S-1 1 d702014ds1.htm S-1 S-1
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As filed with the Securities and Exchange Commission on March 8, 2019

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

PROSHARES TRUST II

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   6221   87-6284802
(State of Organization)  

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

 

 

7501 Wisconsin Avenue

Suite 1000E

Bethesda, Maryland 20814

(240) 497-6400

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Michael L. Sapir

c/o ProShare Capital Management LLC

7501 Wisconsin Avenue

Suite 1000E

Bethesda, Maryland 20814

(240) 497-6400

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

James C. Munsell

Kenny S. Terrero

c/o Sidley Austin LLP

787 Seventh Avenue

New York, New York 10019

 

Richard F. Morris

c/o ProShare Capital Management LLC

7501 Wisconsin Avenue

Suite 1000E

Bethesda, MD 20814

 

 

Approximate date of commencement of proposed sale to the public:

As promptly as practicable after the effective date of this Registration Statement.

 

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box:  ☒

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐


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If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

ProShares VIX Mid-Term Futures ETF

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
Emerging growth company       

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

 

 

ProShares Ultra Bloomberg Natural Gas

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
Emerging growth company       

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

 

 

ProShares UltraShort Bloomberg Natural Gas

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
Emerging growth company       

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

 

 

ProShares UltraShort Silver

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
Emerging growth company       

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

 

 

ProShares UltraShort Gold

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
Emerging growth company       

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

 

 

ProShares UltraShort Australian Dollar

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
Emerging growth company       


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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

 

 

ProShares Ultra Euro

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
Emerging growth company       

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

 

 

ProShares Short Euro

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
Emerging growth company       

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

 

 

ProShares Ultra Yen

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
Emerging growth company       

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

 

 

ProShares UltraPro 3x Crude Oil ETF

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
Emerging growth company       

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

 

 

ProShares UltraPro 3x Short Crude Oil ETF

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
Emerging growth company       

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

 

 

ProShares UltraShort Yen

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
Emerging growth company       


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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Securities to be Registered  

Proposed

Maximum
Aggregate

Offering Price(1)

  Amount of
Registration Fee

ProShares VIX Mid-Term Futures ETF Common Units of Beneficial Interest

  $472,484,450(2)   $54,903(2)

ProShares Ultra Bloomberg Natural Gas Common Units of Beneficial Interest

  $506,239,987(3)   $60,075(3)

ProShares UltraShort Bloomberg Natural Gas Common Units of Beneficial Interest

  $665,645,139(4)   $79,548(4)

ProShares UltraShort Silver Common Units of Beneficial Interest

  $887,571,447(5)   $103,136(5)

ProShares UltraShort Gold Common Units of Beneficial Interest

  $197,613,808(6)   $21,130(6)

ProShares UltraShort Australian Dollar Common Units of Beneficial Interest

  $162,940,781(7)   $18,934(7)

ProShares Ultra Euro Common Units of Beneficial Interest

  $90,976,566(8)   $10,571(8)

ProShares Short Euro Common Units of Beneficial Interest

  $153,418,934(9)   $17,827(9)

ProShares Ultra Yen Common Units of Beneficial Interest

  $132,956,903(10)   $15,450(10)

ProShares UltraPro 3x Crude Oil ETF Common Units of Beneficial Interest

  $2,029,485,301(11)   $243,479(11)

ProShares UltraPro 3x Short Crude Oil ETF Common Units of Beneficial Interest

  $912,669,350(12)   $105,778(12)

ProShares UltraShort Yen Common Units of Beneficial Interest

  $906,315,192(13)   $95,066(13)

TOTAL

  $7,118,317,858   $825,897

 

 

(1)

Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(d) under the Securities Act of 1933, as amended (“1933 Act”).

(2)

Pursuant to the provisions of Rule 415(a)(6) under the 1933 Act, the Registrant carries forward the value of the unsold Common Units of Beneficial Interest relating to ProShares VIX Mid-Term Futures ETF from the Registration Statement on Form S-1, as amended (File No. 333-228620), which was filed with the Securities and Exchange Commission (the “SEC”) on December 19, 2018 (the “Prior S-1 Registration Statement”) ($472,484,450, the “Unsold Securities”) for which the Registrant has paid the associated registration fees to the SEC ($54,903). Pursuant to Rule 415(a)(6), the offering of the Unsold Securities of ProShares VIX Mid-Term Futures ETF covered by the Prior S-1 Registration Statement will be deemed terminated as of the date of effectiveness of this Registration Statement. No additional ProShares VIX Mid-Term Futures ETF Common Units of Beneficial Interest are being registered concurrently with the filing of this Registration Statement on Form S-1.

(3)

Pursuant to the provisions of Rule 415(a)(6) under the 1933 Act, the Registrant carries forward the value of the unsold Common Units of Beneficial Interest relating to ProShares Ultra Bloomberg Natural Gas from the Prior S-1 Registration Statement ($356,239,987, the “Unsold Securities”), for which the issuer has paid the associated registration fees to the SEC ($41,895). Pursuant to Rule 415(a)(6), the offering of the Unsold Securities of ProShares Ultra Bloomberg Natural Gas covered by the Prior S-1 Registration Statement will be deemed terminated as of the date of effectiveness of this Registration Statement. Additionally, pursuant to Rule 457(p) under the 1933 Act, the registrant is hereby offsetting the remaining amount of the registration fee due in connection with the registration of additional Common Units of Beneficial Interest relating to ProShares Ultra Bloomberg Natural Gas by allocating a portion ($18,180) of the credit received from the registration fee previously paid ($551,460) in connection with unsold Common Units of Beneficial Interest relating to ProShares Short VIX Short-Term Futures ETF previously registered under a Registration Statement on Form S-3, as amended (File No. 333-220688), which was filed with the SEC on February 1, 2018.

(4)

Pursuant to the provisions of Rule 415(a)(6) under the 1933 Act, the Registrant carries forward the value of the unsold Common Units of Beneficial Interest relating to ProShares UltraShort Bloomberg Natural Gas from the Prior S-1 Registration Statement ($665,645,139, the “Unsold Securities”) for which the Registrant


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  has paid the associated registration fees to the SEC ($79,548). Pursuant to Rule 415(a)(6), the offering of the Unsold Securities of ProShares UltraShort Bloomberg Natural Gas covered by the Prior S-1 Registration Statement will be deemed terminated as of the date of effectiveness of this Registration Statement. No additional ProShares UltraShort Bloomberg Natural Gas Common Units of Beneficial Interest are being registered concurrently with the filing of this Registration Statement on Form S-1.
(5)

Pursuant to the provisions of Rule 415(a)(6) under the 1933 Act, the Registrant carries forward the value of the unsold Common Units of Beneficial Interest relating to ProShares UltraShort Silver from the Prior S-1 Registration Statement ($887,571,447, the “Unsold Securities”) for which the Registrant has paid the associated registration fees to the SEC ($103,136). Pursuant to Rule 415(a)(6), the offering of the Unsold Securities of ProShares UltraShort Silver covered by the Prior S-1 Registration Statement will be deemed terminated as of the date of effectiveness of this Registration Statement. No additional ProShares UltraShort Silver Common Units of Beneficial Interest are being registered concurrently with the filing of this Registration Statement on Form S-1.

(6)

Pursuant to the provisions of Rule 415(a)(6) under the 1933 Act, the Registrant carries forward the value of the unsold Common Units of Beneficial Interest relating to ProShares UltraShort Gold from the Prior S-1 Registration Statement ($197,613,808, the “Unsold Securities”) for which the Registrant has paid the associated registration fees to the SEC ($21,130). Pursuant to Rule 415(a)(6), the offering of the Unsold Securities of ProShares UltraShort Gold covered by the Prior S-1 Registration Statement will be deemed terminated as of the date of effectiveness of this Registration Statement. No additional ProShares UltraShort Gold Common Units of Beneficial Interest are being registered concurrently with the filing of this Registration Statement on Form S-1.

(7)

Pursuant to the provisions of Rule 415(a)(6) under the 1933 Act, the Registrant carries forward the value of the unsold Common Units of Beneficial Interest relating to ProShares UltraShort Australian Dollar from the Prior S-1 Registration Statement ($162,940,781, the “Unsold Securities”) for which the Registrant has paid the associated registration fees to the SEC ($18,934). Pursuant to Rule 415(a)(6), the offering of the Unsold Securities of ProShares UltraShort Australian Dollar covered by the Prior S-1 Registration Statement will be deemed terminated as of the date of effectiveness of this Registration Statement. No additional ProShares UltraShort Australian Dollar Common Units of Beneficial Interest are being registered concurrently with the filing of this Registration Statement on Form S-1.

(8)

Pursuant to the provisions of Rule 415(a)(6) under the 1933 Act, the Registrant carries forward the value of the unsold Common Units of Beneficial Interest relating to ProShares Ultra Euro from the Prior S-1 Registration Statement ($90,976,566, the “Unsold Securities”) for which the Registrant has paid the associated registration fees to the SEC ($10,571). Pursuant to Rule 415(a)(6), the offering of the Unsold Securities of ProShares Ultra Euro covered by the Prior S-1 Registration Statement will be deemed terminated as of the date of effectiveness of this Registration Statement. No additional ProShares Ultra Euro Common Units of Beneficial Interest are being registered concurrently with the filing of this Registration Statement on Form S-1.

(9)

Pursuant to the provisions of Rule 415(a)(6) under the 1933 Act, the Registrant carries forward the value of the unsold Common Units of Beneficial Interest relating to ProShares Short Euro from the Prior S-1 Registration Statement ($153,418,934, the “Unsold Securities”) for which the Registrant has paid the associated registration fees to the SEC ($17,827). Pursuant to Rule 415(a)(6), the offering of the Unsold Securities of ProShares Short Euro covered by the Prior S-1 Registration Statement will be deemed terminated as of the date of effectiveness of this Registration Statement. No additional ProShares Short Euro Common Units of Beneficial Interest are being registered concurrently with the filing of this Registration Statement on Form S-1.

(10)

Pursuant to the provisions of Rule 415(a)(6) under the 1933 Act, the Registrant carries forward the value of the unsold Common Units of Beneficial Interest relating to ProShares Ultra Yen from the Prior S-1 Registration Statement ($132,956,903, the “Unsold Securities”) for which the Registrant has paid the associated registration fees to the SEC ($15,450). Pursuant to Rule 415(a)(6), the offering of the Unsold Securities of ProShares Ultra Yen covered by the Prior S-1 Registration Statement will be deemed terminated as of the date of effectiveness of this Registration Statement. No additional ProShares Ultra Yen Common Units of Beneficial Interest are being registered concurrently with the filing of this Registration Statement on Form S-1.

(11)

Pursuant to the provisions of Rule 415(a)(6) under the 1933 Act, the Registrant carries forward the value of the unsold Common Units of Beneficial Interest relating to ProShares UltraPro 3x Crude Oil ETF from the Prior S-1 Registration Statement ($829,485,301, the “Unsold Securities”), for which the issuer has paid the associated registration fees to the SEC ($98,039). Pursuant to Rule 415(a)(6), the offering of the Unsold Securities of ProShares UltraPro 3x Crude Oil ETF covered by the Prior S-1 Registration Statement will be


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  deemed terminated as of the date of effectiveness of this Registration Statement. Additionally, pursuant to Rule 457(p) under the 1933 Act, the registrant is hereby offsetting the remaining amount of the registration fee due in connection with the registration of additional Common Units of Beneficial Interest relating to ProShares UltraPro 3x Crude Oil ETF by allocating a portion ($145,440) of the credit received from the registration fee previously paid ($551,460) in connection with unsold Common Units of Beneficial Interest relating to ProShares Short VIX Short-Term Futures ETF previously registered under a Registration Statement on Form S-3, as amended (File No. 333-220688), which was filed with the SEC on February 1, 2018.
12)

Pursuant to the provisions of Rule 415(a)(6) under the 1933 Act, the Registrant carries forward the value of the unsold Common Units of Beneficial Interest relating to ProShares UltraPro 3x Short Crude Oil ETF from the Prior S-1 Registration Statement ($912,669,350, the “Unsold Securities”), for which the issuer has paid the associated registration fees to the SEC ($105,778). Pursuant to Rule 415(a)(6), the offering of the Unsold Securities of ProShares UltraPro 3x Short Crude Oil ETF covered by the Prior S-1 Registration Statement will be deemed terminated as of the date of effectiveness of this Registration Statement. No additional ProShares UltraPro 3x Short Crude Oil ETF Common Units of Beneficial Interest are being registered concurrently with the filing of this Registration Statement on Form S-1.

(13)

Pursuant to the provisions of Rule 415(a)(6) under the 1933 Act, the Registrant carries forward the value of the unsold Common Units of Beneficial Interest relating to ProShares UltraShort Yen from the Prior S-3 Registration Statement ($906,315,192, the “Unsold Securities”) for which the Registrant has paid the associated registration fees to the SEC ($95,066). Pursuant to Rule 415(a)(6), the offering of the Unsold Securities of ProShares UltraShort Yen covered by the Prior S-3 Registration Statement will be deemed terminated as of the date of effectiveness of this Registration Statement. No additional ProShares UltraShort Yen Common Units of Beneficial Interest are being registered concurrently with the filing of this Registration Statement on Form S-1.

 

 

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

 

 

 

 

 


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LOGO

PROSHARES TRUST II

 

 

Common Units of Beneficial Interest

 

 

 

Fund

 

Benchmark

  Proposed
Maximum Aggregate
Offering Price
Per Fund
 

ProShares VIX Mid-Term Futures ETF (VIXM)

  S&P 500® VIX Mid-Term Futures Index   $ 474,027,421  

ProShares Ultra Bloomberg Natural Gas (BOIL)

  Bloomberg Natural Gas SubindexSM   $ 356,239,987  

ProShares UltraShort Bloomberg Natural Gas (KOLD)

  Bloomberg Natural Gas SubindexSM   $ 665,645,139  

ProShares UltraShort Silver (ZSL)

  Bloomberg Silver SubindexSM   $ 887,571,447  

ProShares UltraShort Gold (GLL)

  Bloomberg Gold SubindexSM   $ 197,613,808  

ProShares UltraShort Australian Dollar (CROC)

  The U.S. dollar price of the Australian dollar   $ 162,940,781  

ProShares Ultra Euro (ULE)

  The U.S. dollar price of the euro   $ 90,976,566  

ProShares Short Euro (EUFX)

  The U.S. dollar price of the euro   $ 153,418,934  

ProShares Ultra Yen (YCL)

  The U.S. dollar price of the Japanese yen   $ 132,956,903  

ProShares UltraShort Yen (YCS)

  The U.S. dollar price of the Japanese yen   $ 906,315,192  

ProShares UltraPro 3x Crude Oil ETF (OILU)

  Bloomberg WTI Crude Oil SubindexSM   $ 835,999,232  

ProShares UltraPro 3x Short Crude Oil ETF (OILD)

  Bloomberg WTI Crude Oil SubindexSM   $ 912,669,350  

ProShares Trust II (the “Trust”) is a Delaware statutory trust organized into separate series. The Trust may from time to time offer to sell common units of beneficial interest (“Shares”) of any or all of the eleven series of the Trust listed above (each, a “Fund” and collectively, the “Funds”) or other series of the Trust. Shares represent units of fractional undivided beneficial interest in and ownership of a series of the Trust. Each Fund’s Shares will be offered on a continuous basis. The Shares of each Fund are listed on NYSE Arca, Inc. (the “Exchange”) under the ticker symbols shown next to each Fund’s name. Please note that the Trust has series other than the Funds.

The ProShares VIX Mid-Term Futures ETF seeks investment results, before fees and expenses, that match the performance of the S&P 500® VIX Mid-Term Futures Index (the “Index”).

Each of the other Funds is “geared” (each, a “Geared Fund” and collectively, the “Geared Funds”) which means that each has an investment objective to seek daily investment results, before fees and expenses, that correspond to a multiple (2x or 3x), the inverse (-1x) or an inverse multiple (-2x or -3x) of the performance of its benchmark for a single day, not for any other period. The Geared Funds do not seek to achieve their stated investment objective over a period greater than a single day. A “single day” is measured from the time a Fund calculates its respective net asset value (“NAV”) to the time of the Fund’s next NAV calculation. The NAV calculation times for the Funds typically range from 7:00 a.m. to 4:15 p.m. (Eastern Time). Please see the section entitled “Summary-Creation and Redemption Transactions” for additional details on the NAV calculation times for the Funds.

In order to achieve its investment objective, each of the Funds intends to invest in financial instruments (“Financial Instruments”) in the manner and to the extent described herein. Financial Instruments are instruments whose value is derived from the value of an underlying asset, rate or benchmark (such asset, rate or benchmark, a “Reference Asset”) and include futures contracts, swap agreements, forward contracts and other instruments. The Funds will not invest directly in any commodities or currencies.


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The ProShares VIX Mid-Term Futures ETF may be referred to herein as the “VIX Futures Fund” or the “Matching Fund.” The ProShares Ultra Bloomberg Natural Gas (the “Ultra Natural Gas Fund”) and the ProShares UltraShort Bloomberg Natural Gas (the “UltraShort Natural Gas Fund”) may be collectively referred to as the “Natural Gas Funds.” The ProShares UltraShort Silver (the “UltraShort Silver Fund”) and the ProShares UltraShort Gold (the “UltraShort Gold Fund”) may be collectively referred to as the “Precious Metals Funds.” The ProShares UltraShort Australian Dollar (the “UltraShort Australian Dollar Fund”), the ProShares Ultra Euro (the “Ultra Euro Fund”), the ProShares Short Euro (the “Short Euro Fund” or the “Short Fund”), the ProShares Ultra Yen (the “Ultra Yen Fund”) and the ProShares UltraShort Yen (the “UltraShort Yen Fund”) may be collectively referred to as the “Currency Funds.” The ProShares UltraPro 3x Crude Oil ETF (the “3x Crude Oil Fund” or the “UltraPro Fund”) and the ProShares UltraPro 3x Short Crude Oil ETF (the “3x Short Crude Oil Fund” or the “UltraPro Short Fund”) may be collectively referred to as the “Oil Funds.” The Ultra Natural Gas Fund, the Ultra Euro Fund and the Ultra Yen Fund may be collectively referred to as the “Ultra Funds.” The UltraShort Natural Gas Fund, the UltraShort Australian Dollar Fund, the UltraShort Yen Fund and the Precious Metals Funds may be collectively referred to as the “UltraShort Funds.”

 

 

INVESTING IN THE SHARES INVOLVES SIGNIFICANT RISKS. PLEASE REFER TO “RISK FACTORS” BEGINNING ON PAGE 7.

THE FUNDS PRESENT SIGNIFICANT RISKS NOT APPLICABLE TO OTHER TYPES OF FUNDS. THE FUNDS ARE NOT APPROPRIATE FOR ALL INVESTORS. THE VIX FUTURES FUND INCLUDES RISKS RELATING TO INVESTING IN AND SEEKING EXPOSURE TO VIX FUTURES CONTRACTS. THE GEARED FUNDS THAT USE LEVERAGE ARE RISKIER THAN SIMILARLY BENCHMARKED EXCHANGE-TRADED FUNDS THAT DO NOT USE LEVERAGE. AN INVESTOR SHOULD ONLY CONSIDER AN INVESTMENT IN A GEARED FUND IF HE OR SHE UNDERSTANDS THE CONSEQUENCES OF SEEKING DAILY LEVERAGED, DAILY INVERSE OR DAILY INVERSE LEVERAGED RESULTS AND THE IMPACT OF COMPOUNDING ON GEARED FUND PERFORMANCE.

THE RETURN OF A GEARED FUND FOR A PERIOD LONGER THAN A SINGLE DAY IS THE RESULT OF ITS RETURN FOR EACH DAY COMPOUNDED OVER THE PERIOD AND USUALLY WILL DIFFER IN AMOUNT AND POSSIBLY EVEN DIRECTION FROM THE GEARED FUND’S STATED MULTIPLE TIMES THE RETURN OF THE BENCHMARK FOR THE SAME PERIOD. THESE DIFFERENCES CAN BE SIGNIFICANT.

THE FUNDS’ INVESTMENTS MAY BE ILLIQUID AND/OR HIGHLY VOLATILE AND THE FUNDS MAY EXPERIENCE LARGE LOSSES FROM BUYING, SELLING OR HOLDING SUCH INVESTMENTS. AN INVESTOR IN ANY OF THE FUNDS COULD POTENTIALLY LOSE THE FULL PRINCIPAL VALUE OF HIS/HER INVESTMENT WITHIN A SINGLE DAY.

SHAREHOLDERS WHO INVEST IN THE FUNDS SHOULD ACTIVELY MANAGE AND MONITOR THEIR INVESTMENTS, AS FREQUENTLY AS DAILY.

Each Geared Fund seeks daily investment results, before fees and expenses, that correspond to a multiple (2x or 3x), the inverse (-1x) or an inverse multiple (-2x or -3x) of the performance of its benchmark for a single day, not for any other period. The return of a Geared Fund for a period longer than a single day is the result of its return for each day compounded over the period and usually will differ in amount and possibly even direction from the Geared Fund’s stated multiple times the return of the Geared Fund’s benchmark for the same period. Daily compounding of a Geared Fund’s investment returns can dramatically and adversely affect its longer-term performance especially during periods of high volatility. Volatility has a negative impact on Geared Fund performance and the volatility of a Geared Fund’s benchmark may be at least as important to a Geared Fund’s return as the return of the Fund’s benchmark.


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The Geared Funds that use leverage should produce returns for a single day that are more volatile than the returns of their corresponding benchmarks. For example, the return for a single day of each of the Ultra Natural Gas Fund, the Ultra Euro Fund and the Ultra Yen Fund with its (2x) multiple should be approximately two times as volatile for a single day as the return of a fund with an objective of matching the same benchmark. The return for a single day of each of the UltraShort Natural Gas Fund, the UltraShort Silver Fund, the UltraShort Gold Fund, the UltraShort Australian Dollar Fund and the UltraShort Yen Fund with its (-2x) inverse multiple should be approximately two times as volatile for a single day as the return of a fund with an objective of matching the same benchmark. The return for a single day of the 3x Crude Oil Fund with its (3x) multiple should be approximately three times as volatile for a single day as the return of a fund with an objective of matching the same benchmark. The return for a single day of the 3x Short Crude Oil Fund with its (-3x) inverse multiple should be approximately three times as volatile for a single day as the return of a fund with an objective of matching the same benchmark.

THE VIX FUTURES FUND PRESENTS DIFFERENT RISKS THAN OTHER TYPES OF FUNDS, INCLUDING RISKS RELATING TO INVESTING AND SEEKING EXPOSURE TO VIX FUTURES CONTRACTS. AN INVESTOR SHOULD ONLY CONSIDER AN INVESTMENT IN THE VIX FUTURES FUND IF HE OR SHE UNDERSTANDS THE CONSEQUENCES OF SEEKING EXPOSURE TO VIX FUTURES CONTRACTS. THE VIX FUTURES FUND GENERALLY IS INTENDED TO BE USED ONLY FOR SHORT-TERM HORIZONS.

The VIX Futures Fund is benchmarked to the S&P 500 VIX Mid-Term Futures Index. The VIX Futures Fund is not benchmarked to the VIX Index (which is commonly referred to as the “VIX”). The S&P 500 VIX Mid-Term Futures Index and the VIX are two separate indices and can be expected to perform very differently.

The VIX is a non-investable index that measures the implied volatility of the S&P 500. For these purposes, “implied volatility” is a measure of the expected volatility (i.e., the rate and magnitude of variations in performance) of the S&P 500 over the next 30 days. The VIX does not represent the actual volatility of the S&P 500. The VIX is calculated based on the prices of a constantly changing portfolio of S&P 500 put and call options. The S&P 500 VIX Mid-Term Futures Index, the index used by the VIX Futures Fund, consists of mid-term VIX futures contracts. As such, the performance of the Index can be expected to be very different from the actual volatility of the S&P 500 or the performance of the VIX. As a result, the performance of the Funds also can be expected to be very different from the actual volatility of the S&P 500 or the performance of the VIX.

Unlike certain other asset classes that, in general, have historically increased in price over long periods of time, the volatility of the S&P 500 as measured by the VIX has historically reverted to a long-term average level over time. This means that the potential upside of an investment in the VIX Futures Fund may be limited. In addition, gains of the VIX Futures Fund, if any, may be subject to significant and unexpected reversals. Investors holding Shares of the VIX Futures Fund beyond short-term periods have an increased risk of losing all or a substantial portion of their investment.

Each Fund will distribute to shareholders a Schedule K-1 that will contain information regarding the income and expenses of the Fund.

NEITHER THE TRUST NOR ANY FUND IS A MUTUAL FUND OR ANY OTHER TYPE OF INVESTMENT COMPANY AS DEFINED IN THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED (THE “1940 ACT”), AND NEITHER IS SUBJECT TO REGULATION THEREUNDER. SHAREHOLDERS DO NOT HAVE THE PROTECTIONS ASSOCIATED WITH OWNERSHIP OF SHARES IN AN INVESTMENT COMPANY REGISTERED UNDER THE 1940 ACT. SEE RISK FACTOR ENTITLED “SHAREHOLDERS DO NOT HAVE THE PROTECTIONS ASSOCIATED WITH OWNERSHIP OF SHARES IN AN INVESTMENT COMPANY REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED (THE “1940 ACT).” IN PART ONE OF THIS PROSPECTUS FOR MORE INFORMATION.


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Each Fund continuously offers and redeems Shares in blocks of 50,000 Shares (25,000 Shares with respect to the VIX Futures Fund only) (each such block, a “Creation Unit”). Only Authorized Participants (as defined herein) may purchase and redeem Shares from a Fund and then only in Creation Units. An Authorized Participant is an entity that has entered into an Authorized Participant Agreement with the Trust and ProShare Capital Management LLC (the “Sponsor”). Shares are offered to Authorized Participants in Creation Units at each Fund’s respective NAV. Authorized Participants may then offer to the public, from time to time, Shares from any Creation Unit they create at a per-Share market price. The form of Authorized Participant Agreement and the related Authorized Participant Procedures Handbook set forth the terms and conditions under which an Authorized Participant may purchase or redeem a Creation Unit. Authorized Participants will not receive from any Fund, the Sponsor, or any of their affiliates, any fee or other compensation in connection with their sale of Shares to the public. An Authorized Participant may receive commissions or fees from investors who purchase Shares through their commission or fee-based brokerage accounts.

These securities have not been approved or disapproved by the United States Securities and Exchange Commission (the “SEC”) or any state securities commission nor has the SEC or any state securities commission passed upon the accuracy or adequacy of this Prospectus. Any representation to the contrary is a criminal offense.

THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF PARTICIPATING IN THIS POOL NOR HAS THE COMMISSION PASSED ON THE ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT.

 

 

March     , 2019

The Shares are neither interests in nor obligations of the Sponsor, Wilmington Trust Company, or any of their respective affiliates. The Shares are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.

This Prospectus has two parts: the offered series disclosure and the general pool disclosure. These parts are bound together and are incomplete if not distributed together to prospective participants.

COMMODITY FUTURES TRADING COMMISSION

RISK DISCLOSURE STATEMENT

YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS YOU TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE AWARE THAT COMMODITY INTEREST TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS. SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL AND CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION, RESTRICTIONS ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE POOL.

FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR MANAGEMENT, AND ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE POOLS THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS A COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED TO THIS POOL, AT PAGES 83 THROUGH 84, AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGES 80 THROUGH 83.


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THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL. THEREFORE, BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY POOL, YOU SHOULD CAREFULLY STUDY THIS DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION OF THE PRINCIPAL RISK FACTORS OF THIS INVESTMENT, AT PAGES 7 THROUGH 44.

YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL MAY TRADE FOREIGN FUTURES OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE UNITED STATES, INCLUDING MARKETS FORMALLY LINKED TO A UNITED STATES MARKET, MAY BE SUBJECT TO REGULATIONS WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION TO THE POOL AND ITS PARTICIPANTS. FURTHER, UNITED STATES REGULATORY AUTHORITIES MAY BE UNABLE TO COMPEL THE ENFORCEMENT OF THE RULES OF REGULATORY AUTHORITIES OR MARKETS IN NON-UNITED STATES JURISDICTIONS WHERE TRANSACTIONS FOR THE POOL MAY BE EFFECTED.

SWAPS TRANSACTIONS, LIKE OTHER FINANCIAL TRANSACTIONS, INVOLVE A VARIETY OF SIGNIFICANT RISKS. THE SPECIFIC RISKS PRESENTED BY A PARTICULAR SWAP TRANSACTION NECESSARILY DEPEND UPON THE TERMS OF THE TRANSACTION AND YOUR CIRCUMSTANCES. IN GENERAL, HOWEVER, ALL SWAPS TRANSACTIONS INVOLVE SOME COMBINATION OF MARKET RISK, CREDIT RISK, COUNTERPARTY CREDIT RISK, FUNDING RISK, LIQUIDITY RISK, AND OPERATIONAL RISK.

HIGHLY CUSTOMIZED SWAPS TRANSACTIONS IN PARTICULAR MAY INCREASE LIQUIDITY RISK, WHICH MAY RESULT IN A SUSPENSION OF REDEMPTIONS. HIGHLY LEVERAGED TRANSACTIONS MAY EXPERIENCE SUBSTANTIAL GAINS OR LOSSES IN VALUE AS A RESULT OF RELATIVELY SMALL CHANGES IN THE VALUE OR LEVEL OF AN UNDERLYING OR RELATED MARKET FACTOR. IN EVALUATING THE RISKS AND CONTRACTUAL OBLIGATIONS ASSOCIATED WITH A PARTICULAR SWAP TRANSACTION, IT IS IMPORTANT TO CONSIDER THAT A SWAP TRANSACTION MAY, IN CERTAIN INSTANCES, BE MODIFIED OR TERMINATED ONLY BY MUTUAL CONSENT OF THE ORIGINAL PARTIES AND SUBJECT TO AGREEMENT ON INDIVIDUALLY NEGOTIATED TERMS. THEREFORE, IT MAY NOT BE POSSIBLE FOR THE COMMODITY POOL OPERATOR TO MODIFY, TERMINATE, OR OFFSET THE POOL’S OBLIGATIONS OR THE POOL’S EXPOSURE TO THE RISKS ASSOCIATED WITH A TRANSACTION PRIOR TO ITS SCHEDULED TERMINATION DATE.

 

 

THIS PROSPECTUS DOES NOT INCLUDE ALL OF THE INFORMATION OR EXHIBITS IN THE REGISTRATION STATEMENT OF THE TRUST. INVESTORS CAN READ AND COPY THE ENTIRE REGISTRATION STATEMENT AT THE PUBLIC REFERENCE FACILITIES MAINTAINED BY THE SEC IN WASHINGTON, D.C.

 

 

THE TRUST WILL FILE QUARTERLY AND ANNUAL REPORTS WITH THE SEC. INVESTORS CAN READ AND COPY THESE REPORTS AT THE SEC PUBLIC REFERENCE FACILITIES IN WASHINGTON, D.C. PLEASE CALL THE SEC AT 1–800–SEC–0330 FOR FURTHER INFORMATION.

THE FILINGS OF THE TRUST ARE POSTED AT THE SEC WEBSITE AT WWW.SEC.GOV.

 

 


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REGULATORY NOTICES

NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST, ANY OF THE FUNDS, THE SPONSOR, THE AUTHORIZED PARTICIPANTS OR ANY OTHER PERSON.

THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION TO SELL OR A SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY OFFER, SOLICITATION, OR SALE OF THE SHARES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION, OR SALE IS NOT AUTHORIZED OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE ANY SUCH OFFER, SOLICITATION, OR SALE.

 

 

AUTHORIZED PARTICIPANTS MAY BE REQUIRED TO DELIVER A PROSPECTUS WHEN TRANSACTING IN SHARES. SEE “PLAN OF DISTRIBUTION” IN PART TWO OF THIS PROSPECTUS.


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PROSHARES TRUST II

Table of Contents

 

     Page  

PART ONE

OFFERED SERIES DISCLOSURE

      

SUMMARY

     1  

Important Information About the Funds

     1  

Overview

     3  

The VIX Futures Fund

     3  

The Natural Gas Funds

     3  

The Precious Metals Funds;

     3  

The Currency Funds

     3  

The Oil Funds

     3  

Purchases and Sales in the Secondary Market

     4  

Creation and Redemption Transactions

     5  

Breakeven Amounts

     6  

Important Tax Information

     6  

RISK FACTORS

     7  

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     48  

DESCRIPTION OF EACH FUND’S BENCHMARK

     49  

DESCRIPTION OF THE MID-TERM VIX FUTURES FUND’S INDEX

     49  

The S&P 500 VIX Mid-Term Futures Index

     49  

Information about the Index Licensor

     50  

DESCRIPTION OF THE NATURAL GAS FUNDS’ BENCHMARK

     51  

Bloomberg Natural Gas SubindexSM

     51  

Information About the Index Licensor

     52  

DESCRIPTION OF THE PRECIOUS METALS FUNDS’ BENCHMARKS

     53  

Bloomberg Silver SubindexSM

     53  

Information About the Index Licensor

     54  

Bloomberg Gold SubindexSM

     55  

Information About the Index Licensor

     56  

DESCRIPTION OF THE CURRENCY FUNDS’ BENCHMARKS

     57  

Australian dollar

     57  

Euro

     57  

Japanese yen

     58  

DESCRIPTION OF THE OIL FUNDS’ BENCHMARK

     58  

Bloomberg WTI Crude Oil SubIndexSM

     58  

Information About the Index Licensor

     59  

INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES

     60  

Investment Objectives

     60  

Principal Investment Strategies

     62  

PERFORMANCE OF THE OFFERED COMMODITY POOLS OPERATED BY THE COMMODITY POOL OPERATOR

     73  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     86  

CHARGES

     86  

Breakeven Table

     86  

MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

     91  

Status of the Funds

     92  

U.S. Shareholders

     93  

 

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     Page  

PART TWO

GENERAL POOL DISCLOSURE

      

PERFORMANCE OF THE OTHER COMMODITY POOLS OPERATED BY THE COMMODITY POOL OPERATOR

     104  

USE OF PROCEEDS

     117  

WHO MAY SUBSCRIBE

     117  

CREATION AND REDEMPTION OF SHARES

     118  

Creation Procedures

     119  

Redemption Procedures

     120  

Creation and Redemption Transaction Fee

     122  

Special Settlement

     122  

LITIGATION

     123  

DESCRIPTION OF THE SHARES; THE FUNDS; CERTAIN MATERIAL TERMS OF THE TRUST AGREEMENT

     124  

Description of the Shares

     124  

Principal Office; Location of Records; Fiscal Year

     124  

The Funds

     124  

The Trustee

     125  

The Sponsor

     125  

Duties of the Sponsor

     129  

Ownership or Beneficial Interest in the Funds

     130  

Management; Voting by Shareholders

     130  

Recognition of the Trust and the Funds in Certain States

     130  

Possible Repayment of Distributions Received by Shareholders

     130  

Shares Freely Transferable

     130  

Book-Entry Form

     130  

Reports to Shareholders

     131  

Net Asset Value (NAV)

     131  

Indicative Optimized Portfolio Value (“IOPV”)

     132  

Termination Events

     132  

DISTRIBUTIONS

     133  

THE ADMINISTRATOR

     133  

THE CUSTODIAN

     133  

THE TRANSFER AGENT

     134  

THE DISTRIBUTOR

     134  

Description of SEI

     134  

THE SECURITIES DEPOSITORY; BOOK-ENTRY ONLY SYSTEM; GLOBAL SECURITY

     135  

SHARE SPLITS OR REVERSE SPLITS

     136  

CONFLICTS OF INTEREST

     137  

MATERIAL CONTRACTS

     139  

Administration and Accounting Agreement

     139  

Transfer Agency and Service Agreement

     139  

Custody Agreement

     139  

Distribution Agreement

     140  

PURCHASES BY EMPLOYEE BENEFIT PLANS

     141  

General

     141  

“Plan Assets”

     141  

Ineligible Purchasers

     142  

 

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     Page  

PLAN OF DISTRIBUTION

     143  

Buying and Selling Shares

     143  

Authorized Participants

     143  

Likelihood of Becoming a Statutory Underwriter

     143  

General

     144  

LEGAL MATTERS

     145  

EXPERTS

     145  

WHERE INVESTORS CAN FIND MORE INFORMATION

     145  

RECENT FINANCIAL INFORMATION AND ANNUAL REPORTS

     146  

PRIVACY POLICY

     146  

The Trust’s Commitment to Investors

     146  

The Information the Trust Collects About Investors

     146  

How the Trust Handles Investors’ Personal Information

     146  

How the Trust Safeguards Investors’ Personal Information

     146  

INCORPORATION BY REFERENCE OF CERTAIN DOCUMENTS

     148  

FUTURES COMMISSION MERCHANTS

     150  

Litigation and Regulatory Disclosure Relating to FCMs

     150  

Margin Levels Expected to be Held at the FCMs

     178  

SWAP COUNTERPARTIES

     180  

Litigation and Regulatory Disclosure Relating to Swap Counterparties

     180  

APPENDIX A—GLOSSARY OF DEFINED TERMS

     A-1  

 

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PART ONE:

OFFERED SERIES DISCLOSURE

SUMMARY

Investors should read the following summary together with the more detailed information in this Prospectus before investing in Shares of any of the Funds, including the information under the caption “Risk Factors,” and all exhibits to this Prospectus, including the financial statements and the notes to those financial statements in the Trust’s Annual Report on Form 10-K, and the Quarterly Reports on Form 10-Q, and Current Reports, if any, on Form 8-K. Please see the section entitled “Incorporation by Reference of Certain Documents” in Part Two of this Prospectus.

For ease of reference, any references throughout this Prospectus to various actions taken by any or all of the Funds are actually actions taken by the Trust on behalf of such Funds.

Definitions used in this Prospectus can be found in the Glossary of Defined Terms in Appendix A and throughout this Prospectus.

Important Information About the Funds

 

THE FUNDS PRESENT SIGNIFICANT RISKS NOT APPLICABLE TO OTHER TYPES OF FUNDS. THE FUNDS ARE NOT APPROPRIATE FOR ALL INVESTORS. THE VIX FUTURES FUND INCLUDES RISKS RELATING TO INVESTING IN AND SEEKING EXPOSURE TO VIX FUTURES CONTRACTS. THE GEARED FUNDS THAT USE LEVERAGE ARE RISKIER THAN SIMILARLY BENCHMARKED EXCHANGE-TRADED FUNDS THAT DO NOT USE LEVERAGE. AN INVESTOR SHOULD ONLY CONSIDER AN INVESTMENT IN A GEARED FUND IF HE OR SHE UNDERSTANDS THE CONSEQUENCES OF SEEKING DAILY LEVERAGED, DAILY INVERSE OR DAILY INVERSE LEVERAGED RESULTS AND THE IMPACT OF COMPOUNDING ON GEARED FUND PERFORMANCE.

THE RETURN OF A GEARED FUND FOR A PERIOD LONGER THAN A SINGLE DAY IS THE RESULT OF ITS RETURN FOR EACH DAY COMPOUNDED OVER THE PERIOD AND USUALLY WILL DIFFER IN AMOUNT AND POSSIBLY EVEN DIRECTION FROM THE GEARED FUND’S STATED MULTIPLE TIMES THE RETURN OF THE BENCHMARK FOR THE SAME PERIOD. THESE DIFFERENCES CAN BE SIGNIFICANT.

THE FUNDS’ INVESTMENTS MAY BE ILLIQUID AND/OR HIGHLY VOLATILE AND THE FUNDS MAY EXPERIENCE LARGE LOSSES FROM BUYING, SELLING OR HOLDING SUCH INVESTMENTS. AN INVESTOR IN ANY OF THE FUNDS COULD POTENTIALLY LOSE THE FULL PRINCIPAL VALUE OF HIS/HER INVESTMENT WITHIN A SINGLE DAY.

SHAREHOLDERS WHO INVEST IN THE FUNDS SHOULD ACTIVELY MANAGE AND MONITOR THEIR INVESTMENTS, AS FREQUENTLY AS DAILY.

Each Geared Fund seeks daily investment results, before fees and expenses, that correspond to a multiple (2x or 3x), the inverse (-1x) or an inverse multiple (-2x or -3x) of the performance of its corresponding benchmark for a single day, not for any other period. The return of a Geared Fund for a period longer than a single day is the result of its return for each day compounded over the period and usually will differ in amount and possibly even direction from the Geared Fund’s stated multiple times the return of the Geared Fund’s benchmark for the same period. These differences can be significant. Daily compounding of a Geared Fund’s investment returns can dramatically and adversely affect its longer-term performance, especially during periods of high volatility.

 

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Volatility has a negative impact on Geared Fund performance and the volatility of a Geared Fund’s benchmark may be at least as important to a Geared Fund’s return for a period as the return of the Geared Fund’s benchmark. Each Geared Fund (except for the Short Euro Fund) uses leverage and should produce daily returns that are more volatile than that of its benchmark. For example, the return for a single day of an Ultra Fund with a (2x) multiple should be approximately two times as volatile for a single day as the return of a fund with an objective of matching the same benchmark.

The return for a single day of an UltraShort Fund with a two times inverse (-2x) multiple should be approximately two times as volatile for a single day as the return of a fund with an objective of matching the same benchmark. The return for a single day of the 3x Crude Oil Fund with its (3x) multiple should be approximately three times as volatile for a single day as the return of a fund with an objective of matching the same benchmark. The return for a single day of the 3x Short Crude Oil Fund with its (-3x) multiple should be approximately three times as volatile for a single day as the return of a fund with an objective of matching the same benchmark. The Short Euro Fund is designed to return for a single day the inverse (-1x) of the return that would be expected of a fund with an objective of matching the same benchmark for such day.

 

THE VIX FUTURES FUND PRESENTS DIFFERENT RISKS THAN OTHER TYPES OF FUNDS, INCLUDING RISKS RELATING TO INVESTING AND SEEKING EXPOSURE TO VIX FUTURES CONTRACTS. AN INVESTOR SHOULD ONLY CONSIDER AN INVESTMENT IN THE VIX FUTURES FUND IF HE OR SHE UNDERSTANDS THE CONSEQUENCES OF SEEKING EXPOSURE TO VIX FUTURES CONTRACTS.

The VIX Futures Fund is benchmarked to the S&P 500 VIX Mid-Term Futures Index (the “Index”), an investable index of VIX futures contracts. The VIX Futures Fund is a matching fund (the “Matching Fund”) which seeks results, before fees and expenses, that over time match the performance of the Index. The VIX Futures Fund is not benchmarked to the VIX Index (which is commonly referred to as the “VIX”). The VIX is a non-investable index that measures the implied volatility of the S&P 500. For these purposes, “implied volatility” is a measure of the expected volatility (i.e., the rate and magnitude of variations in performance) of the S&P 500 over the next 30 days. The VIX does not represent the actual volatility of the S&P 500. The VIX is calculated based on the prices of a constantly changing portfolio of S&P 500 put and call options. The index underlying the VIX Futures Fund consists of mid-term VIX futures contracts.

 

THE PERFORMANCE OF THE INDEX AND THE VIX FUTURES FUND CAN BE EXPECTED TO BE VERY DIFFERENT FROM THE ACTUAL VOLATILITY OF THE S&P 500 OR THE PERFORMANCE OF THE VIX INDEX.

Unlike certain other asset classes that, in general, have historically increased in price over long periods of time, the volatility of the S&P 500 as measured by the VIX has historically reverted to a long-term average level over time. This means that the potential upside of an investment in the VIX Futures Fund may be limited. In addition, gains of the VIX Futures Fund, if any, may be subject to significant and unexpected reversals. Investors holding Shares of the VIX Futures Fund beyond short-term periods have an increased risk of losing a substantial portion of their investment. Historically, the longer an investor’s holding period in the VIX Futures Fund, the greater the potential of loss. The VIX Futures Fund generally is intended to be used only for short-term investment horizons.

 

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Overview

Each Fund is listed below along with its respective benchmark.

The VIX Futures Fund

 

Fund Name

  

Benchmark

ProShares VIX Mid-Term Futures ETF    S&P 500® VIX Mid-Term Futures Index

The Natural Gas Funds

 

Fund Name

  

Benchmark

ProShares Ultra Bloomberg Natural Gas    Bloomberg Natural Gas SubindexSM
ProShares UltraShort Bloomberg Natural Gas    Bloomberg Natural Gas SubindexSM

The Precious Metals Funds

 

Fund Name

  

Benchmark

ProShares UltraShort Silver    Bloomberg Silver SubindexSM
ProShares UltraShort Gold    Bloomberg Gold SubindexSM

The Currency Funds

 

Fund Name

  

Benchmark

ProShares UltraShort Australian Dollar    The U.S. dollar price of the Australian dollar
ProShares Ultra Euro    The U.S. dollar price of the euro
ProShares Short Euro    The U.S. dollar price of the euro
ProShares Ultra Yen    The U.S. dollar price of the Japanese yen
ProShares UltraShort Yen    The U.S. dollar price of the Japanese yen

The Oil Funds

 

Fund Name

  

Benchmark

ProShares UltraPro 3x Crude Oil ETF    Bloomberg WTI Crude Oil SubindexSM
ProShares UltraPro 3x Short Crude Oil ETF    Bloomberg WTI Crude Oil SubindexSM

The VIX Futures Fund

The VIX Futures Fund is sometimes referred to herein as the “Matching Fund.” This Fund offers investors the opportunity to obtain “matching” (i.e., not leveraged, inverse or inverse leveraged) exposure to its underlying benchmark, as described herein.

The Geared Funds

The Geared Funds currently include the following Funds: the Natural Gas Funds, the Precious Metals Funds, the Currency Funds, and the Oil Funds.

The “Short Fund” seeks daily investment results, before fees and expenses, that correspond to the inverse (-1x) of the daily performance of its benchmark. Each “Ultra Fund” and “UltraShort Fund” seeks daily investment results, before fees and expenses, that correspond to two times (2x) or two times the inverse (-2x), respectively, of the daily performance of its benchmark. The 3x Crude Oil Fund and 3x Short Crude Oil Fund seek daily investment results, before fees and expenses, that correspond to three times (3x) or three times the inverse (-3x), respectively, of the daily performance of its benchmark. The Geared Funds do not seek to achieve their stated objective over a period greater than 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.

 

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Each Geared Fund seeks to engage in daily rebalancing to position its portfolio so that its exposure to its benchmark is consistent with its daily investment objective. The impact of changes to the value of a Fund’s benchmark each day will affect whether such Fund’s portfolio needs to be rebalanced. For example, if the benchmark underlying the Short Fund, an UltraShort Fund or the UltraPro 3x Short Fund has risen on a given day, net assets of such Fund should fall. As a result, inverse exposure will need to be decreased. Conversely, if the benchmark underlying the Short Fund, an UltraShort Fund or the UltraPro 3x Short Fund has fallen on a given day, net assets of such Fund should rise. As a result, inverse exposure will need to be increased. For an Ultra Fund or the UltraPro 3x Fund, the Fund’s long exposure will need to be increased on days when the Fund’s benchmark rises and decreased on days when the Fund’s benchmark falls. The time and manner in which a Geared Fund rebalances its portfolio may vary from day to day at the discretion of the Sponsor depending upon market conditions and other relevant circumstances.

 

DAILY REBALANCING AND THE COMPOUNDING OF EACH DAY’S RETURN OVER TIME MEANS THAT THE RETURN OF EACH GEARED FUND FOR A PERIOD LONGER THAN A SINGLE DAY WILL BE THE RESULT OF EACH DAY’S RETURNS COMPOUNDED OVER THE PERIOD, WHICH WILL VERY LIKELY DIFFER FROM A MULTIPLE (2X OR 3X), THE INVERSE (-1X) OR AN INVERSE MULTIPLE (-2X OR -3X) OF THE RETURN OF THE GEARED FUND’S BENCHMARK FOR THE SAME PERIOD. A GEARED FUND WILL LOSE MONEY IF ITS BENCHMARK’S PERFORMANCE IS FLAT OVER TIME, AND IT IS POSSIBLE FOR A GEARED FUND TO LOSE MONEY OVER TIME REGARDLESS OF THE PERFORMANCE OF ITS BENCHMARK, AS A RESULT OF DAILY REBALANCING, THE BENCHMARK’S VOLATILITY, COMPOUNDING AND OTHER FACTORS.

All Funds

Each of the Funds intends to invest in Financial Instruments to gain appropriate exposure to its benchmark in the manner and to the extent described herein. “Financial Instruments” are instruments whose value is derived from the value of an underlying asset, rate or benchmark (such asset, rate or benchmark, a “Reference Asset”) and include futures contracts, swap agreements, forward contracts, and other instruments. The Funds will not invest directly in spot volatility, the VIX, natural gas, precious metals, currencies or crude oil.

In seeking to achieve the Funds’ investment objectives, the Sponsor uses a mathematical approach to investing. Using this approach, the Sponsor determines the type, quantity and mix of Financial Instruments that the Sponsor believes, in combination, should produce daily returns consistent with the Funds’ objectives.

The Funds are not actively managed by traditional methods (e.g., by effecting changes in the composition of a portfolio on the basis of judgments relating to economic, financial and market conditions with a view toward obtaining positive results under all market conditions). Each Fund seeks to remain fully invested at all times in Financial Instruments and money market instruments that, in combination, provide exposure to its underlying benchmark consistent with its investment objective without regard to market conditions, trends or direction.

The Sponsor has the power to change a Fund’s investment objective, benchmark or investment strategy, and may liquidate a Fund, at any time, subject to applicable regulatory requirements.

ProShare Capital Management LLC, a Maryland limited liability company, serves as the Trust’s Sponsor and commodity pool operator. The principal office of the Sponsor and the Funds is located at 7501 Wisconsin Avenue, East Tower, 10th Floor, Bethesda, Maryland 20814. The telephone number of the Sponsor and each of the Funds is (240) 497-6400.

Purchases and Sales in the Secondary Market

The Shares of each Fund are listed on the Exchange, under the ticker symbols shown on the front cover of this Prospectus. Secondary market purchases and sales of Shares are subject to ordinary brokerage commissions and charges.

 

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Creation and Redemption Transactions

Only an Authorized Participant may purchase (i.e., create) or redeem Shares with the Funds. Authorized Participants may purchase or redeem Shares only in blocks of 50,000 Shares (25,000 Shares with respect to the VIX Futures Fund only) (each such block, a “Creation Unit”) in the Funds. An “Authorized Participant” is an entity that has entered into an Authorized Participant Agreement with the Trust and the Sponsor. Creation Units are offered to Authorized Participants at each Fund’s NAV. Creation Units in a Fund are expected to be created when there is sufficient demand for Shares in such Fund that the market price per Share is at a premium to the NAV per Share. Authorized Participants will likely sell such Shares to the public at prices that are expected to reflect, among other factors, the trading price of the Shares of such Fund and the supply of and demand for the Shares at the time of sale. Similarly, it is expected that Creation Units in a Fund will be redeemed when the market price per Share of such Fund is at a discount to the NAV per Share. The Sponsor expects that the exploitation of such arbitrage opportunities by Authorized Participants and their clients will tend to cause the public trading price of the Shares to track the NAV per Share of a Fund over time. Retail investors seeking to purchase or sell Shares on any day effect such transactions in the secondary market at the market price per Share, rather than in connection with the creation or redemption of Creation Units.

A creation transaction, which is subject to acceptance by SEI Investments Distribution Co. (“SEI” or the “Distributor”), generally takes place when an Authorized Participant deposits a specified amount of cash (unless as provided otherwise in this Prospectus) in exchange for a specified number of Creation Units. Similarly, Shares can be redeemed only in Creation Units, generally for cash (unless as provided otherwise in this Prospectus). Except when aggregated in Creation Units, Shares are not redeemable. The prices at which creations and redemptions occur are based on the next calculation of the NAV after an order is received in a form described in the Authorized Participant Agreement and the related Authorized Participant Procedures Handbook. The manner by which Creation Units are purchased and redeemed is governed by the terms of this Prospectus, the Authorized Participant Agreement and Authorized Participant Procedures Handbook. Creation and redemption orders are not effective until accepted by the Distributor and may be rejected or revoked as described herein. By placing a purchase order, an Authorized Participant agrees to deposit cash (unless as provided otherwise in this Prospectus) with The Bank of New York Mellon (“BNYM”, the “Custodian”, the “Transfer Agent” and the “Administrator”), acting in its capacity as custodian of the Funds.

Creation and redemption transactions must be placed each day with SEI by the create/redeem cut-off time (stated below) to receive that day’s NAV. The cut-off time may be earlier if, for example, the Exchange or other exchange material to the valuation or operation of such Fund closes before such cut-off time. Because the primary trading session for the commodities and/or futures contracts underlying certain of the Funds have different closing (or fixing) times than U.S. Equity markets, the create/redeem cut-off time and NAV calculation time for each Fund may differ. See the section herein titled “Net Asset Value” for additional information about NAV calculations.

 

Underlying Benchmark

  

Create/Redeem Cut-off

  

NAV Calculation Time

S&P 500 VIX Mid-Term Futures Index    2:00 p.m. (Eastern Time)    4:15 p.m. (Eastern Time)
Bloomberg Natural Gas SubindexSM    2:00 p.m. (Eastern Time)    2:30 p.m. (Eastern Time)
Bloomberg Silver SubindexSM    1:00 p.m. (Eastern Time)    1:25 p.m. (Eastern Time)
Bloomberg Gold SubindexSM    1:00 p.m. (Eastern Time)    1:30 p.m. (Eastern Time)
Australian dollar    3:00 p.m. (Eastern Time)    4:00 p.m. (Eastern Time)
Euro    3:00 p.m. (Eastern Time)    4:00 p.m. (Eastern Time)
Yen    3:00 p.m. (Eastern Time)    4:00 p.m. (Eastern Time)
Bloomberg WTI Crude Oil SubindexSM    2:00 p.m. (Eastern Time)    2:30 p.m. (Eastern Time)

 

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Breakeven Amounts

A Fund will be profitable only if returns from the Fund’s investments exceed its “breakeven amount.” Estimated breakeven amounts are set forth in the table below. The estimated breakeven amounts represent the estimated amount of trading income that each Fund would need to achieve during one year to offset the Fund’s estimated fees, costs and expenses, net of any interest income earned by the Fund on its investments. Estimated amounts do not represent actual results, which may be different. It is not possible to predict whether a Fund will break even at the end of the first twelve months of an investment or any other period. See “Charges—Breakeven Table,” below for more detailed tables showing Breakeven Amounts.

 

Fund Name

  Breakeven Amount
(% Per Annum of
Average
Daily NAV)*
    Assumed
Selling
Price
Per Share*
    Breakeven Amount
($ for the
Assumed Selling
Price Per Share)*
 

ProShares VIX Mid-Term Futures ETF**

    0.00   $ 25.00       0.00  

ProShares Ultra Bloomberg Natural Gas**

    0.00   $ 25.00       0.00  

ProShares UltraShort Bloomberg Natural Gas**

    0.00   $ 20.00       0.00  

ProShares UltraShort Silver**

    0.00   $ 35.00       0.00  

ProShares UltraShort Gold**

    0.00   $ 70.00       0.00  

ProShares UltraShort Australian Dollar**

    0.00   $ 55.00       0.00  

ProShares Ultra Euro**

    0.00   $ 15.00       0.00  

ProShares Short Euro**

    0.00   $ 40.00       0.00  

ProShares Ultra Yen

    0.14   $ 55.00       0.07  

ProShares UltraShort Yen**

    0.00   $ 75.00       0.00  

ProShares UltraPro 3x Crude Oil ETF**

    0.00   $ 20.00       0.00  

ProShares UltraPro 3x Short Crude Oil ETF**

    0.00   $ 20.00       0.00  

 

*

The breakeven analysis set forth in this table assumes that the Shares have a constant NAV equal to the amount shown. This amount approximates the NAV of such Shares on February 28, 2019, rounded to the nearest $5. The actual NAV of each Fund differs and is likely to change on a daily basis. The numbers in this chart have been rounded to the nearest 0.01.

**

Fees and expenses are less than the anticipated interest income, therefore the net trading gains that would be necessary to offset such expenses would be zero.

Important Tax Information

Please note that each Fund will distribute to shareholders a Schedule K-1 that will contain information regarding the income and expense items of the Fund. The Schedule K-1 is a complex form and shareholders may find that preparing tax returns may require additional time or may require the assistance of an accountant or other tax preparer, at an additional expense to the shareholder.

 

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RISK FACTORS

 

Investing in the Funds involves significant risks not applicable to other types of investments. The Funds may be highly volatile and you could potentially lose the full principal value of your investment within a single day. Before you decide to purchase any Shares, you should consider carefully the risks described below together with all of the other information included in this Prospectus, as well as information found in documents incorporated by reference in this Prospectus. These risk factors may be amended, supplemented or superseded from time to time by risk factors contained in any periodic report, prospectus supplement, post-effective amendment or in other reports filed with the SEC in the future.

Risks Specific to the Geared Funds

In addition to the risks described elsewhere in this “Risk Factors” section, the following risks could apply to the Geared Funds.

The use of leveraged or inverse leveraged positions could result in the total loss of an investor’s investment within a single day.

Each of the Geared Funds (except for the Short Euro Fund) utilizes leverage in seeking to achieve its respective investment objective and will lose more money in market environments adverse to their respective daily investment objectives than funds that do not employ leverage. The use of leveraged and/or inverse leveraged positions could result in the total loss of an investor’s investment, even within a single day. Even if held for only a single day, the Geared Funds are highly vulnerable to sudden large changes in the daily movement of their respective benchmarks.

For example, because the Ultra Funds and the UltraShort Funds offered hereby include a two times (2x) or a two times inverse (-2x) multiplier, respectively, a single-day movement in the benchmark for one of these Funds approaching 50% at any point in the day could result in the total loss or almost total loss of an investment in such Fund if that movement is contrary to the investment objective of the Fund. This would be the case with downward single-day or intraday movements in the underlying benchmark of an Ultra Fund or upward single day or intraday movements in the benchmark of an UltraShort Fund, even if the underlying benchmark maintains a level greater than zero at all times and even if the benchmark subsequently moves in an opposite direction, eliminating all or a portion of the prior adverse movement. It is not possible to predict when sudden large changes in the daily movement of a benchmark may occur.

Because the Oil Funds offered hereby include a three times (3x) or three times inverse (-3x) multiplier, a single-day movement in the benchmark for one of these Funds approaching 33% at any point in the day could result in the total loss or almost total loss of an investment in such Fund if that movement is contrary to the investment objective of the Fund. This would be the case with downward single-day or intraday movements in the benchmark in the case of the UltraPro 3x Fund or upward single day or intraday movements in the benchmark in the case of the UltraPro 3x Short Fund, even if the benchmark maintains a level greater than zero at all times and even if the benchmark subsequently moves in an opposite direction, eliminating all or a portion of the prior adverse movement.

Due to the compounding of daily returns, a Geared Fund’s returns over periods longer than a single day will likely differ in amount and possibly even direction from the Fund’s stated multiple times the return of its benchmark for such period.

Each of the Geared Funds is “geared” which means that each has an investment objective to seek daily investment results, before fees and expenses, that correspond to a multiple (2x or 3x), the inverse (-1x) or an

 

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inverse multiple (-2x or -3x) of the performance of a benchmark for a single day and not for any other period. A single day is measured from the time a Fund calculates its respective net asset value (“NAV”) to the time of the Fund’s next NAV calculation. The NAV calculation times for the Funds typically range from 7:00 a.m. to 4:00 p.m. (Eastern Time); please see the section entitled Summary–Creation and Redemption Transactions above for additional details on the NAV calculation times for the Funds. The return of a Geared Fund for a period longer than a single day is the result of its return for each day compounded over the period and usually will differ from a multiple (2x or 3x), the inverse (-1x) or an inverse multiple (-2x or -3x) of the return of the Geared Fund’s corresponding benchmark for the same period. Compounding is the cumulative effect of applying investment gains and losses and income to the principal amount invested over time. Gains or losses experienced over a given period will increase or reduce the principal amount invested from which the subsequent period’s returns are calculated. The effects of compounding will likely cause the performance of a Geared Fund to differ from the Geared Fund’s stated multiple times the return of its benchmark for the same period. The effect of compounding becomes more pronounced as benchmark volatility and holding period increase. The impact of compounding will impact each shareholder differently depending on the period of time an investment in a Geared Fund is held and the volatility of the benchmark during the holding period of an investment in the Geared Fund.

A Geared Fund will lose money if its benchmark’s performance is flat over time, and it is possible for a Geared Fund to lose money over time regardless of the performance of an underlying benchmark, as a result of daily rebalancing, the benchmark’s volatility, compounding and other factors. Longer holding periods, higher benchmark volatility, inverse exposure and greater leverage each affect the impact of compounding on a Geared Fund’s returns. Daily compounding of a Geared Fund’s investment returns can dramatically and adversely affect performance, especially during periods of high volatility. Volatility has a negative impact on Geared Fund performance and the volatility of a Geared Fund’s benchmark may be at least as important to a Geared Fund’s return for a period as the return of the Fund’s benchmark.

Each Ultra Fund, UltraShort Fund, the UltraPro 3x Fund and the UltraPro Short 3x Fund uses leverage and should produce returns for a single day that are more volatile than that of its corresponding benchmark. For example, the return for a single day of an Ultra Fund with a 2x multiple should be approximately two times as volatile for a single day as the return of a fund with an objective of matching the performance of the same benchmark. The return for a single day of an UltraShort Fund with a -2x multiple should be approximately two times as volatile for a single day as the inverse of the return of a fund with an objective of matching the same benchmark.

The Geared Funds are not appropriate for all investors and present different risks than other funds. The Geared Funds (other than the Short Euro Fund) use leverage and are riskier than similarly benchmarked exchange-traded funds that do not use leverage. An investor should only consider an investment in a Geared Fund if he or she understands the consequences of seeking daily leveraged, daily inverse or daily inverse leveraged investment results for a single day. Shareholders who invest in the Geared Funds should actively manage and monitor their investments, as frequently as daily.

 

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The hypothetical examples below illustrate how daily geared fund returns can behave for periods longer than a single day. Each involves a hypothetical fund XYZ that seeks returns that are two times (2x) the daily performance of benchmark XYZ, before fees and expenses. On each day, fund XYZ performs in line with its objective (two times (2x) the benchmark’s daily performance before fees and expenses). Notice that, in the first example (showing an overall benchmark loss for the period), over the entire seven-day period, the fund’s total return is more than two times (2x) the loss of the period return of the benchmark. For the seven-day period, benchmark XYZ lost 3.26% while fund XYZ lost 7.01% (versus -6.52% (or 2 x -3.26%)).

 

     Benchmark XYZ     Fund XYZ  
     Level      Daily
Performance
    Daily
Performance
    Net Asset
Value
 

Start

     100.00          $ 100.00  

Day 1

     97.00        -3.00     -6.00   $ 94.00  

Day 2

     99.91        3.00     6.00   $ 99.64  

Day 3

     96.91        -3.00     -6.00   $ 93.66  

Day 4

     99.82        3.00     6.00   $ 99.28  

Day 5

     96.83        -3.00     -6.00   $ 93.32  

Day 6

     99.73        3.00     6.00   $ 98.92  

Day 7

     96.74        -3.00     -6.00   $ 92.99  
     

 

 

   

 

 

   

Total Return

        -3.26     -7.01  
     

 

 

   

 

 

   

Similarly, in another example (showing an overall benchmark gain for the period), over the entire seven-day period, the fund’s total return is considerably less than two times (2x) that of the period return of the benchmark. For the seven-day period, benchmark XYZ gained 2.72% while fund XYZ gained 4.86% (versus 5.44% (or 2 × 2.72%)).

 

     Benchmark XYZ     Fund XYZ  
     Level      Daily
Performance
    Daily
Performance
    Net Asset
Value
 

Start

     100.00          $ 100.00  

Day 1

     103.00        3.00     6.00   $ 106.00  

Day 2

     99.91        -3.00     -6.00   $ 99.64  

Day 3

     102.91        3.00     6.00   $ 105.62  

Day 4

     99.82        -3.00     -6.00   $ 99.28  

Day 5

     102.81        3.00     6.00   $ 105.24  

Day 6

     99.73        -3.00     -6.00   $ 98.92  

Day 7

     102.72        3.00     6.00   $ 104.86  
     

 

 

   

 

 

   

Total Return

        2.72     4.86  
     

 

 

   

 

 

   

These effects are caused by compounding, which exists in all investments, but has a more significant impact in geared funds. In general, during periods of higher benchmark volatility, compounding will cause an Ultra Fund’s or the UltraPro Fund’s results for periods longer than a single day to be less than two times (2x) or three times (3x) the return of the corresponding benchmark, respectively (or less than the inverse (-1x), two times the inverse (-2x) or three times the inverse (-3x) times the return of the benchmark for the Short Fund and UltraShort Fund and the UltraPro Short Fund, respectively). This effect becomes more pronounced as volatility increases. Conversely, in periods of lower benchmark volatility (particularly when combined with higher benchmark returns), an Ultra Fund’s or the UltraPro Fund’s returns over longer periods can be greater than two times (2x) or three times (3x), respectively, the return of the corresponding benchmark (or greater than two times the inverse (-2x) of the return of the benchmark of an UltraShort Fund or three times the inverse (-3x) of the return of the index of an UltraPro Short Fund). Actual results for a particular period are also dependent on the magnitude of the benchmark return in addition to the benchmark volatility. Similar effects exist for the Short Fund, the

 

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UltraShort Funds and the UltraPro Short Fund, and the significance of these effects may be even greater with such inverse or inverse leveraged funds.

The graphs that follow illustrate this point. Each of the graphs shows a simulated hypothetical one-year performance of a benchmark compared with the performance of a geared fund that perfectly achieves its geared daily investment objective. The graphs demonstrate that, for periods greater than a single day, a geared fund is likely to underperform or overperform (but not match) the benchmark performance (or the inverse of the benchmark performance) times the multiple stated as the daily fund objective. Investors should understand the consequences of holding daily rebalanced funds for periods longer than a single day and should actively manage and monitor their investments, as frequently as daily. A one-year period is used solely for illustrative purposes. Deviations from the benchmark return (or the inverse of the benchmark return) times the fund multiple can occur over periods as short as two days (each day as measured from NAV to NAV) and may also occur in periods of a single day, or even intra-day. To isolate the impact of daily leveraged, inverse or inverse leveraged exposure, these graphs assume: a) no fund expenses or transaction costs; b) borrowing/lending rates (to obtain required leveraged, inverse or inverse leveraged exposure) and cash reinvestment rates of zero percent; and c) the fund consistently maintaining perfect exposure as of the fund’s NAV time each day. If these assumptions were different, the fund’s performance would be different than that shown. If fund expenses, transaction costs and financing expenses greater than zero percent were included, the fund’s performance would also be different than shown. Each of the graphs also assumes a volatility rate of 41% which is an approximate average of the five-year historical volatility rate as of December 31, 2018 of the Bloomberg Natural Gas SubindexSM, the benchmark referenced herein with the highest average five-year historical volatility rate. A benchmark’s volatility rate is a statistical measure of the magnitude of fluctuations in its returns.

 

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HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS. NO REPRESENTATION IS BEING MADE THAT ANY BENCHMARK OR FUND WILL OR IS LIKELY TO ACHIEVE GAINS OR LOSSES SIMILAR TO THOSE SHOWN OR WILL EXPERIENCE VOLATILITY SIMILAR TO THAT SHOWN. THE INFORMATION PROVIDED IN THE CHARTS BELOW IS FOR ILLUSTRATIVE PURPOSES ONLY.

 

 

LOGO

One Year Simulation; Benchmark Flat (0%) (Annualized Benchmark Volatility 41%)

The graph above shows a scenario where the benchmark, which exhibits day-to-day volatility, is flat or trendless over the year (i.e., provides a return of 0% over the course of the year), but the Short Fund (-1x) is down.

 

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LOGO

One Year Simulation; Benchmark Flat 33% (Annualized Benchmark Volatility 41%)

The graph above shows a scenario where the benchmark, which exhibits day-to-day volatility, is down over the year, but the Short Fund (-1x) is up less than the inverse of the benchmark.

 

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LOGO

One Year Simulation; Benchmark Flat 33% (Annualized Benchmark Volatility 41%)

The graph above shows a scenario where the benchmark, which exhibits day-to-day volatility, is up over the year, but the Short Fund (-1x) is down more than the inverse of the benchmark.

 

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LOGO

One Year Simulation; Benchmark Flat (0%) (Annualized Benchmark Volatility 41%)

The graph above shows a scenario where the benchmark, which exhibits day-to-day volatility, is flat or trendless over the year (i.e., provides a return of 0% over the course of the year), but the Ultra Fund (2x) and the UltraShort Fund (-2x) are both down.

 

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LOGO

One Year Simulation; Benchmark Flat 33%)(Annualized Benchmark Volatility 41%)

The graph above shows a scenario where the benchmark, which exhibits day-to-day volatility, is down over the year, but the Ultra Fund (2x) is down less than two times the benchmark and the UltraShort Fund (-2x) is up less than two times the inverse of the benchmark.

 

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LOGO

One Year Simulation; Benchmark Flat 33% Annualized Benchmark Volatility 41%)

The graph above shows a scenario where the benchmark, which exhibits day-to-day volatility, is up over the year, but the Ultra Fund (2x) is up less than two times the benchmark and the UltraShort Fund (-2x) is down two times the inverse of the benchmark.

 

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LOGO

One Year Simulation; Benchmark Flat (0%) (Annualized Benchmark Volatility 41%)

The graph above shows a scenario where the benchmark, which exhibits day-to-day volatility, is flat or trendless over the year (i.e., provides a return of 0% over the course of the year), but the UltraPro Fund (3x) and the UltraPro Short Fund (-3x) are both down.

 

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LOGO

One Year Simulation; Benchmark Flat 33% (Annualized Benchmark Volatility 41%)

The graph above shows a scenario where the benchmark, which exhibits day-to-day volatility, is down over the year, but the UltraPro Fund (3x) is down less than three times the benchmark and the UltraPro Short Fund (-3x) is up less than three times the inverse of the benchmark.

 

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LOGO

One Year Simulation; Benchmark Flat 33% (Annualized Benchmark Volatility 41%)

The graph above shows a scenario where the benchmark, which exhibits day-to-day volatility, is up over the year, but the UltraPro Fund (3x) is up less than three times the benchmark and the UltraPro Short Fund (-3x) is down less than three times the inverse of the benchmark.

The historical five-year average volatility of the benchmarks utilized by the Funds ranges from 8.40% to 40.95%, as set forth in the table below.

 

Benchmark

   Historical Five-Year
Average
December 31, 2018
 

S&P 500 VIX Mid-Term Futures Index

     32.53

Bloomberg Natural Gas SubindexSM

     40.95

Bloomberg Silver SubindexSM

     22.92

Bloomberg Gold SubindexSM

     13.38

The U.S. dollar price of the Australian dollar

     9.61

The U.S. dollar price of the euro

     8.40

The U.S. dollar price of the Japanese yen

     8.83

Bloomberg WTI Crude Oil SubindexSM

     35.20

Historical average volatility does not predict future volatility, which may be higher or lower than historical averages.

 

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Fund performance for periods greater than a single day can be estimated given any set of assumptions for the following factors: a) benchmark volatility; b) benchmark performance; c) period of time; d) financing rates associated with leveraged exposure; and e) other Fund expenses. The tables below illustrate the impact of two factors that affect a geared fund’s performance: benchmark volatility and benchmark return. Benchmark volatility is a statistical measure of the magnitude of fluctuations in the returns of a benchmark and is calculated as the standard deviation of the natural logarithms of one plus the benchmark 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 benchmark volatility and benchmark return over a one-year period. To isolate the impact of daily leveraged, inverse or inverse leveraged exposure, these graphs assume: a) no fund expenses or transaction costs; b) borrowing/lending rates of zero percent (to obtain required leveraged, inverse or inverse leveraged exposure) and cash reinvestment rates; and c) the fund consistently maintaining perfect exposure (3x, 2x, -1x, -2x or -3x) as of the fund’s NAV time each day. If these assumptions were different, the fund’s performance would be different than that shown. If fund expenses, transaction costs and financing expenses were included, the fund’s performance would be different than shown.

The first table below shows an example in which a geared fund has an investment objective to correspond (before fees and expenses) to two times (2x) the daily performance of a benchmark. The geared fund could incorrectly be expected to achieve a 20% return on a yearly basis if the benchmark return was 10%, absent the effects of compounding. However, as the table shows, with a benchmark volatility of 40%, such a fund would return 3.1%. In the charts below, shaded areas represent those scenarios where a geared fund with the investment objective described will outperform (i.e., return more than) the benchmark performance times the stated multiple in the fund’s investment objective; conversely areas not shaded represent those scenarios where the fund will underperform (i.e., return less than) the benchmark performance times the multiple stated as the daily fund objective.

Estimated Fund Return Over One Year When the Fund’s Objective is to Seek Daily Investment Results, Before Fees and Expenses, that Correspond to Two Times (2x) the Performance of a Benchmark for a Single Day.

 

One Year

Benchmark

Performance

    Two Times (2x)
One Year
Benchmark
Performance
                Benchmark Volatility  
  0%     5%     10%     15%     20%     25%     30%     35%     40%     45%     50%     55%     60%     65%     70%  
  -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     -89.5     -90.2
  -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     -86.7     -87.6
  -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     -83.6     -84.7
  -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     -80.2     -81.5
  -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     -76.4     -77.9
  -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     -72.3     -74.1
  -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     -67.9     -70.0
  -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     -63.1     -65.5
  -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     -58.1     -60.8
  -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     -52.6     -55.7
  -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     -46.9     -50.4
  -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     -40.8     -44.7
  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     -34.5     -38.7
  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     -27.7     -32.5
  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     -20.7     -25.9
  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     -13.3     -19.0
  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     -5.6     -11.8
  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     2.4     -4.3
  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     10.8     3.5
  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     19.4     11.7
  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     28.5     20.1
  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     37.8     28.8
  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     47.5     37.8
  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     57.5     47.2
  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     67.8     56.8

 

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Table of Contents

Estimated Fund Return Over One Year When the Fund’s Objective is to Seek Daily Investment Results, Before Fees and Expenses, that Correspond to the Inverse (-1x) of the Performance of a Benchmark for a Single Day.

 

One Year

Benchmark

Performance

    Inverse (-1x) of
One Year
Benchmark
Performance
                Benchmark Volatility  
  0%     5%     10%     15%     20%     25%     30%     35%     40%     45%     50%     55%     60%     65%     70%  
  -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     63.9     53.2
  -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     45.6     36.1
  -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     31.1     22.5
  -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     19.2     11.4
  -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     9.2     2.1
  -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     0.8     -5.7
  -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     -6.4     -12.5
  -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     -12.6     -18.3
  -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     -18.1     -23.4
  -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     -22.9     -27.9
  -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     -27.2     -31.9
  -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     -31.0     -35.5
  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     -34.5     -38.7
  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     -37.6     -41.7
  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     -40.4     -44.3
  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     -43.0     -46.7
  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     -45.4     -48.9
  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     -47.6     -51.0
  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     -49.6     -52.9
  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     -51.5     -54.6
  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     -53.2     -56.2
  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     -54.8     -57.7
  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     -56.3     -59.2
  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     -57.7     -60.5
  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     -59.0     -61.7

 

-21-


Table of Contents

Estimated Fund Return Over One Year When the Fund’s Objective is to Seek Daily Investment Results, Before Fees and Expenses, that Correspond to Two Times the Inverse (-2x) of the Performance of a Benchmark for a Single Day.

 

One Year

Benchmark

Performance

    Two Times
Inverse (-2x) of
One  Year
Benchmark
Performance
                Benchmark Volatility  
  0%     5%     10%     15%     20%     25%     30%     35%     40%     45%     50%     55%     60%     65%     70%  
  -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     76.0     43.7
  -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     39.0     13.5
  -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     12.6     -8.0
  -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     -6.9     -24.0
  -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     -21.8     -36.1
  -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     -33.4     -45.6
  -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     -42.5     -53.1
  -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     -49.9     -59.1
  -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     -56.0     -64.1
  -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     -61.0     -68.2
  -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     -65.2     -71.6
  -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     -68.8     -74.5
  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     -71.8     -77.0
  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     -74.5     -79.1
  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     -76.7     -81.0
  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     -78.7     -82.6
  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     -80.4     -84.0
  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     -82.0     -85.3
  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     -83.3     -86.4
  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     -84.6     -87.4
  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     -85.6     -88.3
  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     -86.6     -89.1
  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     -87.5     -89.8
  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     -88.3     -90.4
  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     -89.0     -91.0

 

-22-


Table of Contents

Estimated Fund Return Over One Year When the Fund’s Objective is to Seek Daily Investment Results, Before Fees and Expenses, that Correspond to Three Times (3x) the Performance of a Benchmark for a Single Day.

 

One Year

Benchmark

Performance

    Three Times (3x)
One Year
Benchmark
Performance
                Benchmark Volatility  
  0%     5%     10%     15%     20%     25%     30%     35%     40%     45%     50%     55%     60%     65%     70%  
  -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     -98.2     -98.5
  -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     -97.4     -97.9
  -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     -96.5     -97.1
  -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     -95.3     -96.2
  -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     -93.9     -95.0
  -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     -92.3     -93.7
  -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     -90.3     -92.1
  -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     -88.1     -90.3
  -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     -85.6     -88.2
  -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     -82.7     -85.9
  -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     -79.5     -83.2
  -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     -75.9     -80.3
  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     -71.8     -77.0
  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     -67.4     -73.4
  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     -62.5     -69.4
  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     -57.2     -65.0
  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     -51.4     -60.3
  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     -45.0     -55.1
  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     -38.1     -49.5
  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     -30.7     -43.4
  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     -22.7     -36.9
  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     -14.2     -29.9
  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     -5.0     -22.4
  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     4.8     -14.4
  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     15.3     -5.8

 

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Estimated Fund Return over One Year When the Fund’s Objective is to Seek Daily Investment Results, Before Fees and Expenses, that Correspond to Three Times the Inverse (-3x) of the Performance of a Benchmark for a Single Day.

 

One Year

Benchmark

Performance

    Three Times
the Inverse
(-3x) of
One  Year
Benchmark
Performance
                Benchmark Volatility  
  0%     5%     10%     15%     20%     25%     30%     35%     40%     45%     50%     55%     60%     65%     70%  
  -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     23.8     -17.4
  -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     -13.0     -42.0
  -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     -36.6     -57.7
  -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     -52.4     -68.2
  -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     -63.3     -75.5
  -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     -71.1     -80.7
  -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     -76.9     -84.6
  -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     -81.2     -87.5
  -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     -84.5     -89.7
  -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     -87.1     -91.4
  -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     -89.1     -92.7
  -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     -90.8     -93.8
  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     -92.1     -94.7
  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     -93.2     -95.4
  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     -94.0     -96.0
  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     -94.8     -96.5
  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     -95.4     -96.9
  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     -95.9     -97.3
  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     -96.4     -97.6
  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     -96.8     -97.9
  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     -97.1     -98.1
  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     -97.4     -98.3
  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     -97.7     -98.4
  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     -97.9     -98.6
  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     -98.1     -98.7

The foregoing tables are intended to isolate the effect of benchmark volatility and benchmark performance on the return of leveraged, inverse or inverse leveraged funds. The Funds’ actual returns may be greater or less than the returns shown above.

Correlation Risks Specific to the Geared Funds.

In order to achieve a high degree of correlation with their applicable underlying benchmarks, the Geared Funds seek to rebalance their portfolios daily to keep exposure consistent with their investment objectives. Being materially under- or overexposed to the benchmarks may prevent a Geared Fund from achieving a high degree of correlation with their applicable underlying benchmarks. Market disruptions or closures, large movements of assets into or out of the Geared Funds, regulatory restrictions, market volatility, accountability levels, position limits, and daily price fluctuation limits set forth by the exchanges and other factors will adversely affect such Geared Funds’ ability to adjust exposure to requisite levels. The target amount of a Fund’s portfolio exposure may be impacted by changes to the value of its benchmark each day. Because of this, it is unlikely that the Geared Funds will be perfectly exposed (i.e., 2x, 3x, -1x, -2x or -3x, as applicable) at the end of each day, and the likelihood of being materially under- or overexposed is higher on days when the benchmark levels are volatile at or near the close of the trading day.

Each Geared Fund seeks to rebalance its portfolio on a daily basis. The time and manner in which a Geared Fund rebalances its portfolio may vary from day to day at the discretion of the Sponsor, depending upon market conditions and other circumstances. Unlike other funds that do not rebalance their portfolios as frequently, each Geared Fund may be subject to increased trading costs associated with daily portfolio rebalancings. The effects of these trading costs have been estimated and included in the Breakeven Table. See “Charges–Breakeven Table” below.

 

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For general correlation risks of all Funds, please see “Correlation Risks for all Funds” below.

Daily Rebalancing of a Benchmark and the Geared Funds May Impact Trading in the Underlying Futures Contracts.

The daily rebalancing of a benchmark and the Geared Funds may cause the Funds to adjust their positions accordingly. This trading activity will contribute to the trading volume of the underlying futures contracts and may adversely affect the market price of such underlying futures contracts.

Intraday Price/Performance Risk

The intraday performance of Shares traded in the secondary market generally will be different from the performance of a Geared Fund when measured from one NAV calculation-time to the next. When Shares are bought intraday, the performance of such Shares relative to its benchmark until the Geared Fund’s next NAV calculation likely will be greater than or less than the Fund’s stated daily multiple times the performance of its benchmark.

Risks Specific to the VIX Futures Fund

In addition to the risks described elsewhere in this “Risk Factors section, the following risks could apply to the VIX Futures Fund.

The VIX Futures Fund is benchmarked to the S&P 500 VIX Mid-Term Futures Index (the “VIX Mid-Term Futures Index” or “Index”). It is not benchmarked to the VIX or actual realized volatility of the S&P 500. As a result, the Index and the VIX Futures Fund should be expected to perform very differently from the VIX over all periods of time.

The performance of the VIX Mid-Term Futures Index is based on the value of the VIX mid-term futures contracts that comprise the Index. While there is a relationship between the performance of the Index and future levels of the VIX, the performance of the Index is not directly linked to the performance of the VIX, to the realized volatility of the S&P 500® or to the options that underlie the calculation of the VIX. As a result, the Index and the VIX Futures Fund should be expected to perform very differently from the VIX over all periods of time. In many cases, the Index (and thus the VIX Futures Fund) will underperform the VIX. Further, the performance of the Index and the VIX Futures Fund should not be expected to represent the realized volatility of the S&P 500®.

The VIX seeks to measure the market’s current expectation of 30-day volatility of the S&P 500® Index, as reflected by the prices of S&P 500® options. The market’s current expectation of the possible rate and magnitude of movements in an index is commonly referred to as the “implied volatility” of the index. Because S&P 500® options derive value from the possibility that the S&P 500® may experience movement before such options expire, the prices of S&P 500® options are used to calculate the implied volatility of the S&P 500®.

Unlike many indexes, the VIX is not an investable index. It is not practical to invest in the VIX as it is comprised of a constantly changing portfolio of options on the S&P 500®. Rather, the VIX is designed to serve as a market volatility forecast. The VIX Futures Fund is not benchmarked to the performance of the VIX or the realized volatility of the S&P 500® and, in fact, can be expected to perform very differently from the VIX and the realized volatility of the S&P 500® over all periods of time.

The prices of futures contacts based on a non-investable index such as the VIX may behave differently from the prices of futures contracts whose settlement price is based on a tradable asset.

As noted, the VIX Futures Fund is benchmarked against an underlying index of VIX mid-term futures contracts. The value of VIX futures contracts is based on the expected value of the VIX at a future point in time,

 

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specifically the expiration date of the VIX futures contracts. Therefore, VIX futures contracts represent the forward implied volatility of the VIX, and therefore the forward implied volatility of the S&P 500®, over the 30-day period following the expiration of such contract. As a result, a change in the VIX today will not necessarily result in a corresponding movement in the price of VIX futures contracts since the price of VIX futures contracts is based on expectations of the performance of the VIX at a future point in time. For example, a VIX futures contract purchased in March that expires in May, in effect, is a forward contract on what the level of the VIX, as a measure of 30-day implied volatility of the S&P 500®, will be on the May expiration date. The forward volatility reading of the VIX may not correlate directly to the current volatility reading of the VIX because the implied volatility of the S&P 500® at a future expiration date may be different from the current implied volatility of the S&P 500®. As a result, the Index and the VIX Futures Fund should be expected to perform very differently from the VIX over all periods of time.

It has been reported that in 2018 various U.S. regulators commenced inquiries into whether the VIX Mid-Term Futures Index has been manipulated by one or more financial firms and algorithmic traders, and that a number of private lawsuits have been filed against the CBOE alleging the manipulation of the VIX Mid-Term Futures Index. The regulators have not yet made public any determinations and the lawsuits have not been adjudicated. The Trust and the Sponsor cannot predict the outcome of these reported inquiries and private lawsuits. Any finding of manipulation of the VIX Mid-Term Futures Index could materially adversely affect the VIX Futures Fund’s investments and its ability to continue to implement its trading strategy and achieve its investment objectives.

The level of the VIX has historically reverted to a long-term mean (i.e., average) level and any increase or decrease in the level of the VIX will likely continue to be constrained.

In the past, the level of the VIX has typically reverted over the longer term to a historical mean, and its absolute level has been constrained within a band. As such, the potential upside of long or short exposure to VIX futures contracts may be limited as the performance of VIX reverts to its long-term average. In addition, any gains may be subject to significant and unexpected reversals as the VIX reverts to its long-term mean.

When economic uncertainty and other market risks increase, or are expected to increase, and there is an associated increase in expected volatility, the price of VIX futures contracts will likely also increase. Similarly, when economic uncertainty recedes, or is expected to recede, and there is an associated decrease in expected volatility, the price of VIX futures contracts will likely also decrease. These reversals may be significant and unexpected and have a negative impact on the performance of the VIX Futures Fund.

The value of the Shares of the VIX Futures Fund relates directly to the value of, and realized gain or loss from, the Financial Instruments and other assets held by the Fund. Fluctuations in the price of these Financial Instruments or assets could materially adversely affect an investment in Shares of the VIX Futures Fund.

Several factors may affect the price and/or liquidity of VIX futures contracts and other assets, if any, owned by the VIX Futures Fund, including, but not limited to:

 

   

Prevailing market prices and forward volatility levels of the U.S. stock markets, the S&P 500, the equity securities included in the S&P 500 and prevailing market prices of options on the S&P 500, the VIX, options on the VIX, the relevant VIX futures contracts, or any other financial instruments related to the S&P 500 and the VIX or VIX futures contracts;

 

   

Interest rates;

 

   

Inflation rates and investors’ expectations concerning inflation rates;

 

   

Economic, financial, political, regulatory, geographical, judicial and other events that affect the level of the Mid-Term VIX Futures Index or the market price or forward volatility of the U.S. stock markets,

 

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the equity securities included in the S&P 500, the S&P 500, the VIX or the relevant futures or option contracts on the VIX;

 

   

Supply and demand as well as hedging activities in the listed and OTC equity derivatives markets;

 

   

The level of margin requirements;

 

   

The position limits imposed by Futures Commission Merchants (FCMs”) and swap counterparties;

 

   

Disruptions in trading of the S&P 500, futures contracts on the S&P 500 or options on the S&P 500; and

 

   

The level of contango or backwardation in the VIX futures contract market.

These factors interrelate in complex ways, and the effect of one factor on the market value of the VIX Futures Fund may offset or enhance the effect of another factor.

Margin requirements for VIX futures contracts and position limits imposed by FCMs may limit the VIX Futures Fund’s ability to achieve sufficient exposure and prevent the Fund from achieving its investment objective.

The term “margin” refers to the minimum amount a Fund must deposit and maintain with its FCM in order to establish an open position in futures contracts. The minimum amount of margin required in connection with a particular futures contract is set by the exchange on which such contract is traded and is subject to change at any time during the term of the contract. Futures contracts are customarily bought and sold on margins that represent a percentage of the aggregate purchase or sales price of the contract.

When a Fund has an open futures contract position, it is subject to daily variation margin calls by an FCM that could be substantial in the event of adverse price movements. Because futures contracts require only a small initial investment in the form of a deposit or margin, they involve a high degree of leverage. A Fund with open positions is subject to maintenance or variance margin on its open positions. If a Fund has insufficient cash to meet daily variation margin requirements, it may need to sell Financial Instruments at a time when such sales are disadvantageous. Futures markets are highly volatile and the use of or exposure to futures contracts may increase volatility of a Fund’s NAV.

VIX futures contracts in particular have been subject to periods of sudden and extreme volatility. As a result, margin requirements for VIX futures contracts are higher than the margin requirements for most other types of futures contracts. In addition, the FCMs utilized by the Fund may impose margin requirements in addition to those imposed by the exchange. Margin requirements are subject to change, and may be raised in the future by either or both the exchange and the FCMs. High margin requirements could prevent the Fund from obtaining sufficient exposure to VIX futures contracts and may adversely affect the Fund’s ability to achieve its investment objective. An FCM’s failure to return required margin to the Fund on a timely basis may cause the Fund to delay redemption settlement dates and/or restrict, postpone or limit the right of redemption.

Futures contracts are subject to liquidity risk. Certain of the FCMs utilized by the Fund have imposed their own “position limits” on the Fund. Position limits restrict the amount of exposure to futures contracts the Fund can obtain through such FCMs. As a result, the Fund may need to transact through a number of FCMs to achieve its investment objective. If enough FCMs are not willing to transact with the Fund, or if the position limits imposed by such FCMs do not provide sufficient exposure, the Fund may not be able to achieve its investment objective

The VIX Futures Fund generally is intended to be used as a trading tool for short-term investment horizons and investors holding shares of the Fund over longer-term periods may be subject to increased risk of loss.

The VIX Futures Fund generally is intended to be used only for short-term investment horizons. An investor in the Fund can lose the full principal value of his or her investment within a single day. The longer an investor’s holding period in the Fund, the greater the potential for loss.

 

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VIX futures contracts that the VIX Futures Fund invests in can be highly volatile and the Fund may experience large losses when buying, selling or holding such instruments; you can lose all of your investment within a single day.

Investments linked to equity market volatility, including VIX futures contracts, can be highly volatile and may experience sudden and large losses. VIX futures contracts are unlike traditional futures contracts and are not based on a tradable reference asset. The VIX is not directly investable, and the settlement price of a VIX futures contract is based on the calculation that determines the level of the VIX. As a result, the behavior of a VIX futures contract may be different from traditional futures contracts whose settlement price is based on a specific tradable asset and may differ from an investor’s expectations. High volatility may have an adverse impact on the Fund. An investor could potentially lose the full principal value of his or her investment within a single day.

Daily rebalancing of the futures contracts underlying the Index may impact trading in the underlying futures contracts.

The daily rebalancing of the futures contracts underlying the Index may cause FCMs to adjust their hedges accordingly. The trading activity associated with such hedging transactions will contribute to the trading volume of the underlying futures contracts and may adversely affect the market price of such underlying futures contracts and in turn the level of the Index.

Potential negative impact from rolling futures positions; there have been extended periods in the past where the strategies utilized by the VIX Futures Fund have caused significant and sustained losses.

The VIX Futures Fund invests in or has exposure to VIX futures contracts and is subject to risks related to rolling these positions. The contractual obligations of a buyer or seller holding a futures contract to expiration may be satisfied by settling in cash as designated in the contract specifications. Alternatively, futures contracts may be closed out prior to expiration by making an offsetting sale or purchase of an identical futures contract with a later expiration date. This process is referred to as rolling. The Fund does not intend to hold futures contracts through expiration, but instead intends to roll its positions as they approach expiration. Accordingly, the Fund is subject to risks relating to rolling.

When the market for these futures contracts is such that the prices are higher in the more distant delivery months than in the nearer delivery months, the sale during the course of the rolling process of the more nearby futures contract would take place at a price that is lower than the price of the more distant futures contract. This pattern of higher prices for longer expiration futures contracts is often referred to as contango. Alternatively, when the market for these contracts is such that the prices are higher in the nearer months than in the more distant months, the sale during the course of the rolling process of the more nearby futures contract would take place at a price that is higher than the price of the more distant futures contract. This pattern of higher prices for shorter expiration futures contracts is referred to as backwardation. The presence of contango in the relevant futures contracts at the time of rolling would be expected to adversely affect the Fund. Similarly, the presence of backwardation in certain futures contracts at the time of rolling such contracts would be expected to positively affect the Funds.

There have been extended periods in which contango or backwardation has existed in the VIX futures contract markets, and such periods can be expected to occur in the future. These extended periods have in the past, and may in the future, cause significant and sustained losses. Since the non-investable VIX Index is based on the price of a constantly changing portfolio of option contracts, rather than futures contracts subject to contango and backwardation, the VIX Index may experience less severe downturns or may even provide positive performance during periods where the Fund is experiencing poor performance. Additionally, because of the frequency with which the Funds may roll futures contracts, the impact of such contango or backwardation may be greater than the impact would be if a Fund experienced less rolling.

 

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Risks Specific to the Natural Gas Funds, the Precious Metals Funds and the Oil Funds

In addition to the risks described elsewhere in this Risk Factors” section, the following risks could apply to the Natural Gas Funds, the Precious Metals Funds and the Oil Funds.

A number of factors may have a negative impact on the price of commodities, such as oil, gold, silver and gas, and the price of Financial Instruments based on such commodities.

With regard to the Natural Gas Funds, the Precious Metals Funds and the Oil Funds, a number of factors may affect the price of these commodities and, in turn, the Financial Instruments and other assets, if any, owned by such a Fund, including, but not limited to:

 

   

Significant increases or decreases in the available supply of a physical commodity due to natural or technological factors. Natural factors would include depletion of known cost-effective sources for natural gas, silver, gold or oil or the impact of severe weather or other natural events on the ability to produce or distribute the commodity. Technological factors, such as increases in availability created by new or improved extraction, refining and processing equipment and methods or decreases caused by failure or unavailability of major refining and processing equipment (for example, shutting down or constructing natural gas processing plants), also materially influence the supply of the commodity. General economic conditions in the world or in a major region, such as population growth rates, periods of civil unrest, government austerity programs, or currency exchange rate fluctuations may affect prices of underlying commodities.

 

   

In regard to the Oil Funds, the exploration and production of crude oil are uncertain processes with many risks. The cost of drilling, completing and operating wells for crude oil is often uncertain, and a number of factors can delay or prevent operations or production of crude oil, including (1) unexpected drilling conditions, (2) pressure or irregularities in formations, (3) equipment failures or repairs, (4) fires or other accidents, (5) adverse weather conditions, (6) pipeline ruptures, spills or other supply disruptions, and (7) shortages or delays in the availability of extraction or delivery equipment.

 

   

Significant increases or decreases in the demand for natural gas, silver, gold or oil due to natural or technological factors. Natural factors would include such events as unusual climatological conditions impacting the demand for natural gas, silver, gold or oil. Technological factors may include such developments as substitutes or new uses for particular commodities.

 

   

A significant change in the attitude of speculators and investors towards natural gas, silver, gold or oil or in the hedging activities of commodity producers. Should the speculative community take a negative or positive view towards natural gas, silver, gold or oil, or if there is an increase or decrease in the level of hedge activity of commodity producing companies, countries and/or organizations, such action could cause a change in world prices of any given commodity.

 

   

Large purchases or sales of physical commodities by the official sector. Governments and large institutions have large commodities holdings or may establish major commodities positions. For example, a significant portion of the aggregate world precious metals holdings is owned by governments, central banks and related institutions. Similarly, nations with centralized or nationalized energy production organizations may control large physical quantities of certain commodities. The purchase or sale by one of these institutions in large amounts could potentially cause a change in prices for that commodity.

 

   

With regard to the Oil Funds, nations with centralized or nationalized oil production and organizations such as the Organization of Petroleum Exporting Countries (OPEC) control large physical qualities of crude oil. The purchase or sale by one of these institutions in large amounts could potentially cause a change in prices for that commodity. Tension between the governments of the United States and oil exporting nations, civil unrest and sabotage, the ability of members of OPEC to agree upon and maintain oil prices and production levels, and fluctuations in the reserve capacity of crude oil could impact future oil prices.

 

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Political activity such as imposition of regulations or entry into trade treaties, as well as political disruptions caused by societal breakdown, insurrection, terrorism, sabotage and/or war may greatly influence prices of particular commodities.

 

   

With regard to the Natural Gas Funds, the demand for natural gas correlates closely with general economic growth rates. The occurrence of recessions or other periods of low or negative economic growth will typically have a direct adverse impact on natural gas demand and natural gas prices. The supply and demand for natural gas may also be impacted by changes in interest rates, inflation, and other local or regional market conditions, as well as by the development of alternative energy sources.

 

   

The recent proliferation of commodity-linked products and their unknown effect on the commodity markets.

 

   

With regard to the Oil and Natural Gas Funds, competition from clean power companies, fluctuations in the supply and demand of alternative energy fuels, energy conservation, changes in consumer preferences regarding the use of renewable energy sources to replace fossil fuels, and tax and other government regulations can significantly affect the prices of oil and natural gas.

Each of these factors could have a negative impact on the value of the Funds. These factors interrelate in complex ways, and the effect of one factor on the market value of a Fund may offset or enhance the effect of another factor.

The Natural Gas Funds are linked to an index comprised of natural gas futures contracts, and are not directly linked to the “spot” price of natural gas. Natural Gas futures contracts may perform very differently from the spot price of natural gas.

The benchmark used by each Natural Gas Fund is intended to reflect the performance of the prices of futures contracts on natural gas. The Natural Gas Funds are not directly linked to the “spot” price of natural gas. The price of a futures contract reflects the expected value of the commodity upon delivery in the future whereas the spot price of a commodity reflects the immediate delivery value of the commodity. While prices of swaps, futures contracts and other derivatives contracts on natural gas are related to the prices of an underlying cash market (i.e., the “spot market”), they have typically performed very differently from, and commonly underperform, the spot price of natural gas. This is primarily due to a variety of factors including the current (and future) expectations of storage costs, geopolitical risks, interest charges incurred to finance the purchase of the commodity, and expectations concerning supply and demand for the commodity. It is possible that during certain time periods the performance of different derivatives contracts may be substantially lower or higher than cash market prices for natural gas due to differences in derivatives contract terms or as supply, demand or other economic or regulatory factors become more pronounced in either the cash or derivatives markets.

As a result, the Natural Gas Funds may underperform a similar investment that is linked to the “spot” price of natural gas.

The Oil Funds are linked to an index comprised of crude oil futures contracts, and are not directly linked to the “spot” price of crude oil. Oil futures contracts may perform very differently from the spot price of crude oil.

The benchmark used by each Oil Fund, the Bloomberg WTI Crude Oil SubindexSM (the “Oil Subindex”), is intended to reflect the performance of crude oil as measured by the price of West Texas Intermediate (“WTI”), sweet light crude oil futures contracts traded on the New York Mercantile Exchange (the “NYMEX”). The Oil Funds are not directly linked to the “spot” price of crude oil. The price of a futures contract reflects the expected value of the commodity upon delivery in the future, whereas the spot price of a commodity reflects the immediate delivery values of the commodity. While prices of futures contracts and other derivatives contracts on crude oil are related to the prices of an underlying cash market (i.e., the “spot” market), they may not be well

 

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correlated and have typically performed very differently from, and commonly underperform, the spot price of crude oil due to a variety of factors including the current (and future) expectations of storage costs, geopolitical risks, interest charges incurred to finance the purchase of the commodity, and expectations concerning supply and demand for the commodity. It is possible that during certain time periods derivatives contract prices may not be correlated to spot market prices and may be substantially lower or higher than spot market prices for oil due to differences in derivatives contract terms or as supply, demand or other economic or regulatory factors become more pronounced in either the spot or derivatives markets.

As a result, the Oil Funds may underperform a similar investment that is linked to the “spot” price of crude oil.

The Precious Metals Funds do not hold gold or silver bullion. Rather, the Precious Metals Funds use Financial Instruments to gain exposure to gold and silver bullion. Using Financial Instruments to obtain exposure to gold or silver bullion may cause tracking error and subject the Precious Metals Funds to the effects of contango and backwardation as described herein.

Using Financial Instruments such as swaps, forwards and futures in an effort to replicate the inverse performance of gold or silver bullion may cause tracking error, which is the divergence between the price behavior of a position and that of a benchmark. While prices of Financial Instruments are related to the prices of an underlying cash market, they may not be perfectly correlated and typically have performed differently. In addition, the use of forward or futures contracts exposes a Fund to risks associated with “rolling” as described herein (forward contracts are subject to the same risks as rolling futures contracts), including the possibility that contango or backwardation can occur. Gold and silver historically exhibit contango markets during most periods. Although the existence of historically prevalent contango markets would be expected to be beneficial to the Precious Metals Funds, there can be no assurance that such contango markets will always exist. Alternatively, the existence of backwardated markets would be expected to adversely impact the Precious Metals Funds.

Risks Specific to the Currency Funds.

In addition to the risks described elsewhere in this “Risk Factors” section, the following risks could apply to the Currency Funds.

A number of factors may have a negative impact on the value of non-U.S. currencies or the U.S. dollar and the value of Financial Instruments based on such currencies.

A number of factors may affect the value of non-U.S. currencies or the U.S. dollar and, in turn, Financial Instruments based on such non-U.S. currencies or the U.S. dollar. These factors include:

 

   

Debt level and trade deficit of U.S. and the relevant foreign countries;

 

   

Inflation rates of the U.S. and the relevant foreign countries and investors’ expectations concerning inflation rates;

 

   

Interest rates of the U.S. and the relevant foreign countries and investors’ expectations concerning interest rates;

 

   

Investment and trading activities of mutual funds, hedge funds and other market participants;

 

   

Global or regional political, economic or financial events and situations;

 

   

Sovereign action to set or restrict currency conversion;

 

   

Monetary policies and other related activities of central banks within the U.S. and other relevant non-U.S. markets;

 

   

Overall growth and performance of the economies of the relevant countries; and

 

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Non-U.S. financial markets may be closed on a day when U.S. domestic markets are open for trading. As a result, liquidity and/or pricing may be affected by the absence of trading in a specific currency.

In periods of financial turmoil, capital can move quickly out of countries or geographic regions that are perceived to be more vulnerable to the effects of the crisis than other countries or geographic regions, with sudden and severely adverse consequences to the currencies of those countries or geographic regions. Each of these factors could have a negative impact on the value of a Currency Fund. These factors interrelate in complex ways, and the effect of one factor on the market value of a Currency Fund may offset or enhance the effect of another factor. All of these factors are, in turn, sensitive to the monetary, fiscal and trade policies pursued by the relevant countries and those of other countries important to international trade and finance. In addition, information relating to non-U.S.countries or currencies may not be as well-known or as rapidly or thoroughly reported as information regarding the U.S. or the U.S. dollar.

Currency exchange rates may be susceptible to distortion and manipulation.

The concentration of currency trading among a small number of market participants, combined with the relative lack of transparency and regulatory oversight over the manner in which currency exchange rates are determined compared to the markets for other Financial Instruments such as exchange-traded stocks, and other factors creates the potential for a small number of market participants to have a distorting effect on exchange rates, including as a result of activities designed to manipulate currency exchange rates.

Risks specific to the Ultra Euro Fund and the Short Euro Fund.

The European financial markets and the value of the euro have experienced significant volatility, in part related to unemployment, budget deficits and economic downturns. In addition, several member countries of the Economic and Monetary Union (the “EMU”) of the European Union (the “EU”) have experienced credit rating downgrades, rising government debt levels and, for certain EU member countries (including Greece, Spain, Portugal, Poland and Italy), weaknesses in sovereign debt. The June 2016 vote in the United Kingdom (“UK”) calling for exit of the UK from membership in the EU (referred to as “Brexit”), may adversely impact the economy of the UK. The effects of Brexit will depend on agreements the UK negotiates to retain access to EU markets either during a transitional period or more permanently. Brexit could lead to legal and tax uncertainty and potentially divergent national laws and regulations as the UK determines which EU laws to replace and replicate.

In addition, given recent events, it is possible that the euro could be abandoned in the future by countries that have already adopted its use. If this were to occur, the value of the euro could fluctuate or decline drastically, causing losses to the Ultra Euro Fund. Increased volatility related to the euro could exacerbate the effects of daily compounding on the performance of each of the Ultra Euro Fund and the Short Euro Fund over periods longer than a single day. If the euro is abandoned by all or a significant number of countries that have adopted its use, the Funds may be forced to switch benchmarks or liquidate.

Risks specific to the Ultra Yen Fund and the UltraShort Yen Fund.

The Japanese financial markets and the value of the yen may experience volatility and are exposed to other risks. Such risks include, but are not limited to (i) political, economic, or social instability in Japan; (ii) risks associated with Japan’s large government deficit; (iii) risks associated with an increasingly aging and declining population that is likely to strain Japan’s social welfare and pension systems; and (iv) relatively high unemployment. The Japanese economy has in the past been negatively impacted by government intervention and protectionism, an unstable financial services sector and a heavy reliance on international trade. Additionally, natural disasters have in the past had an adverse impact on the Japanese economy. As an island nation Japan has limited natural resources and land area, and the Japanese economy is heavily dependent on international trade and reliant on imports for its commodity needs. Consequently, Japan’s economy and export growth are impacted

 

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by economic development of its trading partners particularly the U.S. and the developing nations in Southeast Asia. Fluctuations or shortages in the commodity markets may negatively impact the Japanese economy. Slowdowns in the U.S. and/or China and other Southeast Asian countries, including economic, political or social instability in such countries, could have a negative impact on Japan.

The Japanese economy may be adversely impacted by currency fluctuations. The Japanese government has intervened in its currency market in the past, to maintain or reduce the value of the yen. Any such future intervention could cause the yen’s value to fluctuate and could cause losses to investors. Increased volatility related to the yen could exacerbate the effects of daily compounding on the performance of each of the Ultra Yen Fund and the UltraShort Yen Fund over periods longer than a single day.

Risks Related to All Funds

The assets in which the Funds invest can be highly volatile and the Funds may experience sudden and large losses when buying, selling or holding such instruments; you can lose all or a portion of your investment within a single day.

Investments linked to volatility, commodity, currency, natural gas and oil markets can be highly volatile compared to investments in traditional securities and the Funds may experience sudden and large losses. These markets may fluctuate widely based on a variety of factors including changes in overall market movements, political and economic events and policies, wars, acts of terrorism, natural disasters, changes in interest rates or inflation rates, judicial and other events that affect the level of the Index or the market price or forward volatility of the stock market, securities or relevant futures of options contracts. High volatility may have an adverse impact on the performance of the Funds. You can lose all or a portion of your investment within a single day.

Correlation Risks for All Funds.

While the Funds seek to meet their investment objectives, there is no guarantee they will do so. Factors that may affect a Fund’s ability to meet its investment objective include: (1) the Sponsor’s ability to purchase and sell each Fund’s Financial Instruments in a manner that correlates to a Fund’s objective; (2) an imperfect correlation between the performance of the Financial Instruments held by a Fund and the performance of the corresponding benchmark; (3) bid-ask spreads on each Fund’s Financial Instruments; (4) fees, expenses, transaction costs, commissions, financing costs and margin requirements associated with the use of each Fund’s Financial Instruments; (5) holding or trading Financial Instruments in a market that has become illiquid or disrupted; (6) a Fund’s Share prices being rounded to the nearest cent and/or other valuation methodologies; (7) changes to a benchmark that are not disseminated in advance; (8) the need to conform a Fund’s Financial Instruments to comply with investment restrictions or policies or regulatory or tax law requirements; (9) early and unanticipated closings of the markets on which the holdings of a Fund trade; (10) accounting standards; (11) differences caused by a Fund obtaining exposure to only a representative sample of the components of a benchmark, overweighting or underweighting certain components of a benchmark or obtaining exposure to assets that are not included in a benchmark; and (12) large movements of assets into and/or out of a Fund.

Each Fund seeks to achieve its investment objective even during periods when the performance of the Fund’s benchmark is flat or when the benchmark is moving in a manner that may cause the value of the Fund to decline.

The Funds are not actively managed by traditional methods (e.g., by effecting changes in the composition of a portfolio on the basis of judgments relating to economic, financial and market considerations with a view toward obtaining positive results under all market conditions). Rather, the Sponsor seeks to cause the NAV to track the performance of a benchmark for a single day (or over time in the case of the Matching Fund) in accordance with each Fund’s investment objective, even during periods in which the benchmark is flat or moving in a manner that may cause the NAV of a Fund to decline. It is possible to lose money over time regardless of the performance of an underlying benchmark, due to the effects of daily rebalancing, volatility, compounding and other factors.

 

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The number of underlying components included in a Fund’s benchmark may impact the volatility of such benchmark, which could adversely affect an investment in the Shares.

The number of underlying components in a Fund’s benchmark may impact the volatility of such benchmark, which could adversely affect an investment in the Shares. For example, certain of the Funds’ benchmarks are concentrated in terms of the number and type of commodities represented, and some of the benchmarks consist solely of a single commodity futures contract. Investors should be aware that other benchmarks are more diversified in terms of both the number and variety of investments included. Concentration in fewer underlying components may result in a greater degree of volatility in a benchmark and the Fund which corresponds to that benchmark under specific market conditions and over time.

Potential negative impact from rolling futures positions; there have been extended periods in the past where the strategies utilized by the Funds have cause significant and sustained losses.

Each Fund intends to, or may, have exposure to futures contracts and each Fund is subject to risks related to “rolling” such futures contracts, which is the process by which a Fund closes out a futures position prior to its expiration month and purchases an identical futures contract with a later expiration date. The Funds do not intend to hold futures contracts through expiration, but instead intend to “roll” their respective positions as they approach expiration. The contractual obligations of a buyer or seller holding a futures contract to expiration may be satisfied by settling in cash as designated in the contract specifications. As explained further below, the price of futures contracts further from the expiration may be higher (a condition known as “contango”) or lower ( a condition known as “backwardation”), which can impact the Funds’ returns.

When the market for these futures contracts is such that the prices are higher in the more distant delivery months than in the nearer delivery months, the sale during the course of the rolling process of the more nearby contract would take place at a price that is lower than the price of the more distant futures contract. This pattern of higher prices for longer expiration futures contracts is often referred to as “contango.” Alternatively, when the market for these futures contracts is such that the prices are higher in the nearer months than in the more distant months, the sale during the course of the rolling process of the more nearby contract would take place at a price that is higher than the price of the more distant futures contract. This pattern of higher futures prices for shorter expiration futures contracts is referred to as “backwardation.” The presence of contango in certain futures contracts at the time of rolling would be expected to adversely affect the relevant Funds with long positions, and positively affect the Funds with short positions. Similarly, the presence of backwardation in certain futures contracts at the time of rolling such contracts would be expected to adversely affect the Funds with short positions and positively affect the Funds with long positions.

There have been extended periods in which contango or backwardation have existed in the futures contract markets for various types of futures contracts, and such periods can be expected to occur in the future. These extended periods have in the past, and may in the future, cause significant losses , and these periods can have as much or more impact over time than movements in the level of a Fund’s benchmark. Additionally, because of the frequency with which the Funds may roll futures contracts, the impact of such contango or backwardation on Fund performance may be greater than it would have been if the Funds rolled futures contracts less frequently.

Possible illiquid markets may cause or exacerbate losses.

Financial Instruments cannot always be liquidated at the desired price. It is difficult to execute a trade at a specific price when there is a relatively small volume of buy and sell orders in a market. A market disruption can also make it difficult to liquidate a position or find a swap or forward contract counterparty at a reasonable cost.

Market illiquidity may cause losses for the Funds. The large size of the positions which the Funds may acquire increases the risk of illiquidity by both making their positions more difficult to liquidate and increasing the losses incurred while trying to do so. Any type of disruption or illiquidity will potentially be exacerbated due

 

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to the fact that each Fund will typically invest in Financial Instruments related to a single benchmark, which in many cases is highly concentrated. Limits imposed by counterparties, exchanges or other regulatory organizations, such as accountability levels, position limits and daily price fluctuation limits, may contribute to a lack of liquidity with respect to some Financial Instruments.

It may not be possible to gain exposure to the benchmarks using Financial Instruments in the future.

The Funds intend to utilize Financial Instruments. It may not be possible to gain exposure to the benchmarks with these Financial Instruments in the future. If these Financial Instruments cease to be traded on regulated exchanges, they may be replaced with Financial Instruments traded on trading facilities that are subject to lesser degrees of regulation or, in some cases, no substantive regulation. As a result, trading in such Financial Instruments, and the manner in which prices and volumes are reported by the relevant trading facilities, may not be subject to the provisions of, and the protections afforded by, the Commodity Exchange Act, as amended (the “CEA”), or other applicable statutes and related regulations that govern trading on regulated U.S. futures exchanges, or similar statutes and regulations that govern trading on regulated U.K. futures exchanges. In addition, many electronic trading facilities have only recently initiated trading and do not have significant trading histories. As a result, the trading of contracts on such facilities, and the inclusion of such contracts in a benchmark, may be subject to certain risks not presented by U.S. or U.K. exchange-traded futures contracts, including risks related to the liquidity and price histories of the relevant contracts.

Fees are charged regardless of a Fund’s returns and may result in depletion of assets.

The Funds are subject to the fees and expenses described herein which are payable irrespective of a Fund’s returns, as well as the effects of commissions, trading spreads, and embedded financing, borrowing costs and fees associated with swaps, forwards, futures contracts, and costs relating to the purchase of U.S. Treasury securities or similar high credit quality, short-term fixed-income or similar securities. Additional charges may include other fees as applicable.

Historical correlation trends between Fund benchmarks and other asset classes may not continue or may reverse, limiting or eliminating any potential diversification or other benefit from owning a Fund.

To the extent that an investor purchases a Fund seeking diversification benefits based on the historic correlation (whether positive or negative) between the returns of that Fund or its underlying benchmark and other asset classes, such historic correlation may not continue or may reverse itself. In this circumstance, the diversification or other benefits sought may be limited or non-existent. The diversification or other benefits sought by an investor in a Fund may also become limited or cease to exist if the Sponsor determines to change the Fund’s benchmark or otherwise modify the Fund’s investment objective or strategy.

For the Funds linked to a benchmark, changes implemented by the benchmark provider that affect the composition and valuation of the benchmark could adversely affect the value of Fund Shares and an investment in a Fund’s Shares.

The Funds, other than the Currency Funds, are linked to benchmarks maintained by third-party providers that are unaffiliated with the Funds or the Sponsor. There can be no guarantee or assurance that the methodology used by the third-party provider to create the benchmark will result in a Fund achieving high, or even positive, returns. The policies implemented by each benchmark provider concerning the calculation or the composition of the benchmark could affect the value of a benchmark and, therefore, the value of the corresponding Fund’s Shares. A benchmark provider may change the composition of the benchmark, or make other methodological changes that could change the value of a benchmark. Additionally, a benchmark provider may alter, discontinue or suspend calculation or dissemination of a benchmark. Any of these actions could adversely affect the value of Shares of a Fund using that benchmark. There is no guarantee that the methodology underlying the benchmark will be free from error. Benchmark providers have no obligation to consider Fund shareholder interests in calculating or revising a benchmark. Each of these factors could have a negative impact on the performance of the Funds.

 

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In addition, for the VIX Futures Fund, the Chicago Board Options Exchange, Incorporated (“CBOE”) can make methodological changes to the calculation of the VIX that could affect the value of VIX futures contracts and, consequently, the value of the VIX Futures Fund’s Shares. There can be no assurance that CBOE will not change the VIX calculation methodology in a way which may affect the value of the VIX Futures Fund’s Shares. The CBOE may also alter, discontinue or suspend calculation or dissemination of the VIX and/or exercise settlement value. Any of these actions could adversely affect the value of such Fund’s Shares. S&P Dow Jones Indices may also make changes to the equity securities underlying the S&P 500 or the futures contracts included in the Index, or make other methodological changes that could change the level of the S&P 500.

Calculation of a benchmark may not be possible or feasible under certain events or circumstances that are beyond the reasonable control of the Sponsor, which in turn may adversely impact both the benchmark and/or the Shares, as applicable. Additionally, benchmark calculations are subject to error and may be disrupted by rollover disruptions, rebalancing disruptions and/or market emergencies, which may have a negative impact on the performance of the Funds.

The particular benchmark used by a Fund may underperform other asset classes and may underperform other indices or benchmarks based upon the same underlying Reference Asset.

The Funds, other than the Currency Funds, are linked to benchmarks maintained by third-party providers unaffiliated with the Funds or the Sponsor. There can be no guarantee or assurance that the methodology used by the third party provider to create the benchmark will result in a Fund achieving high, or even positive, returns. Further, there can be no guarantee that the methodology underlying the benchmark or the daily calculation of the benchmark will be free from error. It is also possible that the value of the benchmark or its underlying Reference Asset may be subject to intentional manipulation by third-party market participants. The particular benchmark used by each Fund may underperform other asset classes and may underperform other indices or benchmarks based upon the same underlying Reference Asset. Each of these factors could have a negative impact on the performance of a Fund.

The Funds may be subject to counterparty risks.

Each Fund may use derivatives such as swap agreements and forward contracts (collectively referred to herein as “derivatives”) in the manner described herein as a means to achieve their respective investment objectives. The use of derivatives by a Fund exposes the Fund to counterparty risks.

Regulatory Treatment

Derivatives are generally traded in over-the-counter (“OTC”) markets and have only recently become subject to comprehensive regulation in the United States. Cash-settled forwards are generally regulated as “swaps”, whereas physically settled forwards are generally not subject to regulation (in the case of commodities other than currencies) or subject to the federal securities laws (in the case of securities).

Title VII of the Dodd-Frank Act (“Title VII”) created a regulatory regime for derivatives, with the CFTC responsible for the regulation of swaps and the SEC responsible for the regulation of “security-based swaps.” The SEC requirements have largely yet to be made effective, but the CFTC requirements are largely in place. The CFTC requirements have included rules for some of the types of transactions in which the Funds will engage, including mandatory clearing and exchange trading for certain categories of swaps, reporting, and margin for uncleared swaps. Title VII also created new categories of regulated market participants, such as “swap dealers,” “security-based swap dealers,” “major swap participants,” and “major security-based swap participants” who are, or will be, subject to significant new capital, registration, recordkeeping, reporting, disclosure, business conduct and other regulatory requirements. The regulatory requirements under Title VII continue to be developed and there may be further modifications that could materially and adversely impact the Funds, the markets in which a Fund trades and the counterparties with which the Fund engages in transactions.

 

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As noted, the CFTC rules may not apply to all of the physically settled forward contracts entered into by the Funds. Investors, therefore, may not receive the protection of CFTC regulation or the statutory scheme of the CEA in connection with each Fund’s physically settled forward contracts. The lack of regulation in these markets could expose investors to significant losses under certain circumstances, including in the event of trading abuses or financial failure by participants.

Counterparty Credit Risk

The Funds will be subject to the credit risk of the counterparties to the derivatives. In the case of cleared derivatives, the Funds will have credit risk to the clearing corporation in a similar manner as the Funds would for futures contracts. In the case of uncleared derivatives, the Funds will be subject to the credit risk of the counterparty to the transaction – typically a single bank or financial institution. As a result, a Fund is subject to increased credit risk with respect to the amount it expects to receive from counterparties to uncleared derivatives entered into as part of that Fund’s principal investment strategy. If a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, a Fund could suffer significant losses on these contracts and the value of an investor’s investment in a Fund may decline.

The Funds have sought to mitigate these risks by generally requiring that the counterparties for each Fund agree to post collateral for the benefit of the Fund, marked to market daily, subject to certain minimum thresholds. However, there are no limitations on the percentage of assets each Fund may invest in swap agreements or forward contracts with a particular counterparty. To the extent any such collateral is insufficient or there are delays in accessing the collateral, the Funds will be exposed to counterparty risk as described above, including possible delays in recovering amounts as a result of bankruptcy proceedings. The Funds typically enter into transactions only with major, global financial institutions.

OTC derivatives of the type that may be utilized by the Funds are generally less liquid than futures contracts because they are not traded on an exchange, do not have uniform terms and conditions, and are generally entered into based upon the creditworthiness of the parties and the availability of credit support, such as collateral, and in general, are not transferable without the consent of the counterparty. These agreements contain various conditions, events of default, termination events, covenants and representations. The triggering of certain events or the default on certain terms of the agreement could allow a party to terminate a transaction under the agreement and request immediate payment in an amount equal to the net positions owed to the party under the agreement. For example, if the level of the Fund’s benchmark has a dramatic intraday move that would cause a material decline in the Fund’s NAV, the terms of the swap may permit the counterparty to immediately close out the transaction with the Fund. In that event, it may not be possible for the Fund to enter into another swap or to invest in other Financial Instruments necessary to achieve the desired exposure consistent with the Fund’s objective. This, in turn, may prevent the Fund from achieving its investment objective, particularly if the level of the Fund’s benchmark reverses all or part of its intraday move by the end of the day.

In addition, cleared derivatives benefit from daily marking-to-market and settlement, and segregation and minimum capital requirements applicable to intermediaries. To the extent the Fund enters into cleared swap transactions, the Fund will deposit collateral with an FCM in cleared swaps customer accounts, which are required by CFTC regulations to be separate from its proprietary collateral posted for cleared swaps transactions. Cleared swap customer collateral is subject to regulations that closely parallel the regulations governing customer segregated funds for futures transactions (described above) but provide certain additional protections to cleared swaps collateral in the event of a clearing broker or clearing broker customer default. For example, in the event of a default of both the clearing broker and a customer of the clearing broker, a clearing house is only permitted to access the cleared swaps collateral in the legally separate (but operationally comingled) account of the defaulting cleared swap customer of the clearing broker, as opposed to the treatment of customer segregated funds, under which the clearing house may access all of the commingled customer segregated funds of a defaulting clearing broker. Uncleared derivatives entered into directly between two counterparties do not necessarily benefit from such protections, particularly if entered into with an entity that is not registered as a

 

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“swap dealer” with the CFTC. This exposes the Funds to the risk that a counterparty will not settle a transaction in accordance with its terms and conditions because of a dispute over the terms of the contract (whether or not bona fide) or because of a credit or liquidity problem, thus causing the Funds to suffer a loss.

Each counterparty and/or any of its affiliates may be an Authorized Participant or shareholder of a Fund, subject to applicable law.

The counterparty risk for cleared derivatives transactions is generally lower than for uncleared OTC derivatives. Once a transaction is cleared, the clearing organization is substituted and is a Fund’s counterparty on the derivative. The clearing organization guarantees the performance of the other side of the derivative. Nevertheless, some risk remains, as there is no assurance that the clearing organization, or its members, will satisfy its obligations to a Fund.

The Funds may change their investment objectives, benchmark and strategies, and may be liquidated, at any time.

The Sponsor has the authority to change a Fund’s investment objective, benchmark or investment strategy at any time. Although such changes may be subject to applicable regulatory approvals, the Sponsor may determine to operate a Fund in accordance with its new investment objective, benchmark or strategy while those approvals are pending. The Sponsor also has the authority to liquidate a Fund at any time. Changes in a Fund’s investment objective, benchmark or strategy, as well as any liquidation of a Fund, may occur with limited advance notice to shareholders and may expose shareholders to losses on their investments in the Fund.

A Fund may change its investment objective, benchmark or strategies and may liquidate at a time that is disadvantageous to shareholders.

A change to the investment objective, benchmark or strategies or the liquidation of a Fund could occur at a time that is disadvantageous to shareholders. When the Fund’s assets are sold as part of the Fund’s liquidation, the resulting proceeds distributed to shareholders may be less than those that may be realized in a sale outside of a liquidation context.

The Funds use investment techniques that may be considered aggressive.

Some investment techniques of the Funds, such as their use of Financial Instruments, may be considered aggressive. Risks associated with Financial Instruments include potentially dramatic price changes (losses) in the value of the instruments and imperfect correlations between the price of the contract and the underlying Reference Asset. The use of Financial Instruments may increase the volatility of a Fund and may involve a small investment of cash relative to the magnitude of the risk assumed.

The lack of active trading markets for the Shares may result in losses upon the sale or disposition of such Shares.

Although the Shares are publicly listed and traded on the Exchange, there can be no guarantee that an active trading market for the Shares will develop or be maintained. If investors need to sell their Shares at a time when an active market for such Shares does not exist, the price investors receive for their Shares, assuming that investors are able to sell them at all, likely will be lower than the price that investors would receive if an active market did exist.

Investors may be adversely affected by redemption or creation orders that are subject to postponement, suspension or rejection under certain circumstances.

A Fund may, in its discretion, suspend the right of creation or redemption or may postpone the redemption or purchase settlement date, for (1) any period during which the Exchange or any other exchange, marketplace or

 

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trading center, deemed to affect the normal operations of the Funds, is closed, or when trading is restricted or suspended on such exchanges in any of the Funds’ futures contracts, (2) any period during which an emergency exists as a result of which the fulfillment of a purchase order or the redemption distribution is not reasonably practicable, or (3) such other period as the Sponsor determines to be necessary for the protection of the shareholders of the Funds. In addition, a Fund will reject a redemption order if the order is not in proper form as described in the Authorized Participant Agreement or if the fulfillment of the order might be unlawful. Any such postponement, suspension or rejection could adversely affect a redeeming Authorized Participant. For example, the resulting delay may adversely affect the value of the Authorized Participant’s redemption proceeds if the NAV of a Fund declines during the period of delay. The Funds disclaim any liability for any loss or damage that may result from any such suspension or postponement. Suspension of creation privileges may adversely impact how the Shares are traded and arbitraged on the secondary market, which could cause them to trade at levels materially different (premiums and discounts) from the fair value of their underlying holdings.

The NAV per Share may not correspond to the market price per Share.

The NAV per Share of a Fund changes as fluctuations occur in the market value of the Fund’s portfolio. Investors should be aware that the public trading price per Share of a Fund may be different from the NAV per Share of the Fund (i.e., the secondary market price may trade at a premium or discount to NAV). The price at which an investor may be able to sell Shares at any time, especially in times of market volatility, may be significantly less than the NAV per Share of the Fund at the time of sale. Consequently, an Authorized Participant may be able to create or redeem a Creation Unit of a Fund at a discount or a premium to the public trading price per Share of that Fund.

Authorized Participants or their customers may have an opportunity to realize a profit if they can purchase a Creation Unit at a discount to the public trading price of the Shares of a Fund or can redeem a Creation Unit at a premium over the public trading price of the Shares of a Fund. The Sponsor expects that the exploitation of such arbitrage opportunities by Authorized Participants and their clients and customers will tend to cause the public trading price to track the NAV per Share of the Funds closely over time.

Investors who purchase Shares in the secondary market and pay a premium purchase price over a Fund’s indicative optimized portfolio value (“IOPV”) could incur significant losses in the event such investor sells such Shares at a time when such premium is no longer present in the marketplace.

The value of a Share may be influenced by non-concurrent trading hours between the Exchange and the market in which Financial Instruments (or related Reference Assets, as applicable) held by a Fund are traded. The Shares of each Fund trade on the Exchange from 9:30 a.m. to 4:00 p.m. (Eastern Time). The Financial Instruments (and/or the related Reference Assets, as applicable) held by a particular Fund, however, have earlier fixing or settlement times or, in the case of the VIX Futures Fund, a later fixing time. Consequently, liquidity in the Financial Instruments (and/or the related Reference Assets, as applicable) may be reduced after such fixing or settlement time. As a result, during the time when the Exchange is open after the applicable fixing or settlement time of an underlying component, trading spreads and the resulting premium or discount on the Shares of a Fund may widen, and, therefore, may increase the difference between the price of the Shares of a Fund and the NAV of such Shares. Also, during the time when the Exchange is open but the Fund’s NAV has already been determined (or, in the case of the VIX Futures Fund, closed but before the determination of its NAV), there could be market developments or other events that cause or exacerbate the difference between the price of the Shares of such Funds in the secondary market and the NAV of such Shares.

The VIX futures contracts in which the VIX Futures Fund invests may be traded throughout the day, including between 4:00 p.m. and 4:15 p.m. As a result, during the time when the Exchange is closed but before the determination of NAV, there could be market developments or other events that cause or exacerbate the difference between the price of the Shares of the VIX Futures Fund in the secondary market and the NAV of such Shares.

 

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Trading on exchanges outside the United States is generally not subject to U.S. regulation and may result in different or diminished investor protections.

To the extent that a Fund places trades on exchanges outside the United States, trading on such exchanges is generally not regulated by any U.S. governmental agency and may involve certain risks not applicable to trading on U.S. exchanges, including different or diminished investor protections. In trading contracts denominated in currencies other than U.S. dollars, the Shares are subject to the risk of adverse exchange rate movements between the dollar and the functional currencies of such contracts. Investors could incur substantial losses from trading on foreign exchanges which such investors would not have otherwise been subject had the Funds’ trading been limited to U.S. markets.

Competing claims of intellectual property rights may adversely affect the Funds and an investment in the Shares.

The Sponsor believes that it has obtained all required licenses or the appropriate consent of all necessary parties with respect to the intellectual property rights necessary to operate the Funds. However, other third parties could allege ownership as to such rights and may bring legal action asserting their claims. The expenses in litigating, negotiating, cross-licensing or otherwise settling such claims may adversely affect the Funds. Additionally, as a result of such action, a Fund could potentially change its investment objective, strategies or benchmark. Each of these factors could have a negative impact on the performance of the Funds.

Investors may be adversely affected by an overstatement or understatement of a Fund’s NAV due to the valuation method employed or errors in the NAV calculation.

Under normal circumstances, the NAV of a Fund reflects the value of the Financial Instruments held by the Fund, as of the time the NAV is calculated. The NAV of the Funds includes, in part, any unrealized profits or losses on open Financial Instrument positions. In certain circumstances (e.g., if the Sponsor believes market quotations do not accurately reflect fair value of an investment, or a trading halt closes an exchange or market early), the Sponsor may, in its sole discretion, choose to determine a fair value price as the basis for determining the market value of such position for such day. The fair value of an investment determined by the Sponsor may be different from other value determinations of the same investment. Such fair value prices generally would be determined based on available inputs about the current value of the underlying Reference Assets and would be based on principles that the Sponsor deems fair and equitable. Errors in calculation of a Fund’s NAV also may cause the Fund’s NAV to be overstated or understated and may affect the performance of the Fund the value of an investment in the Shares.

The liquidity of the Shares may also be affected by the withdrawal from participation of Authorized Participants, which could adversely affect the market price of the Shares.

In the event that one or more Authorized Participants which have substantial interests in the Shares withdraw from participation, the liquidity of the Shares will likely decrease, which could adversely affect the market price of the Shares and result in investors incurring a loss on their investment.

Shareholders that are not Authorized Participants may only purchase or sell their Shares in secondary trading markets, and the conditions associated with trading in secondary markets may adversely affect investors’ investment in the Shares.

Only Authorized Participants may create or redeem Creation Units. All other investors that desire to purchase or sell Shares must do so through the Exchange or in other markets, if any, in which the Shares may be traded. Shares may trade at a premium or discount to NAV per Share.

 

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The Exchange may halt trading in the Shares of a Fund which would adversely impact investors’ ability to sell Shares.

Trading in Shares of a Fund may be halted due to market conditions or, in light of the Exchange rules and procedures, for reasons that, in the view of the Exchange, make trading in Shares of a Fund inadvisable. In addition, trading is subject to trading halts caused by extraordinary market volatility pursuant to “circuit breaker” rules that require trading to be halted for a specified period based on a specified decline or rise in a market index (e.g., the Dow Jones Industrial Average) or in the price of a Fund’s Shares. There can be no assurance that the requirements necessary to maintain the listing of the Shares of a Fund will continue to be met or will remain unchanged.

Shareholders do not have the protections associated with ownership of shares in an investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”).

The Funds are not subject to registration or regulation under the 1940 Act. Consequently, shareholders do not have the regulatory protections provided to investors in investment companies registered under 1940 Act. These protections include, but are not limited to, provisions in the 1940 Act that limit transactions with affiliates, prohibit the suspension of redemptions (except under limited circumstances), require a board of directors that must include disinterested directors, limit leverage, impose a fiduciary duty on the fund’s manager with respect to the receipt of compensation for services, require shareholder approval for certain fundamental changes, limit sales loads, and require proper valuation of fund assets.

The value of the Shares will be adversely affected if the Funds are required to indemnify Wilmington Trust Company (the “Trustee”) and/or the Sponsor.

Under the Trust Agreement, the Trustee and the Sponsor each has the right to be indemnified for any liability or expense incurred without gross negligence or willful misconduct. That means the Sponsor may require the assets of a Fund to be sold in order to cover losses or liability suffered by it or by the Trustee. Any such sale would decrease the value of an investment in an impacted Fund.

Although the Funds are limited liability investments, certain circumstances, such as the bankruptcy of a Fund could increase a shareholder’s liability.

The Funds are limited liability investments; investors may not lose more than the amount that they invest plus any gains or income recognized on their investment. However, shareholders could be required, as a matter of bankruptcy law, to return to the estate of a Fund any distribution they received at a time when such Fund was in fact insolvent or in violation of the Trust Agreement.

The insolvency of an FCM or clearing organization or the failure of an FCM or clearing organization to properly segregate Fund assets held as margin on futures transactions may result in losses to the Funds.

The CEA requires FCMs to segregate client assets received as margin on futures transactions from their own proprietary assets. However, if an FCM fails to properly segregate Fund assets deposited as margin, these assets might not be fully protected in the event of the FCM’s bankruptcy. In such event, a Fund may not be able to recover any assets held by the FCM, or may recover only a limited portion of such assets.

Furthermore, customer funds held at a clearing organization in connection with any futures contracts are permitted to be held in a commingled omnibus account that does not identify the name of the clearing member’s individual customers. A clearing organization may use assets held in such accounts to satisfy payment obligations of a defaulting customer of the FCM to the clearing organization. As a result, in the event of a default of one or more of the FCM’s other clients together with the bankruptcy or insolvency of the FCM, a Fund may not be able to recover the assets deposited by the FCM on behalf of the Fund with the clearing organization.

 

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In the event of a bankruptcy or insolvency of any exchange or a clearing house, a Fund could experience a loss of the funds deposited through its FCM as margin with the exchange or clearing house, a loss of any profits on its open positions on the exchange, and the loss of unrealized profits on its closed positions on the exchange.

A court could potentially conclude that the assets and liabilities of one Fund are not segregated from those of another series of the Trust and may thereby potentially expose assets in a Fund to the liabilities of another series of the Trust.

Each series of the Trust is a separate series of a Delaware statutory trust and not itself a separate legal entity. Section 3804(a) of the Delaware Statutory Trust Act, as amended (the “DSTA”), provides that if certain provisions are in the formation and governing documents of a statutory trust organized in series, and if separate and distinct records are maintained for any series and the assets associated with that series are held in separate and distinct records (directly or indirectly, including through a nominee or otherwise) and accounted for in such separate and distinct records separately from the other assets of the statutory trust, or any series thereof, then the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to a particular series are enforceable against the assets of such series only, and not against the assets of the statutory trust generally or any other series thereof, and none of the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to the statutory trust generally or any other series thereof shall be enforceable against the assets of such series. The Sponsor is not aware of any court case that has interpreted Section 3804(a) of the DSTA or provided any guidance as to what is required for compliance. The Sponsor maintains separate and distinct records for each series and accounts for them separately, but it is possible a court could conclude that the methods used did not satisfy Section 3804(a) of the DSTA and thus potentially expose assets of a Fund to the liabilities of another series of the Trust.

There may be circumstances that could prevent or make it impractical for a Fund to operate in a manner consistent with its investment objective and principal investment strategies.

There may be circumstances outside the control of the Sponsor and/or a Fund that could prevent or make it impractical to reposition such Fund’s portfolio investments, to process purchase or redemption orders, or to otherwise operate in a manner consistent with its investment objective and principal investment strategies. Examples of such circumstances include: market disruptions; significant market volatility, particularly late in the trading day; natural disasters; public service disruptions or utility problems such as those caused by fires, floods, extreme weather conditions, and power outages resulting in telephone, telecopy, and computer failures; market conditions or activities causing trading halts; systems failures involving computer or other information systems affecting the aforementioned parties, as well as the Depository Trust Company (“DTC”), the National Securities Clearing Corporation (“NSCC”), or any other participant in the trading or operations of a Fund; and similar extraordinary events.

While the Sponsor has implemented and tested a business continuity plan and a disaster recovery plan designed to address circumstances such as those above, these and other circumstances may prevent a Fund from being operated in a manner consistent with its investment objective and/or principal investment strategies.

Due to the increased use of technologies, intentional and unintentional cyber-attacks pose operational and information security risks.

With the increased use of technologies such as the Internet and the dependence on computer systems to perform necessary business functions, the Funds and their service providers are susceptible to operational and information security risks. In general, cyber incidents can result from deliberate attacks or unintentional events. Cyber-attacks include, but are not limited to gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. Cyber-attacks may also be carried out in a manner that does not require gaining unauthorized access, such as causing denial-of-service attacks on websites. Cyber security failures or breaches of a Fund’s third party service provider

 

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(including, but not limited to, index providers, the administrator and transfer agent) or the issuers of securities in which the Funds invest, have the ability to cause disruptions and impact business operations, potentially resulting in financial losses, the inability of Fund shareholders to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. In addition, substantial costs may be incurred in order to prevent any cyber incidents in the future. The Funds and their shareholders could be negatively impacted as a result. While the Funds have established business continuity plans and systems to prevent such cyber-attacks, there are inherent limitations in such plans and risk management systems including the possibility that certain risks have not been identified. Furthermore, the Funds cannot control the cyber security plans and systems of each Fund’s service providers, market makers, Authorized Participants or issuers of securities in which each Fund invests.

Investors cannot be assured of the Sponsor’s continued services, the discontinuance of which may be detrimental to the Funds.

Investors cannot be assured that the Sponsor will be able to continue to service the Funds for any length of time. If the Sponsor discontinues its activities on behalf of the Funds, the Funds may be adversely affected, as there may be no entity servicing the Funds for a period of time. If the Sponsor’s registrations with the CFTC or memberships in the National Futures Association (the “NFA”) were revoked or suspended, the Sponsor would no longer be able to provide services and/or to render advice to the Funds. If the Sponsor were unable to provide services and/or advice to the Funds, the Funds would be unable to pursue their investment objectives unless and until the Sponsor’s ability to provide services and advice to the Funds was reinstated or a replacement for the Sponsor as commodity pool operator could be found. Such an event could result in termination of the Funds.

Shareholders’ tax liability will exceed cash distributions on the Shares.

Shareholders of each Fund are subject to U.S. federal income taxation and, in some cases, state, local, or foreign income taxation on their share of the Fund’s taxable income, whether or not they receive cash distributions from the Fund. Each Fund does not currently expect to make distributions with respect to capital gains or ordinary income. Accordingly, shareholders of a Fund will not receive cash distributions equal to their share of the Fund’s taxable income or the tax liability that results from such income. A Fund’s income, gains, losses and deductions are allocated to shareholders on a monthly basis. If you own Shares in a Fund at the beginning of a month and sell them during the month, you are generally still considered a shareholder through the end of that month.

The U.S. Internal Revenue Service (the “IRS”) could adjust or reallocate items of income, gain, deduction, loss and credit with respect to the Shares if the IRS does not accept the assumptions or conventions utilized by the Fund.

U.S. federal income tax rules applicable to partnerships, which each Fund is anticipated to be treated as under the Internal Revenue Code of 1986, as amended (the “Code”), are complex and their application is not always clear. Moreover, the rules generally were not written for, and in some respects are difficult to apply to, publicly traded interests in partnerships. The Funds apply certain assumptions and conventions intended to comply with the intent of the rules and to report income, gain, deduction, loss and credit to shareholders in a manner that reflects the shareholders’ economic gains and losses, but these assumptions and conventions may not comply with all aspects of the applicable Regulations (as defined below). It is possible therefore that the IRS will successfully assert that these assumptions or conventions do not satisfy the technical requirements of the Code or the Treasury regulations promulgated thereunder (the “Regulations”) and will require that items of income, gain, deduction, loss and credit be adjusted or reallocated in a manner that could be adverse to investors.

Shareholders will receive partner information tax returns on Schedule K-1, which could increase the complexity of tax returns.

The partner information tax returns on Schedule K-1, which the Funds will distribute to shareholders, will contain information regarding the income items and expense items of the Funds. If you have not received

 

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Schedule K-1s from other investments, you may find that preparing your tax return may require additional time, or it may be necessary for you to retain an accountant or other tax preparer, at an additional expense to you, to assist you in the preparation of your return.

Investors could be adversely affected if the current treatment of long-term capital gains under current U.S. federal income tax law is changed or repealed in the future.

Under current law, long-term capital gains are taxed to non-corporate investors at reduced U.S. federal income tax rates. This tax treatment may be adversely affected, changed or repealed by future changes in, or the expiration of, tax laws at any time.

Shareholders of each Fund may recognize significant amounts of ordinary income and short-term capital gain.

Due to the investment strategy of the Funds, the Funds may realize and pass through to shareholders significant amounts of ordinary income and short-term capital gains as opposed to long-term capital gains, which generally are taxed at a preferential rate. A Fund’s income, gains, losses and deductions are allocated to shareholders on a monthly basis. If you own Shares in a Fund at the beginning of a month and sell them during the month, you are generally still considered a shareholder through the end of that month.

Changes in U.S. federal income tax law could affect an investment in the Shares.

Recently enacted legislation commonly known as the “Tax Cuts and Jobs Act” has made significant changes to U.S. federal income tax rules. As of the date of this registration statement, the long-term impact of the Tax Cuts and Jobs Act, including on the Shares, is unclear. Prospective investors are urged to consult their tax advisors regarding the effect of the Tax Cuts and Jobs Act prior to investing in the Shares.

PROSPECTIVE INVESTORS ARE STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISORS AND COUNSEL WITH RESPECT TO THE POSSIBLE TAX CONSEQUENCES TO THEM OF AN INVESTMENT IN THE SHARES OF A FUND; SUCH TAX CONSEQUENCES MAY DIFFER IN RESPECT OF DIFFERENT INVESTORS.

Regulatory changes or actions, including the implementation of new legislation, may alter the operations and profitability of the Funds.

The U.S. derivatives markets and market participants have been subject to comprehensive regulation, not only by the CFTC but also by self-regulatory organizations, including the NFA and the exchanges on which the derivatives contracts are traded and/or cleared. As with any regulated activity, changes in regulations may have unexpected results. For example, changes in the amount or quality of the collateral that traders in derivatives contracts are required to provide to secure their open positions, or in the limits on number or size of positions that a trader may have open at a given time, may adversely affect the ability of the Funds to enter into certain transactions that could otherwise present lucrative opportunities. Considerable regulatory attention has been focused on non-traditional investment pools which are publicly distributed in the United States. 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.

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, forwards 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”) has made and will continue to make sweeping changes to the way in which the U.S. financial system is supervised and regulated. Title VII of the Dodd-Frank Act sets forth a legislative framework for OTC derivatives, including certain Financial Instruments, such as swaps, in which certain of 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, pursuant to regulations that have been and will continue to be adopted by the regulators, requires the clearing and exchange trading of many types of OTC derivatives transactions.

Pursuant to regulations adopted by the CFTC, swap dealers are required to be registered and are subject to various regulatory requirements, including, but not limited to, margin, recordkeeping, reporting and various business conduct requirements, as well as proposed minimum financial capital requirements.

Pursuant to the Dodd-Frank Act, regulations adopted by the CFTC and the federal banking regulators that are now in effect require swap dealers to post and collect variation margin (comprised of specified liquid instruments and subject to a required haircut) in connection with trading of OTC swaps with a Fund. These requirements may increase the amount of collateral the Funds are required to provide and the costs associated with providing it.

OTC swap agreements submitted for clearing are subject to minimum initial and variation margin requirements set by the relevant clearinghouse, as well as margin requirements mandated by the CFTC, SEC and/or federal banking regulators. Swap dealers also typically demand the unilateral ability to increase a Fund’s collateral requirements for cleared swap agreements beyond any regulatory and clearinghouse minimums. Such requirements may make it more difficult and costly for investment funds, such as the Funds, to enter into customized transactions. They may also render certain strategies in which a Fund might otherwise engage impossible or so costly that they will no longer be economical to implement. If a Fund decides to execute swap agreements through such exchanges or execution facilities, the Fund would be subject to the rules of the exchange or execution facility, which would bring additional risks and liabilities, and potential requirements under applicable regulations and under rules of the relevant exchange or execution facility.

With respect to cleared OTC derivatives, a Fund will not face a clearinghouse directly but rather will do so through a swap dealer that is registered with the CFTC or SEC and that acts as a clearing member. A Fund may face the indirect risk of the failure of another clearing member customer to meet its obligations to its clearing member. This risk could arise due to a default by the clearing member on its obligations to the clearinghouse triggered by a customer’s failure to meet its obligations to the clearing member.

Swap dealers also are required to post margin to the clearinghouses through which they clear their customers’ trades instead of using such margin in their operations, as was widely permitted before Dodd-Frank. This has increased and will continue to increase the swap dealers’ costs, and these increased costs are generally passed through to other market participants such as the Funds in the form of higher upfront and mark-to-market margin, less favorable trade pricing, and the imposition of new or increased fees, including clearing account maintenance fees.

While certain regulations have been promulgated and are already in effect, the full impact of the Dodd-Frank Act on any of the Funds remains uncertain. The legislation and the related regulations that have been and may be promulgated in the future may negatively impact a Fund’s ability to meet its investment objective either through limits on its investments or requirements imposed on it or any of its counterparties. In particular, new requirements, including capital requirements and mandatory clearing of OTC derivatives transactions, which may increase derivative counterparties’ costs and are expected to generally be passed through to other market participants in the form of higher upfront and mark-to-market margin, less favorable trade pricing, and the imposition of new or increased fees, including clearinghouse account maintenance fees, may increase the cost of a Fund’s investments and the cost of doing business, which could adversely affect investors.

 

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Regulatory bodies outside the U.S. have also passed or proposed, or may propose in the future, legislation similar to that proposed by Dodd-Frank or other legislation containing other restrictions that could adversely impact the liquidity of and increase costs of participating in the commodities markets. For example, the European Union Markets in Financial Instruments Directive (Directive 2014/65/EU) and Markets in Financial Instruments Regulation (Regulation (EU) No 600/2014) (together “MiFID II”), which has applied since January 3, 2018, governs the provision of investment services and activities in relation to, as well as the organized trading of, financial instruments such as shares, bonds, units in collective investment schemes and derivatives. In particular, MiFID II requires EU Member States to apply position limits to the size of a net position which a person can hold at any time in commodity derivatives traded on EU trading venues and in “economically equivalent” OTC contracts. By way of further example, the European Market Infrastructure Regulation (Regulation (EU) No 648/2012) (“EMIR”) introduced certain requirements in respect of OTC derivatives including: (i) the mandatory clearing of OTC derivative contracts declared subject to the clearing obligation; (ii) risk mitigation techniques in respect of uncleared OTC derivative contracts, including the mandatory margining of uncleared OTC derivative contracts; and (iii) reporting and recordkeeping requirements in respect of all derivatives contracts. In the event that the requirements under EMIR and MiFID II apply, these are expected to increase the cost of transacting derivatives.

In addition, regulations adopted by U.S. federal banking regulators that will begin to take effect in 2019 will require certain bank-regulated swap dealer counterparties and certain of their affiliates and subsidiaries, including swap dealers, to include in certain financial contracts, including many derivatives contracts, such as swap agreements, terms that delay or restrict the rights of counterparties, such as a Fund, to terminate such contracts, foreclose upon collateral, exercise other default rights or restrict transfers of credit support in the event that the counterparty and/or its affiliates are subject to certain types of resolution or insolvency proceedings. Similar regulations and laws have been adopted in the United Kingdom (the “UK”) and the European Union (the “EU”) that apply to the Funds’ counterparties located in those jurisdictions. It is possible that these new requirements could adversely affect the Funds’ ability to terminate existing derivatives agreements or to realize amounts to be received under such agreements.

Regulatory and exchange accountability levels may restrict the creation of Creation Units and the operation of the Trust.

Many U.S. commodities exchanges limit the amount of fluctuation permitted in futures contract prices during a single trading day by regulations referred to as “daily price fluctuation limits” or “daily limits.” 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 trading day. In addition, the CFTC, U.S. futures exchanges and certain non-U.S. exchanges have established limits referred to as “speculative position limits” or “accountability levels” on the maximum net long or short futures positions that any person may hold or control in derivatives traded on such exchanges.

In connection with these limits, the Dodd-Frank Act has required the CFTC to adopt regulations establishing speculative position limits applicable to regulated futures and OTC derivatives and impose aggregate speculative position limits across regulated U.S. futures, OTC positions and certain futures contracts traded on non-U.S. exchanges. In December 2016, the CFTC re-proposed rules on position limits with respect to the 25 physical delivery commodity futures and options contracts, as well as to swaps that are economically equivalent to such contracts. The re-proposed position limits would apply with respect to contracts traded on all U.S. and certain foreign exchanges on an aggregate basis. In addition, the CFTC proposed amendments to the requirement of U.S. commodities exchanges to establish corresponding speculative position limits (the “Position Limit Rules”). The re-proposed Position Limit Rules are based on the position limit rules previously proposed in 2013 by the CFTC. In December 2016, the CFTC also adopted final regulations requiring that all accounts owned or managed by an entity that is responsible for such accounts’ trading decisions, their principals and their affiliates would be aggregated for position limit purposes. The CFTC is expected to reconsider the re-proposed Position Limit Rules in 2019.

 

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Although it is unclear what future position limit rules will be, the Sponsor is subject to current position and accountability limits established by the CFTC and exchanges. Accordingly, it may be required to reduce the size of outstanding positions or not enter into new positions that would otherwise be taken for the Fund or not trade certain markets on behalf of the Fund in order to comply with those limits or any futures limits established by the CFTC and the relevant exchanges. Derivatives contract prices could move to a limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of derivatives positions and potentially subjecting the Fund to substantial losses or periods in which the Fund does not create additional Creation Units. Modification of trades made by the Trust, if required, could adversely affect the Trust’s operations and profitability and significantly limit the Trust’s ability to reinvest income in additional contracts, create additional Creation Units, or add to existing positions in the desired amount.

In addition, the Sponsor may be required to liquidate certain open positions in order to ensure compliance with the speculative position limits at unfavorable prices, which may result in substantial losses for the relevant Funds. There also can be no assurance that the Sponsor will liquidate positions held on behalf of all the Sponsor’s accounts, including any proprietary accounts, in a proportionate manner. In the event the Sponsor chooses to liquidate a disproportionate number of positions held on behalf of any of the Funds at unfavorable prices, such Funds may incur substantial losses and the value of the Shares may be adversely affected.

Further, in October 2012, CFTC rules became effective, which require each registered FCM to establish risk-based limits on position and order size. As a result, the Trust’s FCMs may be required to reduce their internal limits on the size of the positions they will execute or clear for the Funds, and the Trust may seek to use additional FCMs, which may increase the costs for the Funds and adversely affect the value of the Shares.

The Trust may apply to the CFTC or to the relevant exchanges for relief from certain position limits. If the Trust is unable to obtain such relief, a Fund’s ability to issue new Creation Units, or the Fund’s ability to reinvest income in additional futures contracts, may be limited to the extent these activities cause the Trust to exceed applicable position limits. Limiting the size of a Fund may affect the correlation between the price of the Shares, as traded on an exchange, and the net asset value of the Fund. Accordingly, the inability to create additional Creation Units or add to existing positions in the desired amount could result in Shares trading at a premium or discount to NAV.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Prospectus and the documents incorporated by reference in this Prospectus contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 (the “1933 Act”) and Section 21E of the Securities Exchange Act of 1934 (the “1934 Act”) that are subject to risks and uncertainties. Investors can identify these forward-looking statements by the use of expressions such as “may,” “will,” “expect,” “anticipate,” “believe,” “intend,” “plan,” “project,” “should,” “estimate,” “seek” or any negative or other variations on such expression. These forward-looking statements are based on information currently available to the Sponsor and are subject to a number of risks, uncertainties and other factors, both known, such as those described in “Risk Factors” and elsewhere in this Prospectus and the documents incorporated by reference in this Prospectus, and unknown, that could cause the actual results, performance, prospects or opportunities of the Funds to differ materially from those expressed in, or implied by, these forward-looking statements.

Except as expressly required by federal securities laws, the Trust assumes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Investors should not place undue reliance on any forward-looking statements.

 

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DESCRIPTION OF EACH FUND’S BENCHMARK

DESCRIPTION OF THE MID-TERM VIX FUTURES FUND’S INDEX

The S&P 500 VIX Mid-Term Futures Index

The VIX Futures Fund seeks to offer exposure to forward equity market volatility by obtaining exposure to the S&P 500 VIX Mid-Term VIX Futures Index (the “Mid-Term VIX Futures Index”). The Mid-Term VIX Futures Index is an investable index based on publicly traded VIX futures contracts. The Mid-Term VIX Futures Index is intended to reflect the returns that are potentially available through an unleveraged investment in the VIX futures contracts comprising the Mid-Term VIX Futures Index.

The Mid-Term VIX Futures Index employs rules for selecting the VIX futures contracts comprising the Mid-Term VIX Futures Index and a formula to calculate a level for that Index from the prices of these VIX futures contracts (these rules and the formula may be changed from time to time, and without notice, by S&P). Currently, the VIX futures contracts comprising the Index represent the prices of four mid-term VIX futures contracts, replicating a position that rolls the fourth month VIX futures to the seventh month VIX futures on a daily basis in equal fractional amounts, while maintaining a constant weight in the fifth and sixth month VIX futures. This results in a constant weighted average term to expiration of five months.

The level of the Index will be published by Bloomberg Finance L.P. in real time and at the close of trading on each Index business day under the Bloomberg ticker: SPVXMPID.

The performance of the Mid-Term Futures VIX Index is influenced by the S&P 500 (and options thereon) and the VIX. A description of VIX futures contracts, the VIX and S&P 500 follows.

VIX Futures Contracts

The Mid-Term VIX Futures Index is comprised of VIX futures contracts. VIX futures contracts were first launched for trading by the CBOE in 2004. VIX futures contracts allow investors to invest based on their view of the forward implied market volatility of the S&P 500. Investors that believe the forward implied market volatility of the S&P 500 will increase may buy VIX futures contracts. Conversely, investors that believe that the forward implied market volatility of the S&P 500 will decline may sell VIX futures contracts.

While the VIX represents a measure of the current expected volatility of the S&P 500 over the next 30 days, the prices of VIX futures contracts are based on the current expectation of the expected 30-day volatility of the S&P 500 on the expiration date of the futures contract. Since the VIX and VIX futures contracts are two distinctly different measures, the VIX and VIX futures contracts generally behave quite differently.

An important consequence of the spot/forward relationship between the VIX and VIX futures contracts that investors should understand is that the price of a VIX futures contract can be lower, equal to or higher than the VIX, depending on whether the market expects volatility to be lower, equal to or higher in the 30-day forward period covered by the VIX futures contract than in the 30-day spot period covered by the VIX. Therefore the performance of VIX futures contracts should be expected to be very different than the performance of the VIX. As a result, since the performance of the VIX Futures Fund is linked to the performance of the VIX futures contracts included in the Index, the VIX Futures Fund can be expected to perform very differently from the VIX.

 

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The VIX

The VIX is an index designed to measure the implied volatility of the S&P 500 over 30 days in the future. The VIX is reflective of the premium paid by investors for certain options linked to the level of the S&P 500.

 

   

During periods of rising investor uncertainty, including periods of market instability, the implied level of volatility of the S&P 500 typically increases and, consequently, the prices of options linked to the S&P 500 typically increase (assuming all other relevant factors remain constant or have negligible changes). This, in turn, causes the level of the VIX to increase.

 

   

During periods of declining investor uncertainty, the implied level of volatility of the S&P 500 typically decreases and, consequently, the prices of options linked to the S&P 500 typically decrease (assuming all other relevant factors remain constant or have negligible changes). This, in turn, causes the level of the VIX to decrease.

Volatility, and the level of the VIX, can increase (or decrease) without warning. The performance of the VIX has historically had a negative correlation to the performance of the S&P 500. The VIX was developed by the CBOE and is calculated, maintained and published by the CBOE. The CBOE may change the methodology used to determine the VIX and has no obligation to continue to publish, and may discontinue the publication of, the VIX. The VIX is reported by Bloomberg under the ticker symbol “VIX.”

The S&P 500

The S&P 500 is an index that measures large-cap U.S. stock market performance. It is a float-adjusted, market capitalization-weighted index of 500 U.S. operating companies and real estate investment trusts selected by the S&P U.S. Index Committee through a non-mechanical process that factors in criteria such as liquidity, price, market capitalization and financial viability. Reconstitution occurs both on a quarterly and ongoing basis. S&P publishes the S&P 500. The daily calculation of the current value of the S&P 500 is based on the relative value of the aggregate market value of the common stocks of 500 companies as of a particular time compared to the aggregate average initial market value of the common stocks of 500 similar companies at the time of the inception of the S&P 500. The 500 companies are not the 500 largest publicly traded companies and not all 500 companies are listed on the Exchange. S&P chooses companies for inclusion in the S&P 500 with the objective of achieving a distribution by broad industry groupings that approximates the distribution of these groupings in the common stock population of the U.S. equity market. S&P may from time to time, in its sole discretion, add companies to, or delete companies from, the S&P 500 to achieve the objectives stated above. Relevant criteria employed by S&P include the viability of the particular company, the extent to which that company represents the industry group to which it is assigned, the extent to which the company’s common stock is widely held and the market value and trading activity of the common stock of that company.

Information about the Index Licensor

PROSHARES VIX MID-TERM FUTURES ETF (THE VIX FUTURES FUND) IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY S&P AND ITS AFFILIATES OR CBOE. S&P AND CBOE MAKE NO REPRESENTATION, CONDITION OR WARRANTY, EXPRESS OR IMPLIED, TO THE OWNERS OF THE VIX FUTURES FUND OR ANY MEMBER OF THE PUBLIC REGARDING THE ADVISABILITY OF INVESTING IN SECURITIES GENERALLY OR IN THE VIX FUTURES FUND PARTICULARLY OR THE ABILITY OF THE S&P 500 VIX MID-TERM FUTURES INDEX (THE MID-TERM VIX FUTURES INDEX) TO TRACK MARKET PERFORMANCE AND/OR OF GROUPS OF ASSETS OR ASSET CLASSES AND/ OR TO ACHIEVE ITS STATED OBJECTIVE AND/OR TO FORM THE BASIS OF A SUCCESSFUL INVESTMENT STRATEGY, AS APPLICABLE. S&P’S AND CBOE’S ONLY RELATIONSHIP TO PROSHARES TRUST II ON BEHALF OF ITS APPLICABLE SERIES AND PROSHARE CAPITAL MANAGEMENT LLC IS THE LICENSING OF CERTAIN TRADEMARKS AND TRADE NAMES AND OF

 

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THE MID-TERM VIX FUTURES INDEX WHICH IS DETERMINED, COMPOSED AND CALCULATED BY S&P WITHOUT REGARD TO PROSHARES TRUST II ON BEHALF OF ITS APPLICABLE SERIES AND PROSHARE CAPITAL MANAGEMENT LLC OR THE VIX FUTURES FUND. S&P HAS NO OBLIGATION TO TAKE THE NEEDS OF PROSHARES TRUST II ON BEHALF OF ITS APPLICABLE SERIES AND PROSHARE CAPITAL MANAGEMENT LLC OR THE OWNERS OF THE VIX FUTURES FUND INTO CONSIDERATION IN DETERMINING, COMPOSING OR CALCULATING THE MID-TERM VIX FUTURES INDEX. S&P AND CBOE ARE NOT ADVISORS TO THE VIX FUTURES FUND AND ARE NOT RESPONSIBLE FOR AND HAVE NOT PARTICIPATED IN THE DETERMINATION OF THE PRICES AND AMOUNT OF THE VIX FUTURES FUND OR THE TIMING OF THE ISSUANCE OR SALE OF THE VIX FUTURES FUND OR IN THE DETERMINATION OR CALCULATION OF THE EQUATION BY WHICH THE VIX FUTURES FUND SHARES ARE TO BE CONVERTED INTO CASH. S&P AND CBOE HAVE NO OBLIGATION OR LIABILITY IN CONNECTION WITH THE ADMINISTRATION, MARKETING, OR TRADING OF THE VIX FUTURES FUND.

NEITHER S&P, ITS AFFILIATES NOR THIRD PARTY LICENSORS, INCLUDING CBOE, GUARANTEES THE ACCURACY AND/OR THE COMPLETENESS OF THE MID-TERM VIX FUTURES INDEX OR ANY DATA INCLUDED THEREIN AND S&P, ITS AFFILIATES AND THEIR THIRD PARTY LICENSORS, INCLUDING CBOE, SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P AND CBOE MAKE NO WARRANTY, CONDITION OR REPRESENTATION, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY PROSHARES TRUST II ON BEHALF OF ITS APPLICABLE SERIES AND PROSHARE CAPITAL MANAGEMENT LLC, OWNERS OF THE VIX FUTURES FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE MID-TERM VIX FUTURES INDEX OR ANY DATA INCLUDED THEREIN. S&P AND CBOE MAKE NO EXPRESS OR IMPLIED WARRANTIES, REPRESENTATIONS OR CONDITIONS, AND EXPRESSLY DISCLAIM ALL WARRANTIES OR CONDITIONS OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE AND ANY OTHER EXPRESS OR IMPLIED WARRANTY OR CONDITION WITH RESPECT TO THE MID-TERM VIX FUTURES INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P, ITS AFFILIATES OR THEIR THIRD PARTY LICENSORS, INCLUDING CBOE, HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS) RESULTING FROM THE USE OF THE MID-TERM VIX FUTURES INDEX OR ANY DATA INCLUDED THEREIN, EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.

DESCRIPTION OF THE NATURAL GAS FUNDS’ BENCHMARK

Bloomberg Natural Gas SubindexSM

The Natural Gas Funds seek daily investment results, before fees and expenses, that correspond to two times (2x) or two times the inverse (-2x), of the daily performance of the Bloomberg Natural Gas SubindexSM (the “Natural Gas Subindex”).

The Natural Gas Subindex is intended to reflect the performance of a rolling position in natural gas futures contracts traded on the NYMEX without regard to income earned on cash positions. An investment in natural gas futures contracts may often perform very differently than the price of physical natural gas (e.g., the wellhead or end-user price of natural gas).

The Natural Gas Subindex is based on the Natural Gas component of the Bloomberg Commodity IndexSM (the “Bloomberg Commodity Index”) and tracks what is known as a rolling futures position. Unlike equities, which entitle the holder to a continuing stake in a corporation, commodity futures contracts specify a delivery date for the underlying physical commodity or its cash equivalent. The Natural Gas Subindex is a “rolling index,” which means that the Natural Gas Subindex does not take actual physical possession of the commodity; rather, it

 

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tracks a rolling futures position. An investor with a rolling futures position is able to avoid delivering (or taking delivery of) the underlying physical commodity while maintaining exposure to the commodity. The roll occurs over a period of five Bloomberg Commodity Index business days in pre-determined months according to the Bloomberg Commodity Index contract schedule, generally beginning on the sixth business day of the month and ending on the tenth business day. Each day during the roll period, approximately 20% of the expiring futures position will be rolled into a new contract with a longer dated expiry, increasing from 0% to 20%, 40%, 60%, 80% and finally 100%. The Natural Gas Subindex will reflect the performance of its underlying natural gas contracts, including the impact of rolling, without regard to income earned on cash positions.

The methodology for determining the composition of the Natural Gas Subindex and for calculating its level may be changed at any time by Bloomberg without notice.

The daily performance of the Natural Gas Subindex is published by Bloomberg Finance L.P. and is available under the following Bloomberg Ticker: BCOMNG.

Information About the Index Licensor

“BLOOMBERG®” AND “BLOOMBERG NATURAL GAS SUBINDEXSM” ARE SERVICE MARKS OF BLOOMBERG AND HAVE BEEN LICENSED FOR USE FOR CERTAIN PURPOSES BY PROSHARES TRUST II (THE “LICENSEE”).

The Natural Gas Funds are not sponsored, endorsed, sold or promoted by Bloomberg, UBS AG, UBS Securities LLC (“UBS Securities”) or any of their subsidiaries or affiliates. None of Bloomberg, UBS AG, UBS Securities or any of their subsidiaries or affiliates makes any representation or warranty, express or implied, to the owners of or counterparties to the Natural Gas Funds or any member of the public regarding the advisability of investing in securities or commodities generally or in the Natural Gas Funds particularly. The only relationship of Bloomberg, UBS AG, UBS Securities or any of their subsidiaries or affiliates to the Licensee is the licensing of certain trademarks, trade names and service marks and of the Bloomberg Commodity Index and Natural Gas Subindex which are determined, composed and calculated by Bloomberg in conjunction with UBS Securities without regard to the Licensee or the Natural Gas Funds. Bloomberg and UBS Securities have no obligation to take the needs of the Licensee or the owners of the Natural Gas Funds into consideration in determining, composing or calculating the Bloomberg Commodity Index or Natural Gas Subindex. None of Bloomberg, UBS AG, UBS Securities or any of their respective subsidiaries or affiliates is responsible for or has participated in the determination of the timing of, prices at, or quantities of the Natural Gas Funds to be issued or in the determination or calculation of the equation by which the Natural Gas Funds are to be converted into cash. None of Bloomberg, UBS AG, UBS Securities or any of their subsidiaries or affiliates shall have any obligation or liability, including, without limitation, to the Natural Gas Funds’ customers, in connection with the administration, marketing or trading of the Natural Gas Funds. Notwithstanding the foregoing, Bloomberg, UBS AG, UBS Securities and their respective subsidiaries and affiliates may independently issue and/or sponsor financial products unrelated to the Natural Gas Funds currently being issued by Licensee, but which may be similar to and competitive with the Natural Gas Funds. In addition, Bloomberg, UBS AG, UBS Securities and their subsidiaries and affiliates actively trade commodities, commodity indexes and commodity futures (including the Bloomberg Commodity Index and the Natural Gas Subindex), as well as swaps, options and derivatives which are linked to the performance of such commodities, commodity indexes and commodity futures. It is possible that this trading activity will affect the value of the Bloomberg Commodity Index, the Natural Gas Subindex and the Natural Gas Funds.

The Prospectus relates only to the Natural Gas Funds and does not relate to the exchange-traded physical commodities underlying any of the Bloomberg Commodity Index or the Natural Gas Subindex components. Purchasers of the Natural Gas Funds should not conclude that the inclusion of a futures contract in the Bloomberg Commodity Index or the Natural Gas Subindex is any form of investment recommendation of the futures contract or the underlying exchange-traded physical commodity by Bloomberg, UBS AG, UBS Securities

 

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or any of their subsidiaries or affiliates. The information in the Prospectus regarding the Bloomberg Commodity Index and the Natural Gas Subindex components has been derived solely from publicly available documents. None of Bloomberg, UBS AG, UBS Securities or any of their subsidiaries or affiliates has made any due diligence inquiries with respect to the Bloomberg Commodity Index or Bloomberg Natural Gas Subindex components in connection with the Natural Gas Funds. None of Bloomberg, UBS AG, UBS Securities or any of their subsidiaries or affiliates makes any representation that these publicly available documents or any other publicly available information regarding the Bloomberg Commodity Index or the Natural Gas Subindex components, including without limitation a description of factors that affect the prices of such components, are accurate or complete.

NONE OF BLOOMBERG, UBS AG, UBS SECURITIES OR ANY OF THEIR SUBSIDIARIES OR AFFILIATES GUARANTEES THE ACCURACY AND/OR THE COMPLETENESS OF THE BLOOMBERG COMMODITY INDEX, THE NATURAL GAS SUBINDEX OR ANY DATA RELATED THERETO AND NONE OF BLOOMBERG, UBS AG, UBS SECURITIES OR ANY OF THEIR SUBSIDIARIES OR AFFILIATES SHALL HAVE ANY LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS THEREIN. NONE OF BLOOMBERG, UBS AG, UBS SECURITIES OR ANY OF THEIR SUBSIDIARIES OR AFFILIATES MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE LICENSEE, OWNERS OF THE NATURAL GAS FUNDS OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE BLOOMBERG COMMODITY INDEX, THE NATURAL GAS SUBINDEX OR ANY DATA RELATED THERETO. NONE OF BLOOMBERG, UBS AG, UBS SECURITIES OR ANY OF THEIR SUBSIDIARIES OR AFFILIATES MAKES ANY EXPRESS OR IMPLIED WARRANTIES AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE BLOOMBERG COMMODITY INDEX, THE NATURAL GAS SUBINDEX OR ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, TO THE MAXIMUM EXTENT ALLOWED BY LAW, BLOOMBERG, ITS LICENSORS (INCLUDING UBS), AND ITS AND THEIR RESPECTIVE EMPLOYEES, CONTRACTORS, AGENTS, SUPPLIERS, AND VENDORS SHALL HAVE NO LIABILITY OR RESPONSIBILITY WHATSOEVER FOR ANY INJURY OR DAMAGES WHETHER DIRECT, INDIRECT, CONSEQUENTIAL, INCIDENTAL, PUNITIVE OR OTHERWISE ARISING IN CONNECTION WITH THE NATURAL GAS FUNDS OR THE BLOOMBERG COMMODITY INDEX, THE NATURAL GAS SUBINDEX OR ANY DATA OR VALUES RELATING THERETO WHETHER ARISING FROM THEIR NEGLIGENCE OR OTHERWISE, EVEN IF NOTIFIED OF THE POSSIBILITY THEREOF. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS AMONG BLOOMBERG, UBS SECURITIES AND THE LICENSEE, OTHER THAN UBS AG.

DESCRIPTION OF THE PRECIOUS METALS FUNDS’ BENCHMARKS

Bloomberg Silver SubindexSM

The UltraShort Silver Fund seeks daily investment results, before fees and expenses, that correspond to two times the inverse (-2x) of the daily performance of the Bloomberg Silver SubindexSM (the “Silver Subindex”), a subindex of the Bloomberg Commodity Index. The Silver Subindex is intended to reflect the performance of silver, as measured by the price of COMEX silver futures contracts, including the impact or rolling, without regard to income earned on cash positions. The Silver Subindex is not directly linked to the “spot price” of silver. Futures contracts may perform very differently from the spot price of silver.

The Silver Subindex is based on the silver component of the Bloomberg Commodity Index and tracks what is known as a rolling futures position. Unlike equities, which entitle the holder to a continuing stake in a corporation, commodity futures contracts specify a delivery date for the underlying physical commodity or its cash equivalent. The Silver Subindex is a “rolling index,” which means that the Silver Subindex does not take physical possession of any commodities. An investor with a rolling futures position is able to avoid delivering (or

 

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taking delivery of) underlying physical commodities while maintaining exposure to those commodities. The roll occurs over a period of five Bloomberg Commodity Index business days in pre-determined months according to the Bloomberg Commodity Index contract schedule, generally beginning on the sixth business day of the month and ending on the tenth business day. Each day during the roll period, approximately 20% of the expiring futures position will be rolled into a new contract with a longer dated expiry, increasing from 0% to 20%, 40%, 60%, 80% and finally 100%. The Silver Subindex will reflect the performance of its underlying silver futures contracts, including the impact of rolling, without regard to the income earned on cash positions.

The methodology for determining the composition of the Silver Subindex and for calculating its level may be changed at any time by Bloomberg without notice.

The daily performance of the Silver Subindex is published by Bloomberg Finance L.P. and is available under the Bloomberg ticker symbol: BCOMSI.

Information About the Index Licensor

“BLOOMBERG®”, AND “BLOOMBERG SILVER SUBINDEXSM” ARE SERVICE MARKS OF BLOOMBERG AND HAVE BEEN LICENSED FOR USE FOR CERTAIN PURPOSES BY THE LICENSEE.

The UltraShort Silver Fund is not sponsored, endorsed, sold or promoted by Bloomberg, UBS AG, UBS Securities or any of their subsidiaries or affiliates. None of Bloomberg, UBS AG, UBS Securities or any of their subsidiaries or affiliates makes any representation or warranty, express or implied, to the owners of or counterparties to the UltraShort Silver Fund or any member of the public regarding the advisability of investing in securities or commodities generally or in the UltraShort Silver Fund particularly. The only relationship of Bloomberg, UBS AG, UBS Securities or any of their subsidiaries or affiliates to the Licensee is the licensing of certain trademarks, trade names and service marks and of the Silver Subindex which is determined, composed and calculated by Bloomberg in conjunction with UBS Securities without regard to the Licensee or the UltraShort Silver Fund. Bloomberg and UBS Securities have no obligation to take the needs of the Licensee or the owners of the UltraShort Silver Fund into consideration in determining, composing or calculating the Silver Subindex. None of Bloomberg, UBS AG, UBS Securities or any of their respective subsidiaries or affiliates is responsible for or has participated in the determination of the timing of, prices at, or quantities of the UltraShort Silver Fund to be issued or in the determination or calculation of the equation by which the UltraShort Silver Fund are to be converted into cash. None of Bloomberg, UBS AG, UBS Securities or any of their subsidiaries or affiliates shall have any obligation or liability, including, without limitation, to the UltraShort Silver Fund’s customers, in connection with the administration, marketing or trading of the UltraShort Silver Fund. Notwithstanding the foregoing, UBS AG, UBS Securities and their respective subsidiaries and affiliates may independently issue and/ or sponsor financial products unrelated to the UltraShort Silver Fund currently being issued by Licensee, but which may be similar to and competitive with the UltraShort Silver Fund. In addition, UBS AG, UBS Securities and their subsidiaries and affiliates actively trade commodities, commodity indexes and commodity futures (including the Silver Subindex), as well as swaps, options and derivatives which are linked to the performance of such commodities, commodity indexes and commodity futures. It is possible that this trading activity will affect the value of the Silver Subindex and the UltraShort Silver Fund.

The Prospectus relates only to the UltraShort Silver Fund and does not relate to the exchange-traded physical commodities underlying any of the Silver Subindex components. Purchasers of the UltraShort Silver Fund should not conclude that the inclusion of a futures contract in the Silver Subindex is any form of investment recommendation of the futures contract or the underlying exchange-traded physical commodity by Bloomberg, UBS AG, UBS Securities or any of their subsidiaries or affiliates. The information in the Prospectus regarding the Silver Subindex components has been derived solely from publicly available documents. None of Bloomberg, UBS AG, UBS Securities or any of their subsidiaries or affiliates has made any due diligence inquiries with respect to the Bloomberg Silver Subindex components in connection with the UltraShort Silver Fund. None of

 

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Bloomberg, UBS AG, UBS Securities or any of their subsidiaries or affiliates makes any representation that these publicly available documents or any other publicly available information regarding the Silver Subindex components, including without limitation a description of factors that affect the prices of such components, are accurate or complete.

NONE OF BLOOMBERG, UBS AG, UBS SECURITIES OR ANY OF THEIR SUBSIDIARIES OR AFFILIATES GUARANTEES THE ACCURACY AND/OR THE COMPLETENESS OF THE BLOOMBERG SILVER SUBINDEX OR ANY DATA RELATED THERETO AND NONE OF BLOOMBERG, UBS AG, UBS SECURITIES OR ANY OF THEIR SUBSIDIARIES OR AFFILIATES SHALL HAVE ANY LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS THEREIN. NONE OF BLOOMBERG, UBS AG, UBS SECURITIES OR ANY OF THEIR SUBSIDIARIES OR AFFILIATES MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE LICENSEE, OWNERS OF THE ULTRASHORT SILVER FUND OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE BLOOMBERG SILVER SUBINDEX OR ANY DATA RELATED THERETO. NONE OF BLOOMBERG, UBS AG, UBS SECURITIES OR ANY OF THEIR SUBSIDIARIES OR AFFILIATES MAKES ANY EXPRESS OR IMPLIED WARRANTIES AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE BLOOMBERG SILVER SUBINDEX OR ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, TO THE MAXIMUM EXTENT ALLOWED BY LAW, BLOOMBERG, ITS LICENSORS (INCLUDING UBS), AND ITS AND THEIR RESPECTIVE EMPLOYEES, CONTRACTORS, AGENTS, SUPPLIERS, AND VENDORS SHALL HAVE NO LIABILITY OR RESPONSIBILITY WHATSOEVER FOR ANY INJURY OR DAMAGES WHETHER DIRECT, INDIRECT, CONSEQUENTIAL, INCIDENTAL, PUNITIVE OR OTHERWISE ARISING IN CONNECTION WITH THE ULTRASHORT SILVER FUND OR THE BLOOMBERG SILVER SUBINDEX OR ANY DATA OR VALUES RELATING THERETO WHETHER ARISING FROM THEIR NEGLIGENCE OR OTHERWISE, EVEN IF NOTIFIED OF THE POSSIBILITY THEREOF. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS AMONG BLOOMBERG, UBS SECURITIES AND THE LICENSEE, OTHER THAN UBS AG.

Bloomberg Gold SubindexSM

The UltraShort Gold Fund seeks daily investment results, before fees and expenses, that correspond to two times the inverse (-2x) of the daily performance of the Bloomberg Gold SubindexSM (the “Gold Subindex”), a subindex of the Bloomberg Commodity Index. The Gold Subindex is intended to reflect the performance of gold, as measured by the price of COMEX gold futures contracts, including the impact of rolling, without regard to income earned on cash positions. The Gold Subindex is not directly linked to the “spot price” of gold. Futures contracts may perform very differently from the spot price of gold.

The Gold Subindex is based on the gold component of the Bloomberg Commodity Index and tracks what is known as a rolling futures position. Unlike equities, which entitle the holder to a continuing stake in a corporation, commodity futures contracts specify a delivery date for the underlying physical commodity or its cash equivalent. The Gold Subindex is a “rolling index,” which means that the Gold Subindex does not take physical possession of any commodities. An investor with a rolling futures position is able to avoid delivering (or taking delivery of) underlying physical commodities while maintaining exposure to those commodities. The roll occurs over a period of five Bloomberg Commodity Index business days in pre-determined months according to the Bloomberg Commodity Index contract schedule, generally beginning on the sixth business day of the month and ending on the tenth business day. Each day during the roll period, approximately 20% of the expiring futures position will be rolled into a new contract with a longer dated expiry, increasing from 0% to 20%, 40%, 60%, 80% and finally 100%. The Gold Subindex will reflect the performance of its underlying silver futures contracts, including the impact of rolling, without regard to the income earned on cash positions.

The methodology for determining the composition of the Gold Subindex and for calculating its level may be changed at any time by Bloomberg without notice.

 

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The daily performance of the Bloomberg Subindex is published by Bloomberg Finance L.P. and is available under the Bloomberg ticker symbol: BCOMGC.

Information About the Index Licensor

“BLOOMBERG®”, AND “BLOOMBERG GOLD SUBINDEXSM” ARE SERVICE MARKS OF BLOOMBERG AND HAVE BEEN LICENSED FOR USE FOR CERTAIN PURPOSES BY THE LICENSEE.

The UltraShort Gold Fund is not sponsored, endorsed, sold or promoted by Bloomberg, UBS AG, UBS Securities or any of their subsidiaries or affiliates. None of Bloomberg, UBS AG, UBS Securities or any of their subsidiaries or affiliates makes any representation or warranty, express or implied, to the owners of or counterparties to the UltraShort Gold Fund or any member of the public regarding the advisability of investing in securities or commodities generally or in the UltraShort Gold Fund particularly. The only relationship of Bloomberg, UBS AG, UBS Securities or any of their subsidiaries or affiliates to the Licensee is the licensing of certain trademarks, trade names and service marks and of the Gold Subindex which is determined, composed and calculated by Bloomberg in conjunction with UBS Securities without regard to the Licensee or the UltraShort Gold Fund. Bloomberg and UBS Securities have no obligation to take the needs of the Licensee or the owners of the UltraShort Gold Fund into consideration in determining, composing or calculating the Gold Subindex. None of Bloomberg, UBS AG, UBS Securities or any of their respective subsidiaries or affiliates is responsible for or has participated in the determination of the timing of, prices at, or quantities of the UltraShort Gold Fund to be issued or in the determination or calculation of the equation by which the UltraShort Gold Fund are to be converted into cash. None of Bloomberg, UBS AG, UBS Securities or any of their subsidiaries or affiliates shall have any obligation or liability, including, without limitation, to the UltraShort Gold Fund’s customers, in connection with the administration, marketing or trading of the UltraShort Gold Fund. Notwithstanding the foregoing, UBS AG, UBS Securities and their respective subsidiaries and affiliates may independently issue and/ or sponsor financial products unrelated to the UltraShort Gold Fund currently being issued by Licensee, but which may be similar to and competitive with the UltraShort Gold Fund. In addition, UBS AG, UBS Securities and their subsidiaries and affiliates actively trade commodities, commodity indexes and commodity futures (including the Gold Subindex), as well as swaps, options and derivatives which are linked to the performance of such commodities, commodity indexes and commodity futures. It is possible that this trading activity will affect the value of the Gold Subindex and the UltraShort Gold Fund.

The Prospectus relates only to the UltraShort Gold Fund and does not relate to the exchange-traded physical commodities underlying any of the Gold Subindex components. Purchasers of the UltraShort Gold Fund should not conclude that the inclusion of a futures contract in the Gold Subindex is any form of investment recommendation of the futures contract or the underlying exchange-traded physical commodity by Bloomberg, UBS AG, UBS Securities or any of their subsidiaries or affiliates. The information in the Prospectus regarding the Bloomberg Gold Subindex components has been derived solely from publicly available documents. None of Bloomberg, UBS AG, UBS Securities or any of their subsidiaries or affiliates has made any due diligence inquiries with respect to the Gold Subindex components in connection with the UltraShort Gold Fund. None of Bloomberg, UBS AG, UBS Securities or any of their subsidiaries or affiliates makes any representation that these publicly available documents or any other publicly available information regarding the Gold Subindex components, including without limitation a description of factors that affect the prices of such components, are accurate or complete.

NONE OF BLOOMBERG, UBS AG, UBS SECURITIES OR ANY OF THEIR SUBSIDIARIES OR AFFILIATES GUARANTEES THE ACCURACY AND/OR THE COMPLETENESS OF THE BLOOMBERG GOLD SUBINDEX OR ANY DATA RELATED THERETO AND NONE OF BLOOMBERG, UBS AG, UBS SECURITIES OR ANY OF THEIR SUBSIDIARIES OR AFFILIATES SHALL HAVE ANY LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS THEREIN. NONE OF BLOOMBERG, UBS AG, UBS SECURITIES OR ANY OF THEIR SUBSIDIARIES OR AFFILIATES MAKES ANY WARRANTY,

 

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EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE LICENSEE, OWNERS OF THE ULTRASHORT GOLD FUND OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE BLOOMBERG GOLD SUBINDEX OR ANY DATA RELATED THERETO. NONE OF BLOOMBERG, UBS AG, UBS SECURITIES OR ANY OF THEIR SUBSIDIARIES OR AFFILIATES MAKES ANY EXPRESS OR IMPLIED WARRANTIES AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE BLOOMBERG GOLD SUBINDEX OR ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, TO THE MAXIMUM EXTENT ALLOWED BY LAW, BLOOMBERG, ITS LICENSORS (INCLUDING UBS), AND ITS AND THEIR RESPECTIVE EMPLOYEES, CONTRACTORS, AGENTS, SUPPLIERS, AND VENDORS SHALL HAVE NO LIABILITY OR RESPONSIBILITY WHATSOEVER FOR ANY INJURY OR DAMAGES WHETHER DIRECT, INDIRECT, CONSEQUENTIAL, INCIDENTAL, PUNITIVE OR OTHERWISE ARISING IN CONNECTION WITH THE ULTRASHORT GOLD FUND OR THE BLOOMBERG GOLD SUBINDEX OR ANY DATA OR VALUES RELATING THERETO WHETHER ARISING FROM THEIR NEGLIGENCE OR OTHERWISE, EVEN IF NOTIFIED OF THE POSSIBILITY THEREOF. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS AMONG BLOOMBERG, UBS SECURITIES AND THE LICENSEE, OTHER THAN UBS AG.

DESCRIPTION OF THE CURRENCY FUNDS’ BENCHMARKS

Australian dollar

The UltraShort Australian Dollar Fund seeks daily investment results, before fees and expenses, that correspond to two times the inverse (-2x), of the daily performance of the Australian dollar spot price versus the U.S. dollar. The Fund uses the 4:00 p.m. (Eastern Time) Australian dollar/U.S. dollar exchange rate as provided by Bloomberg, expressed in terms of U.S. dollars per unit of non-U.S. currency, as the basis for the underlying benchmark. The Fund does not directly or physically hold Australian dollars and will instead seek exposure through the use of certain Financial Instruments whose value is based on the price of the Australian dollar to pursue its investment objective.

The Australian dollar is the national currency of Australia and the currency of the accounts of the Reserve Bank of Australia (the “RBA”), the Australian central bank. The official currency code for the Australian dollar is “AUD.” The Australian dollar is referred to in Australia as “dollar.” As with U.S. currency, 100 Australian cents are equal to one Australian dollar. In Australia, unlike most other countries, cash transactions are rounded to the nearest five cents. The most commonly used symbol used to represent the Australian dollar is “A$.”

In 1913, the Commonwealth Bank of Australia (the “CBA”) issued the first Australian currency notes. In 1915, the CBA became the exclusive issuer of currency in Australia. From 1930 through the 1960s, the Australian banking system underwent substantial transformation. In 1960, the RBA was established. In 1966, a new decimalized currency was introduced. At various times throughout the 1900s, the value of Australian currency was based on a fixed quantity of gold; at other times, the Australian dollar was pegged to non-U.S. currencies, including the U.S. dollar. Beginning in 1983, the Australian dollar’s value was allowed to float, with the result that its value now depends almost entirely on market forces. The foregoing information is compiled from the RBA’s website (www.rba.gov.au).

The daily performance of the Australian dollar spot price versus the U.S. dollar is available under the Bloomberg ticker: AUDUSD.

Euro

The Ultra Euro Fund and the Short Euro Fund seek daily investment results, before fees and expenses, that correspond to two times (2x) or the inverse (-1x) of the daily performance of the euro spot price versus the U.S.

 

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dollar, respectively. Each of the Ultra Euro Fund and the Short Euro Fund use the 4:00 p.m. (Eastern Time) euro/U.S. dollar exchange rate as provided by Bloomberg, expressed in terms of U.S. dollars per unit of non-U.S. currency, as the basis for the underlying benchmark. The Funds do not directly or physically hold euro and will instead seek exposure through the use of certain Financial Instruments whose value is based on the price of the euro to pursue their respective investment objectives.

The daily performance of the euro spot price versus the U.S. dollar is available under the Bloomberg ticker: EURUSD.

Japanese Yen

The Ultra Yen Fund and the UltraShort Yen Fund seek daily investment results, before fees and expenses, that correspond to two times (2x) or two times the inverse (-2x) of the daily performance of the Japanese yen spot price versus the U.S. dollar, respectively. Each of the Ultra Yen Fund and the UltraShort Yen Fund use the 4:00 p.m. (Eastern Time) Japanese yen/U.S. dollar exchange rate as provided by Bloomberg, expressed in terms of U.S. dollars per unit of non-U.S. currency, as the basis for the underlying benchmark. Each of the Ultra Yen Fund and the UltraShort Yen Fund do not directly or physically hold Japanese yen and will instead seek exposure through the use of certain Financial Instruments whose value is based on the price of Japanese yen to pursue their respective investment objectives.

The daily performance of the Japanese yen spot price versus the U.S. dollar is available under the Bloomberg ticker: JPYUSD.

DESCRIPTION OF THE OIL FUNDS’ BENCHMARK

Bloomberg WTI Crude Oil SubindexSM

The Oil Funds seek daily investment results, before fees and expenses, that correspond to three times (3x) or three times the inverse (-3x), respectively, of the daily performance of the Oil Subindex, a subindex of the Bloomberg Commodity Index. The Oil Subindex is intended to reflect the performance of crude oil as measured by the price of futures contracts of WTI sweet, light crude oil traded on the NYMEX, including the impact of rolling, without regard to income earned on cash positions. The Oil Subindex is not directly linked to the “spot” price of crude oil. Futures contracts may perform very differently from the spot price of crude oil.

The Oil Subindex is based on the crude oil component of the Bloomberg Commodity Index and tracks what is known as a rolling futures position. Unlike equities, which entitle the holder to a continuing stake in a corporation, commodity futures contracts specify a delivery date for the underlying physical commodity or its cash equivalent. The Oil Subindex is a “rolling index,” which means that the Oil Subindex does not take physical possession of any commodities. An investor with a rolling futures position is able to avoid delivering (or taking delivery of) underlying physical commodities while maintaining exposure to those commodities. The roll occurs over a period of five Bloomberg Commodity Index business days in pre-determined months according to the Bloomberg Commodity Index contract schedule, generally beginning on the sixth business day of the month and ending on the tenth business day. Each day during the roll period, approximately 20% of the expiring futures position will be rolled into a new contract with a longer dated expiry, increasing from 0% to 20%, 40%, 60%, 80% and finally 100%. The Oil Subindex will reflect the performance of its underlying crude oil futures contracts, including the impact of rolling, without regard to income earned on cash positions.

The methodology for determining the composition of the Oil Subindex and for calculating its level may be changed at any time by Bloomberg without notice.

The daily performance of the Oil Subindex is published by Bloomberg Finance L.P. and is available under the Bloomberg ticker symbol: BCOMCL.

 

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Information About the Index Licensor

“BLOOMBERG®”, AND “BLOOMBERG WTI CRUDE OIL SUBINDEXSM” ARE SERVICE MARKS OF BLOOMBERG AND HAVE BEEN LICENSED FOR USE FOR CERTAIN PURPOSES BY THE LICENSEE.

The Oil Funds are not sponsored, endorsed, sold or promoted by Bloomberg, UBS AG, UBS Securities or any of their subsidiaries or affiliates. None of Bloomberg, UBS AG, UBS Securities or any of their subsidiaries or affiliates makes any representation or warranty, express or implied, to the owners of or counterparties to the Oil Funds or any member of the public regarding the advisability of investing in securities or commodities generally or in the Oil Funds particularly. The only relationship of Bloomberg, UBS AG, UBS Securities or any of their subsidiaries or affiliates to the Licensee is the licensing of certain trademarks, trade names and service marks and of the Oil Subindex which is determined, composed and calculated by Bloomberg in conjunction with UBS Securities without regard to the Licensee or the Oil Funds. Bloomberg and UBS Securities have no obligation to take the needs of the Licensee or the owners of the Oil Funds into consideration in determining, composing or calculating the Oil Subindex. None of Bloomberg, UBS AG, UBS Securities or any of their respective subsidiaries or affiliates is responsible for or has participated in the determination of the timing of, prices at, or quantities of the Oil Funds to be issued or in the determination or calculation of the equation by which the Oil Funds are to be converted into cash. None of Bloomberg, UBS AG, UBS Securities or any of their subsidiaries or affiliates shall have any obligation or liability, including, without limitation, to Oil Funds’ customers, in connection with the administration, marketing or trading of the Oil Funds. Notwithstanding the foregoing, UBS AG, UBS Securities and their respective subsidiaries and affiliates may independently issue and/or sponsor financial products unrelated to the Oil Funds currently being issued by Licensee, but which may be similar to and competitive with the Oil Funds. In addition, UBS AG, UBS Securities and their subsidiaries and affiliates actively trade commodities, commodity indexes and commodity futures (including the Oil Subindex), as well as swaps, options and derivatives which are linked to the performance of such commodities, commodity indexes and commodity futures. It is possible that this trading activity will affect the value of the Oil Subindex and Oil Funds.

The Prospectus relates only to the Oil Funds and does not relate to the exchange-traded physical commodities underlying any of the Oil Subindex components. Purchasers of the Oil Funds should not conclude that the inclusion of a futures contract in the Oil Subindex is any form of investment recommendation of the futures contract or the underlying exchange-traded physical commodity by Bloomberg, UBS AG, UBS Securities or any of their subsidiaries or affiliates. The information in the Prospectus regarding the Oil Subindex components has been derived solely from publicly available documents. None of Bloomberg, UBS AG, UBS Securities or any of their subsidiaries or affiliates has made any due diligence inquiries with respect to the Oil Subindex components in connection with the Oil Funds. None of Bloomberg, UBS AG, UBS Securities or any of their subsidiaries or affiliates makes any representation that these publicly available documents or any other publicly available information regarding the Oil Subindex components, including without limitation a description of factors that affect the prices of such components, are accurate or complete.

NONE OF BLOOMBERG, UBS AG, UBS SECURITIES OR ANY OF THEIR SUBSIDIARIES OR AFFILIATES GUARANTEES THE ACCURACY AND/OR THE COMPLETENESS OF THE OIL SUBINDEX OR ANY DATA RELATED THERETO AND NONE OF BLOOMBERG, UBS AG, UBS SECURITIES OR ANY OF THEIR SUBSIDIARIES OR AFFILIATES SHALL HAVE ANY LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS THEREIN. NONE OF BLOOMBERG, UBS AG, UBS SECURITIES OR ANY OF THEIR SUBSIDIARIES OR AFFILIATES MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE LICENSEE, OWNERS OF THE OIL FUNDS OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE OIL SUBINDEX OR ANY DATA RELATED THERETO. NONE OF BLOOMBERG, UBS AG, UBS SECURITIES OR ANY OF THEIR SUBSIDIARIES OR AFFILIATES MAKES ANY EXPRESS OR IMPLIED WARRANTIES AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE OIL SUBINDEX OR ANY DATA RELATED

 

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THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, TO THE MAXIMUM EXTENT ALLOWED BY LAW, BLOOMBERG, ITS LICENSORS (INCLUDING UBS), AND ITS AND THEIR RESPECTIVE EMPLOYEES, CONTRACTORS, AGENTS, SUPPLIERS, AND VENDORS SHALL HAVE NO LIABILITY OR RESPONSIBILITY WHATSOEVER FOR ANY INJURY OR DAMAGES WHETHER DIRECT, INDIRECT, CONSEQUENTIAL, INCIDENTAL, PUNITIVE OR OTHERWISE ARISING IN CONNECTION WITH THE OIL FUNDS OR THE OIL SUBINDEX OR ANY DATA OR VALUES RELATING THERETO WHETHER ARISING FROM THEIR NEGLIGENCE OR OTHERWISE, EVEN IF NOTIFIED OF THE POSSIBILITY THEREOF. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS AMONG BLOOMBERG, UBS SECURITIES AND THE LICENSEE, OTHER THAN UBS AG.

INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES

Investment Objectives

Investment Objective of the “Matching Fund”: The VIX Futures Fund, which is also referred to herein as the “Matching Fund”, seeks investment results, before fees and expenses, that match the performance of the Mid-Term VIX Futures Index. If the VIX Futures Fund is successful in meeting its objective, its value (before fees and expenses) should gain approximately as much on a percentage basis as the level of the Mid-Term VIX Futures Index when the index rises. Conversely, its value (before fees and expenses) should lose approximately as much on a percentage basis as the level of the Mid-Term VIX Futures Index when the index declines. The VIX Futures Fund seeks to obtain investment exposure to its benchmark through investment in VIX futures contracts.

Investment Objective of the “Ultra Funds”: Each Ultra Fund seeks daily investment results, before fees and expenses, that correspond to two times (2x) the daily performance of its benchmark. The Ultra Funds do not seek to achieve their stated objectives over a period greater than a single day. A “single day” is measured from the time each Ultra Fund calculates its NAV to the time of the Ultra Fund’s next NAV calculation.

If an Ultra Fund is successful in meeting its objective, its value on a given day (before fees and expenses) should gain approximately two times as much on a percentage basis as the level of its corresponding benchmark when the benchmark rises. Conversely, its value on a given day (before fees and expenses) should lose approximately two times as much on a percentage basis as the level of its corresponding benchmark when the benchmark declines. Each Ultra Fund acquires long exposure through any one of or combinations of Financial Instruments such that each Ultra Fund typically has exposure intended to approximate two times (2x) its corresponding benchmark at the time of its NAV calculation.

Investment Objective of the “Short Fund”: The Short Fund seeks daily investment results, before fees and expenses, that correspond to the inverse (-1x) of the daily performance of its benchmark. The Short Fund does not seek to achieve its stated objective over a period greater than a single day. A “single day” is measured from the time the Short Fund calculates its NAV to the time of the Short Fund’s next NAV calculation.

If the Short Fund is successful in meeting its objective, its value on a given day (before fees and expenses) should gain approximately as much on a percentage basis as the level of its corresponding benchmark when the benchmark declines. Conversely, its value on a given day (before fees and expenses) should lose approximately as much on a percentage basis as the level of its corresponding benchmark when the benchmark rises. The Short Fund acquires inverse exposure through futures contracts, and under certain circumstances, forward contracts, such that the Short Fund typically has exposure intended to approximate the inverse (-1x) of its corresponding benchmark at the time of its NAV calculation.

Investment Objective of the “Ultra Short Funds”: Each UltraShort Fund seeks daily investment results, before fees and expenses, that correspond to two times the inverse (-2x) of the daily performance of its

 

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benchmark. The UltraShort Funds do not seek to achieve their stated objectives over a period greater than a single day. A “single day” is measured from the time each UltraShort Fund calculates its NAV to the time of such UltraShort Fund’s next NAV calculation.

If an UltraShort Fund is successful in meeting its objective, its value on a given day (before fees and expenses) should gain approximately two times as much on a percentage basis as the level of its corresponding benchmark when the benchmark declines. Conversely, its value on a given day (before fees and expenses) should lose approximately two times as much on a percentage basis as the level of its corresponding benchmark when the benchmark rises. Each UltraShort Fund acquires inverse exposure through any one of or combinations of Financial Instruments such that each UltraShort Fund typically has exposure intended to approximate two times the inverse (-2x) of its corresponding benchmark at the time of its NAV calculation.

Investment Objective of the “UltraPro 3x Fund”: The UltraPro 3x Fund seeks daily investment results, before fees and expenses, that correspond to three times (3x) the daily performance of its benchmark. The UltraPro 3x Fund does not seek to achieve its stated objective over a period greater than a single day. A “single day” is measured from the time the UltraPro 3x Fund calculates its NAV to the time of the UltraPro 3x Fund’s next NAV calculation.

If the UltraPro 3x Fund is successful in meeting its objective, its value on a given day (before fees and expenses) should gain approximately three times as much on a percentage basis as the level of the benchmark when the benchmark rises. Conversely, its value on a given day (before fees and expenses) should lose approximately three times as much on a percentage basis as the level of the benchmark when the benchmark declines. The UltraPro 3x Fund acquires long exposure through its holdings of futures contracts and, from time to time, investments in other Financial Instruments, such that the UltraPro 3x Fund typically has exposure intended to approximate three times (3x) the benchmark at the time of its NAV calculation.

Investment Objective of the “UltraPro 3x Short Fund”: The UltraPro 3x Short Fund seeks daily investment results, before fees and expenses, that correspond to three times the inverse (-3x) of the daily performance of its benchmark. The UltraPro 3x Short Fund does not seek to achieve its stated objective over a period greater than a single day. A “single day” is measured from the time the UltraPro 3x Short Fund calculates its NAV to the time of the UltraPro 3x Short Fund’s next NAV calculation.

If the UltraPro 3x Short Fund is successful in meeting its objective, its value on a given day (before fees and expenses) should gain approximately three times as much on a percentage basis as the level of the benchmark when the benchmark declines. Conversely, its value on a given day (before fees and expenses) should lose approximately three times as much on a percentage basis as the level of the benchmark when the benchmark rises. The UltraPro 3x Short Fund acquires inverse exposure through its short positions in futures contracts and, from time to time, investments in other Financial Instruments, such that the UltraPro 3x Short Fund typically has exposure intended to approximate three times the inverse (-3x) of the benchmark at the time of its NAV calculation.

 

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There can be no assurance that any Fund will achieve its investment objective or avoid substantial losses. The Geared Funds do not seek to achieve their stated investment objectives over a period of time greater than a single day because mathematical compounding prevents the Geared Funds from achieving such results. Results for the Geared Funds over periods of time greater than a single day should not be expected to be a simple multiple (2x or 3x), inverse (-1x) or inverse multiple (-2x or -3x) of the period return of the corresponding benchmark and will likely differ in amount and possibly even direction from the Fund’s stated multiple times the return of the benchmark over time. These differences can be significant. A Geared Fund will lose money if its benchmark’s performance is flat over time, and it is possible for a Geared Fund to lose money over time regardless of the performance of an underlying benchmark, as a result of daily rebalancing, the benchmark’s volatility and compounding. Daily compounding of a Geared Fund’s investment returns can dramatically and adversely affect its longer-term performance during periods of high volatility. Volatility has a negative impact on Geared Fund performance and may be at least as important to a Geared Fund’s return for a period as the return of the Geared Fund’s underlying benchmark.

The VIX Futures Fund is benchmarked to the Index, which is comprised of VIX futures contracts and not to the VIX, which is calculated based on a constantly changing portfolio of S&P 500 put and call options. As such, the performance of the VIX Futures Fund can be expected to be very different from the actual volatility of the S&P 500 or the performance of the VIX.

Principal Investment Strategies

In seeking to achieve the Funds’ investment objectives, the Sponsor uses a mathematical approach to investing. Using this approach, the Sponsor determines the type, quantity and mix of investment positions that the Sponsor believes, in combination, should produce daily returns consistent with the Funds’ objectives.

Investment Strategies of the VIX Futures Fund:

The VIX Futures Fund seeks to meet its investment objective, by taking long positions in VIX futures contracts.

In the event accountability rules, position limits, margin limits or other exposure limits are reached with respect to VIX futures contracts, the Sponsor may, in its commercially reasonable judgment, cause the VIX Futures Fund to obtain exposure to the Mid-Term VIX Futures Index through swaps referencing the Mid-Term VIX Futures Index or particular VIX futures contracts comprising the Mid-Term VIX Futures Index. The Fund may invest in other futures contracts or swaps not based on the particular VIX futures contracts comprising the Mid-Term VIX Futures Index if such instruments tend to exhibit trading prices or returns that correlate with the Mid-Term VIX Futures Index or any VIX futures contract and the Sponsor believes such investment will further the investment objective of the VIX Futures Fund. The VIX Futures Fund may also invest in swaps if the market for a specific futures contract experiences emergencies (e.g., natural disaster, terrorist attack or an act of God) or disruptions (e.g., a trading halt or a flash crash) or in situations where the Sponsor deems it impractical or inadvisable to buy or sell futures contracts (such as during periods of market volatility or illiquidity).

In addition, the VIX Futures Fund will also hold cash or cash equivalents such as U.S. Treasury securities or other high credit quality, short-term fixed-income or similar securities (such as shares of money market funds) as collateral for Financial Instruments and pending investment in Financial Instruments.

Investment Strategies of the UltraShort Silver Fund, the UltraShort Gold Fund, the Ultra Euro Fund, the Ultra Yen Fund and the UltraShort Yen Fund:

Each of the UltraShort Silver Fund, the UltraShort Gold Fund, the Ultra Euro Fund, the Ultra Yen Fund and the UltraShort Yen Fund seeks to meet its investment objective by investing under normal market conditions in

 

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any one of, or combinations of, Financial Instruments (including swap agreements, futures contracts and forward contracts) based on the Fund’s benchmark. The types and mix of Financial Instruments in which these Funds invest may vary daily at the discretion of the Sponsor. The Funds will not invest directly in any commodity or currency.

In addition, each Fund will also hold cash or cash equivalents such as U.S. Treasury securities or other high credit quality, short-term fixed-income or similar securities (such as shares of money market funds) for direct investment or as collateral for Financial Instruments.

Investment Strategies of the Natural Gas Funds:

The Natural Gas Funds seek to meet their investment objectives by investing under normal market conditions in Natural Gas futures contracts. The Natural Gas Funds will not invest directly in natural gas.

In the event position accountability rules are reached with respect to such contracts, the Sponsor may, in its commercially reasonable judgment, cause the Natural Gas Funds to obtain exposure through swaps referencing its index or particular Natural Gas futures contracts. The Fund may invest in other futures contracts or swaps not based on the particular Natural Gas futures contracts if such instruments tend to exhibit trading prices or returns that correlate with its index or any Natural Gas futures contract and the sponsor believes such investment will further the investment objective of such Fund. The Natural Gas Funds may also invest in swaps if the market for a specific futures contract experiences emergencies (e.g., natural disaster, terrorist attack, or an act of God) or disruptions (e.g., a trading halt or a flash crash) or in situations where the Sponsor deems it impractical or inadvisable to buy or sell futures contracts (such as during periods of market volatility or illiquidity).

In addition, the Natural Gas Funds may invest in cash, cash equivalents, and/or U.S. Treasury Securities or other high credit quality short-term fixed-income or similar securities (such as shares of money market funds) that will serve as collateral for any Financial Instruments held by the Natural Gas Funds.

Investment Strategies of the UltraShort Australian Dollar Fund and the Short Euro Fund:

Each of the UltraShort Australian Dollar Fund and the Short Euro Fund seeks to meet its investment objective under normal market conditions by obtaining short exposures to its benchmark through futures contracts on its underlying currency. The UltraShort Australian Dollar Fund and the Short Euro Fund will not invest directly in any currency.

In the event position accountability rules or position limits are reached with respect to futures contracts, the Sponsor may in its commercially reasonable judgment, cause the UltraShort Australian Dollar Fund and the Short Euro Fund to obtain exposure to its benchmark through forward contracts referencing the benchmark. The Fund may invest in other forward contracts if such instruments tend to exhibit trading prices or returns that correlate with the benchmark or a component of the benchmark and will further the investment objective of such Fund. The UltraShort Australian Dollar Fund and the Short Euro Fund may also invest in forward contracts if the market for a specific futures contract experiences emergencies (e.g., natural disaster, terrorist attack or an act of God) or disruptions (e.g., a trading halt or a flash crash) or in situations where the Sponsor deems it impractical or inadvisable to buy or sell futures contracts (such as during periods of market volatility or illiquidity).

In addition, each the UltraShort Australian Dollar Fund and the Short Euro Fund will also hold cash or cash equivalents such as U.S. Treasury securities or other high credit quality, short-term fixed-income or similar securities (such as shares of money market funds) for direct investment or as collateral for Financial Instruments.

Investment Strategies of the Oil Funds:

Each of the Oil Funds seeks to meet its investment objective by investing, under normal market conditions, in futures contracts for WTI sweet, light crude oil listed on the NYMEX, ICE Futures U.S. or other U.S. exchanges and listed options on such contracts. The Oil Funds will not invest directly in oil.

 

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In the event position, price or accountability limits are reached with respect to futures contracts, each Fund may obtain exposure to its benchmark through investments in swap agreements and forward contracts referencing its benchmark. In such instances, each Fund intends to first make use of exchange-traded swap agreements and forward contracts. As an alternative, a Fund may invest in swap agreements or forward contracts referencing the benchmark that clear through derivatives clearing organizations that satisfy the Trust’s criteria and also may invest in swaps and forward contracts in the OTC market. Each Fund also may invest in swaps and forward contracts referencing its benchmark if the market for a specific futures contract experiences emergencies (e.g., natural disaster, terrorist attack or an act of God) or disruptions (e.g., a trading halt) or in situations where the Sponsor deems it impractical or inadvisable to buy or sell futures contracts (such as during periods of market volatility or illiquidity).

In addition, each Fund will also hold cash or cash equivalents such as U.S. Treasury securities or other high credit quality, short-term fixed-income or similar securities (such as shares of money market funds) for direct investment or as collateral for Financial Instruments.

Investment Strategies Applicable to All Funds:

The Funds are not actively managed by traditional methods (e.g., by effecting changes in the composition of a portfolio on the basis of judgments relating to economic, financial and market conditions with a view toward obtaining positive results under all market conditions). Each Fund seeks to remain fully invested at all times in Financial Instruments and money market instruments that, in combination, provide exposure to its underlying benchmark consistent with its investment objective without regard to market conditions, trends or direction.

A Fund may obtain exposure through Financial Instruments to a representative sample of the components in its underlying benchmark which have aggregate characteristics similar to those of the underlying benchmark. This “sampling” process typically involves selecting a representative sample of components in a benchmark principally to enhance liquidity and reduce transaction costs while seeking to maintain high correlation with, and similar aggregate characteristics (e.g., underlying commodities and valuations) to, the underlying benchmark. In addition, a Fund may obtain exposure to components not included in its underlying benchmark, invest in assets that are not included in its underlying benchmark or may overweight or underweight certain components contained in the underlying benchmark.

Each Fund seeks to position its portfolio so that its exposure to its benchmark is consistent with its investment objective. The time and manner in which a Fund rebalances its portfolio may vary from day to day depending upon market conditions and other circumstances, at the discretion of the Sponsor. The impact of a benchmark’s movements each day will affect whether a Geared Fund’s portfolio needs to be rebalanced and the amount of such rebalance.

 

   

For example, if the benchmark underlying the Short Fund, an UltraShort Fund or the UltraPro Short Fund has risen on a given day, net assets of such Fund should fall. As a result, inverse exposure will need to be decreased. Conversely, if the benchmark underlying the Short Fund, an UltraShort Fund or the UltraPro Short Fund has fallen on a given day, net assets of such Fund should rise. As a result, inverse exposure will need to be increased.

 

   

For an Ultra Fund or UltraPro Fund, the Fund’s long exposure will need to be increased on days when the Fund’s benchmark rises and decreased on days when the Fund’s benchmark falls.

Daily rebalancing and the compounding of each day’s return over time means that the return of each Geared Fund for a period longer than a single day will be the result of each day’s returns compounded over the period, which will very likely differ in amount and possibly even direction from three times (3x), two times (2x), the inverse (-1x), two times the inverse (-2x) or three times the inverse (-3x) of the return of the Geared Fund’s benchmark for the period. These differences can be significant. A Geared Fund will lose money if its benchmark’s performance is flat over time, and it is possible for a Geared Fund to lose money over time regardless of the performance of an underlying benchmark, as a result of daily rebalancing, the benchmark’s volatility and compounding.

 

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The amount of exposure each Fund has to a specific combination of Financial Instruments differs with each particular Fund and may be changed without shareholder approval at any given time. Currently, the Funds anticipate that, in the normal course of business and absent any unforeseen circumstances, they will be exposed to the specific Financial Instruments below as follows:

 

     Swaps   Forwards     Futures  

ProShares VIX Mid-Term Futures ETF

   0%     0     100

ProShares Ultra Bloomberg Natural Gas

   0%     0     200

ProShares UltraShort Bloomberg Natural Gas

   0%     0     -200

ProShares UltraShort Silver

   -75 to -200%     0     0 to -125

ProShares UltraShort Gold

   -75 to -200%     0     0 to -125

ProShares UltraShort Australian Dollar

   0%     0     -200

ProShares Ultra Euro

   0%     200     0

ProShares Short Euro

   0%     0     -100

ProShares Ultra Yen

   0%     200     0

ProShares UltraShort Yen Fund

   0%     -200     0

ProShares UltraPro 3x Crude Oil ETF

   0%     0     300

ProShares UltraPro 3x Short Crude Oil ETF

   0%     0     -300

The amount of each Fund’s exposure should be expected to change from time to time at the discretion of the Sponsor based on market conditions and other factors.

In addition, the Sponsor has the power to change a Fund’s investment objective, benchmark or investment strategy at any time, subject to applicable regulatory requirements.

Swap Agreements

Swaps are contracts that have traditionally been entered into primarily by institutional investors in OTC markets for a specified period ranging from a day to many years. Certain types of swaps may be cleared, and certain types are, in fact, required to be cleared. The types of swaps that may be cleared is generally limited to only swaps where the most liquidity exists and a clearing organization is willing to clear the trade on standardized terms. Swaps with customized terms or those for which significant market liquidity does not exist are generally not able to be cleared.

In a standard swap transaction, the parties agree to exchange the returns on, among other things, a particular predetermined security, commodity, interest rate, or index for a fixed or floating rate of return (the “interest rate leg,” which will also include the cost of borrowing for short swaps) in respect of a predetermined notional amount. The notional amount of the swap reflects the extent of a Fund’s total investment exposure under the swap agreement.

In the case of futures contracts-based indexes, such as those used by the VIX Futures Fund, Natural Gas Funds and the Oil Funds, the reference interest rate typically is zero, although a financing spread or fee is generally still applied. Transaction or commission costs are reflected in the benchmark level at which the transaction is entered into. The gross returns to be exchanged are calculated with respect to the notional amount and the benchmark returns to which the swap is linked. Swaps are usually closed out on a net basis, i.e., the two payment streams are netted out in a cash settlement on the payment date specified in the agreement, with the parties receiving or paying, as the case may be, only the net amount of the two payments. Thus, while the notional amount reflects a Fund’s total investment exposure under the swap (i.e., the entire face amount or principal of a swap), the net amount is a Fund’s current obligations (or rights) under the swap. That is the amount to be paid or received under the agreement based on the relative values of the positions held by each party to the agreement on any given termination date.

 

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Swaps may also expose the Funds to liquidity risk. Although a Fund has the ability to terminate a swap at any time, doing so may subject the Fund to certain early termination charges. In addition, there may not be a liquid market within which to dispose of an outstanding swap even if a permitted disposal might avoid an early termination charge. Uncleared swaps generally are not assignable except by agreement between the parties to the swap, and generally no party or purchaser has any obligation to permit such assignments.

Swaps involve, to varying degrees, elements of market risk and exposure to loss in excess of the amount which would be reflected on a Fund’s Statement of Financial Condition. In addition to market risk and other risks, the use of swaps also comes with counterparty credit risk – i.e., the inability of a counterparty to a swap to perform its obligations. Each Fund that invests in swaps bears the risk of loss of the net amount, if any, expected to be received under a swap agreement in the event of the default or bankruptcy of a swap counterparty. Each such Fund enters or intends to enter into swaps only with major, global financial institutions. However, there are no limitations on the percentage of its assets a Fund may invest in swaps with a particular counterparty.

Each Fund that invests in swaps may use various techniques to minimize counterparty credit risk. Each Fund that invests in swaps generally enters into arrangements with its counterparties whereby both sides exchange collateral on a mark-to-market basis. In addition, such Fund may post “initial margin” or “independent amount” to counterparties in swaps. Such collateral serves as protection for the counterparty in the event of a failure by a Fund and is in addition to any mark-to-market collateral that (i.e., the Fund may post initial margin to the counterparty even where the counterparty would owe money to the Fund if the swap were to be terminated). The amount of initial margin posted by a Fund may vary depending on the risk profile of the swap. The collateral, whether for mark-to-market or for initial margin, generally consists of cash and/or securities.

Collateral posted by a Fund to a counterparty in connection with uncleared derivatives transactions is generally held for the benefit of the counterparty in a segregated tri-party account at the Custodian to protect the counterparty against non-payment by the Fund. In the event of a default by a Fund, and the counterparty is owed money in the uncleared swap transaction, such counterparty will seek withdrawal of this collateral from the segregated account.

Collateral posted by the counterparty to a Fund is typically held for the benefit of the Fund in a segregated tri-party account at a third-party custodian. In the event of a default by the counterparty, and the Fund is owed money in the uncleared swap transaction, such Fund will seek withdrawal of this collateral from the segregated account. A Fund may incur certain costs exercising its right with respect to the collateral.

Notwithstanding the use of collateral arrangements, to the extent any collateral provided to a Fund is insufficient or there are delays in accessing the collateral, such Fund will be exposed to counterparty risk as described above, including possible delays in recovering amounts as a result of bankruptcy proceedings.

Futures Account Agreements

Each Fund has entered into a written agreement (each, a “Futures Account Agreement”) with one or more FCMs governing the terms of futures transactions of the Fund cleared by such FCM. Each FCM has its own agreement and other documentation used for establishing customer relationships. As such, the terms of the Futures Account Agreement and other documentation that a Fund has with a particular FCM may differ in material respects from that with another FCM.

Most Futures Account Agreements do not require the FCM to enter into new transactions or maintain existing transactions with a Fund. In general, each FCM is permitted to terminate its agreement with a Fund at any time in its sole discretion. In addition, an FCM generally will have the discretion to set margin requirements and/or position limits that would be in addition to any margin requirements and/or position limits required by applicable law or set by the clearinghouse that clears the futures contracts in which the Fund transacts. As a result, a Fund’s ability to engage in futures transactions or maintain open positions in such contracts will be dependent on the willingness of its FCMs to continue to accept or maintain such transactions on terms that are economically appropriate for the Fund’s investment strategy.

 

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When a Fund has an open futures contract position, it is subject to daily variation margin calls by an FCM that could be substantial in the event of adverse price movements. Because futures contracts require only a small initial investment in the form of a deposit or margin, they involve a high degree of leverage. A Fund with open positions is subject to maintenance or variance margin on its open positions. If a Fund has insufficient cash to meet daily variation margin requirements, it may need to sell Financial Instruments at a time when such sales are disadvantageous. Futures markets are highly volatile and the use of or exposure to futures contracts may increase volatility of a Fund’s NAV.

Margin posted by a Fund to an FCM typically will be held by relevant exchange’s clearinghouse (in the case of clearinghouse-required margin) or the FCM (in the case of “house” margin requirements of the FCM). In the event that market movements favorable to a Fund result in the Fund having posted more margin than is required, the Fund typically would have a right to return of margin from the FCM. However, the timing of such return may be uncertain. As a result, it is possible that a Fund may face liquidity constraints including potential delays in its ability to pay redemption proceeds, where margin is not immediately returned by an FCM.

In the event that a Fund fails to comply with its obligations under a Futures Account Agreement (including, for example, failing to deliver the margin required by an FCM on a timely basis), the Futures Account Agreement typically will provide the FCM with broad discretion to take remedial action against the Fund. Among other things, the FCM typically will have the right, upon the occurrence of such a failure by the Fund, to terminate any or all futures contracts in the Fund’s account with that FCM, to sell the collateral posted as margin by the Fund, to close out any open positions of the Fund in whole or in part, and to cancel any or all pending transactions with the Fund. Futures Account Agreements typically provide that a Fund will remain liable for paying to the relevant FCM, on demand, the amount of any deficiency in such Fund’s account with that FCM.

The Futures Account Agreement between a Fund and an FCM generally requires the Fund to indemnify and hold harmless the FCM, its directors, officers, employees, agents and affiliates (collectively, “indemnified persons”) from and against all claims, damages, losses and costs (including reasonable attorneys’ fees) incurred by the indemnified persons, in connection with: (1) any failure by the Fund to perform its obligations under the Futures Account Agreement and the FCM’s exercise of its rights and remedies thereunder; (2) any failure by a Fund to comply with applicable law; (3) any action reasonably taken by the indemnified persons pursuant to the Futures Account Agreement to comply with applicable law; and (4) any actions taken by the FCM in reliance on instructions, notices and other communications that the FCM and its relevant personnel, as applicable, reasonably believes to originate from a person authorized to act on behalf of the Fund.

To the extent that the Funds trade in futures contracts on U.S. exchanges, the assets deposited by the Funds with the FCMs (or another eligible financial institution, as applicable) as margin must be segregated pursuant to the regulations of the CFTC. Such segregated funds may be invested only in a limited range of instruments—principally U.S. government obligations to margin futures and forward contract positions.

Each Fund currently uses Merrill Lynch, Pierce, Fenner & Smith (“MLPF&S”), RBC Capital Markets, LLC (“RBC”), ED&F Man Capital Markets (“Man”), Deutsche Bank Securities Inc. (“DBSI”), SG Americas Securities, LLC (“SGAS”) and Barclays Capital Inc. (“BCI”) as an FCM. The FCMs used by a Fund may change from time to time. The above discussion relating to MLPF&S, RBC, Man, DBSI, SGAS and BCI also would apply to other firms that serve as an FCM to the Funds in the future. Each of MLPF&S, RBC, Man, DBSI, SGAS and BCI in its capacity as a registered FCM, serves as a clearing broker to the Trust and the Funds and certain other funds of the Trust and as such arranges for the execution and clearing of the Funds’ futures transactions. All of MLPF&S, RBC, Man, DBSI, SGAS and BCI acts as clearing broker for many other funds and individuals. A variety of executing brokers may execute futures transactions on behalf of the Funds. The executing brokers will give-up all such transactions to MLPF&S, RBC, Man, DBSI, SGAS or BCI as applicable. Each of MLPF&S, RBC, Man, DBSI, SGAS and BCI is registered as an FCM with the CFTC and is a member of the NFA. MLPF&S, RBC, Man, DBSI, SGAS and BCI are clearing members of the CBOT, CME, NYMEX, and all other major U.S. commodity exchanges. None of MLPF&S, RBC, Man, DBSI, SGAS or BCI is affiliated with or acts as a supervisor of the Trust, the Funds, the Sponsor, the Trustee or BNYM (the Administrator, Transfer

 

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Agent and the Custodian). None of MLPF&S, RBC, Man, DBSI, SGAS or BCI in its capacity as FCM, is acting as an underwriter or sponsor of the offering of the Shares, or has passed upon the merits of participating in this offering. None of MLPF&S, RBC, Man, DBSI, SGAS or BCI has passed upon the adequacy of this Prospectus or on the accuracy of the information contained herein. None of MLPF&S, RBC, Man, DBSI, SGAS or BCI provides any commodity trading advice regarding the Funds’ trading activities. Investors should not rely upon MLPF&S, RBC, Man, DBSI, SGAS or BCI in deciding whether to invest in the Funds or retain their interests in the Funds. Prospective investors should also note that the Sponsor may select additional clearing brokers or replace MLPF&S, RBC, Man, DBSI, SGAS and/or BCI as the Funds’ clearing broker.

To the extent, if any, that a Fund enters into trades in futures on markets other than regulated U.S. futures exchanges, funds deposited to margin positions held on such exchanges are invested in bank deposits or in instruments of a credit standing generally comparable to those authorized by the CFTC for investment of “customer segregated funds,” although applicable CFTC rules prohibit funds employed in trading on foreign exchanges from being deposited in “customer segregated fund accounts.”

Forward Contracts

A forward contract is a contractual obligation to purchase or sell a specified quantity of a particular underlying asset at or before a specified date in the future at a specified price and, therefore, is economically similar to a futures contract. Unlike futures contracts, however, forward contracts are typically traded in the OTC markets and are not standardized contracts. Forward contracts for a given commodity or currency are generally available for various amounts and maturities and are subject to individual negotiation between the parties involved. Moreover, there is generally no direct means of offsetting or closing out a forward contract by taking an offsetting position as one would a futures contract on a U.S. exchange. If a trader desires to close out a forward contract position, he generally will establish an opposite position in the contract but will settle and recognize the profit or loss on both positions simultaneously on the delivery date. Thus, unlike in the futures contract market where a trader who has offset positions will recognize profit or loss immediately, in the forward market a trader with a position that has been offset at a profit will generally not receive such profit until the delivery date, and likewise a trader with a position that has been offset at a loss will generally not have to pay money until the delivery date. In recent years, however, the terms of forward contracts have become more standardized, and in some instances such contracts now provide a right of offset or cash settlement as an alternative to making or taking delivery of the underlying commodity or currency. The primary risks associated with the use of forward contracts arise from the inability of the counterparty to perform.

Each Fund that invests in forward contracts generally collateralizes uncleared forward contracts with cash and/or certain securities. Such collateral is generally held for the benefit of the counterparty in a segregated tri-party account at the Custodian to protect the counterparty against non-payment by the Fund. The counterparty also may collateralize the uncleared forward contracts with cash and/or certain securities, which collateral is typically held for the benefit of the Fund in a segregated tri-party account at a third-party custodian. In the event of a default by the counterparty, and the Fund is owed money in the uncleared forward transaction, such Fund will seek withdrawal of this collateral from the segregated account and may incur certain costs exercising its right with respect to the collateral. These Funds remain subject to credit risk with respect to the amount it expects to receive from OTC counterparties.

The Funds have sought to mitigate these risks with respect to uncleared OTC forwards by generally requiring that the counterparties for each Fund agree to post collateral for the benefit of the Fund, marked to market daily, subject to certain minimum thresholds; however, there are no limitations on the percentage of its assets each Fund may invest in forward contracts with a particular counterparty. To the extent any such collateral is insufficient or there are delays in accessing the collateral, the Funds will be exposed to counterparty risk as described above, including possible delays in recovering amounts as a result of bankruptcy proceedings.

The forward markets provide what has typically been a highly liquid market for foreign exchange trading, and in certain cases the prices quoted for foreign exchange forward contracts may be more favorable than the

 

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prices for foreign exchange futures contracts traded on U.S. exchanges. Forward contracts have traditionally not been cleared or guaranteed by a third party. As a result of the Dodd-Frank Act, the CFTC now regulates non-deliverable forwards (including deliverable forwards where the parties do not take delivery). Certain non-deliverable forward contracts, such as non-deliverable foreign exchange forwards, may be subject to regulation as swap agreements, including mandatory clearing. Changes in the forward markets may entail increased costs and result in burdensome reporting requirements.

Commercial banks participating in trading OTC foreign exchange forward contracts often do not require margin deposits, but rely upon internal credit limitations and their judgments regarding the creditworthiness of their counterparties. In recent years, however, many OTC market participants in foreign exchange trading have begun to require that their counterparties post margin.

Futures Contracts and Options

A futures contract is 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 a particular underlying asset at a specified time and place or alternatively may call for cash settlement. Futures contracts are traded on a wide variety of underlying assets, including bonds, interest rates, agricultural products, stock indexes, currencies, energy, metals, economic indicators and statistical measures. The notional size and calendar term futures contracts on a particular underlying asset are identical and are not subject to any negotiation, other than with respect to price and the number of contracts traded between the buyer and seller. Each Fund generally deposits cash and/or securities with an FCM for its open positions in futures contracts, which may, in turn, transfer such deposits to the clearing house to protect the clearing house against non-payment by the Fund. The clearing house becomes substituted for each counterparty to a futures contract, and, in effect, guarantees performance. In addition, the FCM may require the Funds to deposit collateral in excess of the clearing house’s margin requirements for the FCM’s own protection.

Certain futures contracts, including VIX futures contracts, stock index contracts and certain commodity futures contracts, settle in cash. The cash settlement amount reflects the difference between the contract purchase/sale price and the contract settlement price. The cash settlement mechanism avoids the potential for either side to have to deliver the underlying asset. For other futures contracts, the contractual obligations of a buyer or seller may generally be satisfied by taking or making physical delivery of the underlying asset or by making an offsetting sale or purchase of an identical futures contract on the same or linked exchange before the designated date of delivery. The difference between the price at which the futures contract is purchased or sold and the price paid for the offsetting sale or purchase, after allowance for brokerage commissions, constitutes the profit or loss to the trader.

Futures contracts involve, to varying degrees, elements of market risk and exposure to loss in excess of the amounts of variation margin, which are the amounts of cash that the Funds agree to pay to or receive from FCMs equal to the daily fluctuation in the value of a futures contract. Additional risks associated with the use of futures contracts are imperfect correlation between movements in the price of the futures contracts and the level of the corresponding benchmark and the possibility of an illiquid market for a futures contract. With futures contracts, there is minimal but some counterparty risk to the Funds since futures contracts are exchange traded and the exchange’s clearinghouse, as counterparty to all exchange-traded futures contracts, effectively guarantees futures contracts against default. 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 times during the trading day. Futures contracts 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 may be required to make daily cash payments of variation margin.

 

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An option is a contract that gives the buyer the right, but not the obligation, to buy or sell a specified quantity of a commodity or other instrument at a specific (or strike) price within a specified period of time, regardless of the market price of that instrument.

There are two types of options: calls and puts. A call option conveys to the option buyer the right to purchase a particular futures contract at a stated price at any time during the life of the option. A put option conveys to the option buyer the right to sell a particular futures contract at a stated price at any time during the life of the option.

Money Market Instruments

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. government securities, securities issued by governments of other developed countries and repurchase agreements.

U.S. Derivatives Exchanges

Derivatives exchanges, including swap execution facilities that are required under the Dodd-Frank Act, provide centralized market facilities for trading derivatives in which multiple persons have the ability to execute or trade contracts by accepting bids and offers from multiple participants. Members of, and trades executed on, a particular exchange are subject to the rules of that exchange. Among the principal exchanges in the United States are CBOE (which includes the CBOE Futures Exchange (the “CFE”), the Chicago Mercantile Exchange (“CME”) (which includes, among others, the Chicago Board of Trade (“CBOT”) and the NYMEX) and the Intercontinental Exchange (“ICE”).

Each derivatives exchange in the United States has an associated “clearing house.” Clearing houses provide services designed to transfer credit risk and ensure the integrity of trades. Once trades between members of an exchange have been confirmed and/or cleared, the clearing house becomes substituted for each buyer and each seller of contracts traded on the exchange and, in effect, becomes the other party to each trader’s open position in the market. Thereafter, each party to a trade looks only to the clearing house for performance. The clearing house generally establishes some sort of security or guarantee fund to which all clearing members of the exchange must contribute. This fund acts as an emergency buffer which is intended to enable the clearing house to meet its obligations with regard to the other side of an insolvent clearing member’s contracts. Furthermore, clearing houses require margin deposits and continuously mark positions to market to provide some assurance that their members will be able to fulfill their contractual obligations. Thus, members effecting derivatives transactions on an organized exchange or clearing an OTC derivatives transaction through a clearing house do not bear the risk of the insolvency of the party on the opposite side of the trade; their credit risk is limited to the respective solvencies of their commodity broker and the clearing house. The clearing house “guarantee” of performance on open positions does not run to customers. If a member firm goes bankrupt, customers could lose money.

If a Fund decides to execute derivatives transactions through such derivatives exchanges–and especially if it decides to become a direct member of one or more exchanges or swap execution facilities–a Fund would be subject to the rules of the exchange or swap executive facility, which would bring additional risks and liabilities, and potential additional regulatory requirements.

Regulations

Derivatives exchanges in the United States are subject to regulation under the CEA, by the CFTC, the governmental agency having responsibility for regulation of derivatives exchanges and trading on those exchanges. Following the adoption of the Dodd-Frank Act, the CFTC also has authority to regulate OTC derivatives markets, including certain OTC foreign exchange markets.

The CFTC has exclusive authority to designate exchanges for the trading of specific futures contracts and options on futures contracts and to prescribe rules and regulations of the marketing of each. The CFTC also

 

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regulates the activities of “commodity pool operators” and the CFTC has adopted regulations with respect to certain of such persons’ activities. Pursuant to its authority, the CFTC requires a commodity pool operator, such as the Sponsor, to keep accurate, current and orderly records with respect to each pool it operates. The CFTC may suspend, modify or terminate the registration of any registrant for failure to comply with CFTC rules or regulations. Suspension, restriction or termination of the Sponsor’s registration as a commodity pool operator would prevent it, until such time (if any) as such registration were to be reinstated, from managing, and might result in the termination of, the Funds. If the Sponsor were unable to provide services and/or advice to the Funds, the Funds would be unable to pursue their investment objectives unless and until the Sponsor’s ability to provide services and advice to the Funds was reinstated or a replacement for the Sponsor as commodity pool operator could be found. Such an event could result in termination of the Funds.

The CEA requires all FCMs to meet and maintain specified fitness and financial requirements, segregate customer funds from proprietary funds and account separately for all customers’ funds and positions, and to maintain specified books and records open to inspection by the staff of the CFTC. See “Risk Factors—Risks Related to All Funds—Failure of the FCMs to segregate assets may increase losses in the Funds.”

The CEA also gives the states certain powers to enforce its provisions and the regulations of the CFTC.

Under certain circumstances, the CEA grants shareholders the right to institute a reparations proceeding before the CFTC against the Sponsor (as a registered commodity pool operator), an FCM, as well as those of their respective employees who are required to be registered under the CEA. Shareholders may also be able to maintain a private right of action for certain violations of the CEA.

Pursuant to authority in the CEA, the NFA has been formed and registered with the CFTC as a registered futures association. At the present time, the NFA is the only self-regulatory organization for commodities professionals other than exchanges. As such, the NFA promulgates rules governing the conduct of commodity professionals and disciplines those professionals that do not comply with such standards. The CFTC has delegated to the NFA responsibility for the registration of commodity pool operators, FCMs, swap dealers, commodity trading advisors, introducing brokers and their respective associated persons and floor brokers. The Sponsor is a member of the NFA (the Funds themselves are not required to become members of the NFA). As an NFA member, the Sponsor is subject to NFA standards relating to fair trade practices, financial condition, and consumer protection. The CFTC is prohibited by statute from regulating trading on foreign commodity exchanges and markets.

The CEA and CFTC regulations prohibit market abuse and generally require that all futures exchange-based trading be conducted in compliance with rules designed to ensure the integrity of market prices and without any intent to manipulate prices. CFTC regulations and futures exchange rules also impose limits on the size of the positions that a person may hold or control as well as standards for aggregating certain positions. The rules of the CFTC and the futures exchanges also authorize special emergency actions to halt, suspend or limit trading overall or to restrict, halt, suspend or limit the trading of an individual trader or to otherwise impose special reporting or margin requirements.

Each Fund’s investments in Financial Instruments will be subject to regulation under the CEA and traded pursuant to CFTC and applicable exchange regulations.

Non-U.S. Derivatives Exchanges

Foreign derivatives exchanges differ in certain respects from their U.S. counterparts. Non-U.S. derivatives exchanges are generally not subject to regulation by the CFTC. In contrast to U.S. exchanges, certain foreign exchanges are “principals’ markets,” where trades remain the liability of the traders involved, and the exchange or an affiliated clearing house, if any, does not become substituted for any party. Therefore, participants in such markets must often satisfy themselves as to the creditworthiness of their counterparty. Additionally, in the event

 

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of the insolvency or bankruptcy of a non-U.S. market or broker, the rights of market participants are likely to be more limited than the rights afforded by the U.S. derivatives exchanges. The Sponsor does not anticipate that the Funds will hold futures traded on foreign exchanges.

Daily Limits

Most U.S. futures exchanges (but generally not foreign exchanges or banks or dealers in the cases of forward contracts, swap agreements and options on forward contracts) limit the amount of fluctuation in some futures contract or options on futures contract prices during a single day by regulations. These regulations specify what are referred to as “daily price fluctuation limits” or more commonly “daily limits.” Once the daily limit has been reached in a particular futures contract, no trades may be made at a price beyond that limit.

Margin

“Initial” or “original” margin is the minimum dollar amount that a counterparty to a cleared derivatives contract must deposit with its commodity broker in order to establish an open position. “Maintenance” or “variance” margin is the amount (generally less than initial margin) to which a trader’s account may decline before they must deliver additional margin so as to maintain open positions. A margin deposit is like a cash performance bond. It helps assure the futures trader’s performance of the futures contracts they purchase or sell.

The minimum amount of margin required in connection with a particular futures contract is set by the exchange on which such contract is traded and is subject to change at any time during the term of the contract. Futures contracts are customarily bought and sold on margins that represent a very small percentage of the aggregate purchase or sales price of the contract. Because of such low margins, price fluctuations occurring in the futures markets may create profits and losses that are greater, in relation to the amount invested, than are customary in other forms of investments.

Brokerage firms may require higher amounts of margin than exchange minimums. These requirements may change without warning.

Margin requirements are computed each day by a commodity broker and the relevant exchange. At the close of each trading day, each open futures contract is marked-to-market, that is, the gain or loss on the position is calculated from the prior day’s close. When the market value of a particular open futures contract position changes to a point where the margin on deposit does not satisfy maintenance margin requirements, a margin call is made by the commodity broker. If the margin call is not met within a reasonable time, the broker may close out the customer’s position.

 

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PERFORMANCE OF THE OFFERED COMMODITY POOLS OPERATED BY

THE COMMODITY POOL OPERATOR

The following performance information is presented in accordance with CFTC regulations. The performance of the Funds, which is presented herein, will differ materially from the performance of the other series of the Trust (the “Other Funds”) which is included in the section entitled “Performance of The Other Commodity Pools Operated by the Commodity Pool Operator” in Part Two of this Prospectus.

All summary performance information is as of December 31, 2018. Performance information is set forth, in accordance with CFTC regulations, since each Fund’s inception of trading.

 

Name of Pool:

   ProShares VIX Mid-Term Futures ETF

Type of Pool:

   Public, Exchange-listed Commodity Pool

Date of Inception of Trading:

   January 3, 2011

Aggregate Gross Capital Subscriptions1 as of December 31, 2018

   $600,644,458

Aggregate Net Capital Subscriptions2 as of December 31, 2018

   $208,637,608

Net Asset Value as of December 31, 2018

   $56,299,121

Net Asset Value per Share3 as of December 31, 2018

   $26.65

Worst Monthly Loss:4

   -15.41%
(October 2015)

Worst Peak-to-Valley Loss:5

   -94.26%

(September 2011—September 2018)

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

Rate of Return:6

 

       2014      2015      2016      2017      2018  

January

       3.08      6.98      8.60      -12.29      -0.14

February

       -4.27      -10.54      5.89      -3.69      16.38

March

       -2.89      0.83      -15.06      -10.39      7.55

April

       -3.29      -5.10      3.55      -5.88      -7.00

May

       -4.07      -6.52      -6.39      -2.30      -6.44

June

       -9.99      0.90      1.71      -6.36      -0.53

July

       1.32      -7.88      -8.54      -8.17      -6.61

August

       -3.83      27.18      -0.56      3.85      -1.45

September

       6.37      -0.83      -3.24      -3.77      -2.95

October

       -2.28      -15.41      -2.07      -8.44      21.33

November

       -2.64      -0.36      -4.58      1.65      -5.13

December

       4.43      0.30      -1.41      -9.22      12.55

Annual

       -17.61      -15.16      -21.91      -49.47      25.17

Year-to-Date

       N/A        N/A        N/A        N/A        N/A  

See accompanying Footnotes to Performance Information.

 

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Name of Pool:

   ProShares Ultra Bloomberg Natural Gas

Type of Pool:

   Public, Exchange-listed Commodity Pool

Date of Inception of Trading:

   October 4, 2011

Aggregate Gross Capital Subscriptions1 as of December 31, 2018

   $778,652,567

Aggregate Net Capital Subscriptions2 as of December 31, 2018

   $100,407,889

Net Asset Value as of December 31, 2018

   $14,617,440

Net Asset Value per Share3 as of December 31, 2018

   $25.28

Worst Monthly Loss:4

   -57.68%
(December 2018)

Worst Peak-to-Valley Loss:5

   -99.37%
(Inception—December 2018)

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

Rate of Return:6

 

       2014      2015      2016      2017      2018  

January

       33.18      -16.96      -6.84      -30.47      4.81

February

       -4.60      -0.34      -46.12      -23.59      -21.65

March

       -8.53      -10.49      16.16      22.55      2.50

April

       19.28      2.42      15.98      0.42      -1.95

May

       -12.75      -12.18      -4.07      -17.02      10.78

June

       -4.13      10.59      47.36      -4.46      -1.88

July

       -25.71      -9.47      -4.53      -15.95      -8.21

August

       8.98      -6.16      -8.03      14.11      8.41

September

       -0.68      -17.03      -7.09      -6.73      4.13

October

       -16.26      -25.89      -0.83      -17.07      12.17

November

       4.01      -20.40      8.57      -1.20      75.57

December

       -51.14      -1.68      20.88      -8.83      -57.68

Annual

       -60.32      -69.88      1.50      -65.37      -22.53

Year-to-Date

       N/A        N/A        N/A        N/A        N/A  

See accompanying Footnotes to Performance Information.

 

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Name of Pool:

   ProShares UltraShort Bloomberg Natural Gas

Type of Pool:

   Public, Exchange-listed Commodity Pool

Date of Inception of Trading:

   October 4, 2011

Aggregate Gross Capital Subscriptions1 as of December 31, 2018

   $354,361,821

Aggregate Net Capital Subscriptions2 as of December 31, 2018

   $(7,389,982)

Net Asset Value as of December 31, 2018

   $17,825,441

Net Asset Value per Share3 as of December 31, 2018

   $21.61

Worst Monthly Loss:4

   -63.45%
(November 2018)

Worst Peak-to-Valley Loss:5

   -86.13%
(February 2016—November 2018)

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

Rate of Return:6

 

       2014      2015      2016      2017      2018  

January

       -37.18      3.30