Accordingly, each Beneficial Owner must rely on the procedures of DTC, the DTC Participant and any Indirect Participant through which such Beneficial Owner holds its interests, to exercise any rights of a holder of Shares. The Trust understands that under existing industry practice, in the event the Trust requests any action of holders of Shares, or a Beneficial Owner desires to take any action that DTC, as the record owner of all outstanding Shares, is entitled to take, DTC would authorize the DTC Participants to take such action and that the DTC Participants would authorize the Indirect Participants and Beneficial owners acting through such DTC Participants to take such action and would otherwise act upon the instructions of Beneficial owners owning through them. As described above, the Trust recognizes DTC or its nominee as the owner of all Shares for all purposes. Conveyance of all notices, statements and other communications to Beneficial owners is effected as follows. Pursuant to the Depositary Agreement between the Trust and DTC, DTC is required to make available to the Trust upon request and for a fee to be charged to the Trust a listing of Shares holdings of each DTC Participant. The Trust

 

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shall inquire of each such DTC Participant as to the number of Beneficial owners holding Shares, directly or indirectly, through such DTC Participant. The Trust shall provide each such DTC Participant with copies of such notice, statement or other communication, in such form, number and at such place as such DTC Participant may reasonably request, in order that such notice, statement or communication may be transmitted by such DTC Participant, directly or indirectly, to such Beneficial owners. In addition, the Trust shall pay to each such DTC Participant a fair and reasonable amount as reimbursement for the expenses attendant to such transmittal, all subject to applicable statutory and regulatory requirements.

Distributions of Shares shall be made to DTC or its nominee, Cede & Co., as the registered holder of all Shares. DTC or its nominee, upon receipt of any such distributions, shall credit immediately DTC Participants’ accounts with payments in amounts proportionate to their respective beneficial interests in Shares as shown on the records of DTC or its nominee. Payments by DTC Participants to Indirect Participants and Beneficial owners of Shares held through such DTC Participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in a “street name,” and will be the responsibility of such DTC Participants. The Trust has no responsibility or liability for any aspects of the records relating to or notices to Beneficial owners, or payments made on account of beneficial ownership interests in such Shares, or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests or for any other aspect of the relationship between DTC and the DTC Participants or the relationship between such DTC Participants and the Indirect Participants and Beneficial owners owning through such DTC Participants.

DTC may determine to discontinue providing its service with respect to Shares at any time by giving reasonable notice to the Trust and discharging its responsibilities with respect thereto under applicable law. Under such circumstances, the Trust shall take action either to find a replacement for DTC to perform its functions at a comparable cost or, if such a replacement is unavailable, to issue and deliver printed certificates representing ownership of Shares, unless the Trust makes other arrangements with respect thereto satisfactory to the Exchange. In addition, certain brokers may make a dividend reinvestment service available to their clients. Brokers offering such services may require investors to adhere to specific procedures and timetables in order to participate. Investors interested in such a service should contact their broker for availability and other necessary details.

PROXY VOTING POLICY AND PROCEDURES

Background

The Board of Trustees has adopted policies and procedures with respect to voting proxies relating to portfolio securities of the Funds, pursuant to which the Board of Trustees has delegated responsibility for voting such proxies to the Advisor subject to the Board of Trustees’ continuing oversight.

Policies and Procedures

The Advisor’s proxy voting policies and procedures (the “Guidelines”) are designed to maximize shareholder value and protect shareowner interests when voting proxies. The Advisor’s Proxy Oversight and Brokerage Allocation Committee (the “Proxy Committee”) exercises and documents the Advisor’s responsibility with regard to voting of client proxies. The Proxy Committee is composed of representatives of the Advisor’s Compliance, Legal and Portfolio Management Departments. The Proxy Committee reviews and monitors the effectiveness of the Guidelines.

To assist the Advisor in its responsibility for voting proxies and the overall proxy voting process, the Advisor has retained Institutional Shareholder Services. (“ISS”) as an expert in the proxy voting and corporate governance area. ISS is a subsidiary of MSCI, Inc., an independent company that specializes in, among other things, providing a variety of proxy-related services to institutional investment managers, plan sponsors, custodians, consultants and other institutional investors. The services provided by ISS include in-depth research, global issuer analysis and voting recommendations as well as vote execution, reporting and record keeping. ISS issues quarterly reports for the Advisor to review to assure proxies are being voted properly. The Advisor and ISS also perform spot checks intra-quarter to match the voting activity with available shareholder meeting information. ISS’s management meets regularly to discuss its approach to new developments and amendments to existing policies. Information on such developments or amendments in turn is provided to the Proxy Committee. The Proxy Committee reviews and, as necessary, may amend periodically the Guidelines to address new or revised proxy voting policies or procedures.

The Guidelines are maintained and implemented by ISS and are an extensive list of common proxy voting issues with recommended voting actions based on the overall goal of achieving maximum shareholder value and protection of shareholder interests. Generally, proxies are voted in accordance with the voting recommendations contained in the Guidelines. If necessary, the Advisor will be consulted by ISS on non-routine issues. Proxy issues identified in the Guidelines include but are not limited to:

 

   

Election of Directors—considering factors such as director qualifications, term of office and age limits.

 

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Proxy Contests—considering factors such as voting for nominees in contested elections and reimbursement of expenses.

 

   

Election of Auditors—considering factors such as independence and reputation of the auditing firm.

 

   

Proxy Contest Defenses—considering factors such as board structure and cumulative voting.

 

   

Tender Offer Defenses—considering factors such as poison pills (stock purchase rights plans) and fair price provisions.

 

   

Miscellaneous Governance Issues—considering factors such as confidential voting and equal access.

 

   

Capital Structure—considering factors such as common stock authorization and stock distributions.

 

   

Executive and Director Compensation—considering factors such as performance goals and employee stock purchase plans.

 

   

State of Incorporation—considering factors such as state takeover statutes and voting on reincorporation proposals.

 

   

Mergers and Corporate Restructuring—considering factors such as spin-offs and asset sales.

 

   

Mutual Fund Proxy Voting—considering factors such as election of directors and proxy contests.

 

   

Consumer and Public Safety Issues—considering factors such as social and environmental issues as well as labor issues.

A full description of each guideline and voting policy is maintained by the Advisor, and a complete copy of the Guidelines is available upon request.

Conflicts of Interest

From time to time, proxy issues may pose a material conflict of interest between Fund shareholders and the Advisor, the Distributor or any affiliates thereof. Due to the limited nature of the Advisor’s activities (e.g., no underwriting business, no publicly traded affiliates, no investment banking activities and no research recommendations), conflicts of interest are likely to be infrequent. Nevertheless, it shall be the duty of the Proxy Committee to monitor potential conflicts of interest. In the event a conflict of interest arises, the Advisor will direct ISS to use its independent judgment to vote affected proxies in accordance with approved guidelines. The Proxy Committee will disclose to the Board of Trustees the voting issues that created the conflict of interest and the manner in which ISS voted such proxies.

Record of Proxy Voting

The Advisor, with the assistance of ISS, shall maintain for a period of at least five years a record of each proxy statement received and materials that were considered when the proxy was voted during the calendar year. Information on how the Funds voted proxies relating to portfolio securities for the 12-month (or shorter) period ended June 30 will be available (1) without charge, upon request, by calling the Advisor at 1-866-PRO-5125, (2) on the Trust’s website, and (3) on the SEC’s website at http://www.sec.gov.

PURCHASE AND REDEMPTION OF SHARES

The Trust issues and redeems Shares only in aggregations of Creation Units.

 

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For the following Funds, a Creation Unit is comprised of 50,000 Shares:

 

Ultra ProShares

Ultra MarketCap Funds

   Ultra Fixed-Income Funds    Short International Funds
Ultra Russell3000    Ultra High Yield    Short FTSE China 25
UltraPro QQQ    Ultra Investment Grade Corporate    UltraShort MSCI Europe
UltraPro Dow30    Ultra TIPS    UltraShort MSCI Pacific ex-Japan
UltraPro S&P500    Ultra 7-10 Year Treasury    UltraShort MSCI Brazil
UltraPro MidCap400    Ultra 20+ Year Treasury    UltraShort MSCI Mexico Investable Market
UltraPro Russell2000      
    

Short ProShares

Short MarketCap Funds

   Short Fixed-Income Funds
Ultra Sector Funds    UltraShort Russell3000    Short 20+ Year Treasury
Ultra Nasdaq Biotechnology    UltraPro Short QQQ    Short High Yield
Ultra KBW Regional Banking    UltraPro Short Dow30    Short Investment Grade Corporate
   UltraPro Short S&P500   
Ultra International Funds    UltraPro Short MidCap400   
Ultra MSCI EAFE    UltraPro Short Russell2000    UltraShort TIPS
Ultra MSCI Emerging Markets      
Ultra MSCI Europe    Short Sector Funds    Alpha ProShares Funds
Ultra MSCI Pacific ex-Japan    Short Basic Materials    Credit Suisse 130/30
Ultra MSCI Brazil    Short Real Estate    RAFI® Long/Short
Ultra FTSE China 25    Short KBW Regional Banking    Hedge Replication ETF
Ultra MSCI Japan    UltraShort Nasdaq Biotechnology   
Ultra MSCI Mexico Investable Market       [Volatility Target ProShares]
   [Category Name]   
   USD Covered Bond    MSCI EAFE – 15% Volatility Target
   German Sovereign / Sub-Sovereign ETF    Russell 1000 – 15% Volatility Target
   Sovereign Fiscal Strength ETF    Russell 2000 – 15% Volatility Target
      NASDAQ-100 – 15% Volatility Target
      Dow 30 – 15% Volatility Target
      MSCI Emerging Markets – 15% Volatility Target
      S&P MidCap400 – 15% Volatility Target

For Short 7-10 Year Treasury and UltraShort 3-7 Year Treasury, a Creation Unit is comprised of 25,000 Shares.

For all other Funds, a Creation Unit is comprised of 75,000 Shares.

The Board of Trustees of the Trust reserves the right to declare a split or a consolidation in the number of Shares outstanding of any Fund, and may make a corresponding change in the number of Shares constituting a Creation Unit, in the event that the per Shares price in the secondary market rises (or declines) to an amount that falls outside the range deemed desirable by the Board. See “Purchase and Issuance of Creation Units” and “Redemption of Creation Units” below.

The value of such Creation Unit for each Fund except Ultra Russell3000, Ultra Nasdaq Biotechnology, Ultra KBW Regional Banking, Ultra MSCI EAFE, Ultra MSCI Emerging Markets, Ultra MSCI Europe, Ultra MSCI Pacific ex-Japan, Ultra MSCI Brazil, Ultra FTSE China 25, Ultra MSCI Japan, Ultra MSCI Mexico Investable Market, Ultra 7-10 Year Treasury, Ultra 20+ Year Treasury, UltraPro QQQ, UltraPro Dow30, UltraPro S&P500, UltraPro MidCap400, UltraPro Russell2000, UltraPro Short QQQ, UltraPro Short Dow30, Short Basic Materials, Short Real Estate, Short KBW Regional Banking, Short FTSE China 25, Short 20+ Year Treasury, UltraShort Russell3000, UltraShort Nasdaq Biotechnology, UltraShort MSCI Europe, UltraShort MSCI Pacific ex-Japan, UltraShort MSCI Brazil, UltraShort MSCI Mexico Investable Market, UltraPro Short S&P500, UltraPro Short MidCap400, UltraPro Short Russell2000 and Credit Suisse 130/30 as of each such Fund’s inception was $5,250,000.

 

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The value of such Creation Unit for UltraPro QQQ, UltraPro Dow30, UltraPro S&P500, UltraPro MidCap400, UltraPro Russell2000, UltraPro Short QQQ, UltraPro Short Dow30, UltraPro Short S&P 500, UltraPro Short MidCap400, UltraPro Short Russell2000, Short High Yield, Short Investment Grade Corporate and Short and UltraShort 3-7 Year Treasury as of each such Fund’s inception was $4,000,000.

The value of such Creation Unit for Ultra 7-10 Year Treasury, Ultra 20+ Year Treasury and UltraShort 3-7 Year Treasury as of each such Fund’s inception was $3,500,000.

The value of such Creation Unit for Ultra Nasdaq Biotechnology, Ultra KBW Regional Banking, Ultra MSCI EAFE, Ultra MSCI Emerging Markets, Ultra FTSE China 25, Ultra MSCI Japan, Short KBW Regional Banking, UltraShort Nasdaq Biotechnology, UltraShort MSCI Brazil and UltraShort MSCI Mexico Investable Market as of each such Fund’s inception was $3,000,000.

The value of such Creation Unit for Short Basic Materials, Short Real Estate, Short FTSE China 25 and Short 20+ Year Treasury as of each such Fund’s inception was $2,500,000.

The value of such Creation Unit for Ultra Russell3000, UltraShort Russell3000, UltraShort MSCI Europe, UltraShort MSCI Pacific ex-Japan, Ultra TIPS, UltraShort TIPS, Credit Suisse 130/30, Ultra High Yield, Ultra Investment Grade Corporate and Hedge Replication ETF as of each such Fund’s inception was $2,000,000.

The value of such Creation Unit for Ultra MSCI Europe, Ultra MSCI Pacific ex-Japan, Ultra MSCI Brazil and Ultra MSCI Mexico Investable Market as of each such Fund’s inception was $1,500,000.

The value of such Creation Unit for Short 7-10 Year Treasury and UltraShort 3-7 Year Treasury as of each such Fund’s inception was $1,000,000.

The value of such Creation Unit for each of the New Funds as of each such Fund’s inception was $2,000,000.

The Board of Trustees of the Trust reserves the right to declare a split or a consolidation in the number of Shares outstanding of any Fund, and may make a corresponding change in the number of Shares constituting a Creation Unit, in the event that the per Shares price in the secondary market rises (or declines) to an amount that falls outside the range deemed desirable by the Board. See “Purchase and Issuance of Creation Units” and “Redemption of Creation Units” below.

Purchase and Issuance of Creation Units

The Trust issues and sells Shares only in Creation Units on a continuous basis through the Distributor, without a sales load, at their NAV next determined after receipt, on any Business Day (as defined herein), of an order in proper form.

A “Business Day” with respect to each Fund is any day on which the NYSE is open for business.

Creation Units of Shares may be purchased only by or through a DTC Participant that has entered into an Authorized Participant Agreement with the Distributor. Such Authorized Participant will agree pursuant to the terms of such Authorized Participant Agreement on behalf of itself or any investor on whose behalf it will act, as the case may be, to certain conditions, including that such Authorized Participant will make available an amount of cash sufficient to pay the Balancing Amount and the transaction fee described below. The Authorized Participant may require the investor to enter into an agreement with such Authorized Participant with respect to certain matters, including payment of the Balancing Amount. Investors who are not Authorized Participants must make appropriate arrangements with an Authorized Participant. Investors should be aware that their particular broker may not be a DTC Participant or may not have executed an Authorized Participant Agreement, and that therefore orders to purchase Creation Units may have to be placed by the investor’s broker through an Authorized Participant. As a result, purchase orders placed through an Authorized Participant may result in additional charges to such investor. The Trust does not expect to enter into an Authorized Participant Agreement with more than a small number of DTC Participants.

Portfolio Deposit (Certain Ultra ProShares Funds and Certain Other Funds)

The consideration for purchase of a Creation Unit of Shares of an Ultra ProShares Fund (other than the Ultra High Yield and the Ultra Investment Grade Corporate), the Credit Suisse 130/30, the RAFI® Long/Short, the Volatility Target ProShares, the USD Covered Bond, the German Sovereign / Sub-Sovereign ETF, and the Sovereign Fiscal Strength ETF may, at the discretion of the Advisor, consist of the in-kind deposit of a designated portfolio of securities (“Deposit Securities”) constituting a representation of the index for the Fund, the Balancing Amount, and the appropriate transaction fee (collectively, the “Portfolio Deposit”). The Balancing Amount will be the amount equal to the differential, if any, between the total aggregate market value of the Deposit Securities and the NAV of the Creation Units being purchased and will be paid to, or received from, the Trust after the NAV has been calculated.

 

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The Index Receipt Agent makes available through the NSCC on each Business Day, either immediately prior to the opening of business on the Exchange or the night before, the list of the names and the required number of shares of each Deposit Security to be included in the current Portfolio Deposit (based on information at the end of the previous Business Day) for each applicable Fund. Such Portfolio Deposit is applicable, subject to any adjustments as described below, in order to effect purchases of Creation Units of Shares of such Fund until the next-announced Portfolio Deposit composition is made available.

The identity and number of shares of the Deposit Securities required for a Portfolio Deposit for each Fund 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 applicable Fund. 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. In addition, the Trust 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 to replace any Deposit Security which may not be available in sufficient quantity for delivery or for other similar reasons. The adjustments described above will reflect changes, known to ProShare Advisors on the date of announcement to be in effect by the time of delivery of the Portfolio Deposit, in the composition of the subject index being tracked by the relevant Fund, or resulting from stock splits and other corporate actions.

In addition to the list of names and numbers of securities constituting the current Deposit Securities of a Portfolio Deposit, on each Business Day, the Balancing Amount effective through and including the previous Business Day, per outstanding Share of each applicable Fund, will be made available.

Shares may be issued in advance of receipt by the Trust of all or a portion of the applicable Deposit Securities as described below. In these circumstances, the initial deposit will have a greater value than the NAV of the Shares on the date the order is placed in proper form since, in addition to the available Deposit Securities, cash must be deposited in an amount equal to the sum of (i) the Balancing Amount, plus (ii) 115% of the market value of the undelivered Deposit Securities (the “Additional Cash Deposit”). An additional amount of cash shall be required to be deposited with the Trust, pending delivery of the missing Deposit Securities to the extent necessary to maintain the Additional Cash Deposit with the Trust in an amount at least equal to 115% of the daily mark-to-market value of the missing Deposit Securities. The Participation Agreement will permit the Trust to buy the missing Deposit Securities at any time. Authorized Participants will be liable to the Trust for the costs incurred by the Trust in connection with any such purchases. These costs will be deemed to include the amount by which the actual purchase price of the Deposit Securities exceeds the market value of such Deposit Securities on the day the purchase order was deemed received by the Distributor plus the brokerage and related transaction costs associated with such purchases. The Trust will return any unused portion of the Additional Cash Deposit once all of the missing Deposit Securities have been properly received by the Custodian Bank or purchased by the Trust and deposited into the Trust. In addition, a transaction fee, as listed below, will be charged in all cases. The delivery of Shares so purchased will occur no later than the third Business Day following the day on which the purchase order is deemed received by the Distributor.

All questions as to the number of shares of each security in the Deposit Securities and the validity, form, eligibility and acceptance for deposit of any securities to be delivered shall be determined by the Trust, and the Trust’s determination shall be final and binding.

Cash Purchase Amount (All Funds)

Creation Units of all Funds may, at the discretion of the Advisor be sold for cash (“Cash Purchase Amount”). Creation Units are sold at their NAV plus a transaction fee, as described below. A purchase order for Fixed-Income ProShares or the USD Covered Bond must be received by the Distributor by 2:30 p.m. Eastern time or earlier in the event that the NYSE or the bond markets close early, in order to receive that day’s Closing NAV per Share. A purchase order for the Sovereign Fiscal Strength ETF or the USD Covered Bond Fund must be received by the Distributor by [            ] Eastern time or earlier in the event that the NYSE or the bond markets close early, in order to receive that day’s Closing NAV per Share. For all other Funds, a purchase order must be received by the Distributor prior to 4:00 p.m. Eastern time or at the close of the NYSE in the event the NYSE closes early if transmitted by mail or by 3:30 p.m. Eastern time or earlier in the event that the NYSE closes early, 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.

Purchases through the Clearing Process (Ultra ProShares Funds and Certain Other Funds)

An Authorized Participant may place an order to purchase (or redeem) Creation Units (i) through the Continuous Net Settlement clearing processes of NSCC as such processes have been enhanced to effect purchases (and redemptions) of Creation Units, such processes being referred to herein as the “Clearing Process,” or (ii) outside the Clearing Process. To

 

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purchase or redeem through the Clearing Process, an Authorized Participant must be a member of NSCC that is eligible to use the Continuous Net Settlement system. For purchase orders placed through the Clearing Process, the Authorized Participant Agreement authorizes the Distributor to transmit through the Funds’ transfer agent (the “Transfer Agent”) to NSCC, on behalf of an Authorized Participant, such trade instructions as are necessary to effect the Authorized Participant’s purchase order. Pursuant to such trade instructions to NSCC, the Authorized Participant agrees to deliver the requisite Deposit Securities and the Balancing Amount to the Trust, together with the Transaction Fee and such additional information as may be required by the Distributor. A purchase order for Ultra Fixed-Income ProShares Funds or USD Covered Bond must be received by the Distributor by 2:30 p.m., Eastern time or earlier in the event that the NYSE or the bond markets close early in order to receive that day’s Closing NAV per Share. For all other Ultra ProShares and Alpha ProShares Funds, a purchase order must be received by the Distributor at 4:00 p.m., Eastern time or at the close of the NYSE in the event the NYSE closes early, if transmitted by mail or by 3:30 p.m., Eastern time or earlier in the event that the NYSE closes early, 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.

Purchases Outside the Clearing Process

An Authorized Participant that wishes to place an order to purchase Creation Units outside the Clearing Process must state that it is not using the Clearing Process and that the purchase instead will be effected through a transfer of securities and cash directly through DTC. All purchases of the Short ProShares Funds and the Sovereign Fiscal Strength ETF will be settled outside the Clearing Process. Purchases (and redemptions) of Creation Units of the Ultra ProShares and Alpha ProShares Funds settled outside the Clearing Process will be subject to a higher Transaction Fee than those settled through the Clearing Process. Purchase orders effected outside the Clearing Process are likely to require transmittal by the Authorized Participant earlier on the Transmittal Date than orders effected using the Clearing Process. Those persons placing orders outside the Clearing Process should ascertain the deadlines applicable to DTC and the Federal Reserve Bank wire system by contacting the operations department of the broker or depository institution effectuating such transfer of Deposit Securities and Balancing Amount (for the Ultra ProShares, Alpha ProShares Funds and the Sovereign Fiscal Strength ETF), each as applicable and at the discretion of the Advisor, or of the Cash Purchase Amount together with the applicable Transaction Fee.

Rejection of Purchase Orders

The Trust reserves the absolute right to reject a purchase order transmitted to it by the Distributor in respect of any Fund if (a) the purchaser or group of purchasers, upon obtaining the Shares ordered, would own 80% or more of the currently outstanding Shares of any Fund; (b) for the applicable Ultra ProShares, Alpha ProShares Funds and the Sovereign Fiscal Strength ETF only, the Deposit Securities delivered are not as specified by ProShare Advisors and ProShare Advisors has not consented to acceptance of an in-kind deposit that varies from the designated Deposit Securities; (c) for the applicable Ultra ProShares and Alpha ProShares Funds and the Sovereign Fiscal Strength ETF only, acceptance of the purchase transaction order would have certain adverse tax consequences to the Fund; (d) the acceptance of the purchase transaction order would, in the opinion of counsel, be unlawful; (e) the acceptance of the purchase order transaction would otherwise, in the discretion of the Trust or ProShare Advisors, have an adverse effect on the Trust or the rights of beneficial owners; (f) the value of a Cash Purchase Amount, or the value of the Balancing Amount to accompany an in-kind deposit, exceeds a purchase authorization limit extended to an Authorized Participant by the custodian and the Authorized Participant has not deposited an amount in excess of such purchase authorization with the custodian prior to the relevant cut-off time for the Fund on the Transmittal Date; or (g) in the event that circumstances outside the control of the Trust, the Distributor and ProShare Advisors make it impractical to process purchase orders. The Trust shall notify a prospective purchaser of its rejection of the order of such person. The Trust and the Distributor are under no duty, however, to give notification of any defects or irregularities in the delivery of purchase transaction orders nor shall either of them incur any liability for the failure to give any such notification.

Redemption of Creation Units

Shares may be redeemed only in Creation Units at their NAV next determined after receipt of a redemption request in proper form by the Distributor on any Business Day. The Trust will not redeem Shares in amounts less than Creation Units. Beneficial owners also may sell Shares in the secondary market, but must accumulate enough Shares to constitute a Creation Unit in order to have such Shares redeemed by the Trust. There can be no assurance, however, that there will be sufficient liquidity in the public trading market at any time to permit assembly of a Creation Unit of Shares. Investors should expect to incur brokerage and other costs in connection with assembling a sufficient number of Shares to constitute a redeemable Creation Unit.

 

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Fund Securities (Ultra ProShares and Certain Other Funds only)

With respect to the Ultra ProShares and Alpha ProShares Funds, ProShare Advisors makes available through the NSCC immediately prior to the opening of business on the Exchange on each day that the Exchange is open for business the Portfolio Securities that will be applicable (subject to possible amendment or correction) to redemption requests received in proper form (as defined below) on that day (“Fund Securities”). These securities may, at times, not be identical to Deposit Securities which are applicable to a purchase of Creation Units.

The redemption proceeds for a Creation Unit generally consist of Fund Securities, as announced by ProShare Advisors through the NSCC on any Business Day, plus the Balancing Amount. The redemption transaction fee described below is deducted from such redemption proceeds.

Redemptions in Cash (All ProShares)

For Ultra ProShares and Alpha ProShares Funds and the New Funds, the Fund may in its discretion exercise its option to redeem such Shares in cash, and the redeeming shareholder will be required to receive its redemption proceeds in cash. In addition, an investor may request a redemption in cash which the Ultra ProShares, Alpha ProShares Funds, the USD Covered Bond, the Volatility Target ProShares or the Sovereign Fiscal Strength ETF may, in their sole discretion, permit. In either case, the investor will receive a cash payment equal to the NAV of its Shares based on the NAV of Shares of the relevant Fund next determined after the redemption request is received in proper form (minus a redemption transaction fee and additional charge for requested cash redemptions specified above, to offset the Fund’s brokerage and other transaction costs associated with the disposition of Fund Securities). The Fund may also, in its sole discretion, upon request of a shareholder, provide such redeemer a portfolio of securities which differs from the exact composition of the Fund Securities but does not differ in NAV.

For Short ProShares Funds, the Ultra High Yield, the Ultra Investment Grade and/or the Hedge Replication ETF, the redemption proceeds will consist solely of cash in an amount equal to the NAV of the Shares being redeemed, as next determined after a receipt of a request in proper form, less the redemption transaction fee described below (“Cash Redemption Amount”).

The right of redemption may be suspended or the date of payment postponed with respect to any Fund (1) for any period during which the Exchange is closed (other than customary weekend and holiday closings); (2) for any period during which trading on the Exchange is suspended or restricted; (3) for any period during which an emergency exists as a result of which disposal of the shares of the Fund’s portfolio securities or determination of its NAV is not reasonably practicable; (4) in such other circumstance as is permitted by the SEC; or (5) for up to 14 calendar days for any of the Ultra International and Short International ProShares Funds during a period of an international local holiday, as described below in “Other Information”.

Placement of Redemption Orders Using Clearing Process

Orders to redeem Creation Units of Funds through the Clearing Process must be delivered through an Authorized Participant that is a member of NSCC that is eligible to use the Continuous Net Settlement System. A redemption order on Ultra and Short Fixed-Income ProShares Funds or USD Covered Bond must be received by the Distributor by 2:30 p.m. Eastern time or earlier in the event that the NYSE or the bond markets close early in order to receive that day’s closing NAV per Share. For all other Funds, a redemption order must be received by the Distributor prior to 4:00 p.m. Eastern time or at the close of the NYSE in the event the NYSE closes early, if transmitted by mail or by 3:30 p.m. Eastern time, or earlier in the event that the NYSE closes early, 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. All other procedures set forth in the Participant Agreement must be followed in order for you to receive the NAV determined on that day. The requisite Fund Securities and the Balancing Amount (for the Ultra ProShares and Alpha ProShares Funds) or the Cash Redemption Amount will be transferred by the third (3rd) NSCC Business Day following the date on which such request for redemption is deemed received.

Placement of Redemption Orders Outside Clearing Process

Orders to redeem Creation Units outside the Clearing Process must be delivered through a DTC Participant that has executed the Participant Agreement. A DTC Participant who wishes to place an order for redemption of Creation Units to be effected outside the Clearing Process need not be a “participating party” under the Authorized Participant Agreement, but such orders must state that the DTC Participant is not using the Clearing Process and that redemption of Creation Units will instead be effected through transfer of Shares directly through DTC. A redemption order for Ultra Fixed-Income ProShares Funds or USD Covered Bond must be received by the Distributor by 2:30 p.m. Eastern time or earlier in the event that the NYSE or the bond markets close early, in order to receive that day’s closing NAV per Share. A redemption order for the Sovereign Fiscal Strength ETF must be received by the Distributor by [            ] Eastern time or earlier in the event

 

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that the NYSE or the bond markets close early, in order to receive that day’s closing NAV per Share. For all other Ultra ProShares and Alpha ProShares and the Volatility Target ProShares, a redemption order must be received by the Distributor prior to 4:00 p.m. Eastern time or earlier in the event that the NYSE closes early, if transmitted by mail or by 3:30 p.m. Eastern time or earlier in the event that the NYSE closes early, if transmitted by telephone, facsimile or other electronic means permitted under the Authorized Participant Agreement in order to receive that day’s closing NAV per Share. All other procedures set forth in the Authorized Participant Agreement must be followed in order for you to receive the NAV determined on that day. The order must be accompanied or preceded by the requisite number of Shares of Funds specified in such order, which delivery must be made through DTC to the Custodian by the third Business Day following such Transmittal Date (“DTC Cut-Off Time”). All other procedures set forth in the Authorized Participant Agreement must be properly followed.

After the Transfer Agent has deemed an order for redemption outside the Clearing Process received, the Transfer Agent will initiate procedures to transfer the requisite Fund Securities and the Balancing Amount (for the Ultra ProShares and Alpha ProShares Funds and the Sovereign Fiscal Strength ETF), which are expected to be delivered within three Business Days and the Cash Redemption Amount by the third Business Day following the Transmittal Date on which such redemption order is deemed received by the Transfer Agent.

In certain instances, Authorized Participants may create and redeem Creation Unit aggregations of the same Fund on the same trade date. In this instance, the Trust reserves the right to settle these transactions on a net basis.

Transaction Fees

Transaction fees payable to the Trust are imposed to compensate the Trust for the transfer and other transaction costs of a Fund associated with the issuance and redemption of Creation Units of Shares. There is a fixed and a variable component to the total Transaction Fee. A fixed Transaction Fee is applicable to each creation or redemption transaction, regardless of the number of Creation Units purchased or redeemed. In addition, a variable Transaction Fee equal to a percentage of the value of each Creation Unit purchased or redeemed is applicable to each creation or redemption transaction.

Purchasers of Creation Units of Ultra ProShares and Alpha ProShares, the Volatility Target ProShares and the Sovereign Fiscal Strength ETF for cash may also be required to pay an additional charge to compensate the relevant Fund for brokerage, market impact or other expenses. Where the Trust permits an in-kind purchaser to substitute cash in lieu of depositing a portion of the Deposit Securities, the purchaser will be assessed an additional charge for cash purchases.

Purchasers of Shares in Creation Units are responsible for the costs of transferring the securities constituting the Deposit Securities to the account of the Trust. Investors will also bear the costs of transferring securities from the Fund to their account or on their order. Investors who use the services of a broker or other such intermediary may be charged a fee for such services.

Determination of NAV

The NAV per Share for each Fund is computed by dividing the value of the net assets of such Fund (i.e., the value of its total assets less total liabilities) by the total number of Shares outstanding, rounded to the nearest cent. Expenses and fees, including the management and administration fees, are accrued daily and taken into account for purposes of determining NAV. The NAV of each Fund, except the Ultra and Short Fixed-Income ProShares Funds (other than Ultra and Short High Yield and Ultra and Short Investment Grade Corporate), the USD Covered Bond, the German Sovereign / Sub-Sovereign ETF and the Sovereign Fiscal Strength ETF, is determined as of the close of the regular trading session of the Exchange (ordinarily 4:00 p.m. Eastern time) on each day that the Exchange is open. The NAV of each of the Ultra and Short Fixed-Income ProShares (other than Ultra and Short High Yield and Ultra and Short Investment Grade Corporate) and the USD Covered Bond is determined at 3:00 p.m. Eastern time or earlier if the bond markets close earlier, each business day when the bond markets are open for trading. The NAV of the German Sovereign / Sub-Sovereign ETF is determined at [4:15 p.m. London Time] on days where both the [NYSE and the relevant bond markets] are open for trading, and the NAV for the Sovereign Fiscal Strength ETF is determined at [            ].

Continuous Offering

The method by which Creation Units are created and traded may raise certain issues under applicable securities laws. Because new Creation Units are issued and sold by the Trust on an ongoing basis, at any point a “distribution,” as such term is used in the 1933 Act, may occur. Broker-dealers and other persons are cautioned that some activities on their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner which could render them statutory underwriters and subject them to the prospectus delivery and liability provisions of the 1933

 

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Act. For example, a broker-dealer firm or its client may be deemed a statutory underwriter if it takes Creation Units after placing an order with the Distributor, breaks them down into constituent Shares and sells some or all of the Shares comprising such Creation Units directly to its customers; or if it chooses to couple the creation of a supply of new Shares with an active selling effort involving solicitation of secondary market demand for Shares. A determination of whether a person is an underwriter for the purposes of the 1933 Act depends upon all the facts and circumstances pertaining to that person’s activities. Thus, the examples mentioned above should not be considered a complete description of all the activities that could lead a person to be deemed an underwriter. Broker-dealer firms should also note that dealers who are effecting transactions in Shares, whether or not participating in the distribution of Shares, are generally required to deliver a prospectus. This is because the prospectus delivery exemption in Section 4(3) of the 1933 Act is not available in respect of such transactions as a result of Section 24(d) of the 1940 Act. The Trust has been granted an exemption by the SEC from this prospectus delivery obligation in ordinary secondary market transactions involving Shares under certain circumstances, on the condition that purchasers of Shares are provided with a product description of the Shares. Broker-dealer firms should note that dealers who are not “underwriters” but are participating in a distribution (as contrasted to an ordinary secondary market transaction), and thus dealing with Shares that are part of an “unsold allotment” within the meaning of Section 4(3)(C) of the 1933 Act, would be unable to take advantage of the prospectus delivery exemption provided by Section 4(3) of the 1933 Act. Firms that incur a prospectus-delivery obligation with respect to Shares are reminded that under Rule 153 under the 1933 Act, a prospectus delivery obligation under Section 5(b)(2) of the 1933 Act owed to a national securities exchange member in connection with a sale on the national securities exchange is satisfied if a Fund’s prospectus is made available upon request at the national securities exchange on which the Shares of such Fund trade. The prospectus delivery mechanism provided in Rule 153 is only available with respect to transactions on a national securities exchange and not with respect to other transactions.

TAXATION

Overview

Set forth below is a discussion of certain U.S. federal income tax issues concerning the Funds and the purchase, ownership, and disposition of a Fund’s Shares. This discussion does not purport to be complete or to deal with all aspects of federal income taxation that may be relevant to shareholders in light of their particular circumstances, nor to certain types of shareholders subject to special treatment under the federal income tax laws (for example, life insurance companies, banks and other financial institutions, and IRAs and other retirement plans). This discussion is based upon present provisions of the Code, the regulations promulgated thereunder, and judicial and administrative ruling authorities, all of which are subject to change, which change may be retroactive. Prospective investors should consult their own tax advisors with regard to the federal tax consequences of the purchase, ownership, or disposition of a Fund’s Shares, as well as the tax consequences arising under the laws of any state, foreign country, or other taxing jurisdiction.

Each Fund has elected or, in the case of a New Fund, intends to elect and intends to qualify each year to be treated as a RIC under Subchapter M of the Code. A RIC generally is not subject to federal income tax on income and gains distributed in a timely manner to its shareholders. To qualify for treatment as a RIC, each Fund generally must, among other things:

(a) derive in each taxable year at least 90% of its gross income from (i) dividends, interest, payments with respect to certain securities loans and gains from the sale or other disposition of stock, securities or foreign currencies, or other income (including but not limited to gains from options, futures, or forward contracts) derived with respect to its business of investing in such stock, securities or currencies, and (ii) net income derived from interests in “qualified publicly traded partnerships” as described below (the income described in this subparagraph (a), “Qualifying Income”);

(b) diversify its holdings so that, at the end of each quarter of a Fund’s taxable year (or by the end of the 30-day period following the close of such quarter), (i) at least 50% of the fair market value of the Fund’s assets is represented by cash and cash items (including receivables), U.S. government securities, the securities of other RICs and other securities, with such other securities limited, in respect of any one issuer, to a value not greater than 5% of the value of the Fund’s total assets and to an amount not greater than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets is invested in (x) the securities (other than U.S. government securities and the securities of other RICs) of any one issuer or of two or more issuers that the Fund controls and that are engaged in the same, similar or related trades or businesses, or (y) the securities of one or more qualified publicly traded partnerships (as defined below); and

(c) distribute with respect to each taxable year at least 90% of the sum of its investment company taxable income (as that term is defined in the Code without regard to the deduction for dividends paid—generally, taxable ordinary income and the excess, if any, of net short-term capital gains over net long-term capital losses) and net tax-exempt interest income, for such year.

 

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In general, for purposes of the 90% gross income requirement described in subparagraph (a) above, income derived from a partnership will be treated as Qualifying Income only to the extent such income is attributable to items of income of the partnership which would be Qualifying Income if realized directly by the RIC. However, 100% of the net income of a RIC derived from an interest in a “qualified publicly traded partnership” (generally, a partnership (x) interests in which are traded on an established securities market or readily tradable on a secondary market or the substantial equivalent thereof, (y) that derives at least 90% of its income from the passive income sources defined in Code section 7704(d), and (z) that derives less than 90% of its income from the Qualifying Income described in clause (i) of subparagraph (a) above) will be treated as Qualifying Income. In addition, although in general the passive loss rules of the Code do not apply to RICs, such rules do apply to a RIC with respect to items attributable to an interest in a qualified publicly traded partnership.

For purposes of meeting the diversification requirements described in subparagraph (b) above, the term “outstanding voting securities of such issuer” will include the equity securities of a qualified publicly traded partnership. Also, for purposes of the diversification test in (b) above, identification of the issuer (or, in some cases, issuers) of a particular Fund investment can depend on the terms and conditions of that investment. In some cases, identification of the issuer (or issuers) is uncertain under current law, and an adverse determination or future guidance by the Internal Revenue Service (“IRS”) with respect to identification of the issuer for a particular type of investment may adversely affect the Fund’s ability to meet the diversification test in (b) above.

If, in any taxable year, a Fund were to fail to meet the 90% gross income or diversification or distribution test described above, the Fund could in some cases cure such failure, including by paying a Fund-level tax or interest, making additional distributions, or disposing of certain assets. If a Fund were ineligible to or did not cure such a failure for any taxable year, or otherwise failed to qualify as a RIC that is accorded special tax treatment, the Fund would be subject to tax on its taxable income at corporate rates, and all distributions from earnings and profits, including distributions of net tax-exempt income and net long-term capital gain (if any), would be taxable to shareholders as dividend income. Distributions from the Fund would not be deductible by the Fund in computing its taxable income. In addition, in order to requalify for taxation as a RIC, the Fund may be required to recognize unrealized gains, pay substantial taxes and interest, and make certain distributions.

As noted above, if a Fund qualifies as a RIC that is accorded special tax treatment, the Fund will not be subject to federal income tax on income distributed in a timely manner to its shareholders in the form of dividends (including Capital Gain Dividends, as defined below).

Each of the Funds expects to distribute at least annually to its shareholders all or substantially all of its investment company taxable income (computed without regard to the dividends-paid deduction) and its net capital gain (that is, the excess of its net long-term capital gains over its net short-term capital losses). Investment company taxable income that is retained by a Fund will be subject to tax at regular corporate rates. If a Fund retains any net capital gain, it will be subject to tax at regular corporate rates on the amount retained, but it may designate the retained amount as undistributed capital gains in a notice mailed within 60 days of the close of the Fund’s taxable year to its shareholders who, in turn, (i) will be required to include in income for federal income tax purposes, as long-term capital gain, their shares of such undistributed amount, and (ii) will be entitled to credit their proportionate shares of the tax paid by the Fund on such undistributed amount against their federal income tax liabilities, if any, and to claim refunds on a properly-filed U.S. tax return to the extent the credit exceeds such liabilities. If a fund makes this designation, for federal income tax purposes, the tax basis of Shares owned by a shareholder of a Fund will be increased by an amount equal to the difference between the amount of undistributed capital gains included in the shareholder’s gross income under clause (i) of the preceding sentence and the tax deemed paid by the shareholder under clause (ii) of the preceding sentence. The funds are not required to, and there can be no assurance that a Fund will, make this designation if it retains all or a portion of its net capital gain in a taxable year.

For taxable years beginning on or before December 22, 2010, in determining its net capital gain for Capital Gain Dividend purposes, a RIC generally must treat any net capital loss or any net long-term capital loss incurred after October 31 as if it had been incurred in the succeeding year. Treasury regulations also permit a RIC, in determining its taxable income, to elect to treat all or part of any net capital loss, any net long-term capital loss, or any foreign currency loss after October 31 as if it had been incurred in the succeeding taxable year. For taxable years beginning after December 22, 2010, in determining its net capital gain (including in connection with determining the amount available to support a Capital Gain Dividend (as defined below), its taxable income and its earnings and profits, a RIC generally may elect to treat any post-October capital loss (defined as the greatest of net capital loss, net long-term capital loss, or net short term capital loss, in each case attributable to the portion of the taxable year after October 31) and certain late-year ordinary losses (generally, (i) net ordinary losses from the sale, exchange or other taxable disposition of property, attributable to the portion of the taxable year after October 31, plus (ii) other net ordinary losses attributable to the portion of the taxable year after December 31) as if incurred in the succeeding taxable year.

 

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Amounts not distributed on a timely basis in accordance with a prescribed formula are subject to a nondeductible 4% excise tax at the Fund level. To avoid the tax, each Fund must distribute during each calendar year an amount generally equal to the sum of (1) at least 98% of its ordinary income (not taking into account any capital gains or losses) for the calendar year, (2) at least 98.2% of its capital gains in excess of its capital losses (adjusted for certain ordinary losses) for a one-year period generally ending on October 31 of the calendar year, and (3) all such ordinary income and capital gains that were not distributed in previous years. For purposes of the required excise tax distribution, ordinary gains and losses from the sale, exchange, or other taxable disposition of property that would be properly taken into account after October 31 are generally treated as arising on January 1 of the following calendar year. In addition, a Fund will be treated as having distributed any amount on which it has been subject to corporate income tax in the taxable year ending within the calendar year. Each Fund intends generally to make distributions sufficient to avoid imposition of the 4% excise tax, although there can be no assurance that the Funds will be able to do so.

A distribution will be treated as paid on December 31 of a calendar year if it is declared by a Fund in October, November or December of that year with a record date in such a month and is paid by the Fund during January of the following year. Such distributions will be taxable to shareholders in the calendar year in which the distributions are declared, rather than the calendar year in which the distributions are received.

Capital losses in excess of capital gains (“net capital losses”) are not permitted to be deducted against a Fund’s net investment income. Instead, potentially subject to certain limitations, a Fund may carry forward a net capital loss from any taxable year to offset its capital gains, if any, realized during a subsequent taxable year. If a Fund incurs or has incurred net capital losses in a taxable year beginning on or before December 22, 2010 (“pre-2011 losses”), the Fund is permitted to carry such losses forward for eight taxable years, and in the year to which they are carried forward, such losses are treated as short-term capital losses that first offset short-term capital gains, and then offset long-term capital gains. A Fund is permitted to carry forward net capital losses it incurs in taxable years beginning after December 22, 2010 without expiration. Any such carryforward losses will retain their character as short-term or long-term, which may well result in larger distributions of short-term gains (taxed as ordinary income to individual shareholders) than would have resulted under the regime applicable to pre-2011 losses. A Fund is generally required to use any such carryforwards, which will not expire, applying them first against gains of the same character, before it uses any pre-2011 losses. This may increase the likelihood that pre-2011 losses, if any, will expire unused. Capital loss carryforwards are reduced to the extent they offset current-year net realized capital gains, whether the Fund retains or distributes such gains.

The following Funds had tax basis net capital loss carryforwards as of May 31, 2011. Because the New Funds were not operational at the end of the Trust’s last fiscal year, no information regarding the New Funds’ tax basis net capital loss carryforwards is included in this SAI.

 

Fund

   Capital  Loss
Carryforwards
Expiring
October  31,
2016
     Capital  Loss
Carryforwards
Expiring October  31,
2017
     Capital Loss Carryforwards
Expiring October 31,

2018
     Total  

Ultra QQQ®

   $ 162,385,119       $ 554,796,536         0.00       $ 717,181,655   

Ultra Dow30SM

     0.00         314,769,219         0.00         314,769,219   

Ultra S&P500®

     0.00         1,048,450,191         0.00         1,048,450,191   

Ultra Russell3000

     0.00         0.00         0.00         0.00   

Ultra MidCap400

     0.00         42,669,369         0.00         42,669,369   

Ultra SmallCap600

     0.00         14,541,018         0.00         14,541,018   

Ultra Russell2000

     4,565,909         160,208,478         0.00         164,774,387   

UltraPro QQQ®

     0.00         0.00       $ 3,312,816         3,312,816   

UltraPro Dow30SM

     0.00         0.00         126,763         126,763   

 

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Fund

   Capital  Loss
Carryforwards
Expiring
October  31,
2016
     Capital  Loss
Carryforwards
Expiring October  31,
2017
     Capital Loss Carryforwards
Expiring October 31,

2018
     Total  

UltraPro S&P500®

     0.00         0.00         521,745         521,745   

UltraPro MidCap400

     0.00         0.00         204,680         204,680   

UltraPro Russell2000

     0.00         0.00         710,048         710,048   

Ultra Russell1000 Value

     1,647,546         7,339,236         0.00         8,986,782   

Ultra Russell1000 Growth

     1,109,699         11,085,417         0.00         12,195,116   

Ultra Russell MidCap Value

     1,551,965         491,332         0.00         2,043,297   

Ultra Russell MidCap Growth

     6,014,949         2,712,148         0.00         8,727,097   

Ultra Russell2000 Value

     5,453,294         3,662,193         0.00         9,115,487   

Ultra Russell2000 Growth

     896,305         6,605,976         0.00         7,502,281   

Ultra Basic Materials

     0.00         0.00         0.00         0.00   

Ultra Nasdaq Biotechnology

     0.00         0.00         565,831         565,831   

Ultra Consumer Goods

     0.00         0.00         0.00         0.00   

Ultra Consumer Services

     0.00         203,843         0.00         203,843   

Ultra Financials

     976,913,137         1,407,263,015         0.00         2,384,176,152   

Ultra Health Care

     0.00         13,552,334         0.00         13,552,334   

Ultra Industrials

     0.00         0.00         0.00         0.00   

Ultra Oil & Gas

     0.00         82,191,390         0.00         82,191,390   

Ultra Real Estate

     0.00         0.00         0.00         0.00   

Ultra KBW Regional Banking

     0.00         0.00         1,965,194         1,965,194   

Ultra Semiconductors

     7,861,321         23,313,126         0.00         31,174,447   

 

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Fund

   Capital  Loss
Carryforwards
Expiring
October  31,
2016
     Capital  Loss
Carryforwards
Expiring October  31,
2017
     Capital Loss Carryforwards
Expiring October 31,

2018
     Total  

Ultra Technology

     0.00         14,574,693         0.00         14,574,693   

Ultra Telecommunications.

     0.00         821,337         0.00         821,337   

Ultra Utilities

     544,328         13,316,081         0.00         13,860,409   

Ultra MSCI EAFE

     0.00         0.00         0.00         0.00   

Ultra MSCI Emerging Markets

     0.00         11,592         155,554         167,146   

Ultra MSCI Europe

     0.00         0.00         289,198         289,198   

Ultra MSCI Pacific ex-Japan

     0.00         0.00         385,999         385,999   

Ultra MSCI Brazil.

     0.00         0.00         542,934         542,934   

Ultra FTSE China 25

     0.00         465,248         1,269,071         1,734,319   

Ultra MSCI Japan

     0.00         9,848         287,685         297,533   

Ultra MSCI Mexico Investable Market

     0.00         0.00         87,729         87,729   

Ultra 7-10 Year Treasury

     0.00         0.00         0.00         0.00   

Ultra 20+ Year Treasury

     0.00         0.00         670,598         670,598   

Ultra High Yield.

     0.00         0.00         0.00         0.00   

Ultra Investment Grade Corporate

     0.00         0.00         0.00         0.00   

Short QQQ®

     0.00         46,413,351         59,184,627         105,597,978   

Short Dow30SM

     0.00         27,666,267         74,285,143         101,951,410   

Short S&P500®

     0.00         275,479,255         396,002,468         671,481,723   

Short MidCap400

     0.00         14,091,075         16,663,813         30,754,888   

Short SmallCap600

     0.00         10,910,309         9,744,816         20,655,125   

Short Russell2000

     0.00         30,602,995         85,827,210         116,430,205   

UltraShort QQQ®

     0.00         344,027,075         546,154,861         890,181,936   

 

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Fund

   Capital  Loss
Carryforwards
Expiring
October  31,
2016
     Capital  Loss
Carryforwards
Expiring October  31,
2017
     Capital Loss Carryforwards
Expiring October 31,

2018
     Total  

UltraShort Dow30SM

     0.00         211,568,661         278,053,840         489,622,501   

UltraShort S&P500®

     0.00         954,224,900         1,614,347,476         2,568,572,376   

UltraShort Russell3000

     0.00         578,178         1,775,441         2,353,619   

UltraShort MidCap400

     0.00         62,058,079         19,240,979         81,299,058   

UltraShort SmallCap600

     0.00         10,418,599         18,395,839         28,814,438   

UltraShort Russell2000

     0.00         197,617,837         371,431,305         569,049,142   

UltraPro Short QQQ®

        0.00         13,723,268         13,723,268   

UltraPro Short Dow30SM

        0.00         9,009,922         9,009,922   

UltraPro Short S&P500®

        21,450,893         80,591,829         102,042,722   

UltraPro Short MidCap400

        0.00         2,821,723         2,821,723   

UltraPro Short Russell2000

        0.00         13,054,940         13,054,940   

UltraShort Russell1000 Value

        15,201,628         5,004,860         20,206,488   

UltraShort Russell1000 Growth.

        18,361,737         5,849,933         24,211,670   

UltraShort Russell MidCap Value

        4,103,949         5,044,261         9,148,210   

UltraShort Russell MidCap Growth

        11,156,011         4,305,977         15,461,988   

UltraShort Russell2000 Value

        14,216,121         9,703,125         23,919,246   

UltraShort Russell2000 Growth.

        13,016,043         10,045,451         23,061,494   

Short Basic Materials

        0.00         568,074         568,074   

Short Financials

        55,095,891         34,680,899         89,776,790   

Short Oil & Gas.

        1,584,332         2,720,603         4,304,935   

Short Real Estate

        0.00         3,968,005         3,968,005   

Short KBW Regional Banking

        0.00         475,909         475,909   

UltraShort Basic Materials

        99,100,007         110,459,179         209,559,186   

UltraShort Nasdaq Biotechnology

        0.00         435,627         435,627   

UltraShort Consumer Goods

        680,668         14,284,380         14,965,048   

UltraShort Consumer Services.

        37,806,587         34,794,753         72,601,340   

UltraShort Financials

        939,341,490         249,724,456         1,189,065,946   

UltraShort Health Care

        10,002,522         2,787,142         12,789,664   

 

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Fund

   Capital  Loss
Carryforwards
Expiring
October  31,
2016
     Capital  Loss
Carryforwards
Expiring October  31,
2017
     Capital Loss Carryforwards
Expiring October 31,

2018
     Total  

UltraShort Industrials

        17,718,515         21,300,428         39,018,943   

UltraShort Oil & Gas

        72,588,775         103,023,193         175,611,968   

UltraShort Real Estate

        2,597,807,224         530,523,856         3,128,331,080   

UltraShort Semiconductors

        28,767,489         21,740,228         50,507,717   

UltraShort Technology

        38,866,512         17,058,910         55,925,422   

UltraShort Telecommunications

        5,408,371         682,434         6,090,805   

UltraShort Utilities

        7,484,152         3,786,581         11,270,733   

Short MSCI EAFE

        32,745,434         18,597,569         51,343,003   

Short MSCI Emerging Markets

        40,438,104         71,205,636         111,643,740   

Short FTSE China 25

        0.00         1,199,922         1,199,922   

UltraShort MSCI EAFE

        67,426,453         7,928,513         75,354,966   

UltraShort MSCI Emerging Markets

        520,833,289         59,526,996         580,360,285   

UltraShort MSCI Europe

        3,795,429         34,453,744         38,249,173   

UltraShort MSCI Pacific ex-Japan

        1,002,480         3,676,210         4,678,690   

UltraShort MSCI Brazil

        3,763,284         16,655,117         20,418,401   

UltraShort FTSE China 25

     0.00         464,521,831         131,146,062         595,667,893   

UltraShort MSCI Japan.

        3,844,289         6,349,708         10,193,997   

UltraShort MSCI Mexico Investable Market

        6,041,732         5,186,144         11,227,876   

Short 7-10 Year Treasury

        0.00         0.00         0.00   

Short 20+ Year Treasury

        228,973         56,583,949         56,812,921   

Short High Yield

        0.00         0.00         0.00   

Short Investment Grade Corporate

        0.00         0.00         0.00   

UltraShort 3-7 Year Treasury

        0.00         0.00         0.00   

UltraShort 7-10 Year Treasury

     5,030,158         249,611         28,917,167         34,196,936   

UltraShort 20+ Year Treasury

        0.00         664,186,865         664,186,865   

UltraShort TIPS

        0.00         0.00         0.00   

Credit Suisse 130/30

        0.00         488,065         488,065   

RAFI® Long/Short

        0.00         0.00         0.00   

 

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Options, Futures, Forward Contracts and Swaps

Certain contracts (including regulated futures contracts) and certain options (namely, non-equity options and dealer equity options) in which a Fund invests will be governed by section 1256 of the Code (“section 1256 contracts”). Gains (or losses) on these contracts generally are considered to be 60% long-term and 40% short-term capital gains or losses; (“60/40”), although foreign currency gains or losses arising from certain section 1256 contracts may be ordinary in character (see “Foreign Currency Transactions” below). Also, section 1256 contracts held by a Fund at the end of each taxable year (and for purposes of the 4% excise tax, on certain other dates prescribed in the Code) are “marked-to-market” with the result that unrealized gains or losses are treated as though they were realized and the resulting gains or losses are treated as ordinary or 60/40 gains or losses, as appropriate.

The tax treatment of a payment made or received on a swap to which a Fund is a party, and in particular whether such payment is, in whole or in part, capital or ordinary in character, will vary depending upon the terms of the particular swap contract.

Transactions in options, futures, forward contracts and swaps undertaken by the Funds may result in “straddles” for federal income tax purposes. The straddle rules may affect the character of gains (or losses) realized by a Fund, and losses realized by the Fund on positions that are part of a straddle may be deferred under the straddle rules, rather than being taken into account in calculating taxable income for the taxable year in which the losses are realized. In addition, certain carrying charges (including interest expense) associated with positions in a straddle may be required to be capitalized rather than deducted currently. Certain elections that a Fund may make with respect to its straddle positions may also affect the amount, character and timing of the recognition of gains or losses from the affected positions.

Because only a few regulations implementing the straddle rules have been promulgated, the consequences of such transactions to the Funds are not entirely clear. The straddle rules may increase the amount of short-term capital gain realized by a Fund, which is taxed as ordinary income when distributed to shareholders. Because application of the straddle rules may affect the character of gains or losses, defer losses and/or accelerate the recognition of gains or losses from the affected straddle positions, the amount which must be distributed to shareholders as ordinary income or long-term capital gain may be increased or decreased substantially as compared to a Fund that did not engage in such transactions.

More generally, investments by a Fund in options, futures, forward contracts, swaps and other derivative financial instruments are subject to numerous special and complex tax rules. These rules could affect whether gains and losses recognized by a Fund are treated as ordinary or capital, accelerate the recognition of income or gains to a Fund and defer or possibly prevent the recognition or use of certain losses by a Fund. The rules could, in turn, affect the amount, timing or character of the income distributed to shareholders by a Fund. In addition, because the application of these rules may be uncertain under current law, an adverse determination or future IRS guidance with respect to these rules (which determination or guidance could be retroactive) may affect whether a Fund has made sufficient distributions and otherwise satisfied the relevant requirements to maintain its qualification as a RIC and avoid a Fund-level tax.

Constructive Sales

Under certain circumstances, a Fund may recognize gain from a constructive sale of an “appreciated financial position” it holds if it enters into a short sale, forward contract or other transaction that substantially reduces the risk of loss with respect to the appreciated position. In that event, the Fund would be treated as if it had sold and immediately repurchased the property and would be taxed on any gain (but would not recognize any loss) from the constructive sale. The character of gain from a constructive sale would depend upon each Fund’s holding period in the property. Appropriate adjustments would be made in the amount of any gain or loss subsequently realized on the position to reflect the gain recognized on the constructive sale. Loss from a constructive sale would be recognized when the property was subsequently disposed of, and its character would depend on the Fund’s holding period and the application of various loss deferral provisions of the Code. Constructive sale treatment does not generally apply to a transaction if such transaction is closed before the end of the 30th day after the close of the Fund’s taxable year and the Fund holds the appreciated financial position throughout the 60-day period beginning with the day such transaction closed. The term “appreciated financial position” excludes any position that is “marked-to-market.”

Original Issue Discount; Market Discount

Certain debt securities acquired by a Fund may be treated as debt securities that were originally issued at a discount. Generally, the amount of the original issue discount is treated as interest income and is included in taxable income (and required to be distributed by the Fund) over the term of the debt security, even though payment of that amount is not received until a later time, usually when the debt security matures. If a Fund purchases a debt security on a secondary market at a price lower than its stated redemption price, the excess of the stated redemption price over the purchase price is “market discount.” Generally, any gain realized on the disposition of, and any partial payment of principal on, a debt security having market discount is treated as ordinary income to the extent the gain, or principal payment, does not exceed the “accrued market discount” on the debt security. Market discount generally accrues in equal daily installments.

 

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Foreign Investments and Taxes

Investment income and gains received by a Fund from foreign investments may be subject to foreign withholding and other taxes, which could decrease the Fund’s return on those investments. The effective rate of foreign taxes to which a Fund will be subject depends on the specific countries in which its assets will be invested and the extent of the assets invested in each such country and, therefore, cannot be determined in advance. To allow shareholders to claim a credit or deduction with respect to foreign taxes incurred by the Fund, a Fund that is permitted to do so may elect to “pass through” to its investors the amount of foreign income taxes paid by the Fund.

Foreign Currency Transactions

Gains or losses attributable to fluctuations in exchange rates that occur between the time a Fund accrues income or other receivables or accrues expenses or other liabilities denominated in a foreign currency and the time the Fund actually collects such receivables or pays such liabilities generally are treated as ordinary income or ordinary loss. Similarly, on disposition of some investments, including debt securities and certain forward contracts denominated in a foreign currency, gains or losses attributable to fluctuations in the value of the foreign currency between the acquisition and disposition of the position also are treated as ordinary income or loss. In certain circumstances, a Fund may elect to treat foreign currency gain or loss attributable to a forward contract, a futures contract or an option as capital gain or loss. Furthermore, foreign currency gain or loss arising from certain types of section 1256 contracts is treated as capital gain or loss, although a Fund may elect to treat foreign currency gain or loss from such contracts as ordinary in character. These gains and losses, referred to under the Code as “section 988” gains or losses, increase or decrease the amount of a Fund’s investment company taxable income available (and required) to be distributed to its shareholders as ordinary income. If a Fund’s section 988 losses exceed other investment company taxable income during a taxable year, the Fund would not be able to make any ordinary dividend distributions, or distributions made before the losses were realized would be recharacterized as a return of capital to shareholders, rather than as ordinary dividends, thereby reducing each shareholder’s basis in his or her Fund Shares.

Certain of a Fund’s investments in derivative instruments and foreign currency-denominated instruments, and any of a Fund’s transactions in foreign currencies and hedging activities, are likely to produce a difference between its book income and its taxable income. If such a difference arises, and a Fund’s book income is less than its taxable income, the Fund could be required to make distributions exceeding book income to qualify as a RIC that is accorded special tax treatment. In the alternative, if a Fund’s book income exceeds its taxable income (including realized capital gains), the distribution (if any) of such excess generally will be treated as (i) a dividend to the extent of the Fund’s remaining earnings and profits (including earnings and profits arising from tax-exempt income), (ii) thereafter, as a return of capital to the extent of the recipient’s basis in its shares, and (iii) thereafter as gain from the sale or exchange of a capital asset.

Passive Foreign Investment Companies

The Funds may invest in shares of foreign corporations that are classified under the Code as passive foreign investment companies (“PFICs”). In general, a foreign corporation is classified as a PFIC if at least one-half of its assets constitute investment-type assets, or 75% or more of its gross income is investment-type income. Certain distributions from a PFIC, as well as gain from the sale of PFIC shares, are treated as “excess distributions.” Excess distributions are taxable as ordinary income even though, absent application of the PFIC rules, certain excess distributions might have been classified as capital gains. In general, under the PFIC rules, an excess distribution is treated as having been realized ratably over the period during which the Fund held the PFIC shares. If a Fund receives an excess distribution with respect to PFIC stock, the Fund will itself be subject to tax on the portion of an excess distribution that is allocated to prior taxable years without the ability to reduce such tax by making distributions to Fund shareholders, and an interest factor will be added to the tax as if the tax had been payable in such prior taxable years.

The Funds may be eligible to elect alternative tax treatment with respect to PFIC shares. Under an election that currently is available in some circumstances, a Fund generally would be required to include in its gross income its share of the earnings of a PFIC on a current basis, regardless of whether distributions were received from the PFIC in a given year. If this election were made, the special rules, discussed above, relating to the taxation of excess distributions, would not apply. Another election would involve marking to market a Fund’s PFIC shares at the end of each taxable year, with the result that unrealized gains would be treated as though they were realized and reported as ordinary income. Any mark-to-market losses and any loss from an actual disposition of PFIC shares would be deductible by the Fund as ordinary losses to the extent of any net mark-to-market gains included in income in prior years. Making either of these two elections may require a Fund to liquidate other investments (including when it is not advantageous to do so) to meet its distribution requirements, which also may accelerate the recognition of gain and affect the Fund’s total return.

 

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Mortgage Pooling Vehicles

The Funds may invest directly or indirectly in residual interests in real estate mortgage conduits (“REMICs”) or taxable mortgage pools (“TMPs”). Under a Notice issued by the IRS in October 2006 and Treasury regulations that have yet to be issued but may apply retroactively, a portion of a Fund’s income (including income allocated to the Fund from a REIT or other pass-through entity) that is attributable to a residual interest in a REMIC or an equity interest in a TMP (referred to in the Code as an “excess inclusion”) will be subject to federal income tax in all events. This Notice also provides, and the regulations are expected to provide, that excess inclusion income of a RIC will be allocated to shareholders of the RIC in proportion to the dividends received by such shareholders, with the same consequences as if the shareholders held the related interest directly. As a result, Funds investing in such interests may not be a suitable investment for charitable remainder trusts (see Unrelated Business Taxable Income, below).

In general, excess inclusion income allocated to shareholders (i) cannot be offset by net operating losses (subject to a limited exception for certain thrift institutions), (ii) will constitute unrelated business taxable income (“UBTI”) to entities (including a qualified pension plan, an individual retirement account, a 401(k) plan, a Keogh plan or other tax-exempt entity) subject to tax on UBTI, thereby potentially requiring such an entity that is allocated excess inclusion income, and otherwise might not be required to file a tax return, to file a return and pay tax on such income, and (iii) in the case of a foreign shareholder (defined below), will not qualify for any reduction in U.S. federal withholding tax.

Unrelated Business Taxable Income

Under current law, income of a RIC that would be treated as UBTI if earned directly by a tax-exempt entity generally will not be attributed as UBTI to a tax-exempt entity that is a shareholder in the RIC. Notwithstanding this “blocking” effect, a tax-exempt shareholder could realize UBTI by virtue of its investment in a Fund if Shares in a Fund constitute debt-financed property in the hands of the tax-exempt shareholder within the meaning of Code section 514(b).

A tax-exempt shareholder may also recognize UBTI if a Fund recognizes “excess inclusion income” derived from direct or indirect investments in residual interests in REMICs or equity interests in TMPs if the amount of such income recognized by the Fund exceeds the Fund’s investment company taxable income (after taking into account deductions for dividends paid by the Fund). Furthermore, any investment in residual interests of a collateralized mortgage obligation (a “CMO”) that has elected to be treated as a REMIC can create complex tax consequences, especially if a Fund has state or local governments or other tax-exempt organizations as shareholders.

In addition, special tax consequences apply to charitable remainder trusts (“CRTs”) that invest in RICs that invest directly or indirectly in residual interests in REMICs or equity interests in TMPs. Under legislation enacted in December 2006, a CRT (as defined in section 664 of the Code) that realizes any UBTI for a taxable year must pay an excise tax annually of an amount equal to such UBTI. Under IRS guidance issued in October 2006, a CRT will not recognize UBTI as a result of investing in a Fund that recognizes “excess inclusion income.” Rather, if at any time during any taxable year a CRT (or one of certain other tax-exempt shareholders, such as the United States, a state or political subdivision, or an agency or instrumentality thereof, and certain energy cooperatives) is a record holder of a Share in a Fund that recognizes “excess inclusion income,” then the Fund will be subject to a tax on that portion of its “excess inclusion income” for the taxable year that is allocable to such shareholders at the highest federal corporate income tax rate. The extent to which this IRS guidance remains applicable in light of the December 2006 legislation is unclear. To the extent permitted under the 1940 Act, each Fund may elect to specially allocate any such tax to the applicable CRT, or other shareholder, and thus reduce such shareholder’s distributions for the year by the amount of the tax that relates to such shareholder’s interest in the Fund. The Funds have not yet determined whether such an election will be made.

CRTs and other tax-exempt investors are urged to consult their tax advisors concerning the consequences of investing in a Fund.

Distributions

For federal income tax purposes, distributions of investment company taxable income are generally taxable to a U.S. shareholder as ordinary income, whether paid in cash or Shares. Distributions of net capital gains—that is, the excess of net long-term capital gains from the sale of investments that a Fund has owned (or is treated as having owned) for more than one year over net short-term capital losses –that are properly reported (generally on IRS Form 1099) by a Fund as capital gain dividends (“Capital Gain Dividends”), whether paid in cash or Shares, are taxable at long-term capital gains rates, regardless of how long the shareholder has held the Fund’s Shares. Capital Gain Dividends are not eligible for the corporate dividends received deduction.

Distributions attributable to the excess of net gains from the sale of investments that a Fund owned (or is treated as having owned) for one year or less over net long-term capital losses will be taxable as ordinary income. Distributions of capital gains are generally made after applying any available capital loss carryforwards.

 

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Long-term capital gain rates applicable to non-corporate shareholders have been temporarily reduced, in general to 15% (with a 0% rate applying to taxpayers in the 10% and 15% rate brackets) for taxable years beginning before January 1, 2013. These reduced rates will expire for taxable years beginning on or after January 1, 2013, unless Congress enacts legislation providing otherwise.

Investors should be careful to consider the tax implications of buying Shares of a Fund just prior to a distribution. The price of Shares purchased at this time will include the amount of the forthcoming distribution, but the distribution will generally be taxable.

Shareholders will be notified annually as to the U.S. federal tax status of Fund distributions, and shareholders receiving distributions in the form of newly issued Shares will receive a report as to the value of the Shares received.

Distributions by the Funds to tax-deferred or qualified plans, such as an IRA, retirement plan or corporate pension or profit sharing plan, generally will not be taxable. However, distributions from such plans will be taxable to individual participants without regard to the character of the income earned by the qualified plan. Please consult a tax advisor for a more complete explanation of the federal, state, local and (if applicable) foreign tax consequences of making investments through such plans.

Qualified Dividend Income

For taxable years beginning before January 1, 2013, “qualified dividend income” received by an individual will be taxed at the rates applicable to long-term capital gain. In order for some portion of the dividends received by a Fund shareholder to be qualified dividend income, the Fund must meet holding period and other requirements with respect to some portion of the dividend-paying stocks in its portfolio and the shareholder must meet holding period and other requirements with respect to the Fund’s Shares. A dividend will not be treated as qualified dividend income (at either the Fund or shareholder level) (1) if the dividend is received with respect to any share of stock held for fewer than 61 days during the 121-day period beginning on the date which is 60 days before the date on which such share becomes ex-dividend with respect to such dividend (or, in the case of certain preferred stock, 91 days during the 181-day period beginning 90 days before such date), (2) to the extent that the recipient is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property, (3) if the recipient elects to have the dividend income treated as investment interest, or (4) if the dividend is received from a foreign corporation that is (a) not eligible for the benefits of a comprehensive income tax treaty with the United States (with the exception of dividends paid on stock of such a foreign corporation that is readily tradable on an established securities market in the United States) or (b) treated as a PFIC. The special tax treatment of qualified dividend income will apply only to taxable years beginning before January 1, 2013, unless Congress enacts tax legislation providing otherwise.

Disposition of Shares

Upon a sale, exchange or other disposition of Shares of a Fund, a shareholder will realize a taxable gain or loss depending upon his or her basis in the Shares. A gain or loss will be treated as capital gain or loss if the Shares are capital assets in the shareholder’s hands and generally will be long-term or short-term, depending upon the shareholder’s holding period for the Shares. Any loss realized on a sale, exchange or other disposition will be disallowed to the extent the Shares disposed of are replaced (including through reinvestment of dividends) within a period of 61 days beginning 30 days before and ending 30 days after the Shares are disposed of. In such a case the basis of the Shares acquired will be adjusted to reflect the disallowed loss. Any loss realized by a shareholder on the disposition of a Fund’s Shares held by the shareholder for six months or less will be treated for tax purposes as a long-term capital loss to the extent of any distributions of Capital Gain Dividends received or treated as having been received by the shareholder with respect to such Shares.

Backup Withholding

Each Fund may be required to withhold federal income tax (“backup withholding”) from dividends paid, capital gains distributions, and redemption proceeds to shareholders. Federal tax will be withheld if (1) the shareholder fails to furnish the Fund with the shareholder’s correct taxpayer identification number or social security number, (2) the IRS notifies the shareholder or the Fund that the shareholder has failed to report properly certain interest and dividend income to the IRS and to respond to notices to that effect, or (3) when required to do so, the shareholder fails to certify to the Fund that he or she is not subject to backup withholding. The backup withholding rate is 28% for amounts paid through December 31, 2012. The backup withholding rate will be 31% for amounts paid after December 31, 2012, unless Congress enacts tax legislation providing otherwise. Any amounts withheld under the backup withholding rules may be credited against the shareholder’s federal income tax liability.

 

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In order for a foreign investor to qualify for exemption from the backup withholding tax rates and for reduced withholding tax rates under income tax treaties, the foreign investor must comply with special certification and filing requirements. Foreign investors in a Fund should consult their tax advisors in this regard.

Foreign Shareholders

Dividends, other than Capital Gain Dividends, paid by a Fund to a shareholder that is not a “United States person” within the meaning of the Code (such shareholder, a “foreign shareholder”) generally are subject to withholding of U.S. federal income tax at a rate of 30% (or lower applicable treaty rate) even if they are funded by income or gains (such as portfolio interest, short-term capital gains or foreign-source dividend and interest income) that, if paid to a foreign shareholder directly, would not be subject to withholding. For distributions with respect to taxable years of the Funds beginning before January 1, 2012, however, this tax does not apply and a Fund is not required to withhold any amounts (i) with respect to distributions (other than distributions to a foreign shareholder (w) that does not provide a satisfactory statement that the beneficial owner is not a United States person, (x) to the extent that the dividend is attributable to certain interest on an obligation if the foreign shareholder is the issuer or is a 10% shareholder of the issuer, (y) that is within certain foreign countries that have inadequate information exchange with the United States, or (z) to the extent the dividend is attributable to interest paid by a person that is a related person of the foreign shareholder and the foreign shareholder is a controlled foreign corporation) from U.S.-source interest income of types similar to those not subject to U.S. federal income tax if earned directly by an individual foreign shareholder, to the extent such distributions are properly reported as such by the Fund in a written notice to shareholders (“interest-related dividends”), and (ii) with respect to distributions (other than (a) distributions to an individual foreign shareholder who was present in the United States for a period or periods aggregating 183 days or more during the year of the distribution and (b) distributions subject to special rules regarding the disposition of U.S. real property interests as described below) of net short-term capital gains in excess of net long-term capital losses, to the extent such distributions are properly reported as such by the Fund in a written notice to the shareholders(“short-term capital gain dividends”). The exemption from withholding for interest-related and short-term capital gain dividends will expire for distributions with respect to taxable years of a Fund beginning on or after January 1, 2012, unless Congress enacts legislation providing otherwise. In order to qualify for this exemption from withholding, a foreign shareholder will need to comply with applicable certification requirements relating to its non-U.S. status (including, in general, furnishing an IRS Form W-8BEN or substitute Form). Depending on the circumstances, a Fund may opt not to report potentially eligible dividends as interest-related dividends or short-term capital gain dividends to the full extent permitted by the Code. In the case of Shares held through an intermediary, the intermediary may withhold even if the Fund reports all or a portion of a payment as an interest-related or short-term capital gain dividend. Foreign shareholders should contact their intermediaries regarding the application of these rules to their accounts.

If a beneficial owner of Fund Shares who or which is a foreign shareholder has a trade or business in the United States, and dividends from the Fund are effectively connected with the conduct by the beneficial owner of that trade or business, the dividends will in general be subject to U.S. federal net income taxation at regular income tax rates and, in the case of a foreign corporation, may also be subject to a branch profits tax.

A beneficial holder of Shares who or which is a foreign shareholder is not, in general, subject to U.S. federal income tax on gains (and is not allowed a deduction for losses) realized on the sale of Fund Shares or on Capital Gain Dividends unless (i) such gain or dividend is effectively connected with the conduct of a trade or business carried on by such holder within the United States; (ii) in the case of an individual holder, the holder is present in the United States for a period or periods aggregating 183 days or more during the year of the sale or the receipt of the Capital Gain Dividend and certain other conditions are met; or (iii) the Fund Shares constitute “U.S. real property interests” (“USRPIs”) or the Capital Gains Dividends are attributable to gains from the sale or exchange of USRPIs in accordance with the rules described below.

If a shareholder is eligible for the benefits of a tax treaty, any effectively connected income or gain will generally be subject to U.S. federal income tax on a net basis only if it is also attributable to a permanent establishment maintained by the shareholder in the United States.

Special rules may apply to distributions to foreign shareholders from a Fund that is either a “U.S. real property holding corporation” (“USRPHC”) or would be a USRPHC but for the operation of certain exceptions to the definition thereof described below. Additionally, special rules may apply to the sale of Shares in any Fund that is a USRPHC or former USRPHC. Very generally, a USRPHC is a domestic corporation that holds U.S. real property interests (“USRPIs”)—defined very generally in turn as any interest in U.S. real property or any equity interest in a USRPHC or former USRPHC—the fair market value of which equals or exceeds 50% of the sum of the fair market values of the corporation’s USRPIs, interests in real property located outside the United States, and other trade or business assets combined. A fund that holds (directly or indirectly) significant interests in REITs may be a USRPHC. The special rules discussed in the next paragraph also apply to distributions from a Fund that would be a USRPHC absent exclusions from USRPI treatment for interests in domestically controlled REITs or RICs and not-greater-than-5% interests in publicly traded classes of stock in REITs or RICs.

 

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In the case of a Fund that is a USRPHC or would be a USRPHC but for the exclusions from USRPI treatment described above, any distributions from the Fund (including, in certain cases, distributions made by the Fund in redemption of its Shares) that are attributable to (a) gains realized on the disposition of USRPIs by the Fund and (b) distributions received by the Fund from a lower-tier RIC or REIT that the Fund is required to treat as USRPI gain in its hands will retain their character as gains realized from USRPIs in the hands of the Fund’s foreign shareholders. Unless Congress enacts tax legislation providing otherwise, on and after January 1, 2012, the “look-through” USRPI treatment for distributions by the Fund described in (b) above applies only to those distributions that, in turn, are attributable to distributions received by the Fund from a lower-tier REIT. If the foreign shareholder holds (or has held in the prior year) more than a 5% interest in the Fund, such distributions generally will be treated as gains “effectively connected” with the conduct of a “U.S. trade or business,” and subject to tax at graduated rates. Moreover, such shareholders generally will be required to file a U.S. income tax return for the year in which the gain was recognized and the Fund will be required to withhold 35% of the amount of such distribution. In the case of all other foreign shareholders (i.e., those whose interests in the Fund did not exceed 5% at any time during the prior year), the USRPI distributions generally will be treated as ordinary income (regardless of any reporting by the Fund that such distribution is a Capital Gain Dividend or a short-term capital gain dividend), and the Fund generally must withhold 30% (or a lower applicable treaty rate) of the amount of the distribution paid to such foreign shareholder. Foreign shareholders of such Funds also may be subject to “wash sale” rules to prevent the avoidance of the tax-filing and -payment obligations discussed above through the sale and repurchase of Fund Shares.

In addition, a Fund that is a USRPHC or former USRPHC must typically withhold 10% of the amount realized in redemption by a greater-than-5% foreign shareholder, and that shareholder must typically file a U.S. income tax return for the year of the disposition of the USRPI and pay any additional tax due on the gain. Prior to January 1, 2012, such withholding is generally not required with respect to amounts paid in redemption of Shares of a Fund if the Fund is a domestically controlled USRPHC or, in certain limited cases, if the Fund (whether or not domestically controlled) holds substantial investments in RICs that are domestically controlled USRPHCs. The exemption from withholding for redemptions will expire for redemptions made on or after January 1, 2012, unless Congress enacts legislation providing otherwise. If no such legislation is enacted, beginning on January 1, 2012, such withholding is required, without regard to whether a Fund or any RIC in which a fund invests is domestically controlled.

Foreign shareholders should consult their tax advisors and, if holding Shares through intermediaries, their intermediaries, concerning the application of these rules to their investment in a Fund.

Certain Additional Reporting and Withholding Requirements

The Hiring Incentives to Restore Employment (“HIRE”) Act, enacted in March 2010, requires the reporting to the IRS of direct and indirect ownership of foreign financial accounts and foreign entities by U.S. persons. Failure to provide this required information can result in a 30% withholding tax on certain payments (“withholdable payments”), beginning in 2014 or 2015, depending on the type of payment. Withholdable payments include payments of U.S.-source dividends and interest, made on or after January 1, 2014, and gross proceeds from the sale or other disposition of property that can produce U.S.-source dividends or interest Made on or after January 1, 2015. Subject to future IRS guidance, a Fund may require additional tax-related certifications, representations or information from shareholders in order to comply with the provisions of the HIRE Act.

The IRS has issued only very preliminary guidance with respect to these new rules; their scope remains unclear and potentially subject to material change. Very generally, it is possible that distributions made by a Fund after the dates noted above (or such later dates as may be provided in future guidance) to a shareholder, including a distribution in redemption of Shares and a distribution of income or gains exempt from U.S. federal income tax or, in the case of distributions to a foreign shareholder, exempt from withholding under the regular withholding rules described earlier (e.g., Capital Gain Dividends and short-term capital gain and interest-related dividends, as described above), will be a withholdable payment subject to the new 30% withholding requirements, unless a shareholder provides information, certifications, representations or waivers of foreign law, as the Fund requires, to comply with these rules. In the case of certain foreign shareholders, it is possible that this information will include information regarding direct and indirect U.S. owners of such foreign shareholders. The failure of a shareholder to provide such information may result in other adverse consequences to the shareholder. A foreign shareholder that is treated as a “foreign financial institution” (as defined under these rules) generally will be subject to withholding unless it enters into, and provides certification to the Funds of, a valid and timely information reporting and withholding agreement with the IRS to report, among other requirements, required information including about certain direct and indirect U.S. investors or U.S. accounts. Future regulations may exempt certain foreign institutions from these requirements, but it is currently unclear whether or when such regulations will be issued.

 

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Persons investing in a Fund through foreign intermediaries should contact their intermediaries regarding the application of these rules to their accounts and their investment in the Fund.

Shareholders are urged to consult a tax advisor regarding this new reporting and withholding regime, in light of their particular circumstances.

Equalization Accounting

Each Fund distributes its net investment income and capital gains to shareholders as dividends at least annually to the extent required to qualify for treatment as a RIC under the Code and generally to avoid federal income or excise tax. Under current law, each Fund may on its tax return treat as a distribution of investment company taxable income or net capital gain, as the case may be, the portion of redemption proceeds paid to redeeming shareholders that represents the redeeming shareholders’ portion of the Fund’s undistributed investment company taxable income and net capital gain, respectively. This practice, which involves the use of “equalization” accounting, will have the effect of reducing the amount of income and gains that a Fund is required to distribute as dividends to (non-redeeming) shareholders in order for the Fund to avoid federal income tax and excise tax, and the amount of any undistributed income or gains will be reflected in the value of a Fund’s Shares. The total return on a shareholder’s investment will generally not be reduced as a result of a Fund’s use of this practice. As noted above, investors who purchase Shares shortly before the record date of a distribution will pay the full price for the Shares and then receive some portion of the price back as a taxable distribution.

Tax Shelter Disclosure

Under Treasury regulations, if a shareholder recognizes a loss on a disposition of a Fund’s Shares of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder (including, for example, an insurance company holding separate account), the shareholder must file with the IRS a disclosure statement on Form 8886. Direct shareholders of portfolio securities are in many cases excepted from this reporting requirement, but, under current guidance, shareholders of a RIC are not excepted. This filing requirement applies even though, as a practical matter, any such loss would not, for example, reduce the taxable income of an insurance company. Future guidance may extend the current exception from this reporting requirement to shareholders of most or all RICs. Shareholders should consult their tax advisors to determine the applicability of these regulations in light of their individual circumstances.

Creation and Redemption of Creation Units

An Authorized Participant who exchanges securities for Creation Units generally will recognize a gain or a loss. The gain or loss will be equal to the difference between the market value of the Creation Units at the time and the sum of the exchanger’s aggregate basis in the securities surrendered plus the amount of cash paid for such Creation Units. A person who redeems Creation Units will generally recognize a gain or loss equal to the difference between the exchanger’s basis in the Creation Units and the sum of the aggregate market value of any securities received plus the amount of any cash received for such Creation Units. The IRS, however, may assert that a loss realized upon an exchange of securities for Creation Units cannot be deducted currently under the rules governing “wash sales,” or on the basis that there has been no significant change in economic position. Persons purchasing or redeeming Creation Units should consult their own tax advisors with respect to the tax treatment of any creation or redemption transaction.

Other Taxation

The foregoing discussion is primarily a summary of certain U.S. federal income tax consequences of investing in a Fund based on the law in effect as of the date of this SAI. The discussion does not address in detail special tax rules applicable to certain classes of investors, such as, among others, IRAs and other retirement plans, tax-exempt entities, foreign investors, insurance companies, banks and other financial institutions, and investors making in-kind contributions to a Fund. Such shareholders may be subject to U.S. tax rules that differ significantly from those summarized above. You should consult your tax advisor for more information about your own tax situation, including possible other federal, state, local and, where applicable, foreign tax consequences of investing in a Fund.

OTHER INFORMATION

Regular International Holidays

For each intervening holiday in the applicable foreign market that is not a holiday observed by the U.S. equity markets, the redemption settlement cycle will be extended by the number of days of such intervening holiday. In addition to holidays, other unforeseeable closings in a foreign market, including due to regulatory action, may also prevent a Fund from delivering securities within the normal settlement period.

 

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In certain circumstances, the securities delivery cycles currently practicable for transferring portfolio securities to redeeming investors, coupled with foreign market holiday schedules, will require a delivery process longer than seven calendar days. The holidays applicable to various countries during such periods are listed below, as are instances where more than seven days will be needed to deliver redemption proceeds. Although certain holidays may occur on different dates in subsequent years, the number of days required to deliver redemption proceeds in any given year is not expected to exceed the maximum number of days listed below for each Fund. The proclamation of new holidays, the treatment by market participants of certain days as “informal holidays” (e.g., days on which no or limited securities transactions occur, as a result of substantially shortened trading hours), the elimination of existing holidays, or changes in local securities delivery practice, could affect the information set forth herein.

The dates in calendar year 2012 in which the regular holidays affecting the relevant securities markets of the below listed countries are as follows (please note these holiday schedules are subject to potential changes in the relevant securities markets):

 

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2012

Argentina

  

Australia

  

Austria

  

Belgium

  

Brazil

  

Chile

January 1

   January 1    January 1    January 1    January 1    January 1

April 2

   January 2    January 6    April 8    February 20    April 6

April 6

   January 26    April 9    April 9    February 21    April 7

April 8

   April 6    May 1    May 1    April 6    April 8

May 1

   April 9    May 17    May 17    April 21    May 1

May 25

   June 11    May 28    May 28    May 1    May 21

June 18

   August 6    June 7    July 21    June 7    July 2

July 9

   October 1    August 15    August 15    September 7    July 16

August 20

   December 25    October 26    November 1    October 12    August 15

October 15

   December 26    November 1    November 11    November 2    September 18

December 8

      December 8    December 25    November 15    September 19

December 25

      December 25       December 25    October 15

December 26

               November 1
               November 2
               December 8
               December 25

China

  

Colombia

  

Czech Republic

  

Egypt

  

Finland

  

France

January 23

   January 1    January 1    January 1    January 6    May 1

January 24

   January 9    April 25    January 7    April 6    December 25

January 25

   March 19    May 1    April 15    April 9    December 26

January 26

   April 5    May 8    April 16    May 1   

January 27

   April 6    July 5    April 25    May 17   

February 23

   May 1    July 6    May 1    June 22   

February 24

   May 21    September 28    June 16    December 6   

April 4

   June 11    October 28    July 1    December 24   

May 1

   June 18    November 17    July 23    December 26   

October 1

   July 2    December 24    August 20    December 31   

October 2

   July 20    December 25    August 21      

October 3

   August 7    December 26    August 22      
   August 20       October 6      
   October 15       October 26      
   November 5       October 27      
   November 12       October 28      
   December 8       October 29      
   December 25       November 15      
        

December 5

     

 

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Germany

  

Greece

  

Hong Kong

  

Hungary

  

India

  

Indonesia

January 1

   January 6    January 2    January 1    April 6    January 1

April 6

   February 20    January 23    March 14    April 14    August 17

April 9

   April 6    January 24    March 15    May 1    December 25

May 1

   April 9    January 25    March 28    August 15   

May 17

   May 1    April 4    May 1    December 25   

May 28

   May 28    April 6    May 16      

June 7

   August 15    April 7    August 20      

October 3

   December 25    April 9    October 23      

November 1

   December 26    April 28    October 31      

December 25

      May 1    November 1      

December 26

      June 23    December 25      
      July 2    December 26      
     

October 1

        
     

October 2

        
     

October 23

        
     

December 25

        
     

December 26

        

Ireland

  

Israel

  

Italy

  

Japan

  

Malaysia

  

Mexico

January 1

   March 8    January 1    January 2    January 1    January 1

March 17

   April 6    January 6    January 3    January 2    February 6

April 6

   April 7    April 1    January 9    January 23    March 19

April 9

   April 8    April 6    February 11    January 24    April 5

May 7

   April 13    April 8    March 20    February 1    April 6

June 4

   April 25    April 9    April 30    February 5    May 1

August 1

   April 26       May 3    February 6    May 5

October 29

   May 26    May 1    May 4    February 7    September 16

December 25

   May 27    July 15    May 5    May 1    November 2

December 26

   May 28    November 1    July 16    May 5    November 19
   July 29    December 8    September 17    June 2+    December 1
   September 16    December 24    September 22    August 19    December 12
   September 17    December 25    October 8    August 20    December 25
   September 18    December 26    November 3    August 21   
   September 25    December 31    November 23    August 31   
   September 26       December 24    September 16   
   September 30       December 31    September 17   
   October 1          October 26   
   October 2          November 13   
   October 8          November 15   
   October 9          December 25   
  

December 8

           

The Netherlands

  

New Zealand

  

Peru

  

The Philippines

  

Portugal

  

Russia

January 1

   January 2    January 1    January 1    April 6    January 1

April 6

   January 3    April 5    April 5    April 9    January 2

April 9

   January 23    April 6    April 6    May 1    January 3

April 30

   January 30    May 1    April 9    December 25    January 4

May 17

   February 6    June 29    May 1    December 26    January 5

May 28

   April 6    July 28    June 12       January 6

December 25

   April 9    July 29    August 26       January 7

December 26

   April 25    August 30    November 1       January 9
   June 4    October 8    November 30       February 23
   October 22    November 1    December 25       March 8
   December 25    December 8    December 30       March 9
   December 26    December 25    December 31       April 30
               May 1
               May 9
               June 9
               June 11
               June 12
               November 5
               December 29
               December 31

 

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Singapore

  

South Africa

  

South Korea

   Spain   

Sweden

   Switzerland

January 1

   January 1    January 1    January 1    January 1    January 2

January 2

   January 2    January 23    January 6    January 6    April 6

January 23

   March 21    January 24    March 19    April 6    April 9

January 24

   April 6    March 1    April 6    April 9    May 17

April 6

   April 9    April 11    April 9    May 1    May 28

May 1

   April 27    May 1    May 1    May 17    August 1

May 5

   May 1    May 5    August 15    June 6    December 25

August 9

   June 16    May 28    October 12    June 22    December 26

August 19

   August 9    June 6    November 1    December 24   

August 20

   September 24    August 15    December 6    December 25   

October 26

   December 17    September 30    December 8    December 26   

November 13

   December 25    October 1    December 25    December 31   

December 25

   December 26    October 3    December 26      
     

December 19

        
     

December 25

        

Taiwan

  

Thailand

  

Turkey

   United Kingdom          

January 1

   January 2    January 1    January 2      

January 22

   March 7    May 19    April 6      

January 23

   April 6    August 30    April 9      

January 24

   April 13    October 29    May 7      

January 25

   April 16       June 4      

January 26

   May 1       June 5      

January 27

   May 7       August 27      

February 4

   June 4       December 25      

February 27

   August 2       December 26      

February 28

   August 13            

March 3

   October 23            

April 4

   December 5            

May 1

   December 10            

June 23

   December 31            

September 30

              

October 10

              

December 22

              

December 31

              

 

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Redemptions

The longest redemption cycle for a Fund is a function of the longest redemption cycle among the countries whose stocks comprise the Funds. In the calendar year 2012*, the dates of regular holidays# affecting the following securities markets present the worst-case redemption cycle for a Fund as follows:

2012*

 

Country

  

Redemption Request Date

  

Redemption Settlement Date

  

Settlement Period

China    Jan. 18, 2012    Jan. 30, 2012    12
   Jan. 19, 2012    Jan. 30, 2012    11
   Jan. 20, 2012    Jan. 30, 2012    10
   Feb. 20, 2012    Feb. 27, 2012    7
   Feb. 21, 2012    Feb. 27, 2012    6
   Sept. 24, 2012    Oct. 4, 2012    10
   Sept. 25, 2012    Oct. 5, 2012    10
Egypt    Aug. 15, 2012    Aug. 23, 2012    8
   Aug. 16, 2012    Aug. 23, 2012    7
   Aug. 17, 2012    Aug. 23, 2012    6
Hong Kong    Jan. 18, 2012    Jan. 26, 2012    8
   Jan. 19, 2012    Jan. 26, 2012    7
   Jan. 20, 2012    Jan. 26, 2012    6
Israel    Sept. 12, 2012    Sept. 19, 2012    7
   Sept. 13, 2012    Sept. 19, 2012    6
   Sept. 14, 2012    Sept. 19, 2012    5
   Sept. 20, 2012    Sept. 27, 2012    7
   Sept. 21, 2012    Sept. 27, 2012    6
Japan    Dec. 28, 2011    Jan. 4, 2012    7
   Dec. 29, 2011    Jan. 4, 2012    6
   Dec. 30, 2011    Jan. 4. 2012    5
   April 27, 2012    May 7, 2012    10
   May 1, 2012    May 7, 2012    6
   May 2, 2012    May 7, 2012    5
Malaysia    Jan. 31, 2012    Feb. 8, 2012    8
   Feb. 2, 2012    Feb. 8, 2012    6
   Feb. 3, 2012    Feb. 8, 2012    5
Russia    Dec. 28, 2011    Jan. 10, 2012    13
   Dec. 29, 2011    Jan. 10, 2012    12
   Dec. 30, 2011    Jan. 10, 2012    11
   Mar. 5, 2012    Mar. 12, 2012    7
   Mar. 6, 2012    Mar. 12, 2012    6
   Mar. 7, 2012    Mar. 12, 2012    5
   June 6, 2012    June 13, 2012    7
   June 7, 2012    June 13, 2012    6
   June 8, 2012    June 13, 2012    5

 

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Country

  

Redemption Request Date

  

Redemption Settlement Date

  

Settlement Period

South Korea    Jan. 18, 2012    Jan. 25, 2012    7
   Jan. 19, 2012    Jan. 25, 2012    6
   Jan. 20, 2012    Jan. 25, 2012    5
Taiwan    Jan. 18, 2012    Jan. 30, 2012    12
   Jan. 19, 2012    Jan. 30, 2012    11
   Jan. 20, 2012    Jan. 30 2012    10

 

* Settlement dates in the table above have been confirmed as of October 24, 2011
# Holidays are subject to change without further notice.

Legal Proceedings

The Trust, the Advisor and various Trust officers have been named as defendants in a purported class action lawsuit filed in the United States District Court for the Southern District of New York, styled In re ProShares Trust Securities Litigation, Civ. No. 09-cv-6935. The complaint alleges that the defendants violated Sections 11 and 15 of the 1933 Act by including untrue statements of material fact, omitting material facts in the Registration Statement for thirty-eight ProShares ETFs and allegedly failing to adequately disclose the funds’ investment objectives and risks. The thirty-eight funds of the Trust named in the complaint are Ultra Dow 30, Ultra Oil & Gas, Short Dow30, UltraShort Oil & Gas, UltraShort Dow 30, UltraShort MSCI EAFE, UltraShort MSCI Emerging Markets, Short MSCI EAFE, UltraShort MSCI Europe, Short MSCI Emerging Markets, UltraShort MSCI Japan, UltraShort FTSE China 25, Ultra MidCap400, UltraShort MidCap400, Short QQQ, UltraShort QQQ, UltraShort Technology, UltraShort Consumer Services, UltraShort SmallCap600, UltraShort S&P500, Short Financials, Short S&P 500, UltraShort Industrials, UltraShort Russell1000 Value, UltraShort Financials, UltraShort Russell2000 Growth, UltraShort Basic Materials, UltraShort Real Estate, UltraShort Semiconductors, Ultra S&P 500, UltraShort Consumer Goods, UltraShort Russell2000, Ultra Real Estate, Ultra Semiconductors, Ultra Russell2000, Ultra Industrials, Ultra Financials and Ultra Basic Materials. The Trust believes the complaint is without merit and that the anticipated outcome will not adversely impact the operation of the Trust or any of its Funds.

Index Provider Disclaimers

The Funds are not sponsored, endorsed, sold or promoted by Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. (“S&P”). S&P makes no representation or warranty, express or implied, to the owners of Shares of the Funds or any member of the public regarding the advisability of investing in securities generally or in the Funds particularly or the ability of the S&P 500® Index, S&P SmallCap 600™ Index and S&P MidCap 400™ Index (together, “S&P Indexes”) to track general stock market performance. S&P’s only relationship to the Funds (“Licensee”) is the licensing of certain trademarks and S&P trade names. S&P has no obligation to take the needs of the Licensee or owners of Shares of the Funds into consideration in determining, composing or calculating the S&P Indexes. S&P is not responsible for and has not participated in the determination or calculation of the equation by which the Shares of Funds are to be converted into cash. S&P has no obligation or liability in connection with the administration, marketing or trading of Funds.

S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P INDEXES, RESPECTIVELY, OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE PRODUCT, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P INDEXES OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTIBILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P INDEXES OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.

Russell 3000® Russell 2000®, Russell 1000® and Russell Midcap® (the “Russell Indexes”) are trademarks of the Russell Investment Group and/or its affiliates (“Russell”).

 

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RUSSELL DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE RUSSELL INDEXES OR ANY DATA INCLUDED THEREIN AND RUSSELL SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. RUSSELL MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY PROSHARES TRUST, INVESTORS, FUND SHAREHOLDERS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE RUSSELL INDEXES OR ANY DATA INCLUDED THEREIN. RUSSELL MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE RUSSELL INDEXES OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL RUSSELL HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.

“Dow Jones” is a service mark of Dow Jones & Company, Inc. Dow Jones does not:

 

   

Sponsor, endorse, sell or promote the Funds;

 

   

Recommend that any person invest in the Funds or any other securities;

 

   

Have any responsibility or liability for or make any decisions about timing, amount or pricing of the Funds;

 

   

Have any responsibility or liability for the administration, management or marketing of the Funds; or

 

   

Consider the needs of the Funds or the owners of the Funds in determining, composing or calculating Dow Jones indexes or have any obligation to do so.

Dow Jones will not have any liability in connection with the Funds. 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 Funds, the owner of the Funds or any other person in connection with the use of Dow Jones indexes and the data included in Dow Jones indexes;

 

   

The accuracy or completeness of Dow Jones indexes and their data;

 

   

The merchantability and the fitness for a particular purpose or use of Dow Jones indexes and their data;

 

   

Dow Jones will have no liability for any errors, omission or interruptions in Dow Jones indexes or their data; and

 

   

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.

MSCI ® is a registered trademark of Morgan Stanley & Company, Inc. The Funds are not sponsored, endorsed, sold or promoted by Morgan Stanley or any affiliate of Morgan Stanley. Neither Morgan Stanley, any of its affiliates nor any other party involved in making or compiling the MSCI Indexes makes any representation or warranty, express or implied, to the owners of the Funds or any member of the public regarding the advisability of investing in securities generally or in the Funds particularly or the ability of the MSCI Indexes to track general stock market performance. Morgan Stanley is the licensor of certain trademarks, service marks and trade names of MSCI and of the MSCI Indexes, which are determined, composed and calculated by Morgan Stanley without regard to the Funds. Morgan Stanley has no obligation to take the needs of the Funds into consideration in determining, composing or calculating the MSCI Indexes. Morgan Stanley is not responsible for and has not participated in the determination of the prices and amount of Shares of the Funds or the timing of the issuance or sale of such Shares. Neither Morgan Stanley, any of its affiliates nor any other party involved in making or compiling the MSCI Indexes has any obligation or liability to owners of the Funds in connection with the administration of the Funds, or the marketing or trading of Shares of the Funds. Although Morgan Stanley obtains information for inclusion in or for use in the calculation of the MSCI Indexes from sources which Morgan Stanley considers reliable, neither Morgan Stanley, any of its affiliates nor any other party involved in making or compiling the MSCI Indexes guarantees the accuracy and or the completeness of the MSCI Indexes or any data included therein. Neither Morgan Stanley, any of its affiliates nor any other party involved in making or compiling the MSCI Indexes makes any warranty, express or implied, as to results to be obtained by the Funds, or any other person or entity from the use of the MSCI Indexes or any data included therein in connection with the rights licensed hereunder or for any other use. Neither Morgan Stanley, any of its affiliates nor any other party involved in making or compiling the MSCI Indexes shall have any liability for any errors, omissions or interruptions of or in connection with the MSCI Indexes or any data included therein. Neither Morgan Stanley, any of its affiliates nor any other party involved in making or compiling the MSCI Indexes makes any express or implied warranties, and Morgan Stanley hereby expressly disclaims all warranties of merchantability or fitness for a particular purpose with respect to the MSCI Indexes or any data included therein. Without limiting any of the foregoing, in no event shall Morgan Stanley, any of its affiliates or any other party involved in making or compiling the MSCI Indexes have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.

 

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CREDIT SUISSE SECURITIES (USA) LLC AND ITS AFFILIATES (COLLECTIVELY, “CREDIT SUISSE”) DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE INDEX, OR ANY DATA INCLUDED THEREIN AND CREDIT SUISSE SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. CREDIT SUISSE MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE PRODUCT, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE CREDIT SUISSE INDEXES OR ANY DATA INCLUDED THEREIN. CREDIT SUISSE MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTIBILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE CREDIT SUISSE INDEXES OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL CREDIT SUISSE HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.

BARCLAYS CAPITAL DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE BARCLAYS CAPITAL INDEXES OR ANY DATA INCLUDED THEREIN AND BARCLAYS CAPITAL SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. BARCLAYS CAPITAL MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY PROSHARES TRUST, INVESTORS, FUND SHAREHOLDERS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE BARCLAYS CAPITAL INDEXES OR ANY DATA INCLUDED THEREIN. BARCLAYS CAPITAL MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE BARCLAYS CAPITAL INDEXES OR ANY DATA INCLUDED THEREIN WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL BARCLAYS CAPITAL HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.

The Shares are not sponsored, endorsed, sold or promoted by BofA Merrill Lynch. Neither BofA Merrill Lynch nor any of Standard & Poor’s, a division of The McGraw-Hill Companies, Inc., Standard & Poor’s Financial Services LLC, MSCI, Inc. or Frank Russell Company (the “Exchanges and Entities”) have passed on the legality or suitability of, or the accuracy or adequacy of descriptions and disclosures relating to, the Shares, nor do they make any representation or warranty, express or implied, to the owners of the Shares or any member of the public regarding the advisability of investing in securities generally or in the Shares particularly or the ability of the Index to track general hedge fund performance. BofA Merrill Lynch’s and the Exchanges and Entities’ only relationship to the Trust is the licensing of certain trademarks and trade names of BofA Merrill Lynch and the Exchanges and Entities and of the Index, which indices are determined, composed and calculated by BofA Merrill Lynch without regard to the Trust or the Shares. BofA Merrill Lynch and the Exchanges and Entities have no obligation to take the needs of the Trust or the owners of the Shares into consideration in determining, composing or calculating the Index. BofA Merrill Lynch and the Exchanges and Entities are not responsible for and have not participated in the determination of the timing of, prices at, or quantities of the Shares to be issued or in the determination or calculation of the equation by which the Shares are to be converted into or redeemed for cash or other assets. BofA Merrill Lynch and the Exchanges and Entities have no obligation or liability in connection with the administration, marketing or trading of the Shares.

BOFA MERRILL LYNCH AND THE EXCHANGES AND ENTITIES DO NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE INDEX OR ANY DATA INCLUDED THEREIN AND BOFA MERRILL LYNCH AND THE EXCHANGES AND ENTITIES SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. BOFA MERRILL LYNCH AND THE EXCHANGES AND ENTITIES MAKE NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY TRUST, OWNERS OF THE SHARES OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEX OR ANY DATA INCLUDED THEREIN. BOFA MERRILL LYNCH AND THE EXCHANGES AND ENTITIES MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL BOFA MERRILL LYNCH OR THE EXCHANGES AND ENTITIES HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.

The BofA Merrill Lynch Marks are trademarks of Merrill Lynch, Pierce, Fenner & Smith Incorporated or its affiliates and have been licensed for use by Trust. S&P, MSCI and Russell, respectively, are trademarks of Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. and Standard & Poor’s Financial Services LLC, MSCI, Inc. and Frank Russell Company and have been licensed for use by BofA Merrill Lynch.

 

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FINANCIAL STATEMENTS

The audited Financial Statements, for each Fund that commenced operations prior to May 31, 2011, and the report of PricewaterhouseCoopers LLP, as independent registered public accounting firm, for the fiscal year ended May 31, 2011, that appear in the Annual Report to shareholders dated May 31, 2011, are hereby incorporated by reference in this SAI. The Annual Report to shareholders is delivered with this SAI to shareholders requesting this SAI.

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THE PROSPECTUS OR IN THIS STATEMENT OF ADDITIONAL INFORMATION, WHICH THE PROSPECTUS INCORPORATES BY REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR PRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY PROSHARES TRUST. THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE AN OFFERING BY PROSHARES TRUST IN ANY JURISDICTION IN WHICH SUCH AN OFFERING MAY NOT LAWFULLY BE MADE.

 

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Appendix A

 

A-1


Table of Contents

Although the Trust does not have information concerning the beneficial ownership of Shares nominally held by Depository Trust Company (“DTC”), the name and percentage ownership of each DTC participant that owned of record 5% or more of the outstanding Shares of a Fund participants, as of September 1, 2011 is set forth below:

 

Fund Name

   Percentage Ownership  

Ultra QQQ

  

E*TRADE SECURITIES LLC

135 E. 57th Street

New York, NY 10022

     5.45

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     6.06

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     9.59

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     19.63

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     19.94

Ultra Dow30

  

E*TRADE SECURITIES LLC

135 E. 57th Street

New York, NY 10022

     6.12

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     6.41

PERSHING LLC

One Pershing Plaza

Jersey City, NJ 07399

     6.98

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     8.86

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     16.48

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     17.72

Ultra S&P500

  

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     7.93

 

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BROWN BROTHERS HARRIMAN & CO.

525 Washington Blvd.

Jersey City, NJ 07310

     12.32

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     14.97

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     16.97

Ultra Russell3000

  

GOLDMAN, SACHS & CO.

1 New York Plaza

New York, NY 10004

     6.74

CITIGROUP GLOBAL MARKETS, INC.

390 Greenwich Street

New York, NY 10013

     33.71

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     50.64

Ultra MidCap400

  

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     5.23

PERSHING LLC

One Pershing Plaza

Jersey City, NJ 07399

     7.09

LPL FINANCIAL

9785 Towne Centre Drive

San Diego, CA 92121

     7.16

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     8.61

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     17.25

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     22.17

Ultra SmallCap600

  

FIRST CLEARING, LLC

Riverfront Plaza, 901 East Byrd Street

Richmond, VA 23219

     5.44

 

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CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     10.55

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     11.92

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     21.39

UNION BANK

551 Madison Ave #11

New York, NY 10022

     22.76

Ultra Russell2000

  

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     5.31

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     12.44

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     20.86

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     24.38

UltraPro QQQ

  

BROWN BROTHERS HARRIMAN & CO.

525 Washington Blvd.

Jersey City, NJ 07310

     5.08

PERSHING LLC

One Pershing Plaza

Jersey City, NJ 07399

     5.35

UBS SECURITIES LLC

51 West 52nd Street

New York, NY 10019

     5.48

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     5.63

E*TRADE SECURITIES LLC

135 E. 57th Street

New York, NY 10022

     6.81

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     12.12

 

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NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     16.01

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     16.18

UltraPro Dow30

  

GOLDMAN, SACHS & CO.

1 New York Plaza

New York, NY 10004

     5.34

SCOTTRADE INC

280 Park Avenue

New York, NY 10017

     5.83

PERSHING LLC

One Pershing Plaza

Jersey City, NJ 07399

     5.84

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     8.80

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     11.65

GOLDMAN SACHS EXECUTION & CLEARING, L.P.

30 Hudson Street

Jersey City, NJ 07302

     17.51

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     21.89

UltraPro S&P500

  

E*TRADE SECURITIES LLC

135 E. 57th Street

New York, NY 10022

     5.13

BROWN BROTHERS HARRIMAN & CO.

525 Washington Blvd.

Jersey City, NJ 07310

     5.88

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     6.07

PERSHING LLC

One Pershing Plaza

Jersey City, NJ 07399

     6.82

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     8.50

 

A-5


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NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     15.39

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     15.64

UltraPro MidCap400

  

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     5.51

FIRST CLEARING, LLC

Riverfront Plaza, 901 East Byrd Street

Richmond, VA 23219

     7.38

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     10.67

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     15.60

UNION BANK

551 Madison Ave #11

New York, NY 10022

     18.38

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     20.88

UltraPro Russell2000

  

FIRST CLEARING, LLC

Riverfront Plaza, 901 East Byrd Street

Richmond, VA 23219

     5.21

E*TRADE SECURITIES LLC

135 E. 57th Street

New York, NY 10022

     5.60

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     5.72

SCOTTRADE INC

280 Park Avenue

New York, NY 10017

     6.49

PERSHING LLC

One Pershing Plaza

Jersey City, NJ 07399

     8.93

 

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TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     11.11

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     16.21

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     19.95

Ultra Russell1000 Value

  

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     5.80

CREDIT SUISSE SECURITIES (USA) LLC

11 Madison Avenue

New York, NY 10010

     6.49

PERSHING LLC

One Pershing Plaza

Jersey City, NJ 07399

     6.97

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     10.03

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     12.68

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     26.42

Ultra Russell1000 Growth

  

RAYMOND JAMES & ASSOCIATES, INC.

160 Broadway Suite 600

New York, NY 10038

     5.42

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     9.17

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     12.68

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     19.82

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     24.69

 

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Ultra Russell MidCap Value

  

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     6.84

CREDIT SUISSE SECURITIES (USA) LLC

11 Madison Avenue

New York, NY 10010

     9.08

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     9.51

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     42.01

Ultra Russell MidCap Growth

  

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     5.52

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     8.72

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     19.43

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     29.58

Ultra Russell2000 Value

  

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     11.91

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     12.97

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     35.57

Ultra Russell2000 Growth

  

E*TRADE SECURITIES LLC

135 E. 57th Street

New York, NY 10022

     5.47

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     9.35

 

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NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     17.69

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     18.59

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     22.27

Ultra Basic Materials

  

SCOTTRADE INC

280 Park Avenue

New York, NY 10017

     5.00

E*TRADE SECURITIES LLC

135 E. 57th Street

New York, NY 10022

     6.50

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     7.09

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     9.81

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     14.36

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     25.37

Ultra Nasdaq Biotechnology

  

E*TRADE SECURITIES LLC

135 E. 57th Street

New York, NY 10022

     5.28

SCOTTRADE INC

280 Park Avenue

New York, NY 10017

     5.82

GOLDMAN SACHS EXECUTION & CLEARING, L.P.

30 Hudson Street

Jersey City, NJ 07302

     7.10

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     8.84

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     11.84

 

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NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     18.58

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     20.28

Ultra Consumer Goods

  

PERSHING LLC

One Pershing Plaza

Jersey City, NJ 07399

     5.85

GOLDMAN, SACHS & CO.

1 New York Plaza

New York, NY 10004

     8.17

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     11.38

GOLDMAN SACHS EXECUTION & CLEARING, L.P.

30 Hudson Street

Jersey City, NJ 07302

     16.72

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     18.54

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     19.02

Ultra Consumer Services

  

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     11.72

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     12.67

PERSHING LLC

One Pershing Plaza

Jersey City, NJ 07399

     14.28

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     43.88

Ultra Financials

  

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     6.12

 

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PERSHING LLC

One Pershing Plaza

Jersey City, NJ 07399

     7.50

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     7.57

BROWN BROTHERS HARRIMAN & CO.

525 Washington Blvd.

Jersey City, NJ 07310

     8.36

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     11.39

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     14.32

Ultra Health Care

  

PERSHING LLC

One Pershing Plaza

Jersey City, NJ 07399

     6.11

GOLDMAN SACHS EXECUTION & CLEARING, L.P.

30 Hudson Street

Jersey City, NJ 07302

     6.85

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     6.98

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     8.14

LPL FINANCIAL

9785 Towne Centre Drive

San Diego, CA 92121

     10.91

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     12.93

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     13.08

Ultra Industrials

  

INTERACTIVE BROKERS LLC

One Pickwick Plaza-2nd Fl.

Greenwich, CT 06830

     5.70

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     5.86

 

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PERSHING LLC

One Pershing Plaza

Jersey City, NJ 07399

     9.51

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     11.07

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     12.66

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     19.14

Ultra Oil & Gas

  

BROWN BROTHERS HARRIMAN & CO.

525 Washington Blvd.

Jersey City, NJ 07310

     5.50

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     5.93

GOLDMAN, SACHS & CO.

1 New York Plaza

New York, NY 10004

     7.09

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     9.24

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     12.46

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     16.79

Ultra Real Estate

  

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     7.04

PERSHING LLC

One Pershing Plaza

Jersey City, NJ 07399

     8.61

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     9.91

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     10.68

 

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NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     11.57

BROWN BROTHERS HARRIMAN & CO.

525 Washington Blvd.

Jersey City, NJ 07310

     12.88

Ultra KBW Regional Banking

  

PERSHING LLC

One Pershing Plaza

Jersey City, NJ 07399

     6.05

GOLDMAN, SACHS & CO.

1 New York Plaza

New York, NY 10004

     6.06

VANGUARD BROKERAGE SERVICES

100 Vanguard Boulevard

Malvern, PA 19355

     9.49

GOLDMAN SACHS EXECUTION & CLEARING, L.P.

30 Hudson Street

Jersey City, NJ 07302

     13.86

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     20.39

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     20.88

Ultra Semiconductors

  

PERSHING LLC

One Pershing Plaza

Jersey City, NJ 07399

     6.53

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     12.61

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     18.36

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     20.26

Ultra Technology

  

E*TRADE SECURITIES LLC

135 E. 57th Street

New York, NY 10022

     5.19

 

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MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     6.72

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     6.90

PERSHING LLC

One Pershing Plaza

Jersey City, NJ 07399

     7.13

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     17.65

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     19.05

Ultra Telecommunications

  

GOLDMAN SACHS EXECUTION & CLEARING, L.P.

30 Hudson Street

Jersey City, NJ 07302

     5.14

GOLDMAN, SACHS & CO.

1 New York Plaza

New York, NY 10004

     5.26

UBS FINANCIAL SERVICES INC.

1200 Harbor Boulevard

Weehawken, NJ 07086

     6.24

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     8.18

PERSHING LLC

One Pershing Plaza

Jersey City, NJ 07399

     8.54

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     10.62

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     13.49

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     16.06

Ultra Utilities

  

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     5.27

 

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CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     5.59

CITIGROUP GLOBAL MARKETS, INC.

390 Greenwich Street

New York, NY 10013

     6.36

GOLDMAN SACHS EXECUTION & CLEARING, L.P.

30 Hudson Street

Jersey City, NJ 07302

     7.32

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     10.70

UBS FINANCIAL SERVICES INC.

1200 Harbor Boulevard

Weehawken, NJ 07086

     11.45

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     12.56

GOLDMAN, SACHS & CO.

1 New York Plaza

New York, NY 10004

     14.94

Ultra MSCI EAFE

  

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     17.97

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     22.72

J.P. MORGAN CLEARING CORPORATION

1 MetroTech Center

North Brooklyn, NY 11201

     38.33

Ultra MSCI Emerging Markets

  

LPL FINANCIAL

9785 Towne Centre Drive

San Diego, CA 92121

     5.03

GOLDMAN SACHS EXECUTION & CLEARING, L.P.

30 Hudson Street

Jersey City, NJ 07302

     6.24

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     7.44

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     8.32

 

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Table of Contents

PERSHING LLC

One Pershing Plaza

Jersey City, NJ 07399

     8.60

J.P. MORGAN CLEARING CORPORATION

1 MetroTech Center

North Brooklyn, NY 11201

     13.19

BROWN BROTHERS HARRIMAN & CO.

525 Washington Blvd.

Jersey City, NJ 07310

     13.28

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     16.49

Ultra MSCI Europe

  

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     5.40

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     20.94

J.P. MORGAN CLEARING CORPORATION

1 MetroTech Center

North Brooklyn, NY 11201

     24.50

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     26.63

Ultra MSCI Pacific ex-Japan

  

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     10.95

J.P. MORGAN CLEARING CORPORATION

1 MetroTech Center

North Brooklyn, NY 11201

     14.93

GOLDMAN SACHS EXECUTION & CLEARING, L.P.

30 Hudson Street

Jersey City, NJ 07302

     16.09

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     17.48

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     23.91

 

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Table of Contents

Ultra MSCI Brazil

  

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     5.46

E*TRADE SECURITIES LLC

135 E. 57th Street

New York, NY 10022

     6.51

RBC DOMINION SECURITIES CORP.

One Liberty Plaza

New York, NY 10006-1404

     6.62

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     7.99

JPMORGAN

227 Park Avenue

New York, NY 10017

     8.26

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     10.06

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     11.25

BROWN BROTHERS HARRIMAN & CO.

525 Washington Blvd.

Jersey City, NJ 07310

     11.86

PERSHING LLC

One Pershing Plaza

Jersey City, NJ 07399

     14.61

Ultra FTSE China 25

  

PERSHING LLC

One Pershing Plaza

Jersey City, NJ 07399

     5.28

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     7.79

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     8.04

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     9.04

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     12.54

 

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BROWN BROTHERS HARRIMAN & CO.

525 Washington Blvd.

Jersey City, NJ 07310

     17.23

Ultra MSCI Japan

  

E*TRADE SECURITIES LLC

135 E. 57th Street

New York, NY 10022

     5.05

BROWN BROTHERS HARRIMAN & CO.

525 Washington Blvd.

Jersey City, NJ 07310

     5.65

US BANK

1555 North River Center, Suite 210

Milwaukee, WI 53212

     6.54

J.P. MORGAN CLEARING CORPORATION

1 MetroTech Center

North Brooklyn, NY 11201

     8.34

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     8.54

PERSHING LLC

One Pershing Plaza

Jersey City, NJ 07399

     9.17

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     9.79

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     11.41

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     12.15

Ultra MSCI Mexico Investable Market

  

J.P. MORGAN CLEARING CORPORATION

1 MetroTech Center

North Brooklyn, NY 11201

     12.09

GOLDMAN SACHS EXECUTION & CLEARING, L.P.

30 Hudson Street

Jersey City, NJ 07302

     26.73

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     49.31

 

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Ultra High Yield   

J.P. MORGAN CLEARING CORPORATION

1 MetroTech Center

North Brooklyn, NY 11201

     11.32

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     83.01
Ultra Investment Grade Corporate   

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     5.08

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     15.87

J.P. MORGAN CLEARING CORPORATION

1 MetroTech Center

North Brooklyn, NY 11201

     73.72
Ultra TIPS   
(Registered but Not Active)   
Ultra 7-10 Year Treasury   

RBC CAPITAL MARKETS CORPORATION

One Liberty Plaza

New York, NY 10006

     10.14

PERSHING LLC

One Pershing Plaza

Jersey City, NJ 07399

     17.32

FIRST CLEARING, LLC

One North Jefferson Avenue

Mail Code H004-095

St. Louis, MO 63103

     28.73

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     29.12
Ultra 20+ Year Treasury   

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     7.25

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     22.31

GOLDMAN, SACHS & CO.

1 New York Plaza

New York, NY 10004

     23.29

GOLDMAN SACHS EXECUTION & CLEARING, L.P.

30 Hudson Street

Jersey City, NJ 07302

     32.53

 

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Table of Contents
Short QQQ   

WEDBUSH SECURITIES INC.

ATTN: Business Conduct

Los Angeles, CA 90017

     5.04

JPMORGAN

227 Park Avenue

New York, NY 10017

     5.68

MORGAN STANLEY SMITH BARNEY

1 Pierrepon Plaza, 5th Floor

Brooklyn, NY 11201

     6.98

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     7.18

FIRST CLEARING, LLC

One North Jefferson Avenue

Mail Code H004-095

St. Louis, MO 63103

     8.25

CITIGROUP GLOBAL MARKETS, INC.

390 Greenwich Street

New York, NY 10013

     8.94

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     11.56
Short Dow30   

MORGAN STANLEY SMITH BARNEY

1 Pierrepon Plaza, 5th Floor

Brooklyn, NY 11201

     5.47

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     5.91

FIRST CLEARING, LLC

One North Jefferson Avenue

Mail Code H004-095

St. Louis, MO 63103

     8.70

GOLDMAN, SACHS & CO.

1 New York Plaza

New York, NY 10004

     9.05

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     9.93

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     13.23

 

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Short S&P500   

CITIGROUP GLOBAL MARKETS, INC.

390 Greenwich Street

New York, NY 10013

     6.15

FIRST CLEARING, LLC

One North Jefferson Avenue

Mail Code H004-095

St. Louis, MO 63103

     7.60

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     7.85

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     13.76

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     13.94
Short MidCap400   

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     5.62

GOLDMAN, SACHS & CO.

1 New York Plaza

New York, NY 10004

     9.64

FIRST CLEARING, LLC

One North Jefferson Avenue

Mail Code H004-095

St. Louis, MO 63103

     10.40

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     12.46

GOLDMAN SACHS EXECUTION & CLEARING, L.P.

30 Hudson Street

Jersey City, NJ 07302

     13.36

PERSHING LLC

One Pershing Plaza

Jersey City, NJ 07399

     14.43
Short SmallCap600   

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     5.44

PERSHING LLC

One Pershing Plaza

Jersey City, NJ 07399

     7.43

 

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FIRST CLEARING, LLC

One North Jefferson Avenue

Mail Code H004-095

St. Louis, MO 63103

     11.51

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     11.65

THRIVENT FINANCIAL BANK

2000 East Milestone Drive

Appleton, WI 54913

     33.14
Short Russell2000   

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     6.27

CITIGROUP GLOBAL MARKETS, INC.

390 Greenwich Street

New York, NY 10013

     6.78

FIRST CLEARING, LLC

One North Jefferson Avenue

Mail Code H004-095

St. Louis, MO 63103

     8.58

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     11.28

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     19.93
UltraShort QQQ   

JPMORGAN

227 Park Avenue

New York, NY 10017

     5.36

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     6.65

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     10.96

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     12.59

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     13.74

 

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UlraShort Dow30   

MORGAN STANLEY & CO., LLC

1585 Broadway

New York, NY 10036

     5.43

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     8.66

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     10.50

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     10.83

GOLDMAN, SACHS & CO.

1 New York Plaza

New York, NY 10004

     15.89
UltraShort S&P500   

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     8.08

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     10.50

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     13.22

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     16.57
UltraShort Russell3000   

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     6.66

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     6.92

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     7.86

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     30.01

PERSHING LLC

One Pershing Plaza

Jersey City, NJ 07399

     31.29

 

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UltraShort MidCap400   

GOLDMAN SACHS EXECUTION & CLEARING, L.P.

30 Hudson Street

Jersey City, NJ 07302

     8.15

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     9.21

GOLDMAN, SACHS & CO.

1 New York Plaza

New York, NY 10004

     12.22

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     17.84

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     20.60
UltraShort SmallCap600   

GOLDMAN, SACHS & CO.

1 New York Plaza

New York, NY 10004

     8.84

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     8.89

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     9.50

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     11.13

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     12.42

STATE STREET BANK & TRUST COMPANY

One Lincoln Street

Boston, MA 02111

     30.51
UltraShort Russell2000   

MORGAN STANLEY & CO., LLC

1585 Broadway

New York, NY 10036

     5.42

GOLDMAN, SACHS & CO.

1 New York Plaza

New York, NY 10004

     5.55

 

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MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     5.67

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     6.38

JPMORGAN

227 Park Avenue

New York, NY 10017

     7.24

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     10.03

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     10.84
UltraPro Short QQQ   

FIRST CLEARING, LLC

Riverfront Plaza, 901 East Byrd Street

Richmond, VA 23219

     5.05

JPMORGAN

227 Park Avenue

New York, NY 10017

     5.10

PERSHING LLC

One Pershing Plaza

Jersey City, NJ 07399

     5.38

SCOTTRADE INC.

12800 Corporate Hill Drive

St. Louis, MO 63131

     6.24

E*TRADE SECURITIES LLC

135 E. 57th Street

New York, NY 10022

     7.28

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     14.65

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     15.95

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     18.71
UltraPro Short Dow30   

E*TRADE SECURITIES LLC

135 E. 57th Street

New York, NY 10022

     5.08

 

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SCOTTRADE INC.

12800 Corporate Hill Drive

St. Louis, MO 63131

     5.09

PERSHING LLC

One Pershing Plaza

Jersey City, NJ 07399

     8.18

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     9.28

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     11.84

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     13.43

GOLDMAN, SACHS & CO.

1 New York Plaza

New York, NY 10004

     26.72
UltraPro Short S&P500   

PERSHING LLC

One Pershing Plaza

Jersey City, NJ 07399

     5.53

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     10.07

JPMORGAN

227 Park Avenue

New York, NY 10017

     10.33

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     12.82

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     16.08
UltraPro Short MidCap400   

SCOTIA CAPITAL MARKETS (USA) INC.

1 Liberty Plaza

165 Broadway

New York, NY 10006

     5.30

PERSHING LLC

One Pershing Plaza

Jersey City, NJ 07399

     5.73

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     6.59

 

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E*TRADE SECURITIES LLC

135 E. 57th Street

New York, NY 10022

     7.31

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     11.05

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     11.08

GOLDMAN SACHS EXECUTION & CLEARING, L.P.

30 Hudson Street

Jersey City, NJ 07302

     15.37

GOLDMAN, SACHS & CO.

1 New York Plaza

New York, NY 10004

     21.34
UltraPro Short Russell2000   

SCOTTRADE INC.

12800 Corporate Hill Drive

St. Louis, MO 63131

     5.05

E*TRADE SECURITIES LLC

135 E. 57th Street

New York, NY 10022

     5.95

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     8.95

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     9.36

PERSHING LLC

One Pershing Plaza

Jersey City, NJ 07399

     9.82

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     10.79

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     23.80
UltraShort Russell1000 Value   

GOLDMAN, SACHS & CO.

1 New York Plaza

New York, NY 10004

     5.44

GOLDMAN SACHS EXECUTION & CLEARING, L.P.

1 New York Plaza

New York, NY 10004

     12.54

 

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MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     59.33
UltraShort Russell1000 Growth   

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     5.81

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     6.49

BROWN BROTHERS HARRIMAN & CO.

525 Washington Blvd.

Jersey City, NJ 07310

     9.81

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     24.42

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     38.96
UltraShort Russell MidCap Value   

GOLDMAN, SACHS & CO.

1 New York Plaza

New York, NY 10004

     7.65

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     8.20

GOLDMAN SACHS EXECUTION & CLEARING, L.P.

30 Hudson Street

Jersey City, NJ 07302

     8.22

J.P. MORGAN CLEARING CORP.

1 MetroTech Center

North Brooklyn, NY 112-01

     10.55

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     56.56
UltraShort Russell MidCap Growth   

GOLDMAN, SACHS & CO.

1 New York Plaza

New York, NY 10004

     9.14

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     9.79

 

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Table of Contents

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     10.14

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     14.14

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     36.89
UltraShort Russell2000 Value   

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     5.17

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     13.13

GOLDMAN SACHS EXECUTION & CLEARING, L.P.

30 Hudson Street

Jersey City, NJ 07302

     20.02

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     36.60
UltraShort Russell2000 Growth   

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     5.66

VANGUARD BROKERAGE SERVICES

100 Vanguard Boulevard

Malvern, PA 19355

     5.96

E*TRADE SECURITIES LLC

135 E. 57th Street

New York, NY 10022

     6.10

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     11.05

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     16.52

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     21.10
Short Basic Materials   

FIRST CLEARING, LLC

Riverfront Plaza, 901 East Byrd Street

Richmond, VA 23219

     5.90

 

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Table of Contents

VANGUARD BROKERAGE SERVICES

100 Vanguard Boulevard

Malvern, PA 19355

     6.45

GOLDMAN SACHS EXECUTION & CLEARING, L.P.

30 Hudson Street

Jersey City, NJ 07302

     12.83

GOLDMAN, SACHS & CO.

1 New York Plaza

New York, NY 10004

     19.08

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     33.55
Short Financials   

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     6.44

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     9.11

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     10.00

GOLDMAN, SACHS & CO.

1 New York Plaza

New York, NY 10004

     10.10

FIRST CLEARING, LLC

Riverfront Plaza, 901 East Byrd Street

Richmond, VA 23219

     11.44

CITIGROUP GLOBAL MARKETS, INC.

390 Greenwich Street

New York, NY 10013

     15.29
Short Oil & Gas   

PENSON FINANCIAL SERVICES, INC.

1700 Pacific Avenue Suite 1400

Dallas, TX 75201

     6.12

LPL FINANCIAL

9785 Towne Centre Drive

San Diego, CA 92121

     6.79

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     7.41

 

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Table of Contents

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     7.62

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     7.84

PERSHING LLC

One Pershing Plaza

Jersey City, NJ 07399

     9.46

GOLDMAN SACHS EXECUTION & CLEARING, L.P.

30 Hudson Street

Jersey City, NJ 07302

     11.08

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     19.97
Short Real Estate   

SCOTTRADE INC.

12800 Corporate Hill Drive

St. Louis, MO 63131

     8.91

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     10.12

GOLDMAN, SACHS & CO.

1 New York Plaza

New York, NY 10004

     11.90

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     15.03

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     19.42
Short KBW Regional Banking   

GOLDMAN SACHS EXECUTION & CLEARING, L.P.

30 Hudson Street

Jersey City, NJ 07302

     5.41

UBS SECURITIES LLC

51 West 52nd Street

New York, NY 10019

     7.34

PERSHING LLC

One Pershing Plaza

Jersey City, NJ 07399

     12.46

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     16.46

 

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Table of Contents

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     18.49

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     18.71
UltraShort Basic Materials   

FIRST CLEARING, LLC

Riverfront Plaza, 901 East Byrd Street

Richmond, VA 23219

     5.07

CITIGROUP GLOBAL MARKETS, INC.

390 Greenwich Street

New York, NY 10013

     5.43

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     6.03

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     7.24

MORGAN STANLEY SMITH BARNEY

1 Pierrepon Plaza, 5th Floor

Brooklyn, NY 11201

     8.07

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     9.04

GOLDMAN, SACHS & CO.

1 New York Plaza

New York, NY 10004

     10.00
UltraShort Nasdaq Biotechnology   

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     44.64

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     46.94
UltraShort Consumer Goods   

BROWN BROTHERS HARRIMAN & CO.

525 Washington Blvd.

Jersey City, NJ 07310

     6.65

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     7.89

 

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Table of Contents

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     11.20

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     14.08

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     31.12
UltraShort Consumer Services   

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     7.30

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     11.29

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     12.98

GOLDMAN, SACHS & CO.

1 New York Plaza

New York, NY 10004

     13.47

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     15.17
UltraShort Financials   

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     5.41

BROWN BROTHERS HARRIMAN & CO.

525 Washington Blvd.

Jersey City, NJ 07310

     10.10

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     10.87

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     11.28

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     14.22
UltraShort Health Care   

GOLDMAN SACHS EXECUTION & CLEARING, L.P.

30 Hudson Street

Jersey City, NJ 07302

     6.73

 

A-33


Table of Contents

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     8.32

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     67.54

UltraShort Industrials

  

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     7.40

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     8.07

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     11.15

BARCLAYS CAPITAL INC.

200 Park Avenue Floor 3w

New York, NY 10166

     17.84

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     33.53

UltraShort Oil & Gas

  

SCOTTRADE INC.

12800 Corporate Hill Drive

St. Louis, MO 63131

     5.09

GOLDMAN, SACHS & CO.

1 New York Plaza

New York, NY 10004

     6.05

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     7.30

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     7.83

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     9.13

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     10.20

BROWN BROTHERS HARRIMAN & CO.

525 Washington Blvd.

Jersey City, NJ 07310

     21.98

 

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Table of Contents

UltraShort Real Estate

  

SCOTTRADE INC.

12800 Corporate Hill Drive

St. Louis, MO 63131

     5.80

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     6.24

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     11.73

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     13.85

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     14.10

UltraShort Semiconductors

  

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     7.93

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     9.84

GOLDMAN SACHS EXECUTION & CLEARING, L.P.

30 Hudson Street

Jersey City, NJ 07302

     14.20

STATE STREET BANK & TRUST COMPANY

One Lincoln Street

Boston, MA 02111

     38.85

UltraShort Technology

  

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     9.30

GOLDMAN, SACHS & CO.

1 New York Plaza

New York, NY 10004

     10.26

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     10.43

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     13.63

 

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GOLDMAN SACHS EXECUTION & CLEARING, L.P.

30 Hudson Street

Jersey City, NJ 07302

     14.43

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     16.90

UltraShort Telecommunications

  

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     6.08

GOLDMAN SACHS EXECUTION & CLEARING, L.P.

30 Hudson Street

Jersey City, NJ 07302

     10.04

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     73.86

UltraShort Utilities

  

GOLDMAN SACHS EXECUTION & CLEARING, L.P.

30 Hudson Street

Jersey City, NJ 07302

     5.60

GOLDMAN, SACHS & CO.

1 New York Plaza

New York, NY 10004

     6.26

CITIGROUP GLOBAL MARKETS, INC.

390 Greenwich Street

New York, NY 10013

     6.91

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     9.48

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     10.57

PENSON FINANCIAL SERVICES, INC.

1700 Pacific Avenue Suite 1400

Dallas, TX 75201

     10.58

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     10.98

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     11.49

Short MSCI EAFE

  

J.P. MORGAN CLEARING CORPORATION

1 MetroTech Center

North Brooklyn, NY 11201

     5.11

 

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CITIGROUP GLOBAL MARKETS, INC.

390 Greenwich Street

New York, NY 10013

     5.25

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     7.86

LPL FINANCIAL

9785 Towne Centre Drive

San Diego, CA 92121

     8.99

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     9.95

FIRST CLEARING, LLC

Riverfront Plaza, 901 East Byrd Street

Richmond, VA 23219

     10.87

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     27.68

Short MSCI Emerging Markets

  

UBS FINANCIAL SERVICES INC.

1200 Harbor Boulevard

Weehawken, NJ 07086

     5.06

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     5.24

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     5.79

CITIGROUP GLOBAL MARKETS, INC.

390 Greenwich Street

New York, NY 10013

     5.96

BROWN BROTHERS HARRIMAN & CO.

525 Washington Blvd.

Jersey City, NJ 07310

     6.49

FIRST CLEARING, LLC

Riverfront Plaza, 901 East Byrd Street

Richmond, VA 23219

     8.09

MORGAN STANLEY SMITH BARNEY

1 Pierrepon Plaza, 5th Floor

Brooklyn, NY 11201

     8.59

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     15.68

 

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Short FTSE China 25

  

FIRST CLEARING, LLC

Riverfront Plaza, 901 East Byrd Street

Richmond, VA 23219

     5.08

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     6.48

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     6.61

BNY MELLON

32 Old Slip

15th Floor.

New York, NY 10286

     6.90

J.P. MORGAN CLEARING CORPORATION

1 MetroTech Center

North Brooklyn, NY 11201

     8.27

RBC CAPITAL MARKETS CORPORATION

One Liberty Plaza

New York, NY 10006

     14.80

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     29.03

UltraShort MSCI EAFE

  

E*TRADE SECURITIES LLC

135 E. 57th Street

New York, NY 10022

     5.24

MORGAN STANLEY & CO., LLC

1585 Broadway

New York, NY 10036

     5.90

GOLDMAN SACHS EXECUTION & CLEARING, L.P.

30 Hudson Street

Jersey City, NJ 07302

     6.28

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     16.19

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     26.11

UltraShort MSCI Emerging Markets

  

GOLDMAN SACHS INTERNATIONAL LIMITED

Peterborough Court

133 Fleet Street

London XO EC4A 2BB

     5.55

 

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CITIBANK, NA

425 Park Ave

New York, NY 10043

     5.81

BROWN BROTHERS HARRIMAN & CO.

525 Washington Blvd.

Jersey City, NJ 07310

     6.04

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     6.38

J.P. MORGAN CLEARING CORPORATION

1 MetroTech Center

North Brooklyn, NY 11201

     6.42

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     6.96

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     7.05

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     14.30

UltraShort MSCI Europe

  

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     6.68

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     6.96

EVERCORE TURST COMPANY, N.A.

52 East 52nd Street

38th Floor

New York, NY 10055

     12.05

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     12.74

STATE STREET BANK & TRUST COMPANY

One Lincoln Street

Boston, MA 02111

     13.38

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     13.80

UltraShort MSCI Pacific ex-Japan

  

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     5.42

 

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GOLDMAN SACHS EXECUTION & CLEARING, L.P.

30 Hudson Street

Jersey City, NJ 07302

     7.09

J.P. MORGAN CLEARING CORPORATION

1 MetroTech Center

North Brooklyn, NY 11201

     11.42

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     70.10

UltraShort MSCI Brazil

  

BROWN BROTHERS HARRIMAN & CO.

525 Washington Blvd.

Jersey City, NJ 07310

     5.08

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     11.74

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     17.73

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     35.49

UltraShort FTSE China 25

  

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     6.18

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     6.24

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     9.86

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     21.62

UltraShort MSCI Japan

  

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     5.51

SCOTIA CAPITAL MARKETS (USA) INC.

1 Liberty Plaza

165 Broadway

New York, NY 10006

     5.75

 

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Table of Contents

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     6.50

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     14.53

J.P. MORGAN CLEARING CORPORATION

1 MetroTech Center

North Brooklyn, NY 11201

     17.49

STATE STREET BANK & TRUST COMPANY

One Lincoln Street

Boston, MA 02111

     17.80

UltraShort Mexico Investable Market

  

GOLDMAN SACHS EXECUTION & CLEARING, L.P.

30 Hudson Street

Jersey City, NJ 07302

     6.07

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     13.72

J.P. MORGAN CLEARING CORPORATION

1 MetroTech Center

North Brooklyn, NY 11201

     15.25

BNY MELLON

32 Old Slip

15th Floor.

New York, NY 10286

     27.31

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     28.08

Short 20+ Year Treasury

  

GOLDMAN, SACHS & CO.

1 New York Plaza

New York, NY 10004

     5.08

MORGAN STANLEY SMITH BARNEY

1 Pierrepon Plaza, 5th Floor

Brooklyn, NY 11201

     5.73

PERSHING LLC

One Pershing Plaza

Jersey City, NJ 07399

     6.29

FIRST CLEARING, LLC

Riverfront Plaza, 901 East Byrd Street

Richmond, VA 23219

     8.46

BROWN BROTHERS HARRIMAN & CO.

525 Washington Blvd.

Jersey City, NJ 07310

     9.34

 

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CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     9.52

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     9.81

CITIGROUP GLOBAL MARKETS, INC.

390 Greenwich Street

New York, NY 10013

     11.02

Short High Yield

  

FIRST CLEARING, LLC

Riverfront Plaza, 901 East Byrd Street

Richmond, VA 23219

     7.32

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     11.13

STATE STREET BANK & TRUST COMPANY

One Lincoln Street

Boston, MA 02111

     21.59

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     22.82

Short Investment Grade Corporate

  

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     5.62

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     34.96

J.P. MORGAN CLEARING CORPORATION

1 MetroTech Center

North Brooklyn, NY 11201

     49.99

Short 7-10 Year Treasury

  

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     5.27

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     6.29

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     9.05

 

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FIRST CLEARING, LLC

Riverfront Plaza, 901 East Byrd Street

Richmond, VA 23219

     15.14

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     15.91

UBS FINANCIAL SERVICES INC.

1200 Harbor Boulevard

Weehawken, NJ 07086

     24.57

UltraShort 3-7 Year Treasury

  

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     7.31

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     8.62

J.P. MORGAN CLEARING CORPORATION

1 MetroTech Center

North Brooklyn, NY 11201

     12.60

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     32.80

UltraShort 7-10 Year Treasury

  

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     5.38

BROWN BROTHERS HARRIMAN & CO.

525 Washington Blvd.

Jersey City, NJ 07310

     7.95

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     15.21

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     27.44

UltraShort 20+ Year Treasury

  

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     5.69

PERSHING LLC

One Pershing Plaza

Jersey City, NJ 07399

     6.11

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     6.58

 

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BROWN BROTHERS HARRIMAN & CO.

525 Washington Blvd.

Jersey City, NJ 07310

     11.01

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     12.14

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     15.60

UltraShort TIPS

  

J.P. MORGAN CLEARING CORPORATION

1 MetroTech Center

North Brooklyn, NY 11201

     33.76

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     55.41

Credit Suisse 130/30

  

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     6.23

NATIXIS NORTH AMERICAN INC.

1251 Avenue of the Americas, 34th Floor

New York, NY 10020

     6.37

COMERICA BANK

201 W. Fort Street

Detroit, MI 48226

     8.69

FIRST CLEARING, LLC

Riverfront Plaza, 901 East Byrd Street

Richmond, VA 23219

     10.29

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     12.36

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     14.79

MORGAN STANLEY SMITH BARNEY

1 Pierrepon Plaza, 5th Floor

Brooklyn, NY 11201

     18.07

RAFI Long/Short

  

MORGAN STANLEY SMITH BARNEY

1 Pierrepon Plaza, 5th Floor

Brooklyn, NY 11201

     6.88

 

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FIRST CLEARING, LLC

Riverfront Plaza, 901 East Byrd Street

Richmond, VA 23219

     10.79

J.P. MORGAN CLEARING CORPORATION

1 MetroTech Center

North Brooklyn, NY 11201

     11.50

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     11.64

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     12.39

TD AMERITRADE CLEARING, INC.

4211 South 102nd Street

Omaha, NE 68127

     12.76

GOLDMAN, SACHS & CO.

1 New York Plaza

New York, NY 10004

     20.74

Hedge Replication ETF

  

UNION BANK

551 Madison Ave. #11

New York, NY 10022

     5.55

NATIONAL FINANCIAL SERVICES LLC

200 Liberty Street

New York, NY 10281

     7.17

CHARLES SCHWAB & CO., INC.

101 Montgomery Street

San Francisco, CA 94101

     7.24

GOLDMAN SACHS EXECUTION & CLEARING, L.P.

30 Hudson Street

Jersey City, NJ 07302

     7.52

INTERACTIVE BROKERS LLC

One Pickwick Plaza-2nd Fl.

Greenwich, CT 06830

     14.70

MERRILL LYNCH

101 Hudson Street

Jersey City, NJ 07302

     19.93

J.P. MORGAN CLEARING CORPORATION

1 MetroTech Center

North Brooklyn, NY 11201

     28.07

 

* A person who beneficially owns, directly or indirectly, 25% or more of the voting securities of a Fund may be deemed to “control” (as defined in the 1940 Act) that Fund, and may be able to exercise a controlling influence over any matter submitted to shareholders of that Fund.

 

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Table of Contents

PART C. OTHER INFORMATION

ProShares Trust

 

Item 28. Exhibits

 

  (a) Articles of Incorporation

 

  (1)

Certificate of Trust of the Registrant.1

 

  (2)

Certificate of Amendment to the Certificate of Trust of the Registrant (changing the name from ProFunds ETF Trust to xtraShares Trust).2

 

  (3)

Certificate of Amendment to the Certificate of Trust of the Registrant (changing the name from xtraShares Trust to ProShares Trust.3

 

  (4)

Amended and Restated Declaration of Trust of the Registrant.9

 

  (b) By-Laws

 

  (1)

Amended and Restated By-Laws of the Registrant.9

 

  (c) Instruments Defining Rights of Security Holders

Not applicable.

 

  (d) Investment Advisory Contracts

 

  (1)

Investment Advisory Agreement between Registrant and ProShare Advisors LLC4 and Amendment No. [        ] to Schedule A, dated [        ] to be filed by subsequent amendment.

 

  (e) Underwriting Contracts

 

  (1)

Distribution Agreement between Registrant and SEI Investments Distribution Co.5

 

  (f) Bonus or Profit Sharing Contracts

Not applicable.

 

  (g) Custodian Agreements

 

  (1)

Domestic Custody Agreement between Registrant and JPMorgan Chase Bank, N.A;5

 

  (a)

Cash Trade Execution Rider;8

 

  (b)

Amendment No.3 to Cash Trade Execution Rider; 8

 

  (c)

Global Custody Rider;8 and

 

  (d) Amendments No. 22, dated [             , 2012]; to Schedule A of Fee Schedules for Global Custody and Agency Services, to be filed by subsequent amendment.

 

  (h) Other Material Contracts

 

  (1)

Management Services Agreement between Registrant and ProShare Advisors LLC4 and Amendment No. [        ] to Schedule A, dated [        ]; to be filed by subsequent amendment.

 

  (2)

Expense Limitation Agreement between Registrant and ProShare Advisors LLC4 and Amended Schedule A for the period between [             , 2012 to             , 2013]; to be filed by subsequent amendment.

 

  (3)

Fund Services Agreement (Administration and Compliance Services, Regulatory Services, Accounting Services) between Registrant and J.P. Morgan Investor Services Co.5 and Amendment No. 22 to be filed by subsequent amendment. 

 

  (4)

Agency Services Agreement between Registrant and JPMorgan Chase Bank, N.A.5 and Amendment No. 21 to be filed by subsequent amendment.

 

  (5)

Form of Authorized Participant Agreement between Registrant and SEI Investments Distribution Co.3

 

  (6)

PFO/Treasurer Services Agreement between Registrant and Foreside Compliance Services, LLC5 and Amendment No. 1, dated January 17, 2007. 8


Table of Contents
  (i) Legal Opinion; to be filed by subsequent amendment.

 

  (j) Not applicable.

 

  (k) Omitted Financial Statements

Not applicable.

 

  (l) Initial Capital Agreements

 

  (1)

Investor Letter.6

 

  (m) Rule 12b-1 Plan

 

  (1)

Form of Distribution Plan.3

 

  (n) Rule 18f-3 Plan

Not applicable.

 

  (o) Reserved

Not applicable.

 

  (p) Codes of Ethics

 

  (1)

Amended and Restated Code of Ethics of the Registrant, dated September 19, 2011.7 

 

  (2)

Amended and Restated Code of Ethics of the Advisor, dated September 19, 2011.7 

 

  (3)

Amended and Restated Code of Ethics of the Distributor, dated September 19, 2011.7 

 

  (q) Powers of Attorney

 

  (1)

Power of Attorney from William D. Fertig, dated September 19, 2011. 7

 

  (2)

Power of Attorney from Louis M. Mayberg, dated September 19, 2011. 7

 

  (3)

Power of Attorney from Russell S. Reynolds, III, dated September 19, 2011. 7

 

  (4)

Power of Attorney from Michael L. Sapir, dated September 19, 2011. 7

 

  (5)

Power of Attorney from Michael C. Wachs, dated September 19, 2011. 7

 

 

(1) Filed with Initial Registration Statement on June 5, 2002.

 

(2) Previously filed on July 17, 2003 as part of Pre-Effective Amendment No. 2 under the Securities Act of 1933 and incorporated by reference herein.

 

(3) Previously filed on May 22, 2006 as part of Pre-Effective Amendment No. 6 under the Securities Act of 1933 and incorporated by reference herein.

 

(4) Previously filed on June 19, 2006 as part of Pre-Effective Amendment No. 7 under the Securities Act of 1933 and incorporated by reference herein.

 

(5) Previously filed on August 30, 2006 as part of Post-Effective Amendment No. 1 under the Securities Act of 1933 and incorporated by reference herein.

 

(6) Previously filed on December 29, 2006 as part of Post-Effective Amendment No. 2 under the Securities Act of 1933 and incorporated by reference herein.

 

(7) Previously filed on September 28, 2011 as part of Post Effective Amendment No. 47 under the Securities Act of 1933 and incorporated by reference herein.

 

(8) Previously filed on September 28, 2010 as part of Post-Effective Amendment No. 27 under the Securities Act of 1933 and incorporated by reference herein.

 

(9) Previously filed on December 30, 2010 as part of Post-Effective Amendment No. 30 under the Securities Act of 1933 and incorporated by reference herein.

 

Item 29. Persons Controlled By or Under Common Control With Registrant

Provide a list or diagram of all persons directly or indirectly controlled by or under common control with the Registrant. For any person controlled by another person, disclose the percentage of voting securities owned by the immediately controlling person or other basis of that person’s control. For each company, also provide the state or other sovereign power under the laws of which the company is organized.

None.


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Item 30. Indemnification

State the general effect of any contract, arrangements or statute under which any director, officer, underwriter or affiliated person of the registrant is insured or indemnified against any liability incurred in their official capacity, other than insurance provided by any director, officer, affiliated person, or underwriter for their own protection.

Reference is made to Article Eight of the Registrant’s Amended and Restated Declaration of Trust which is incorporated herein by reference:

The Registrant (also, the “Trust”) is organized as a Delaware business trust is operated pursuant to an Amended and Restated Declaration of Trust, dated December 13, 2010 (the “Declaration of Trust”), that permits the Registrant to indemnify every person who is, or has been, a Trustee, officer, employee or agent of the Trust, including persons who serve at the request of the Trust as directors, trustees, officers, employees or agents of another organization in which the Trust has an interest as a shareholder, creditor or otherwise (hereinafter referred to as a “Covered Person”), shall be indemnified by the Trust to the fullest extent permitted by law against liability and against all expenses reasonably incurred or paid by him in connection with any claim, action, suit or proceeding in which he becomes involved as a party or otherwise by virtue of his being or having been such a Trustee, director, officer, employee or agent and against amounts paid or incurred by him in settlement thereof. This indemnification is subject to the following conditions:

No indemnification shall be provided hereunder to a Covered Person:

 

  (a) For any liability to the Trust or its Shareholders arising out of a final adjudication by the court of other body before which the proceeding was brought that the Covered Person engaged in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office;

 

  (b) With respect to any matter as to which the Covered Person shall have been finally adjudicated not to have acted in good faith in the reasonable belief that his or her action was in the best interests of the Trust;

 

  (c) For any criminal proceeding finally adjudicated for which the Covered Person had reasonable cause to believe that his or her conduct was unlawful; or (c) In the event of a settlement of other disposition not involving a final adjudication (as provided in paragraph (a), (b) or (c) of this Section 8.5.2) and resulting in a payment by a Covered Person, unless there has been either a determination that such Covered Person did not engage in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of this office by the court or other body approving the settlement or other disposition, or a reasonable determination, based on a review of readily available facts (as opposed to a full trial-type inquiry), that he or she did not engage in such conduct, such determination being made by : (i) a vote of a majority of the Disinterested Trustees (as such term is defined in Section 8.5.5) acting on the matter); or (ii) a writer opinion of independent legal counsel.

The rights of indemnification under the Declaration of Trust may be insured against by policies maintained by the Trust, and shall be severable, shall not affect any other rights to which any Covered Person may now or hereafter be entitled, shall continue as to a person who has ceased to be a Covered Person, and shall inure to the benefit of the heirs, executors and administrators of such a person. Nothing contained in the Declaration of Trust shall affect any rights to indemnification to which Trust personnel other than Covered Persons may be entitled by contract or otherwise under law.

Expenses of preparation and presentation of a defense to any claim, action, suit or proceeding subject to a claim for indemnification under Section 8.5 of the Declaration of Trust shall be advanced by the Trust prior to final disposition thereof upon receipt of an undertaking by or on behalf of the recipient to repay such amount if it is ultimately determined that he or she is not entitled to indemnification under Section 8.5 of the Declaration of Trust, provided that either: Covered Person, unless there has been either a determination that such Covered Person did not engage in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of this office by the court or other body approving the settlement or other disposition, or a reasonable determination, based on a review of readily available facts (as opposed to a full trial-type inquiry), that he or she did not engage in such conduct, such determination being made by : (i) a vote of a majority of the Disinterested Trustees (as such term is defined in Section 8.5.5) acting on the matter (provided that a majority of Disinterested Trustees then in office act on the matter); or (ii) a writer opinion of independent legal counsel.


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  (a) Such undertaking is secured by a surety bond or some other appropriate security or the Trust shall be insured against losses arising out of any such advances; or

 

  (b) A majority of the Disinterested Trustees acting on the matter (provided that a majority of the Disinterested Trustees then in office act on the matter) or independent legal counsel in a written opinion shall determine, based upon a review of the readily available facts (as opposed to the facts available upon a full trial), that there is reason to believe that the recipient ultimately will be found entitled to indemnification.

As used in Section 8.5 of the Declaration of Trust, the following words shall have the meanings set forth below:

 

  (c) A “Disinterested Trustee” is one (i) who is not an Interested Person of the Trust (including anyone, as such Disinterested Trustees, who has been exempted from being an Interested Person by any rule, regulation or order of the Commission), and (ii) against whom none of such actions, suits or other proceedings or another action, suit or other proceeding on the same or similar grounds is then or has been pending;

 

  (d) “Claim,” “action,” “suite” or “proceeding” shall apply to all claims, actions, suits, proceedings (civil, criminal, administrative or other, including appeals), actual or threatened; and

 

  (e) “Liability” and “expenses” shall include without limitation, attorneys’ and accountants’ fees, costs, judgments, amounts paid in settlement, fines, penalties and other liabilities.

 

Item 31. Business and Other Connections of Investment Adviser

Describe any other business, profession, vocation or employment of a substantial nature in which the investment adviser and each director, officer or partner of the investment adviser, or has been, engaged within the last two fiscal years for his or her own account or in the capacity of director, officer, employee, partner or trustee (disclose the name and principal business address of any company for which a person listed above serves in the capacity of director, officer, employee, partner or trustee, and the nature of the relationship.)

Reference is made to the caption “Management” in the Prospectuses constituting Part A which is incorporated herein by reference and “Management of ProShares Trust” in the Statement of Additional Information constituting Part B which is incorporated herein by reference.

The information as to the directors and officers of ProShare Advisors LLC is set forth in ProShare Advisors LLC’s Form ADV filed with the Securities and Exchange Commission on April 7, 2005 (Reference No. 5524427696B2B2) and amended through March 30, 2011 and is incorporated herein by reference.

 

Item 32. Principal Underwriters

 

  (a) State the name of each investment company (other than the registrant) for which each principal underwriter currently distributing securities of the registrant also acts as a principal underwriter, depositor or investment adviser.

Registrant’s distributor, SEI Investments Distribution Co. (the “Distributor”), acts as distributor for:

Adviser Managed Trust Fund

Bishop Street Funds

BlackRock Funds III (f/k/a Barclays Global Investors Funds)

Causeway Capital Management Trust

CNI Charter Funds

Community Reinvestment Act Qualified Investment Fund

FaithShares Trust

Global X Funds

iShares Inc.

iShares MSCI Emerging Markets Small Cap Index Fund, Inc.

iShares MSCI Russia Capped Index Fund, Inc.

iShares Trust

ProShares Trust II


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RiverPark Funds

Schwab Strategic Trust

SEI Alpha Strategy Portfolios, LP

SEI Daily Income Trust

SEI Liquid Asset Trust

SEI Opportunity Fund, LP

SEI Structured Credit Fund, LP

SEI Tax Exempt Trust

SEI Institutional Managed Trust

SEI Institutional International Trust

SEI Asset Allocation Trust

SEI Institutional Investments Trust

TD Asset Management USA Funds

The Advisors’ Inner Circle Fund

The Advisors’ Inner Circle Fund II

The Arbitrage Funds

Wilshire Mutual Funds, Inc.

Wilshire Variable Insurance Trust

The Distributor provides numerous financial services to investment managers, pension plan sponsors, and bank trust departments. These services include portfolio evaluation, performance measurement and consulting services (“Funds Evaluation”) and automated execution, clearing and settlement of securities transactions (“MarketLink”).

 

  (b) Provide the information required by the following table with respect to each director, officer or partner of each principal underwriter named in answer to Item 25. Unless otherwise noted, the business address of each director or officer is Oaks, PA 19456

 

Name

  

Position and Office with Underwriter

  

Positions and Offices with

Registrant

William M. Doran   

Director

   None
Edward D. Loughlin   

Director

   None
Wayne M. Withrow   

Director

   None
Kevin P. Barr   

President & Chief Executive Officer

   None
Maxine J. Chou   

Chief Financial Officer, Chief Operations Officer & Treasurer

   None
John C. Munch   

General Counsel & Secretary

   None
Karen E. LaTourette   

Chief Compliance Officer, Anti-Money Laundering Officer and Assistant Secretary

   None
Mark J. Held   

Senior Vice President

   None
Lori L. White   

Vice President & Assistant Secretary

   None
John P. Coary   

Vice President and Assistant Secretary

   None
John J. Cronin   

Vice President

   None
Robert M. Silvestri   

Vice President

   None

 

Item 33. Location of Accounts and Records

State the names and address of each person maintaining principal possession of each account, book or other document required to be maintained by Section 31(a) of the 1940 Act [15 U.S.C. 80a-30(a)] and the rules under that section.


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The books, accounts and other documents required by Section 31(a) under the Investment Company Act of 1940, as amended, and the rules promulgated thereunder are maintained in the physical possession of:

JP Morgan Chase Bank, N.A.

Attn: General Counsel

4 MetroTech Center

Brooklyn, NY 11245

J.P. Morgan Investor Services Co.

70 Fargo Street – Suite 3 East

Boston, MA 02210-1950

Attention: Fund Regulatory Services Department

ProShare Advisors LLC

c/o ProFund Advisors LLC

Attn: General Counsel

7501 Wisconsin Avenue, Suite 1000

Bethesda, MD 20814-6527

SEI Investments Distribution Co.

Attn: General Counsel

One Freedom Valley Drive

Oaks, Pennsylvania 19456-1100

 

Item 34. Management Services

Provide a summary of the substantive provisions of any management-related service contract not discussed in Part A or Part B, disclosing the parties to the contract and the total amount paid and by whom, for the fund’s last three fiscal years.

Not applicable.

 

Item 35. Undertakings

Not applicable.


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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this Post-Effective Amendment No. 50 (the “Amendment”) to its Registration Statement to be signed on its behalf by the undersigned, thereto duly authorized, in the City of Bethesda and the State of Maryland on December 16, 2011.

 

ProShares Trust
By:  

/s/ LOUIS M. MAYBERG

  Louis M. Mayberg

Pursuant to the requirements of the Securities Act of 1933, this Amendment to the Registration Statement has been signed below by the following persons in the capacities indicated.

 

Signature

  

Title

 

Date

/s/ MICHAEL L. SAPIR *

Michael L. Sapir

   Trustee, Chairman   December 16, 2011

/s/ RUSSELL S. REYNOLDS, III *

Russell S. Reynolds, III

   Trustee   December 16, 2011

/s/ MICHAEL C. WACHS *

Michael C. Wachs

   Trustee   December 16, 2011

/s/ WILLIAM D. FERTIG *

William D. Fertig

   Trustee   December 16, 2011

/s/ LOUIS M. MAYBERG *

Louis M. Mayberg

   President   December 16, 2011

/s/ CHARLES S. TODD *

Charles S. Todd

   Treasurer   December 16, 2011

 

* By:  

/s/ AMY R. DOBERMAN

  Amy R. Doberman
  As Attorney-in-fact

Date: December 16, 2011