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ProShares Trust II - Annual Report: 2011 (Form 10-K)

Form 10-K
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-K

 

x Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the fiscal year ended December 31, 2011.

or

 

¨ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the transition period from              to             .

Commission file number: 001-34200

 

 

PROSHARES TRUST II

(Exact name of registrant as specified in its charter)

 

Delaware   87-6284802

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

c/o ProShare Capital Management LLC

7501 Wisconsin Avenue, Suite 1000

Bethesda, Maryland 20814

(Address of principal executive offices) (Zip Code)

(240) 497-6400

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

Common Units of Beneficial Interest   NYSE Arca, Inc.
(Title of each class)   (Name of exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act: None

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    x  Yes    ¨  No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    ¨  Yes    x  No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    ¨  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    x

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

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.).    ¨  Yes    x  No

The aggregate market value of each Fund’s units held by non-affiliates as of June 30, 2011 and the number of outstanding units for each Fund as of February 23, 2012 are included in the table below.

 

     Aggregate Market Value of
the Fund’s Units Held by
Non-Affiliates

as of
June 30, 2011
     Number of Outstanding  Units
as of
February 23, 2012
 

ProShares Ultra DJ-UBS Commodity

   $ 16,690,000         350,014   

ProShares UltraShort DJ-UBS Commodity

     29,688,457         159,997   

ProShares Ultra DJ-UBS Crude Oil

     421,764,864         6,649,170   

ProShares UltraShort DJ-UBS Crude Oil

     162,013,170         4,119,944   

ProShares Ultra DJ-UBS Natural Gas

     0         1,700,010   

ProShares Short DJ-UBS Natural Gas

     0         4   

ProShares UltraShort DJ-UBS Natural Gas

     0         150,010   

ProShares Ultra Gold

     280,247,000         4,100,014   

ProShares Short Gold

     0         4   

ProShares UltraShort Gold

     96,316,162         8,689,901   

ProShares Ultra Silver

     865,830,000         13,950,028   

ProShares UltraShort Silver

     668,341,067         22,244,369   

ProShares UltraPro Australian Dollar

     0         5   

ProShares Ultra Australian Dollar

     0         5   

ProShares Short Australian Dollar

     0         5   

ProShares UltraShort Australian Dollar

     0         5   

ProShares UltraPro Short Australian Dollar

     0         5   

ProShares UltraPro Canadian Dollar

     0         5   

ProShares Ultra Canadian Dollar

     0         5   

ProShares Short Canadian Dollar

     0         5   

ProShares UltraShort Canadian Dollar

     0         5   

ProShares UltraPro Short Canadian Dollar

     0         5   

ProShares UltraPro Euro

     0         5   

ProShares Ultra Euro

     9,048,000         400,014   

ProShares Short Euro

     0         5   

ProShares UltraShort Euro

     632,690,000         44,350,014   

ProShares UltraPro Short Euro

     0         5   

ProShares UltraPro Swiss Franc

     0         5   

ProShares Ultra Swiss Franc

     0         5   

ProShares Short Swiss Franc

     0         5   

ProShares UltraShort Swiss Franc

     0         5   

ProShares UltraPro Short Swiss Franc

     0         5   

ProShares UltraPro U.S. Dollar

     0         5   

ProShares Ultra U.S. Dollar

     0         5   

ProShares Short U.S. Dollar

     0         5   

ProShares UltraShort U.S. Dollar

     0         5   

ProShares UltraPro Short U.S. Dollar

     0         5   

ProShares UltraPro Yen

     0         5   

ProShares Ultra Yen

     3,378,000         150,014   

ProShares Short Yen

     0         5   

ProShares UltraShort Yen

     356,311,500         5,899,294   

ProShares UltraPro Short Yen

     0         5   

ProShares Ultra VIX Short-Term Futures ETF

     0         4,450,010   

ProShares VIX Short-Term Futures ETF

     46,822,000         1,575,005   

ProShares Short VIX Short-Term Futures ETF

     0         100,010   

ProShares UltraShort VIX Short-Term Futures ETF

     0         10   

ProShares Ultra VIX Mid-Term Futures ETF

     0         10   

ProShares VIX Mid-Term Futures ETF

     13,900,500         1,525,005   

ProShares Short VIX Mid-Term Futures ETF

     0         10   

ProShares UltraShort VIX Mid-Term Futures ETF

     0         10   

ProShares Managed Futures Strategy

     0         5   

ProShares Commodity Managed Futures Strategy

     0         5   

ProShares Financial Managed Futures Strategy

     0         5   

 

 

DOCUMENTS INCORPORATED BY REFERENCE:

None.

THE FINANCIAL STATEMENT SCHEDULES CONTAINED IN PART IV OF THIS ANNUAL REPORT ON FORM 10-K CONSTITUTE THE ANNUAL REPORT WITH RESPECT TO THE COMMODITY POOLS FOR PURPOSES OF COMMODITY FUTURES TRADING COMMISSION RULE 4.22(C)

 

 

 


Table of Contents

PROSHARES TRUST II

Table of Contents

 

     Page  

Part I.

  

Item 1. Business.

     1   

Item 1A. Risk Factors.

     34   

Item 1B. Unresolved Staff Comments.

     60   

Item 2. Properties.

     60   

Item 3. Legal Proceedings.

     60   

Item 4. Mine Safety Disclosures.

     60   

Part II.

  

Item  5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

     61   

Item 6. Selected Financial Data.

     68   

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     74   

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

     102   

Item 8. Financial Statements and Supplementary Data.

     117   

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

     123   

Item 9A. Controls and Procedures.

     123   

Item 9B. Other Information.

     124   

Part III.

  

Item 10. Directors, Executive Officers and Corporate Governance.

     125   

Item 11. Executive Compensation.

     128   

Item  12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

     128   

Item 13. Certain Relationships and Related Transactions, and Director Independence.

     128   

Item 14. Principal Accounting Fees and Services.

     129   

Part IV.

  

Item 15. Exhibits and Financial Statement Schedules.

     130   

Exhibit Index

     130   

Signatures

  


Table of Contents

Part I

 

Item 1. Business.

Summary

ProShares Trust II (formerly known as the Commodities and Currencies Trust) (the “Trust”) is a Delaware statutory trust formed on October 9, 2007 and currently organized into separate series (each, a “Fund” and collectively, the “Funds”). The following eighteen series of the Trust: (i) ProShares Ultra DJ-UBS Commodity, ProShares UltraShort DJ-UBS Commodity, ProShares Ultra DJ-UBS Crude Oil, ProShares UltraShort DJ-UBS Crude Oil, ProShares Ultra DJ-UBS Natural Gas, ProShares UltraShort DJ-UBS Natural Gas, ProShares Ultra Gold, ProShares UltraShort Gold, ProShares Ultra Silver, ProShares UltraShort Silver, ProShares Ultra Euro, ProShares UltraShort Euro, ProShares Ultra Yen and ProShares UltraShort Yen (each, a “Leveraged Fund” and collectively, the “Leveraged Funds”); (ii) ProShares Ultra VIX Short-Term Futures ETF and ProShares Short VIX Short-Term Futures ETF (each, a “Geared VIX Fund” and collectively, the “Geared VIX Funds”); and (iii) ProShares VIX Short-Term Futures ETF and ProShares VIX Mid-Term Futures ETF (each, a “Matching VIX Fund” and collectively, the “Matching VIX Funds”), issue common units of beneficial interest (“Shares”), which represent units of fractional undivided beneficial interest in and ownership of only that Leveraged Fund, Geared VIX Fund or Matching VIX Fund. The Shares of each Leveraged Fund, Geared VIX Fund and Matching VIX Fund are listed on the New York Stock Exchange Archipelago (“NYSE Arca”), as further described below.

The Trust has also registered shares for thirty-five additional series: (i) ProShares Short DJ-UBS Natural Gas and ProShares Short Gold (each, a “Short Fund” and collectively, the “Short Funds”); (ii) ProShares UltraShort VIX Short-Term Futures ETF, ProShares Ultra VIX Mid-Term Futures ETF, ProShares Short VIX Mid-Term Futures ETF and ProShares UltraShort VIX Mid-Term Futures ETF (each, a “New Geared VIX Fund” and collectively, the “New Geared VIX Funds”); (iii) ProShares Managed Futures Strategy, ProShares Commodity Managed Futures Strategy and ProShares Financial Managed Futures Strategy (each, a “Managed Futures Fund” and collectively, the “Managed Futures Funds”); (iv) ProShares UltraPro Australian Dollar, ProShares Ultra Australian Dollar, ProShares Short Australian Dollar, ProShares UltraShort Australian Dollar, ProShares UltraPro Short Australian Dollar, ProShares UltraPro Canadian Dollar, ProShares Ultra Canadian Dollar, ProShares Short Canadian Dollar, ProShares UltraShort Canadian Dollar, ProShares UltraPro Short Canadian Dollar, ProShares UltraPro Euro, ProShares Short Euro, ProShares UltraPro Short Euro, ProShares UltraPro Swiss Franc, ProShares Ultra Swiss Franc, ProShares Short Swiss Franc, ProShares UltraShort Swiss Franc, ProShares UltraPro Short Swiss Franc, ProShares UltraPro Yen, ProShares Short Yen and ProShares UltraPro Short Yen (each, a “New Currency Fund” and collectively, the “New Currency Funds”); and (v) ProShares UltraPro U.S. Dollar, ProShares Ultra U.S. Dollar, ProShares Short U.S. Dollar, ProShares UltraShort U.S. Dollar, ProShares UltraPro Short U.S. Dollar (each, a “Currency Index Fund” and collectively, the “Currency Index Funds”). The Short Funds, the New Geared VIX Funds, the Managed Futures Funds and the New Currency Funds are collectively referred to as the “New Funds” in this Annual Report on Form 10-K. The Geared VIX Funds, the New Geared VIX Funds and the Matching VIX Funds are collectively referred to as the “VIX Funds” in this Annual Report on Form 10-K. The Leveraged Funds, the Short Funds, the Geared VIX Funds, the New Geared VIX Funds and the New Currency Funds, are collectively referred to as the “Geared Funds” in this Annual Report on Form 10-K.

As of December 31, 2011, each of the Short Funds, the Managed Futures Funds and the New Currency Funds had seed capital of $200 and each of the New Geared VIX Funds had seed capital of $400, but none of the New Funds had commenced investment operations; therefore, this Annual Report on Form 10-K does not include Schedules of Investments, Statements of Operations, Statements of Changes in Shareholders’ Equity, Statements of Cash Flows, results of operations or any other financial information for the New Funds.

ProShare Capital Management LLC, a Maryland limited liability company, serves as the Trust’s Sponsor (the “Sponsor”), commodity pool operator and commodity trading advisor. Wilmington Trust Company serves as the Trustee of the Trust. The Funds are commodity pools, as defined in the Commodity Exchange Act (the “CEA”) and the applicable regulations of the Commodity Futures Trading Commission (the “CFTC”) and are operated by the Sponsor, a commodity pool operator registered with the CFTC. The Trust is not an investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”).

 

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Groups of Funds are collectively referred to in this Annual Report on Form 10-K in several different ways. References to “UltraPro Funds,” “Ultra Funds,” “Short Funds,” “UltraShort Funds” or “UltraPro Short Funds” refer to the different Funds based upon their investment objectives, but without distinguishing among the Funds’ benchmarks. References to “Commodity Index Funds,” “Commodity Funds,” “Currency Index Funds” or “Currency Funds” refer to the different Funds according to their general benchmark categories without distinguishing among the Funds’ investment objectives or Fund-specific benchmarks. References to “VIX Funds” refer to the different Funds based upon their investment objective and their general benchmark categories. References to “Managed Futures Funds” refer to the different Funds according to which index the Fund intends to gain exposure.

As further described below, each “UltraPro” Fund will seek daily investment results (before fees and expenses) that correspond to three times (3x) the daily performance of its corresponding benchmark. Each “Ultra” Fund seeks or will seek daily investment results (before fees and expenses) that correspond to twice (2x) the daily performance of its corresponding benchmark. Each “Short” Fund will seek daily investment results (before fees and expenses) that correspond to the inverse (-1x) of the daily performance of its corresponding benchmark. Each “UltraShort” Fund seeks or will seek daily investment results (before fees and expenses) that correspond to twice the inverse (-2x) of the daily performance of its corresponding benchmark. Each “UltraPro Short” Fund will seek daily investment results (before fees and expenses) that correspond to three times the inverse (-3x) of the daily performance of its corresponding benchmark. Daily performance is measured from the calculation of one NAV to the next.

Each of the Geared Funds generally invests or will invest in Financial Instruments (i.e., commodity-based, currency-based or equity market volatility-based instruments whose value is derived from the value of an underlying asset, rate or index, including futures contracts and options on futures contracts, swap agreements, forward contracts and other commodity-based or currency-based options contracts) as a substitute for investing directly in commodities, currencies or equity market volatility products in order to gain exposure to the commodity index, currency benchmark, commodity, currency or an equity market volatility index. The Financial Instruments in which ProShares Short DJ-UBS Natural Gas will invest are limited to futures contracts. Financial Instruments also are used to produce economically “leveraged” or “inverse” investment results for the Funds. Each Matching VIX Fund seeks daily investment results (before fees and expenses) that match the performance of a benchmark. Each Geared VIX Fund and New Geared VIX Fund seeks or will seek daily investment results (before fees and expenses) that correspond to a multiple or the inverse of the daily performance of a benchmark. Each VIX Fund intends to obtain exposure to its benchmark by investing in futures contracts (“VIX futures contracts”) based on the Chicago Board Options Exchange (“CBOE”) Volatility Index (the “VIX”). The Managed Futures Funds will seek to provide investment results (before fees and expenses) that correspond to the performance of the S&P Dynamic Futures Index (the “DFI” or the “Index”), the S&P Dynamic Commodities Futures Index (the “DCFI”) or the S&P Dynamic Financial Futures Index (the “DFFI”) (each a “Sub-Index” and collectively, the “Sub-Indexes”). Each Managed Futures Fund intends to obtain exposure to the Index or to a Sub-Index, as applicable, by primarily investing in unleveraged positions in U.S. exchange-traded futures contracts on sixteen different tangible commodities (the “Commodities Futures Contracts”) or futures contracts on eight different financials, such as major currencies and U.S. Treasury securities (the “Financials Futures Contracts” and together with the Commodities Futures Contracts, the “Index Components”).

Each Geared Fund seeks or will seek investment results for a single day only, not for longer periods. This is different from most exchange-traded funds and means that the return of such Geared Fund for a period longer than a single trading day will be the result of each day’s returns compounded over the period, which will very likely differ from 3x, 2x, -1x, -2x or -3x of the return of the index to which such Geared Fund is benchmarked for that period. In periods of higher market volatility, the volatility of the benchmark may be at least as important to a Geared Fund’s return for the period as the return of the benchmark. Geared Funds are riskier than similarly benchmarked exchange-traded funds that are not geared. Accordingly, these funds may not be suitable for all investors and should be used only by knowledgeable investors who understand the potential consequences of seeking daily inverse investment results. Shareholders should actively monitor their investments.

The Matching VIX Funds seek to achieve their stated investment objective both over a single day and over time. The Managed Futures Funds seek to achieve their stated investment objective over time.

 

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Each Geared Fund continuously offers and redeems, or will offer and redeem, and each Managed Futures Fund will offer and redeem, its Shares in blocks of 50,000 Shares. Each Matching VIX Fund will continuously offer and redeem shares in blocks of 25,000 Shares (each such block a “Creation Unit”). Only Authorized Participants 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 one or more of the Funds. Shares of the Funds are offered to Authorized Participants in Creation Units at each Fund’s respective net asset value per Share (“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 that varies depending on, among other factors, the trading price of the Shares of each Fund on the NYSE Arca, the NAV and the supply of and demand for the Shares at the time of the offer. Shares from the same Creation Unit may be offered at different times and may have different offering prices based upon the above factors. The form of Authorized Participant Agreement and related Authorized Participant Handbook set forth the terms and conditions under which an Authorized Participant may purchase or redeem a Creation Unit. Authorized Participants do not receive from any Fund, the Sponsor, or any of their affiliates, any underwriting fees or compensation in connection with their sale of Shares to the public.

The Sponsor maintains an Internet website at www.proshares.com, through which monthly account statements and the Trust’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “1934 Act”), can be accessed free of charge, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the U.S. Securities and Exchange Commission (the “SEC”). Additional information regarding the Trust may also be found on the SEC’s EDGAR database at www.sec.gov.

Investment Objectives and Principal Investment Strategies

Investment Objectives

The Geared Funds

Investment Objectives of the “UltraPro” Funds

Each “UltraPro” Fund will seek daily investment results (before fees and expenses) that correspond to three times (3x) the daily performance, whether positive or negative, of the corresponding benchmark shown below. Expenses may include, among other things, costs related to the purchase, sale and storage of commodities or currencies and the cost of leverage, all of which may be embedded in Financial Instruments used by that Fund. If an UltraPro 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 its corresponding benchmark when the benchmark rises on a given day. Conversely, its value on a given day (before fees and expenses) should lose approximately three times as much on a percentage basis as the corresponding benchmark when the benchmark declines on a given day. Each UltraPro Fund will acquire long exposure in any one of or combinations of Financial Instruments, including Financial Instruments with respect to the applicable UltraPro Fund’s benchmark such that each UltraPro Fund will have approximately 3x the exposure to the corresponding benchmark at the time of the NAV calculation.

Investment Objectives of the “Ultra” Funds

Each “Ultra” Fund seeks or will seek daily investment results (before fees and expenses) that correspond to twice (2x) the daily performance, whether positive or negative, of the corresponding benchmark shown below. Expenses may include, among other things, costs related to the purchase, sale and storage of commodities or currencies and the cost of leverage, all of which may be embedded in Financial Instruments used by that Fund. If an Ultra Fund is successful in meeting its objective, its value on a given day (before fees and expenses) should gain approximately twice as much on a percentage basis as its corresponding benchmark when the benchmark rises on a given day. Conversely, its value on a given day (before fees and expenses) should lose approximately twice as much on a percentage basis as the corresponding benchmark when the benchmark declines on a given day. Each Ultra Fund acquires or will acquire long exposure in any one of or combinations of Financial Instruments, including Financial Instruments with respect to the applicable Ultra Fund’s benchmark such that each Ultra Fund has or will have approximately 2x the exposure to the corresponding benchmark at the time of the NAV calculation.

 

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Investment Objectives of the “Short” Funds

Each “Short” Fund will seek daily investment results (before fees and expenses) that correspond to the inverse (-1) of the daily performance, whether positive or negative, of the corresponding benchmark shown below. Expenses may include, among other things, costs related to the purchase, sale and storage of commodities or currencies and the cost of leverage, all of which may be embedded in Financial Instruments used by that Fund. If a “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 its corresponding benchmark when the benchmark falls on a given day. Conversely, its value on a given day (before fees and expenses) should lose approximately as much on a percentage basis as the corresponding benchmark when the benchmark rises on a given day. Each Short Fund will acquire short exposure in any one of or combinations of Financial Instruments, including Financial Instruments with respect to the applicable Short Fund’s benchmark, such that each Short Fund will have approximately -1x the exposure to the corresponding benchmark at the time of the NAV calculation.

Investment Objectives of the “UltraShort” Funds

Each “UltraShort” Fund seeks or will seek daily investment results (before fees and expenses) that correspond to twice the inverse (-2x) of the daily performance, whether positive or negative, of the corresponding benchmark shown below. Expenses may include, among other things, costs related to the purchase, sale and storage of commodities or currencies and the cost of leverage, all of which may be embedded in Financial Instruments used by that Fund. If an UltraShort Fund is successful in meeting its objective, its value on a given day (before fees and expenses) should gain approximately twice as much on a percentage basis as its corresponding benchmark when the benchmark falls on a given day. Conversely, its value on a given day (before fees and expenses) should lose approximately twice as much on a percentage basis as the corresponding benchmark when the benchmark rises on a given day. An UltraShort Fund acquires or will acquire short exposure in any one of or combinations of Financial Instruments, including Financial Instruments with respect to the applicable UltraShort Fund’s benchmark, such that each UltraShort Fund has or will have approximately -2x the exposure to the corresponding benchmark at the time of the NAV calculation.

Investment Objectives of the “UltraPro Short” Funds

Each “UltraPro Short” Fund will seek daily investment results (before fees and expenses) that correspond to three times the inverse (-3x) of the daily performance, whether positive or negative, of the corresponding benchmark shown below. Expenses may include, among other things, costs related to the purchase, sale and storage of commodities or currencies and the cost of leverage, all of which may be embedded in Financial Instruments used by that Fund. If an UltraPro 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 its corresponding benchmark when the benchmark falls on a given day. Conversely, its value on a given day (before fees and expenses) should lose approximately three times as much on a percentage basis as the corresponding benchmark when the benchmark rises on a given day. An UltraPro Short Fund will acquire short exposure in any one of or combinations of Financial Instruments, including Financial Instruments with respect to the applicable UltraPro Short Fund’s benchmark, such that each UltraPro Short Fund will have approximately -3x the exposure to the corresponding benchmark at the time of the NAV calculation.

The Matching VIX Funds

Investment Objectives of the “Matching VIX” Funds

Each “Matching VIX” Fund seeks results (before fees and expenses), both over a single day and over time, that match the performance of its benchmark shown below. The S&P 500 VIX Short-Term Futures Index and the S&P VIX Mid-Term Futures Index (each a “VIX Futures Index,” and together, the “VIX Futures Indexes”) seek to offer exposure to forward market equity volatility through publicly traded futures markets. If a Matching VIX 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 its corresponding VIX Futures Index when the benchmark rises. Conversely, its value (before fees and expenses) should lose approximately as much on a percentage basis as the level of its benchmark when the benchmark declines. Each Matching VIX Fund acquires exposure through VIX futures

 

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contracts, such that each Matching VIX Fund has exposure intended to approximate its applicable VIX Futures Index at the time of its NAV calculation. The VIX Futures Indexes track the performance of VIX futures contracts; they do not track the performance of the VIX, and the Matching VIX Funds should not be expected to match the performance of the VIX.

The Managed Futures Funds

Investment Objectives of the “Managed Futures” Funds

Each “Managed Futures” Fund will seek to provide investment results (before fees and expenses) that correspond to the performance of the Index or Sub-Index, as applicable. ProShares Managed Futures Strategy will seek to provide investment results corresponding to the Index, while ProShares Commodity Managed Futures Strategy and ProShares Financial Managed Futures Strategy will seek to provide investment results corresponding to the DCFI and the DFFI, respectively. The Index is designed to capture the economic benefit derived from both rising and declining trends in the futures prices of the Index Components, generally without leverage. The DCFI is designed to capture the economic benefit derived from both rising and declining trends in the futures prices of the Commodities Futures Contracts, and the DFFI is designed to capture the economic benefit derived from both rising and declining trends in the futures prices of the Financials Futures Contracts. If a Managed 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 corresponding Index or Sub-Index when such Index or Sub-Index rises. Conversely, its value (before fees and expenses) should lose approximately as much on a percentage basis as the level of the corresponding Index or Sub-Index when such Index or Sub-Index declines. Each Fund acquires exposure through the Financial Instruments, such that the Fund has exposure intended to approximate its applicable Index or Sub-Index at the time of its NAV calculation.

The corresponding benchmark for each Fund is listed below:

ProShares Ultra DJ-UBS Commodity and ProShares UltraShort DJ-UBS Commodity: The Dow Jones-UBS Commodity IndexSM. The Dow Jones-UBS Commodity Index is designed to track commodity futures prices.

ProShares Ultra DJ-UBS Crude Oil and ProShares UltraShort DJ-UBS Crude Oil: The Dow Jones-UBS Crude Oil Sub-IndexSM. The Dow Jones-UBS Crude Oil Sub-Index is designed to track crude oil futures prices.

ProShares Ultra DJ-UBS Natural Gas, ProShares Short DJ-UBS Natural Gas and ProShares UltraShort DJ-UBS Natural Gas: The Dow Jones-UBS Natural Gas Sub-IndexSM. The Dow Jones-UBS Natural Gas Sub-Index is designed to track natural gas futures prices.

ProShares Ultra Gold, ProShares Short Gold and ProShares UltraShort Gold: The daily performance of gold bullion as measured by the U.S. Dollar P.M. fixing price for delivery in London.

ProShares Ultra Silver and ProShares UltraShort Silver: The daily performance of silver bullion as measured by the U.S. Dollar fixing price for delivery in London.

ProShares UltraPro Australian Dollar, ProShares Ultra Australian Dollar, ProShares Short Australian Dollar, ProShares UltraShort Australian Dollar and ProShares UltraPro Australian Dollar: The 4:00 P.M. (Eastern Time) spot price of the Australian dollar versus the U.S. dollar using Australian dollar/U.S. dollar exchange rate, expressed in terms of U.S. dollars per unit of foreign currency.

ProShares UltraPro Canadian Dollar, ProShares Ultra Canadian Dollar, ProShares Short Canadian Dollar, ProShares UltraShort Canadian Dollar and ProShares UltraPro Short Canadian Dollar: The 4:00 P.M. (Eastern Time) spot price of the Canadian dollar versus the U.S. dollar using Canadian dollar/U.S. dollar exchange rate, expressed in terms of U.S. dollars per unit of foreign currency.

ProShares UltraPro Euro, ProShares Ultra Euro, ProShares Short Euro, ProShares UltraShort Euro and ProShares UltraPro Short Euro: The 4:00 P.M. (Eastern Time) spot price of the Euro versus the U.S. Dollar using Euro exchange rate, expressed in terms of U.S. dollars per unit of foreign currency.

 

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ProShares UltraPro Swiss Franc, ProShares Ultra Swiss Franc, ProShares Short Swiss Franc, ProShares UltraShort Swiss Franc and ProShares UltraPro Short Swiss Franc: The 4:00 P.M. (Eastern Time) spot price of the Swiss franc versus the U.S. dollar using Swiss franc/U.S. dollar exchange rate expressed in terms of U.S. dollars per unit of foreign currency.

ProShares UltraPro U.S. Dollar, ProShares Ultra U.S. Dollar, ProShares Short U.S. Dollar, ProShares UltraShort U.S. Dollar and ProShares UltraPro Short U.S. Dollar: The 4:00 P.M. (Eastern Time) spot price of the U.S. Dollar versus the Index. The Index is a geometrically-averaged calculation of six currencies weighted against the U.S. dollar. The six component currencies are the Euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc.

ProShares UltraPro Yen, ProShares Ultra Yen, ProShares Short Yen, ProShares UltraShort Yen and ProShares UltraPro Short Yen: The 4:00 P.M. (Eastern Time) spot price of the Japanese yen versus the U.S. Dollar using the Japanese yen exchange rate, expressed in terms of U.S. Dollars per unit of foreign currency.

ProShares Ultra VIX Short-Term Futures, ProShares VIX Short-Term Futures, ProShares Short VIX Short-Term Futures and ProShares UltraShort VIX Short-Term Futures: The S&P 500 VIX Short-Term Futures Index. The S&P 500 VIX Short-Term Futures Index is designed to measure the return from a rolling long position in the first and second month VIX futures contracts.

ProShares Ultra VIX Mid-Term Futures, ProShares VIX Mid-Term Futures, ProShares Short VIX Mid-Term Futures and ProShares UltraShort VIX Mid-Term Futures: The S&P 500 VIX Mid-Term Futures Index. The S&P 500 VIX Mid-Term Futures Index is designed to measure the return from a rolling long position in the fourth, fifth, sixth and seventh month VIX futures contracts.

ProShares Managed Futures Strategy, ProShares Commodity Managed Futures Strategy and ProShares Financial Managed Futures Strategy: The S&P Dynamic Futures Index or to a sub-index of the Index. The S&P Dynamic Futures Index and its sub-indexes are designed to attempt to capture the economic benefit derived from both rising and declining trends in futures prices.

Principal Investment Strategies

In seeking to achieve each Fund’s investment objective, 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 a Fund’s objective. The Sponsor relies upon a pre-determined model to generate orders that result in repositioning each Fund’s investments in accordance with their daily investment objectives. Each Geared Fund invests or will invest principally in any one of or combinations of Financial Instruments, including swap agreements, futures contracts, options on futures contracts or forward contracts with respect to the applicable Fund’s benchmark to the extent determined appropriate by the Sponsor. The types of commodity or currency interests in which each Commodity Fund, Commodity Index Fund, Currency Fund or Currency Index Fund invests may vary daily. The Funds do not currently intend to invest directly in any commodity or currency but may invest directly in U.S. Treasury securities. Each VIX Fund intends to or will intend to obtain exposure to its Index by investing in VIX futures contracts. Each Managed Futures Fund intends to obtain exposure to the DFI or to a Sub-Index, as applicable, by primarily investing in Commodities Futures Contracts or Financials Futures Contracts. Each Fund will also hold cash or cash equivalents such as U.S. Treasury securities or other high credit quality short-term fixed-income securities (such as shares of money market funds, bank deposits, bank money market accounts, certain variable rate-demand notes and collateralized repurchase agreements) that may be used as margin or serve as collateral for the Financial Instruments.

The Sponsor does not invest the assets of the Funds in Financial Instruments or other assets based on its view of the investment merit of a particular investment, nor does it conduct conventional commodity or currency research or analysis, or forecast market movement or trends, in managing the assets of the Funds. Each Fund seeks to remain fully invested at all times in securities and/or Financial Instruments that provide exposure to the Fund’s underlying benchmark without regard to market conditions, trends or direction.

 

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For the Commodity Index Funds, a Fund may hold through Financial Instruments a representative sample of the components in the underlying index, which has aggregate characteristics similar to those of the underlying index. This “sampling” process typically involves selecting a representative sample of components in an index 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 index. In addition, a Fund may obtain exposure to components not included in the underlying index, invest in assets that are not included in the underlying index or may overweight or underweight certain components contained in the underlying index. For further discussion of the Financial Instruments, see “Information About Financial Instruments and Commodities Markets” below.

Information About Financial Instruments and Commodities Markets

Swap Agreements

Swap agreements are two-party contracts entered into primarily by institutional investors for a specified period ranging from a day to more than a year. In a standard swap transaction, the parties agree to exchange the returns on a particular predetermined investment, instrument or index in exchange for a fixed or floating rate of return (interest rate leg) in respect of a predetermined notional amount. The gross returns to be exchanged are calculated with respect to a notional amount and the benchmark returns to which the swap is linked. Swaps are usually entered into on a net basis, that is, the two payment streams are netted out in a cash settlement on the payment date or dates specified in the agreement with the parties receiving or paying, as the case may be, only the net amount of the two payments. In a typical swap agreement entered into by the ProShares Short Gold Fund, an UltraShort Fund or an UltraPro Short Fund, absent fees, transaction costs and interest, such Fund would be required to make payments to the swap counterparty in the event the benchmark increases and would be entitled to settlement payments in the event the benchmark decreases. In a typical swap agreement entered into by an Ultra Fund or UltraPro Short Fund, absent fees, transaction costs and interest, the Ultra Fund or UltraPro Short Fund would be entitled to settlement payments in the event the benchmark increases and would be required to make payments to the swap counterparty in the event the benchmark decreases. In the case of futures contracts based indices, such as those used by the Commodity Index Funds, no interest rate leg is payable.

Swap agreements involve, to varying degrees, elements of market risk and exposure to loss in excess of the amount which would be reflected on the Statement of Financial Condition. The notional amounts of the agreement reflect the extent of each Ultra Fund’s or UltraPro Fund’s total investment exposure under the swap agreement. An UltraShort Fund’s or UltraPro Fund’s exposure is not limited by the notional amount and its exposure is in theory potentially infinite as there is no fixed limit on the increase in any index value. The primary risks associated with the use of swap agreements arise from the imperfect correlation between movements in the notional amount and the price of the underlying investments and the inability of counterparties to perform. Each Fund 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 Fund enters into swap agreements only with large, established and well capitalized financial institutions that meet certain credit quality standards and monitoring policies. Each Fund intends to use various techniques to minimize credit risk including early termination or reset and payment, using different counterparties and limiting the net amount due from any individual counterparty.

Each Fund generally collateralizes swap agreements 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. In the event of a default by the counterparty, and the Fund is owed money in the swap transaction, the Fund will seek withdrawal of this collateral from the segregated account and may incur certain costs exercising its right with respect to the collateral. Each Fund may remain subject to credit risk with respect to the amounts it expects to receive from counterparties, as those amounts are not always similarly collateralized by the counterparty. If a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the Fund may experience significant delays in obtaining any recovery in a bankruptcy or other reorganization proceeding and may obtain only limited recovery or may obtain no recovery in such circumstances.

 

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Forward Contracts

A forward contract is a contractual obligation to purchase or sell a specified quantity of a commodity or currency 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 over-the-counter (“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 forward markets are largely unregulated. Forward contracts are, in general, not cleared or guaranteed by a third party.

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 prices for foreign exchange futures contracts traded on U.S. exchanges. Commercial banks participating in trading 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.

Options on Forward Contracts

An option on a forward contract gives the buyer of the option the right, but not the obligation, to take a position at a specified price (the strike price) in the underlying forward contract. Options on forward contracts are individually negotiated between counterparties and are generally traded in the OTC market. Thus, options on forward contracts possess many of the same characteristics of forward contracts relating to offsetting positions and credit risk that are described above.

The buyer of a call option purchases the right, but not the obligation, to purchase the underlying interest at a specified price. The buyer of a put option purchases the right, but not the obligation, to sell the underlying interest at a specified price. The seller of an option is obligated to take a position in the underlying interest opposite the buyer of the option if the option is exercised. Therefore, the seller of a call option must sell the underlying interest to the buyer of the call option if the buyer chooses to exercise the option. Conversely, the seller of a put option must buy the underlying interest from the buyer of the put option if the buyer chooses to exercise the option.

A call option is considered to be in-the-money if the strike price is below the current market price and out-of-the-money if the strike price is above the current market price. A put option, on the other hand, is considered to be in-the-money if the strike price is above the current market price and out-of-the-money if the strike price is below the current market price. Options typically have limited life spans, which are tied to the delivery or settlement date of the underlying interest. Unexercised options on forward contracts become worthless at the time of expiration.

Losses to the buyer of an option are limited to the amount paid for the option. Sellers of options, however, face risk similar to that of participants in forwards markets. For example, the seller of a call option is subject to the same risk as a person who initially sold a forward contract, offset only by the amount received by selling the option.

Futures Contracts

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 commodity at a specified time and place or alternatively, may call for cash settlement as is the case with VIX futures contracts and Managed Futures contracts. Futures contracts are

 

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traded on a wide variety of commodities, including bonds, interest rates, agricultural products, stock indices, currencies, energy, metals, economic indicators and statistical measures. The size and length of futures contracts on a particular commodity 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.

Certain futures contracts, such as VIX futures contracts (including the futures contracts that comprise each of the VIX Futures Indexes) and Managed Futures contracts, as well as stock index contracts and certain commodity futures contracts, settle in cash, reflecting 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 reference. For other futures contracts, the contractual obligations of a buyer and seller may generally be satisfied by taking or making physical delivery of the underlying commodity 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 allowing for brokerage commissions, constitutes the profit or loss to the trader.

Options on Futures Contracts

Options on futures contracts operate in a manner similar to options on forward contracts. An option on a futures contract gives the buyer the right, but not the obligation, to take a position at a specified price in the underlying futures contract. Unlike options on forward contracts, however, options on futures contracts are standardized contracts traded on an exchange. Furthermore, in-the-money options on futures contracts on certain exchanges are automatically exercised on their expiration date.

Options on Currencies

Options on currencies grant the holder the right, but not the obligation, to buy or sell currency at a specified exchange rate during a specified period of time.

Regulations

Futures exchanges in the United States are subject to regulation under the CEA, by the CFTC, the governmental agency having responsibility for regulation of futures exchanges and trading on those exchanges. (Investors should be aware that no governmental U.S. agency currently regulates the 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 regulates the activities of “commodity trading advisors” and “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. The CEA gives the CFTC similar authority with respect to the activities of commodity trading advisors, such as the Sponsor, and requires commodity trading advisors to maintain current and accurate records within the United States. If the registration of a Sponsor as a commodity trading advisor were to be terminated, restricted or suspended, the Sponsor would be unable, until such time (if any) as such registration were to be reinstated, to render trading advice to the Funds. The Funds themselves are not registered with the CFTC in any capacity. Therefore, if the Sponsor were unable to provide services and/or trading 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 trading advice to the Funds was reinstated or a replacement for the Sponsor as commodity pool operator and/or commodity trading advisor could be found. Such an event could result in termination of the Funds.

The CEA requires all Futures Commission Merchants (“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 “Item 1A. Risk Factors-Risks Related to Regulatory Requirements and Potential Legislative Changes-Failure of the FCMs to segregate assets may increase losses in the Funds.”

 

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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 and commodity trading advisor), the 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 National Futures Association (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 trading advisors, commodity pool operators, FCMs, 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.

Description of the Dow Jones-UBS Commodity Index SM and Sub-Indexes

Overview of the Dow Jones-UBS Family of Indices

The Dow Jones-UBS Commodity IndexSM (the “Dow Jones-UBS”) is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Dow Jones-UBS is composed of futures contracts on nineteen physical commodities. 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. In order to avoid delivery and maintain a long futures position, nearby contracts must be sold and contracts that have not yet reached the delivery period must be purchased. This process is known as “rolling” a futures position. The Dow Jones-UBS is a “rolling index” which means that the Dow Jones-UBS Index does not take actual physical possession of the commodities it tracks, rather it purchases futures contracts of a commodity and as the time for the contract becomes due it sells those contracts and purchases new futures contracts that have not yet reached their delivery period.

The Dow Jones-UBS is comprised of commodities in eight different sectors including, petroleum, natural gas, livestock, grains, industrial metals, precious metals, softs and vegetable oils. These eight sectors track futures contracts prices of nineteen specific commodities such as natural gas, crude oil, unleaded gasoline, heating oil, live cattle, lean hogs, wheat, corn, soybeans, soybean oil, aluminum, copper, zinc, nickel, gold, silver, sugar, cotton and coffee. The Dow Jones-UBS is designed to minimize concentration in any one commodity or sector. No single commodity may constitute less than 2% or more than 15% of the index. No related group of commodities (e.g., energy, precious metals, livestock or grains) may constitute more than 33% of the index as of the annual reweightings of the components. The Dow Jones-UBS family of indices also includes eight sub-indices that group commodities based on type, as well as single commodity sub-indices representing each of the nineteen commodities that are currently tracked by the Dow Jones-UBS.

To determine its component weightings, the Dow Jones-UBS relies primarily on liquidity data, or the relative amount of trading activity of a particular commodity. Liquidity is an important indicator of the value placed on a commodity by financial and physical market participants. The index also relies to a lesser extent on dollar-adjusted production data. The index thus relies on data that is endogenous to the futures markets (liquidity) and exogenous to the futures markets (production) in determining relative weightings. All data used in both the liquidity and production calculations is averaged over a five-year period.

 

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In consultation with the DJ-UBS Commodity Index Advisory Committee, the DJ-UBS Commodity Index Supervisory Committee meets annually to determine the composition of the index in accordance with the rules established in the DJ-UBSCI Handbook. The Supervisory Committee consists of employees of UBS Securities LLC and Dow Jones. DJ-UBS Commodity Index Advisory Committee members are drawn from the academic, financial and legal communities.

The Dow Jones-UBS is composed of commodities traded on U.S. exchanges, with the exception of aluminum, nickel and zinc, which trade on the London Metal Exchange (“LME”). Trading hours for the U.S. commodity exchanges are between 8:00 A.M. and 3:00 P.M. (Eastern Time). The Dow Jones-UBS ER contract trades exclusively on the Chicago Board of Trade’s (“CBOT’s”) electronic trading platform. The new Dow Jones-UBS ER futures contract will trade exclusively on the Exchange’s premier electronic trading platform, e-cbot®, from 8:15 A.M. – 1:30 P.M. Central Time, Monday through Friday. A daily settlement price for the index is published at approximately 5:00 P.M. (Eastern Time).

The Dow Jones-UBS is designed to provide:

 

   

Weightings that reflect economic significance

 

   

Diversification

 

   

Low volatility

 

   

Annual reweighting and rebalancing

 

   

Liquidity

Dow Jones-UBS Commodity IndexSM

ProShares Ultra DJ-UBS Commodity and ProShares UltraShort DJ-UBS Commodity are designed to track a multiple or an inverse multiple of the daily performance of Dow Jones-UBS Commodity Index.SM. The Dow Jones-UBS Commodity IndexSM is a proprietary index that UBS Securities LLC (successor to AIG Financial Products Corp.) developed and that Dow Jones, in conjunction with UBS Securities LLC, calculates. The methodology for determining the composition and weighting of the Index and for calculating its level is subject to modification by the Sponsors any time. Dow Jones disseminates the Index level at least every 15 seconds from 8:00 A.M. to 3:00 P.M. (Eastern Time), and publishes a daily Index level at approximately 5:00 P.M. (Eastern Time), each business day on its website at http://www.djindexes.com and on other major market data vendors.

The Index is re-weighted and rebalanced each year in January on a price-percentage basis. The annual weightings for the Index are determined each year in June or July by UBS Securities LLC and Dow Jones under the supervision of the Dow Jones-UBS Commodity Index Oversight Committee (the “Oversight Committee”), announced after approval by the Committee and implemented the following January.

The Index is designed to track rolling futures positions in a diversified basket of 19 exchange-traded futures contracts on physical commodities. The 19 physical commodities selected for 2010 are natural gas, crude oil, unleaded gasoline, heating oil, live cattle, lean hogs, wheat, corn, soybeans, soybean oil, aluminum, copper, zinc, nickel, gold, silver, sugar, cotton and coffee.

The Index tracks what is known as a rolling futures position, which is a position where, on a periodic basis, futures contracts on physical commodities specifying delivery on a nearby date must be sold and futures contracts on physical commodities that have not yet reached the delivery period must be purchased. An investor with a rolling futures position is able to avoid delivering underlying physical commodities while maintaining exposure to those commodities. The rollover for each Index component occurs over a period of five Dow Jones-UBS business days each month according to a pre-determined schedule. The Index will reflect the performance of its underlying commodities, including roll costs, without regard to income earned on cash positions.

The Dow Jones-UBS Commodity IndexSM is intended to reflect the overall commodity sector. The Dow Jones-UBS Commodity IndexSM tracks 19 commodities from eight broad sectors such as petroleum, natural gas, livestock, grains, industrial metals, precious metals, softs and vegetable oil. The Index is composed of notional amounts of the futures contracts for each of the Index commodities with the weighting of each commodity broadly based in proportion to historical levels of the world’s production and supplies of such Index commodity. As of the date of the

 

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filing of this Annual Report on Form 10-K, the Dow Jones-UBS Commodity IndexSM is the basis for a listed and traded futures contract on the CBOT. Futures contracts on the Index commodities currently trade on U.S. futures exchanges, with the exception of aluminum, nickel and zinc, which trade on the LME.

Dow Jones-UBS Crude Oil Sub-IndexSM

ProShares Ultra DJ-UBS Crude Oil and ProShares UltraShort DJ-UBS Crude Oil are designed to track a multiple or an inverse multiple of the daily performance of Dow Jones-UBS Crude Oil Sub-IndexSM. The Dow Jones-UBS Crude Oil Sub-IndexSM is intended to reflect the performance of crude oil as measured by the price of futures contracts of sweet, light crude oil traded on the NYMEX, including roll costs, without regard to income earned on cash positions. Crude oil is the world’s most actively traded commodity and may experience significant volatility. The price of crude oil is established by the supply and demand conditions in the global market overall, and more particularly, in the main refining centers of Singapore, Northwest Europe, and the U.S. Gulf Coast. Demand for petroleum products by consumers, as well as agricultural, manufacturing and transportation industries, determines demand for crude oil by refiners. Since the precursors of product demand are linked to economic activity, crude oil demand will tend to reflect economic conditions. However, other factors such as weather also influence product and crude oil demand. The Index will reflect the performance of its underlying commodities, including roll costs, without regard to income earned on cash positions.

Dow Jones-UBS Natural Gas Sub-IndexSM

ProShares Ultra DJ-UBS Natural Gas, ProShares Short DJ-UBS Natural Gas and ProShares UltraShort DJ-UBS Natural Gas are designed to track a multiple, the inverse or an inverse multiple of the daily performance of the Dow Jones-UBS Natural Gas Sub-IndexSM. The Dow Jones-UBS Natural Gas Sub-IndexSM is intended to reflect the performance of natural gas as measured by the price of futures contracts of natural gas traded on the NYMEX, including roll costs, without regard to income earned on cash positions. The performance of the natural gas futures market is often very different than the performance of the physical natural gas market. The Index tracks what is known as a rolling futures position, which is a position where, on a periodic basis, futures contracts on physical commodities specifying delivery on a nearby date are sold prior to that date and futures contracts on physical commodities that have a more distant delivery date are purchased. 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 for each Index component occurs over a period of five Dow Jones-UBS business days in certain months according to a pre-determined schedule. The exact roll methodology differs between certain commodities. The Index will reflect the performance of its underlying commodities, including roll costs, without regard to income earned on cash positions. Natural gas accounts for almost a quarter of U.S. energy consumption. The price of natural gas is established by the supply and demand conditions in the North American market, and more particularly, in the main refining center of the U.S. Gulf Coast. Demand for natural gas by consumers, as well as agricultural, manufacturing and transportation industries, determines overall demand for natural gas. Since the precursors of product demand are linked to economic activity, natural gas demand will tend to reflect economic conditions. However, other factors such as weather significantly influence natural gas demand.

Information About the Index Licensor

“Dow Jones,” “UBS®,” “Dow Jones-UBS Commodity IndexSM,” “Dow Jones-UBS Crude Oil Sub-IndexSM,” and “DJ-UBSSM” are service marks of Dow Jones & Company, Inc. and UBS Securities LLC, as the case may be, and have been licensed for use for certain purposes by the Trust (“Licensee”). Dow Jones-UBS Commodity IndexSM and Dow Jones-UBS Crude Oil Sub-IndexSM are collectively referred to as the Indexes.

The Funds are not sponsored, endorsed, sold or promoted by Dow Jones & Company, Inc. (“Dow Jones”) or UBS Securities LLC or any of their subsidiaries or affiliates. None of Dow Jones, UBS Securities LLC or any of their subsidiaries or affiliates makes any representation or warranty, express or implied, to the owners of or counterparts to the Funds or any member of the public regarding the advisability of investing in securities or commodities generally or in the Funds particularly. The only relationship of Dow Jones, UBS Securities LLC or any of their subsidiaries or affiliates to the Licensee is the licensing of certain trademarks, trade names and service marks and of the Indexes, which are determined, composed and calculated by Dow Jones in conjunction with UBS Securities LLC regard to the Licensee or the Funds. Dow Jones and UBS Securities LLC have no obligation to take the needs of the

 

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Licensee or the shareholders of the Funds into consideration in determining, composing or calculating the Indexes. None of Dow Jones, UBS Securities LLC 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 shares of the Funds that have been or are to be issued or in the determination or calculation of the equation by which the shares of the Funds are converted into cash. None of Dow Jones, UBS Securities LLC or any of their subsidiaries or affiliates shall have any obligation or liability, including, without limitation, to Fund shareholders, in connection with the administration, marketing or trading of the Funds. In addition, UBS Securities LLC and its subsidiaries and affiliates actively trade commodities, commodity indexes and commodity futures (including the Indexes), 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 Dow Jones-UBS Commodity IndexSM, and Fund shares.

Fund shareholders should not conclude that the inclusion of a futures contract in the Dow Jones-UBS Commodity IndexSM is any form of investment recommendation of the futures contract or the underlying exchange-traded physical commodity by Dow Jones, UBS Securities LLC or any of their subsidiaries or affiliates. The information in this Annual Report on Form 10-K regarding the Index components has been derived solely from publicly available documents. None of Dow Jones, UBS Securities LLC or any of their subsidiaries or affiliates has made any due diligence inquiries with respect to the Dow Jones-UBS Commodity IndexSM components in connection with Funds. None of Dow Jones, UBS Securities LLC or any of their subsidiaries or affiliates makes any representation that these publicly available documents or any other publicly available information regarding the Index components, including without limitation a description of factors that affect the prices of such components, are accurate or complete.

NONE OF DOW JONES, UBS SECURITIES LLC OR ANY OF THEIR SUBSIDIARIES OR AFFILIATES GUARANTEES THE ACCURACY AND/OR THE COMPLETENESS OF THE INDEXES OR ANY DATA INCLUDED THEREIN AND NONE OF DOW JONES, UBS SECURITIES LLC OR ANY OF THEIR SUBSIDIARIES OR AFFILIATES SHALL HAVE ANY LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. NONE OF DOW JONES, UBS SECURITIES LLC OR ANY OF THEIR SUBSIDIARIES OR AFFILIATES MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE LICENSEE, FUND SHAREHOLDERS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEXES OR ANY DATA INCLUDED THEREIN. NONE OF DOW JONES, UBS SECURITIES LLC 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 INDEXES OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL DOW JONES, UBS SECURITIES LLC OR ANY OF THEIR SUBSIDIARIES OR AFFILIATES HAVE ANY LIABILITY FOR ANY LOST PROFITS OR INDIRECT, PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGES OR LOSSES, EVEN IF NOTIFIED OF THE POSSIBILITY THEREOF. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS AMONG DOW JONES, UBS SECURITIES LLC AND THE LICENSEE.

Description of the Commodity Benchmarks

Gold

ProShares Ultra Gold, ProShares Short Gold and ProShares UltraShort Gold are designed to track a multiple or an inverse multiple of the daily performance of gold bullion as measured by the U.S. Dollar P.M. fixing price for delivery in London. The Funds do not directly or physically hold the underlying gold, but instead, seek exposure to gold through the use of Financial Instruments whose value is based on the underlying price of gold to pursue their investment objective. The benchmark price of gold is the U.S. dollar price of gold bullion as measured by the London afternoon fixing price per troy ounce of unallocated gold bullion for delivery in London through a member of the London Bullion Market Association (“LBMA”) authorized to effect such delivery.

The price of gold is volatile with fluctuations expected to affect the value of the Shares of the Fund. The price movement of gold may be influenced by a variety of factors, including announcements from central banks regarding reserve gold holdings, agreements among central banks, political uncertainties and economic concerns. The gold market is a global marketplace consisting of both OTC transactions and exchange-traded products. The OTC market generally consists of transactions in spot, forwards, options and other derivatives, while exchange-traded transactions consist of futures and options.

 

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A London gold “fix” is conducted each trading day at 3:00 P.M. London time providing reference gold prices for that day’s trading. Many long-term contracts are priced on the basis of the London gold fix and market participants will usually refer to the London gold fix when looking for a basis for valuation. The Sponsor believes that the London fix is the most widely used benchmark for daily gold prices and is quoted by various major market data vendors.

Silver

ProShares Ultra Silver and ProShares UltraShort Silver are designed to track a multiple or an inverse multiple of the daily performance of silver bullion as measured by the U.S. Dollar fixing price for delivery in London. The Funds do not directly or physically hold the underlying silver, but instead seek exposure to silver through the use of Financial Instruments whose value is based on the underlying price of silver to pursue their investment objective. The benchmark price of silver is the U.S. Dollar price of silver bullion as measured by the London fixing price per troy ounce of unallocated silver bullion for delivery in London through a member of the LBMA authorized to effect such delivery.

The price of silver is volatile with fluctuations expected to affect the value of the Shares. The largest industrial users of silver are the photographic, jewelry, and electronic industries and developments in these industries among other factors may influence the price of silver. Like gold, the silver market is a global marketplace consisting of both OTC transactions and exchange-traded products. The OTC market generally consists of transactions in spot, forwards, options and other derivatives, while exchange-traded transactions consist of futures and options.

A London silver “fix” is conducted each trading day at 12:00 P.M. London time providing reference silver prices for that day’s trading. Many long-term contracts are priced on the basis of the London silver fix and market participants will usually refer to the London silver fix when looking for a basis for valuation. The Sponsor believes that the London fix is the most widely used benchmark for daily silver prices and is quoted by various major market data vendors.

Description of the Currencies Benchmarks

The Currency Funds, with the exception of the Currency Index Funds, are designed to track a multiple, the inverse or an inverse multiple of the daily performance of the spot price of the applicable currency versus the U.S. dollar. The spot price of each currency is measured by the 4:00 P.M. (Eastern Time) spot prices as provided by Bloomberg, expressed in terms of U.S. dollars per unit of foreign currency. The Currency Index Funds are designed to track a multiple, the inverse or an inverse multiple of the daily performance of the Index. The Funds do not necessarily directly or physically hold the underlying currency or currencies and will instead seek exposure through the use of certain Financial Instruments whose value is based on the price of the underlying currency or currencies to pursue its investment objective.

Euro

ProShares UltraPro Euro, ProShares Ultra Euro, ProShares Short Euro, ProShares UltraShort Euro and ProShares UltraPro Short Euro are designed to track a multiple, the inverse or an inverse multiple of the daily performance of the Euro spot price versus the U.S. dollar. These Funds 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 foreign currency, as the basis for the underlying benchmark.

In 1998, the European Central Bank in Frankfurt was organized by Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain in order to establish a common currency—the Euro. In 2001, Greece joined as the twelfth country adopting the Euro as its national currency. Unlike the U.S. Federal Reserve System, the Bank of Japan and other comparable central banks, the European Central Bank is a central authority that conducts monetary policy for an economic area consisting of many otherwise largely autonomous states.

 

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At its inception on January 1, 1999, the Euro was launched as an electronic currency used by banks, foreign exchange dealers and stock markets. In 2002, the Euro became cash currency for approximately 300 million citizens of 12 European countries. On May 1, 2004, ten additional countries joined the European Union (“EU”), of which five have adopted the Euro as their national currency. These countries are Cyprus, Malta, Slovakia, Slovenia and Estonia.

According to the Bank for International Settlements Triennial Central Bank Survey of Foreign Exchange and OTC Derivatives Market Activity in April 2010-Final results (the “BIS Survey”), average daily turnover of the U.S. dollar in the foreign exchange market accounts for approximately 85% of global foreign exchange transactions, which makes it the most-traded currency in the world. The average daily turnover of the Euro in the foreign exchange market accounts for approximately 39% of global foreign exchange transactions, which makes it the second-most-traded currency in the world. The U.S. Dollar/Euro pair has an average daily turnover of approximately $1,101 billion, which makes it the most-traded currency pair, accounting for approximately 28% of the global foreign exchange transactions.

Although the European countries that have adopted the Euro are members of the EU, the United Kingdom, Denmark and Sweden are EU members that have not adopted the Euro as their national currency.

Japanese Yen

ProShares UltraPro Yen, ProShares Ultra Yen, ProShares Short Yen, ProShares UltraShort Yen and ProShares UltraPro Short Yen are designed to track a multiple, the inverse or an inverse multiple of the daily performance of the Japanese yen spot price versus the U.S. dollar. These Funds 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 foreign currency, as the basis for the underlying benchmark.

The Japanese Yen has been the official currency of Japan since 1871. The Bank of Japan has been operating as the central bank of Japan since 1882.

As of April 2010, the average daily turnover in the foreign exchange market was approximately $4.0 trillion. The average daily turnover of the Japanese Yen in the foreign exchange market accounts for approximately 19% of global foreign exchange transactions, which makes it the third-most-traded currency in the world. The U.S. Dollar/Japanese Yen pair has an average daily turnover of approximately $568 billion, which makes it the second most traded currency pair, accounting for approximately 14% of global foreign exchange transactions.

A portion of the above information was obtained from the BIS Survey information which comes from the Bank for International Settlements and maintains a website at www.bis.org.

Australian Dollar

ProShares UltraPro Australian Dollar, ProShares Ultra Australian Dollar, ProShares Short Australian Dollar, ProShares UltraShort Australian Dollar and ProShares UltraPro Short Australian Dollar are designed to track a multiple, the inverse or an inverse multiple of the daily performance of the Australian dollar spot price versus the U.S. dollar. These Funds use 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 foreign currency, as the basis for the underlying benchmark.

The Australian dollar is the national currency of Australia and the currency of the accounts of the Reserve Bank of Australia, 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 issued the first Australian currency notes. In 1915, the Commonwealth Bank of Australia became the exclusive issuer of currency in Australia. From 1930 through the 1960s, the Australian banking system underwent substantial transformation. In 1960, the Reserve Bank of Australia

 

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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 foreign 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 Reserve Bank of Australia’s website (http://www.rba.gov.au).

Canadian Dollar

ProShares UltraPro Canadian Dollar, ProShares Ultra Canadian Dollar, ProShares Short Canadian Dollar, ProShares UltraShort Canadian Dollar and ProShares UltraPro Short Canadian Dollar are designed to track a multiple, the inverse or an inverse multiple of the daily performance of the Canadian dollar spot price versus the U.S. dollar. These Funds use the 4:00 P.M. (Eastern Time) Canadian dollar/U.S. dollar exchange rate as provided by Bloomberg, expressed in terms of U.S. dollars per unit of foreign currency, as the basis for the underlying benchmark.

The Canadian dollar is the national currency of Canada and the currency of the accounts of the Bank of Canada, the Canadian central bank. The official currency code for the Canadian dollar is “CAD.” As with U.S. currency, 100 Canadian cents are equal to one Canadian dollar.

The Canadian dollar was introduced in 1858. Initially, the Canadian dollar was redeemable for gold, but the gold standard was suspended at times and abandoned officially in 1933. In 1934, Canada’s official central bank, the Bank of Canada, was established. During World War II, the Canadian dollar was pegged to the U.S. dollar and the British pound by the Canadian government. In 1950, Canada abolished the fixed rates of exchange for the Canadian dollar into U.S. dollars and British pounds. In 1962, Canada again established fixed rates of exchange based primarily on the U.S. dollar. In 1970, the Canadian government decided to allow the value of the Canadian dollar to float, with the result that its value now depends almost entirely on market forces. The foregoing information is compiled from the Bank of Canada’s website and the Bank for International Settlements Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity in April 2007-Final results.

Swiss Franc

ProShares UltraPro Swiss Franc, ProShares Ultra Swiss Franc, ProShares Short Swiss Franc, ProShares UltraShort Swiss Franc and ProShares UltraPro Short Swiss Franc are designed to track a multiple, the inverse or an inverse multiple of the daily performance of the Swiss franc spot price versus the U.S. dollar. These Funds use the 4:00 P.M. (Eastern Time) Swiss franc/U.S. dollar exchange rate as provided by Bloomberg, expressed in terms of U.S. dollars per unit of foreign currency, as the basis for the underlying benchmark.

The Swiss franc is the national currency of Switzerland and Liechtenstein and the currency of the accounts of the Swiss National Bank, the central bank of Switzerland. The official currency code for the Swiss franc is “CHF.” Each Swiss franc is equal to 100 Swiss centimes.

U.S. Dollar Index

ProShares UltraPro U.S. Dollar, ProShares Ultra U.S. Dollar, ProShares Short U.S. Dollar, ProShares UltraShort U.S. Dollar and ProShares UltraPro Short U.S. Dollar are designed to track a multiple, the inverse or an inverse multiple of the daily performance of the Index. The Index is a geometrically-averaged calculation of six currencies weighted against the U.S. dollar. The six component currencies are the Euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. The component currencies do not have the same weight. The Euro has a weighting of 57.6%, the Japanese yen a weighting of 13.6%, the British pound a weighting of 11.9%, the Canadian dollar a weighting of 9.1%, the Swedish krona a weighting of 4.2% and the Swiss franc a weighting of 3.6%. The Index is calculated by Bloomberg in real time approximately every 15 seconds using the spot prices of the Index’s component currencies. The price used for the calculation of the Index is the mid-point between the Bloomberg top of the book bid/offer in the component currencies.

The Index was created by the U.S. Federal Reserve in 1973. Following the ending of the 1944 Bretton Woods Agreement, which had established a system of fixed exchange rates, the U.S. Federal Reserve Bank began the calculation of the Index to provide an external bilateral trade-weighted average of the U.S. dollar as it freely floated against global currencies. Futures contracts based on the Index were listed on November 20, 1985, and are now available only on the Intercontinental Exchange (“ICE”) electronic trading platform. Options on the futures contracts began trading on September 3, 1986, and are available both on the ICE electronic trading platform and on the ICE options trading floor.

 

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The ICE operates leading regulated exchanges, trading platforms and clearing houses serving global markets for agricultural, credit, currency, emissions, energy and equity index markets. ICE operates three futures exchanges including London-based ICE Futures Europe, which hosts trading in half of the world’s crude and refined oil futures contracts traded each day. ICE Futures U.S. and ICE Futures Canada list agricultural, currency and Russell Index futures and options markets. ICE also provides trade execution, processing and clearing services for the OTC energy and credit derivatives markets. A component of the Russell 1000® and S&P 500 indexes, ICE serves customers in more than 55 countries and is headquartered in Atlanta, with offices in New York, London, Chicago, Winnipeg, Calgary, Houston and Singapore.

Description of the VIX Futures Indexes

The VIX Funds seek to offer exposure to forward equity market volatility by obtaining exposure to the VIX Futures Indexes, which are based on publicly traded VIX futures contracts. The VIX Futures Indexes are intended to reflect the returns that are potentially available through an unleveraged investment in the VIX futures contracts comprising each VIX Futures Index. The VIX, which is not the index underlying the VIX Funds, is calculated based on the prices of put and call options on the S&P 500. The VIX Funds can be expected to perform very differently from the VIX.

The Short-Term Index employs rules for selecting VIX futures contracts comprising the Short-Term Index and a formula to calculate a level for that Index from the prices of these VIX futures contracts. Specifically, the VIX futures contracts comprising the Short-Term Index represent the prices of two near-term VIX futures contracts, replicating a position that rolls the nearest month VIX futures to the next month VIX futures on a daily basis in equal fractional amounts. This results in a constant weighted average maturity of one-month. The roll period begins on the Tuesday prior to the monthly CBOE VIX futures settlement and runs through the Tuesday prior to the subsequent month’s CBOE VIX futures settlement date.

The Mid-Term Index also employs rules for selecting its VIX futures contracts comprising the Mid-Term Index and a formula to calculate a level for that Index from the prices of these VIX futures contracts. Specifically, the VIX futures contracts comprising the Mid-Term Index represent the prices for four contract months of VIX futures, representing a rolling long position in the fourth, fifth, sixth and seventh month VIX futures contracts. The Mid-Term Index rolls continuously throughout each month while maintaining positions in the fifth and sixth month contracts. This results in a constant weighted average maturity of five-months.

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

 

Index

   Bloomberg Ticker Symbol

S&P 500 VIX Short-Term Futures Index

         SPVXSPID

S&P 500 VIX Mid-Term Futures Index

         SPVXMPID

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

VIX Futures Contracts

Both VIX Futures Indexes are comprised of VIX futures contracts. VIX futures contracts were first launched for trading by the CBOE in 2004. VIX futures have expirations ranging from the front month consecutively out to the tenth month. VIX futures contracts allow investors the ability to invest based on their view of forward implied market volatility. Investors that believe the forward implied market volatility of the S&P 500, as represented by VIX futures, will increase may buy VIX futures. Conversely, investors that believe that the forward implied market volatility of the S&P 500, as represented by VIX futures, will decline may sell VIX futures. VIX futures are reported by Bloomberg L.P. under the ticker symbol “VX.”

 

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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 what the expected 30-day volatility will be at a particular time in the future (on the expiration date). The VIX and VIX futures generally behave quite differently. To illustrate, on January 31, 2011, the VIX was 19.53 and the price of the February 2011 VIX futures contracts expiring on February 16, 2011 was 19.10. In this example, the price of the VIX represented the 30-day implied, or “spot,” volatility (the volatility expected for the period from January 31, 2011 to March 2, 2011) of the S&P 500 and the February VIX futures contracts represented forward implied volatility (the volatility expected for the period from February 16, 2011 to March 16, 2011) of the S&P 500. The spot/forward relationship between the VIX and VIX futures has two noteworthy consequences: (1) 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; and (2) an investor cannot create a position equivalent to one in VIX futures contracts by buying the VIX and holding the position to the futures expiration date while financing the transaction.

The VIX

The VIX Funds are not linked to the VIX and can be expected to perform very differently from the VIX. The VIX is a benchmark index designed to measure the implied volatility of the S&P 500 over 30 days in the future, and is calculated based on the prices of certain put and call options on the S&P 500. 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. The VIX has historically had a negative correlation to the S&P 500. The VIX was developed by the CBOE and is calculated, maintained and published by the CBOE. The CBOE has no obligation to continue to publish, and may discontinue the publication of, the VIX. The VIX is reported by Bloomberg L.P. under the ticker symbol “VIX.” The calculation of the VIX involves a formula that uses the prices of a weighted series of out-of-the money put and call options on the level of the S&P 500® Index (“SPX Options”) with two adjacent expiry terms to derive a constant 30-day forward measure of market volatility. The VIX is calculated independent of any particular option pricing model and in doing so seeks to eliminate any biases which may otherwise be included in using options pricing methodology based on certain assumptions. Although the VIX measures the 30-day forward volatility of the S&P 500 as implied by the SPX Options, 30-day options are only available once a month. To arrive at the VIX level, a broad range of out-of-the money SPX Options expiring on the two closest nearby months (“near term options” and “next term options,” respectively) are selected in order to bracket a 30-day calendar period. SPX Options having a maturity of less than eight days are excluded at the outset and, when the near term options have eight days or less left to expiration, the VIX rolls to the second and third contract months in order to minimize pricing anomalies that occur close to expiration. The model-free implied volatility using prices of the near term options and next term options are then calculated on a strike price weighted average basis in order to arrive at a single average implied volatility value for each month. The results of each of the two months are then interpolated to arrive at a single value with a constant maturity of 30 days to expiration.

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. As of December 31, 2011, the S&P 500 included companies with capitalizations between $3.3 billion and $406.2 billion. The average capitalization of the companies comprising the Index was approximately $23.9 billion. 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 NYSE. S&P chooses companies for inclusion in the S&P 500 with the objective of achieving a distribution by broad

 

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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.

THE VIX FUNDS ARE 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 FUNDS OR ANY MEMBER OF THE PUBLIC REGARDING THE ADVISABILITY OF INVESTING IN SECURITIES GENERALLY OR IN THE VIX FUNDS PARTICULARLY OR THE ABILITY OF THE INDEXES 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 THE TRUST ON BEHALF OF ITS APPLICABLE SERIES AND THE SPONSOR IS THE LICENSING OF CERTAIN TRADEMARKS AND TRADE NAMES AND OF THE INDEXES WHICH ARE DETERMINED, COMPOSED AND CALCULATED BY S&P WITHOUT REGARD TO THE TRUST ON BEHALF OF ITS APPLICABLE SERIES AND THE SPONSOR OR THE VIX FUNDS. S&P HAS NO OBLIGATION TO TAKE THE NEEDS OF THE TRUST ON BEHALF OF ITS APPLICABLE SERIES AND THE SPONSOR OR THE OWNERS OF THE VIX FUNDS INTO CONSIDERATION IN DETERMINING, COMPOSING OR CALCULATING THE INDEXES. S&P AND CBOE ARE NOT ADVISORS TO THE VIX FUNDS AND ARE NOT RESPONSIBLE FOR AND HAVE NOT PARTICIPATED IN THE DETERMINATION OF THE PRICES AND AMOUNT OF THE VIX FUNDS OR THE TIMING OF THE ISSUANCE OR SALE OF THE VIX FUNDS OR IN THE DETERMINATION OR CALCULATION OF THE EQUATION BY WHICH THE VIX 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 FUNDS.

NEITHER S&P, ITS AFFILIATES NOR THIRD PARTY LICENSORS, INCLUDING CBOE, GUARANTEES THE ACCURACY AND/OR THE COMPLETENESS OF THE INDEXES 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 THE TRUST ON BEHALF OF ITS APPLICABLE SERIES AND THE SPONSOR, OWNERS OF THE VIX FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEXES 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 INDEXES 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 INDEXES OR ANY DATA INCLUDED THEREIN, EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.

Description of the S&P Dynamic Futures Index and Sub-Indexes

Developed by S&P, the DFI and each Sub-Index are long/short rules-based investable indexes designed to attempt to capture the economic benefit derived from both rising and declining trends in futures prices. The DFI is composed of the Index Components, representing unleveraged long or short positions in futures contracts in the commodity and financial markets. These Index Components are then formed into groups of one or more contracts with similar characteristics known as “sectors.” Index Components within each sector are chosen based on fundamental characteristics and liquidity. The Commodities Futures Contracts comprise the DCFI, and the Financials Futures Contracts comprise the DFFI.

 

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Commodity weights are based on generally known world production levels as determined by the S&P GSCI Light Energy Index. Weightings of the Financials Futures Contracts are based on, but not directly proportional to, gross domestic product.

The positions the DFI (and accordingly, each Sub-Index) takes in the Index Components are not long-only, but are set, by sector, long, short or, in the case of energy, flat (zero-weight) based on the relation of the current aggregate price input of the Index Components in a particular sector (e.g., grains) with a seven-month weighted moving average of the aggregate price inputs of the same Index Components.

The following charts reflect the initial 2011 weighting schemes for the DFI and each Sub-Index. For the DFI and the DCFI, the sector weights will vary based on whether or not energy is positioned long or flat. If energy is flat, its weight is redistributed pro rata among the other sectors. Since the DFFI has no commodity exposure, the weights of the sectors and the Index Components that comprise it are not impacted by the long or flat positioning of the energy sector.

For the Index, if energy is positioned “long,” the initial Index weights will be as follows:

Index Weights with Energy “Long”

 

Sub-Index

   Weight     

Sector

   Weight     

Component

   Weight  

Commodities

     50 %    Energy      14.12 %    Light Crude      10.20 %

Futures Contracts

            Heating Oil      1.54 %
            RBOB Natural Gas      1.40 %
            Natural Gas      0.98 %
      Industrial Metals      5.02 %    Copper      5.02 %
      Precious Metals      3.79 %    Gold      3.22 %
            Silver      0.57 %
      Livestock      5.27 %    Lean Hogs      2.04 %
            Live Cattle      3.23 %
      Grains      13.85 %    Corn      5.75 %
            Soybeans      3.37 %
            Wheat      4.73 %
      Softs      7.96 %    Coffee      1.27 %
            Cocoa      0.42 %
            Sugar      3.58 %
            Cotton      2.69 %

Financials

     50 %    Australian Dollar      1.67 %    Australian Dollar      1.67 %

Futures Contracts

      British Pound      3.08 %    British Pound      3.08 %
      Canadian Dollar      2.10 %    Canadian Dollar      2.10 %
      Euro      15.67 %    Euro      15.67 %
      Japanese Yen      7.31 %    Japanese Yen      7.31 %
      Swiss Franc      0.70 %    Swiss Franc      0.70 %
      U.S. Treasury Notes      9.74 %    U.S. Treasury Notes      9.74 %
      U.S. Treasury Bonds      9.74 %    U.S. Treasury Bonds      9.74 %
  

 

 

       

 

 

       

 

 

 

Totals

     100 %         100 %         100 %
  

 

 

       

 

 

       

 

 

 

For the Index, if energy is positioned “flat,” the initial Index weights will be as follows:

Index Weights with Energy “Flat”

 

Sub-Index

   Weight     

Sector

   Weight     

Component

   Weight  

Commodities

     41.78 %    Energy      0.00 %    Light Crude      0.00 %

Futures Contracts

            Heating Oil      0.00 %
            RBOB Natural Gas      0.00 %
            Natural Gas      0.00 %
      Industrial Metals      5.84 %    Copper      5.84 %
      Precious Metals      4.41 %    Gold      3.75 %
            Silver      0.66 %
      Livestock      6.13 %    Lean Hogs      2.38 %
            Live Cattle      3.76 %
      Grains      16.13 %    Corn      6.70 %
            Soybeans      3.92 %
            Wheat      5.51 %
      Softs      9.26 %    Coffee      1.47 %
            Cocoa      0.48 %
            Sugar      4.17 %
            Cotton      3.13 %

Financials

     58.22 %    Australian Dollar      1.94 %    Australian Dollar      1.94 %

Futures Contracts

      British Pound      3.59 %    British Pound      3.59 %
      Canadian Dollar      2.44 %    Canadian Dollar      2.44 %
      Euro      18.24 %    Euro      18.24 %
      Japanese Yen      8.51 %    Japanese Yen      8.51 %
      Swiss Franc      0.81 %    Swiss Franc      0.81 %
      U.S. Treasury Notes      11.34 %    U.S. Treasury Notes      11.34 %
      U.S. Treasury Bonds      11.34 %    U.S. Treasury Bonds      11.34 %
  

 

 

       

 

 

       

 

 

 

Totals

     100 %         100 %         100 %
  

 

 

       

 

 

       

 

 

 

 

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For the DCFI, if energy is positioned “long,” the initial index weightings would be as follows:

DCFI Weights with Energy “Long”

 

Sector

   Weight     

Component

   Weight  

Energy

     28.24 %    Light Crude      20.40 %
      Heating Oil      3.07 %
      RBOB Natural Gas      2.80 %
      Natural Gas      1.97 %

Industrial Metals

     10.03 %    Copper      10.03 %

Precious Metals

     7.58 %    Gold      6.45 %
      Silver      1.13 %

Livestock

     10.54 %    Lean Hogs      4.09 %
      Live Cattle      6.45 %

Grains

     27.71 %    Corn      11.51 %
      Soybeans      6.74 %
      Wheat      9.46 %

Softs

     15.90 %    Coffee      2.53 %
      Cocoa      0.83 %
      Sugar      7.16 %
      Cotton      5.38 %
  

 

 

       

 

 

 

Total

     100 %         100 %
  

 

 

       

 

 

 

For the DCFI, if energy is initially positioned “flat,” the weights would be as follows:

DCFI Weights with Energy “Flat”

 

Sector

   Weight     

Component

   Weight  

Energy

     0.00 %    Light Crude      0.00 %
      Heating Oil      0.00 %
      RBOB Natural Gas      0.00 %
      Natural Gas      0.00 %

Industrial Metals

     13.98 %    Copper      13.98 %

Precious Metals

     10.57 %    Gold      8.99 %
      Silver      1.58 %

Livestock

     14.68 %    Lean Hogs      5.69 %
      Live Cattle      8.99 %

Grains

     38.61 %    Corn      16.04 %
      Soybeans      9.39 %
      Wheat      13.18 %

Softs

     22.17 %    Coffee      3.53 %
      Cocoa      1.16 %
      Sugar      9.98 %
      Cotton      7.50 %
  

 

 

       

 

 

 

Total

     100 %         100 %
  

 

 

       

 

 

 

 

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Finally, for the DFFI, the initial sector and financial future weights are as follows:

DFFI Weights

 

Sector

   Weight     

Component

   Weight  

Australian Dollar

     3.34 %    Australian Dollar      3.34 %

British Pound

     6.16 %    British Pound      6.16 %

Canadian Dollar

     4.20 %    Canadian Dollar      4.20 %

Euro

     31.33 %    Euro      31.33 %

Japanese Yen

     14.61 %    Japanese Yen      14.61 %

Swiss Franc

     1.40 %    Swiss Franc      1.40 %

U.S. Treasury Notes

     19.48 %    U.S. Treasury Notes      19.48 %

U.S. Treasury Bonds

     19.48 %    U.S. Treasury Bonds      19.48 %
  

 

 

       

 

 

 

Total

     100 %         100 %
  

 

 

       

 

 

 

Sectors are rebalanced monthly to the applicable above-mentioned weights; the weighting of each individual Index Component within a particular sector is rebalanced annually.

Energy’s Short Exemption

If energy receives a negative price signal (as determined by the weighted moving average, as discussed below), it is positioned flat (zero-weight) rather than short. This is due to the “risk of ruin” inherent in the energy sector because of the concentration of supply in a relatively small number of production locales. If supply from these locales were to be disrupted (whether by war, terrorism, or other events), the price of the energy sector within the DFI is exposed to large scale price increases regardless of the current trend and position setting. This would expose the DFI and the DCFI to significant, if not total losses, in such a circumstance. As such, the energy sector is positioned flat in a negative price environment and the weight it would otherwise receive is redistributed pro rata among the other sectors of the Index and the DCFI.

Determining the Long/Short Positioning of the Sectors

Each month, the DFI, the DCFI and the DFFI will take long or short positions (or flat, in the case of energy, as applicable) in each sector by measuring the current sector price relative to a seven-month exponential weighted moving average. This is not a “spot” value comparison of a single contract, but a comparison of the current price input of the Index Component(s) within a particular sector against its seven-month exponential weighted moving average of the past seven monthly price inputs. Long positions are tracked when a sector’s current aggregate one-month price change is greater than or equal to the exponential average of the past seven monthly price inputs. Short positions (or flat positions, in the case of energy) are tracked when a sector’s current one-month price change is less than the exponential average of the past seven monthly price inputs. The price inputs represent the monthly percentage change of a components price. Monthly positions are determined on the second to last DFI business day of the month (defined as the position determination date, or PDD) when the monthly percentage change of an Index Component’s price is compared to past monthly price changes, exponentially weighted to give greatest weight to the most recent return and least weight to the return seven months prior. The weighted sum of the percentage changes of all the Index Component prices equals the daily movement of the Index. To create an exponential average for comparison, price inputs (percentage change from current and previous PDDs) are weighted per the schedule below. Due to this weighting methodology, current price movements are more important than those of the more distant past.

 

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Number of Months

   Weight  

7

     2.33 %

6

     3.71 %

5

     5.94 %

4

     9.51 %

3

     15.22 %

2

     24.34 %

1

     38.95 %
  

 

 

 

Total

     100.00 %
  

 

 

 

The sector valuation is an aggregate measure that incorporates pricing from individual contracts following the Roll Schedule. Because this valuation is done on a sector basis, all the Index Components within a particular sector will be set long, short (or flat, in the case of energy) upon each monthly rebalancing.

While sector weights are fixed and rebalanced back to their base weight monthly, Index Components that are part of a multicomponent sector (energy, livestock, grains, and precious metals) are only reset back to their base weight within their sector during the first five business days of February. For example (assuming energy is long), the Japanese yen (a single component sector) and the grains (a multicomponent sector) will rebalance to 6.85% and 11.16% of the Index respectively on the roll date. However, the individual components within the grains sector will only rebalance to their base weight at the beginning of the year. During the year, they “float” within the 11.16% Index grains weighting.

Rolling

During this monthly rebalancing, the DFI will also “roll” certain of its positions from the current contract to a contract further from settlement. In order to maintain consistent exposure to the Index Components that compose the Index, each Index Component contract must be sold prior to its expiration date and replaced by a contract maturing at a specified date in the future. This process is known as rolling. Index Component contracts are rolled periodically. The rolls are implemented pursuant to a roll schedule over a five-day period from the first (1st) through the fifth (5th) Index business days of the month. A DFI business day is any day on which the majority of the Index Components are open for official trading and official settlement prices are provided, excluding holidays and weekends.

THE FUNDS ARE 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 FUNDS OR ANY MEMBER OF THE PUBLIC REGARDING THE ADVISABILITY OF INVESTING IN SECURITIES GENERALLY OR IN THE FUNDS PARTICULARLY OR THE ABILITY OF THE INDEXES TO TRACK MARKET PERFORMANCE OF CERTAIN FINANCIAL MARKETS AND/OR SECTIONS THEREOF AND/OR OF GROUPS OF ASSETS OR ASSET CLASSES AND/OR TO ACHIEVE ITS STATED OBJECTIVE AND/OR TO FORM THE BASIS OF A SUCCESFUL INVESTMENT STRATEGY, AS APPLICABLE. S&P’S AND CBOE’S ONLY RELATIONSHIP TO THE TRUST ON BEHALF OF ITS APPLICABLE SERIES AND THE SPONSOR IS THE LICENSING OF CERTAIN TRADEMARKS AND TRADE NAMES AND OF THE INDEXES WHICH ARE DETERMINED, COMPOSED AND CALCULATED BY S&P WITHOUT REGARD TO THE TRUST ON BEHALF OF ITS APPLICABLE SERIES AND THE SPONSOR OR THE FUNDS. S&P HAS NO OBLIGATION TO TAKE THE NEEDS OF THE TRUST ON BEHALF OF ITS APPLICABLE SERIES AND THE SPONSOR OR THE OWNERS OF THE FUNDS INTO CONSIDERATION IN DETERMINING, COMPOSING OR CALCULATING THE INDEXES. S&P AND CBOE ARE NOT ADVISORS TO THE FUNDS AND ARE NOT RESPONSIBLE FOR AND HAVE NOT PARTICIPATED IN THE DETERMINATION OF THE PRICES AND AMOUNT OF THE FUNDS OR THE TIMING OF THE ISSUANCE OR SALE OF THE FUNDS OR IN THE DETERMINATION OR CALCULATION OF THE EQUATION BY WHICH THE 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 FUNDS.

NEITHER S&P, ITS AFFILIATES NOR THIRD PARTY LICENSORS, INCLUDING CBOE, GUARANTEES THE ACCURACY AND/OR THE COMPLETENESS OF THE INDEXES 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

 

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RESULTS TO BE OBTAINED BY THE TRUST ON BEHALF OF ITS APPLICABLE SERIES AND THE SPONSOR, OWNERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEXES 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 INDEXES 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 INDEXES OR ANY DATA INCLUDED THEREIN, EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.

Creation and Redemption of Shares

Each Fund creates and redeems, or will create and redeem, Shares from time to time, but only in one or more Creation Units. A Creation Unit is or will be a block of 50,000 Shares of a Geared Fund or a Managed Futures Fund, or a block of 25,000 Shares of a Matching VIX Fund. Creation Units may be created or redeemed only by Authorized Participants. Except when aggregated in Creation Units, the Shares are not redeemable securities.

Authorized Participants may pay a fixed transaction fee of up to $500 in connection with each order to create or redeem a Creation Unit of Shares in order to compensate Brown Brothers Harriman & Co. (“BBH&Co.”), as the Administrator, the Custodian and the Transfer Agent of each Fund and its Shares, for services in processing the creation and redemption of Creation Units. Authorized Participants also may pay a variable transaction fee to the Fund of up to 0.10% of the value of the Creation Unit that is purchased or redeemed unless the transaction fee is waived or otherwise adjusted by the Sponsor. The Sponsor provides such Authorized Participant with prompt notice in advance of any such waiver or adjustment of the transaction fee. Authorized Participants may sell the Shares included in the Creation Units they purchase from the Funds to other investors in the secondary market.

The form of Authorized Participant Agreement and the related Authorized Participant Handbook set forth the procedures for the creation and redemption of Creation Units and for the payment of cash required for such creations and redemptions. The Sponsor may delegate its duties and obligations under the form of Authorized Participant Agreement to SEI Investments Distribution Co. (“SEI”) or BBH&Co., in its capacity as the Administrator, without consent from any shareholder or Authorized Participant. The form of Authorized Participant Agreement and the related procedures attached thereto may be amended by the Sponsor without the consent of any shareholder or Authorized Participant. Authorized Participants who purchase Creation Units from a Fund receive no fees, commissions or other form of compensation or inducement of any kind from either the Sponsor or the Fund, and no such person has any obligation or responsibility to the Sponsor or the Fund to effect any sale or resale of Shares.

Authorized Participants are cautioned that some of their activities may result in their being deemed participants in a distribution in a manner which would render them statutory underwriters and subject them to the prospectus delivery and liability provisions of the Securities Act of 1933, as amended (the “1933 Act”).

Each Authorized Participant is registered as a broker-dealer under the 1934 Act and regulated by Financial Industry Regulatory Authority (“FINRA”), or exempt from being, or otherwise not required to be, so regulated or registered, and must be qualified to act as a broker or dealer in the states or other jurisdictions where the nature of its business so requires. Certain Authorized Participants may be regulated under federal and state banking laws and regulations. Each Authorized Participant must have its own set of rules and procedures, internal controls and information barriers as it determines is appropriate in light of its own regulatory regime.

Authorized Participants may act for their own accounts or as agents for broker-dealers, custodians and other securities market participants that wish to create or redeem Creation Units.

Persons interested in purchasing Creation Units should contact the Sponsor or the Administrator to obtain the contact information for the Authorized Participants. Shareholders who are not Authorized Participants are only able to redeem their Shares through an Authorized Participant.

 

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Pursuant to the Authorized Participant Agreement, the Sponsor agreed to indemnify the Authorized Participants against certain liabilities, including liabilities under the 1933 Act, and to contribute to the payments the Authorized Participants may be required to make in respect of those liabilities.

The following description of the procedures for the creation and redemption of Creation Units is only a summary and an investor should refer to the relevant provisions of the Amended and Restated Trust Agreement of the Trust, as may be further amended from time to time (the “Trust Agreement”) and the form of Authorized Participant Agreement for more detail. The Trust Agreement and the form of Authorized Participant Agreement are incorporated by reference into this Annual Report on Form 10-K.

Creation Procedures

On any Business Day, an Authorized Participant may place an order with the Distributor to create one or more Creation Units. For purposes of processing both purchase and redemption orders, a “Business Day” means any day other than a day when any of the NYSE Arca, the New York Stock Exchange (the “NYSE”), and as applicable to the underlying benchmark, the Chicago Mercantile Exchange (“CME”), CBOT, ICE/New York Board of Trade (“NYBOT”), LME, NYMEX/Commodity Exchange (“COMEX”), CBOE or CBOE Futures Exchange (“CFE”) is closed for regular trading. Purchase orders must be placed one hour prior to the earliest applicable closing time of the exchange upon which a benchmarked commodity or component of an index trades or upon the platform which a currency is valued. If a purchase order is received prior to the applicable cut-off time, the day on which SEI receives a valid purchase order is the purchase order date. If the purchase order is received after the applicable cut-off time, the purchase order date will be the next day. Purchase orders are irrevocable. By placing a purchase order, and prior to delivery of such Creation Units, an Authorized Participant’s DTC account will be charged the nonrefundable transaction fee due for the purchase order.

Determination of Required Payment

The total payment required to create each Creation Unit is or will be the NAV of 50,000 Shares of the applicable Geared Fund and Managed Futures Fund and 25,000 Shares of the applicable VIX Fund on the purchase order date plus the applicable transaction fee. Authorized Participants have a cut-off as shown in the table below.

 

Underlying Benchmark

  

Create/Redeem Cutoff

        

NAV Calculation Time

 

Silver

     6:00 A.M. (Eastern Time        7:00 A.M. (Eastern Time )* 

Gold

     9:00 A.M. (Eastern Time        10:00 A.M. (Eastern Time )* 

DJ-UBS Commodity

     10:45 A.M. (Eastern Time        2:30 P.M. (Eastern Time

S&P Dynamic Futures Index

     10:45 A.M. (Eastern Time        3:00 P.M. (Eastern Time

S&P Dynamic Commodities Futures Index

     10:45 A.M. (Eastern Time        3:00 P.M. (Eastern Time

S&P Dynamic Financial Futures Index

     10:45 A.M. (Eastern Time        3:00 P.M. (Eastern Time

S&P VIX Short-Term Futures

     12:00 P.M. (Eastern Time        4:15 P.M. (Eastern Time

S&P VIX Mid-Term Futures

     12:00 P.M. (Eastern Time        4:15 P.M. (Eastern Time

DJ-UBS Crude Oil

     1:30 P.M. (Eastern Time        2:30 P.M. (Eastern Time

DJ-UBS Natural Gas

     1:30 P.M. (Eastern Time        2:30 P.M. (Eastern Time

Australian dollar

     3:00 P.M. (Eastern Time        4:00 P.M. (Eastern Time

Canadian 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

Swiss Franc

     3:00 P.M. (Eastern Time        4:00 P.M. (Eastern Time

U.S. Dollar Index

     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

 

* For silver and gold, this time may vary due to differences in when daylight savings time is effective between London and New York. The actual times equate to noon London time for silver and 3:00 P.M. London time for gold.

Delivery of Cash

Cash required for settlement will typically be transferred to the Custodian through: (1) the Continuous Net Settlement (“CNS”) clearing process of the National Securities Clearing Corporation (“NSCC”), as such processes

 

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have been enhanced to effect creations and redemptions of Creation Units; or (2) the facilities of DTC on a Delivery Versus Payment (“DVP”) basis, which is the procedure in which the buyer’s payment for securities is due at the time of delivery. Security delivery and payment are simultaneous. If the Custodian does not receive the cash by the market close on the first Business Day following the purchase order date (T+1), such order may be charged interest for delayed settlement or cancelled. The Sponsor reserves the right to extend the deadline for the Custodian to receive the cash required for settlement up to the third Business Day following the purchase order date (T+3). In the event a purchase order is cancelled, the Authorized Participant will be responsible for reimbursing the Fund for all costs associated with cancelling the order including costs for repositioning the portfolio. At its sole discretion, the Sponsor may agree to a delivery date other than T+3. The Creation Unit will be delivered to the Authorized Participant upon the Custodian’s receipt of the purchase amount.

Delivery of Exchange of Futures Contract for Related Position (“EFCRP”) Futures Contracts or Block Trades

In the event that the Sponsor shall have determined to permit the Authorized Participant to transfer futures contracts pursuant to an EFCRP or to engage in a block trade purchase of futures contracts from the Authorized Participant with respect to a VIX Fund, as well as to deliver cash, in the creation process, futures contracts required for settlement must be transferred directly to the VIX Fund’s account at its FCM. If the cash is not received by the market close on the third Business Day following the purchase order date (T+3); such order may be charged interest for delayed settlements or cancelled. In the event a purchase order is cancelled, the Authorized Participant will be responsible for reimbursing a VIX Fund for all costs associated with cancelling the order including costs for repositioning the portfolio. At its sole discretion, the Sponsor may agree to a delivery date other than T+3. The Creation Unit will be delivered to the Authorized Participant upon the Custodian’s receipt of the cash purchase amount and the futures contracts.

Suspension or Rejection of Purchase Orders

In respect of any Fund, the Sponsor may, in its discretion, suspend the right of repurchase, or postpone the purchase settlement date, (1) for any period during which any of the NYSE, NYSE Arca, CME, CBOT, ICE/NYBOT, LME, NYMEX/COMEX, CBOE or CFE is closed other than for customary holidays or weekend closings or when trading is suspended or restricted on such exchanges in any of the underlying commodities; (2) for any period during which an emergency exists as a result of which the fulfillment of a purchase order is not reasonably practicable; or (3) for such other period as the Sponsor determines to be necessary for the protection of the shareholders. The Sponsor will not be liable to any person or in any way for any loss or damages that may result from any such suspension or postponement.

The Sponsor also may reject a purchase order if:

 

   

it determines that the purchase order is not in proper form;

 

   

the Sponsor believes that the purchase order would have adverse tax consequences to any Fund or its shareholders;

 

   

the order would be illegal; or

 

   

circumstances outside the control of the Sponsor make it, for all practical purposes, not feasible to process creations of Creation Units.

None of the Sponsor, the Administrator or the Custodian will be liable for the suspension or rejection of any purchase order.

Redemption Procedures

The procedures by which an Authorized Participant can redeem one or more Creation Units mirror the procedures for the creation of Creation Units. On any Business Day, an Authorized Participant may place an order with the Distributor to redeem one or more Creation Units. If a redemption order is received prior to the applicable cut-off time, the day on which SEI receives a valid redemption order is the redemption order date. If the redemption order is received after the applicable cut-off time, the redemption order date will be the next day. Redemption orders are irrevocable. The redemption procedures allow Authorized Participants to redeem Creation Units. Individual shareholders may not redeem directly from a Fund.

 

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By placing a redemption order, an Authorized Participant agrees to deliver the Creation Units to be redeemed through DTC’s book-entry system to the applicable Fund not later than noon (Eastern Time), By placing a redemption order, an Authorized Participant agrees to deliver the Creation Units to be redeemed through DTC’s book-entry system to the applicable Fund not later than noon (Eastern Time), on the first Business Day immediately following the redemption order date (T+1). The Sponsor reserves the right to extend the deadline for the Fund to receive the Creation Units required for settlement up to the third Business Day following the redemption order date (T+3). By placing a redemption order, and prior to receipt of the redemption proceeds, an Authorized Participant must wire to the Custodian the non-refundable transaction fee due for the redemption order or any proceeds due will be reduced by the amount of the fee payable. At its sole discretion, the Sponsor may agree to a delivery date other than T+3. Additional fees may apply for special settlement.

Upon request of an Authorized Participant made at the time of a redemption order, the Sponsor at its sole discretion may determine, in addition to delivering redemption proceeds, to transfer futures contracts to the Authorized Participant pursuant to an EFCRP or to a block trade sale of futures contracts to the Authorized Participant.

Determination of Redemption Proceeds

The redemption proceeds from a Fund consist of the cash redemption amount and, if permitted by the Sponsor in its sole discretion with respect to a Fund, an exchange of futures for related position or block trade with the relevant Fund. The cash redemption amount is equal to the NAV of the number of Creation Unit(s) of such Fund requested in the Authorized Participant’s redemption order as of the time of the calculation of such Fund’s NAV on the redemption order date, less transaction fees and any amounts attributable to any applicable exchange of futures for related position or block trade.

Delivery of Redemption Proceeds

The redemption proceeds due from a Fund are delivered to the Authorized Participant at noon (Eastern Time), on the third Business Day immediately following the redemption order date if, by such time on such Business Day immediately following the redemption order date, a Fund’s DTC account has been credited with the Creation Units to be redeemed. The Fund should be credited through: (1) the CNS clearing process of NSCC, as such processes have been enhanced to effect creations and redemptions of Creation Units; or (2) the facilities of DTC on a Delivery Versus Payment basis. If a Fund’s DTC account has not been credited with all of the Creation Units to be redeemed by such time, the redemption distribution is delivered to the extent whole Creation Units are received. Any remainder of the redemption distribution is delivered on the next Business Day to the extent of remaining whole Creation Units received if the Sponsor receives the fee applicable to the extension of the redemption distribution date which the Sponsor may, from time-to-time, determine and the remaining Creation Units to be redeemed are credited to the Fund’s DTC account by noon (Eastern Time), on such next Business Day. Any further outstanding amount of the redemption order may be cancelled. The Authorized Participant will be responsible for reimbursing a Fund for all costs associated with cancelling the order including costs for repositioning the portfolio.

The Sponsor is also authorized to deliver the redemption distribution notwithstanding that the Creation Units to be redeemed are not credited to a Fund’s DTC account by noon (Eastern Time), on the third Business Day immediately following the redemption order date if the Authorized Participant has collateralized its obligation to deliver the Creation Units through DTC’s book-entry system on such terms as the Sponsor may determine from time-to-time.

In the event that the Authorized Participant shall have requested, and the Sponsor shall have determined to permit the Authorized Participant to receive futures contracts pursuant to an EFCRP, as well as the cash redemption proceeds, in the redemption process, futures contracts required for settlement shall be transferred directly from the Fund’s account at its FCM to the account of the Authorized Participant at its FCM.

Suspension or Rejection of Redemption Orders

In respect of any Fund, the Sponsor may, in its discretion, suspend the right of redemption, or postpone the redemption settlement date, (1) for any period during which any of the NYSE, NYSE Arca, CME, CBOT,

 

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ICE/NYBOT, LME, NYMEX/COMEX, CBOE, or CFE is closed other than for customary holidays or weekend closings or when trading is suspended or restricted on such exchanges in any of the underlying commodities; (2) for any period during which an emergency exists as a result of which the redemption distribution is not reasonably practicable; or (3) for such other period as the Sponsor determines to be necessary for the protection of the shareholders. The Sponsor will not be liable to any person or in any way for any loss or damages that may result from any such suspension or postponement.

The Sponsor will reject a redemption order if the order is not in proper form as described in the form of Authorized Participant Agreement or if the fulfillment of the order might be unlawful.

Creation and Redemption Transaction Fee

To compensate BBH&Co. for services in processing the creation and redemption of Creation Units and to offset some or all of the transaction costs, an Authorized Participant may be required to pay a fixed transaction fee to BBH&Co. of up to $500 per order to create or redeem Creation Units and may pay a variable transaction fee to a Fund of up to 0.10% of the value of a Creation Unit. An order may include multiple Creation Units. The transaction fee(s) may be reduced, increased or otherwise changed by the Sponsor at its sole discretion.

Special Settlement

The Sponsor may allow for early settlement of purchase or redemption orders. Such arrangements may result in additional charges to the Authorized Participant.

NAV

The NAV in respect of a Fund, means the total assets of the Fund including, but not limited to, all cash and cash equivalents or other debt securities less total liabilities of such Fund, each determined on the basis of generally accepted accounting principles in the United States, consistently applied under the accrual method of accounting. In particular, NAV includes any unrealized profit or loss on open swaps and futures contracts, and any other credit or debit accruing to a Fund but unpaid or not received by a Fund. The NAV per Share of each Fund is computed by dividing the value of the net assets of such Fund (i.e., the value of its total assets less total liabilities) by its total number of Shares outstanding. Expenses and fees are accrued daily and taken into account for purposes of determining NAV.

 

Fund

       

NAV Calculation Time

     

ProShares Ultra Silver

     7:00 A.M. (Eastern Time)*   

ProShares UltraShort Silver

       

ProShares Ultra Gold

     10:00 A.M. (Eastern Time)*   

ProShares Short Gold

ProShares UltraShort Gold

       

ProShares Ultra DJ-UBS Commodity

     2:30 P.M. (Eastern Time)     

ProShares UltraShort DJ-UBS Commodity

       

ProShares Ultra DJ-UBS Crude Oil

     2:30 P.M. (Eastern Time)     

ProShares UltraShort DJ-UBS Crude Oil

       

ProShares Ultra DJ-UBS Natural Gas

     2:30 P.M. (Eastern Time)     

ProShares Short DJ-UBS Natural Gas

       

ProShares UltraShort DJ-UBS Natural Gas

       

ProShares Managed Futures Strategy

     3:00 P.M. (Eastern Time)     

ProShares Commodity Managed Futures Strategy

     3:00 P.M. (Eastern Time)     

 

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ProShares Financial Managed Futures Strategy

     3:00 P.M. (Eastern Time)   

ProShares UltraPro Euro

     4:00 P.M. (Eastern Time)   

ProShares Ultra Euro

       

ProShares Short Euro

       

ProShares UltraShort Euro

       

ProShares UltraPro Short Euro

       

ProShares UltraPro Yen

     4:00 P.M. (Eastern Time)   

ProShares Ultra Yen

       

ProShares Short Yen

       

ProShares UltraShort Yen

       

ProShares UltraPro Short Yen

       

ProShares UltraPro Australian Dollar

     4:00 P.M. (Eastern Time)   

ProShares Ultra Australian Dollar

       

ProShares Short Australian Dollar

       

ProShares UltraShort Australian Dollar

       

ProShares UltraPro Short Australian Dollar

       

ProShares UltraPro Canadian Dollar

     4:00 P.M. (Eastern Time)   

ProShares Ultra Canadian Dollar

       

ProShares Short Canadian Dollar

       

ProShares UltraShort Canadian Dollar

       

ProShares UltraPro Short Canadian Dollar

       

ProShares UltraPro Swiss Franc

     4:00 P.M. (Eastern Time)   

ProShares Ultra Swiss Franc

       

ProShares Short Swiss Franc

       

ProShares UltraShort Swiss Franc

       

ProShares UltraPro Short Swiss Franc

       

ProShares UltraPro U.S. Dollar

     4:00 P.M. (Eastern Time)   

ProShares Ultra U.S. Dollar

       

ProShares Short U.S. Dollar

       

ProShares UltraShort U.S. Dollar

       

ProShares UltraPro Short U.S. Dollar

       

ProShares Ultra VIX Short-Term Futures

     4:15 P.M. (Eastern Time)   

ProShares VIX Short-Term Futures

       

ProShares Short VIX Short-Term Futures

       

ProShares UltraShort VIX Short-Term Futures

       

ProShares Ultra VIX Mid-Term Futures

     4:15 P.M. (Eastern Time)   

ProShares VIX Mid-Term Futures

       

ProShares Short VIX Mid-Term Futures

       

ProShares UltraShort VIX Mid-Term Futures

       

 

* For silver and gold, this time may vary due to differences in when daylight savings time is effective between London and New York. The actual times equate to noon London time for silver and 3:00 P.M. London time for gold.

In calculating the indicative NAV of a Commodity Index Fund, the settlement value of a Commodity Index Funds’ swap agreements or forward contracts, as applicable, is determined by applying the then-current disseminated value for the applicable Dow Jones-UBS sub-index to the terms of such Commodity Index Funds’ swap agreements. In

 

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calculating the indicative NAV of a Commodity Fund, a Currency Fund, or a Currency Index Fund, the settlement value of the Fund’s non-exchange traded Financial Instruments, is determined by applying the then-current disseminated value for the applicable benchmark to the terms of such Fund’s non-exchange traded Financial Instruments. However, in the event that an underlying commodity or reference asset, as applicable, is not trading due to the operation of daily limits or otherwise, the Sponsor may, in its sole discretion, choose to fair value the index level in order to value the Fund’s non-exchange traded Financial Instruments for purposes of NAV calculation. In calculating the NAV of a VIX Fund, the settlement value of the Fund’s non-exchange traded Financial Instruments is or will be determined by applying the then-current disseminated value for the applicable index to the terms of such Fund’s non-exchange traded Financial Instruments. However, in the event that an underlying VIX futures contract is not trading due to the operation of daily limits or otherwise, the Sponsor may, in its sole discretion, choose to fair value the index level in order to value the Fund’s non-exchange traded Financial Instruments for purposes of NAV calculation. In calculating the indicative NAV of a Managed Futures Fund, the settlement value of the Fund’s non-exchange traded Financial Instruments will be determined by applying the then-current disseminated value for the applicable benchmark to the terms of such Fund’s non-exchange traded Financial Instruments. However, in the event that an underlying Index Component is not trading due to the operation of daily limits or otherwise, the Sponsor may, in its sole discretion, choose to fair value the index level in order to value the Fund’s non-exchange traded Financial Instruments for purposes of NAV calculation. Such fair value prices would generally be determined based on available inputs about the current value of the underlying reference assets (or, in the case of the VIX Funds, the current value of the underlying VIX futures contract or, in the case of Managed Futures Funds, the current value of the underlying Index Components) and would be based on principles that the Sponsor deems fair and equitable so long as such principles are consistent with normal industry standards.

All open futures contracts traded on a United States exchange are calculated at their then current market value, which is based upon the settlement price (for Funds benchmarked to the Dow Jones-UBS Crude Oil Sub-IndexSM, the Dow Jones-UBS Commodity IndexSM, the Dow Jones-UBS Natural Gas Sub-IndexSM and ICE U.S. Dollar Index®) or the last traded price before the NAV time (for Funds benchmarked to the London silver fix, the London PM gold fix, the AUD/USD, the CAD/USD, the CHF/USD, the Yen/USD and the Euro/USD), for that particular futures contract traded on the applicable United States exchange on the date with respect to which NAV is being determined. VIX futures contracts and Managed Futures contracts are based upon the settlement price or the last traded price before the NAV time, for that particular futures contract traded on the applicable United States Exchange, on the date with respect to which the NAV is being determined. If a futures contract traded on a United States exchange could not be liquidated on such day, due to the operation of daily limits or other rules of the exchange upon which that position is traded or otherwise, 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 current market value of all open futures contracts traded on a non-United States exchange, to the extent applicable, are based upon the settlement price for that particular futures contract traded on the applicable non-United States exchange on the date with respect to which NAV is being determined; provided further, that if a futures contract traded on a non-United States exchange, to the extent applicable, could not be liquidated on such day, due to the operation of daily limits (if applicable) or other rules of the exchange upon which that position is traded or otherwise, 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 Sponsor may in its sole discretion (and under extraordinary circumstances, including, but not limited to, periods during which a settlement price of a futures contract is not available due to exchange limit orders or force majeure type events such as systems failure, natural or manmade disaster, act of God, armed conflict, act of terrorism, riot or labor disruption or any similar intervening circumstance) value any asset of a Fund pursuant to such other principles as the Sponsor deems fair and equitable so long as such principles are consistent with normal industry standards. The amount of any distribution will be a liability of such Fund from the day when the distribution is declared until it is paid.

The Funds may use a variety of money market instruments to invest excess cash. Short-term bonds used in this capacity and expected to be held-to-maturity will be priced for net asset value purposes at amortized cost.

Indicative Optimized Portfolio Value (“IOPV”)

The IOPV is an indicator of the value of a Fund’s net assets at the time the IOPV is disseminated. The IOPV is calculated and disseminated every 15 seconds throughout the trading day. The IOPV is generally calculated using

 

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the prior day’s closing net assets of a Fund as a base and updating throughout the trading day changes in the value of the Financial Instruments held by a Fund. The IOPV should not be viewed as an actual real time update of the NAV because NAV is calculated only once at the end of each trading day. The IOPV also should not be viewed as a precise value of the Shares.

The NYSE Arca disseminates the IOPV. In addition, the IOPV is published on the NYSE Arca’s website and is available through on-line information services such as Bloomberg and Reuters.

Dissemination of the IOPV provides additional information that is not otherwise available to the public and may be useful to investors and market professionals in connection with the trading of Shares. Investors and market professionals are able throughout the trading day to compare the market price of a Fund and the IOPV. If the market price of Shares diverges significantly from the IOPV, market professionals may have an incentive to execute arbitrage trades. Such arbitrage trades can tighten the tracking between the market price of a Fund and the IOPV and thus can be beneficial to all market participants.

Purchases and Sales in the Secondary Market, on the NYSE Arca

Eight of the Leveraged Funds, ProShares Ultra DJ-UBS Commodity, ProShares UltraShort DJ-UBS Commodity, ProShares Ultra DJ-UBS Crude Oil, ProShares UltraShort DJ-UBS Crude Oil, ProShares Ultra Euro, ProShares UltraShort Euro, ProShares Ultra Yen and ProShares UltraShort Yen, began trading on the NYSE Arca on November 25, 2008. Four of the Leveraged Funds, ProShares Ultra Silver, ProShares UltraShort Silver, ProShares Ultra Gold and ProShares UltraShort Gold, began trading on the NYSE Arca on December 3, 2008. Two of the VIX Funds, ProShares VIX Short-Term Futures ETF and ProShares VIX Mid-Term Futures ETF, began trading on the NYSE Arca on January 3, 2011. Two of the VIX Funds, ProShares Ultra VIX Short-Term Futures ETF and ProShares Short VIX Short-Term Futures ETF, began trading on the NYSE Arca on October 3, 2011. Two of the Leveraged Funds, ProShares Ultra DJ-UBS Natural Gas and ProShares UltraShort DJ-UBS Natural Gas, began trading on the NYSE Arca on October 4, 2011. As of December 31, 2011, the New Funds had not commenced trading operations. The Shares of each Leveraged Fund and each VIX Fund are listed on the NYSE Arca under the following symbols:

 

Fund

  

Ticker Symbol

ProShares Ultra DJ-UBS Commodity

   UCD

ProShares UltraShort DJ-UBS Commodity

   CMD

ProShares Ultra DJ-UBS Crude Oil

   UCO

ProShares UltraShort DJ-UBS Crude Oil

   SCO

ProShares Ultra DJ-UBS Natural Gas

   BOIL

ProShares UltraShort DJ-UBS Natural Gas

   KOLD

ProShares Ultra Gold

   UGL

ProShares UltraShort Gold

   GLL

ProShares Ultra Silver

   AGQ

ProShares UltraShort Silver

   ZSL

ProShares Ultra Euro

   ULE

ProShares UltraShort Euro

   EUO

ProShares Ultra Yen

   YCL

ProShares UltraShort Yen

   YCS

ProShares Ultra VIX Short-Term Futures ETF

   UVXY

ProShares VIX Short-Term Futures ETF

   VIXY

ProShares Short VIX Short-Term Futures ETF

   SVXY

ProShares VIX Mid-Term Futures ETF

   VIXM

 

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An application has been made with the NYSE Arca to list the Shares of each New Fund shown below under the following symbols:

 

Fund

  

Ticker Symbol

ProShares Short DJ-UBS Natural Gas

   NGP

ProShares Short Gold

   SAU

Secondary market purchases and sales of Shares are subject to ordinary brokerage commissions and charges. The Shares of each Leveraged Fund and VIX Fund trade and the Shares of each New Fund will trade on the NYSE Arca, like any other exchange-listed security.

Fees and Expenses

Organization and Offering Expenses

The Trust has paid or will pay expenses incurred in connection with organizing each Fund and the initial offering of each Fund’s Shares, and the Sponsor did not or will not charge its fee in the first year of operations of each Leveraged Fund, Geared VIX Fund or Matching VIX Fund in an amount equal to the organization and offering costs. The Sponsor reimbursed or will reimburse each Leveraged Fund and Geared VIX Fund to the extent that its organizational and offering costs exceeded 0.95% of its average daily NAV for the first year of operations. The Sponsor reimbursed each Matching VIX Fund to the extent that its organizational and offering costs exceeded 0.85% of its average daily NAV for the first year of operations.

The Sponsor will not collect any fee in the first year of operations of each New Fund in an amount equal to the offering fees. The Sponsor will reimburse each New Fund to the extent that its offering costs exceed 0.95% of its average daily NAV for the first year of operations. Normal and expected expenses incurred in connection with the continuous offering of Shares of each Fund are paid by the Sponsor.

 

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Organization and offering expenses mean those expenses incurred in connection with the Trust’s formation, the qualification and registration of the Shares of each Fund and in offering, distributing and processing the Shares of each Fund under applicable federal law, and any other expenses actually incurred and, directly or indirectly, related to the organization of each offering of the Shares of such Fund, including, but not limited to, expenses such as:

 

   

initial SEC registration fees and SEC and FINRA filing fees;

 

   

costs of preparing, printing (including typesetting), amending, supplementing, mailing and distributing the Trust’s Registration Statements, the exhibits thereto and the related prospectuses;

 

   

the costs of qualifying, printing (including typesetting), amending, supplementing and mailing sales materials used in connection with the offering and issuance of the Shares; and

 

   

accounting, auditing and legal fees (including disbursements related thereto) incurred in connection therewith.

Management Fee

Each Geared Fund and Managed Futures Fund pays or will pay the Sponsor a Management Fee, monthly in arrears, in an amount equal to 0.95% per annum of its average daily NAV of such Fund. Each Matching VIX Fund pays the Sponsor a management fee, monthly in arrears, in an amount equal to 0.85% per annum of its average daily NAV. No other management fee is paid by the Funds. The Management Fee is paid in consideration of the Sponsor’s trading advisory services and the other services provided to the Funds that the Sponsor pays directly.

Licensing Fee

The Sponsor pays Dow Jones-UBS a licensing fee for each Dow Jones-UBS sub-index used as a benchmark for a Commodity Index Fund. The Sponsor will pay ICE a licensing fee for use of the ICE U.S. Dollar Index® (the “Index”), which serves as the benchmark for the Currency Index Funds. The Sponsor pays or will pay S&P a licensing fee for use of the VIX Futures Indexes as indexes for the VIX Funds. The Sponsor will pay S&P a licensing fee for use of the DFI, DCFI and DFFI as benchmarks for the Managed Futures Funds.

Routine Operational, Administrative and Other Ordinary Expenses

The Sponsor pays or will pay all of the routine operational, administrative and other ordinary expenses of each Fund, generally, as determined by the Sponsor, including, but not limited to, fees and expenses of the Administrator, Custodian, Distributor, and Transfer Agent, licensing fees, accounting and audit fees and expenses, tax preparation expenses, legal fees not in excess of $100,000 per annum, ongoing SEC registration fees not exceeding .021% per annum of the NAV of a Fund, FINRA filing fees, individual K-1 preparation and mailing fees not exceeding .10% per annum of the NAV of a Fund, and report preparation and mailing expenses.

Non-Recurring Fees and Expenses

Each Fund pays or will pay all of its non-recurring and unusual fees and expenses, if any, as determined by the Sponsor. Non-recurring and unusual fees and expenses are fees and expenses which are unexpected or unusual in nature, such as legal claims and liabilities and litigation costs or indemnification or other unanticipated expenses. Extraordinary fees and expenses also include material expenses which are not currently anticipated obligations of the Funds. Routine operational, administrative and other ordinary expenses are not deemed extraordinary expenses.

Selling Commission

Retail investors may purchase and sell Shares through traditional brokerage accounts. Investors are expected to be charged a customary commission by their brokers in connection with purchases of Shares that will vary from investor to investor. Investors are encouraged to review the terms of their brokerage accounts for applicable charges. Also, the excess, if any, of the price at which an Authorized Participant sells a Share over the price paid by such Authorized Participant in connection with the creation of such Share in a Creation Unit may be deemed to be underwriting compensation.

 

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Brokerage Commissions and Fees

Each Fund, with the exception of the Matching VIX Funds, pays or will pay all of its brokerage commissions, including applicable exchange fees, NFA fees and give-up fees, pit brokerage fees and other transaction related fees and expenses charged in connection with trading activities for each Fund’s investments in CFTC regulated investments. The Sponsor pays brokerage commissions on futures contracts for the Matching VIX Funds.

Other Transaction Costs

The Funds bear or will bear other transaction costs including the effects of trading spreads and financing costs associated with the use of Financial Instruments, and costs relating to the purchase of U.S. Treasury Securities or similar high credit quality short-term fixed-income or similar securities (such as shares of money market funds, bank deposits, bank money market accounts, certain variable rate-demand notes and repurchase agreements collateralized by government securities, whether denominated in U.S. or the applicable foreign currency with respect to a Currency Fund).

Employees

The Trust has no employees.

Item 1A. Risk Factors.

These risk factors should be read in connection with the other information included in this Annual Report on Form 10-K, including Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Funds’ Financial Statements and the related Notes to the Funds’ Financial Statements. For purposes of this section:

 

   

The term “Geared VIX Fund” refers to ProShares Ultra VIX Short-Term Futures ETF, ProShares Short VIX Short-Term Futures ETF, ProShares UltraShort VIX Short-Term Futures ETF, ProShares Ultra VIX Mid-Term Futures ETF, ProShares Short VIX Mid-Term Futures ETF and ProShares UltraShort VIX Mid-Term Futures ETF;

 

   

The term “Geared Fund” refers to ProShares Ultra DJ-UBS Commodity, ProShares UltraShort DJ-UBS Commodity, ProShares Ultra DJ-UBS Crude Oil, ProShares UltraShort DJ-UBS Crude Oil, ProShares Ultra DJ-UBS Natural Gas, ProShares Short DJ-UBS Natural Gas, ProShares UltraShort DJ-UBS Natural Gas, ProShares Ultra Gold, ProShares Short Gold, ProShares UltraShort Gold, ProShares Ultra Silver, ProShares UltraShort Silver, ProShares UltraPro Australian Dollar, ProShares Ultra Australian Dollar, ProShares Short Australian Dollar, ProShares UltraShort Australian Dollar, ProShares UltraPro Short Australian Dollar, ProShares UltraPro Canadian Dollar, ProShares Ultra Canadian Dollar, ProShares Short Canadian Dollar, ProShares UltraShort Canadian Dollar, ProShares UltraPro Short Canadian Dollar, ProShares UltraPro Euro, ProShares Ultra Euro, ProShares Short Euro, ProShares UltraShort Euro, ProShares UltraPro Short Euro, ProShares UltraPro Swiss Franc, ProShares Ultra Swiss Franc, ProShares Short Swiss Franc, ProShares UltraShort Swiss Franc, ProShares UltraPro Short Swiss Franc, ProShares UltraPro U.S. Dollar, ProShares Ultra U.S. Dollar, ProShares Short U.S. Dollar, ProShares UltraShort U.S. Dollar, ProShares UltraPro Short U.S. Dollar, ProShares UltraPro Yen, ProShares Ultra Yen, ProShares Short Yen, ProShares UltraShort Yen, and ProShares UltraPro Short Yen and each Geared VIX Fund;

 

   

The term “Commodity Index Fund” refers to ProShares Ultra DJ-UBS Commodity, ProShares UltraShort DJ-UBS Commodity, ProShares Ultra DJ-UBS Crude Oil, ProShares UltraShort DJ-UBS Crude Oil, ProShares Ultra DJ-UBS Natural Gas, ProShares Short DJ-UBS Natural Gas and ProShares UltraShort DJ-UBS Natural Gas;

 

   

The term “Commodity Fund” refers to ProShares Ultra Gold, ProShares Short Gold, ProShares UltraShort Gold, ProShares Ultra Silver and ProShares UltraShort Silver;

 

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The term “Currency Index Fund” refers to ProShares UltraPro U.S. Dollar, ProShares Ultra U.S. Dollar, ProShares Short U.S. Dollar, ProShares UltraShort U.S. Dollar and ProShares UltraPro Short U.S. Dollar;

 

   

The term “Currency Fund” refers to ProShares UltraPro Australian Dollar, ProShares Ultra Australian Dollar, ProShares Short Australian Dollar, ProShares UltraShort Australian Dollar, ProShares UltraPro Short Australian Dollar, ProShares UltraPro Canadian Dollar, ProShares Ultra Canadian Dollar, ProShares Short Canadian Dollar, ProShares UltraShort Canadian Dollar, ProShares UltraPro Short Canadian Dollar, ProShares UltraPro Euro, ProShares Ultra Euro, ProShares Short Euro, ProShares UltraShort Euro, ProShares UltraPro Short Euro, ProShares UltraPro Swiss Franc, ProShares Ultra Swiss Franc, ProShares Short Swiss Franc, ProShares UltraShort Swiss Franc, ProShares UltraPro Short Swiss Franc, ProShares UltraPro U.S. Dollar, ProShares Ultra U.S. Dollar, ProShares Short U.S. Dollar, ProShares UltraShort U.S. Dollar, ProShares UltraPro Short U.S. Dollar, ProShares UltraPro Yen, ProShares Ultra Yen, ProShares Short Yen, ProShares UltraShort Yen, and ProShares UltraPro Short Yen;

 

   

The term “Matching VIX Fund” refers to ProShares VIX Short-Term Futures ETF and ProShares VIX Mid-Term Futures ETF;

 

   

The term “VIX Fund” refers to each Geared VIX Fund and each Matching VIX Fund; and

 

   

The term “Managed Futures Fund” refers to ProShares Managed Futures Strategy, ProShares Commodity Managed Futures Strategy and ProShares Financial Managed Futures Strategy.

Risks Specific to the Geared Funds

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

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

Each of the Geared Funds are “geared” funds in the sense that each has an investment objective to match a multiple (e.g., 3x or 2x), the inverse (e.g., -1x) or an inverse multiple (e.g., -2x or -3x) of the performance of a benchmark on a given day. Each Geared Fund seeks investment results for a single day only, as measured from its NAV calculation time to its next NAV calculation time, and not for any other period. The return of a Geared Fund for a period longer than a day is the result of its return for each day compounded over the period and usually will differ from three times (3x), twice (2x), the inverse (-1x), twice the inverse (-2x), or three times the inverse (-3x) of the return of the Geared Fund’s benchmark for the 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 even if its benchmark’s performance increases (or decreases in the case of a Short Fund, an UltraShort Fund or an UltraPro Short Fund), as a result of daily rebalancing, the benchmark’s volatility and compounding. Longer holding periods, higher benchmark volatility, inverse multiples and greater leverage each affect the impact of compounding on a Fund’s returns. Daily compounding of a Geared Fund’s investment returns can dramatically and adversely affect its longer-term performance during periods of high volatility. Volatility may be at least as important to a Geared Fund’s return for a period as the return of the fund’s underlying benchmark.

Each UltraPro, Ultra, Short, UltraShort or UltraPro Short Fund uses leverage and should produce daily returns that are more volatile than that of its benchmark. For example, the daily return of an Ultra Fund with a 2x multiple should be approximately twice as volatile on a daily basis as is the return of a fund with an objective of matching the same benchmark. The daily returns of Short, UltraShort and UltraPro Short Funds are designed to be the inverse of, twice the inverse of, or three times the inverse of the return that would be expected 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 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 investment results. Daily objective geared funds, if used properly and in conjunction with the investor’s view on the future direction and

 

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volatility of the markets, can be useful tools for investors who want to manage their exposure to various markets and market segments and who are willing to monitor and/or periodically rebalance their portfolios. Shareholders who invest in the Geared Funds should actively manage and monitor their investments, as frequently as daily.

The hypothetical example below illustrates how daily geared fund returns can behave for periods longer than one day. Take a hypothetical fund XYZ that seeks to double the daily performance of benchmark XYZ. On each day, fund XYZ performs in line with its objective (twice (2x) the benchmark’s daily performance before fees and expenses). Notice that over the entire five-day period, the fund’s total return is considerably less than double that of the period return of the benchmark. For the five-day period, benchmark XYZ gained 5.1% while fund XYZ gained 9.8% (versus 10.2% or 2x 5.1%). In other scenarios, the return of a daily rebalanced fund could be greater than double the benchmark’s return.

 

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

Start

     100.0           $ 100.00   

Day 1

     103.0         3.0     6.0   $ 106.00   

Day 2

     99.9         -3.0     -6.0   $ 99.64   

Day 3

     103.9         4.0     8.0   $ 107.61   

Day 4

     101.3         -2.5     -5.0   $ 102.23   

Day 5

     105.1         3.7     7.4   $ 109.80   

Total Return

        5.1     9.8  

This effect is 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 results for periods longer than a single day to be less than twice (2x) the return of the benchmark (or less than three times (3x), the inverse (-1x), twice the inverse (-2x) or three times the inverse (-3x) of the return of a benchmark for the UltraPro Funds, the Short Funds, the UltraShort Funds or the UltraPro Short Funds, respectively). This effect becomes more pronounced as volatility increases. Conversely, in periods of lower benchmark volatility (particularly when combined with higher benchmark returns), fund returns over longer periods can be higher than twice (2x) the return of the benchmark. Actual results for a particular period, before fees and expenses, are also dependent on the magnitude of the benchmark return in addition to the benchmark volatility. Similar effects exist for the Short Funds, the UltraShort Funds and the UltraPro Short Funds, and the significance of these effects are 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 one day, a Geared Fund is likely to underperform or over-perform (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 shorter than one day (when measured intraday as opposed to NAV to NAV). See “Intraday Price Performance Risk” below for additional details. 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 leverage, inverse, or inverse leveraged exposure) and cash reinvestment rates of zero percent; 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 greater than zero percent were included, the funds’ performance would be lower than that shown. Each of the 2x, -1x and -2x graphs also assumes a volatility rate of 64%, which is an approximate average of the five-year historical volatility rate of the most volatile benchmark referenced herein (the S&P 500 VIX Short-Term Futures Index). Each of the 3x and -3x graphs also assumes a volatility rate of 18%, which is an approximate average of the five-year historical volatility rate of the most volatile currency benchmark referenced herein (the U.S. dollar price of the Australian dollar). A benchmark’s volatility rate is a statistical measure of the magnitude of fluctuations in its returns.

 

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The historical five year average volatility of the benchmarks utilized by the Funds ranges from 9.24 to 64.44, as set forth in the table below.

 

Index

  

Identifier

   Historical
Five-Year
Average
Volatility
Rate

Dow Jones-UBS Commodity IndexSM

   DJUBSTR Index    21.48%

Dow Jones-UBS Crude Oil Sub-IndexSM

   DJUBSCL Index    39.88%

Dow Jones-UBS Natural Gas Sub-IndexSM

   DJUBSNG Index    43.86%

The daily performance of gold bullion as measured by the U.S. Dollar p.m. fixing price for delivery in London

   GOLDLNPM Index    21.97%

The daily performance of silver bullion as measured by the U.S. Dollar fixing price for delivery in London

   SLVRLND Index    43.87%

The U.S. Dollar price of the Euro

   USDEUR Curncy    11.37%

The U.S. Dollar price of the Japanese Yen

   USDJPY Curncy    11.79%

The U.S. Dollar price of the Australian Dollar

   USDAUD Curncy    17.86%

The U.S. Dollar price of the Canadian Dollar

   USDCAD Curncy    12.45%

The U.S. Dollar price of the Swiss Franc

   USDCHF Curncy    12.76%

The ICE U.S. Dollar Index®

   DXY Index    9.24%

S&P 500 VIX Short-Term Futures Index

   SPVXSP Index    64.44%

S&P 500 VIX Mid-Term Futures Index

   SPVXMP Index    34.32%

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 return and benchmark volatility 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 of zero percent; and c) the fund

 

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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 lower than that shown. The tables below show examples in which a Geared Fund has an investment objective to correspond to three times (3x), twice (2x), the inverse (-1), twice the inverse (-2x) or three times the inverse (-3x) of the daily performance of a benchmark. The Geared Fund that has an investment objective to correspond to three times (3x) the daily performance of a benchmark could incorrectly be expected to achieve a 30% 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 50%, such a fund would return -37.1%. 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 Objective is to Seek Daily Investment Results, Before Fees and Expenses, that Correspond to Three Times (3x) the Daily Performance of a Benchmark.

 

One Year
Benchmark
     Three Times
(3x) One
Year
Benchmark
    Benchmark Volatility  

Performance

     Performance     10%     25%     50%     75%     100%  
  -60%         -180     -93.8     -94.7     -97.0     -98.8     -99.7
  -50%         -150     -87.9     -89.6     -94.1     -97.7     -99.4
  -40%         -120     -79.0     -82.1     -89.8     -96.0     -98.9
  -30%         -90     -66.7     -71.6     -83.8     -93.7     -98.3
  -20%         -60     -50.3     -57.6     -75.8     -90.5     -97.5
  -10%         -30     -29.3     -39.6     -65.6     -86.5     -96.4
  0%         0     -3.0     -17.1     -52.8     -81.5     -95.0
  10%         30     29.2     10.3     -37.1     -75.4     -93.4
  20%         60     67.7     43.3     -18.4     -68.0     -91.4
  30%         90     113.2     82.1     3.8     -59.4     -89.1
  40%         120     166.3     127.5     29.6     -49.2     -86.3
  50%         150     227.5     179.8     59.4     -37.6     -83.2
  60%         180     297.5     239.6     93.5     -24.2     -79.6

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

 

One Year

Benchmark

    2x One Year
Benchmark
    Benchmark Volatility  

Performance

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

 

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

 

One Year

Benchmark

     Inverse of
One Year
Benchmark
    Benchmark Volatility  

Performance

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

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

 

One Year

Benchmark

     2x Inverse of
One Year
Benchmark
    Benchmark Volatility  

Performance

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

 

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

 

One Year
Benchmark
    

Three Times
the Inverse

(-3x) of One
Year
Benchmark

    Benchmark Volatility  

Performance

     Performance     10%     25%     50%     75%     100%  
  -60%         180     1371.5     973.9     248.6     -46.5     -96.1
  -50%         150     653.4     449.8     78.5     -72.6     -98.0
  -40%         120     336.0     218.2     3.3     -84.2     -98.9
  -30%         90     174.6     100.4     -34.9     -90.0     -99.3
  -20%         60     83.9     34.2     -56.4     -93.3     -99.5
  -10%         30     29.2     -5.7     -69.4     -95.3     -99.7
  0%         0     -5.8     -31.3     -77.7     -96.6     -99.8
  10%         -30     -29.2     -48.4     -83.2     -97.4     -99.8
  20%         -60     -45.5     -60.2     -87.1     -98.0     -99.9
  30%         -90     -57.1     -68.7     -89.8     -98.4     -99.9
  40%         -120     -65.7     -75.0     -91.9     -98.8     -99.9
  50%         -150     -72.1     -79.6     -93.4     -99.0     -99.9
  60%         -180     -77.0     -83.2     -94.6     -99.2     -99.9

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 Geared Funds’ actual returns may be significantly greater or less than the returns shown above as a result of any of the factors discussed above or under the below risk factor describing correlation risks.

Each Geared Fund seeks to provide investment results (before fees and expenses) that correspond to a multiple of, the inverse of or an inverse multiple of the daily performance of a benchmark at all times, even during periods when the applicable benchmark is flat as well as when the benchmark is moving in a manner which causes the Fund’s NAV to decline, thereby causing losses to such Fund.

Other than for cash management purposes, the Funds are not actively managed by traditional methods, which typically involve 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 daily performance of a benchmark in accordance with each Fund’s investment objective, even during periods in which the benchmark is flat or moving in a manner which causes the NAV of a Fund to decline. It is possible to lose money over time when an underlying benchmark is up for

 

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the corresponding UltraPro Fund or Ultra Fund, or down for the corresponding Short, UltraShort or UltraPro Short Fund, due to the effects of daily rebalancing, volatility and compounding (see “Correlation Risks Specific to the Geared Funds” for additional details).

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 over- or under-exposed to the benchmarks may prevent such Funds from achieving a high degree of correlation with their applicable underlying benchmarks. Market disruptions or closure, large amounts of assets into or out of the Funds, regulatory restrictions or extreme market volatility will adversely affect such Funds’ ability to adjust exposure to requisite levels. The target amount of portfolio exposure is impacted dynamically by the benchmarks’ movements during each day. Because of this, it is unlikely that the Geared Funds will be perfectly exposed (i.e., 3x, 2x, -1x, -2x or -3x, as applicable) at the end of each day, and the likelihood of being materially under- or over-exposed is higher on days when the benchmark levels are volatile near the close of the trading day.

These risks are particularly acute for the Geared VIX Funds due to the combination of (a) no market for VIX futures contracts after the 4:15 p.m. settlement time and (b) the high degree of volatility in VIX futures contracts. Investors in the Geared VIX Funds should be aware that these funds bear a greater risk of not achieving their investment objective on a daily basis, a risk that increases with the level of volatility on a particular day.

For general correlation risks of the Funds, please see “While close tracking of any Fund to its benchmark may be achieved, several factors may affect a Fund’s ability to consistently achieve this correlation.” below.

Intraday Price Performance Risk.

Each Geared Fund is rebalanced at or about the time of its NAV calculation time (which in many cases is other than at the close of the U.S. equity markets). As such, the intraday position of the Fund will generally be different from the Fund’s stated daily investment objective (e.g., 3x, 2x, -1x, -2x or -3x). When Shares are bought intraday, the performance of a Geared Fund’s Shares until the Fund’s next NAV calculation will generally be greater than or less than the Fund’s stated daily multiple, inverse or inverse multiple.

The use of leveraged, inverse and/or inverse leveraged positions could result in the total loss of an investor’s investment.

The Geared Funds that utilize leveraged, inverse or inverse leveraged positions in seeking to achieve their respective investment objectives will lose more money in market environments adverse to their respective daily investment objectives than Funds that do not employ leverage. The use of leverage, inverse and/or inverse leveraged positions could result in the total loss of an investor’s investment.

For example, because the Geared Funds include a 3x, 2x, -1x, -2x or -3x multiplier, a single-day movement in the relevant benchmark approaching 33%, in the case of UltraPro Funds and UltraPro Short Funds, 50% in the case of Ultra Funds and UltraShort Funds, and 100% in the case of Short Funds, at any point in the day could result in the total loss or almost total loss of an investor’s investment if that movement is contrary to the investment objective of the Fund in which an investor has invested, even if such Fund’s benchmark subsequently moves in an opposite direction, eliminating all or a portion of the movement. This would be the case with downward single-day or intraday movements in the underlying benchmark of the UltraPro Funds or the Ultra Funds or upward single-day or intraday movements in the underlying benchmark of the Short Funds, the UltraShort Funds or the UltraPro Short Funds, even if the underlying benchmark maintains a level greater than zero at all times.

Inverse positions can result in unlimited losses as the benchmark rises. As such, for Short Funds, a single day or intraday price increase approaching 100% in the relevant benchmark could result in the total loss or almost total loss of an investor’s investment even if such Fund’s benchmark subsequently moves lower. This risk exists for all of the Short Funds, and, based on historical intraday volatility measures, may be particularly acute for ProShares Short VIX Futures ETF and ProShares UltraShort VIX Short-Term Futures ETF.

 

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Risks Specific to the VIX Funds

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

The VIX Funds are benchmarked to a VIX Futures Index. They are not benchmarked to the VIX or actual realized volatility of the S&P 500 Index.

The level of each VIX Futures Index is based on the value of the relevant VIX futures contracts based on the CBOE VIX comprising the applicable VIX Futures Index. Each VIX Fund is benchmarked to its respective VIX Futures Index and the VIX Funds are not linked to the VIX (which is a measure of implied volatility of the S&P 500 Index over the next 30 days derived from option prices), to realized volatility of the S&P 500 Index or to the options that underlie the VIX calculation. Each VIX Fund should be expected to perform very differently from the VIX over all periods of time. In many cases the VIX Futures Indexes will significantly underperform the VIX. Furthermore, because each VIX Fund may invest in VIX futures contracts other than the VIX futures contracts comprising the Fund’s VIX Futures Index, the VIX Funds may perform differently than their respective VIX Futures Indexes.

VIX futures contracts are not directly based on a tradable underlying asset.

The VIX is not directly investable. The settlement price at maturity of VIX futures contracts are based on the calculation that determines the level of the VIX. As a result, the behavior of the VIX futures contracts may be different from traditional futures contracts whose settlement price is based on a specific tradable asset.

The VIX Futures Indexes and VIX futures contracts have limited historical information.

The VIX Futures Indexes were created in December 2008 and Standard & Poor’s has published limited information about how the VIX Futures Indexes would have performed had they been calculated prior to their creation. In addition, VIX futures contracts have traded freely only since March 26, 2004, and not all futures of all relevant maturities have traded at all times since that date. Because the VIX Futures Indexes and the VIX futures contracts that underlie them are of recent origin and limited historical performance data exists with respect to them, your investment in the VIX Funds may involve a greater risk than investing in alternate instruments linked to one or more indexes with a more established record of performance. A longer history of actual performance may have been helpful in providing more reliable information on which to assess the validity of the proprietary methodology that the VIX Futures Indexes make use of as the basis for an investment decision.

The level of the VIX has historically reverted to a long-term mean level and is subject to the risk associated with reversion to its mean. Accordingly, investors should not expect the VIX Funds to retain any appreciation in value over extended periods of time.

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. It is likely that the spot level of the VIX will continue to be constrained in the future. This means that the level of VIX futures and the VIX Futures Indexes also likely will be constrained within a band and mean reverting over time. Unlike conventional stock-based indexes and funds, it is not expected that the VIX Futures Indexes or the VIX Funds will generally rise over time. Rather the VIX Futures Indexes, the VIX Ultra Funds and the Matching VIX Funds will rise and fall (or fall and rise) and the VIX Short Funds and the VIX UltraShort Funds will fall and rise (or rise and fall) as volatility increases and decreases (or decreases and increases). For most investors this likely implies that the VIX Funds should only be used as a short-term tactical tool or for diversification purposes rather than an investment in anticipation of long-term gains.

When economic uncertainty increases and there is an associated increase in expected volatility, the value of VIX futures contracts will likely also increase and the potential upside of an investment in a VIX Short Fund or VIX UltraShort Fund will correspondingly be limited as a result. Similarly, when economic uncertainty recedes, and there is an associated decrease in expected volatility, the value of VIX futures contracts will likely also decrease and the potential upside of an investment in a VIX Ultra Fund or a Matching VIX Fund will correspondingly be limited as a result.

 

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Each VIX Fund seeks to provide investment results (before fees and expenses) that correspond to the daily performance (or, in the case of the Geared VIX Funds, corresponds to a multiple or the inverse of the daily performance) of an index at all times, even during periods when the applicable index is flat as well as when the index is moving in a manner which causes the VIX Fund’s NAV to decline, thereby causing losses to such Fund.

Other than for cash management purposes, the VIX Funds are not actively managed by traditional methods, which typically involve 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 daily performance of an index in accordance with each VIX Fund’s investment objective, even during periods in which the index is flat or moving in a manner which causes the NAV of a VIX Fund to decline. It is possible to lose money over time when the underlying index is up for the Ultra Fund, or down for the Short Fund, due to the effects of daily rebalancing, volatility and compounding (see “Risks Specific to the Geared Funds” for additional details).

Risks Specific to the Managed Futures Funds

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

Each Managed Futures Fund seeks to provide investment results (before fees and expenses) that correspond to the performance of the Index or Sub-Index at all times, even during periods when the applicable Index or Sub-Index is flat as well as when the applicable Index or Sub-Index is moving in a manner which causes the Fund’s NAV to decline, thereby causing losses to such Fund.

Other than for cash management purposes, the Funds are not actively managed by traditional methods, which typically involve 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 the Index or a Sub-Index in accordance with each Fund’s investment objective, even during periods in which the applicable Index or Sub-Index is flat or moving in a manner which causes the NAV of a Fund to decline. It is possible to lose money over time when the level of the Index or Sub-Index is up.

A Fund’s exposure to commodity or financial futures markets may subject the Fund to greater volatility than investments in traditional securities, which may adversely affect an investor’s investment in that Fund.

Certain Index Components have experienced high volatility in the past. Because the Index and the Sub-Indexes are comprised of the Index Components, the Index and the Sub-Indexes, and by extension, the Funds may be subject to greater volatility than investments in traditional securities.

The level of the Index and Sub-Indexes, and the returns attributable to the Index Components depend on whether a particular sector, and its underlying Index Components, are positioned long or short (or, in the case of energy, long or flat).

The impact of changes in the prices of the Index Components will affect a Fund differently depending upon whether its Index or Sub-Index, as applicable, is long, short or flat a particular sector. Increases in the price of an underlying Index Component will negatively impact a Fund’s performance when the sector for such Index Component is positioned short and decreases in the price of an underlying Index Component will negatively impact a Fund’s performance when the sector for such Index Component is positioned long.

The Index and Sub-Indexes are based on the Commodities Futures Contracts and Financials Futures Contract prices, not the “spot” price of a reference asset (i.e. the underlying commodity, currency or Treasury instrument). The performance of the Commodity Futures Contracts and Financials Futures Contracts may be very different than the performance of the applicable reference asset.

The Index and Sub-Indexes are based on the Commodities Futures Contracts and Financials Futures Contract prices, not the “spot” price of any reference asset. While prices of futures contracts or other derivative contracts based on futures contracts are related to the prices of the relevant, underlying reference asset, they are not always correlated

 

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and often can perform very differently. It is possible that during certain time periods, futures contracts will cease to track cash market prices and may be substantially lower or higher than cash market prices for the underlying reference asset due to differences in derivative contract terms or as supply, demand or other economic or regulatory factors become more pronounced in either the cash or derivative markets.

Several factors may affect the value of U.S. Treasury securities and, in turn, certain Financials Futures Contracts and related assets, if any, owned by a Fund, including, but not limited to:

 

   

Perception of risk, or the lack thereof, in assets other than U.S. Treasury securities;

 

   

Debt level and trade deficit of the United States;

 

   

Inflation rates of the United States and the relevant foreign countries and investors’ expectations concerning inflation rates;

 

   

Interest rates of the United States and the relevant foreign countries and investors’ expectations concerning interest rates;

 

   

Fluctuations in the value of the U.S. dollar relative to other currencies; and

 

   

Fluctuations in the supply of, and demand for, the underlying U.S. Treasury securities.

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.

Risks Related to All Funds

While close tracking of any Fund to its benchmark may be achieved, several factors may affect a Fund’s ability to consistently achieve this correlation.

While the Funds expect 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 ability of the Sponsor to purchase and sell Financial Instruments (i.e., commodity-based, currency-based or equity market volatility-based instruments whose value is derived from the value of an underlying asset, rate or index, including futures contracts and options on futures contracts, swap agreements, forward contracts and other commodity-based or currency-based options contracts as a substitute for investing directly in commodities, currencies or equity market volatility products in order to gain exposure to the commodity index, currency benchmark, commodity, currency or to an equity market volatility index) in a manner that correlates to a Fund’s objective; (2) an imperfect correlation between the performance of the instruments held by a Fund, such as swaps, futures contracts and/or forward contracts, and the performance of the applicable benchmark; (3) bid-ask spreads on such instruments; (4) commission costs; (5) holding instruments traded in a market that has become illiquid or disrupted; (6) a Fund’s Share prices being rounded to the nearest cent; (7) changes to a benchmark that are not disseminated in advance; (8) the need to conform a Fund’s portfolio holdings to comply with investment restrictions or policies or regulatory or tax law requirements; and (9) early and unanticipated closings of the markets on which the holdings of a Fund trade, resulting in the inability of the Fund to execute intended portfolio transactions; and (10) accounting standards.

For the Managed Futures Funds, the Funds will typically need to allocate assets across many different Index Components. At times when the aggregate NAV of a Fund is lower, it may be more difficult to allocate that Fund’s assets efficiently to gain optimal exposure across all Index Components, which could result in that Fund being under- or over-exposed to the Index Components.

For the VIX Funds, being materially over- or under-exposed to its index may prevent such Funds from achieving a high degree of correlation with their applicable underlying index. Market disruptions or closure, large amounts of assets into or out of the VIX Funds, regulatory restrictions or extreme market volatility will adversely affect such Funds’ ability to maintain a high degree of correlation.

 

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

With regard to the Commodity Funds, the Commodity Index Funds and the Managed Futures Funds, several factors may affect the price of an underlying reference asset, and in turn, the Financial Instruments and other assets, if any, owned by such a Fund, including, but not limited to:

 

   

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

 

   

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 gold holdings is owned by governments, central banks and related institutions. Similarly, nations with centralized or nationalized oil production and organizations such as the Organization of Petroleum Exporting Countries control large physical quantities of crude oil. If one or more of these institutions decides to buy or sell any commodity in amounts large enough to cause a change in world prices, the price of Shares based upon a benchmark related to that commodity, (or in the case of Managed Futures Funds, the level of the Index or Sub-Index including that commodity), will be affected.

 

   

Other political factors. In addition to the organized political and institutional trading-related activities described above, peaceful political activity such as imposition of regulations or entry into trade treaties, as well as political disruptions caused by societal breakdown, insurrection and/or war may greatly influence commodities prices.

 

   

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 a commodity or the impact of severe weather 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 oil refineries), also materially influence the supply of commodities.

 

   

Significant increases or decreases in the demand for a physical commodity due to natural or technological factors. Natural factors would include such events as unusual climatological conditions impacting the demand for energy commodities. Technological factors may include such developments as substitutes for energy or other industrial commodities.

 

   

A significant increase or decrease in commodity hedging activity by commodity producers. Should there be an increase or decrease in the level of hedge activity of commodity producing companies, countries and/or organizations, it could cause a change in world prices of any given commodity, causing the price of Shares based upon a benchmark related to that commodity to be affected.

 

   

A significant change in the attitude of speculators and investors towards a commodity. Should the speculative community take a negative or positive view towards any given commodity, it could cause a change in world prices of any given commodity and the price of Shares based upon a benchmark related to that commodity will be affected.

 

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With regard to the Currency Funds, Currency Index Funds and Managed Futures Funds, several factors may affect the value of foreign currencies or the U.S. dollar, and in turn, Financial Instruments and other assets (or in the case of Managed Futures Funds, certain Financial Futures Contracts and related assets), if any, owned by a Fund, including, but not limited to:

 

   

Debt level and trade deficit of the relevant foreign countries;

 

   

Inflation rates of the United States and the relevant foreign countries and investors’ expectations concerning inflation rates;

 

   

Interest rates of the United States and the relevant foreign countries and investors’ expectations concerning interest rates;

 

   

Investment and trading activities of mutual funds, hedge funds and currency funds;

 

   

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

 

   

Sovereign action to set or restrict currency conversion.

With regard to the VIX Funds, several factors may affect the price and/or liquidity of VIX futures contracts and other assets, if any, owned by a VIX Fund, including, but not limited to:

 

   

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

 

   

Interest rates;

 

   

Economic, financial, political, regulatory, geographical, biological or judicial events that affect the level of a VIX Futures Index or the market price or forward volatility of the U.S. stock markets, the equity securities included in the S&P 500 Index, the S&P 500 Index, 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 derivative markets; and

 

   

Disruptions in trading of the S&P 500 Index, futures contracts on the S&P 500 Index or options on the S&P 500 Index.

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.

Risks specific to ProShares UltraPro Euro, ProShares Ultra Euro, ProShares Short Euro, ProShares UltraShort Euro and ProShares UltraPro Short Euro

The Economic and Monetary Union of the EU requires member countries to comply with restrictions on inflation rates, interest rates, deficits, debt levels and fiscal and monetary controls. As a result, each EU member country may be significantly affected by EU policies and may be highly dependent on the economies of its fellow members. The European financial markets and the value of the euro have experienced significant volatility recently and several EU member countries have been adversely affected by unemployment, budget deficits and economic downturns. In addition, several EU member countries have experienced credit rating downgrades, rising government debt levels and, for certain EU member countries (including Greece, Spain, Portugal, Ireland and Italy), weaknesses in sovereign debt. These events, along with decreasing imports or exports, changes in governmental or EU regulations on trade, the default or threat of default by an EU member country on its sovereign debt and/or an economic recession in an EU member country may continue to adversely affect the value and exchange rate of the euro and cause prolonged volatility.

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

 

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losses to ProShares UltraPro Euro and ProShares Ultra Euro. Increased volatility to the euro could also exacerbate the effects of daily compounding on each of ProShares UltraPro Euro, ProShares Ultra Euro, ProShares Short Euro, ProShares UltraShort Euro and ProShares UltraPro Short Euro’s performance over periods longer than one day.

The Currency Funds’ exposure to currency markets may subject the Currency Fund to greater volatility than investments in traditional securities, which may adversely affect an investor’s investment in the Currency Funds.

Certain currencies have experienced high volatility in the past. Because the Currency Funds track currency exchange rates, the Funds may be subject to greater volatility than investments in traditional securities in that they may be affected by changes in currency exchange rates, volatility, changes in interest rates, or factors affecting a particular currency. High volatility may have an adverse impact on the Funds beyond the impact of any performance-based losses of the underlying benchmarks.

Concentration of a Fund in a single currency benchmark may impact volatility, which could adversely affect an investment in the Shares.

The Currency Funds are concentrated solely on their single currency benchmark, and the Index for the Currency Index Funds is concentrated in terms of the number of currencies represented. Investors should be aware that other currency benchmarks are more diversified in terms of both the number and variety of currencies included. Concentration in fewer currencies may result in a greater degree of volatility in a benchmark and the NAV of a Fund which tracks a benchmark under specific market conditions and over time.

Failure of the currency markets to exhibit low to negative correlation to general financial markets will reduce benefits of diversification and may exacerbate losses to an investor’s portfolio.

Historically, returns on currency investments have tended to exhibit low to negative correlation with the returns of other assets such as stocks and bonds. Although currencies can provide a diversification benefit to investor portfolios because of their low to negative correlation with other financial assets, the fact that a benchmark is not 100% negatively correlated with financial assets such as stocks and bonds means that the Funds cannot be expected to be automatically profitable during unfavorable periods for the stock or bond market, or vice versa. If the Funds perform in a manner that correlates with the general financial markets or do not perform successfully, investors will obtain no diversification benefits by investing in the Currency Funds.

Short positions should be considered to be speculative and could result in the total loss of an investor’s investment.

The Funds may take short positions in the Financial Instruments. Because the holder of a short position is exposed to losses upon any increase in price, and a price increase is potentially unlimited, short positions will expose the Funds to potentially unlimited losses which could result in a total loss of investment.

The Commodity Index Funds are linked to indexes comprised of commodity futures contracts, and are not directly linked to the spot prices of the underlying physical commodities. Commodity futures contracts may perform very differently from the spot price of the underlying physical commodities.

Each Commodity Index Fund is designed to track a multiple, the inverse or an inverse multiple of the daily performance of its applicable benchmark, which is intended to reflect the performance of underlying physical commodities as measured by the prices of futures contracts on such physical commodities. The Commodity Index Funds are not directly linked to the spot price of the physical commodities. While prices of swaps, futures contracts and other derivative contracts are, as a rule, related to the prices of underlying cash market, they are not perfectly correlated. It is possible that during certain time periods, derivative contract prices will cease to track cash market prices and may be substantially lower or higher than cash market prices for the underlying commodity due to differences in derivative contract terms or as supply, demand or other economic or regulatory factors become more pronounced in either the cash or derivative markets. While arbitrage opportunities tend to keep prices closely aligned, there can be no assurance that pricing anomalies will not occur. Depending upon the direction and level of the benchmark changes, the Funds may underperform or outperform a portfolio of cash market commodities.

 

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While arbitrage opportunities tend to keep prices closely aligned, there can be no assurance that pricing anomalies will not occur. Depending upon the direction and level of the benchmark changes, the Funds may underperform or outperform a portfolio of cash market commodities.

Financial Instruments linked to commodities, currencies and/or equity market volatility benchmarks can be highly volatile and the Funds may experience large losses when buying, selling or holding such instruments.

Financial Instruments linked to commodities, currencies and/or equity market volatility benchmarks can be highly volatile and may experience large losses. In particular, trading in VIX futures contracts and natural gas futures contracts (or other Financial Instruments linked to equity market volatility or natural gas) has been very volatile and can be expected to be very volatile in the future. High volatility may have an adverse impact on the Funds, especially the Geared Funds.

Potential negative impact from rolling futures positions.

Certain of the Funds invest in or have exposure to futures contracts and are subject to risks related to rolling. The contractual obligations of a buyer or seller holding a futures contract to expiration may generally be satisfied by taking or making physical delivery of the contact’s underlying reference asset or 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 on the same or linked exchange before the designated date of delivery. Once this date is reached, the futures contract “expires.” As the futures contracts held by a Fund near expiration, they are generally closed out and replaced by contracts with a later expiration. This process is referred to as “rolling.”

When the market for these 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 contract. This pattern of higher futures 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 contract would take place at a price that is higher than the price of the more distant contract. This pattern of higher futures prices of shorter expiration futures contracts is referred to as “backwardation.”

There have been extended periods in which contango or backwardation has existed in the futures contract markets for various types of futures contracts, and such periods can be expected to occur in the future. The presence of contango in certain futures contracts at the time of rolling would be expected to adversely affect long positions held by a Fund, and positively affect short positions held by a Fund. Similarly, the presence of backwardation in certain futures contracts at the time of rolling such contracts would be expected to adversely affect short positions held by a Fund and positively affect long positions held by a Fund.

Since the introduction of VIX futures contracts, there have frequently been periods where VIX futures prices reflect higher volatility levels further out in time. This can result from “rolling” the VIX futures to maintain the constant weighted average maturity of the VIX Futures Indexes. Losses from exchanging a lower priced VIX future contract for higher priced longer-term futures contracts in the rolling process would adversely affect the value of each VIX Futures Index and, accordingly, decrease the return of an Ultra VIX Fund or a Matching VIX Fund.

 

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Funds that are designed to track a multiple, the inverse or an inverse multiple of the daily performance of gold or silver bullion (ProShares Ultra Gold, ProShares Short Gold, ProShares UltraShort Gold, ProShares Ultra Silver and ProShares UltraShort Silver) do not or will not invest in bullion itself as certain other exchange-traded products do. Rather such Funds use or will use Financial Instruments to gain exposure to these precious metals. Not investing directly in bullion may introduce additional tracking error and these Funds are or will be subject to the effects of contango and backwardation described above.

Using Financial Instruments such as forwards and futures in an effort to replicate the performance of gold and silver bullion may introduce tracking error to the performance of such Funds. The primary cause of tracking error resulting from not investing directly in bullion is expected to be caused by the need to roll futures or forward contracts as described above and the resulting possibility that contango or backwardation can occur. Gold and silver historically exhibit contango markets during most periods. The existence of historically prevalent contango markets would be expected to adversely affect the Ultra Funds. Alternatively, the existence of backwardated markets in either silver or gold would have an adverse impact on the Short and UltraShort Funds.

Possible illiquid markets may 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 to the fact that the Funds will typically invest in Financial Instruments related to one benchmark, which in many cases is highly concentrated (or, in the case of Managed Futures Funds, will typically invest in Commodities Futures Contracts or Financial Futures Contracts related to the Index Components).

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

The Funds may utilize exchange-traded 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 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 index, 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. Such fees and expenses include or will include asset-based fees of 0.95% per annum of each Geared Fund’s and each Managed Futures Fund’s average daily NAV and 0.85% per annum of each Matching VIX Fund’s average daily NAV, as well as the effects of commissions, trading spreads, and embedded financing, borrow 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.

To the extent that a Fund benchmark is an index, changes implemented by the index provider that affect the composition and valuation of the index could adversely affect the value of an investment in a Fund’s Shares.

Certain Fund benchmarks are indexes maintained by index providers that are unaffiliated with the Funds or the Sponsor. The policies implemented by index providers concerning the calculation of the level of an index or the composition of an index could affect the level of the index and, therefore, the value of Shares. The index providers

 

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may change the composition of its indexes, or make other methodological changes that could change the level of an index. Additionally, the index providers may alter, discontinue or suspend calculation or dissemination an index. Any of these actions could adversely affect the value of Shares of a Fund using that index as a benchmark. Index providers have no obligation to consider Fund shareholder interests in calculating or revising an index. Any of these actions could adversely affect the value of Fund Shares. Calculation of an index 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 index and/or the Shares, as applicable. Additionally, index calculations may be disrupted by rollover disruptions, rebalancing disruptions and/or market emergencies, which may have an adverse effect on the value of the Shares.

The Funds are subject to counterparty risks, credit risks and other risks associated with swap agreements and forward contracts, which could result in significant losses to such Funds.

Certain of the Funds may use swap agreements and/or forward contracts as a means to achieve their respective investment objectives. These Financial Instruments are traded over the counter and are essentially unregulated by the CFTC. Investors, therefore, do not receive the protection of CFTC regulation or the statutory scheme of the CEA in connection with each Fund’s swap agreements or 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.

Unlike in futures contracts, the counterparty to swap agreements or forward contracts is generally a single bank or other financial institution, rather than a clearing organization backed by a group of financial institutions. As a result, a Fund is subject to credit risk with respect to the amount it expects to receive from counterparties to swaps and forward contracts 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, in an amount approximately equal to what the counterparty owes the Fund. In the event of the bankruptcy of a counterparty, the Fund will have direct access to the collateral received from the counterparty. To the extent any such collateral is otherwise 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 large, well-capitalized and well established financial institutions.

Swaps or forward contracts have terms that make them less marketable than futures contracts. Swaps or forward contracts are less marketable because they are not traded on an exchange, do not have uniform terms and conditions, and are 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. Swap agreements and forward contracts may entail breakage costs if terminated prior to the final maturity date.

If the value of the Fund’s benchmark has a dramatic intraday move in value 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 agreement 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, even if the value of the Fund’s benchmark reverses all or part of its intraday move by the end of the day.

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 the commodity, equity market volatility or currency markets 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 nonexistent.

 

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The Funds have limited or no operating history, and, as a result, investors have only a limited performance history, if any, to serve as a factor for evaluating an investment in the Funds.

Certain of the Funds have limited or no performance history upon which to evaluate an investor’s investment in the Funds. Although past performance is not necessarily indicative of future results, if the Funds had longer performance histories, or any performance history in the case of the New Funds, such performance histories might (or might not) provide investors with more information on which to evaluate an investment in the Funds. Likewise, certain benchmarks have a limited history which might (or might not) provide investors with more information on which to evaluate an investment in the Funds.

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 NFA were revoked or suspended, the Sponsor would no longer be able to provide services and/or to render trading advice to the Funds. As the Funds themselves are not registered with the CFTC in any capacity, if the Sponsor were unable to provide services and/or trading 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 trading advice to the Funds was reinstated or a replacement for the Sponsor as commodity pool operator and/or commodity trading advisor could be found. Such an event could result in termination of the Funds.

The lack of active trading markets for the Shares of the Funds may result in losses on investors’ investments at the time of disposition of Shares.

Although the Shares of the Funds are or will be listed and traded on the NYSE Arca, there can be no guarantee that an active trading market for the Shares of the Funds will develop or be maintained. If investors need to sell their Shares at a time when no active market for them exists, the price investors receive for their Shares, assuming that investors are able to sell them, 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 NYSE Arca, NYSE, CBOE, CFE or any other exchange, marketplace or trading center, deemed to affect the normal operations of the Funds, is closed, or when trading is restricted or suspended or restricted 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 the Funds decline 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 NYSE Arca, which could cause them to trade at levels materially different (premiums and discounts) from the fair value of their underlying holdings.

The NAV may not always correspond to market price and, as a result, investors may be adversely affected by the creation or redemption of Creation Units at a value that differs from the market price of the Shares.

The NAV per Share of a Fund changes as fluctuations occur in the market value of a Fund’s portfolio. Investors should be aware that the public trading price of a number of Shares of a Fund otherwise amounting to a Creation

 

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Unit may be different from the NAV of an actual Creation Unit (i.e., 50,000 individual Shares may trade at a premium over, or a discount to, NAV of a Creation Unit of Shares of a Geared Fund or 25,000 individual Shares may trade at a premium over, or a discount to, NAV of a Creation Unit of Shares of a Matching VIX Fund) and similarly the public trading price per Share of a Fund may be different from the NAV per Share of the Fund. Consequently, an Authorized Participant may be able to create or redeem a Creation Unit of Shares of a Fund at a discount or a premium to the public trading price per Share of that Fund. This price difference may be due, in large part, to the fact that supply and demand forces at work in the secondary trading market for Shares of a Fund are closely related, but not identical, to the same forces influencing the price of an underlying reference asset (or, in the case of the Managed Futures Funds, the price of the underlying futures contracts) at any point in time.

Authorized Participants or their clients or 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 NAV per Share of the Funds closely over time.

The value of a Share of a Fund may be influenced by non-concurrent trading hours between the NYSE Arca and the market in which the Financial Instruments (or related reference assets) held by a Fund are traded. The Shares of each Fund trade, or will trade, on the NYSE Arca from 9:30 a.m. to 4:00 p.m. (Eastern Time). The Financial Instruments (and/or the reference assets) held by a particular Fund, however, may have different fixing or settlement times. Consequently, liquidity in the Financial Instruments underlying the applicable benchmark (and/or the reference assets) may be reduced after such fixing or settlement time. As a result, during the time when the NYSE Arca is open but after the applicable fixing or settlement time, trading spreads and the resulting premium or discount on the Shares of a Fund may widen, and, therefore, increase the difference between the price of the Shares of a Fund and the NAV of such Shares.

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

Each of the indices for the Commodity Index Funds is concentrated in terms of the number and type of commodities represented, and some of the sub-indices are solely concentrated in a single commodity. The benchmarks for the Currency Funds and Commodity Funds are concentrated solely on a reference asset and the Index for the Currency Index Funds is concentrated in terms of the number of currencies represented. The benchmarks for the VIX Funds are concentrated solely in VIX Futures contracts. Investors should be aware that other commodity and currency benchmarks (or, in the case of VIX Funds, other volatility indexes), may be more diversified in terms of both the number and variety of commodities and currencies included (or, in the case of VIX Funds, the number and variety of instruments included or in terms of the volatility exposure offered). Concentration in fewer underlying reference assets (or, in the case of VIX Funds, underlying components), may result in a greater degree of volatility in a benchmark and the NAV of the Fund which tracks that benchmark under specific market conditions and over time.

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

Some of the Funds’ trading may be conducted on exchanges outside the United States. Trading on such exchanges is 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.

Although the Sponsor does not anticipate that such claims will adversely impact the Funds, it is impossible to provide definite assurances that no such negative impact will occur. The Sponsor believes that it has properly licensed or obtained the appropriate consent of all necessary parties with respect to intellectual property rights.

 

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However, other third parties could allege ownership as to such rights and may bring an action in asserting their claims. To the extent any action is brought by a third party asserting such rights, the expenses in litigating, negotiating, cross-licensing or otherwise settling such claims may adversely affect the Funds.

Investors may be adversely affected by an overstatement or understatement of the NAV calculation of the Funds due to the valuation method employed on the date of NAV calculation.

Calculating the NAV of the Funds includes, in part, any unrealized profits or losses on open Financial Instrument positions. Under normal circumstances, the NAV of a Fund reflects the value of the Financial Instruments held by a Fund, as of the time the NAV is being calculated. However, if any of the Financial Instruments held by a Fund could not be purchased or sold on a day when a Fund is accepting creation and redemption orders (due to the operation of daily limits or other rules of the exchange or otherwise), a Fund may be improperly exposed which could cause it to fail to meet its stated investment objective. Alternatively, a Fund may attempt to calculate the fair value of such Financial Instruments. In such a situation, there is a risk that the calculation of the relevant benchmark, and therefore, the NAV of the applicable Fund on such day, may not accurately reflect the realizable market value of the Financial Instruments underlying such benchmark.

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 NYSE Arca or in other markets, if any, in which the Shares may be traded.

NYSE Arca 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 NYSE Arca rules and procedures, for reasons that, in the view of the NYSE Arca, 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., Dow Jones Industrial Average) or in the price of a Fund’s Shares. Additionally the ability to short sell a Fund’s Shares may be restricted when there is a 10% or greater change from the previous day’s official closing price. 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 1940 Act.

None of the Funds are subject to registration or regulation under the 1940 Act. Consequently, shareholders do not have the regulatory protections provided to investors in investment companies.

Shareholders do not have the rights enjoyed by investors in certain other vehicles and may be adversely affected by a lack of statutory rights and by limited voting and distribution rights.

The Shares have limited voting and distribution rights. For example, shareholders do not have the right to elect directors, the Funds may enact splits or reverse splits without shareholder approval and the Funds are not required to pay regular distributions, although the Funds may pay distributions at the discretion of the Sponsor.

 

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The value of the Shares will be adversely affected if the Funds are required to indemnify the Trustee.

Under the Trust Agreement, the Trustee 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 sale of that kind would reduce the NAV of one or more of the Funds.

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

The Shares of the Funds are limited liability investments; investors may not lose more than the amount that they invest plus any profits 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.

Failure of the FCM to segregate assets may increase losses in the Funds.

The CEA requires a clearing broker to segregate all funds received from customers from such broker’s proprietary assets. There is a risk that assets deposited by the Sponsor on behalf of the Funds as margin with the FCMs may, in certain circumstances, be used to satisfy losses of other clients of the FCMs. If an FCM fails to segregate the funds received from the Sponsor, the assets of the Funds might not be fully protected in the event of the FCM’s bankruptcy. Furthermore, in the event of an FCM’s bankruptcy, Fund Shares could be limited to recovering only a pro rata share of all available funds segregated on behalf of the FCM’s combined customer accounts, even though certain property specifically traceable to a particular Fund was held by the FCM. Each FCM may, from time to time, have been the subject of certain regulatory and private causes of action.

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 Fund and thereby potentially exposing assets in one Fund to the liabilities of another Fund.

Each Fund 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 (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 Fund 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 in one Fund to the liabilities of another Fund.

There may be circumstances that could prevent a Fund from being operated 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 make it, for all practical purposes, impossible to re-position such Fund and/or to process a purchase or redemption order. Examples of such circumstances include: 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 DTC, the NSCC, or any other participant in the purchase

 

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process; and similar extraordinary events. Accordingly, while the Sponsor has implemented and tested a business continuity plan that transfers functions of any disrupted facility to another location and has effected a disaster recovery plan, circumstances, such as those above, may prevent a Fund from being operated in a manner consistent with its investment objectives and/or principal investment strategies.

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 (“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. 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 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 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.

INVESTORS ARE STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISERS 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.

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.

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

 

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In particular, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) was signed into law on July 21, 2010. The Act will 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 new legislative framework for OTC derivatives, including 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 will require clearing and exchange trading of many OTC derivatives transactions.

Provisions in the Dodd-Frank Act include the requirement that position limits on commodity futures contracts be established; new registration, recordkeeping, capital and margin requirements for “swap dealers” and “major swap participants” as determined by the Dodd-Frank Act and applicable regulations; and the forced use of clearinghouse mechanisms for many OTC derivative transactions. Additionally, the new law requires the aggregation, for purposes of position limits, of all positions in futures held by a single entity and its affiliates, whether such positions exist on U.S. futures exchanges, non-U.S. futures exchanges, or in OTC contracts.

The CFTC, SEC and other federal regulators have been tasked with developing the rules and regulations enacting the provisions of the Dodd-Frank Act. It is not possible at this time to gauge the exact nature and scope of the impact of the Dodd-Frank Act on any of the Funds. The new law and the rules to be promulgated may negatively impact a Fund’s ability to meet its investment objective either through limits or requirements imposed on it or upon its counterparties. In particular, new position limits imposed on a Fund or its counterparties may impact that Fund’s ability to invest in a manner that efficiently meets its investment objective, and new requirements, including capital and mandatory clearing, may increase the cost of a Fund’s investments and cost of doing business, which could adversely affect investors.

 

Item 1B. Unresolved Staff Comments.

None.

 

Item 2. Properties.

Not applicable.

 

Item 3. Legal Proceedings.

The Trust and certain principals of the Sponsor are defendants (along with several other parties) in a consolidated class action lawsuit styled In re ProShares Trust Securities Litigation, Civ. No. 09-cv-6935, filed in the United States District Court for the Southern District of New York. The complaint, as amended, alleges that the defendants violated Sections 11 and 15 of the Securities Act of 1933 by including untrue statements of material fact and omitting material facts in the Registration Statement for one or more ProShares ETFs and allegedly failing to adequately disclose the Funds’ investment objectives and risks. The six Funds of the Trust named in the complaint are ProShares Ultra Silver, ProShares UltraShort Gold, ProShares Ultra Gold, ProShares UltraShort DJ-UBS Crude Oil, ProShares Ultra DJ-UBS Crude Oil and ProShares UltraShort Silver. The Trust believes the complaint is without merit and that the anticipated outcome will not adversely impact the operation of the Trust or any of its Funds.

 

Item 4. Mine Safety Disclosures.

Not applicable.

 

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Part II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

a) Eight of the Funds, ProShares Ultra DJ-UBS Commodity, ProShares UltraShort DJ-UBS Commodity, ProShares Ultra DJ-UBS Crude Oil, ProShares UltraShort DJ-UBS Crude Oil, ProShares Ultra Euro, ProShares UltraShort Euro, ProShares Ultra Yen and ProShares UltraShort Yen, commenced trading on the NYSE Arca on November 25, 2008. Four of the Funds, ProShares Ultra Silver, ProShares UltraShort Silver, ProShares Ultra Gold and ProShares UltraShort Gold, commenced trading on the NYSE Arca on December 3, 2008. Two of the Funds, ProShares VIX Short-Term Futures ETF and ProShares VIX Mid-Term Futures ETF, commenced trading on the NYSE Arca on January 3, 2011. Two of the Funds, ProShares Ultra VIX Short-Term Futures ETF and ProShares Short VIX Short-Term Futures ETF, commenced trading on the NYSE Arca on October 3, 2011. Two of the Funds, ProShares Ultra DJ-UBS Natural Gas and ProShares UltraShort Natural Gas, commenced trading on the NYSE Arca on October 4, 2011. The New Funds have not yet commenced trading. The following tables set forth the ranges of reported high and low sales prices of each Fund’s Shares as reported on the NYSE Arca for the periods indicated below.

Fiscal Year 2011

 

Fund

   High      Low  

ProShares Ultra DJ-UBS Commodity

     

First Quarter

   $ 39.82       $ 33.97   

Second Quarter

     42.47         31.49   

Third Quarter

     37.00         25.67   

Fourth Quarter

     30.05         24.00   

ProShares UltraShort DJ-UBS Commodity*

     

First Quarter

   $ 51.30       $ 42.99   

Second Quarter

     50.63         39.98   

Third Quarter

     59.30         42.94   

Fourth Quarter

     61.11         48.89   

ProShares Ultra DJ-UBS Crude Oil*

     

First Quarter

   $ 58.10       $ 41.40   

Second Quarter

     64.74         37.69   

Third Quarter

     46.64         26.70   

Fourth Quarter

     44.95         24.58   

ProShares UltraShort DJ-UBS Crude Oil*

     

First Quarter

   $ 59.40       $ 41.15   

Second Quarter

     54.79         35.58   

Third Quarter

     70.63         43.38   

Fourth Quarter

     71.33         36.69   

ProShares Ultra DJ-UBS Natural Gas

     

First Quarter

   $ —         $ —     

Second Quarter

     —           —     

Third Quarter

     —           —     

Fourth Quarter

     39.67         20.27   

ProShares UltraShort DJ-UBS Natural Gas

     

First Quarter

   $ —         $ —     

Second Quarter

     —           —     

Third Quarter

     —           —     

Fourth Quarter

     71.88         39.94   

ProShares Ultra Gold

     

First Quarter

   $ 72.70       $ 59.86   

Second Quarter

     85.37         69.08   

Third Quarter

     122.13         74.68   

 

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Fourth Quarter

     106.63         75.42   

ProShares UltraShort Gold

     

First Quarter

   $ 32.52       $ 26.36   

Second Quarter

     27.63         22.08   

Third Quarter

     24.81         14.30   

Fourth Quarter

     20.81         15.25   

ProShares Ultra Silver*

     

First Quarter

   $ 115.66       $ 58.39   

Second Quarter

     190.93         76.27   

Third Quarter

     127.05         48.39   

Fourth Quarter

     71.58         38.25   

ProShares UltraShort Silver*

     

First Quarter

   $ 51.32       $ 22.86   

Second Quarter

     24.49         12.83   

Third Quarter

     22.10         10.64   

Fourth Quarter

     18.15         10.82   

ProShares Ultra Euro

     

First Quarter

   $ 29.11       $ 24.03   

Second Quarter

     32.02         28.11   

Third Quarter

     30.32         25.75   

Fourth Quarter

     28.93         23.80   

ProShares UltraShort Euro

     

First Quarter

   $ 21.79       $ 17.68   

Second Quarter

     18.12         15.99   

Third Quarter

     19.28         16.47   

Fourth Quarter

     20.45         16.93   

ProShares Ultra Yen

     

First Quarter

   $ 35.58       $ 31.34   

Second Quarter

     34.40         30.09   

Third Quarter

     37.45         33.29   

Fourth Quarter

     37.87         35.27   

ProShares UltraShort Yen*

     

First Quarter

   $ 50.10       $ 43.71   

Second Quarter

     51.48         44.64   

Third Quarter

     46.26         40.20   

Fourth Quarter

     42.55         39.72   

ProShares Ultra VIX Short-Term Futures ETF

     

First Quarter

   $ —         $ —     

Second Quarter

     —           —     

Third Quarter

     —           —     

Fourth Quarter

     40.80         10.18   

ProShares VIX Short-Term Futures ETF

     

First Quarter

   $ 84.99       $ 59.71   

Second Quarter

     64.08         45.21   

Third Quarter

     114.64         43.04   

Fourth Quarter

     126.72         69.01   

ProShares Short VIX Short-Term Futures ETF

     

First Quarter

   $ —         $ —     

Second Quarter

     —           —     

Third Quarter

     —           —     

Fourth Quarter

     58.78         39.00   

ProShares VIX Mid-Term Futures ETF

     

First Quarter

   $ 80.21       $ 63.80   

Second Quarter

     70.86         60.87   

Third Quarter

     89.48         57.24   

Fourth Quarter

     94.94         70.50   

 

* See Note 1 of the Notes to Financial Statements in Item 8 of Part II in this Annual Report on Form 10-K.

 

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Fiscal Year 2010

 

Fund

   High      Low  

ProShares Ultra DJ-UBS Commodity

     

First Quarter

   $ 30.56       $ 22.25   

Second Quarter

     26.98         20.89   

Third Quarter

     27.73         21.50   

Fourth Quarter

     36.66         26.66   

ProShares UltraShort DJ-UBS Commodity*

     

First Quarter

   $ 93.00       $ 66.90   

Second Quarter

     96.50         72.45   

Third Quarter

     88.00         66.50   

Fourth Quarter

     69.65         47.80   

ProShares Ultra DJ-UBS Crude Oil*

     

First Quarter

   $ 55.64       $ 37.72   

Second Quarter

     58.08         32.32   

Third Quarter

     45.28         32.64   

Fourth Quarter

     50.64         39.24   

ProShares UltraShort DJ-UBS Crude Oil*

     

First Quarter

   $ 87.70       $ 60.40   

Second Quarter

     93.70         54.35   

Third Quarter

     84.95         60.80   

Fourth Quarter

     67.05         50.15   

ProShares Ultra Gold

     

First Quarter

   $ 49.89       $ 40.28   

Second Quarter

     57.63         46.19   

Third Quarter

     61.36         48.02   

Fourth Quarter

     71.81         61.35   

ProShares UltraShort Gold*

     

First Quarter

   $ 55.85       $ 45.90   

Second Quarter

     47.85         22.00   

Third Quarter

     43.61         33.48   

Fourth Quarter

     33.46         27.72   

ProShares Ultra Silver*

     

First Quarter

   $ 69.59       $ 41.55   

Second Quarter

     72.71         54.30   

Third Quarter

     85.28         54.45   

Fourth Quarter

     159.34         84.11   

ProShares UltraShort Silver*

     

First Quarter

   $ 242.00       $ 152.00   

Second Quarter

     164.80         120.16   

Third Quarter

     145.68         87.92   

Fourth Quarter

     88.96         39.12   

ProShares Ultra Euro

     

First Quarter

   $ 31.06       $ 25.80   

Second Quarter

     27.28         20.73   

Third Quarter

     26.92         21.82   

Fourth Quarter

     29.18         24.35   

ProShares UltraShort Euro

     

First Quarter

   $ 21.54       $ 18.16   

Second Quarter

     26.39         20.30   

Third Quarter

     23.79         19.82   

Fourth Quarter

     21.63         18.12   

ProShares Ultra Yen

     

 

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Table of Contents

First Quarter

   $ 28.90       $ 25.81   

Second Quarter

     28.65         25.17   

Third Quarter

     32.24         28.47   

Fourth Quarter

     34.22         31.20   

ProShares UltraShort Yen*

     

First Quarter

   $ 21.51       $ 19.23   

Second Quarter

     21.83         18.84   

Third Quarter

     18.98         16.57   

Fourth Quarter

     16.91         15.46   

 

* See Note 1 of the Notes to Financial Statements in Item 8 of Part II in this Annual Report on Form 10-K.

The approximate number of holders of the Shares of each Fund as of December 31, 2011 was as follows:

 

Fund

   Number of
Holders
 

ProShares Ultra DJ-UBS Commodity

     819   

ProShares UltraShort DJ-UBS Commodity

     343   

ProShares Ultra DJ-UBS Crude Oil

     14,082   

ProShares UltraShort DJ-UBS Crude Oil

     7,549   

ProShares Ultra DJ-UBS Natural Gas

     87   

ProShares UltraShort DJ-UBS Natural Gas

     6   

ProShares Ultra Gold

     12,999   

ProShares UltraShort Gold

     11,268   

ProShares Ultra Silver

     35,374   

ProShares UltraShort Silver

     20,175   

ProShares Ultra Euro

     724   

ProShares UltraShort Euro

     38,128   

ProShares Ultra Yen

     420   

ProShares UltraShort Yen

     10,314   

ProShares Ultra VIX Short-Term Futures ETF

     174   

ProShares VIX Short-Term Futures ETF

     950   

ProShares Short VIX Short-Term Futures ETF

     75   

ProShares VIX Mid-Term Futures ETF

     5,007   

Total:

     158,494   

The Funds made no distributions to Shareholders during the fiscal year ended December 31, 2011. The Funds have no obligation to make periodic distributions to Shareholders.

 

b)

The Trust initially registered Shares on Form S-1 (No. 333-146801), which was declared effective on November 21, 2008, and registered additional Shares on its Registration Statement on Form S-1 (No. 333-156888), which was declared effective on February 13, 2009. The Trust terminated these two offerings before the sale of all Shares registered and re-allocated the remaining amount of the Shares registered among the Funds pursuant to its Registration Statement on Form S-3 (No. 333-163511), which became effective on December 4, 2009 and registered additional Shares and/or added Funds pursuant to Post-Effective Amendments to that Registration Statement, which became effective on May 28, 2010, November 5, 2010, December 23, 2010 and April 13, 2011. Additional amounts were registered pursuant to Prospectus Supplements, which aggregate total amounts are reflected in the “Amount Registered” column below. Substantially all of the proceeds received by each Fund from the issuance and sale of Shares to Authorized Participants are used by each Fund to enter into Financial Instruments relating to that Fund’s benchmark in combination with cash or 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, bank deposits, bank money market accounts, certain variable rate-demand notes and repurchase agreements collateralized by government securities, whether denominated in U.S. or the applicable foreign currency with respect to a Currency Fund) that may be used to collateralize swap agreements or forward contracts or

 

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  deposited with FCMs as margin in connection with any futures transactions. Each Geared Fund continuously offers and redeems or will continuously offer and redeem and each Managed Futures Fund will continuously offer and redeem its Shares in blocks of 50,000 Shares, and each Matching VIX Fund continuously offers and redeems shares in blocks of 25,000 Shares. The New Funds have not yet commenced investment operations.

 

Title of Securities Registered

   Amount
Registered As of
December 31,
2011
    Shares Sold
For the
Three
Months
Ended

December 31,
2011
    Sale Price of
Shares

Sold For the
Three Months
Ended

December 31,
2011
     Shares Sold
For the Year
Ended

December 31,
2011
    Sale Price of
Shares

Sold For the Year
Ended

December 31,
2011
 

ProShares Ultra DJ-UBS Commodity Common Units of Beneficial Interest

   $ 300,000,000        —        $ —           50,000      $ 1,782,755   

ProShares UltraShort DJ-UBS Commodity Common Units of Beneficial Interest

   $ 500,000,000        —        $ —           1,780,000 2    $ 84,549,839   

ProShares Ultra DJ-UBS Crude Oil Common Units of Beneficial Interest

   $ 3,000,000,000        1,250,000      $ 33,977,680         29,625,000 2    $ 1,173,453,517   

ProShares UltraShort DJ-UBS Crude Oil Common Units of Beneficial Interest

   $ 1,500,000,000        4,500,000      $ 191,253,426         12,530,000 2    $ 544,053,277   

ProShares Ultra DJ-UBS Natural Gas Common Units of Beneficial Interest

   $ 500,000,000        200,010      $ 6,397,137         200,010      $ 6,397,137   

ProShares Short DJ-UBS Natural Gas Common Units of Beneficial Interest

   $ 500,000,000        —        $ —           —        $ —     

ProShares UltraShort DJ-UBS Natural Gas Common Units of Beneficial Interest

   $ 500,000,000        100,010      $ 4,000,800         100,010      $ 4,000,800   

ProShares Ultra Gold Common Units of Beneficial Interest

   $ 1,000,000,000        100,000      $ 7,796,996         1,350,000      $ 128,281,626   

ProShares Short Gold Common Units of Beneficial Interest

   $ 500,000,000        —        $ —           —        $ —     

ProShares UltraShort Gold Common Units of Beneficial Interest

   $ 1,000,000,000        1,200,000      $ 23,818,841         10,100,000      $ 196,587,378   

ProShares Ultra Silver Common Units of Beneficial Interest

   $ 2,000,000,000        3,450,000 2    $ 192,812,984         15,650,000 2    $ 1,259,593,245   

ProShares UltraShort Silver Common Units of Beneficial Interest

   $ 2,100,000,000        7,750,000      $ 103,209,547         70,637,500 2    $ 1,193,126,146   

ProShares UltraPro Australian Dollar Common Units of Beneficial Interest

   $ 1,000,000 1      —        $ —           —        $ —     

ProShares Ultra Australian Dollar Common Units of Beneficial Interest

   $ 1,000,000 1      —        $ —           —        $ —     

ProShares Short Australian Dollar Common Units of Beneficial Interest

   $ 1,000,000 1      —        $ —           —        $ —     

ProShares UltraShort Australian Dollar Common Units of Beneficial Interest

   $ 1,000,000 1      —        $ —           —        $ —     

ProShares UltraPro Short Australian Dollar Common Units of Beneficial Interest

   $ 1,000,000 1      —        $ —           —        $ —     

ProShares UltraPro Canadian Dollar Common Units of Beneficial Interest

   $ 1,000,000 1      —        $ —           —        $ —     

ProShares Ultra Canadian Dollar Common Units of Beneficial Interest

   $ 1,000,000 1      —        $ —           —        $ —     

 

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ProShares Short Canadian Dollar Common Units of Beneficial Interest

   $ 1,000,000 1      —        $ —           —        $ —     

ProShares UltraShort Canadian Dollar Common Units of Beneficial Interest

   $ 1,000,000 1      —        $ —           —        $ —     

ProShares UltraPro Short Canadian Dollar Common Units of Beneficial Interest

   $ 1,000,000 1      —        $ —           —        $ —     

ProShares UltraPro Euro Common Units of Beneficial Interest

   $ 1,000,000 1      —        $ —           —        $ —     

ProShares Ultra Euro Common Units of Beneficial Interest

   $ 500,000,000        100,000      $ 2,412,661         100,000      $ 2,412,661   

ProShares Short Euro Common Units of Beneficial Interest

   $ 1,000,000 1      —        $ —           —        $ —     

ProShares UltraShort Euro Common Units of Beneficial Interest

   $ 2,103,506,872        13,000,000      $ 241,701,880         50,600,000      $ 916,146,552   

ProShares UltraPro Short Euro Common Units of Beneficial Interest

   $ 1,000,000 1      —        $ —           —        $ —     

ProShares UltraPro Swiss Franc Dollar Common Units of Beneficial Interest

   $ 1,000,000 1      —        $ —           —        $ —     

ProShares Ultra Swiss Franc Common Units of Beneficial Interest

   $ 1,000,000 1      —        $ —           —        $ —     

ProShares Short Swiss Franc Common Units of Beneficial Interest

   $ 1,000,000 1      —        $ —           —        $ —     

ProShares UltraShort Swiss Franc Common Units of Beneficial Interest

   $ 1,000,000 1      —        $ —           —        $ —     

ProShares UltraPro Short Swiss Franc Common Units of Beneficial Interest

   $ 1,000,000 1      —        $ —           —        $ —     

ProShares UltraPro U.S. Dollar Common Units of Beneficial Interest

   $ 1,000,000 1      —        $ —           —        $ —     

ProShares Ultra U.S. Dollar Common Units of Beneficial Interest

   $ 1,000,000 1      —        $ —           —        $ —     

ProShares Short U.S. Dollar Common Units of Beneficial Interest

   $ 1,000,000 1      —        $ —           —        $ —     

ProShares UltraShort U.S. Dollar Common Units of Beneficial Interest

   $ 1,000,000 1      —        $ —           —        $ —     

ProShares UltraPro Short U.S. Dollar Common Units of Beneficial Interest

   $ 1,000,000 1      —        $ —           —        $ —     

ProShares UltraPro Yen Common Units of Beneficial Interest

   $ 1,000,000 1      —        $ —           —        $ —     

ProShares Ultra Yen Common Units of Beneficial Interest

   $ 500,000,000        —        $ —           50,000      $ 1,696,147   

ProShares Short Yen Common Units of Beneficial Interest

   $ 1,000,000 1      —        $ —           —        $ —     

ProShares UltraShort Yen Common Units of Beneficial Interest

   $ 1,300,000,000        150,000 2    $ 6,249,760         6,683,333 2    $ 308,667,664   

ProShares UltraPro Short Yen Common Units of Beneficial Interest

   $ 1,000,000 1      —        $ —           —        $ —     

ProShares Ultra VIX Short-Term Futures ETF Common Units of Beneficial Interest

   $ 500,000,000        800,010      $ 14,185,434         800,010      $ 14,185,434   

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

   $ 800,000,000        350,000      $ 34,676,949         4,725,000      $ 297,178,431   

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

   $ 500,000,000        150,010      $ 6,330,740         150,010      $ 6,330,740   

 

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ProShares UltraShort VIX Short-Term Futures ETF Common Units of Beneficial Interest

   $ —          —         $ —           —         $ —     

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

   $ —          —         $ —           —         $ —     

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

   $ 500,000,000        1,075,000       $ 86,409,458         1,600,000       $ 123,191,472   

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

   $ —          —         $ —           —         $ —     

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

   $ —          —         $ —           —         $ —     

ProShares Managed Futures Strategy Common Units of Beneficial Interest

   $ 1,000,000 3      —         $ —           —         $ —     

ProShares Commodity Managed Futures Strategy Common Units of Beneficial Interest

   $ 1,000,000 3      —         $ —           —         $ —     

ProShares Financial Managed Futures Strategy Common Units of Beneficial Interest

   $ 1,000,000 3      —         $ —           —         $ —     

Total:

   $ 20,132,506,872        34,175,040       $ 955,234,293         206,730,873       $ 6,261,634,821   

 

1

A registration statement on Form S-1 was filed with the SEC on December 22, 2011 registering this amount. However, the registration statement has not yet been declared effective.

2 

See Note 1 of the Notes to Financial Statements in Item 8 of Part II in this Annual Report on Form 10-K.

3 

A registration statement on Form S-1 was filed with the SEC on November 29, 2011 registering this amount. However, the registration statement has not yet been declared effective.

 

c) From October 1, 2011 through December 31, 2011, the number of Shares redeemed and average price per Share for each Fund were as follows:

 

Fund

   Total Number of
Shares Redeemed
     Average Price
Per Share
 

ProShares Ultra DJ-UBS Commodity

     

10/01/11 to 10/31/11

     50,000       $ 26.97   

11/01/11 to 11/30/11

     50,000         29.43   

12/01/11 to 12/31/11

     —           —     

ProShares UltraShort DJ-UBS Commodity

     

10/01/11 to 10/31/11

     —           —     

11/01/11 to 11/30/11

     —           —     

12/01/11 to 12/31/11

     50,000         53.36   

ProShares Ultra DJ-UBS Crude Oil

     

10/01/11 to 10/31/11

     4,800,000         34.44   

11/01/11 to 11/30/11

     3,200,000         40.41   

12/01/11 to 12/31/11

     1,050,000         42.10   

ProShares UltraShort DJ-UBS Crude Oil

     

10/01/11 to 10/31/11

     —           —     

11/01/11 to 11/30/11

     1,100,000         40.55   

12/01/11 to 12/31/11

     800,000         42.43   

ProShares Ultra DJ-UBS Natural Gas

     

10/01/11 to 10/31/11

     —           —     

11/01/11 to 11/30/11

     —           —     

12/01/11 to 12/31/11

     —           —     

ProShares UltraShort DJ-UBS Natural Gas

     

10/01/11 to 10/31/11

     —           —     

11/01/11 to 11/30/11

     —           —     

12/01/11 to 12/31/11

     —           —     

ProShares Ultra Gold

     

10/01/11 to 10/31/11

     —           —     

11/01/11 to 11/30/11

     —           —     

12/01/11 to 12/31/11

     100,000         98.27   

 

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ProShares UltraShort Gold

     

10/01/11 to 10/31/11

     750,000         17.80   

11/01/11 to 11/30/11

     —           —     

12/01/11 to 12/31/11

     100,000         19.65   

ProShares Ultra Silver*

     

10/01/11 to 10/31/11

     800,000         57.83   

11/01/11 to 11/30/11

     950,000         59.69   

12/01/11 to 12/31/11

     550,000         50.63   

ProShares UltraShort Silver

     

10/01/11 to 10/31/11

     9,250,000         14.92   

11/01/11 to 11/30/11

     12,600,000         12.22   

12/01/11 to 12/31/11

     2,500,000         14.96   

ProShares Ultra Euro

     

10/01/11 to 10/31/11

     —           —     

11/01/11 to 11/30/11

     —           —     

12/01/11 to 12/31/11

     —           —     

ProShares UltraShort Euro

     

10/01/11 to 10/31/11

     3,900,000         18.47   

11/01/11 to 11/30/11

     800,000         18.30   

12/01/11 to 12/31/11

     2,800,000         19.37   

ProShares Ultra Yen

     

10/01/11 to 10/31/11

     —           —     

11/01/11 to 11/30/11

     —           —     

12/01/11 to 12/31/11

     —           —     

ProShares UltraShort Yen*

     

10/01/11 to 10/31/11

     967,377         42.14   

11/01/11 to 11/30/11

     200,000         41.10   

12/01/11 to 12/31/11

     150,000         41.84   

ProShares Ultra VIX Short-Term Futures ETF

     

10/01/11 to 10/31/11

     —           —     

11/01/11 to 11/30/11

     —           —     

12/01/11 to 12/31/11

     —           —     

ProShares VIX Short-Term Futures ETF

     

10/01/11 to 10/31/11

     —           —     

11/01/11 to 11/30/11

     150,000         106.15   

12/01/11 to 12/31/11

     50,000         81.54   

ProShares Short VIX Short-Term Futures ETF

     

10/01/11 to 10/31/11

     —           —     

11/01/11 to 11/30/11

     —           —     

12/01/11 to 12/31/11

     —           —     

ProShares VIX Mid-Term Futures ETF

     

10/01/11 to 10/31/11

     —           —     

11/01/11 to 11/30/11

     —           —     

12/01/11 to 12/31/11

     —           —     

Total:

     47,717,377       $ 23.56   

 

* See Note 1 of the Notes to Financial Statements in Item 8 of Part II in this Annual Report on Form 10-K.

 

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Item 6. Selected Financial Data.

Financial Highlights for the years ended December 31, 2011, 2010 and 2009 and the period ended December 31, 2008 for each Fund are summarized below and should be read in conjunction with the Funds’ audited financial statements, and the notes and schedules related thereto, which are included in this Annual Report on Form 10-K.

PROSHARES ULTRA DJ-UBS COMMODITY

 

     Year ended
December 31,
2011
    Year ended
December 31,
2010
    Year ended
December 31,
2009
    August 6, 2008
(Inception)
through
December 31,
2008
 

Total assets

   $ 9,773,138      $ 18,200,144      $ 19,759,132      $ 3,367,988   

Total shareholders’ equity at end of period

     9,058,529        18,186,658        19,743,932        3,325,011   

Net investment income (loss)

     (145,601     (101,507     (159,995     (2,396

Net realized and unrealized gain (loss)

     (4,514,955     2,964,022        5,272,629        (223,668

Net income (loss)

     (4,660,556     2,862,515        5,112,634        (226,064

Net increase (decrease) in net asset value per share

     (10.49     8.16        6.05        (2.84

PROSHARES ULTRASHORT DJ-UBS COMMODITY

 

     Year ended
December 31,
2011
    Year ended
December 31,
2010
    Year ended
December 31,
2009
    August 6, 2008
(Inception)
through
December 31,
2008
 

Total assets

   $ 9,114,501      $ 1,605,496      $ 3,143,524      $ 3,314,130   

Total shareholders’ equity at end of period

     9,107,146        1,440,073        2,924,426        2,679,883   

Net investment income (loss)

     (133,153     (24,504     (34,690     (2,783

Net realized and unrealized gain (loss)

     (2,775,425     (638,367     (2,269,710     181,766   

Net income (loss)

     (2,908,578     (662,871     (2,304,400     178,983   

Net increase (decrease) in net asset value per share*

     8.92        (25.11     (60.86     8.97   

PROSHARES ULTRA DJ-UBS CRUDE OIL

 

     Year ended
December 31,
2011
    Year ended
December 31,
2010
    Year ended
December 31,
2009
    August 6, 2008
(Inception)
through
December 31,
2008
 

Total assets

   $ 261,618,033      $ 264,616,122      $ 359,277,448      $ 107,259,658   

Total shareholders’ equity at end of period

     251,395,322        228,133,077        323,819,670        99,772,943   

Net investment income (loss)

     (3,186,369     (2,867,437     (2,745,473     (40,674

Net realized and unrealized gain (loss)

     87,943,855        124,409,546        126,094,280        9,956,997   

Net income (loss)

     84,757,486        121,542,109        123,348,807        9,916,323   

Net increase (decrease) in net asset value per share*

     (9.12     (0.50     (8.62     (40.88

 

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PROSHARES ULTRASHORT DJ-UBS CRUDE OIL

 

     Year ended
December 31,
2011
    Year ended
December 31,
2010
    Year ended
December 31,
2009
    August 6, 2008
(Inception)
through
December 31,
2008
 

Total assets

   $ 144,499,971      $ 143,897,039      $ 78,978,388      $ 20,975,904   

Total shareholders’ equity at end of period

     144,389,893        132,214,257        76,656,626        14,502,399   

Net investment income (loss)

     (1,211,735     (784,150     (785,316     (11,201

Net realized and unrealized gain (loss)

     36,113,078        12,590,308        (16,268,045     (717,759

Net income (loss)

     34,901,343        11,806,158        (17,053,361     (728,960

Net increase (decrease) in net asset value per share*

     (12.03     (17.59     (76.58     20.02   

PROSHARES ULTRA DJ-UBS NATURAL GAS

 

     April 5, 2011
(Inception)
through
December 31,
2011
 

Total assets

   $ 4,107,427   

Total shareholders’ equity at end of period

     4,079,349   

Net investment income (loss)

     (10,459

Net realized and unrealized gain (loss)

     (2,307,329

Net income (loss)

     (2,317,788

Net increase (decrease) in net asset value per share

     (19.60

PROSHARES ULTRASHORT DJ-UBS NATURAL GAS

 

     April 5, 2011
(Inception)
through
December 31,
2011
 

Total assets

   $ 7,174,003   

Total shareholders’ equity at end of period

     7,142,310   

Net investment income (loss)

     (15,612

Net realized and unrealized gain (loss)

     3,157,122   

Net income (loss)

     3,141,510   

Net increase (decrease) in net asset value per share

     31.42   

PROSHARES ULTRA GOLD

 

     Year ended
December 31,
2011
    Year ended
December 31,
2010
    Year ended
December 31,
2009
    August 6, 2008
(Inception)
through
December 31,
2008
 

Total assets

   $ 407,538,760      $ 259,766,273      $ 168,695,905      $ 28,531,021   

Total shareholders’ equity at end of period

     326,399,360        259,562,075        156,476,709        27,736,722   

Net investment income (loss)

     (2,975,486     (1,595,925     (1,247,200     (10,430

Net realized and unrealized gain (loss)

     10,169,127        90,914,726        35,041,207        1,721,234   

Net income (loss)

     7,193,641        89,318,801        33,794,007        1,710,804   

Net increase (decrease) in net asset value per share

     6.69        25.14        13.26        5.82   

PROSHARES ULTRASHORT GOLD

 

     Year ended
December 31,
2011
    Year ended
December 31,
2010
    Year ended
December 31,
2009
    August 6, 2008
(Inception)
through
December 31,
2008
 

Total assets

   $ 198,423,144      $ 80,883,630      $ 68,671,532      $ 4,094,070   

Total shareholders’ equity at end of period

     198,298,571        77,732,507        67,602,811        3,875,093   

Net investment income (loss)

     (1,043,199     (592,970     (402,783     (2,370

Net realized and unrealized gain (loss)

     (8,458,117     (43,229,362     (17,512,830     (659,607

Net income (loss)

     (9,501,316     (43,822,332     (17,915,613     (661,977

Net increase (decrease) in net asset value per share*

     (7.69     (24.04     (44.46     (28.13

 

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PROSHARES ULTRA SILVER

 

     Year ended
December 31,
2011
    Year ended
December 31,
2010
    Year ended
December 31,
2009
    August 6, 2008
(Inception)
through
December 31,
2008
 

Total assets

   $ 786,720,628      $ 547,399,463      $ 158,775,881      $ 10,310,952   

Total shareholders’ equity at end of period

     606,824,420        547,003,919        145,416,382        10,011,149   

Net investment income (loss)

     (7,956,212     (1,723,966     (758,694     (3,611

Net realized and unrealized gain (loss)

     (438,094,409     273,334,878        36,175,592        133,347   

Net income (loss)

     (446,050,621     271,610,912        35,416,898        129,736   

Net increase (decrease) in net asset value per share*

     (34.95     49.63        14.21        1.80   

PROSHARES ULTRASHORT SILVER

 

     Year ended
December 31,
2011
    Year ended
December 31,
2010
    Year ended
December 31,
2009
    August 6, 2008
(Inception)
through
December 31,
2008
 

Total assets

   $ 267,497,929      $ 109,346,452      $ 68,157,270      $ 2,062,984   

Total shareholders’ equity at end of period

     246,813,921        99,032,781        64,516,145        1,960,071   

Net investment income (loss)

     (3,388,013     (538,873     (388,903     (1,870

Net realized and unrealized gain (loss)

     (117,764,498     (102,617,003     (37,791,186     (538,959

Net income (loss)

     (121,152,511     (103,155,876     (38,180,089     (540,829

Net increase (decrease) in net asset value per share*

     (24.55     (148.48     (595.66     (215.97

PROSHARES ULTRA EURO

 

     Year ended
December 31,
2011
    Year ended
December 31,
2010
    Year ended
December 31,
2009
    August 6, 2008
(Inception)
through
December 31,
2008
 

Total assets

   $ 10,079,176      $ 7,735,783      $ 7,815,430      $ 4,569,933   

Total shareholders’ equity at end of period

     9,554,748        7,729,684        7,531,857        4,386,411   

Net investment income (loss)

     (75,102     (92,663     (60,716     (2,894

Net realized and unrealized gain (loss)

     (512,495     24,901        562,024        430,635   

Net income (loss)

     (587,597     (67,762     501,308        427,741   

Net increase (decrease) in net asset value per share

     (1.87     (4.37     0.89        4.24   

 

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PROSHARES ULTRASHORT EURO

 

     Year ended
December 31,
2011
    Year ended
December 31,
2010
    Year ended
December 31,
2009
    August 6, 2008
(Inception)
through
December 31,
2008
 

Total assets

   $ 1,101,007,056      $ 472,081,034      $ 100,901,360      $ 7,374,140   

Total shareholders’ equity at end of period

     1,100,159,546        444,412,995        100,847,786        7,331,163   

Net investment income (loss)

     (5,907,849     (2,805,812     (349,729     (3,574

Net realized and unrealized gain (loss)

     85,179,270        23,450,767        (8,506,207     (342,153

Net income (loss)

     79,271,421        20,644,955        (8,855,936     (345,727

Net increase (decrease) in net asset value per share

     0.05        1.61        (2.27     (4.05

PROSHARES ULTRA YEN

 

     Year ended
December 31,
2011
    Year ended
December 31,
2010
    Year ended
December 31,
2009
    August 6, 2008
(Inception)
through
December 31,
2008
 

Total assets

   $ 5,475,400      $ 5,027,843      $ 4,240,477      $ 3,089,602   

Total shareholders’ equity at end of period

     5,471,075        5,024,240        3,921,267        2,845,053   

Net investment income (loss)

     (39,572     (38,091     (36,723     (2,671

Net realized and unrealized gain (loss)

     383,849        1,426,351        (356,330     347,374   

Net income (loss)

     344,277        1,388,260        (393,053     344,703   

Net increase (decrease) in net asset value per share

     2.98        7.35        (2.31     3.45   

PROSHARES ULTRASHORT YEN

 

     Year ended
December 31,
2011
    Year ended
December 31,
2010
    Year ended
December 31,
2009
    August 6, 2008
(Inception)
through
December 31,
2008
 

Total assets

   $ 225,676,364      $ 223,993,625      $ 67,536,287      $ 2,209,595   

Total shareholders’ equity at end of period

     221,131,994        207,685,813        67,487,917        2,166,617   

Net investment income (loss)

     (2,642,134     (1,213,282     (348,942     (2,148

Net realized and unrealized gain (loss)

     (38,262,661     (43,102,207     (1,312,337     (331,585

Net income (loss)

     (40,904,795     (44,315,489     (1,661,279     (333,733

Net increase (decrease) in net asset value per share*

     (6.06     (17.25     (0.72     (10.01

 

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PROSHARES ULTRA VIX SHORT-TERM FUTURES ETF

 

     April 5, 2011
(Inception)
through
December 31,
2011
 

Total assets

   $ 11,767,107   

Total shareholders’ equity at end of period

     9,881,113   

Net investment income (loss)

     (16,778

Net realized and unrealized gain (loss)

     (4,287,543

Net income (loss)

     (4,304,321

Net increase (decrease) in net asset value per share

     (27.65

PROSHARES VIX SHORT-TERM FUTURES ETF

 

     Year ended
December 31,
2011
    October 12,
2010
(Inception)
through
December 31,
2010
 

Total assets

   $ 30,574,178      $ 199,398   

Total shareholders’ equity at end of period

     30,549,903        400   

Net investment income (loss)

     (282,569     —     

Net realized and unrealized gain (loss)

     2,157,514        —     

Net income (loss)

     1,874,945        —     

Net increase (decrease) in net asset value per share

     (3.63     —     

PROSHARES SHORT VIX SHORT-TERM FUTURES ETF

 

     April 5, 2011
(Inception)
through
December 31,
2011
 

Total assets

   $ 7,795,104   

Total shareholders’ equity at end of period

     7,760,424   

Net investment income (loss)

     (16,333

Net realized and unrealized gain (loss)

     1,446,017   

Net income (loss)

     1,429,684   

Net increase (decrease) in net asset value per share

     11.73   

PROSHARES VIX MID-TERM FUTURES ETF

 

     Year ended
December 31,
2011
    October 12,
2010
(Inception)
through
December 31,
2010
 

Total assets

   $ 90,821,428      $ 124,774   

Total shareholders’ equity at end of period

     90,821,428        400   

Net investment income (loss)

     (117,121     —     

Net realized and unrealized gain (loss)

     (6,632,431     —     

Net income (loss)

     (6,749,552     —     

Net increase (decrease) in net asset value per share

     (5.86     —     

 

* See Note 1 of the Notes to Financial Statements in Item 8 of Part II in this Annual Report on Form 10-K.

 

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This information should be read in conjunction with the financial statements and notes to the financial statements included with this Annual Report on Form 10-K. The discussion and analysis that follows may contain statements that relate to future events or future performance. In some cases, such forward-looking statements can be identified by terminology such as “will,” “may,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or the negative of these terms or other comparable terminology. None of the Trust, the Sponsor or the Trustee assumes responsibility for the accuracy or completeness of any forward-looking statements. Except as expressly required by federal securities laws, none of the Trust, the Sponsor or the Trustee is under a duty to update any of the forward-looking statements to conform such statements to actual results or to a change in expectations or predictions.

Introduction

As further described in Item 1 in this Annual Report on Form 10-K, each “UltraPro” Fund will seek daily investment results (before fees and expenses) that correspond to three times (3x) the daily performance of its corresponding benchmark. Each “Ultra” Fund seeks or will seek daily investment results (before fees and expenses) that correspond to twice (2x) the daily performance of its corresponding benchmark. Each “Short” Fund will seek daily investment results (before fees and expenses) that correspond to the inverse (-1x) of the daily performance of its corresponding benchmark. Each “UltraShort” Fund seeks or will seek daily investment results (before fees and expenses) that correspond to twice the inverse (-2x) of the daily performance of its corresponding benchmark. Each “UltraPro Short” Fund will seek daily investment results (before fees and expenses) that correspond to three times the inverse (-3x) of the daily performance of its corresponding benchmark. Daily performance is measured from the calculation of one NAV to the next. Each of the Geared Funds generally invests or will invest in Financial Instruments (i.e., commodity-based, currency-based or equity market volatility-based instruments whose value is derived from the value of an underlying asset, rate or index, including futures contracts and options on futures contracts, swap agreements, forward contracts and other commodity-based or currency-based options contracts) as a substitute for investing directly in commodities, currencies, or equity market volatility products in order to gain exposure to the commodity index, currency benchmark, commodity, currency or to an equity market volatility index. The Financial Instruments in which ProShares Short DJ-UBS Natural Gas will invest are limited to futures contracts. Financial Instruments also are used to produce economically “leveraged” or “inverse” investment results for the Funds. Each Matching VIX Fund seeks daily investment results (before fees and expenses) that match the performance of a benchmark. Each Geared VIX Fund and each New Geared VIX Fund seeks or will seek daily investment results (before fees and expenses) that correspond to a multiple, the inverse or inverse multiple of the daily performance of a benchmark. Each VIX Fund intends to obtain exposure to its benchmark by investing in VIX futures contracts based on the CBOE VIX. The Managed Futures Funds will seek to provide investment results (before fees and expenses) that correspond to the performance of the DFI, DCFI or the DFFI. Each Managed Futures Fund intends to obtain exposure to the DFI, DCFI or the DFFI, as applicable, by primarily investing in unleveraged positions in Commodities Futures Contracts or Financials Futures Contracts. As noted in Item 1 in this Annual Report on Form 10-K, as of December 31, 2011, each of the New Funds had not commenced investment operations; therefore, this management’s discussion and analysis of financial condition and results of operations does not include results of operations for the New Funds.

Each Geared Fund seeks investment results for a single day only, not for longer periods. This is different from most exchange-traded funds and means that the return of such Fund for a period longer than a single trading day will be the result of each day’s returns compounded over the period, which will very likely differ from 3x, 2x, -1x, -2x or -3x, of the return of the Fund’s benchmark for the period return of the index to which such Fund is benchmarked for that period. In periods of higher market volatility, the volatility of the benchmark may be at least as important to a Geared Fund’s return for the period as the return of the benchmark. Geared Funds are riskier than similarly benchmarked exchange-traded funds that are not geared. Accordingly, these funds may not be suitable for all investors and should be used only by knowledgeable investors who understand the potential consequences of seeking daily inverse investment results. Shareholders should actively monitor their investments.

 

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The Geared VIX Funds do not seek to achieve its stated objective over a period greater than one day. The Matching VIX Funds seek to achieve their stated investment objective both over a single day and over time. The Managed Futures Funds seek to achieve their stated investment objective over time.

Liquidity and Capital Resources

In order to collateralize derivatives positions in indices, commodities or currencies, a significant portion of the NAV of each Fund is held in cash and/or U.S. Treasury Securities, agency securities, or other high credit quality short-term fixed-income or similar securities (such as shares of money market funds, bank deposits, bank money market accounts, certain variable rate-demand notes and repurchase agreements collateralized by government securities, whether denominated in U.S. dollars or the applicable foreign currency with respect to a Currency Fund). A portion of these investments may be posted as collateral in connection with swap agreements and each Fund’s trading in futures and forward contracts. The percentage that U.S. Treasury bills and other short-term fixed-income securities bear to the shareholders’ equity of each Fund varies from period to period as the market values of the underlying swaps, futures contracts and forward contracts change. During the years ended December 31, 2011, 2010 and 2009, each of the Funds earned interest income as follows:

 

Fund

   Interest Income
Year Ended
December 31, 2011
     Interest Income
Year Ended
December 31, 2010
     Interest Income
Year Ended
December 31, 2009
 

ProShares Ultra DJ-UBS Commodity

   $ 10,504       $ 21,655       $ 4,918   

ProShares UltraShort DJ-UBS Commodity

     3,661         3,775         822   

ProShares Ultra DJ-UBS Crude Oil

     159,287         452,166         110,254   

ProShares UltraShort DJ-UBS Crude Oil

     70,449         115,372         24,406   

ProShares Ultra DJ-UBS Natural Gas

     —           —           —     

ProShares UltraShort DJ-UBS Natural Gas

     13         —           —     

ProShares Ultra Gold

     146,143         271,540         55,592   

ProShares UltraShort Gold

     51,785         103,561         16,787   

ProShares Ultra Silver

     423,786         310,024         28,466   

ProShares UltraShort Silver

     146,064         95,673         15,541   

ProShares Ultra Euro

     4,536         16,178         2,956   

ProShares UltraShort Euro

     271,533         574,152         23,700   

ProShares Ultra Yen

     1,871         6,585         1,709   

ProShares UltraShort Yen

     182,452         233,813         25,604   

ProShares Ultra VIX Short-Term Futures ETF

     —           —           —     

ProShares VIX Short-Term Futures ETF

     12,243         —           —     

ProShares Short VIX Short-Term Futures ETF

     1         —           —     

ProShares VIX Mid-Term Futures ETF

     4,090         —           —     

Each Fund’s underlying swaps, futures and forward contracts, as the case may be, are subject to periods of illiquidity because of market conditions, regulatory considerations and other reasons. For example, swaps and forward contracts are not traded on an exchange, do not have uniform terms and conditions, and in general are not transferable without the consent of the counterparty. In the case of futures contracts, commodity exchanges may limit fluctuations in certain futures contract prices during a single day by regulations referred to as “daily limits.” During a single day, no futures trades may be executed at prices beyond the daily limit. Once the price of a futures contract has increased or decreased by an amount equal to the daily limit, positions in such futures contracts can neither be taken nor liquidated unless the traders are willing to effect trades at or within the limit. Futures contract prices have occasionally moved the daily limit for several consecutive days with little or no trading. Such market conditions could prevent a Fund from promptly liquidating its futures positions.

Entry into swap agreements or forward contracts may further impact liquidity because these contractual agreements are executed “off-exchange” between private parties and, therefore, the time required to offset or “unwind” these positions may be greater than that for exchange-traded instruments. This potential delay could be exacerbated to the extent a counterparty is not a United States person.

The Trust is unaware of any other trends, demands, conditions or events that are reasonably likely to result in material changes to the Trust’s liquidity needs.

 

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Because each Fund may enter into swaps and may trade futures and forward contracts, its capital is at risk due to changes in the value of these contracts (market risk) or the inability of counterparties to perform under the terms of the contracts (credit risk).

Results of Operations for the Year Ended December 31, 2011 Compared to the Years Ended December 31, 2010 and December 31, 2009

ProShares Ultra DJ-UBS Commodity

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2011, 2010 and 2009:

 

     Year Ended
December 31, 2011
    Year Ended
December 31, 2010
    Year Ended
December 31, 2009
 

NAV beginning of period

   $ 18,186,658      $ 19,743,932      $ 3,325,011   

NAV end of period

   $ 9,058,529      $ 18,186,658      $ 19,743,932   

Percentage change in NAV

     (50.2 %)      (7.9 %)      493.8

Shares outstanding beginning of period

     500,014        700,014        150,014   

Shares outstanding end of period

     350,014        500,014        700,014   

Percentage change in shares outstanding

     (30.0 %)      (28.6 %)      366.6

Shares created

     50,000        400,000        1,200,000   

Shares redeemed

     200,000        600,000        650,000   

Per share NAV beginning of period

   $ 36.37      $ 28.21      $ 22.16   

Per share NAV end of period

   $ 25.88      $ 36.37      $ 28.21   

Percentage change in per share NAV

     (28.8 %)      29.0     27.3

Percentage change in benchmark

     (13.3 %)      16.8     18.9

Benchmark annualized volatility

     18.3     17.0     25.0

During the year ended December 31, 2011, the decrease in the Fund’s NAV resulted primarily from a decrease from 500,014 outstanding Shares at December 31, 2010 to 350,014 outstanding Shares at December 31, 2011. The decrease in the Fund’s NAV also resulted in part from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of the Dow Jones-UBS Commodity Index. By comparison, during the year ended December 31, 2010, the decrease in the Fund’s NAV resulted from a decrease from 700,014 outstanding Shares at December 31, 2009 to 500,014 outstanding Shares at December 31, 2010. The decrease in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of the Dow Jones-UBS Commodity Index. By comparison, during the year ended December 31, 2009, the increase in the Fund’s NAV resulted primarily from an increase from 150,014 outstanding Shares at December 31, 2008 to 700,014 outstanding Shares at December 31, 2009. The increase in the Fund’s NAV also resulted in part from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of the Dow Jones-UBS Commodity Index.

For the years ended December 31, 2011, 2010 and 2009, the Fund’s daily performance had a statistical correlation over 0.99 to 2x of the daily performance of its benchmark. The Fund’s per share NAV decrease of 28.8% for the year ended December 31, 2011, as compared to the Fund’s per share NAV increase of 29.0% for the year ended December 31, 2010, was primarily due to a depreciation in the value of the assets of the Fund during the year ended December 31, 2011. The Fund’s per share NAV increase of 29.0% for the year ended December 31, 2010, as compared to the per share NAV increase of 27.3% for the year ended December 31, 2009, was primarily due to a relatively higher appreciation in the value of the assets of the Fund during the year ended December 31, 2010.

During the year ended December 31, 2011, the Fund’s per share NAV reached its high for the year on April 29, 2011 at $41.87 per Share and reached its low for the year on December 15, 2011 at $24.32 per Share. By comparison, during the year ended December 31, 2010, the Fund’s per share NAV reached its high for the year on December 31, 2010 at $36.37 per Share and reached its low for the year on June 4, 2010 at $21.14 per Share. By comparison, during the year ended December 31, 2009, the Fund’s per share NAV reached its high for the year on December 28, 2009 at $28.56 per Share and reached its low for the year on March 2, 2009 at $16.43 per Share.

 

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The benchmark’s decline of 13.3% for the year ended December 31, 2011, as compared to the benchmark’s rise of 16.8% for the year ended December 31, 2010, can be attributed to a depreciation of the underlying components of the index during the year ended December 31, 2011. By comparison, the benchmark’s rise of 16.8% for the year ended December 31, 2010, as compared to the benchmark’s rise of 18.9% for the year ended December 31, 2009, can be attributed to a relatively lower appreciation of the underlying components of the index, namely Crude Oil, during the year ended December 31, 2010.

Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2011, 2010 and 2009:

 

     Year Ended
December 31, 2011
    Year Ended
December 31, 2010
    Year Ended
December 31, 2009
 

Net investment income (loss)

   $ (145,601   $ (101,507   $ (159,995

Management fee

     156,105        123,162        95,273   

Offering costs

     —          —          69,640   

Net realized gain (loss)

     (2,051,301     2,384,616        4,280,412   

Change in net unrealized appreciation/depreciation

     (2,463,654     579,406        992,217   

Net income (loss)

   $ (4,660,556   $ 2,862,515      $ 5,112,634   

The Fund’s net income decreased for the year ended December 31, 2011, as compared to the year ended December 31, 2010, primarily due to a depreciation of the underlying components of the index, notably Crude Oil, during the year ended December 31, 2011. By comparison, the Fund’s net income decreased for the year ended December 31, 2010, as compared to the year ended December 31, 2009, primarily due to a relatively lower appreciation of the underlying components of the index, notably Crude Oil, during the year ended December 31, 2011.

ProShares UltraShort DJ-UBS Commodity*

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2011, 2010 and 2009:

 

     Year Ended
December 31, 2011
    Year Ended
December 31, 2010
    Year Ended
December 31, 2009
 

NAV beginning of period

   $ 1,440,073      $ 2,924,426      $ 2,679,883   

NAV end of period

   $ 9,107,146      $ 1,440,073      $ 2,924,426   

Percentage change in NAV

     532.4     (50.8 %)      9.1

Shares outstanding beginning of period

     30,003        40,003        20,003   

Shares outstanding end of period

     159,997        30,003        40,003   

Percentage change in shares outstanding

     433.3     (25.0 %)      100.0

Shares created

     1,780,000        50,000        40,000   

Shares redeemed

     1,650,006        60,000        20,000   

Per share NAV beginning of period

   $ 48.00      $ 73.11      $ 133.97   

Per share NAV end of period

   $ 56.92      $ 48.00      $ 73.11   

Percentage change in per share NAV

     18.6     (34.3 %)      (45.4 %) 

Percentage change in benchmark

     (13.3 %)      16.8     18.9

Benchmark annualized volatility

     18.3     17.0     25.0

During the year ended December 31, 2011, the increase in the Fund’s NAV resulted primarily from an increase from 30,003 outstanding Shares at December 31, 2010 to 159,997 outstanding shares at December 31, 2011. The increase in the Fund’s NAV also resulted in part from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the inverse of the daily performance of the Dow Jones-UBS Commodity Index. By comparison, during the year ended December 31, 2010, the decrease in the Fund’s NAV resulted primarily from a decrease from 40,003 outstanding Shares at December 31, 2009 to 30,003

 

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outstanding shares at December 31, 2010. The decrease in the Fund’s NAV also resulted in part from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the inverse of the daily performance of the Dow Jones—UBS Commodity Index. By comparison, during the year ended December 31, 2009, the increase in the Fund’s NAV resulted primarily from an increase from 20,003 outstanding Shares at December 31, 2008 to 40,003 outstanding Shares at December 31, 2009. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the inverse of the daily performance of the Dow Jones—UBS Commodity Index.

For the years ended December 31, 2011, 2010 and 2009, the Fund’s daily performance had a statistical correlation over 0.99 to 2x of the inverse of the daily performance of its benchmark. The Fund’s per share NAV increase of 18.6% for the year ended December 31, 2011, as compared to the Fund’s per share NAV decrease of 34.3% for the year ended December 31, 2010, was primarily due to an appreciation in the value of the assets of the Fund during the year ended December 31, 2011. The Fund’s per share NAV decrease of 34.3% for the year ended December 31, 2010, as compared to the Fund’s per share NAV decrease of 45.4% for the year ended December 31, 2009, was primarily due to a relatively lower depreciation in the value of the assets of the Fund during the year ended December 31, 2010.

During the year ended December 31, 2011, the Fund’s per share NAV reached its high for the year on December 15, 2011 at $60.83 per Share and reached its low for the year on April 29, 2011 at $39.91 per Share. By comparison, during the year ended December 31, 2010, the Fund’s per share NAV reached its high for the year on June 4, 2010 at $90.42 per Share and reached its low for the year on December 31, 2010 at $48.00 per Share. By comparison, during the year ended December 31, 2009, the Fund’s per share NAV reached its high for the year on March 2, 2009 at $167.56 per Share and reached its low for the year on December 28, 2009 at $72.23 per Share.

The benchmark’s decline of 13.3% for the year ended December 31, 2011, as compared to the benchmark’s rise of 16.8% for the year ended December 31, 2010, can be attributed to a depreciation of the underlying components of the index during the year ended December 31, 2011. By comparison, the benchmark’s rise of 16.8% for the year ended December 31, 2010, as compared to the benchmark’s rise of 18.9% for the year ended December 31, 2009, can be attributed to a relatively lower appreciation of the underlying components of the index, namely Crude Oil, during the year ended December 31, 2010.

Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2011, 2010 and 2009:

 

     Year Ended
December 31, 2011
    Year Ended
December 31, 2010
    Year Ended
December 31, 2009
 

Net investment income (loss)

   $ (133,153   $ (24,504   $ (34,690

Management fee

     136,814        28,279        3,100   

Offering costs

     —          —          278,414   

Limitation by Sponsor

     —          —          (246,002

Net realized gain (loss)

     (3,510,053     (691,027     (2,479,160

Change in net unrealized appreciation/depreciation

     734,628        52,660        209,450   

Net income (loss)

   $ (2,908,578   $ (662,871   $ (2,304,400

The Fund’s net income decreased for the year ended December 31, 2011, as compared to the year ended December 31, 2010, primarily due to a higher depreciation of the underlying components of the index, notably Crude Oil, during the year ended December 31, 2011. By comparison, the Fund’s net income increased for the year ended December 31, 2010, as compared to the year ended December 31, 2009, primarily due to a relatively lower appreciation of the underlying components of the index, notably Crude Oil, during the year ended December 31, 2010.

 

* See Note 1 of the Notes to Financial Statements in Item 8 of Part II in this Annual Report on Form 10-K regarding the reverse share split for the ProShares UltraShort DJ-UBS Commodity Fund.

 

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ProShares Ultra DJ-UBS Crude Oil*

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2011, 2010 and 2009:

 

     Year Ended
December 31, 2011
    Year Ended
December 31, 2010
    Year Ended
December 31, 2009
 

NAV beginning of period

   $ 228,133,077      $ 323,819,670      $ 99,772,943   

NAV end of period

   $ 251,395,322      $ 228,133,077      $ 323,819,670   

Percentage change in NAV

     10.2     (29.5 %)      224.6

Shares outstanding beginning of period

     4,562,504        6,412,504        1,687,504   

Shares outstanding end of period

     6,149,170        4,562,504        6,412,504   

Percentage change in shares outstanding

     34.8     (28.8 %)      280.0

Shares created

     29,625,000        29,262,500        31,787,500   

Shares redeemed

     28,038,334        31,112,500        27,062,500   

Per share NAV beginning of period

   $ 50.00      $ 50.50      $ 59.12   

Per share NAV end of period

   $ 40.88      $ 50.00      $ 50.50   

Percentage change in per share NAV

     (18.2 %)      (1.0 %)      (14.6 %) 

Percentage change in benchmark

     (3.7 %)      3.8     4.4

Benchmark annualized volatility

     33.7     27.0     47.0

During the year ended December 31, 2011, the increase in the Fund’s NAV resulted primarily from an increase from 4,562,504 outstanding Shares at December 31, 2010 to 6,149,170 outstanding Shares at December 31, 2011. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of the Dow Jones-UBS Crude Oil Sub-Index. By comparison, during the year ended December 31, 2010, the decrease in the Fund’s NAV resulted primarily from a decrease from 6,412,504 outstanding Shares at December 31, 2009 to 4,562,504 outstanding Shares at December 31, 2010. The decrease in the Fund’s NAV also resulted in part from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of the Dow Jones-UBS Crude Oil Sub-Index. By comparison, during the year ended December 31, 2009, the increase in the Fund’s NAV resulted primarily from an increase from 1,687,504 outstanding Shares at December 31, 2008 to 6,412,504 outstanding Shares at December 31, 2009. The increase in the Fund’s NAV also resulted in part from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of the Dow Jones-UBS Crude Oil Sub-Index.

For the years ended December 31, 2011, 2010 and 2009, the Fund’s daily performance had a statistical correlation over 0.99 to 2x of the daily performance of its benchmark. The Fund’s per share NAV decrease of 18.2% for the year ended December 31, 2011, as compared to the Fund’s per share NAV decrease of 1.0% for the year ended December 31, 2010, was primarily due to a relatively higher depreciation in the value of the assets of the Fund during the year ended December 31, 2011. The Fund’s per share NAV decrease of 1.0% for the year ended December 31, 2010, as compared to the Fund’s per share NAV decrease of 14.6% for the year ended December 31, 2009, was primarily due to a relatively lower depreciation in the value of the assets of the Fund during the year ended December 31, 2010.

During the year ended December 31, 2011, the Fund’s per share NAV reached its high for the year on April 29, 2011 at $63.90 per Share and reached its low for the year on October 4, 2011 at $24.90 per Share. By comparison, during the year ended December 31, 2010, the Fund’s per share NAV reached its high for the year on May 3, 2010 at $57.29 per Share and reached its low for the year on August 24, 2010 at $33.45 per Share. By comparison, during the year ended December 31, 2009, the Fund’s per share NAV reached its high for the year on January 6, 2009 at $70.45 per Share and reached its low for the year on February 18, 2009 at $23.42 per Share.

The benchmark’s decline of 3.7% for the year ended December 31, 2011, as compared to the benchmark’s rise of 3.8% for the year ended December 31, 2010, can be attributed to a decrease in the price of WTI Crude Oil during the year ended December 31, 2011. By comparison, the benchmark’s rise of 3.8% for the year ended December 31, 2010, as compared to the benchmark’s rise of 4.4% for the year ended December 31, 2009, can be attributed to a relatively lower increase in the price of WTI Crude Oil during the year ended December 31, 2010.

 

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Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2011, 2010 and 2009:

 

     Year Ended
December 31, 2011
    Year Ended
December 31, 2010
    Year Ended
December 31, 2009
 

Net investment income (loss)

   $ (3,186,369   $ (2,867,437   $ (2,745,473

Management fee

     3,243,051        3,172,821        2,460,980   

Brokerage commission

     102,605        146,782        255,521   

Offering costs

     —          —          139,226   

Net realized gain (loss)

     110,396,094        151,325,176        100,784,061   

Change in net unrealized appreciation/depreciation

     (22,452,239     (26,915,630     25,310,219   

Net income (loss)

   $ 84,757,486      $ 121,542,109      $ 123,348,807   

The Fund’s net income decreased for the year ended December 31, 2011, as compared to the year ended December 31, 2010, primarily due to a decrease in the price of WTI Crude Oil during the year ended December 31, 2011. By comparison, the Fund’s net income decreased for the year ended December 31, 2010, as compared to the year ended December 31, 2009, primarily due to a relatively lower increase in the price of WTI Crude Oil during the year ended December 31, 2010.

 

* See Note 1 of the Notes to Financial Statements in Item 8 of Part II in this Annual Report on Form 10-K regarding the reverse share split for the ProShares Ultra DJ-UBS Crude Oil Fund.

ProShares UltraShort DJ-UBS Crude Oil*

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2011, 2010 and 2009:

 

     Year Ended
December 31, 2011
    Year Ended
December 31, 2010
    Year Ended
December 31, 2009
 

NAV beginning of period

   $ 132,214,257      $ 76,656,626      $ 14,502,399   

NAV end of period

   $ 144,389,893      $ 132,214,257      $ 76,656,626   

Percentage change in NAV

     9.2     72.5     428.6

Shares outstanding beginning of period

     2,600,003        1,120,003        100,003   

Shares outstanding end of period

     3,719,944        2,600,003        1,120,003   

Percentage change in shares outstanding

     43.1     132.1     1,020.0

Shares created

     12,530,000        9,150,000        4,400,000   

Shares redeemed

     11,410,059        7,670,000        3,380,000   

Per share NAV beginning of period

   $ 50.85      $ 68.44      $ 145.02   

Per share NAV end of period

   $ 38.82      $ 50.85      $ 68.44   

Percentage change in per share NAV

     (23.7 %)      (25.7 %)      (52.8 %) 

Percentage change in benchmark

     (3.7 %)      3.8     4.4

Benchmark annualized volatility

     33.7     27.0     47.0

During the year ended December 31, 2011, the increase in the Fund’s NAV resulted primarily from an increase from 2,600,003 outstanding Shares at December 31, 2010 to 3,719,944 outstanding Shares at December 31, 2011. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the inverse of the daily performance of the Dow Jones-UBS Crude Oil Sub-Index. By comparison, during the year ended December 31, 2010, the increase in the Fund’s NAV resulted from an increase from 1,120,003 outstanding Shares at December 31, 2009 to 2,600,003 outstanding Shares at December 31, 2010. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the inverse of the daily performance of the Dow Jones-UBS Crude Oil Sub-Index. By comparison, during the year ended December 31, 2009, the increase in the Fund’s NAV resulted primarily from an increase from 100,003 outstanding Shares at December 31, 2008 to 1,120,003 Shares at December 31, 2009. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the inverse of the daily performance of the Dow-Jones-UBS Crude Oil Sub-Index.

 

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For the years ended December 31, 2011, 2010 and 2009, the Fund’s daily performance had a statistical correlation over 0.99 to 2x of the inverse of the daily performance of its benchmark. The Fund’s per share NAV decrease of 23.7% for the year ended December 31, 2011, as compared to the Fund’s per share NAV decrease of 25.7% for the year ended December 31, 2010, was primarily due to a relatively lower depreciation in the value of the assets of the Fund during the year ended December 31, 2011. The Fund’s per share NAV decrease of 25.7% for the year ended December 31, 2010, as compared to the Fund’s per share NAV decrease of 52.8% for the year ended December 31, 2009, was primarily due to a relatively lower depreciation in the value of the assets of the Fund during the year ended December 31, 2010.

During the year ended December 31, 2011, the Fund’s per share NAV reached its high for the year on October 4, 2011 at $70.55 per Share and reached its low for the year on April 29, 2011 at $36.11 per Share. By comparison, during the year ended December 31, 2010, the Fund’s per share NAV reached its high for the year on May 25, 2010 at $90.21 per Share and reached its low for the year on December 31, 2010 at $50.85 per Share. By comparison, during the year ended December 31, 2009, the Fund’s per share NAV reached its high for the year on February 18, 2009 at $294.60 per Share and reached its low for the year on October 21, 2009 at $62.21 per Share.

The benchmark’s decline of 3.7% for the year ended December 31, 2011, as compared to the benchmark’s rise of 3.8% for the year ended December 31, 2010, can be attributed to a decrease in the price of WTI Crude Oil during the year ended December 31, 2011. By comparison, the benchmark’s rise of 3.8% for the year ended December 31, 2010, as compared to the benchmark’s rise of 4.4% for the year ended December 31, 2009, can be attributed to a relatively lower increase in the price of WTI Crude Oil during the year ended December 31, 2010.

Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2011, 2010 and 2009:

 

     Year Ended
December 31, 2011
    Year Ended
December 31, 2010
    Year Ended
December 31, 2009
 

Net investment income (loss)

   $ (1,211,735   $ (784,150   $ (785,316

Management fee

     1,228,633        842,206        442,423   

Brokerage commission

     53,551        57,316        88,885   

Offering costs

     —          —          278,414   

Net realized gain (loss)

     26,732,698        15,031,019        (15,768,595

Change in net unrealized appreciation/depreciation

     9,380,380        (2,440,711     (499,450

Net income (loss)

   $ 34,901,343      $ 11,806,158      $ (17,053,361

The Fund’s net income increased for the year ended December 31, 2011, as compared to the year ended December 31, 2010, primarily due to a decrease in the price of WTI Crude Oil during the year ended December 31, 2011. By comparison, the Fund’s net income increased for the year ended December 31, 2010, as compared to the year ended December 31, 2009 primarily due to a relatively lower increase in the price of WTI Crude Oil during the year ended December 31, 2010.

 

* See Note 1 of the Notes to Financial Statements in Item 8 of Part II in this Annual Report on Form 10-K regarding the reverse share split for the ProShares UltraShort DJ-UBS Crude Oil Fund.

 

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ProShares Ultra DJ-UBS Natural Gas

Since the Fund commenced investment operations on October 4, 2011, comparisons of the Fund’s results of operations for the years ended December 31, 2011, 2010 and 2009 have not been provided.

The following table provides summary performance information for the Fund from Commencement of Operations to December 31, 2011:

 

     October 4, 2011
(Commencement of
Operations) through
December 31, 2011
 

NAV beginning of period

   $ 400   

NAV end of period

   $ 4,079,349   

Percentage change in NAV

     1,019,737.3

Shares outstanding beginning of period

     10   

Shares outstanding end of period

     200,010   

Percentage change in shares outstanding

     2,000,000.0

Shares created

     200,000   

Shares redeemed

     —     

Per share NAV beginning of period

   $ 40.00   

Per share NAV end of period

   $ 20.40   

Percentage change in per share NAV

     (49.0 %) 

Percentage change in benchmark

     (27.7 %) 

Benchmark annualized volatility

     29.5

During the period ended December 31, 2011, the increase in the Fund’s NAV resulted primarily from an increase from 10 outstanding Shares at October 4, 2011 to 200,010 outstanding Shares at December 31, 2011. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of the Dow Jones – UBS Natural Gas Sub-indexSM.

For the period ended December 31, 2011, the Fund’s daily performance had a statistical correlation over 0.99 to 2x of the daily performance of its benchmark.

During the period ended December 31, 2011, the Fund’s per share NAV reached its high for the period on October 4, 2011 at $40.00 per Share and reached its low for the period on December 30, 2011 at $20.40 per Share.

The benchmark’s decline of 27.7% for the period ended December 31, 2011 can be attributed to the decrease in the price of Henry Hub Natural Gas.

Net Income/Loss

The following table provides summary income information for the Fund from Commencement of Operations to December 31, 2011:

 

     October 4, 2011
(Commencement of
Operations) through
December 31, 2011
 

Net investment income (loss)

   $ (10,459

Management fee

     1,454   

Brokerage commission

     2,531   

Offering costs

     6,474   

Net realized gain (loss)

     (1,481,819

Change in net unrealized appreciation/depreciation

     (825,510

Net income (loss)

   $ (2,317,788

 

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ProShares UltraShort DJ-UBS Natural Gas

Since the Fund commenced investment operations on October 4, 2011, comparisons of the Fund’s results of operations for the years ended December 31, 2011, 2010 and 2009 have not been provided.

The following table provides summary performance information for the Fund from Commencement of Operations to December 31, 2011:

 

     October 4, 2011
(Commencement of
Operations) through
December 31, 2011
 

NAV beginning of period

   $ 400   

NAV end of period

   $ 7,142,310   

Percentage change in NAV

     1,785,477.5

Shares outstanding beginning of period

     10   

Shares outstanding end of period

     100,010   

Percentage change in shares outstanding

     1,000,000.0

Shares created

     100,000   

Shares redeemed

     —     

Per share NAV beginning of period

   $ 40.00   

Per share NAV end of period

   $ 71.42   

Percentage change in per share NAV

     78.5

Percentage change in benchmark

     (27.7 %) 

Benchmark annualized volatility

     29.5

During the period ended December 31, 2011, the increase in the Fund’s NAV resulted primarily from an increase from 10 outstanding Shares at October 4, 2011 to 100,010 outstanding Shares at December 31, 2011. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the inverse of the daily performance of the Dow Jones – UBS Natural Gas Sub-indexSM.

For the period ended December 31, 2011, the Fund’s daily performance had a statistical correlation over 0.99 to 2x of the inverse of the daily performance of its benchmark.

During the period ended December 31, 2011, the Fund’s per share NAV reached its high for the period on December 30, 2011 at $71.42 per Share and reached its low for the period on October 14, 2011 at $39.75 per Share.

The benchmark’s decline of 27.7% for the period ended December 31, 2011 can be attributed to the decrease in the price of Henry Hub Natural Gas.

Net Income/Loss

The following table provides summary income information for the Fund from Commencement of Operations to December 31, 2011:

 

     October 4, 2011
(Commencement of
Operations) through
December 31, 2011
 

Net investment income (loss)

   $ (15,612

Management fee

     5,069   

Brokerage commission

     4,082   

Offering costs

     6,474   

Net realized gain (loss)

     1,776,323   

Change in net unrealized appreciation/depreciation

     1,380,799   

Net income (loss)

   $ 3,141,510   

 

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ProShares Ultra Gold

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2011, 2010 and 2009:

 

     Year Ended
December 31, 2011
    Year Ended
December 31, 2010
    Year Ended
December 31, 2009
 

NAV beginning of period

   $ 259,562,075      $ 156,476,709      $ 27,736,722   

NAV end of period

   $ 326,399,360      $ 259,562,075      $ 156,476,709   

Percentage change in NAV

     25.8     65.9     464.1

Shares outstanding beginning of period

     3,750,014        3,550,014        900,014   

Shares outstanding end of period

     4,300,014        3,750,014        3,550,014   

Percentage change in shares outstanding

     14.7     5.6     294.4

Shares created

     1,350,000        1,800,000        5,250,000   

Shares redeemed

     800,000        1,600,000        2,600,000   

Per share NAV beginning of period

   $ 69.22      $ 44.08      $ 30.82   

Per share NAV end of period

   $ 75.91      $ 69.22      $ 44.08   

Percentage change in per share NAV

     9.7     57.0     43.0

Percentage change in benchmark

     8.9     29.2     25.0

Benchmark annualized volatility

     21.2     16.0     22.0

During the year ended December 31, 2011, the increase in the Fund’s NAV resulted primarily from an increase from 3,750,014 outstanding Shares at December 31, 2010 to 4,300,014 outstanding Shares at December 31, 2011. The increase in the Fund’s NAV also resulted in part from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of gold bullion as measured by the U.S. Dollar P.M. fixing price for delivery in London. By comparison, during the year ended December 31, 2010, the increase in the Fund’s NAV resulted primarily from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of gold bullion as measured by the U.S. Dollar P.M. fixing price for delivery in London. The increase in the Fund’s NAV also resulted in part from an increase from 3,550,014 outstanding Shares at December 31, 2009 to 3,750,014 outstanding Shares at December 31, 2010. By comparison, during the year ended December 31, 2009, the increase in the Fund’s NAV resulted primarily from an increase from 900,014 outstanding Shares at December 31, 2008 to 3,550,014 outstanding Shares at December 31, 2009. The increase in the Fund’s NAV also resulted in part from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of gold bullion as measured by the U.S. Dollar P.M. fixing price for delivery in London.

For the years ended December 31, 2011, 2010 and 2009, the Fund’s daily performance had a statistical correlation over 0.99 to 2x of the daily performance of its benchmark. The Fund’s per share NAV increase of 9.7% for the year ended December 31, 2011, as compared to the Fund’s per share NAV increase of 57.0% for the year ended December 31, 2010, was primarily due to a relatively lower appreciation in the value of the assets of the Fund during the year ended December 31, 2011. The Fund’s per share NAV increase of 57.0% for the year ended December 31, 2010, as compared to the Fund’s per share NAV increase of 43.0% for the year ended December 31, 2009, was primarily due to a relatively higher appreciation in the value of the assets of the Fund during the year ended December 31, 2010.

During the year ended December 31, 2011, the Fund’s per share NAV reached its high for the year on September 6, 2011 at $120.56 per Share and reached its low for the year on January 28, 2011 at $60.68 per Share. By comparison, during the year ended December 31, 2010, the Fund’s per share NAV reached its high for the year on November 9, 2010 at $71.39 per Share and reached its low for the year on February 5, 2010 at $41.35 per Share. By comparison, during the year ended December 31, 2009, the Fund’s per share NAV reached its high for the year on December 2, 2009 at $55.13 per Share and reached its low for the year on January 15, 2009 at $26.63 per Share.

 

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The benchmark’s rise of 8.9% for the year ended December 31, 2011, as compared to the benchmark’s rise of 29.2% for the year ended December 31, 2010, can be attributed to a relatively lower increase in the price of spot gold in U.S. Dollar terms during the year ended December 31, 2011. By comparison, the benchmark’s rise of 29.2% for the year ended December 31, 2010, as compared to the benchmark’s rise of 25.0% for the year ended December 31, 2009, can be attributed to a relatively higher increase in the price of spot gold in U.S. Dollar terms during the year ended December 31, 2010.

Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2011, 2010 and 2009:

 

     Year Ended
December 31, 2011
    Year Ended
December 31, 2010
    Year Ended
December 31, 2009
 

Net investment income (loss)

   $ (2,975,486   $ (1,595,925   $ (1,247,200

Management fee

     3,118,702        1,863,659        1,014,224   

Brokerage commission

     2,927        3,806        4,213   

Offering costs

     —          —          284,355   

Net realized gain (loss)

     100,090,298        76,444,701        39,926,104   

Change in net unrealized appreciation/depreciation

     (89,921,171     14,470,025        (4,884,897

Net income (loss)

   $ 7,193,641      $ 89,318,801      $ 33,794,007   

The Fund’s net income decreased for the year ended December 31, 2011, as compared to the year ended December 31, 2010, primarily due to a relatively lower increase in the price of spot gold in U.S. Dollar terms during the year ended December 31, 2011. By comparison, the Fund’s net income increased for the year ended December 31, 2010, as compared to the year ended December 31, 2009, primarily due to an increase in the price of spot gold in U.S. Dollar terms during the year ended December 31, 2010.

ProShares UltraShort Gold*

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2011, 2010 and 2009:

 

     Year Ended
December 31, 2011
    Year Ended
December 31, 2010
    Year Ended
December 31, 2009
 

NAV beginning of period

   $ 77,732,507      $ 67,602,811      $ 3,875,093   

NAV end of period

   $ 198,298,571      $ 77,732,507      $ 67,602,811   

Percentage change in NAV

     155.1     15.0     1,644.5

Shares outstanding beginning of period

     2,739,901        1,290,003        40,003   

Shares outstanding end of period

     9,589,901        2,739,901        1,290,003   

Percentage change in shares outstanding

     250.0     112.4     3,124.8

Shares created

     10,100,000        2,100,000        1,970,000   

Shares redeemed

     3,250,000        650,102        720,000   

Per share NAV beginning of period

   $ 28.37      $ 52.41      $ 96.87   

Per share NAV end of period

   $ 20.68      $ 28.37      $ 52.41   

Percentage change in per share NAV

     (27.1 %)      (45.9 %)      (45.9 %) 

Percentage change in benchmark

     8.9     29.2     25.0

Benchmark annualized volatility

     21.2     16.0     22.0

During the year ended December 31, 2011, the increase in the Fund’s NAV resulted primarily from an increase from 2,739,901 outstanding Shares at December 31, 2010 to 9,589,901 outstanding Shares at December 31, 2011. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results

 

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(before fees and expenses) that correspond to 2x of the inverse of the daily performance of gold bullion as measured by the U.S. Dollar P.M. fixing price for delivery in London. By comparison, during the year ended December 31, 2010, the increase in the Fund’s NAV resulted from an increase from 1,290,003 outstanding Shares at December 31, 2009 to 2,739,901 outstanding Shares at December 31, 2010. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the inverse of the daily performance of gold bullion as measured by the U.S. Dollar P.M. fixing price for delivery in London. By comparison, during the year ended December 31, 2009, the increase in the Fund’s NAV resulted primarily from an increase from 40,003 outstanding Shares at December 31, 2008 to 1,290,003 outstanding Shares at December 31, 2009. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the inverse of the daily performance of gold bullion as measured by the U.S. Dollar P.M. fixing price for delivery in London.

For the years ended December 31, 2011, 2010 and 2009, the Fund’s daily performance had a statistical correlation over 0.99 to 2x of the inverse of the daily performance of its benchmark. The Fund’s per share NAV decrease of 27.1% for the year ended December 31, 2011, as compared to the Fund’s per share NAV decrease of 45.9% for the year ended December 31, 2010, was primarily due to a relatively lower depreciation in the value of the assets of the Fund during the year ended December 31, 2011. The Fund’s per share NAV decrease of 45.9% for the year ended December 31, 2010, as compared to the decrease of 45.9% for the year ended December 31, 2009, was primarily due to the relatively stable value of the assets of the Fund during the years ended December 31, 2010 and 2009.

During the year ended December 31, 2011, the Fund’s per share NAV reached its high for the year on January 28, 2011 at $32.10 per Share and reached its low for the year on September 6, 2011 at $14.52 per Share. By comparison, during the year ended December 31, 2010, the Fund’s per share NAV reached its high for the year on February 5, 2010 at $54.47 per Share and reached its low for the year on December 7, 2010 at $28.07 per Share. By comparison, during the year ended December 31, 2009, the Fund’s per share NAV reached its high for the year on January 15, 2009 at $111.08 per Share and reached its low for the year on December 2, 2009 at $42.70 per Share.

The benchmark’s rise of 8.9% for the year ended December 31, 2011, as compared to the benchmark’s rise of 29.2% during the year ended December 31, 2010, can be attributed to a relatively lower increase in the price of spot gold in U.S. Dollar terms during the year ended December 31, 2011. By comparison, the benchmark’s rise of 29.2% during the year ended December 31, 2010, as compared to the benchmark’s index rise of 25.0% during the year ended December 31, 2009, can be attributed to a relatively higher increase in the price of spot gold in U.S. dollar terms during the year ended December 31, 2010.

Net Income /Loss

The following table provides summary income information for the Fund for the years ended December 31, 2011, 2010 and 2009:

 

     Year Ended
December 31, 2011
    Year Ended
December 31, 2010
    Year Ended
December 31, 2009
 

Net investment income (loss)

   $ (1,043,199   $ (592,970   $ (402,783

Management fee

     1,092,472        693,428        131,683   

Brokerage commission

     2,512        3,103        3,532   

Offering costs

     —          —          284,355   

Net realized gain (loss)

     (45,178,304     (37,767,467     (19,629,874

Change in net unrealized appreciation/depreciation

     36,720,187        (5,461,895     2,117,044   

Net income (loss)

   $ (9,501,316   $ (43,822,332   $ (17,915,613

The Fund’s net income increased for the year ended December 31, 2011, as compared to the year ended December 31, 2010, primarily due to a relatively lower increase in the price of spot gold in U.S. Dollar terms. By comparison, the Fund’s net income decreased for the year ended December 31, 2010, as compared to the year ended December 31, 2009, primarily due to an increase in the price of spot gold in U.S. Dollar terms.

 

* See Note 1 of the Notes to Financial Statements in Item 8 of Part II in this Annual Report on Form 10-K regarding the reverse share split for the ProShares UltraShort Gold Fund.

 

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ProShares Ultra Silver*

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2011, 2010 and 2009:

 

     Year Ended
December 31, 2011
    Year Ended
December 31, 2010
    Year Ended
December 31, 2009
 

NAV beginning of period

   $ 547,003,919      $ 145,416,382      $ 10,011,149   

NAV end of period

   $ 606,824,420      $ 547,003,919      $ 145,416,382   

Percentage change in NAV

     10.9     276.2     1,352.5

Shares outstanding beginning of period

     7,000,028        5,100,028        700,028   

Shares outstanding end of period

     14,050,028        7,000,028        5,100,028   

Percentage change in shares outstanding

     100.7     37.3     628.5

Shares created

     15,650,000        5,400,000        7,000,000   

Shares redeemed

     8,600,000        3,500,000        2,600,000   

Per share NAV beginning of period

   $ 78.14      $ 28.51      $ 14.30   

Per share NAV end of period

   $ 43.19      $ 78.14      $ 28.51   

Percentage change in per share NAV

     (44.7 %)      174.1     99.4

Percentage change in benchmark

     (8.0 %)      80.3     57.5

Benchmark annualized volatility

     60.9     33.0     38.0

During the year ended December 31, 2011, the increase in the Fund’s NAV resulted primarily from an increase from 7,000,028 outstanding Shares at December 31, 2010 to 14,050,028 outstanding Shares at December 31, 2011. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of silver bullion as measured by the U.S. Dollar fixing price for delivery in London. By comparison, during the year ended December 31, 2010, the increase in the Fund’s NAV resulted primarily from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of silver bullion as measured by the U.S. Dollar fixing price for delivery in London. The increase in the Fund’s NAV also resulted in part from an increase from 5,100,028 outstanding Shares at December 31, 2009 to 7,000,028 outstanding Shares at December 31, 2010. By comparison, during the year ended December 31, 2009, the increase in the Fund’s NAV resulted primarily from an increase from 700,028 outstanding Shares at December 31, 2008 to 5,100,028 outstanding Shares at December 31, 2009. The increase in the Fund’s NAV also resulted in part from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of silver bullion as measured by the U.S. Dollar fixing price for delivery in London.

For the years ended December 31, 2011, 2010 and 2009, the Fund’s daily performance had a statistical correlation over 0.99 to 2x of the daily performance of its benchmark. The Fund’s per share NAV decrease of 44.7% for the year ended December 31, 2011, as compared to the Fund’s per share NAV increase of 174.1% for the year ended December 31, 2010, was primarily due to a depreciation in the value of the assets of the Fund during the year ended December 31, 2011. The Fund’s per share NAV increase of 174.1% for the year ended December 31, 2010, as compared to the Fund’s per share NAV increase of 99.4%, for the year ended December 31, 2009, was primarily due to a relatively higher appreciation in the value of the assets of the Fund during the year ended December 31, 2010.

During the year ended December 31, 2011, the Fund’s per share NAV reached its high for the year on April 28, 2011 at $184.61 per Share and reached its low for the year on December 29, 2011 at $37.42 per Share. By comparison, during the year ended December 31, 2010, the Fund’s per share NAV reached its high for the year on December 30, 2010 at $78.47 per Share and reached its low for the year on February 8, 2010 at $22.20 per Share. By comparison, during the year ended December 31, 2009, the Fund’s per share NAV reached its high for the year on December 2, 2009 at $36.76 per Share and reached its low for the year on January 15, 2009 at $13.39 per Share.

The benchmark’s decline of 8.0% for the year ended December 31, 2011, as compared to the benchmark’s rise of 80.3% for the year ended December 31, 2010, can be attributed to a decrease in the price of spot silver in U.S. Dollar terms during the year ended December 31, 2011. By comparison, the benchmark’s rise of 80.3% for the year ended December 31, 2010, as compared to the benchmark’s rise of 57.5% for the year ended December 31, 2009 can be attributed to a relatively higher increase in the price of spot silver in U.S. dollar terms during the year ended December 31, 2010.

 

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Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2011, 2010 and 2009:

 

     Year Ended
December 31, 2011
    Year Ended
December 31, 2010
    Year Ended
December 31, 2009
 

Net investment income (loss)

   $ (7,956,212   $ (1,723,966   $ (758,694

Management fee

     8,372,487        2,027,722        710,900   

Brokerage commission

     7,511        6,268        5,134   

Offering costs

     —          —          71,126   

Net realized gain (loss)

     (209,430,844     216,265,541        43,715,010   

Change in net unrealized appreciation/depreciation

     (228,663,565     57,069,337        (7,539,418

Net income (loss)

   $ (446,050,621   $ 271,610,912      $ 35,416,898   

The Fund’s net income decreased for the year ended December 31, 2011, as compared to the year ended December 31, 2010, primarily due to a decrease in the price of spot silver in U.S. Dollar terms during the year ended December 31, 2011. By comparison, the Fund’s net income increased for the year ended December 31, 2010, as compared to the year ended December 31, 2009 primarily due to an increase in the price of spot silver in U.S. Dollar terms during the year ended December 31, 2010.

 

* See Note 1 of the Notes to Financial Statements in Item 8 of Part II in this Annual Report on Form 10-K regarding the share split for the ProShares Ultra Silver Fund.

ProShares UltraShort Silver*

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2011, 2010 and 2009:

 

     Year Ended
December 31, 2011
    Year Ended
December 31, 2010
    Year Ended
December 31, 2009
 

NAV beginning of period

   $ 99,032,781      $ 64,516,145      $ 1,960,071   

NAV end of period

   $ 246,813,921      $ 99,032,781      $ 64,516,145   

Percentage change in NAV

     149.2     53.5     3,191.5

Shares outstanding beginning of period

     2,482,479        342,500        2,500   

Shares outstanding end of period

     16,094,369        2,482,479        342,500   

Percentage change in shares outstanding

     548.3     624.8     13,600.0

Shares created

     70,637,500        2,667,500        581,250   

Shares redeemed

     57,025,610        527,521        241,250   

Per share NAV beginning of period

   $ 39.89      $ 188.37      $ 784.03   

Per share NAV end of period

   $ 15.34      $ 39.89      $ 188.37   

Percentage change in per share NAV

     (61.6 %)      (78.8 %)      (76.0 %) 

Percentage change in benchmark

     (8.0 %)      80.3     57.5

Benchmark annualized volatility

     60.9     33.0     38.0

During the year ended December 31, 2011, the increase in the Fund’s NAV resulted primarily from an increase from 2,482,479 outstanding Shares at December 31, 2010 to 16,094,369 outstanding Shares at December 31, 2011. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the inverse of the daily performance of silver bullion as measured by the U.S. Dollar fixing price for delivery in London. By comparison, during the year ended December 31, 2010, the increase in the Fund’s NAV resulted from an increase from 342,500 outstanding Shares at December 31, 2009 to 2,482,479 outstanding Shares at December 31, 2010. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the inverse of the daily performance of silver bullion as measured by the U.S. Dollar fixing price for delivery in London. By comparison, during the year ended December 31, 2009, the increase in the Fund’s NAV resulted primarily from an increase from 2,500 outstanding Shares at December 31, 2008 to 342,500 outstanding

 

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Shares at December 31, 2009. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the inverse of the daily performance of silver bullion as measured by the U.S. Dollar fixing price for delivery in London.

For the years ended December 31, 2011, 2010 and 2009, the Fund’s daily performance had a statistical correlation over 0.99 to 2x of the inverse of the daily performance of its benchmark. The Fund’s per share NAV decrease of 61.6% for the year ended December 31, 2011, as compared to the Fund’s per share NAV decrease of 78.8% for the year ended December 31, 2010, was primarily due to a relatively lower depreciation in the value of the assets of the Fund during the year ended December 31, 2011. The Fund’s per share NAV decrease of 78.8% for the year ended December 31, 2010, as compared to the Fund’s per share NAV decrease of 76.0% for the year ended December 31, 2009, was primarily due to a relatively higher depreciation in the value of the assets of the Fund during the year ended December 31, 2010.

During the year ended December 31, 2011, the Fund’s NAV reached its high for the year on January 25, 2011 at $51.11 per share and reached its low for the year on August 22, 2011 at $10.93 per share. By comparison, during the year ended December 31, 2010, the Fund’s NAV reached its high for the year on February 8, 2010 at $227.03 per share and reached its low for the year on December 30, 2010 at $39.74 per share. By comparison, during the year ended December 31, 2009, the Fund’s NAV reached its high for the year on January 15, 2009 at $799.76 per share and reached its low for the year on December 2, 2009 at $150.66 per share.

The benchmark’s decline of 8.0% for the year ended December 31, 2011, as compared to the benchmark’s rise of 80.3% for the year ended December 31, 2010, can be attributed to a decrease in the price of spot silver in U.S. Dollar terms during the year ended December 31, 2011. By comparison, the benchmark’s rise of 80.3% for the year ended December 31, 2010, as compared to the benchmark’s rise of 57.5% for the year ended December 31, 2009 can be attributed to a relatively higher increase in the price of spot silver in U.S. Dollar terms during the year ended December 31, 2010.

Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2011, 2010 and 2009:

 

     Year Ended
December 31, 2011
    Year Ended
December 31, 2010
    Year Ended
December 31, 2009
 

Net investment income (loss)

   $ (3,388,013   $ (538,873   $ (388,903

Management fee

     3,530,293        631,456        257,865   

Brokerage commission

     3,784        3,090        4,382   

Offering costs

     —          —          142,197   

Net realized gain (loss)

     (171,362,095     (89,049,763     (40,785,230

Change in net unrealized appreciation/depreciation

     53,597,597        (13,567,240     2,994,044   

Net income (loss)

   $ (121,152,511   $ (103,155,876   $ (38,180,089

The Fund’s net income decreased for the year ended December 31, 2011, as compared to the year ended December 31, 2010, primarily due to a decrease in the price of spot silver in U.S. Dollar terms in conjunction with significant fluctuations in outstanding shares during the year ended December 31, 2011. By comparison, the Fund’s net income decreased for the year ended December 31, 2010, as compared to the year ended December 31, 2009, primarily due to an increase in the price of spot silver in U.S. Dollar terms during the year ended December 31, 2010.

 

* See Note 1 of the Notes to Financial Statements in Item 8 of Part II in this Annual Report on Form 10-K regarding the reverse share split for the ProShares UltraShort Silver Fund.

 

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ProShares Ultra Euro

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2011, 2010 and 2009:

 

     Year Ended
December 31, 2011
    Year Ended
December 31, 2010
    Year Ended
December 31, 2009
 

NAV beginning of period

   $ 7,729,684      $ 7,531,857      $ 4,386,411   

NAV end of period

   $ 9,554,748      $ 7,729,684      $ 7,531,857   

Percentage change in NAV

     23.6     2.6     71.7

Shares outstanding beginning of period

     300,014        250,014        150,014   

Shares outstanding end of period

     400,014        300,014        250,014   

Percentage change in shares outstanding

     33.3     20.0     66.7

Shares created

     100,000        850,000        150,000   

Shares redeemed

     —          800,000        50,000   

Per share NAV beginning of period

   $ 25.76      $ 30.13      $ 29.24   

Per share NAV end of period

   $ 23.89      $ 25.76      $ 30.13   

Percentage change in per share NAV

     (7.3 %)      (14.5 %)      3.0

Percentage change in benchmark

     (3.2 %)      (6.6 %)      2.5

Benchmark annualized volatility

     11.4     12.0     13.0

During the year ended December 31, 2011, the increase in the Fund’s NAV resulted primarily from an increase from 300,014 outstanding Shares at December 31, 2010 to 400,014 outstanding Shares at December 31, 2011. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of the spot price of the Euro versus the U.S. Dollar. By comparison, during the year ended December 31, 2010, the increase in the Fund’s NAV resulted primarily from an increase from 250,014 outstanding Shares at December 31, 2009 to 300,014 outstanding Shares at December 31, 2010. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of the spot price of the Euro versus the U.S. Dollar. By comparison, during the year ended December 31, 2009, the increase in the Fund’s NAV resulted primarily from an increase from 150,014 outstanding Shares at December 31, 2008 to 250,014 outstanding Shares at December 31, 2009. The increase in the Fund’s NAV also resulted in part from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of the spot price of the Euro versus the U.S. Dollar.

For the years ended December 31, 2011, 2010 and 2009, the Fund’s daily performance had a statistical correlation over 0.99 to 2x of the daily performance of its benchmark. The Fund’s per share NAV decrease of 7.3% for the year ended December 31, 2011, as compared to the Fund’s per share NAV decrease of 14.5% for the year ended December 31, 2010, was primarily due to a relatively lower depreciation in the value of the assets held by the Fund during the year ended December 31, 2011. The Fund’s per share NAV decrease of 14.5% for the year ended December 31, 2010, as compared to the Fund’s per share NAV increase of 3.0% for the year ended December 31, 2009, was primarily due to a depreciation in the value of the assets held by the Fund during the year ended December 31, 2010.

During the year ended December 31, 2011, the Fund’s per share NAV reached its high for the year on May 3, 2011 at $31.63 per Share and reached its low for the year on December 28, 2011 at $23.88 per Share. By comparison, during the year ended December 31, 2010, the Fund’s per share NAV reached its high for the year on January 11, 2010 at $30.98 per Share and reached its low for the year on June 7, 2010 at $20.70 per Share. By comparison, during the year ended December 31, 2009, the Fund’s per share NAV reached its high for the year on November 25, 2009 at $33.75 per Share and reached its low for the year on February 18, 2009 at $23.55 per Share.

The benchmark’s decline of 3.2% for the year ended December 31, 2011, as compared to the benchmark’s decline of 6.6% for the year ended December 31, 2010, can be attributed to a relatively lower decrease in the value of the Euro versus the U.S. Dollar during the year ended December 31, 2011. By comparison, the benchmark’s decline of 6.6% for the year ended December 31, 2010, as compared to the benchmark’s rise of 2.5% for the year ended December 31, 2009, can be attributed to a decrease in the value of the Euro versus the U.S. Dollar during the year ended December 31, 2010.

 

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Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2011, 2010 and 2009:

 

     Year Ended
December 31, 2011
    Year Ended
December 31, 2010
    Year Ended
December 31, 2009
 

Net investment income (loss)

   $ (75,102   $ (92,663   $ (60,716

Management fee

     79,638        108,841        7,827   

Offering costs

     —          —          69,640   

Limitation by Sponsor

     —          —          (13,795

Net realized gain (loss)

     354,405        (601,075     699,029   

Change in net unrealized appreciation/depreciation

     (866,900     625,976        (137,005

Net income (loss)

   $ (587,597   $ (67,762   $ 501,308   

The Fund’s net income decreased for the year ended December 31, 2011, as compared to the year ended December 31, 2010, primarily due to a decrease in the value of the Euro versus the U.S. Dollar in conjunction with a significant increase in outstanding shares during the year ended December 31, 2011. By comparison, the Fund’s net income decreased for the year ended December 31, 2010, as compared to the year ended December 31, 2009, primarily due to a decrease in the value of the Euro versus the U.S. Dollar during the year ended December 31, 2010.

ProShares UltraShort Euro

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2011, 2010 and 2009:

 

     Year Ended
December 31, 2011
    Year Ended
December 31, 2010
    Year Ended
December 31, 2009
 

NAV beginning of period

   $ 444,412,995      $ 100,847,786      $ 7,331,163   

NAV end of period

   $ 1,100,159,546      $ 444,412,995      $ 100,847,786   

Percentage change in NAV

     147.6     340.7     1,275.6

Shares outstanding beginning of period

     21,900,014        5,400,014        350,014   

Shares outstanding end of period

     54,100,014        21,900,014        5,400,014   

Percentage change in shares outstanding

     147.0     305.6     1,442.8

Shares created

     50,600,000        35,700,000        6,050,000   

Shares redeemed

     18,400,000        19,200,000        1,000,000   

Per share NAV beginning of period

   $ 20.29      $ 18.68      $ 20.95   

Per share NAV end of period

   $ 20.34      $ 20.29      $ 18.68   

Percentage change in per share NAV

     0.2     8.7     (10.8 %) 

Percentage change in benchmark

     (3.2 %)      (6.6 %)      2.5

Benchmark annualized volatility

     11.4     12.0     13.0

During the year ended December 31, 2011, the increase in the Fund’s NAV resulted primarily from an increase from 21,900,014 outstanding Shares at December 31, 2010 to 54,100,014 outstanding Shares at December 31, 2011. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the inverse of the daily performance of the spot price of the Euro versus the U.S. Dollar. By comparison, during the year ended December 31, 2010, the increase in the Fund’s NAV resulted primarily from an increase from 5,400,014 outstanding Shares at December 31, 2009 to 21,900,014 outstanding Shares at December 31, 2010. The increase in the Fund’s NAV also resulted in part from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the inverse of the daily performance of the spot price of the Euro versus the U.S. Dollar. By comparison, during the year ended December 31, 2009, the increase in the Fund’s NAV resulted primarily from an increase from 350,014 outstanding Shares at December 31, 2008 to 5,400,014 outstanding Shares at December 31, 2009. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the inverse of the daily performance of the spot price of the Euro versus the U.S. Dollar.

For the years ended December 31, 2011, 2010 and 2009, the Fund’s daily performance had a statistical correlation over 0.99 to 2x of the inverse of the daily performance of its benchmark. The Fund’s per share NAV increase of 0.2% for the year ended December 31, 2011, as compared to the Fund’s per share NAV increase of 8.7% for the

 

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year ended December 31, 2010, was primarily due to a depreciation in the value of the assets held by the Fund during the year ended December 31, 2011. The Fund’s per share NAV increase of 8.7% for the year ended December 31, 2010, as compared to the Fund’s per share NAV decrease of 10.8% for the year ended December 31, 2009, was primarily due to an appreciation in the value of the assets held by the Fund during the year ended December 31, 2010.

During the year ended December 31, 2011, the Fund’s per share NAV reached its high for the year on January 7, 2011 at $21.74 per Share and reached its low for the year on May 3, 2011 at $16.22 per Share. By comparison, during the year ended December 31, 2010, the Fund’s per share NAV reached its high for the year on June 7, 2010 at $26.39 per Share and reached its low for the year on January 11, 2010 at $18.14 per Share. By comparison, during the year ended December 31, 2009, the Fund’s per share NAV reached its high for the year on February 18, 2009 at $25.50 per Share and reached its low for the year on November 25, 2009 at $16.76 per Share.

The benchmark’s decline of 3.2% for the year ended December 31, 2011, as compared to the benchmark’s decline of 6.6% for the year ended December 31, 2010, can be attributed to a relatively lower decrease in the value of the Euro versus the U.S. Dollar during the year ended December 31, 2011. By comparison, the benchmark’s decline of 6.6% for the year ended December 31, 2010, as compared to the benchmark’s rise of 2.5% for the year ended December 31, 2009, can be attributed to a decrease in the value of the Euro versus the U.S. Dollar during the year ended December 31, 2010.

Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2011, 2010 and 2009:

 

     Year Ended
December 31, 2011
    Year Ended
December 31, 2010
    Year Ended
December 31, 2009
 

Net investment income (loss)

   $ (5,907,849   $ (2,805,812   $ (349,729

Management fee

     6,179,382        3,379,964        303,788   

Offering costs

     —          —          69,641   

Net realized gain (loss)

     (5,405,748     48,577,957        (10,304,179

Change in net unrealized appreciation/depreciation

     90,585,018        (25,127,190     1,797,972   

Net income (loss)

   $ 79,271,421      $ 20,644,955      $ (8,855,936

The Fund’s net income increased for the year ended December 31, 2011, as compared to the year ended December 31, 2010, primarily due to a decrease in the value of the Euro versus the U.S. Dollar in conjunction with a significant increase in outstanding shares during the year ended December 31, 2011. By comparison, the Fund’s net income increased for the year ended December 31, 2010, as compared to the year ended December 31, 2009, primarily due to a decrease in the value of the Euro versus the U.S. Dollar during the year ended December 31, 2010.

 

 

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ProShares Ultra Yen

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2011, 2010 and 2009:

 

     Year Ended
December 31, 2011
    Year Ended
December 31, 2010
    Year Ended
December 31, 2009
 

NAV beginning of period

   $ 5,024,240      $ 3,921,267      $ 2,845,053   

NAV end of period

   $ 5,471,075      $ 5,024,240      $ 3,921,267   

Percentage change in NAV

     8.9     28.1     37.8

Shares outstanding beginning of period

     150,014        150,014        100,014   

Shares outstanding end of period

     150,014        150,014        150,014   

Percentage change in shares outstanding

     0.0     0.0     50.0

Shares created

     50,000        100,000        100,000   

Shares redeemed

     50,000        100,000        50,000   

Per share NAV beginning of period

   $ 33.49      $ 26.14      $ 28.45   

Per share NAV end of period

   $ 36.47      $ 33.49      $ 26.14   

Percentage change in per share NAV

     8.9     28.1     (8.1 %) 

Percentage change in benchmark

     5.5     14.6     (2.5 %) 

Benchmark annualized volatility

     8.8     11.0     13.0

During the year ended December 31, 2011, there was no net change in the Fund’s outstanding shares from December 31, 2010 to December 31, 2011. The increase in the Fund’s NAV resulted from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of the spot price of the Japanese Yen versus the U.S. Dollar. By comparison, during the year ended December 31, 2010, there was no net change in the Fund’s outstanding shares from December 31, 2009 to December 31, 2010. The increase in the Fund’s NAV resulted from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of the spot price of the Japanese Yen versus the U.S. Dollar. By comparison, during the year ended December 31, 2009, the increase in the Fund’s NAV resulted primarily from an increase from 100,014 outstanding Shares at December 31, 2008 to 150,014 outstanding Shares at December 31, 2009. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of the spot price of the Japanese Yen versus the U.S. Dollar.

For the years ended December 31, 2011, 2010 and 2009, the Fund’s daily performance had a statistical correlation over 0.99 to 2x of the daily performance of its benchmark. The Fund’s per share NAV increase of 8.9% for the year ended December 31, 2011, as compared to the Fund’s per share NAV increase of 28.1% for the year ended December 31, 2010, was primarily due to a relatively lower appreciation in the value of the assets held by the Fund during the year ended December 31, 2011. By comparison, the Fund’s per share NAV increase of 28.1% for the year ended December 31, 2010, as compared to the Fund’s per share NAV decrease of 8.1% for the year ended December 31, 2009, was primarily due to an appreciation in the value of the assets held by the Fund during the year ended December 31, 2010.

During the year ended December 31, 2011, the Fund’s per share NAV reached its high for the year on October 28, 2011 at $37.86 per Share and reached its low for the year on April 6, 2011 at $30.09 per Share. By comparison, during the year ended December 31, 2010, the Fund’s per share NAV reached its high for the year on October 29, 2010 at $34.24 per Share and reached its low for the year on May 3, 2010 at $25.14 per Share. By comparison, during the year ended December 31, 2009, the Fund’s per share NAV reached its high for the year on November 30, 2009 at $30.41 per Share and reached its low for the year on April 6, 2009 at $22.67 per Share.

The benchmark’s rise of 5.5% for the year ended December 31, 2011, as compared to the benchmark’s rise of 14.6% for the year ended December 31, 2010, can be attributed to a relatively lower increase in the value of the Japanese Yen versus the U.S. Dollar during the year ended December 31, 2011. By comparison, the benchmark’s rise of 14.6% for the year ended December 31, 2010, as compared to the benchmark’s decline of 2.5% for the year ended December 31, 2009, can be attributed to an increase in the value of the Japanese Yen versus the U.S. Dollar during the year ended December 31, 2010.

 

 

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Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2011, 2010 and 2009:

 

     Year Ended
December 31, 2011
    Year Ended
December 31, 2010
    Year Ended
December 31, 2009
 

Net investment income (loss)

   $ (39,572   $ (38,091   $ (36,723

Management fee

     41,443        44,676        4,210   

Offering costs

     —          —          69,639   

Limitation by Sponsor

     —          —          (35,417

Net realized gain (loss)

     564,832        826,758        (241,945

Change in net unrealized appreciation/depreciation

     (180,983     599,593        (114,385

Net income (loss)

   $ 344,277      $ 1,388,260      $ (393,053

The Fund’s net income decreased for the year ended December 31, 2011, as compared to the year ended December 31, 2010, primarily due to a relatively lower increase in the value of the Japanese Yen versus the U.S. Dollar during the year ended December 31, 2011. By comparison, the Fund’s net income increased for the year ended December 31, 2010, as compared to the year ended December 31, 2009, primarily due to an increase in the value of the Japanese Yen versus the U.S. Dollar during the year ended December 31, 2010.

ProShares UltraShort Yen*

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2011, 2010 and 2009:

 

     Year Ended
December 31, 2011
    Year Ended
December 31, 2010
    Year Ended
December 31, 2009
 

NAV beginning of period

   $ 207,685,813      $ 67,487,917      $ 2,166,617   

NAV end of period

   $ 221,131,994      $ 207,685,813      $ 67,487,917   

Percentage change in NAV

     6.5     207.7     3,014.9

Shares outstanding beginning of period

     4,416,671        1,050,005        33,338   

Shares outstanding end of period

     5,399,294        4,416,671        1,050,005   

Percentage change in shares outstanding

     22.2     320.6     3,049.6

Shares created

     6,683,333        4,683,333        1,650,000   

Shares redeemed

     5,700,710        1,316,667        633,333   

Per share NAV beginning of period

   $ 47.02      $ 64.27      $ 64.99   

Per share NAV end of period

   $ 40.96      $ 47.02      $ 64.27   

Percentage change in per share NAV

     (12.9 %)      (26.8 %)      (1.1 %) 

Percentage change in benchmark

     5.5     14.6     (2.5 %) 

Benchmark annualized volatility

     8.8     11.0     13.0

During the year ended December 31, 2011, the increase in the Fund’s NAV resulted primarily from an increase from 4,416,671 outstanding Shares at December 31, 2010 to 5,399,294 outstanding Shares at December 31, 2011. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the inverse of the daily performance of the spot price of the Japanese Yen versus the U.S. Dollar. By comparison, during the year ended December 31, 2010, the increase in the Fund’s NAV resulted from an increase from 1,050,005 outstanding Shares at December 31, 2009 to 4,416,671 outstanding Shares at December 31, 2010. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the inverse of the daily performance of the spot price of the Japanese Yen versus the U.S. Dollar. By comparison, during the year ended December 31, 2009, the increase in the Fund’s NAV resulted primarily from an increase from 33,338 outstanding Shares at December 31, 2008 to 1,050,005 outstanding Shares at December 31, 2009. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the inverse of the daily performance of the spot price of the Japanese Yen versus the U.S. Dollar.

For the years ended December 31, 2011, 2010 and 2009, the Fund’s daily performance had a statistical correlation over 0.99 to 2x of the inverse of the daily performance of its benchmark. The Fund’s per share NAV decrease of 12.9% for the year ended December 31, 2011, as compared to the Fund’s per share NAV decrease of 26.8% for the year ended December 31, 2010, was primarily due to a relatively lower depreciation in the value of the assets held by the Fund during the year ended December 31, 2011. The Fund’s per share NAV decrease of 26.8% for the year ended December 31, 2010, as compared to the Fund’s per share NAV decrease of 1.1% for the year ended December 31, 2009, was primarily due to a relatively higher depreciation in the value of the assets held by the Fund during the year ended December 31, 2010.

 

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During the year ended December 31, 2011, the Fund’s per share NAV reached its high for the year on April 6, 2011 at $51.44 per Share and reached its low for the year on October 28, 2011 at $39.80 per Share. By comparison, during the year ended December 31, 2010, the Fund’s per share NAV reached its high for the year on May 3, 2010 at $65.56 per Share and reached its low for the year on October 29, 2010 at $46.39 per Share. By comparison, during the year ended December 31, 2009, the Fund’s per share NAV reached its high for the year on April 6, 2009 at $78.82 per Share and reached its low for the year on November 30, 2009 at $55.72 per Share.

The benchmark’s rise of 5.5% for the year ended December 31, 2011, as compared to the benchmark’s rise of 14.6% for the year ended December 31, 2010, can be attributed to a relatively lower increase in the value of the Japanese Yen versus the U.S. Dollar during the year ended December 31, 2011. By comparison, the benchmark’s rise of 14.6% for the year ended December 31, 2010, as compared to the benchmark’s decline of 2.5% for the year ended December 31, 2009, can be attributed to an increase in the value of the Japanese Yen versus the U.S. Dollar during the year ended December 31, 2010.

Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2011, 2010 and 2009:

 

     Year Ended
December 31, 2011
    Year Ended
December 31, 2010
    Year Ended
December 31, 2009
 

Net investment income (loss)

   $ (2,642,134   $ (1,213,282   $ (348,942

Management fee

     2,824,586        1,447,095        304,905   

Offering costs

     —          —          69,641   

Net realized gain (loss)

     (50,024,884     (22,109,488     (6,039,297

Change in net unrealized appreciation/depreciation

     11,762,223        (20,992,719     4,726,960   

Net income (loss)

   $ (40,904,795   $ (44,315,489   $ (1,661,279

The Fund’s net income increased for the year ended December 31, 2011, as compared to the year ended December 31, 2010, primarily due to a relatively lower increase in the value of the Japanese Yen versus the U.S. Dollar during the year ended December 31, 2011. By comparison, the Fund’s net income decreased for the year ended December 31, 2010, as compared to the year ended December 31, 2009, primarily due to an increase in the value of the Japanese Yen versus the U.S. Dollar during the year ended December 31, 2010.

 

* See Note 1 of the Notes to Financial Statements in Item 8 of Part II in this Annual Report on Form 10-K regarding the reverse share split for the ProShares UltraShort Yen Fund.

 

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ProShares Ultra VIX Short-Term Futures ETF

Since the Fund commenced investment operations on October 3, 2011, comparisons of the Fund’s results of operations for the years ended December 31, 2011, 2010 and 2009 have not been provided.

The following table provides summary performance information for the Fund from Commencement of Operations to December 31, 2011:

 

     October 3, 2011
(Commencement of
Operations) through
December 31, 2011
 

NAV beginning of period

   $ 400   

NAV end of period

   $ 9,881,113   

Percentage change in NAV

     2,470,178.3

Shares outstanding beginning of period

     10   

Shares outstanding end of period

     800,010   

Percentage change in shares outstanding

     8,000,000.0

Shares created

     800,000   

Shares redeemed

     —     

Per share NAV beginning of period

   $ 40.00   

Per share NAV end of period

   $ 12.35   

Percentage change in per share NAV

     (69.1 %) 

Percentage change in benchmark

     (37.9 %) 

Benchmark annualized volatility

     93.1

During the period ended December 31, 2011, the increase in the Fund’s NAV resulted primarily from an increase from 10 outstanding Shares at October 3, 2011 to 800,010 outstanding Shares at December 31, 2011. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of the S&P 500 VIX Short-Term Futures Index.

For the period ended December 31, 2011, the Fund’s daily performance had a statistical correlation over 0.99 to 2x of the daily performance of its benchmark.

During the period ended December 31, 2011, the Fund’s per share NAV reached its high for the period on October 3, 2011 at $40.00 per Share and reached its low for the period on December 21, 2011 at $10.54 per Share.

The benchmark’s decline of 37.9% for the period ended December 31, 2011 can be attributed to declining prices of the futures contracts that make up the front-end of the VIX futures curve.

Net Income/Loss

The following table provides summary income information for the Fund from Commencement of Operations to December 31, 2011:

 

     October 3, 2011
(Commencement of
Operations) through
December 31, 2011
 

Net investment income (loss)

   $ (16,778

Management fee

     4,264   

Brokerage commission

     5,441   

Offering costs

     7,073   

Net realized gain (loss)

     (3,524,753

Change in net unrealized appreciation/depreciation

     (762,790

Net income (loss)

   $ (4,304,321

 

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ProShares VIX Short-Term Futures ETF

Since the Fund commenced investment operations on January 3, 2011, comparisons of the Fund’s results of operations for the years ended December 31, 2011, 2010 and 2009 have not been provided.

The following table provides summary performance information for the Fund from Commencement of Operations to December 31, 2011:

 

     January 3, 2011
(Commencement of
Operations) through
December 31, 2011
 

NAV beginning of period

   $ 400   

NAV end of period

   $ 30,549,903   

Percentage change in NAV

     7,637,375.8

Shares outstanding beginning of period

     5   

Shares outstanding end of period

     400,005   

Percentage change in shares outstanding

     8,000,000.0

Shares created

     4,725,000   

Shares redeemed

     4,325,000   

Per share NAV beginning of period

   $ 80.00   

Per share NAV end of period

   $ 76.37   

Percentage change in per share NAV

     (4.5 %) 

Percentage change in benchmark

     (2.1 %) 

Benchmark annualized volatility

     78.4

During the period ended December 31, 2011, the increase in the Fund’s NAV resulted primarily from an increase from 5 outstanding Shares at January 3, 2011 to 400,005 outstanding Shares at December 31, 2011. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to the daily performance of the S&P 500 VIX Short-Term Futures Index.

For the period ended December 31, 2011, the Fund’s daily performance had a statistical correlation over 0.99 of the daily performance of its benchmark.

During the period ended December 31, 2011, the Fund’s per share NAV reached its high for the period on October 3, 2011 at $123.77 per Share and reached its low for the period on July 7, 2011 at $43.15 per Share.

The benchmark’s decline of 2.1% for the period ended December 31, 2011 can be attributed to declining prices of the futures contracts that make up the front-end of the VIX futures curve.

Net Income/Loss

The following table provides summary income information for the Fund from the Commencement of Operations to December 31, 2011:

 

     January 3, 2011
(Commencement of
Operations) through
December 31, 2011
 

Net investment income (loss)

   $ (282,569

Management fee

     96,904   

Offering costs

     197,908   

Net realized gain (loss)

     3,734,445   

Change in net unrealized appreciation/depreciation

     (1,576,931

Net income (loss)

   $ 1,874,945   

 

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ProShares Short VIX Short-Term Futures ETF

Since the Fund commenced investment operations on October 3, 2011, comparisons of the Fund’s results of operations for the years ended December 31, 2011, 2010 and 2009 have not been provided.

The following table provides summary performance information for the Fund from Commencement of Operations to December 31, 2011:

 

     October 3, 2011
(Commencement of
Operations) through
December 31, 2011
 

NAV beginning of period

   $ 400   

NAV end of period

   $ 7,760,424   

Percentage change in NAV

     1,940,006.0

Shares outstanding beginning of period

     10   

Shares outstanding end of period

     150,010   

Percentage change in shares outstanding

     1,500,000.0

Shares created

     150,000   

Shares redeemed

     —     

Per share NAV beginning of period

   $ 40.00   

Per share NAV end of period

   $ 51.73   

Percentage change in per share NAV

     29.3

Percentage change in benchmark

     (37.9 %) 

Benchmark annualized volatility

     93.1

During the period ended December 31, 2011, the increase in the Fund’s NAV resulted primarily from an increase from 10 outstanding Shares at October 3, 2011 to 150,010 outstanding Shares at December 31, 2011. The increase in the Fund’s NAV also resulted in part from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to the inverse of the daily performance of the S&P 500 VIX Short-Term Futures Index.

For the period ended December 31, 2011, the Fund’s daily performance had a statistical correlation over 0.99 of the inverse of the daily performance of its benchmark.

During the period ended December 31, 2011, the Fund’s per share NAV reached its high for the period on October 28, 2011 at $58.39 per Share and reached its low for the period on November 25, 2011 at $38.78 per Share.

The benchmark’s decline of 37.9% for the period ended December 31, 2011 can be attributed to declining prices of the futures contracts that make up the front-end of the VIX futures curve.

Net Income/Loss

The following table provides summary income information for the Fund from Commencement of Operations to December 31, 2011:

 

     October 3, 2011
(Commencement of
Operations) through
December 31, 2011
 

Net investment income (loss)

   $ (16,333

Management fee

     5,916   

Brokerage commission

     3,345   

Offering costs

     7,073   

Net realized gain (loss)

     1,355,837   

Change in net unrealized appreciation/depreciation

     90,180   

Net income (loss)

   $ 1,429,684   

 

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ProShares VIX Mid-Term Futures ETF

Since the Fund commenced investment operations on January 3, 2011, comparisons of the Fund’s results of operations for the years ended December 31, 2011, 2010 and 2009 have not been provided.

The following table provides summary performance information for the Fund from Commencement of Operations to December 31, 2011:

 

     January 3, 2011
(Commencement of
Operations) through
December 31, 2011
 

NAV beginning of period

   $ 400   

NAV end of period

   $ 90,821,428   

Percentage change in NAV

     22,705,257.0

Shares outstanding beginning of period

     5   

Shares outstanding end of period

     1,225,005   

Percentage change in shares outstanding

     24,500,000.0

Shares created

     1,600,000   

Shares redeemed

     375,000   

Per share NAV beginning of period

   $ 80.00   

Per share NAV end of period

   $ 74.14   

Percentage change in per share NAV

     (7.3 %) 

Percentage change in benchmark

     (6.3 %) 

Benchmark annualized volatility

     39.2

During the year ended December 31, 2011, the increase in the Fund’s NAV resulted primarily from an increase from 5 outstanding Shares at January 3, 2011 to 1,225,005 outstanding Shares at December 31, 2011. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to the daily performance of the S&P 500 VIX Mid-Term Futures Index.

For the period ended December 31, 2011, the Fund’s daily performance had a statistical correlation over 0.99 of the daily performance of its benchmark.

During the period ended December 31, 2011, the Fund’s per share NAV reached its high for the period on October 3, 2011 at $92.26 per Share and reached its low for the period on July 7, 2011 at $57.37 per Share.

The benchmark’s decline of 6.3% for the period ended December 31, 2011 can be attributed to declining prices of the futures contracts that made up the S&P 500 VIX Mid-Term Futures Index over the period.

Net Income/Loss

The following table provides summary income information for the Fund from Commencement of Operations to December 31, 2011:

 

     January 3, 2011
(Commencement of
Operations) through
December 31, 2011
 

Net investment income (loss)

   $ (117,121

Offering costs

     123,692   

Limitation by Sponsor

     (2,481

Net realized gain (loss)

     (513,727

Change in net unrealized appreciation/depreciation

     (6,118,704

Net income (loss)

   $ (6,749,552

Off-Balance Sheet Arrangements and Contractual Obligations

As of February 28, 2012, the Funds have not used, nor do they expect to use in the future, special purpose entities to facilitate off-balance sheet financing arrangements and have no loan guarantee arrangements or off-balance sheet arrangements of any kind other than agreements entered into in the normal course of business, which may include indemnification provisions related to certain risks service providers undertake in performing services which are in the best interests of the Funds. While each Fund’s exposure under such indemnification provisions cannot be estimated, these general business indemnifications are not expected to have a material impact on a Fund’s financial position.

 

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Management fee payments made to the Sponsor are calculated as a fixed percentage of each Fund’s NAV. As such, the Sponsor cannot anticipate the amount of payments that will be required under these arrangements for future periods as NAVs are not known until a future date. The agreement with the Sponsor may be terminated by either party upon 30 days written notice to the other party. One officer of the Trust also serves as an officer and owner of the Sponsor.

Market Risk

Trading in futures contracts involves each Fund entering into contractual commitments to purchase or sell a commodity underlying the Fund’s benchmark at a specified date and price, should it hold such futures contract into the deliverable period. Should a Fund enter into a contractual commitment to sell a physical commodity, it would be required to make delivery of that commodity at the contract price and then repurchase the contract at prevailing market prices or settle in cash. Since the repurchase price to which the value of a commodity can rise is unlimited, entering into commitments to sell commodities would expose a Fund to theoretically unlimited risk.

Each Fund’s exposure to market risk is influenced by a number of factors, including the liquidity of the markets in which the contracts are traded and the relationships among the contracts held. The inherent uncertainty of each Fund’s trading as well as the development of drastic market occurrences could ultimately lead to a loss of all or substantially all of investors’ capital.

For more information, see “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in this Annual Report on Form 10-K.

Credit Risk

When a Fund enters into swap agreements, futures contracts or forward contracts, the Fund is exposed to credit risk that the counterparty to the contract will not meet its obligations.

The counterparty for futures contracts traded on United States and most foreign futures exchanges is the clearing house associated with the particular exchange. In general, clearing houses are backed by their corporate members who may be required to share in the financial burden resulting from the nonperformance by one of their members and, as such, should significantly reduce this credit risk. In cases where the clearing house is not backed by the clearing members (i.e., some foreign exchanges, which may become applicable in the future), it may be backed by a consortium of banks or other financial institutions.

Swap and forward agreements are contracted for directly with counterparties. There can be no assurance that any counterparty, clearing member or clearing house will meet its obligations to a Fund.

Swap agreements do not generally involve the delivery of underlying assets either at the outset of a transaction or upon settlement. Accordingly, if the counterparty to a swap agreement defaults, the Fund’s risk of loss consists of the net amount of payments that the Fund is contractually entitled to receive, if any. Swap counterparty risk is generally limited to the amount of any unrealized gains, although in the event of a counterparty bankruptcy, there could be delays and costs associated with recovery collateral posted in segregated tri-party accounts at the Fund’s custodian bank.

Forward agreements do not involve the delivery of assets at the onset of a transaction, but may be settled physically in the underlying asset if such contracts are held to expiration, particularly in the case of currency forwards. Thus, prior to settlement, if the counterparty to a forward contract defaults, a Fund’s risk of loss consists of the net amount of payments that the Fund is contractually entitled to receive, if any. However, if physically settled forwards are held until expiration (presently, there is no plan to do this), at the time of settlement, a Fund may be at risk for the full notional value of the forward contracts depending on the type of settlement procedures used.

The Sponsor attempts to minimize certain of these market and credit risks by normally:

 

   

executing and clearing trades with creditworthy counterparties, as determined by the Sponsor;

 

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limiting the outstanding amounts due from counterparties to the Funds;

 

   

not posting margin directly with a counterparty;

 

   

generally requiring that the counterparty posts collateral in amounts approximately equal to that owed to the Funds, as marked to market;

 

   

limiting the amount of margin or premium posted at a FCM; and

 

   

ensuring that deliverable contracts are not held to such a date when delivery of the underlying asset could be called for.

The FCM for each Fund, in accepting orders for the purchase or sale of domestic futures contracts, is required by CFTC regulations to separately account for and segregate as belonging to the Fund, all assets of the Fund relating to domestic futures trading, and the FCM is not allowed to commingle such assets with other assets of the FCM. In addition, CFTC regulations also require the FCM to hold in a secure account assets of each Fund related to foreign futures trading.

The Funds could lose money if the issuer of a debt security is unable to meet its financial obligations or goes bankrupt. The Funds could also lose money if the issuer of a debt security in which it has a short position is upgraded or generally improves its standing. Changes in an issuer’s financial strength or in an issuer’s or debt security’s credit rating also may affect a security’s value and thus have an impact on a Fund’s performance. Credit risk usually applies to most debt securities, but generally is not a factor for U.S. government obligations.

Critical Accounting Policies

The Trust’s and the Funds’ critical accounting policies are as follows:

Preparation of the financial statements and related disclosures in compliance with accounting principles generally accepted in the United States of America requires the application of appropriate accounting rules and guidance, as well as the use of estimates. The Trust’s and the Funds’ application of these policies involves judgments and actual results may differ from the estimates used.

Each Fund has significant exposure to Financial Instruments. The Funds hold a significant portion of their assets in swaps, futures or forward contracts, all of which are recorded on a trade date basis and at fair value in the financial statements, with changes in fair value reported in the Statements of Operations.

The use of fair value to measure Financial Instruments, with related unrealized gains or losses recognized in earnings in each period, is fundamental to the Trust’s and the Funds’ financial statements. The fair value of a Financial Instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price).

For financial reporting purposes, the Leveraged Funds and the VIX Funds value or will value transactions based upon the final closing price in their primary markets. Accordingly, the investment valuations in these financial statements differ from those used in the calculation of some Leveraged Funds’ and VIX Funds’ final creation/redemption NAV for the year ended December 31, 2011.

Short-term investments are valued at market price. Treasury securities having a maturity of greater than sixty days are valued at market price.

Derivatives (e.g., futures, swaps and forward agreements) are generally valued using independent sources and/or agreements with counterparties or other procedures as determined by the Sponsor. Futures contracts, except for those entered into by the Gold and Silver Funds, are generally valued at the last settled price on the applicable exchange on which that future trades. Futures contracts entered into by the Gold and Silver Funds are valued at the last sales price prior to the time at which the NAV per Share of a Fund is determined. If there was no sale on that day, and for non-exchange-traded derivatives, 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. Such fair value prices would be generally determined based on available inputs about the current value of the underlying financial instrument or

 

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commodity and would be based on principles that the Sponsor deems fair and equitable so long as such principles are consistent with normal industry standards. When market closing prices are not available, the Sponsor may value an asset of a Fund pursuant to the policies the Sponsor has adopted, which are consistent with normal industry standards.

Fair value pricing may require subjective determinations about the value of an investment. While each Leveraged and VIX Fund’s policy is intended to result in a calculation of the Leveraged or the VIX Fund’s NAV that fairly reflects investment values as of the time of pricing, the Leveraged and the VIX Funds cannot ensure that fair values determined by the Sponsor or persons acting at their direction would accurately reflect the price that the Leveraged or the VIX Fund could obtain for an investment if it were to dispose of that investment as of the time of pricing (for instance, in a forced or distressed sale). The prices used by the Leveraged or the VIX Fund may differ from the value that would be realized if the investments were sold and the differences could be material to the financial statements.

The Funds disclose the fair value of their investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. See Note 2 in the Financial Statements in this Annual Report on Form 10-K for further information.

Discounts on short-term securities purchased are amortized and reflected as Interest Income in the Statements of Operations.

Realized gains (losses) and changes in unrealized gain (loss) on open positions are determined on a specific identification basis and recognized in the Statements of Operations in the period in which the contract is closed or the changes occur, respectively.

Each Fund pays or will pay its respective brokerage commissions, including applicable exchange fees, NFA fees, give-up fees, pit brokerage fees and other transaction related fees and expenses charged in connection with trading activities for each Fund’s investment in U.S. Commodity Futures Trading Commission regulated investments. Brokerage commissions on futures contracts are recognized on a half-turn basis.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Since the ProShares Ultra DJ-UBS Natural Gas Fund, ProShares UltraShort Natural Gas Fund, ProShares Ultra VIX Short-Term Futures ETF, ProShares VIX Short-Term Futures ETF, ProShares Short VIX Short-Term Futures ETF and ProShares VIX Mid-Term Futures ETF were conducting operations for only a portion of the year ended December 31, 2011, comparisons of positions in certain Financial Instruments held by each of ProShares Ultra DJ-UBS Natural Gas Fund, ProShares UltraShort Natural Gas Fund, ProShares Ultra VIX Short-Term Futures ETF, ProShares VIX Short-Term Futures ETF, ProShares Short VIX Short-Term Futures ETF and ProShares VIX Mid-Term Futures ETF for the year ended December 31, 2011 to the years ended December 31, 2010 and 2009 have not been provided. As of December 31, 2011, each of the New Funds had not commenced investment operations; therefore, this quantitative and qualitative disclosures about market risk does not include comparisons of positions in certain Financial Instruments for the New Funds.

 

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Quantitative Disclosure

Commodity Price Sensitivity

Each of the Commodity Funds and the Commodity Index Funds is exposed to commodity price risk through its holdings of Financial Instruments. The following tables provide information about each of the Commodity Funds’ and the Commodity Index Funds’ Financial Instruments, which were sensitive to commodity price risk. As of December 31, 2011 and 2010, each of the Commodity Funds and the Commodity Index Funds’ positions were as follows:

ProShares Ultra DJ-UBS Commodity:

As of December 31, 2011 and 2010, the ProShares Ultra DJ-UBS Commodity Fund was exposed to commodity price risk through its holding of swap agreements linked to the Dow Jones-UBS Commodity Index. The following tables provide information about the Fund’s swap positions as of December 31, 2011 and 2010, which were sensitive to commodity price risk.

Swap Agreements as of December 31, 2011

 

Reference Index

  

Counterparty

  

Long or

Short

   Index Close      Notional
Amount at
Value
 

Dow Jones-UBS Commodity Index

   Goldman Sachs International    Long    $ 140.6802       $ 5,196,523   

Dow Jones-UBS Commodity Index

   UBS AG    Long      140.6802         12,943,342   

Swap Agreements as of December 31, 2010

 

Reference Index

  

Counterparty

  

Long or

Short

   Index Close      Notional
Amount at
Value
 

Dow Jones-UBS Commodity Index

   Goldman Sachs International    Long    $ 162.3929       $ 8,446,418   

Dow Jones-UBS Commodity Index

   UBS AG    Long      162.3929         27,949,246   

The December 31, 2011 and 2010 swap notional amounts are calculated by multiplying units times the closing level of the Index. These notional amounts will increase (decrease) proportionally with increases (decreases) in the level of the Index. Additional gains (losses) associated with these contracts will be equal to any such subsequent increases (decreases) in notional amount, before accounting for spreads or financing costs associated with the swaps. The Fund will generally attempt to adjust its positions in Financial Instruments each day to have $2.00 of exposure to the Index for every $1.00 of net assets. While the above information properly represents the then current commodity price risk and is adequate for estimating the following day’s gains or losses, estimates of future values over longer periods should take the Fund’s daily rebalancing efforts into account. Future period returns, before fees and expenses, cannot be estimated simply by estimating the return of the Index and multiplying by two. See “Item 1A. Risk Factors” in this Annual Report on Form 10-K for additional information regarding performance for periods longer than one day. Swap counterparty risk is generally limited to the amount of any unrealized gains, although in the event of a counterparty bankruptcy, there could be delays and costs associated with recovering collateral posted in segregated tri-party accounts at the Fund’s custodian bank.

ProShares UltraShort DJ-UBS Commodity:

As of December 31, 2011 and 2010, the ProShares UltraShort DJ-UBS Commodity Fund was exposed to inverse commodity price risk through its holding of swap agreements linked to the Dow Jones-UBS Commodity Index. The following tables provide information about the Fund’s short swap positions as of December 31, 2011 and 2010, which were sensitive to commodity price risk.

Swap Agreements as of December 31, 2011

 

Reference Index

  

Counterparty

  

Long or

Short

   Index Close      Notional
Amount at
Value
 

Dow Jones-UBS Commodity Index

   Goldman Sachs International    Short    $ 140.6802       $ (4,515,910

Dow Jones-UBS Commodity Index

   UBS AG    Short      140.6802         (13,710,640

Swap Agreements as of December 31, 2010

 

Reference Index

  

Counterparty

  

Long or

Short

   Index Close      Notional
Amount at
Value
 

Dow Jones-UBS Commodity Index

   Goldman Sachs International    Short    $ 162.3929       $ (897,578

Dow Jones-UBS Commodity Index

   UBS AG    Short      162.3929         (1,978,699

 

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The December 31, 2011 and 2010 short swap notional amounts are calculated by multiplying units times the closing level of the Index. These short notional amounts will increase (decrease) proportionally with increases (decreases) in the level of the Index. Additional losses (gains) associated with these contracts will be equal to any such subsequent increases (decreases) in short notional amounts, before accounting for any spreads or financing costs associated with the swaps. The Fund will generally attempt to adjust its positions in Financial Instruments each day to have negative $2.00 of exposure to the Index for every $1.00 of net assets. While the above information properly represents the then current commodity price risk and is adequate for estimating the following day’s gains or losses, estimates of future values over longer periods should take the Fund’s daily rebalancing efforts into account. Future period returns, before fees and expenses, cannot be estimated simply by estimating the return of the Index and multiplying by negative two. See “Item 1A. Risk Factors” in this Annual Report on Form 10-K for additional information regarding performance for periods longer than one day. Swap counterparty risk is generally limited to the amount of any unrealized gains, although in the event of a counterparty bankruptcy, there could be delays and costs associated with recovering collateral posted in segregated tri-party accounts at the Fund’s custodian bank.

ProShares Ultra DJ-UBS Crude Oil:

As of December 31, 2011 and 2010, the ProShares Ultra DJ-UBS Crude Oil Fund was exposed to commodity price risk through its holding of Crude Oil futures contracts and its holding of swap agreements linked to the Dow Jones-UBS Crude Oil Sub-Index. The following tables provide information about the Fund’s positions in these Financial Instruments as of December 31, 2011 and 2010, which were sensitive to commodity price risk.

Futures Positions as of December 31, 2011

 

Contract

  

Long or
Short

  

Expiration

   Contracts      Valuation
Price
     Contract
Multiplier
     Notional
Amount at
Value
 

Crude Oil (NYMEX)

   Long    March 2012      2,226       $ 99.00         1,000       $ 220,374,000   

Swap Agreements as of December 31, 2011

 

Reference Index

   Counterparty    Long or
Short
   Index Close      Notional
Amount at
Value
 

Dow Jones-UBS Crude Oil Sub-Index

   Goldman Sachs

International

   Long    $ 259.6827       $ 87,399,278   

Dow Jones-UBS Crude Oil Sub-Index

   Societe Generale S.A.    Long      259.6827         52,229,440   

Dow Jones-UBS Crude Oil Sub-Index

   UBS AG    Long      259.6827         142,861,248   

Futures Positions as of December 31, 2010

 

Contract

  

Long or
Short

  

Expiration

   Contracts      Valuation
Price
     Contract
Multiplier
     Notional
Amount at
Value
 

Crude Oil (NYMEX)

   Long    March 2011      2,100       $ 92.22         1,000       $ 193,662,000   

Swap Agreements as of December 31, 2010

 

Reference Index

   Counterparty    Long or
Short
   Index Close      Notional
Amount at
Value
 

Dow Jones-UBS Crude Oil Sub-Index

   Goldman Sachs

International

   Long    $ 269.6696       $ 128,304,283   

Dow Jones-UBS Crude Oil Sub-Index

   UBS AG    Long      269.6696         134,272,508   

 

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The December 31, 2011 and 2010 futures notional amounts are calculated by multiplying the number of contracts held times the valuation price times the contract multiplier. The December 31, 2011 and 2010 swap notional amounts are calculated by multiplying the number of units times the closing level of the Index. These notional amounts will increase (decrease) proportionally with increases (decreases) in the price of the futures contract or the level of the Index, as applicable. Additional gains (losses) associated with these contracts will be equal to any such subsequent increases (decreases) in notional amount, before accounting for spreads or transaction or financing costs. The Fund will generally attempt to adjust its positions in Financial Instruments each day to have $2.00 of exposure to the Index for every $1.00 of net assets. While the above information properly represents the then current commodity price risk and is adequate for estimating the following day’s gains or losses, estimates of future values over longer periods should take the Fund’s daily rebalancing efforts into account. Future period returns, before fees and expenses, cannot be estimated simply by estimating the return of the Index and multiplying by two. See “Item 1A. Risk Factors” in this Annual Report on Form 10-K for additional information regarding performance for periods longer than one day. Swap counterparty risk is generally limited to the amount of any unrealized gains, although in the event of a counterparty bankruptcy, there could be delays and costs associated with recovering collateral posted in segregated tri-party accounts at the Fund’s custodian bank.

ProShares UltraShort DJ-UBS Crude Oil:

As of December 31, 2011 and 2010, the ProShares UltraShort DJ-UBS Crude Oil Fund was exposed to inverse commodity price risk through its holding of Crude Oil futures contracts and its holding of swap agreements linked to the Dow Jones-UBS Crude Oil Sub-Index. The following tables provide information about the Fund’s positions in these Financial Instruments as of December 31, 2011 and 2010, which were sensitive to commodity price risk.

Futures Positions as of December 31, 2011

 

Contract

  

Long or
Short

  

Expiration

   Contracts      Valuation
Price
     Contract
Multiplier
     Notional
Amount at
Value
 

Crude Oil (NYMEX)

   Short    March 2012      1,257       $ 99.00         1,000       $ (124,443,000

Swap Agreements as of December 31, 2011

 

Reference Index

   Counterparty    Long or
Short
   Index Close      Notional
Amount at
Value
 

Dow Jones-UBS Crude Oil Sub-Index

   Goldman Sachs
International
   Short    $ 259.6827       $ (52,221,393

Dow Jones-UBS Crude Oil Sub-Index

   Societe Generale S.A.    Short      259.6827         (90,137,702

Dow Jones-UBS Crude Oil Sub-Index

   UBS AG    Short      259.6827         (22,019,770

Futures Positions as of December 31, 2010

 

Contract

  

Long or
Short

  

Expiration

   Contracts      Valuation
Price
     Contract
Multiplier
     Notional
Amount at
Value
 

Crude Oil (NYMEX)

   Short    March 2011      840       $ 92.22         1,000       $ (77,464,800

Swap Agreements as of December 31, 2010

 

Reference Index

  

Counterparty

  

Long or

Short

   Index Close      Notional
Amount at
Value
 

Dow Jones-UBS Crude Oil Sub-Index

   Goldman Sachs International    Short    $ 269.6696       $ (75,087,435

Dow Jones-UBS Crude Oil Sub-Index

   UBS AG    Short      269.6696         (111,898,000

 

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The December 31, 2011 and 2010 short futures notional amounts are calculated by multiplying the number of contracts held times the valuation price times the contract multiplier. The December 31, 2011 and 2010 swap notional amounts are calculated by multiplying the number of units times the closing level of the Index. These short notional amounts will increase (decrease) proportionally with increases (decreases) in the price of the futures contract or the level of the Index, as applicable. Additional losses (gains) associated with these contracts will be equal to any such subsequent increases (decreases) in short notional amount, before accounting for spreads or transaction or financing costs. The Fund will generally attempt to adjust its positions in Financial Instruments each day to have negative $2.00 of exposure to the Index for every $1.00 of net assets. While the above information properly represents the then current commodity price risk and is adequate for estimating the following day’s gains or losses, estimates of future values over longer periods should take the Fund’s daily rebalancing efforts into account. Future period returns, before fees and expenses, cannot be estimated simply by estimating the return of the Index and multiplying by negative two. See “Item 1A. Risk Factors” in this Annual Report on Form 10-K for additional information regarding performance for periods longer than one day. Swap counterparty risk is generally limited to the amount of any unrealized gains, although in the event of a counterparty bankruptcy, there could be delays and costs associated with recovery collateral posted in segregated tri-party accounts at the Fund’s custodian bank.

ProShares Ultra DJ-UBS Natural Gas:

As of December 31, 2011, the ProShares DJ-UBS Natural Gas Fund was exposed to commodity price risk through its holding of Natural Gas futures contracts. The following tables provide information about the Fund’s positions in these Financial Instruments as of December 31, 2011, which were sensitive to commodity price risk.

Futures Positions as of December 31, 2011

 

Contract

  

Long or
Short

  

Expiration

   Contracts      Valuation
Price
     Contract
Multiplier
     Notional
Amount at
Value
 

Natural Gas (NYMEX)

   Long    March 2012      271       $ 3.02         10,000       $ 8,173,360   

The December 31, 2011 futures notional amount is calculated by multiplying the number of contracts held times the valuation price times the contract multiplier. The notional amount will increase (decrease) proportionally with increases (decreases) in the price of the futures contract, as applicable. Additional losses (gains) associated with these contracts will be equal to any such subsequent increases (decreases) in notional amount, before accounting for spreads or transaction or financing costs. The Fund will generally attempt to adjust its positions in Financial Instruments each day to have $2.00 of exposure to the Index for every $1.00 of net assets. While the above information properly represents the then current commodity price risk and is adequate for estimating the following day’s gains or losses, estimates of future values over longer periods should take the Fund’s daily rebalancing efforts into account. Future period returns, before fees and expenses, cannot be estimated simply by estimating the return of the Index and multiplying by two. See “Item 1A. Risk Factors” in this Annual Report on Form 10-K for additional information regarding performance for periods longer than one day.

ProShares UltraShort DJ-UBS Natural Gas:

As of December 31, 2011, the ProShares UltraShort DJ-UBS Natural Gas Fund was exposed to inverse commodity price risk through its holding of Natural Gas futures contracts. The following tables provide information about the Fund’s positions in these Financial Instruments as of December 31, 2011, which were sensitive to commodity price risk.

Futures Positions as of December 31, 2011

 

Contract

  

Long or
Short

  

Expiration

   Contracts      Valuation
Price
     Contract
Multiplier
     Notional
Amount at
Value
 

Natural Gas (NYMEX)

   Short    March 2012      474       $ 3.02         10,000       $ (14,295,840

 

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The December 31, 2011 short futures notional amount is calculated by multiplying the number of contracts held times the valuation price times the contract multiplier. The short notional amount will increase (decrease) proportionally with increases (decreases) in the price of the futures contract. Additional losses (gains) associated with these contracts will be equal to any such subsequent increases (decreases) in short notional amount, before accounting for spreads or transaction or financing costs. The Fund will generally attempt to adjust its positions in Financial Instruments each day to have negative $2.00 of exposure to the Index for every $1.00 of net assets. While the above information properly represents the then current commodity price risk and is adequate for estimating the following day’s gains or losses, estimates of future values over longer periods should take the Fund’s daily rebalancing efforts into account. Future period returns, before fees and expenses, cannot be estimated simply by estimating the return of the Index and multiplying by negative two. See “Item 1A. Risk Factors” in this Annual Report on Form 10-K for additional information regarding performance for periods longer than one day.

ProShares Ultra Gold:

As of December 31, 2011 and 2010, the ProShares Ultra Gold Fund was exposed to commodity price risk through its holding of Gold futures contracts and Gold forward agreements. The following tables provide information about the Fund’s positions in these Financial Instruments as of December 31, 2011 and 2010, which were sensitive to commodity price risk.

Futures Positions as of December 31, 2011

 

Contract

  

Long or
Short

  

Expiration

   Contracts      Valuation
Price
     Contract
Multiplier
     Notional
Amount at
Value
 

Gold Futures (COMEX)

   Long    February 2012      2       $ 1,566.80         100       $ 313,360   

Forward Agreements as of December 31, 2011

 

Reference Index

   Counterparty    Long or
Short
   Valuation
Price
     Notional
Amount at
Value
 

0.995 Fine Troy Ounce Gold

   Goldman Sachs
International
   Long    $ 1,531.18       $ 187,753,292   

0.995 Fine Troy Ounce Gold

   Societe Generale S.A.    Long      1,531.18         20,824,025   

0.995 Fine Troy Ounce Gold

   UBS AG    Long      1,531.18         443,889,082   

Futures Positions as of December 31, 2010

 

Contract

  

Long or
Short

  

Expiration

   Contracts      Valuation
Price
     Contract
Multiplier
     Notional
Amount at
Value
 

Gold Futures (COMEX)

   Long    February 2011      77       $ 1,421.40         100       $ 10,944,780   

Forward Agreements as of December 31, 2010

 

Reference Index

   Counterparty    Long or
Short
   Valuation
Price
     Notional
Amount at
Value
 

0.995 Fine Troy Ounce Gold

   Goldman Sachs
International
   Long    $ 1,405.60       $ 92,235,472   

0.995 Fine Troy Ounce Gold

   UBS AG    Long      1,405.60         416,760,400   

The December 31, 2011 and 2010 futures notional amounts are calculated by multiplying the number of contracts held times the valuation price times the contract multiplier. The December 31, 2011 and 2010 forward notional amounts equal units multiplied by the forward price. These notional amounts will increase (decrease) proportionally with increases (decreases) in the price of the futures contract or forward price, as applicable. Additional gains (losses) associated with these contracts will be equal to any such subsequent increases (decreases) in notional

 

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amount, before accounting for spreads or transaction or financing costs. The Fund will generally attempt to adjust its positions in Financial Instruments each day to have $2.00 of exposure to the Index for every $1.00 of net assets. While the above information properly represents the then current commodity price risk and is adequate for estimating the following day’s gains or losses, estimates of future values over longer periods should take the Fund’s daily rebalancing efforts into account. Future period returns, before fees and expenses, cannot be estimated simply by estimating the return of the Index and multiplying by two. See “Item 1A. Risk Factors” in this Annual Report on Form 10-K for additional information regarding performance for periods longer than one day. Counterparty risk related to the forward agreements is generally limited to the amount of any unrealized gains, although in the event of a counterparty bankruptcy, there could be delays and costs associated with recovering collateral posted in segregated tri-party accounts at the Fund’s custodian bank.

ProShares UltraShort Gold:

As of December 31, 2011 and 2010, the ProShares UltraShort Gold Fund was exposed to inverse commodity price risk through its holding of Gold futures contracts and Gold forward agreements. The following tables provide information about the Fund’s positions in these Financial Instruments as of December 31, 2011 and 2010, which were sensitive to commodity price risk.

Futures Positions as of December 31, 2011

 

Contract

  

Long or
Short

  

Expiration

   Contracts      Valuation
Price
     Contract
Multiplier
     Notional
Amount at
Value
 

Gold Futures (COMEX)

   Short    February 2012      2       $ 1,566.80         100       $ (313,360

Forward Agreements as of December 31, 2011

 

Reference Index

  

Counterparty

  

Long or
Short

   Valuation
Price
     Notional Amount
at Value
 

0.995 Fine Troy Ounce Gold

   Goldman Sachs International    Short    $ 1,531.18       $ (64,153,380

0.995 Fine Troy Ounce Gold

   Societe Generale S.A.    Short      1,531.18         (32,154,744

0.995 Fine Troy Ounce Gold

   UBS AG    Short      1,531.18         (300,034,721

Futures Positions as of December 31, 2010

 

Contract

  

Long or
Short

  

Expiration

   Contracts      Valuation
Price
     Contract
Multiplier
     Notional
Amount at
Value
 

Gold Futures (COMEX)

   Short    February 2011      60       $ 1,421.40         100       $ (8,528,400

Forward Agreements as of December 31, 2010

 

Reference Index

  

Counterparty

  

Long or
Short

   Valuation
Price
     Notional
Amount at
Value
 

0.995 Fine Troy Ounce Gold

   Goldman Sachs International    Short    $ 1,405.60       $ (39,072,869

0.995 Fine Troy Ounce Gold

   UBS AG    Short      1,405.60         (107,387,840

The December 31, 2011 and 2010 short futures notional amounts are calculated by multiplying the number of contracts held times the valuation price times the contract multiplier. The December 31, 2011 and 2010 short forward notional amounts equal units multiplied by the forward price. These short notional amounts will increase (decrease) proportionally with increases (decreases) in the price of the futures contract or forward price, as applicable. Additional losses (gains) associated with these contracts will be equal to any such subsequent increases (decreases) in notional amounts, before accounting for spreads or transaction or financing costs. The Fund will

 

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generally attempt to adjust its positions in Financial Instruments each day to have negative $2.00 of short exposure to the Index for every $1.00 of net assets. While the above information properly represents the then current commodity price risk and is adequate for estimating the following day’s gains or losses, estimates of future values over longer periods should take the Fund’s daily rebalancing efforts into account. Future period returns, before fees and expenses, cannot be estimated simply by estimating the return of the Index and multiplying by negative two. See “Item 1A. Risk Factors” in this Annual Report on Form 10-K for additional information regarding performance for periods longer than one day. Counterparty risk related to the forward agreements is generally limited to the amount of any unrealized gains, although in the event of a counterparty bankruptcy, there could be delays and costs associated with recovering collateral posted in segregated tri-party accounts at the Fund’s custodian bank.

ProShares Ultra Silver:

As of December 31, 2011 and 2010, the ProShares Ultra Silver Fund was exposed to commodity price risk through its holding of Silver futures contracts and Silver forward agreements. The following tables provide information about the Fund’s positions in these Financial Instruments as of December 31, 2011 and 2010, which were sensitive to commodity price risk.

Futures Positions as of December 31, 2011

 

Contract

  

Long or
Short

  

Expiration

   Contracts      Valuation
Price
     Contract
Multiplier
     Notional
Amount at
Value
 

Silver Futures (COMEX)

   Long    March 2012      2       $ 27.915         5,000       $ 279,150   

Forward Agreements as of December 31, 2011

 

Reference Index

   Counterparty   

Long or
Short

   Valuation
Price
     Notional
Amount at
Value
 

0.999 Fine Troy Ounce Silver

   Goldman Sachs
International
   Long    $ 28.1810       $ 264,444,868   

0.999 Fine Troy Ounce Silver

   Societe Generale S.A.    Long      28.1810         28,321,905   

0.999 Fine Troy Ounce Silver

   UBS AG    Long      28.1810         920,701,451   

Futures Positions as of December 31, 2010

 

Contract

  

Long or
Short

  

Expiration

   Contracts      Valuation
Price
     Contract
Multiplier
     Notional
Amount at
Value
 

Silver Futures (COMEX)

   Long    March 2011      229       $ 30.937         5,000       $ 35,422,865   

Forward Agreements as of December 31, 2010

 

Reference Index

  

Counterparty

  

Long or
Short

   Valuation
Price
     Notional
Amount at
Value
 

0.999 Fine Troy Ounce Silver

   Goldman Sachs International    Long    $ 30.6322       $ 247,992,165   

0.999 Fine Troy Ounce Silver

   UBS AG    Long      30.6322         810,344,219   

The December 31, 2011 and 2010 futures notional amounts are calculated by multiplying the number of contracts held times the valuation price times the contract multiplier. The December 31, 2011 and 2010 forward notional amounts equal units multiplied by the forward price. These notional amounts will increase (decrease) proportionally with increases (decreases) in the price of the futures contract or forward price, as applicable. Additional gains (losses) associated with these contracts will be equal to any such subsequent increases (decreases) in notional

 

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amounts, before accounting for spreads or transaction or financing costs. The Fund will generally attempt to adjust its positions in Financial Instruments each day to have $2.00 of exposure to the Index for every $1.00 of net assets. While the above information properly represents the then current commodity price risk and is adequate for estimating the following day’s gains or losses, estimates of future values over longer periods should take the Fund’s daily rebalancing efforts into account. Future period returns, before fees and expenses, cannot be estimated simply by estimating the return of the Index and multiplying by two. See “Item 1A. Risk Factors” in this Annual Report on Form 10-K for additional information regarding performance for periods longer than one day. Counterparty risk related to the forward agreements is generally limited to the amount of any unrealized gains, although in the event of a counterparty bankruptcy, there could be delays and costs associated with recovering collateral posted in segregated tri-party accounts at the Fund’s custodian bank.

ProShares UltraShort Silver:

As of December 31, 2011 and 2010, the ProShares UltraShort Silver Fund was exposed to inverse commodity price risk through its holding of Silver futures contracts and Silver forward agreements. The following tables provide information about the Fund’s positions in these Financial Instruments as of December 31, 2011 and 2010, which were sensitive to commodity price risk.

Futures Positions as of December 31, 2011

 

Contract

  

Long or
Short

  

Expiration

   Contracts      Valuation
Price
     Contract
Multiplier
     Notional
Amount at
Value
 

Silver Futures (COMEX)

   Short    March 2012      2       $ 27.915         5,000       $ (279,150

Forward Agreements as of December 31, 2011

 

Reference Index

  

Counterparty

  

Long or
Short

   Valuation
Price
     Notional
Amount at
Value
 

0.999 Fine Troy Ounce Silver

   Goldman Sachs International    Short    $ 28.1810       $ (189,531,316

0.999 Fine Troy Ounce Silver

   Societe Generale S.A.    Short      28.1810         (28,321,905

0.999 Fine Troy Ounce Silver

   UBS AG    Short      28.1810         (275,581,999

Futures Positions as of December 31, 2010

 

Contract

  

Long or
Short

  

Expiration

   Contracts      Valuation
Price
     Contract
Multiplier
     Notional
Amount at
Value
 

Silver Futures (COMEX)

   Short    March 2011      49       $ 30.937         5,000       $ (7,579,565

Forward Agreements as of December 31, 2010

 

Reference Index

  

Counterparty

  

Long or
Short

   Valuation
Price
     Notional
Amount at
Value
 

0.999 Fine Troy Ounce Silver

   Goldman Sachs International    Short    $ 30.6322       $ (52,917,126

0.999 Fine Troy Ounce Silver

   UBS AG    Short      30.6322         (137,783,636

The December 31, 2011 and 2010 short futures notional amounts are calculated by multiplying the number of contracts held times the valuation price times the contract multiplier. The December 31, 2011 and 2010 short forward notional amounts equal units multiplied by the forward price. These short notional amounts will increase (decrease) proportionally with increases (decreases) in the price of the futures contract or forward price, as applicable. Additional losses (gains) associated with these contracts will be equal to any such subsequent increases (decreases) in short notional amounts, before accounting for spreads or transaction or financing costs. The Fund will

 

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generally attempt to adjust its positions in Financial Instruments each day to have negative $2.00 of short exposure to the Index for every $1.00 of net assets. While the above information properly represents the then current commodity price risk and is adequate for estimating the following day’s gains or losses, estimates of future values over longer periods should take the Fund’s daily rebalancing efforts into account. Future period returns, before fees and expenses, cannot be estimated simply by estimating the return of the Index and multiplying by negative two. See “Item 1A. Risk Factors” in this Annual Report on Form 10-K for additional information regarding performance for periods longer than one day. Counterparty risk related to the forward agreements is generally limited to the amount of any unrealized gains, although in the event of a counterparty bankruptcy, there could be delays and costs associated with recovering collateral posted in segregated tri-party accounts at the Fund’s custodian bank.

Exchange Rate Sensitivity

Each of the Currency Funds is exposed to exchange rate risk through its holdings of Financial Instruments. The following tables provide information about each of the Currency Funds’ Financial Instruments, which are sensitive to changes in exchange rates. As of December 31, 2011 and 2010, each of the Currency Funds’ positions were as follows:

ProShares Ultra Euro:

As of December 31, 2011 and 2010, the ProShares Ultra Euro Fund was exposed to exchange rate price risk through its holdings of Euro/USD foreign currency forward contracts. The following tables provide information about the Fund’s positions in these Financial Instruments as of December 31, 2011 and 2010, which were sensitive to exchange rate price risk.

Foreign Currency Forward Contracts as of December 31, 2011

 

Reference Currency

   Counterparty    Long or
Short
   Settlement
Date
     Euro     Forward
Rate
     Market Value
USD
 

Euro

   Goldman Sachs
International
   Long      01/13/12         7,334,525        1.2943       $ 9,492,896   

Euro

   UBS AG    Long      01/13/12         7,824,000        1.2943         10,126,412   

Euro

   Goldman Sachs
International
   Short      01/13/12         (183,800     1.2943         (237,888

Euro

   UBS AG    Short      01/13/12         (208,900     1.2943         (270,374

Foreign Currency Forward Contracts as of December 31, 2010

 

Reference Currency

   Counterparty    Long or
Short
   Settlement
Date
   Euro     Forward
Rate
     Market Value
USD
 

Euro

   Goldman Sachs
International
   Long    01/07/11      6,509,725        1.3367       $ 8,701,573   

Euro

   UBS AG    Long    01/07/11      5,408,200        1.3367         7,229,160   

Euro

   Goldman Sachs
International
   Short    01/07/11      (274,700     1.3367         (367,192

Euro

   UBS AG    Short    01/07/11      (75,600     1.3367         (101,055

The December 31, 2011 and 2010 USD market value equals the number of Euros multiplied by the forward rate. These notional amounts will increase (decrease) proportionally with increases (decreases) in the forward price. The Fund will generally attempt to adjust its positions in Financial Instruments each day to have $2.00 of exposure to the Euro for every $1.00 of net assets. While the above information properly represents the then current exchange rate price risk and is adequate for estimating the following day’s gains or losses, estimates of future values over longer periods should take the Fund’s daily rebalancing efforts into account. Future period returns, before fees and expenses, cannot be estimated simply by estimating the appreciation or depreciation of the Euro and multiplying by two. See “Item 1A. Risk Factors” in this Annual Report on Form 10-K for additional information regarding performance for periods longer than one day. Counterparty risk related to foreign currency forward contracts is generally limited to the amount of any unrealized gains, although in the event of a counterparty bankruptcy, there could be delays and costs associated with recovering collateral posted in segregated tri-party accounts at the Fund’s custodian bank.

 

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ProShares UltraShort Euro:

As of December 31, 2011 and 2010, the ProShares UltraShort Euro Fund was exposed to inverse exchange rate price risk through its holdings of Euro/USD foreign currency forward contracts. The following tables provide information about the Fund’s positions in these Financial Instruments as of December 31, 2011 and 2010, which were sensitive to exchange rate price risk.

Foreign Currency Forward Contracts as of December 31, 2011

 

Reference Currency

   Counterparty    Long or
Short
   Settlement
Date
   Euro     Forward
Rate
     Market Value
USD
 

Euro

   Goldman Sachs
International
   Long    01/13/12      30,950,200        1.2943       $ 40,058,087   

Euro

   UBS AG    Long    01/13/12      53,564,700        1.2943         69,327,481   

Euro

   Goldman Sachs
International
   Short    01/13/12      (881,320,025     1.2943         (1,140,670,959

Euro

   UBS AG    Short    01/13/12      (903,636,400     1.2943         (1,169,554,497

Foreign Currency Forward Contracts as of December 31, 2010

 

Reference Currency

   Counterparty    Long or
Short
   Settlement
Date
   Euro     Forward
Rate
     Market Value
USD
 

Euro

   Goldman Sachs
International
   Long    01/07/11      93,466,300        1.3367       $ 124,936,741   

Euro

   UBS AG    Long    01/07/11      56,570,100        1.3367         75,617,457   

Euro

   Goldman Sachs
International
   Short    01/07/11      (417,611,725     1.3367         (558,223,100

Euro

   UBS AG    Short    01/07/11      (396,904,800     1.3367         (530,544,078

The December 31, 2011 and 2010 USD market values equal the number of Euros multiplied by the forward rate. These notional amounts will increase (decrease) proportionally with increases (decreases) in the forward price. The Fund will generally attempt to adjust its positions in Financial Instruments each day to have negative $2.00 of short exposure to the Euro for every $1.00 of net assets. While the above information properly represents the then current exchange rate price risk and is adequate for estimating the following day’s gains or losses, estimates of future values over longer periods should take the Fund’s daily rebalancing efforts into account. Future period returns, before fees and expenses, cannot be estimated simply by estimating the appreciation or depreciation of the Euro and multiplying by negative two. See “Item 1A. Risk Factors” in this Annual Report on Form 10-K for additional information regarding performance for periods longer than one day. Counterparty risk related to foreign currency forward contracts is generally limited to the amount of any unrealized gains, although in the event of a counterparty bankruptcy, there could be delays and costs associated with recovering collateral posted in segregated tri-party accounts at the Fund’s custodian bank.

ProShares Ultra Yen:

As of December 31, 2011 and 2010, the ProShares Ultra Yen Fund was exposed to exchange rate price risk through its holdings of Yen/USD foreign currency forward contracts. The following table provides information about the Fund’s positions in these Financial Instruments as of December 31, 2011 and 2010, which were sensitive to exchange rate price risk.

Foreign Currency Forward Contracts as of December 31, 2011

 

Reference Currency

   Counterparty    Long or
Short
   Settlement
Date
   Yen     Forward
Rate
     Market Value
USD
 

Yen

   Goldman Sachs
International
   Long    01/13/12      361,210,000        0.012993       $ 4,693,138   

Yen

   UBS AG    Long    01/13/12      486,460,000        0.012993         6,320,489   

Yen

   Goldman Sachs
International
   Short    01/13/12      (2,500,000     0.012993         (32,482

Yen

   UBS AG    Short    01/13/12      (2,940,000     0.012993         (38,199

 

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Foreign Currency Forward Contracts as of December 31, 2010

 

Reference Currency

   Counterparty    Long or
Short
   Settlement
Date
   Yen     Forward
Rate
     Market Value
USD
 

Yen

   Goldman Sachs
International
   Long    01/07/11      398,750,000        0.012311       $ 4,908,950   

Yen

   UBS AG    Long    01/07/11      441,640,000        0.012311         5,436,962   

Yen

   Goldman Sachs
International
   Short    01/07/11      (24,020,000     0.012311         (295,707

The December 31, 2011 and 2010 USD market values equal the number of Yen multiplied by the forward rate. These notional amounts will increase (decrease) proportionally with increases (decreases) in the forward price. The Fund will generally attempt to adjust its positions in Financial Instruments each day to have $2.00 of exposure to the Yen for every $1.00 of net assets. While the above information properly represents the then current exchange rate price risk and is adequate for estimating the following day’s gains or losses, estimates of future values over longer periods should take the Fund’s daily rebalancing efforts into account. Future period returns, before fees and expenses, cannot be estimated simply by estimating the appreciation or depreciation of the Yen and multiplying by two. See “Item 1A. Risk Factors” in this Annual Report on Form 10-K for additional information regarding performance for periods longer than one day. Counterparty risk related to foreign currency forward contracts is generally limited to the amount of any unrealized gains, although in the event of a counterparty bankruptcy, there could be delays and costs associated with recovering collateral posted in segregated tri-party accounts at the Fund’s custodian bank.

ProShares UltraShort Yen:

As of December 31, 2011 and 2010, the ProShares UltraShort Yen Fund was exposed to inverse exchange rate price risk through its holdings of Yen/USD foreign currency forward contracts. The following tables provide information about the Fund’s positions in these Financial Instruments as of December 31, 2011 and 2010, which were sensitive to exchange rate price risk.

Foreign Currency Forward Contracts as of December 31, 2011

 

Reference Currency

   Counterparty    Long or
Short
   Settlement
Date
   Yen     Forward
Rate
     Market Value
USD
 

Yen

   Goldman Sachs
International
   Long    01/13/12      1,157,460,000        0.012993       $ 15,038,674   

Yen

   UBS AG    Long    01/13/12      1,743,810,000        0.012993         22,657,016   

Yen

   Goldman Sachs
International
   Short    01/13/12      (17,594,930,000     0.012993         (228,607,826

Yen

   UBS AG    Short    01/13/12      (19,346,660,000     0.012993         (251,367,745

Foreign Currency Forward Contracts as of December 31, 2010

 

Reference Currency

   Counterparty    Long or
Short
   Settlement
Date
   Yen     Forward
Rate
     Market Value
USD
 

Yen

   Goldman Sachs
International
   Long    01/07/11      4,660,570,000        0.012311       $ 57,375,559   

Yen

   UBS AG    Long    01/07/11      3,734,640,000        0.012311         45,976,577   

Yen

   Goldman Sachs
International
   Short    01/07/11      (20,869,950,000     0.012311         (256,926,737

Yen

   UBS AG    Short    01/07/11      (21,245,680,000     0.012311         (261,552,292

The December 31, 2011 and 2010 USD market values equal the number of Yen multiplied by the forward rate. These notional amounts will increase (decrease) proportionally with increases (decreases) in the forward price. The Fund will generally attempt to adjust its positions in Financial Instruments each day to have negative $2.00 of short

 

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exposure to the Yen for every $1.00 of net assets. While the above information properly represents the then current exchange rate price risk and is adequate for estimating the following day’s gains or losses, estimates of future values over longer periods should take the Fund’s daily rebalancing efforts into account. Future period returns, before fees and expenses, cannot be estimated simply by estimating the appreciation or depreciation of the Yen and multiplying by negative two. See “Item 1A. Risk Factors” in this Annual Report on Form 10-K for additional information regarding performance for periods longer than one day. Counterparty risk related to foreign currency forward contracts is generally limited to the amount of any unrealized gains, although in the event of a counterparty bankruptcy, there could be delays and costs associated with recovering collateral posted in segregated tri-party accounts at the Fund’s custodian bank.

Equity Market Volatility Sensitivity

Each of the VIX Funds is exposed to equity market volatility risk through its holdings of Financial Instruments. The following tables provide information about each of the VIX Funds’ Financial Instruments, which are sensitive to changes in equity market volatility indexes. As of December 31, 2011, each of the VIX Funds’ positions were as follows:

ProShares Ultra VIX Short-Term Futures ETF

As of December 31, 2011, the ProShares Ultra VIX Short-Term Futures ETF Fund was exposed to equity market volatility risk through its holding of VIX futures contracts. The following table provides information about the Fund’s positions in VIX futures contracts as of December 31, 2011, which were sensitive to equity market volatility risk.

Futures Positions as of December 31, 2011

 

Contract

   Long or
Short
   Expiration    Contracts      Valuation
Price
     Contract
Multiplier
     Notional Amount
at Value
 

VIX Futures (CBOE)

   Long    January 2012      431       $ 26.70         1,000       $ 11,507,700   

VIX Futures (CBOE)

   Long    February 2012      302         27.15         1,000         8,199,300   

ProShares VIX Short-Term Futures ETF

As of December 31, 2011, the ProShares VIX Short-Term Futures ETF Fund was exposed to equity market volatility risk through its holding of VIX futures contracts. The following table provides information about the Fund’s positions in VIX futures contracts as of December 31, 2011, which were sensitive to equity market volatility risk.

Futures Positions as of December 31, 2011

 

Contract

   Long or
Short
   Expiration    Contracts      Valuation
Price
     Contract
Multiplier
     Notional Amount
at Value
 

VIX Futures (CBOE)

   Long    January 2012      668       $ 26.70         1,000       $ 17,835,600   

VIX Futures (CBOE)

   Long    February 2012      466         27.15         1,000         12,651,900   

ProShares Short VIX Short-Term Futures ETF

As of December 31, 2011, the ProShares Short VIX Short-Term Futures ETF Fund was exposed to inverse equity market volatility risk through its holding of VIX futures contracts. The following table provides information about the Fund’s positions in VIX futures contracts as of December 31, 2011, which were sensitive to equity market volatility risk.

Futures Positions as of December 31, 2011

 

Contract

   Long or
Short
   Expiration    Contracts      Valuation
Price
     Contract
Multiplier
     Notional Amount
at Value
 

VIX Futures (CBOE)

   Short    January 2012      171       $ 26.70         1,000       $ (4,565,700

VIX Futures (CBOE)

   Short    February 2012      119       $ 27.15         1,000       $ (3,230,850

 

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ProShares VIX Mid-Term Futures ETF

As of December 31, 2011, the ProShares VIX Mid-Term Futures ETF Fund was exposed to equity market volatility risk through its holding of VIX futures contracts. The following table provides information about the Fund’s positions in VIX futures contracts as of December 31, 2011, which were sensitive to equity market volatility risk.

Futures Positions as of December 31, 2011

 

Contract

   Long or
Short
   Expiration    Contracts      Valuation
Price
     Contract
Multiplier
     Notional Amount
at Value
 

VIX Futures (CBOE)

   Long    April 2012      616       $ 28.40         1,000       $ 17,494,400   

VIX Futures (CBOE)

   Long    May 2012      1,047         28.70         1,000         30,048,900   

VIX Futures (CBOE)

   Long    June 2012      1,047         29.10         1,000         30,467,700   

VIX Futures (CBOE)

   Long    July 2012      431         29.75         1,000         12,822,250   

Qualitative Disclosure

As described above in Item 7 in this Annual Report on Form 10-K, it is the investment objective of each Geared Fund and Geared VIX Fund to seek daily investment results, before fees and expenses, which correspond to a multiple, the inverse or an inverse multiple of the daily performance, whether positive or negative, of its corresponding benchmark. Each UltraPro Fund will seek daily investment results (before fees and expenses) that correspond to three times (3x) the daily performance of its corresponding benchmark. Each Ultra Fund seeks or will seek daily investment results (before fees and expenses) that correspond to twice (2x) the daily performance of its corresponding benchmark. Each Short Fund will seek daily investment results (before fees and expenses) that correspond to the inverse (-1x) of the daily performance of its corresponding benchmark. Each UltraShort Fund seeks or will seek daily investment results (before fees and expenses) that correspond to twice the inverse (-2x) of the daily performance of its corresponding benchmark. Each UltraPro Fund will seek daily investment results (before fees and expenses) that correspond to three times the inverse (-3x) of the daily performance of its corresponding benchmark. Each Matching VIX Fund seeks daily investment results (before fees and expenses) that match the performance of a benchmark. The Geared Funds do not seek to achieve these stated investment objectives over a period of time greater than one day because mathematical compounding prevents the Geared Funds from achieving such results. Performance over longer periods of time will be influenced not only by the cumulative period performance of the corresponding benchmark but equally by the intervening volatility of the benchmark as well as fees and expenses, including costs associated with the use of Financial Instruments such as financing costs and trading spreads. Future period returns, before fees and expenses, cannot be estimated simply by estimating the percent change in the corresponding benchmark and multiplying by two or negative two. Investors should monitor their ProShares holdings consistent with their strategies, as frequently as daily. See “Item 1A. Risk Factors” in this Annual Report on Form 10-K for additional information regarding performance for periods longer than one day. The Matching VIX Funds seek to achieve their stated investment objective both over a single day and over time. The Managed Futures Funds will seek to achieve their stated investment objective over time.

Primary Market Risk Exposure

Each Fund’s investment objective and corresponding benchmark defines the primary market risks that the Funds are exposed to. For example, the primary market risk that the ProShares Ultra DJ-UBS Crude Oil and the ProShares UltraShort DJ-UBS Crude Oil Funds are exposed to are direct and inverse exposure, respectively, to the price of crude oil as measured by the return of holding and periodically rolling crude oil futures contracts (the Dow Jones-UBS Commodity Index and its sub-indexes are based on the price of rolling futures positions, rather than on the cash price for immediate delivery of the corresponding commodity).

Each Fund’s exposure to market risk is further influenced by a number of factors, including the liquidity of the markets in which the contracts are traded and the relationships among the contracts held. The inherent uncertainty of each Fund’s trading as well as the development of drastic market occurrences could ultimately lead to a loss of all or substantially all of investors’ capital.

 

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As described above in Item 7 in this Annual Report on Form 10-K, trading in certain futures contracts or forward agreements involves each Fund entering into contractual commitments to purchase or sell a commodity underlying a Fund’s benchmark at a specified date and price, should it hold such futures contracts or forward agreements into the deliverable period. Should a Fund enter into a contractual commitment to sell a physical commodity, it is required to make delivery of that commodity at the contract price and then repurchase the contract at prevailing market prices or settle in cash. Since the repurchase price to which the value of a commodity can rise is unlimited, entering into commitments to sell commodities would expose a Fund to theoretically unlimited risk.

Commodity Price Sensitivity

As further described above in “Item 1A. Risk Factors” in this Annual Report on Form 10-K, the value of the Shares of each Fund relates directly to the value of, and realized profit or loss from, the Financial Instruments and other assets held by the Fund and fluctuations in the price of these assets could materially adversely affect an investment in the Shares. With regard to the Commodity Index Funds or the Commodity Funds, several factors may affect the price of a commodity underlying a Commodity Index Fund or a Commodity Fund, and in turn, the Financial Instruments and other assets, if any, owned by such a Fund. The impact of changes in the price of a physical commodity or of a commodity index (comprised of commodity futures contracts) will affect investors differently depending upon the Fund in which investors invest. Daily increases in the price of an underlying commodity or commodity index will negatively impact the daily performance of Shares of an UltraShort or an UltraShort Pro Fund and daily decreases in the price of an underlying commodity or commodity index will negatively impact the daily performance of Shares of an UltraPro Fund or an Ultra Fund.

Additionally, performance over time is a cumulative effect of geometrically linking each day’s leveraged or inverse leveraged returns. For instance, if a corresponding benchmark was up 10% and then down 10%, which would result in a (1.1*0.9)-1 = -1% period benchmark return, the two-day period return for a theoretical two-times fund would be equal to a (1.2 *0.8)-1 = -4% period Fund return (rather than simply two times the period return of the benchmark).

Exchange Rate Sensitivity

As further described above in “Item 1A. Risk Factors” in this Annual Report on Form 10-K, the value of the Shares of each Fund relates directly to the value of, and realized profit or loss from, the Financial Instruments and other assets held by the Fund and fluctuations in the price of these assets could materially adversely affect an investment in the Shares. With regard to the Currency Index Funds or the Currency Funds, several factors may affect the value of the foreign currencies or the U.S. Dollar, and, in turn, the Financial Instruments and other assets, if any, owned by a Fund. The impact of changes in the price of a currency will affect investors differently depending upon the Fund in which investors invest. Daily increases in the price of a currency will negatively impact the daily performance of Shares of an UltraShort Fund or an UltraShort Pro Fund and daily decreases in the price of a currency will negatively impact the daily performance of Shares of an UltraPro Fund or an Ultra Fund.

Additionally, performance over time is a cumulative effect of geometrically linking each day’s leveraged or inverse leveraged returns. For instance, if a corresponding benchmark was up 10% and then down 10%, which would result in a (1.1*0.9)-1 = -1% period benchmark return, the two-day period return for a theoretical two-times fund would be equal to a (1.2 *0.8)-1 = -4% period Fund return (rather than simply two times the period return of the benchmark).

Equity Market Volatility Sensitivity

As further described above in “Item 1A. Risk Factors” Annual Report in this Form 10-K, the value of the Shares of each VIX Fund relates directly to the value of, and realized profit or loss from, the Financial Instruments and other assets held by the Fund and fluctuations in the price of these assets could materially adversely affect an investment in the Shares. Several factors may affect the price and/or liquidity of VIX futures contracts and other assets, if any, owned by a VIX Fund. The impact of changes in the price of these assets will affect investors differently depending upon the Fund in which investors invest.

 

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Managing Market Risks

Each Fund seeks or will seek to remain fully exposed to the corresponding benchmark at the levels implied by the relevant investment objective (1x, 2x, 3x, -1x, -2x or -3x), regardless of market direction or sentiment. At the close of the relevant markets each trading day (see NAV calculation times), each Fund will seek to position its portfolio so that its exposure to its benchmark is consistent with its investment objective. As described above in Item 7 in this Annual Report on Form 10-K, these adjustments are done through the use of various Financial Instruments. No attempt is made to adjust market exposure in order to avoid changes to the benchmark that would cause the Funds to lose value. Factors common to all Funds that may require portfolio re-positioning are create/redeem activity and index rebalances.

For Geared Funds, the impact of the Index’s movements during the day also affects whether the Fund’s portfolio needs to be re-positioned. For example, if the Index for an UltraPro Fund or an Ultra Fund has risen on a given day, net assets of the Fund should rise, meaning that the Fund’s long exposure will need to be increased to the extent there are not offsetting factors such as redemption activity. Conversely, if the Index has fallen on a given day, net assets of an UltraPro or an Ultra Fund should fall, meaning the Fund’s long exposure will generally need to be decreased. Net assets for Short Funds, UltraShort Funds or UltraPro Short Funds will generally decrease when the Index rises on a given day, meaning the Fund’s short exposure may need to be decreased. Conversely if the Index has fallen on a given day, a Short Fund’s, an UltraShort Fund’s or an UltraPro Short Fund’s assets should rise, meaning its short exposure may need to be increased.

The use of certain Financial Instruments introduces counterparty risk. A Fund will be subject to credit risk with respect to the amount it expects to receive from counterparties to Financial Instruments entered into by the Fund. A Fund may be negatively impacted if a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties. Each Fund intends to enter into swap and forward agreements only with large, established and well capitalized financial institutions that meet certain credit quality standards and monitoring policies. Each Fund may use various techniques to minimize credit risk including early termination or reset and payment, limiting the net amount due from any individual counterparty, and generally requiring that the counterparty post collateral with respect to amounts owed to the Funds, marked to market daily.

Most Financial Instruments held by the Funds are “unfunded” meaning that the Fund will obtain exposure to the corresponding benchmark while still being in possession of its original cash assets. The cash positions that result from use of such Financial Instruments are held in a manner to minimize both interest rate and credit risk. During the reporting period, cash positions were maintained in a non-interest bearing demand deposit account. The Funds also invest a portion of this cash in cash equivalents (such as shares of money market funds, bank deposits, bank money market accounts, certain variable rate-demand notes and repurchase agreements collateralized by government securities).

 

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Table of Contents
Item 8. Financial Statements and Supplementary Data.

Statement of Operations for three month periods ended March 31, 2011, June 30, 2011, September 30, 2011, December 31, 2011, the year ended December 31, 2011, three month periods ended March 31, 2010, June 30, 2010, September 30, 2010, December 31, 2010 and the year ended December 31, 2010 for each Fund.

PROSHARES ULTRA DJ-UBS COMMODITY

 

     Three months ended (unaudited)     Year ended
December 31,
2011
 
     March 31,
2011
    June 30,
2011
    September 30,
2011
    December 31,
2011
   

Net investment income (loss)

   $ (40,254   $ (45,024   $ (36,061   $ (24,262   $ (145,601
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ 1,772,727      $ (3,351,612   $ (3,127,605   $ 191,535      $ (4,514,955

Net income (loss)

   $ 1,732,473      $ (3,396,636   $ (3,163,666   $ 167,273      $ (4,660,556

Net increase (decrease) in net asset value per share

   $ 3.09      $ (6.07   $ (7.37   $ (0.14   $ (10.49

 

     Three months ended (unaudited)     Year ended
December 31,
2010
 
     March 31,
2010
    June 30,
2010
    September 30,
2010
    December 31,
2010
   

Net investment income (loss)

   $ (27,282   $ (22,326   $ (22,115   $ (29,784   $ (101,507
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (1,995,440   $ (1,375,756   $ 2,290,577      $ 4,044,641      $ 2,964,022   

Net income (loss)

   $ (2,022,722   $ (1,398,082   $ 2,268,462      $ 4,014,857      $ 2,862,515   

Net increase (decrease) in net asset value per share

   $ (3.18   $ (2.66   $ 5.21      $ 8.79      $ 8.16   

PROSHARES ULTRASHORT DJ-UBS COMMODITY

 

     Three months ended (unaudited)     Year ended
December 31,
2011
 
     March 31,
2011
    June 30,
2011
    September 30,
2011
    December 31,
2011
   

Net investment income (loss)

   $ (4,737   $ (71,509   $ (31,685   $ (25,222   $ (133,153
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (301,224   $ (2,796,713   $ 900,296      $ (577,784   $ (2,775,425

Net income (loss)

   $ (305,961   $ (2,868,222   $ 868,611      $ (603,006   $ (2,908,578

Net increase (decrease) in net asset value per share*

   $ (5.32   $ 5.67      $ 10.59      $ (2.02   $ 8.92   

 

     Three months ended (unaudited)     Year ended
December 31,
2010
 
     March 31,
2010
    June 30,
2010
    September 30,
2010
    December 31,
2010
   

Net investment income (loss)

   $ (7,877   $ (9,296   $ (4,531   $ (2,800   $ (24,504
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $  190,796      $     140,026      $ (470,394   $ (498,795   $    (638,367

Net income (loss)

   $ 182,919      $ 130,730      $ (474,925   $ (501,595   $ (662,871

Net increase (decrease) in net asset value per share*

   $ 5.52      $ 5.90      $ (17.80   $ (18.73   $ (25.11

PROSHARES ULTRA DJ-UBS CRUDE OIL

 

     Three months ended (unaudited)     Year ended
December 31,
2011
 
     March 31,
2011
    June 30,
2011
    September 30,
2011
    December 31,
2011
   

Net investment income (loss)

   $ (730,394   $ (642,875   $ (964,691   $ (848,409   $ (3,186,369
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ 87,063,795      $ (42,024,285   $ (133,329,780   $ 176,234,125      $   87,943,855   

Net income (loss)

   $ 86,333,401      $ (42,667,160   $ (134,294,471   $ 175,385,716      $ 84,757,486   

Net increase (decrease) in net asset value per share*

   $ 7.11      $ (14.47   $ (15.33   $ 13.57      $ (9.12

 

     Three months ended (unaudited)     Year ended
December 31,
2010
 
     March 31,
2010
    June 30,
2010
    September 30,
2010
    December 31,
2010
   

Net investment income (loss)

   $ (591,012   $ (760,361   $ (892,150   $ (623,914   $ (2,867,437
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ 30,374,966      $ (48,524,426   $    60,169,253      $   82,389,753      $ 124,409,546   

Net income (loss)

   $ 29,783,954      $ (49,284,787   $ 59,277,103      $ 81,765,839      $ 121,542,109   

Net increase (decrease) in net asset value per share*

   $ 2.46      $ (14.44   $ 2.06      $ 9.42      $ (0.50

 

-118-


Table of Contents

PROSHARES ULTRASHORT DJ-UBS CRUDE OIL

 

     Three months ended (unaudited)     Year ended
December 31,
2011
 
     March 31,
2011
    June 30,
2011
    September 30,
2011
    December 31,
2011
   

Net investment income (loss)

   $ (277,411   $ (392,008   $ (239,496   $ (302,820   $ (1,211,735
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (11,152,184   $ 44,435,394      $ 43,199,704      $ (40,369,836   $ 36,113,078   

Net income (loss)

   $ (11,429,595   $ 44,043,386      $ 42,960,208      $ (40,672,656   $ 34,901,343   

Net increase (decrease) in net asset value per share*

   $ (9.64   $ 7.07      $ 16.33      $ (25.79   $ (12.03

 

     Three months ended (unaudited)     Year ended
December 31,
2010
 
     March 31,
2010
    June 30,
2010
    September 30,
2010
    December 31,
2010
   

Net investment income (loss)

   $ (207,423   $ (171,589   $ (121,343   $ (283,795   $ (784,150
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ 414,798      $ 26,434,020      $ 4,408,653      $ (18,667,163   $ 12,590,308   

Net income (loss)

   $ 207,375      $ 26,262,431      $ 4,287,310      $ (18,950,958   $ 11,806,158   

Net increase (decrease) in net asset value per share*

   $ (7.93   $ 14.97      $ (8.78   $ (15.85   $ (17.59

PROSHARES ULTRA DJ-UBS NATURAL GAS

 

     October 4, 2011
(Commencement
of Operations)
through
December 31,
2011
 

Net investment income (loss)

   $ (10,459
  

 

 

 

Net realized and unrealized gain (loss)

   $ (2,307,329

Net income (loss)

   $ (2,317,788

Net increase (decrease) in net asset value per share

   $ (19.60

PROSHARES ULTRASHORT DJ-UBS NATURAL GAS

 

     October 4, 2011
(Commencement
of Operations)
through
December 31,
2011
 

Net investment income (loss)

   $ (15,612
  

 

 

 

Net realized and unrealized gain (loss)

   $ 3,157,122   

Net income (loss)

   $ 3,141,510   

Net increase (decrease) in net asset value per share

   $ 31.42   

PROSHARES ULTRA GOLD

 

     Three months ended (unaudited)     Year ended
December 31,
2011
 
     March 31,
2011
    June 30,
2011
    September 30,
2011
    December 31,
2011
   

Net investment income (loss)

   $ (482,456   $ (609,284   $ (939,268   $ (944,478   $ (2,975,486
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ 6,550,582      $ 20,154,730      $ 28,100,311      $ (44,636,496   $ 10,169,127   

Net income (loss)

   $ 6,068,126      $ 19,545,446      $ 27,161,043      $ (45,580,974   $ 7,193,641   

Net increase (decrease) in net asset value per share

   $ 2.43      $ 5.82      $ 9.51      $ (11.07   $ 6.69   

 

     Three months ended (unaudited)     Year ended
December 31,
2010
 
     March 31,
2010
    June 30,
2010
    September 30,
2010
    December 31,
2010
   

Net investment income (loss)

   $ (359,416   $ (370,912   $ (381,515   $      (484,082   $ (1,595,925
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ 5,192,081      $ 38,336,601      $ 16,441,460      $ 30,944,584      $ 90,914,726   

Net income (loss)

   $ 4,832,665      $ 37,965,689      $ 16,059,945      $ 30,460,502      $ 89,318,801   

Net increase (decrease) in net asset value per share

   $ 1.50      $ 10.24      $ 4.99      $ 8.41      $ 25.14   

 

-119-


Table of Contents

PROSHARES ULTRASHORT GOLD

 

     Three months ended (unaudited)     Year ended
December 31,
2011
 
     March 31,
2011
    June 30,
2011
    September 30,
2011
    December 31,
2011
   

Net investment income (loss)

   $ (199,330   $ (189,137   $ (293,684   $ (361,048   $ (1,043,199
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (7,272,446   $ (8,345,095   $ (4,957,821   $ 12,117,245      $ (8,458,117

Net income (loss)

   $ (7,471,776   $  (8,534,232   $ (5,251,505   $  11,756,197      $   (9,501,316

Net increase (decrease) in net asset value per share

   $ (1.70   $ (2.73   $ (4.67   $ 1.41      $ (7.69

 

     Three months ended (unaudited)     Year ended
December 31,
2010
 
     March 31,
2010
    June 30,
2010
    September 30,
2010
    December 31,
2010
   

Net investment income (loss)

   $ (149,951   $ (126,659   $ (150,860   $ (165,500   $ (592,970
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (4,834,328   $ (16,003,561   $ (8,336,818   $ (14,054,655   $ (43,229,362

Net income (loss)

   $ (4,984,279   $ (16,130,220   $ (8,487,678   $ (14,220,155   $ (43,822,332

Net increase (decrease) in net asset value per share*

   $ (4.05   $ (10.41   $ (4.17   $ (5.41   $ (24.04

PROSHARES ULTRA SILVER

 

     Three months ended (unaudited)     Year ended
December 31,
2011
 
     March 31,
2011
    June 30,
2011
    September 30,
2011
    December 31,
2011
   

Net investment income (loss)

   $ (1,323,706   $ (2,429,975   $ (2,371,209   $ (1,831,322   $ (7,956,212
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ 298,326,588      $ (311,253,526   $ (265,887,530   $ (159,279,941   $ (438,094,409

Net income (loss)

   $ 297,002,882      $ (313,683,501   $ (268,258,739   $ (161,111,263   $ (446,050,621

Net increase (decrease) in net asset value per share*

   $ 35.52      $ (29.67   $ (29.27   $ (11.53   $ (34.95

 

     Three months ended (unaudited)     Year ended
December 31,
2010
 
     March 31,
2010
    June 30,
2010
    September 30,
2010
    December 31,
2010
   

Net investment income (loss)

   $ (337,766   $ (340,190   $        (322,145   $ (723,865   $ (1,723,966
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ 7,614,188      $ 18,161,024      $ 52,861,734      $  194,697,932      $  273,334,878   

Net income (loss)

   $     7,276,422      $    17,820,834      $ 52,539,589      $ 193,974,067      $ 271,610,912   

Net increase (decrease) in net asset value per share*

   $ 0.51      $ 2.75      $ 10.99      $ 35.38      $ 49.63   

 

-120-


Table of Contents

PROSHARES ULTRASHORT SILVER

 

     Three months ended (unaudited)     Year ended
December 31,
2011
 
     March 31,
2011
    June 30,
2011
    September 30,
2011
    December 31,
2011
   

Net investment income (loss)

   $ (293,996   $ (1,087,002   $ (1,293,605   $ (713,410   $ (3,388,013
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (80,041,620   $ 54,709,556      $ (32,690,481   $ (59,741,953   $ (117,764,498

Net income (loss)

   $ (80,335,616   $ 53,622,554      $ (33,984,086   $ (60,455,363   $ (121,152,511

Net increase (decrease) in net asset value per share*

   $ (16.81   $ (4.41   $ (2.36   $ (0.97   $ (24.55

 

     Three months ended (unaudited)     Year ended
December 31,
2010
 
     March 31,
2010
    June 30,
2010
    September 30,
2010
    December 31,
2010
   

Net investment income (loss)

   $ (153,135   $ (106,584   $ (118,907   $ (160,247   $ (538,873
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (8,809,391   $ (14,389,390   $ (23,341,515   $ (56,076,707   $ (102,617,003

Net income (loss)

   $ (8,962,526   $ (14,495,974   $ (23,460,422   $ (56,236,954   $ (103,155,876

Net increase (decrease) in net asset value per share*

   $ (25.72   $ (34.59   $ (40.41   $ (47.76   $ (148.48

PROSHARES ULTRA EURO

 

     Three months ended (unaudited)     Year ended
December 31,
2011
 
     March 31,
2011
    June 30,
2011
    September 30,
2011
    December 31,
2011
   

Net investment income (loss)

   $ (16,515   $ (19,703   $ (20,157   $ (18,727   $ (75,102
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $  952,162      $    415,636      $ (1,325,174   $ (555,119   $ (512,495

Net income (loss)

   $ 935,647      $ 395,933      $ (1,345,331   $ (573,846   $ (587,597

Net increase (decrease) in net asset value per share

   $ 3.12      $ 1.32      $ (4.48   $ (1.83   $ (1.87

 

     Three months ended (unaudited)     Year ended
December 31,
2010
 
     March 31,
2010
    June 30,
2010
    September 30,
2010
    December 31,
2010
   

Net investment income (loss)

   $ (17,820   $ (26,289   $ (30,018   $ (18,536   $ (92,663
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (882,437   $ (2,014,364   $ 3,185,543      $ (263,841   $   24,901   

Net income (loss)

   $ (900,257   $ (2,040,653   $ 3,155,525      $ (282,377   $ (67,762

Net increase (decrease) in net asset value per share

   $ (3.44   $ (4.92   $ 5.13      $ (1.14   $ (4.37

PROSHARES ULTRASHORT EURO

 

     Three months ended (unaudited)     Year ended
December 31,
2011
 
     March 31,
2011
    June 30,
2011
    September 30,
2011
    December 31,
2011
   

Net investment income (loss)

   $ (889,548   $ (1,012,362   $ (1,691,141   $ (2,314,798   $ (5,907,849
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (57,977,168   $ (32,834,948   $ 111,269,508      $ 64,721,878      $ 85,179,270   

Net income (loss)

   $ (58,866,716   $ (33,847,310   $ 109,578,367      $ 62,407,080      $ 79,271,421   

Net increase (decrease) in net asset value per share

   $ (2.45   $ (1.09   $ 2.53      $ 1.06      $ 0.05   

 

     Three months ended (unaudited)     Year ended
December 31,
2010
 
     March 31,
2010
    June 30,
2010
    September 30,
2010
    December 31,
2010
   

Net investment income (loss)

   $ (442,167   $ (814,585   $ (664,325   $ (884,735   $ (2,805,812
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $  19,664,663      $  72,553,479      $  (83,832,685   $ 15,065,310      $ 23,450,767   

Net income (loss)

   $ 19,222,496      $ 71,738,894      $ (84,497,010   $ 14,180,575      $ 20,644,955   

Net increase (decrease) in net asset value per share

   $ 2.11      $ 4.20      $ (5.16   $ 0.46      $ 1.61   

 

-121-


Table of Contents

PROSHARES ULTRA YEN

 

     Three months ended (unaudited)     Year ended
December 31,
2011
 
     March 31,
2011
    June 30,
2011
    September 30,
2011
    December 31,
2011
   

Net investment income (loss)

   $ (7,079   $ (7,343   $ (12,276   $ (12,874   $ (39,572
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (246,751   $ 207,474      $ 424,806      $ (1,680   $ 383,849   

Net income (loss)

   $ (253,830   $ 200,131      $ 412,530      $ (14,554   $ 344,277   

Net increase (decrease) in net asset value per share

   $ (1.73   $ 2.00      $ 2.81      $ (0.10   $ 2.98   

 

     Three months ended (unaudited)     Year ended
December 31,
2010
 
     March 31,
2010
    June 30,
2010
    September 30,
2010
    December 31,
2010
   

Net investment income (loss)

   $ (8,738   $ (7,785   $ (11,174   $ (10,394   $ (38,091
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (46,286   $ 433,627      $ 632,167      $ 406,843      $ 1,426,351   

Net income (loss)

   $ (55,024   $ 425,842      $ 620,993      $ 396,449      $ 1,388,260   

Net increase (decrease) in net asset value per share

   $ (0.37   $ 2.84      $ 3.25      $ 1.63      $ 7.35   

PROSHARES ULTRASHORT YEN

 

     Three months ended (unaudited)     Year ended
December 31,
2011
 
     March 31,
2011
    June 30,
2011
    September 30,
2011
    December 31,
2011
   

Net investment income (loss)

   $ (586,442   $ (789,356   $ (701,439   $ (564,897   $ (2,642,134
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ 15,715,806      $ (23,729,396   $ (29,515,199   $ (733,872   $ (38,262,661

Net income (loss)

   $ 15,129,364      $ (24,518,752   $ (30,216,638   $   (1,298,769   $ (40,904,795

Net increase (decrease) in net asset value per share*

   $ 1.78      $ (3.40   $ (4.06   $ (0.38   $ (6.06

 

     Three months ended (unaudited)     Year ended
December 31,
2010
 
     March 31,
2010
    June 30,
2010
    September 30,
2010
    December 31,
2010
   

Net investment income (loss)

   $ (217,797   $ (294,844   $ (302,251   $ (398,390   $ (1,213,282
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $   3,960,851      $ (18,399,554   $ (18,503,219   $ (10,160,285   $ (43,102,207

Net income (loss)

   $ 3,743,054      $ (18,694,398   $ (18,805,470   $ (10,558,675   $ (44,315,489

Net increase (decrease) in net asset value per share*

   $ (0.08   $ (7.57   $ (6.61   $ (2.99   $ (17.25

PROSHARES ULTRA VIX SHORT-TERM FUTURES ETF

 

     October 3, 2011
(Commencement
of Operations)
through
December 31,
2011
 

Net investment income (loss)

   $ (16,778
  

 

 

 

Net realized and unrealized gain (loss)

   $ (4,287,543

Net income (loss)

   $ (4,304,321

Net increase (decrease) in net asset value per share

   $ (27.65

PROSHARES VIX SHORT-TERM FUTURES ETF

 

     Three months ended (unaudited)     Year ended
December 31,
2011
 
     March 31,
2011
    June 30,
2011
    September 30,
2011
    December 31,
2011
   

Net investment income (loss)

   $ (24,184   $ (100,295   $ (74,409   $ (83,681   $ (282,569
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (2,832,809   $ (14,411,348   $ 32,342,992      $ (12,941,321   $ 2,157,514   

Net income (loss)

   $ (2,856,993   $ (14,511,643   $ 32,268,583      $ (13,025,002   $ 1,874,945   

Net increase (decrease) in net asset value per share

   $ (15.93   $ (18.60   $ 70.12      $ (39.22   $ (3.63

 

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PROSHARES SHORT VIX SHORT-TERM FUTURES ETF

 

     October 3, 2011
(Commencement
of Operations)
through
December 31,
2011
 

Net investment income (loss)

   $ (16,333
  

 

 

 

Net realized and unrealized gain (loss)

   $ 1,446,017   

Net income (loss)

   $ 1,429,684   

Net increase (decrease) in net asset value per share

   $ 11.73   

PROSHARES VIX MID-TERM FUTURES ETF

 

     Three months ended (unaudited)     Year ended
December 31,
2011
 
     March 31,
2011
    June 30,
2011
    September 30,
2011
    December 31,
2011
   

Net investment income (loss)

   $ (11,309   $ (20,454   $ (26,403   $ (58,955   $ (117,121
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (770,972   $ (1,503,703   $ 4,607,535      $ (8,965,291   $ (6,632,431

Net income (loss)

   $ (782,281   $ (1,524,157   $ 4,581,132      $ (9,024,246   $ (6,749,552

Net increase (decrease) in net asset value per share

   $ (12.61   $ (5.63   $ 27.81      $ (15.43   $ (5.86

See the Index to Financial Statements on Page F-1 for a list of the financial statements being filed as part of this Annual Report on Form 10-K. Those Financial Statements, and the notes and schedules related thereto, are incorporated by reference into this Item 8.

 

* See Note 1 of the Notes to Financial Statements in Item 8 of Part II in this Annual Report on Form 10-K.

 

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

Not applicable.

 

Item 9A. Controls and Procedures.

Disclosure Controls and Procedures

Under the supervision and with the participation of the principal executive officer and principal financial officer of the Trust, Trust management has evaluated the effectiveness of the Trust’s and the Funds’ disclosure controls and procedures, and have concluded that the disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the 1934 Act) of the Trust and the Funds were effective, as of December 31, 2011, including providing reasonable assurance that information required to be disclosed in the reports that the Trust files or submits under the 1934 Act on behalf of the Trust and the Funds is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that such information is accumulated and communicated to the duly authorized officers of the Trust as appropriate to allow timely decisions regarding required disclosure.

Management’s Annual Report on Internal Control Over Financial Reporting

The Trust’s management takes responsibility for establishing and maintaining adequate internal control over financial reporting of the Trust and the Funds, as defined in Rules 13a-15(f) and 15d-15(f) under the 1934 Act. The Trust’s and the Funds’ internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Trust and the Funds; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that the Trust’s and the Funds’

 

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receipts and expenditures are being made only in accordance with appropriate authorizations of management of the Trust on behalf of the Trust and the Funds; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Trust’s or the Funds’ assets that could have a material effect on the Trust’s or the Funds’ financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The principal executive officer and principal financial officer of the Trust assessed the effectiveness of the Trust’s and the Funds’ internal control over financial reporting as of December 31, 2011. Their assessment included an evaluation of the design of the Trust’s and the Funds’ internal control over financial reporting and testing of the operational effectiveness of their internal control over financial reporting. In making its assessment, the Trust’s management has utilized the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in its report entitled Internal Control – Integrated Framework. Based on their assessment and those criteria, the principal executive officer and principal financial officer of the Trust concluded that the Trust’s and the Funds’ internal control over financial reporting was effective as of December 31, 2011.

The effectiveness of the Trust’s and the Funds’ internal control over financial reporting as of December 31, 2011 has been audited by PricewaterhouseCoopers LLP, the independent registered public accounting firm, as stated in their report which is included herein.

Changes in Internal Control over Financial Reporting

There were no changes in the Trust’s or the Funds’ internal control over financial reporting that occurred during the quarter ended December 31, 2011 that have materially affected, or are reasonably likely to materially affect, the Trust’s or the Funds’ internal control over financial reporting.

Certifications

The certifications by the Principal Executive Officer and Principal Financial Officer of the Trust required by Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002, which are filed or furnished as exhibits to this Annual Report on Form 10-K, apply both to the Trust taken as a whole and each Fund, and the Principal Executive Officer and Principal Financial Officer of the Trust are certifying both as to the Trust taken as a whole and each Fund.

 

Item 9B. Other Information.

Not applicable.

 

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Part III

 

Item 10. Directors, Executive Officers and Corporate Governance.

The Sponsor

ProShare Capital Management LLC is the Sponsor of the Trust and the Funds. The Sponsor has exclusive management and control of all aspects of the business of the Funds. The Trustee has no duty or liability to supervise the performance of the Sponsor, nor will the Trustee have any liability for the acts or omissions of the Sponsor.

The Sponsor serves as the Trust’s commodity pool operator and commodity trading advisor.

Specifically, with respect to the Trust, the Sponsor:

 

   

selects the Funds’ service providers;

 

   

negotiates various agreements and fees;

 

   

performs such other services as the Sponsor believes that the Trust may require from time-to-time;

 

   

selects the FCM and Financial Instrument counterparties;

 

   

manages each Fund’s portfolio of other assets, including cash equivalents; and

 

   

manages the Funds with a view toward achieving the Funds’ investment objectives.

Background and Principals

The Sponsor serves as both commodity pool operator and commodity trading advisor of the Trust and the Funds. The Sponsor is registered as a commodity pool operator and commodity trading advisor with the CFTC and is a member in good standing of the NFA. The Sponsor’s membership with the NFA was originally approved on June 11, 1999. It withdrew its registration with the NFA on August 31, 2000 but later re-applied and had its registration subsequently approved on January 8, 2001. Its membership with the NFA is currently effective. The Sponsor’s registration as a commodity trading advisor was approved on June 11, 1999 and is currently effective. The Sponsor’s registration as a commodity pool operator was originally approved on June 11, 1999. It withdrew its registration as a commodity pool operator on August 30, 2000 but later re-applied and had its registration subsequently approved on November 28, 2007. Its registration as a commodity pool operator is currently effective. As a registered commodity pool operator and commodity trading advisor, with respect to the Trust, the Sponsor must comply with various regulatory requirements under the CEA, and the rules and regulations of the CFTC and the NFA, including investor protection requirements, antifraud prohibitions, disclosure requirements, and reporting and recordkeeping requirements. The Sponsor is also subject to periodic inspections and audits by the CFTC and NFA. Its principal place of business is 7501 Wisconsin Avenue, Suite 1000, Bethesda, Maryland 20814 and its telephone number is (240) 497-6400. The registration of the Sponsor with the CFTC and its membership in the NFA must not be taken as an indication that either the CFTC or the NFA has recommended or approved the Sponsor, the Trust and the Funds.

In its capacity as a commodity pool operator, the Sponsor is an organization which operates or solicits funds for commodity pools; that is, an enterprise in which funds contributed by a number of persons are combined for the purpose of trading futures contracts. In its capacity as a commodity trading advisor, the Sponsor is an organization which, for compensation or profit, advises others as to the value of or the advisability of buying or selling futures contracts.

 

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Executive Officers of the Trust and Principals and Significant Employees of the Sponsor

 

Name

  

Position

Michael L. Sapir    Chief Executive Officer and Principal of the Sponsor
Louis M. Mayberg    Principal Executive Officer of the Trust; Chief Financial Officer and Principal of the Sponsor
William E. Seale    Principal of the Sponsor
Sapir Family Trust    Principal of the Sponsor
Northstar Trust    Principal of the Sponsor
Edward J. Karpowicz    Principal Financial Officer of the Trust
Todd B. Johnson*    Chief Investment Officer and Principal of the Sponsor
Howard S. Rubin    Director, Portfolio Management and Associated Person of the Sponsor
Michael Neches    Associated Person of the Sponsor
Jeffrey Ploshnick    Senior Portfolio Manager and Associated Person of the Sponsor
Ryan Dofflemeyer    Portfolio Manager and Associated Person of the Sponsor
Lisa P. Johnson    Principal of the Sponsor
Victor M. Frye    Principal of the Sponsor

 

* Denotes principal of the Sponsor who participates in making trading decisions for the Funds.

The following is a biographical summary of the business experience of the executive officers of the Trust and the principals and significant employees of the Sponsor.

ProFund Advisors LLC (“PFA”) and ProShare Advisors LLC (“PSA”) are investment advisers registered under the Investment Advisers Act of 1940.

Michael L. Sapir, Chairman, Chief Executive Officer and a listed principal of the Sponsor since August 14, 2008; Chairman, Chief Executive Officer and a member of PFA since April 1997; and Chairman, Chief Executive Officer and a member of PSA since January 2005. As Chairman and Chief Executive Officer of the Sponsor, PSA and PFA, Mr. Sapir’s responsibilities include oversight of all aspects of the Sponsor, PSA and PFA, respectively.

Louis M. Mayberg, Chief Financial Officer, a member and a listed principal of the Sponsor since June 9, 2008; a member of PFA since April 1997; and a member of PSA, since January 2005. Principal Executive Officer of the Trust since June 2008. As Chief Financial Officer of the Sponsor, Mr. Mayberg’s responsibilities include oversight of the financial matters of the Sponsor. As Principal Executive Officer of the Trust, his responsibilities include oversight of operations of the Trust. Mr. Mayberg is 48 years old.

William E. Seale, Ph.D., a member of the Sponsor and a listed principal of the Sponsor since June 11, 1999; a member of PFA since April 1997 and a member of PSA since April 2005. Dr. Seale served as Chief Investment Officer of PFA from January 2003 to July 2005 and from October 2006 to June 2008 and Director of Portfolio from January 1997 to January 2003. Dr. Seale served as Chief Investment Officer of PSA from October 2006 to June 2008. In these roles, Dr. Seale’s responsibilities included oversight of the investment management activities of the respective entities. Dr. Seale is a former commissioner of the CFTC.

Sapir Family Trust, a listed principal of the Sponsor. The Sapir Family Trust has ownership interest in the Sponsor and PSA. The Sapir Family Trust has passive ownership interest in the Sponsor and exercises no management authority over the Funds.

Northstar Trust, a listed principal of the Sponsor. Northstar Trust has ownership interest in the Sponsor and PFA. Northstar Trust has passive ownership interest in the Sponsor and exercises no management authority over the Funds.

Edward J. Karpowicz, Principal Financial Officer of the Trust since July 2008. Mr. Karpowicz has been employed by PFA since July 2002 as Vice President of Financial Administration. Mr. Karpowicz is 48 years old.

Todd B. Johnson, a registered associated person of the Sponsor since January 29, 2010, a listed principal of the Sponsor since January 16, 2009 and Chief Investment Officer of the Sponsor since February 27, 2009. In this role, Mr. Johnson’s responsibilities include oversight of the investment management activities of the Sponsor.

 

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Mr. Johnson has served as Chief Investment Officer of PSA and PFA since December 2008. Mr. Johnson served from 2002 to December 2008 at World Asset Management (a financial services firm), working as President and Chief Investment Officer from January 2006 to December 2008 and as Managing Director and Chief Investment Officer of Quantitative Investments, of Munder Capital Management, an asset management firm, from January 2002 to December 2005.

Howard S. Rubin, CFA, a registered associated person and an NFA associate member of the Sponsor since July 14, 2008 and Director, Portfolio Management of the Sponsor since December 1, 2009. In these roles, Mr. Rubin’s responsibilities include day-to-day portfolio management of the Funds. Mr. Rubin has served as Senior Portfolio Manager of PSA since December 2007 and Senior Portfolio Manager of the Sponsor from November 27, 2008 through November 30, 2009. Mr. Rubin has also served as Senior Portfolio Manager of PFA since November 2004 and Portfolio Manager of PFA from April 2000 through November 2004. Mr. Rubin holds the Chartered Financial Analyst (CFA) designation.

Michael Neches, a registered associated person and an NFA associate member of the Sponsor since November 16, 2011. In this role, Mr. Neches’ responsibilities include day-to-day portfolio management of certain other series of the Trust. Mr. Neches serves as a Senior Portfolio Manager of PSA since December 2009; Associate Portfolio Manager from January 2007 through November 2009; and Portfolio Analysis from November 2004 through December 2006.

Jeffrey Ploshnick, a registered associated person and an NFA associate member of the Sponsor since April 12, 2011 and Senior Portfolio Manager of the Sponsor since April 12, 2011. In these roles, Mr. Ploshnick’s responsibilities include day-to-day portfolio management of the Funds and certain other series of the Trust. Mr. Ploshnick served as a Senior Portfolio Manager of PFA since May 2007 and Portfolio Manager from February 2001 to April 2007.

Ryan Dofflemeyer, a registered associated person, and an NFA associate Member of the Sponsor since October 26, 2010 and Portfolio Manager of the Sponsor since January 3, 2011. In these roles, Mr. Dofflemeyer’s responsibilities include day-to-day portfolio management of the VIX Funds. Mr. Dofflemeyer serves as a Portfolio Manager of PFA since August of 2007 and Portfolio Analyst since October of 2003 to August of 2007. Mr. Dofflemeyer also serves as Portfolio Manager for Horizon BetaPro Funds since May of 2008 and Portfolio Manager of PSA since March 2010. Mr. Dofflemeyer worked as a Research Assistant for the Investment Company Institute from September 2001 to August 2003.

Lisa P. Johnson, a listed principal of the Sponsor since November 11, 2008. Ms. Johnson’s responsibilities include the review and approval of advertising material of the Sponsor. Ms. Johnson has been employed with ProFunds Distributors Inc. (“PDI”) since April 2008 as Head of Compliance. Prior to her employment with PDI, Ms. Johnson was the Senior Corporate Compliance Officer for ICMA Retirement Corporation (a financial services company) where she was employed from February 2005 to April 2008. She served as Senior Compliance Officer for Delaware Investments (a financial services firm) from January 2001 to February 2005. Ms. Johnson is FINRA registered and holds Series 7, 24 and 63 licenses. She also possesses a Certified Regulatory and Compliance Professional designation, from the NASD Institute at Wharton.

Victor M. Frye, a listed principal of the Sponsor since December 2, 2008. Mr. Frye’s responsibilities include the review and approval of advertising material of the Sponsor. Mr. Frye has been employed by PFA since October 2002 as Counsel and Chief Compliance Officer.

Indemnification

The Trust Agreement provides that the Sponsor and its affiliates shall have no liability to the Trust or to any shareholder for any loss suffered by the Trust arising out of any action or inaction of the Sponsor or its affiliates or their respective directors, officers, shareholders, partners, members, managers or employees (the “Sponsor Related Parties”), if the Sponsor Related Parties, in good faith, determined that such course of conduct was in the best interests of the Funds and such course of conduct did not constitute gross negligence or willful misconduct by the Sponsor Related Parties. The Trust has agreed to indemnify the Sponsor Related Parties against claims, losses or

 

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liabilities based on their conduct relating to the Trust, provided that the conduct resulting in the claims, losses or liabilities for which indemnity is sought did not constitute gross negligence or willful misconduct and was done in good faith and in a manner reasonably believed to be in the best interests of the Funds.

Code of Ethics

The Trust has adopted a code of ethics (“Code of Ethics”) that applies to its Principal Executive Officer and Principal Financial Officer. A copy of the Code of Ethics can be obtained, without charge, upon written request to the Sponsor at the following address: ProShare Capital Management LLC, Attn: General Counsel, 7501 Wisconsin Avenue, Suite 1000, Bethesda, MD 20814.

 

Item 11. Executive Compensation.

The Funds have no employees or directors and are managed by the Sponsor. None of the officers of the Trust, nor the members or officers of the Sponsor receive compensation from the Funds.

The Sponsor receives or will receive a monthly Management Fee from each Fund, with the exception of each Matching VIX Fund, equal to 0.95% annually of the average daily net asset value per share at the end of each month. The Sponsor will receive a monthly Management Fee from each Matching VIX Fund equal to 0.85% annually of the average daily net asset value per share at the end of each month. During the first year of each Fund’s operations, the Sponsor will waive the Management Fee to the extent that such amounts cumulatively exceed the offering costs incurred by each Fund. For the year ended December 31, 2011, the following represents Management Fees earned by the Sponsor:

 

Fund

      

ProShares Ultra DJ-UBS Commodity

   $ 156,105   

ProShares UltraShort DJ-UBS Commodity

     136,814   

ProShares Ultra DJ-UBS Crude Oil

     3,243,051   

ProShares UltraShort DJ-UBS Crude Oil

     1,228,633   

ProShares Ultra DJ-UBS Natural Gas

     1,454   

ProShares UltraShort DJ-UBS Natural Gas

     5,069   

ProShares Ultra Gold

     3,118,702   

ProShares UltraShort Gold

     1,092,472   

ProShares Ultra Silver

     8,372,487   

ProShares UltraShort Silver

     3,530,293   

ProShares Ultra Euro

     79,638   

ProShares UltraShort Euro

     6,179,382   

ProShares Ultra Yen

     41,443   

ProShares UltraShort Yen

     2,824,586   

ProShares Ultra VIX Short-Term Futures ETF

     4,264   

ProShares VIX Short-Term Futures ETF

     96,904   

ProShares Short VIX Short-Term Futures ETF

     5,916   

ProShares VIX Mid-Term Futures ETF

     —     

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Not applicable.

 

Item 13. Certain Relationships and Related Transactions, and Director Independence.

See “Item 11. Executive Compensation” in this Annual Report on Form 10-K.

 

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Item 14. Principal Accounting Fees and Services.

(1) to (4). Fees for services performed by PricewaterhouseCoopers LLP (“PwC”) for the years ended December 31, 2011 and 2010 were as follows:

 

     Year Ended
December 31,
2011
     Year Ended
December 31,
2010
 

Audit Fees

     $699,000       $ 606,500   

Audit-Related Fees

     —           —     

Tax Fees

     $3,402,000       $ 2,125,250   

All Other Fees

     —           —     
  

 

 

    

 

 

 

Total

     $4,101,000       $ 2,731,750   

Audit fees for the year ended December 31, 2011 consist of fees paid to PwC for the audit of the Funds’ December 31, 2011 annual financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2011, for the review of the financial statements included in each Form 10-Q, and for the audits of financial statements included with registration statements. Audit fees for the year ended December 31, 2010 consist of fees paid to PwC for the audit of the Funds’ December 31, 2010 annual financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2010, for the review of the financial statements included in each Form 10-Q, and for the audits of financial statements included with registration statements. Tax fees include certain tax compliance and reporting services provided by PwC to the Trust, including processing beneficial ownership information as it relates to the preparation of tax reporting packages and the subsequent delivery of related information to the IRS. Services also include assistance with tax reporting and related information using a web-based tax package product developed by PwC and a toll-free tax package support help line.

(5) The Sponsor approved all of the services provided by PwC described above. The Sponsor pre-approves all audit and allowed non-audit services of the Trust’s independent registered public accounting firm, including all engagement fees and terms.

(6) None of the hours expended on PwC’s engagement to audit each Fund’s financial statements for the years ended December 31, 2011 or 2010 were attributable to work performed by persons other than the principal accountant’s full-time, permanent employees.

 

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Part IV

 

Item 15. Exhibits and Financial Statement Schedules.

Financial Statement Schedules

See the Index to Financial Statements on Page F-1 for a list of the financial statements being filed as part of this Annual Report on Form 10-K. Schedules may have been omitted since they are either not required, not applicable, or the information has otherwise been included.

 

Exhibit
No.

  

Description of Document

    4.1    Trust Agreement of ProShares Trust II (1)
    4.2    Amended and Restated Trust Agreement of ProShares Trust II (2)
    4.2.1    Amended and Restated Trust Agreement of ProShares Trust II (3)
    4.3    Form of Authorized Participant Agreement (4)
  10.1    Form of Sponsor Agreement (2)
  10.2    Form of Administration and Transfer Agency Services Agreement (4)
  10.3    Form of Custodian Agreement (5)
  10.4    Form of Distribution Agreement (4)
  10.5    Form of Futures Account Agreement (4)
  23.1    Consent of Independent Registered Public Accounting Firm (6)
  31.1    Certification by Principal Executive Officer of the Trust Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended (6)
  31.2    Certification by Principal Financial Officer of the Trust Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended (6)
  32.1    Certification by Principal Executive Officer of the Trust Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (7)
  32.2    Certification by Principal Financial Officer of the Trust Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (7)
101.INS    XBRL Instance Document (8)
101.SCH    XBRL Taxonomy Extension Schema (8)
101.CAL    XBRL Taxonomy Extension Calculation Linkbase (8)
101.DEF    XBRL Taxonomy Extension Definition Linkbase (8)
101.LAB    XBRL Taxonomy Extension Label Linkbase (8)
101.PRE    XBRL Taxonomy Extension Presentation Linkbase (8)

 

(1) Incorporated by reference to the Trust’s Registration Statement, filed on October 18, 2007.
(2) Incorporated by reference to the Trust’s Registration Statement, filed on August 15, 2008.
(3) Incorporated by reference to the Trust’s Registration Statement, filed on September 18, 2008.
(4) Incorporated by reference to the Trust’s Registration Statement, filed on November 17, 2008.
(5) Incorporated by reference to the Trust’s Registration Statement, filed on October 22, 2008.
(6) Filed herewith.
(7) Furnished herewith.
(8) In accordance with Rule 406T of Regulation S-T, the information in these exhibits is furnished and deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 and 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

 

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ProShares Trust II

Financial Statements as of December 31, 2011

Index

 

Documents

   Page  

Report of Independent Registered Public Accounting Firm

     F-3   

Statements of Financial Condition, Schedules of Investments, Statements of Operations, Statements of Changes in Shareholders’ Equity and Statements of Cash Flows:

  

ProShares Ultra DJ-UBS Commodity

     F-5   

ProShares UltraShort DJ-UBS Commodity

     F-11   

ProShares Ultra DJ-UBS Crude Oil

     F-17   

ProShares UltraShort DJ-UBS Crude Oil

     F-23   

ProShares Ultra DJ-UBS Natural Gas

     F-29   

ProShares Short DJ-UBS Natural Gas

     F-34   

ProShares UltraShort DJ-UBS Natural Gas

     F-35   

ProShares Ultra Gold

     F-40   

ProShares Short Gold

     F-46   

ProShares UltraShort Gold

     F-47   

ProShares Ultra Silver

     F-53   

ProShares UltraShort Silver

     F-59   

ProShares UltraPro Australian Dollar

     F-65   

ProShares Ultra Australian Dollar

     F-66   

ProShares Short Australian Dollar

     F-67   

ProShares UltraShort Australian Dollar

     F-68   

ProShares UltraPro Short Australian Dollar

     F-69   

ProShares UltraPro Canadian Dollar

     F-70   

ProShares Ultra Canadian Dollar

     F-71   

ProShares Short Canadian Dollar

     F-72   

ProShares UltraShort Canadian Dollar

     F-73   

ProShares UltraPro Short Canadian Dollar

     F-74   

ProShares UltraPro Euro

     F-75   

ProShares Ultra Euro

     F-76   

ProShares Short Euro

     F-82   

ProShares UltraShort Euro

     F-83   

ProShares UltraPro Short Euro

     F-89   

ProShares UltraPro Swiss Franc

     F-90   

ProShares Ultra Swiss Franc

     F-91   

ProShares Short Swiss Franc

     F-92   

ProShares UltraShort Swiss Franc

     F-93   

ProShares UltraPro Short Swiss Franc

     F-94   

ProShares UltraPro U.S. Dollar

     F-95   

ProShares Ultra U.S. Dollar

     F-96   

ProShares Short U.S. Dollar

     F-97   

ProShares UltraShort U.S. Dollar

     F-98   

ProShares UltraPro Short U.S. Dollar

     F-99   

ProShares UltraPro Yen

     F-100   

ProShares Ultra Yen

     F-101   

ProShares Short Yen

     F-107   

ProShares UltraShort Yen

     F-108   

ProShares UltraPro Short Yen

     F-114   

ProShares Ultra VIX Short-Term Futures ETF

     F-115   

ProShares VIX Short-Term Futures ETF

     F-120   

ProShares Short VIX Short-Term Futures ETF

     F-125   

ProShares UltraShort VIX Short-Term Futures ETF

     F-130   

ProShares Ultra VIX Mid-Term Futures ETF

     F-131   

 

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Table of Contents

 

ProShares VIX Mid-Term Futures ETF

     F-132   

ProShares Short VIX Mid-Term Futures ETF

     F-137   

ProShares UltraShort VIX Mid-Term Futures ETF

     F-138   

ProShares Managed Futures Strategy

     F-139   

ProShares Commodity Managed Futures Strategy

     F-140   

ProShares Financial Managed Futures Strategy

     F-141   

ProShares Trust II

     F-142   

Notes to Financial Statements

     F-146   

 

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Report of Independent Registered Public Accounting Firm

To the Shareholders of ProShares Trust II:

In our opinion, the accompanying combined and individual statements of financial condition and the related combined and, with respect to the individual funds designated with (a), (d), and (e) in the listing below, individual statements of operations, of changes in shareholders’ equity and of cash flows, present fairly, in all material respects, the combined financial position of the ProShares Trust II as of December 31, 2011 and 2010, and the individual financial positions of each of the following fifty-three funds comprising the ProShares Trust II:

 

ProShares Ultra DJ-UBS Commodity (a)   ProShares Ultra Canadian Dollar (b)   ProShares UltraPro Short U.S. Dollar (b)
ProShares UltraShort DJ-UBS Commodity (a)   ProShares Short Canadian Dollar (b)   ProShares UltraPro Yen (b)
ProShares Ultra DJ-UBS Crude Oil (a)   ProShares UltraShort Canadian Dollar (b)   ProShares Ultra Yen (a)
ProShares UltraShort DJ-UBS Crude Oil (a)   ProShares UltraPro Short Canadian Dollar (b)   ProShares Short Yen (b)
ProShares Ultra DJ-UBS Natural Gas (e)   ProShares UltraPro Euro (b)   ProShares UltraShort Yen (a)
ProShares Short DJ-UBS Natural Gas (c)   ProShares Ultra Euro (a)   ProShares UltraPro Short Yen (b)
ProShares UltraShort DJ-UBS Natural Gas (e)   ProShares Short Euro (b)   ProShares Ultra VIX Short-Term Futures ETF (e)
ProShares Ultra Gold (a)   ProShares UltraShort Euro (a)   ProShares VIX Short-Term Futures ETF (d)
ProShares Short Gold (c)   ProShares UltraPro Short Euro (b)   ProShares Short VIX Short-Term Futures ETF (e)
ProShares UltraShort Gold (a)   ProShares UltraPro Swiss Franc (b)   ProShares UltraShort VIX Short-Term Futures ETF (b)
ProShares Ultra Silver (a)   ProShares Ultra Swiss Franc (b)   ProShares Ultra VIX Mid-Term Futures ETF (b)
ProShares UltraShort Silver (a)   ProShares Short Swiss Franc (b)   ProShares VIX Mid-Term Futures ETF (d)
ProShares UltraPro Australian Dollar (b)   ProShares UltraShort Swiss Franc (b)   ProShares Short VIX Mid-Term Futures ETF (b)
ProShares Ultra Australian Dollar (b)   ProShares UltraPro Short Swiss Franc (b)   ProShares UltraShort VIX Mid-Term Futures ETF (b)
ProShares Short Australian Dollar (b)   ProShares UltraPro U.S. Dollar (b)   ProShares Managed Futures Strategy (b)
ProShares UltraShort Australian Dollar (b)   ProShares Ultra U.S. Dollar (b)   ProShares Commodity Managed Futures Strategy (b)
ProShares UltraPro Short Australian Dollar (b)   ProShares Short U.S. Dollar (b)   ProShares Financial Managed Futures Strategy (b)
ProShares UltraPro Canadian Dollar (b)   ProShares UltraShort U.S. Dollar (b)  

 

    ProShares Trust II (“combined”) (a)

 

(a) A Statement of Financial Condition is presented as of December 31, 2011 and 2010, and the results of operations and cash flows are presented for each of the three years in the period ended December 31, 2011.
(b) Fund has not commenced operations and only a Statement of Financial Condition is presented as of December 31, 2011.
(c) Fund has not commenced operations and only a Statement of Financial Condition is presented as of December 31, 2011 and 2010.
(d) A Statement of Financial Condition is presented as of December 31, 2011 and 2010, and the results of operations and cash flows are presented for the year ended December 31, 2011.
(e) A Statement of Financial Condition is presented as of December 31, 2011, and the results of operations and cash flows are presented for the period from April 5, 2011 through December 31, 2011.

(collectively, the “Trust”) as of December 31, 2011 and with respect to the individual funds designated with (a), (c), and (d) as of December 31, 2010, and the combined and, with respect to the individual funds designated with (a), (d), and (e), individual results of their operations, and their combined and, with respect to the individual funds designated with (a), (d), and (e), individual cash flows for the respective periods in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the combined Trust and each of the individual funds maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Trust’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the combined Trust and each of the individual fund financial statements and on the combined Trust’s and each of the individual fund’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the

 

F-3


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financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A trust’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A trust’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the trust; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the trust are being made only in accordance with authorizations of management and directors of the trust; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the trust’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Columbus, Ohio

February 29, 2012

 

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PROSHARES ULTRA DJ-UBS COMMODITY

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2011      December 31, 2010  

Assets

     

Cash

   $ 59,453       $ 17,743   

Short-term U.S. government and agency obligations (Note 3) (cost $9,713,956 and $16,426,195, respectively)

     9,713,685         16,426,651   

Unrealized appreciation on swap agreements

     —           1,755,750   
  

 

 

    

 

 

 

Total assets

     9,773,138         18,200,144   
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Management fee payable

     7,432         13,486   

Unrealized depreciation on swap agreements

     707,177         —     
  

 

 

    

 

 

 

Total liabilities

     714,609         13,486   
  

 

 

    

 

 

 

Shareholders’ equity

     

Shareholders’ equity

     9,058,529         18,186,658   
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 9,773,138       $ 18,200,144   
  

 

 

    

 

 

 

Shares outstanding

     350,014         500,014   
  

 

 

    

 

 

 

Net asset value per share

   $ 25.88       $ 36.37   
  

 

 

    

 

 

 

Market value per share (Note 2)

   $ 25.64       $ 36.27   
  

 

 

    

 

 

 

See accompanying notes to financial statements.

 

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PROSHARES ULTRA DJ-UBS COMMODITY

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2011

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(107% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.020% due 01/12/12†

   $ 772,000       $ 771,999   

0.005% due 02/02/12†

     1,475,000         1,474,995   

0.002% due 02/09/12†

     1,937,000         1,936,982   

0.000% due 03/08/12†

     2,115,000         2,114,928   

0.003% due 04/05/12

     3,285,000         3,284,797   

0.011% due 05/10/12

     130,000         129,984   
     

 

 

 

Total short-term U.S. government and agency obligations (cost $9,713,956)

      $ 9,713,685   
     

 

 

 

 

 

 

Swap Agreements^

 

     Termination Date    Notional Amount
at Value*
     Unrealized
Appreciation
(Depreciation)
 

Swap agreement with Goldman Sachs International based on Dow Jones-UBS Commodity Index

   01/06/12    $ 5,196,523       $ (191,581

Swap agreement with UBS AG based on Dow Jones-UBS Commodity Index

   01/06/12      12,943,342         (515,596
        

 

 

 
         $ (707,177
        

 

 

 

 

All or partial amount segregated as collateral for swap agreements.
^ The positions and counterparties herein are as of December 31, 2011. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.
* For swap agreements, a positive amount represents “long” exposure to the benchmark Index. A negative amount represents “short” exposure to the benchmark Index.

See accompanying notes to financial statements.

 

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PROSHARES ULTRA DJ-UBS COMMODITY

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2010

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(90% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.108% due 01/06/11†

   $ 814,000       $ 813,999   

0.104% due 01/13/11†

     2,459,000         2,458,982   

0.120% due 01/20/11†

     3,740,000         3,739,933   

0.115% due 02/03/11

     3,052,000         3,051,784   

0.121% due 02/10/11

     1,047,000         1,046,903   

0.110% due 02/17/11†

     1,512,000         1,511,796   

0.108% due 02/24/11

     2,702,000         2,701,576   

0.130% due 03/31/11

     1,102,000         1,101,678   
     

 

 

 

Total short-term U.S. government and agency obligations (cost $16,426,195)

      $ 16,426,651   
     

 

 

 

 

 

 

Swap Agreements^

 

     Termination Date    Notional Amount
at Value*
     Unrealized
Appreciation
(Depreciation)
 

Swap agreement with Goldman Sachs International based on Dow Jones-UBS Commodity Index

   01/06/11    $ 8,446,418       $ 419,284   

Swap agreement with UBS AG based on Dow Jones-UBS Commodity Index

   01/06/11      27,949,246         1,336,466   
        

 

 

 
         $ 1,755,750   
        

 

 

 

 

All or partial amount segregated as collateral for swap agreements.
^ The positions and counterparties herein are as of December 31, 2010. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.
* For swap agreements, a positive amount represents “long” exposure to the benchmark Index. A negative amount represents “short” exposure to the benchmark Index.

See accompanying notes to financial statements.

 

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PROSHARES ULTRA DJ-UBS COMMODITY

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

 

     Year ended
December 31, 2011
    Year ended
December 31, 2010
    Year ended
December 31, 2009
 

Investment Income

      

Interest

   $ 10,504      $ 21,655      $ 4,918   
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     156,105        123,162        95,273   

Offering costs

     —          —          69,640   
  

 

 

   

 

 

   

 

 

 

Total expenses

     156,105        123,162        164,913   
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (145,601     (101,507     (159,995
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Swap agreements

     (2,051,498     2,383,511        4,280,412   

Short-term U.S. government and agency obligations

     197        1,105        —     
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     (2,051,301     2,384,616        4,280,412   
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Swap agreements

     (2,462,927     577,782        993,385   

Short-term U.S. government and agency obligations

     (727     1,624        (1,168
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     (2,463,654     579,406        992,217   
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     (4,514,955     2,964,022        5,272,629   
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (4,660,556   $ 2,862,515      $ 5,112,634   
  

 

 

   

 

 

   

 

 

 

Net income (loss) per weighted-average share

   $ (9.75   $ 5.83      $ 6.84   
  

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding

     478,096        491,384        747,000   
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

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PROSHARES ULTRA DJ-UBS COMMODITY

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

 

     Year ended
December 31, 2011
    Year ended
December 31, 2010
    Year ended
December 31, 2009
 

Shareholders’ equity, beginning of period

   $ 18,186,658      $ 19,743,932      $ 3,325,011   

Addition of shares (50,000, 400,000 and 1,200,000, respectively)

     1,782,755        10,478,092        25,899,594   

Redemption of shares (200,000, 600,000 and 650,000, respectively)

     (6,250,328     (14,897,881     (14,593,307
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of shares ((150,000), (200,000) and 550,000, respectively)

     (4,467,573     (4,419,789     11,306,287   
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (145,601     (101,507     (159,995

Net realized gain (loss)

     (2,051,301     2,384,616        4,280,412   

Change in net unrealized appreciation/depreciation

     (2,463,654     579,406        992,217   
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     (4,660,556     2,862,515        5,112,634   
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 9,058,529      $ 18,186,658      $ 19,743,932   
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

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PROSHARES ULTRA DJ-UBS COMMODITY

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

 

     Year ended
December 31, 2011
    Year ended
December 31, 2010
    Year ended
December 31, 2009
 

Cash flow from operating activities

      

Net income (loss)

   $ (4,660,556   $ 2,862,515      $ 5,112,634   

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

      

Decrease (Increase) in segregated cash balances for swap agreements

     —          —          1,335,000   

Net sale (purchase) of short-term U.S. government and agency obligations

     6,712,239        2,078,025        (18,504,220

Change in unrealized appreciation/depreciation on investments

     2,463,654        (579,406     (992,217

Decrease (Increase) in receivable from Sponsor

     —          —          33,411   

Change in offering costs

     —          —          69,640   

Increase (Decrease) in management fee payable

     (6,054     (1,714     15,200   

Increase (Decrease) in accounts payable

     —          —          (42,977
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     4,509,283        4,359,420        (12,973,529
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     1,782,755        10,478,092        25,899,594   

Payment on shares redeemed

     (6,250,328     (14,897,881     (14,593,307
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (4,467,573     (4,419,789     11,306,287   
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     41,710        (60,369     (1,667,242

Cash, beginning of period

     17,743        78,112        1,745,354   
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 59,453      $ 17,743      $ 78,112   
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

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PROSHARES ULTRASHORT DJ-UBS COMMODITY

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2011      December 31, 2010  

Assets

     

Cash

   $ 9,060       $ 10,654   

Short-term U.S. government and agency obligations (Note 3) (cost $8,534,904 and $1,594,783, respectively)

     8,534,690         1,594,842   

Unrealized appreciation on swap agreements

     570,751         —     
  

 

 

    

 

 

 

Total assets

     9,114,501         1,605,496   
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Management fee payable

     7,355         1,273   

Unrealized depreciation on swap agreements

     —           164,150   
  

 

 

    

 

 

 

Total liabilities

     7,355         165,423   
  

 

 

    

 

 

 

Shareholders’ equity

     

Shareholders’ equity

     9,107,146         1,440,073   
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 9,114,501       $ 1,605,496   
  

 

 

    

 

 

 

Shares outstanding

     159,997         30,003   
  

 

 

    

 

 

 

Net asset value per share (Note 1)

   $ 56.92       $ 48.00   
  

 

 

    

 

 

 

Market value per share (Note 1) (Note 2)

   $ 56.19       $ 48.30   
  

 

 

    

 

 

 

See accompanying notes to financial statements.

 

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PROSHARES ULTRASHORT DJ-UBS COMMODITY

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2011

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(94% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.021% due 01/12/12

   $ 413,000       $ 412,999   

0.016% due 01/19/12

     140,000         140,000   

0.005% due 02/02/12

     612,000         611,998   

0.002% due 02/09/12†

     4,803,000         4,802,956   

0.002% due 04/05/12

     791,000         790,951   

0.011% due 05/10/12†

     1,776,000         1,775,786   
     

 

 

 

Total short-term U.S. government and agency obligations (cost $8,534,904)

      $ 8,534,690   
     

 

 

 

 

 

 

Swap Agreements^

 

     Termination Date    Notional Amount
at Value*
    Unrealized
Appreciation
(Depreciation)
 

Swap agreement with Goldman Sachs International based on Dow Jones-UBS Commodity Index

   01/06/12    $ (4,515,910   $ 164,949   

Swap agreement with UBS AG based on Dow Jones-UBS Commodity Index

   01/06/12      (13,710,640     405,802   
       

 

 

 
        $ 570,751   
       

 

 

 

 

All or partial amount segregated as collateral for swap agreements.
^ The positions and counterparties herein are as of December 31, 2011. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.
* For swap agreements, a positive amount represents “long” exposure to the benchmark Index. A negative amount represents “short” exposure to the benchmark Index.

See accompanying notes to financial statements.

 

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PROSHARES ULTRASHORT DJ-UBS COMMODITY

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2010

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(111% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.095% due 01/06/11

   $ 8,000       $ 8,000   

0.102% due 01/13/11†

     279,000         278,998   

0.130% due 01/27/11†

     615,000         614,980   

0.121% due 02/10/11

     149,000         148,986   

0.105% due 02/24/11

     272,000         271,957   

0.130% due 03/31/11

     272,000         271,921   
     

 

 

 

Total short-term U.S. government and agency obligations (cost $1,594,783)

      $ 1,594,842   
     

 

 

 

 

 

 

Swap Agreements^

 

     Termination Date    Notional Amount
at Value*
    Unrealized
Appreciation
(Depreciation)
 

Swap agreement with Goldman Sachs International based on Dow Jones-UBS Commodity Index

   01/06/11    $ (897,578   $ (46,907

Swap agreement with UBS AG based on Dow Jones-UBS Commodity Index

   01/06/11      (1,978,699     (117,243
       

 

 

 
        $ (164,150
       

 

 

 

 

All or partial amount segregated as collateral for swap agreements.
^ The positions and counterparties herein are as of December 31, 2010. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.
* For swap agreements, a positive amount represents “long” exposure to the benchmark Index. A negative amount represents “short” exposure to the benchmark Index.

See accompanying notes to financial statements.

 

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Table of Contents

PROSHARES ULTRASHORT DJ-UBS COMMODITY

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

 

     Year ended
December 31, 2011
    Year ended
December 31, 2010
    Year ended
December 31, 2009
 

Investment Income

      

Interest

   $ 3,661      $ 3,775      $ 822   
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     136,814        28,279        3,100   

Offering costs

     —          —          278,414   

Limitation by Sponsor

     —          —          (246,002
  

 

 

   

 

 

   

 

 

 

Total expenses

     136,814        28,279        35,512   
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (133,153     (24,504     (34,690
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Swap agreements

     (3,511,808     (691,056     (2,479,160

Short-term U.S. government and agency obligations

     1,755        29        —     
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     (3,510,053     (691,027     (2,479,160
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Swap agreements

     734,901        52,455        209,596   

Short-term U.S. government and agency obligations

     (273     205        (146
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     734,628        52,660        209,450   
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     (2,775,425     (638,367     (2,269,710
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (2,908,578   $ (662,871   $ (2,304,400
  

 

 

   

 

 

   

 

 

 

Net income (loss) per weighted-average share (Note 1)

   $ (9.57   $ (16.89   $ (62.35
  

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding (Note 1)

     303,998        39,236        36,962   
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

F-14


Table of Contents

PROSHARES ULTRASHORT DJ-UBS COMMODITY

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

 

     Year ended
December 31, 2011
    Year ended
December 31, 2010
    Year ended
December 31, 2009
 

Shareholders’ equity, beginning of period

   $ 1,440,073      $ 2,924,426      $ 2,679,883   

Addition of shares (1,780,000, 50,000 and 40,000, respectively) (Note 1)

     84,549,839        3,976,994        4,145,511   

Redemption of shares (1,650,006, 60,000 and 20,000, respectively) (Note 1)

     (73,974,188     (4,798,476     (1,596,568
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of shares (129,994, (10,000) and 20,000, respectively) (Note 1)

     10,575,651        (821,482     2,548,943   
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (133,153     (24,504     (34,690

Net realized gain (loss)

     (3,510,053     (691,027     (2,479,160

Change in net unrealized appreciation/depreciation

     734,628        52,660        209,450   
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     (2,908,578     (662,871     (2,304,400
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 9,107,146      $ 1,440,073      $ 2,924,426   
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

F-15


Table of Contents

PROSHARES ULTRASHORT DJ-UBS COMMODITY

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

 

     Year ended
December 31, 2011
    Year ended
December 31, 2010
    Year ended
December 31, 2009
 

Cash flow from operating activities

      

Net income (loss)

   $ (2,908,578   $ (662,871   $ (2,304,400

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

      

Decrease (Increase) in segregated cash balances for swap agreements

     —          485,000        915,000   

Net sale (purchase) of short-term U.S. government and agency obligations

     (6,940,121     973,504        (2,568,287

Change in unrealized appreciation/depreciation on investments

     (734,628     (52,660     (209,450

Decrease (Increase) in receivable from Sponsor

     —          —          56,576   

Change in offering costs

     —          —          278,414   

Increase (Decrease) in management fee payable

     6,082        (1,220     2,493   

Increase (Decrease) in accounts payable

     —          —          (208,046
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (10,577,245     741,753        (4,037,700
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     84,549,839        3,976,994        4,145,511   

Payment on shares redeemed

     (73,974,188     (4,798,476     (1,596,568
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     10,575,651        (821,482     2,548,943   
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     (1,594     (79,729     (1,488,757

Cash, beginning of period

     10,654        90,383        1,579,140   
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 9,060      $ 10,654      $ 90,383   
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

F-16


Table of Contents

PROSHARES ULTRA DJ-UBS CRUDE OIL

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2011      December 31, 2010  

Assets

     

Cash

   $ 495,671       $ 905,158   

Segregated cash balances with brokers for futures contracts

     14,202,793         10,631,250   

Short-term U.S. government and agency obligations (Note 3) (cost $246,926,093 and $244,384,335, respectively)

     246,919,569         244,394,920   

Unrealized appreciation on swap agreements

     —           5,649,644   

Receivable on open futures contracts

     —           3,035,150   
  

 

 

    

 

 

 

Total assets

     261,618,033         264,616,122   
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Payable for capital shares redeemed

     —           36,266,723   

Management fee payable

     215,315         216,322   

Unrealized depreciation on swap agreements

     10,007,396         —     
  

 

 

    

 

 

 

Total liabilities

     10,222,711         36,483,045   
  

 

 

    

 

 

 

Shareholders’ equity

     

Shareholders’ equity

     251,395,322         228,133,077   
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 261,618,033       $ 264,616,122   
  

 

 

    

 

 

 

Shares outstanding

     6,149,170         4,562,504   
  

 

 

    

 

 

 

Net asset value per share (Note 1)

   $ 40.88       $ 50.00   
  

 

 

    

 

 

 

Market value per share (Note 1) (Note 2)

   $ 40.94       $ 49.98   
  

 

 

    

 

 

 

See accompanying notes to financial statements.

 

F-17


Table of Contents

PROSHARES ULTRA DJ-UBS CRUDE OIL

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2011

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(98% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.000% due 02/09/12

   $ 10,138,000       $ 10,137,907   

0.003% due 02/16/12

     182,000         181,998   

0.000% due 03/01/12

     25,000,000         24,999,435   

0.001% due 03/08/12†

     65,520,000         65,517,779   

0.002% due 03/15/12†

     28,283,000         28,281,931   

0.004% due 03/22/12†

     50,862,000         50,859,879   

0.003% due 04/05/12

     33,042,000         33,039,954   

0.010% due 04/12/12†

     31,300,000         31,300,000   

0.011% due 05/10/12†

     2,601,000         2,600,686   
     

 

 

 

Total short-term U.S. government and agency obligations (cost $246,926,093)

      $ 246,919,569   
     

 

 

 

 

 

 

Futures Contracts Purchased††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Crude Oil - NYMEX, expires March 2012

     2,226       $ 220,374,000       $ (1,365,330

Swap Agreements^

 

     Termination Date    Notional Amount
at Value*
     Unrealized
Appreciation
(Depreciation)
 

Swap agreement with Goldman Sachs International based on Dow Jones-UBS Crude Oil Sub-Index

   01/06/12    $ 87,399,278       $ (3,467,478

Swap agreement with Societe Generale S.A. based on Dow Jones-UBS Crude Oil Sub-Index

   01/06/12      52,229,440         (1,831,552

Swap agreement with UBS AG based on Dow Jones-UBS Crude Oil Sub-Index

   01/06/12      142,861,248         (4,708,366
        

 

 

 
         $ (10,007,396
        

 

 

 

 

All or partial amount segregated as collateral for swap agreements.
†† Cash collateral in the amount of $14,202,793 was pledged to cover margin requirements for open futures contracts as of December 31, 2011.
^ The positions and counterparties herein are as of December 31, 2011. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.
* For swap agreements, a positive amount represents “long” exposure to the benchmark Index. A negative amount represents “short” exposure to the benchmark Index.

See accompanying notes to financial statements.

 

F-18


Table of Contents

PROSHARES ULTRA DJ-UBS CRUDE OIL

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2010

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(107% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.110% due 01/06/11

   $ 11,831,000       $ 11,830,991   

0.122% due 01/13/11

     29,760,000         29,759,780   

0.135% due 01/20/11†

     70,539,000         70,537,730   

0.135% due 01/27/11†

     67,148,000         67,145,811   

0.110% due 02/03/11

     1,938,000         1,937,863   

0.121% due 02/10/11†

     22,408,000         22,405,918   

0.110% due 02/17/11

     16,918,000         16,915,721   

0.110% due 02/24/11

     22,775,000         22,771,424   

0.130% due 03/31/11

     1,090,000         1,089,682   
     

 

 

 

Total short-term U.S. government and agency obligations (cost $244,384,335)

      $ 244,394,920   
     

 

 

 

 

 

 

Futures Contracts Purchased††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Crude Oil - NYMEX, expires March 2011

     2,100       $ 193,662,000       $ 5,412,760   

Swap Agreements^

 

     Termination Date    Notional Amount
at Value*
     Unrealized
Appreciation
(Depreciation)
 

Swap agreement with Goldman Sachs International based on Dow Jones-UBS Crude Oil Sub-Index

   01/06/11    $ 128,304,283       $ 2,527,855   

Swap agreement with UBS AG based on Dow Jones-UBS Crude Oil Sub-Index

   01/06/11      134,272,508         3,121,789   
        

 

 

 
         $ 5,649,644   
        

 

 

 

 

All or partial amount segregated as collateral for swap agreements.
†† Cash collateral in the amount of $10,631,250 was pledged to cover margin requirements for open futures contracts as of December 31, 2010.
^ The positions and counterparties herein are as of December 31, 2010. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.
* For swap agreements, a positive amount represents “long” exposure to the benchmark Index. A negative amount represents “short” exposure to the benchmark Index.

See accompanying notes to financial statements.

 

F-19


Table of Contents

PROSHARES ULTRA DJ-UBS CRUDE OIL

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 and 2009

 

     Year ended
December 31, 2011
    Year ended
December 31, 2010
    Year ended
December 31, 2009
 

Investment Income

      

Interest

   $ 159,287      $ 452,166      $ 110,254   
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     3,243,051        3,172,821        2,460,980   

Brokerage commissions

     102,605        146,782        255,521   

Offering costs

     —          —          139,226   
  

 

 

   

 

 

   

 

 

 

Total expenses

     3,345,656        3,319,603        2,855,727   
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (3,186,369     (2,867,437     (2,745,473
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Futures contracts

     36,556,166        60,942,921        42,952,627   

Swap agreements

     73,825,809        90,323,497        57,831,434   

Short-term U.S. government and agency obligations

     14,119        58,758        —     
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     110,396,094        151,325,176        100,784,061   
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Futures contracts

     (6,778,090     (11,465,040     4,199,400   

Swap agreements

     (15,657,040     (15,479,432     21,129,076   

Short-term U.S. government and agency obligations

     (17,109     28,842        (18,257
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     (22,452,239     (26,915,630     25,310,219   
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     87,943,855        124,409,546        126,094,280   
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 84,757,486      $ 121,542,109      $ 123,348,807   
  

 

 

   

 

 

   

 

 

 

Net income (loss) per weighted-average share (Note 1)

   $ 10.13      $ 15.18      $ 18.40   
  

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding (Note 1)

     8,370,067        8,007,606        6,703,668   
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

F-20


Table of Contents

PROSHARES ULTRA DJ-UBS CRUDE OIL

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 and 2009

 

     Year ended
December 31, 2011
    Year ended
December 31, 2010
    Year ended
December 31, 2009
 

Shareholders’ equity, beginning of period

   $ 228,133,077      $ 323,819,670      $ 99,772,943   

Addition of shares (29,625,000, 29,262,500 and 31,787,500, respectively) (Note 1)

     1,173,453,517        1,162,325,334        1,254,758,064   

Redemption of shares (28,038,334, 31,112,500 and 27,062,500, respectively) (Note 1)

     (1,234,948,758     (1,379,554,036     (1,154,060,144
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of shares (1,586,666, (1,850,000) and 4,725,000, respectively) (Note 1)

     (61,495,241     (217,228,702     100,697,920   
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (3,186,369     (2,867,437     (2,745,473

Net realized gain (loss)

     110,396,094        151,325,176        100,784,061   

Change in net unrealized appreciation/depreciation

     (22,452,239     (26,915,630     25,310,219   
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     84,757,486        121,542,109        123,348,807   
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 251,395,322      $ 228,133,077      $ 323,819,670   
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

F-21


Table of Contents

PROSHARES ULTRA DJ-UBS CRUDE OIL

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

 

     Year ended
December 31, 2011
    Year ended
December 31, 2010
    Year ended
December 31, 2009
 

Cash flow from operating activities

      

Net income (loss)

   $ 84,757,486      $ 121,542,109      $ 123,348,807   

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

      

Decrease (Increase) in segregated cash balances with brokers for futures contracts

     (3,571,543     2,943,675        23,850,113   

Net sale (purchase) of short-term U.S. government and agency obligations

     (2,541,758     78,659,989        (323,044,324

Change in unrealized appreciation/depreciation on investments

     15,674,149        15,450,590        (21,110,819

Decrease (Increase) in receivable on futures contracts

     3,035,150        (1,568,706     19,061,294   

Decrease (Increase) in receivable from Sponsor

     —          —          16,192   

Change in offering costs

     —          —          139,226   

Increase (Decrease) in management fee payable

     (1,007     (45,882     262,204   

Increase (Decrease) in accounts payable

     —          —          (97,742
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     97,352,477        216,981,775        (177,575,049
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     1,173,453,517        1,162,325,334        1,263,568,408   

Payment on shares redeemed

     (1,271,215,481     (1,378,482,887     (1,126,253,543
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (97,761,964     (216,157,553     137,314,865   
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     (409,487     824,222        (40,260,184

Cash, beginning of period

     905,158        80,936        40,341,120   
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 495,671      $ 905,158      $ 80,936   
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

F-22


Table of Contents

PROSHARES ULTRASHORT DJ-UBS CRUDE OIL

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2011      December 31, 2010  

Assets

     

Cash

   $ 265,258       $ 4,007,347   

Segregated cash balances with brokers for futures contracts

     9,078,683         4,252,500   

Short-term U.S. government and agency obligations (Note 3) (cost $131,936,844 and $135,631,915, respectively)

     131,934,193         135,637,192   

Unrealized appreciation on swap agreements

     2,645,240         —     

Receivable on open futures contracts

     576,597         —     
  

 

 

    

 

 

 

Total assets

     144,499,971         143,897,039   
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Payable for capital shares redeemed

     —           6,313,753   

Payable on open futures contracts

     —           1,140,144   

Management fee payable

     110,078         117,277   

Unrealized depreciation on swap agreements

     —           4,111,608   
  

 

 

    

 

 

 

Total liabilities

     110,078         11,682,782   
  

 

 

    

 

 

 

Shareholders’ equity

     

Shareholders’ equity

     144,389,893         132,214,257   
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 144,499,971       $ 143,897,039   
  

 

 

    

 

 

 

Shares outstanding

     3,719,944         2,600,003   
  

 

 

    

 

 

 

Net asset value per share (Note 1)

   $ 38.82       $ 50.85   
  

 

 

    

 

 

 

Market value per share (Note 1) (Note 2)

   $ 38.69       $ 50.85   
  

 

 

    

 

 

 

 

See accompanying notes to financial statements.

 

F-23


Table of Contents

PROSHARES ULTRASHORT DJ-UBS CRUDE OIL

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2011

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(91% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.021% due 01/12/12

   $ 9,408,000       $ 9,407,992   

0.016% due 01/19/12

     5,172,000         5,171,991   

0.016% due 01/26/12

     6,095,000         6,094,983   

0.005% due 02/02/12†

     23,199,000         23,198,914   

0.000% due 02/09/12†

     15,591,000         15,590,857   

0.006% due 02/16/12†

     11,374,000         11,373,874   

0.016% due 02/23/12†

     8,425,000         8,424,890   

(0.005)% due 03/15/12

     1,440,000         1,439,946   

0.002% due 03/22/12

     21,204,000         21,203,116   

0.003% due 04/05/12

     21,320,000         21,318,680   

0.011% due 05/10/12†

     8,710,000         8,708,950   
     

 

 

 

Total short-term U.S. government and agency obligations (cost $131,936,844)

      $ 131,934,193   
     

 

 

 

 

 

 

Futures Contracts Sold††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Crude Oil - NYMEX, expires March 2012

     1,257       $ 124,443,000       $ 247,040   

Swap Agreements^

 

     Termination Date    Notional Amount
at Value*
    Unrealized
Appreciation
(Depreciation)
 

Swap agreement with Goldman Sachs International based on Dow Jones-UBS Crude Oil Sub-Index

   01/06/12    $ (52,221,393   $ (253,277

Swap agreement with Societe Generale S.A. based on Dow Jones- UBS Crude Oil Sub-Index

   01/06/12      (90,137,702     2,596,598   

Swap agreement with UBS AG based on Dow Jones-UBS Crude Oil Sub-Index

   01/06/12      (22,019,770     301,919   
       

 

 

 
        $ 2,645,240   
       

 

 

 

 

All or partial amount segregated as collateral for swap agreements.
†† Cash collateral in the amount of $9,078,683 was pledged to cover margin requirements for open futures contracts as of December 31, 2011.
^ The positions and counterparties herein are as of December 31, 2011. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.
* For swap agreements, a positive amount represents “long” exposure to the benchmark Index. A negative amount represents “short” exposure to the benchmark Index.

 

See accompanying notes to financial statements.

 

F-24


Table of Contents

PROSHARES ULTRASHORT DJ-UBS CRUDE OIL

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2010

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(103% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.106% due 01/06/11†

   $ 3,629,000       $ 3,628,997   

0.120% due 01/13/11†

     9,907,000         9,906,927   

0.135% due 01/20/11†

     24,123,000         24,122,566   

0.107% due 01/27/11†

     6,935,000         6,934,774   

0.121% due 02/03/11

     52,646,000         52,642,283   

0.120% due 02/10/11†

     26,266,000         26,263,560   

0.110% due 02/17/11

     9,026,000         9,024,784   

0.105% due 02/24/11

     1,557,000         1,556,756   

0.130% due 03/31/11

     1,557,000         1,556,545   
     

 

 

 

Total short-term U.S. government and agency obligations (cost $135,631,915)

      $ 135,637,192   
     

 

 

 

 

 

 

Futures Contracts Sold††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Crude Oil - NYMEX, expires March 2011

     840       $ 77,464,800       $ (2,384,420

Swap Agreements^

 

     Termination Date    Notional Amount
at Value*
    Unrealized
Appreciation
(Depreciation)
 

Swap agreement with Goldman Sachs International based on Dow Jones-UBS Crude Oil Sub-Index

   01/06/11    $ (75,087,435   $ (1,581,960

Swap agreement with UBS AG based on Dow Jones-UBS Crude Oil Sub-Index

   01/06/11      (111,898,000     (2,529,648
       

 

 

 
        $ (4,111,608
       

 

 

 

 

All or partial amount segregated as collateral for swap agreements.
†† Cash collateral in the amount of $4,252,500 was pledged to cover margin requirements for open futures contracts as of December 31, 2010.
^ The positions and counterparties herein are as of December 31, 2010. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.
* For swap agreements, a positive amount represents “long” exposure to the benchmark Index. A negative amount represents “short” exposure to the benchmark Index.

 

See accompanying notes to financial statements.

 

F-25


Table of Contents

PROSHARES ULTRASHORT DJ-UBS CRUDE OIL

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

 

     Year ended
December 31, 2011
    Year ended
December 31, 2010
    Year ended
December 31, 2009
 

Investment Income

      

Interest

   $ 70,449      $ 115,372      $ 24,406   
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     1,228,633        842,206        442,423   

Brokerage commissions

     53,551        57,316        88,885   

Offering costs

     —          —          278,414   
  

 

 

   

 

 

   

 

 

 

Total expenses

     1,282,184        899,522        809,722   
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (1,211,735     (784,150     (785,316
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Futures contracts

     11,024,364        2,313,487        (2,665,630

Swap agreements

     15,696,502        12,707,736        (13,102,965

Short-term U.S. government and agency obligations

     11,832        9,796        —     
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     26,732,698        15,031,019        (15,768,595
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Futures contracts

     2,631,460        679,480        486,690   

Swap agreements

     6,756,848        (3,129,119     (982,489

Short-term U.S. government and agency obligations

     (7,928     8,928        (3,651
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     9,380,380        (2,440,711     (499,450
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     36,113,078        12,590,308        (16,268,045
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 34,901,343      $ 11,806,158      $ (17,053,361
  

 

 

   

 

 

   

 

 

 

Net income (loss) per weighted-average share (Note 1)

   $ 12.25      $ 8.49      $ (19.53
  

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding (Note 1)

     2,849,379        1,390,578        873,318   
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

F-26


Table of Contents

PROSHARES ULTRASHORT DJ-UBS CRUDE OIL

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

 

     Year ended
December 31, 2011
    Year ended
December 31, 2010
    Year ended
December 31, 2009
 

Shareholders’ equity, beginning of period

   $ 132,214,257      $ 76,656,626      $ 14,502,399   

Addition of shares (12,530,000, 9,150,000 and 4,400,000, respectively) (Note 1)

     544,053,277        569,014,790        469,708,747   

Redemption of shares (11,410,059, 7,670,000 and 3,380,000, respectively) (Note 1)

     (566,778,984     (525,263,317     (390,501,159
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of shares (1,119,941, 1,480,000 and 1,020,000, respectively) (Note 1)

     (22,725,707     43,751,473        79,207,588   
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (1,211,735     (784,150     (785,316

Net realized gain (loss)

     26,732,698        15,031,019        (15,768,595

Change in net unrealized appreciation/depreciation

     9,380,380        (2,440,711     (499,450
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     34,901,343        11,806,158        (17,053,361
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 144,389,893      $ 132,214,257      $ 76,656,626   
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

F-27


Table of Contents

PROSHARES ULTRASHORT DJ-UBS CRUDE OIL

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

 

     Year ended
December 31, 2011
    Year ended
December 31, 2010
    Year ended
December 31, 2009
 

Cash flow from operating activities

      

Net income (loss)

   $ 34,901,343      $ 11,806,158      $ (17,053,361

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

      

Decrease (Increase) in segregated cash balances with brokers for futures contracts

     (4,826,183     (89,775     1,286,550   

Net sale (purchase) of short-term U.S. government and agency obligations

     3,695,071        (69,132,956     (66,498,959

Change in unrealized appreciation/depreciation on investments

     (6,748,920     3,120,191        986,140   

Decrease (Increase) in receivable on futures contracts

     (576,597     —          —     

Decrease (Increase) in receivable from Sponsor

     —          —          53,143   

Change in offering costs

     —          —          278,414   

Increase (Decrease) in management fee payable

     (7,199     49,073        68,204   

Increase (Decrease) in payable on futures contracts

     (1,140,144     (130,925     (2,994,829

Increase (Decrease) in accounts payable

     —          —          (208,046
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     25,297,371        (54,378,234     (84,082,744
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     544,053,277        577,259,736        468,733,659   

Payment on shares redeemed

     (573,092,737     (518,949,564     (392,500,720
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (29,039,460     58,310,172        76,232,939   
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     (3,742,089     3,931,938        (7,849,805

Cash, beginning of period

     4,007,347        75,409        7,925,214   
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 265,258      $ 4,007,347      $ 75,409   
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

F-28


Table of Contents

PROSHARES ULTRA DJ-UBS NATURAL GAS

STATEMENT OF FINANCIAL CONDITION

 

     December 31, 2011  

Assets

  

Cash

   $ 3,361,868   

Segregated cash balances with brokers for futures contracts

     725,409   

Offering costs (Note 5)

     20,150   
  

 

 

 

Total assets

     4,107,427   
  

 

 

 

Liabilities and shareholders’ equity

  

Liabilities

  

Management fee payable

     1,454   

Payable for offering costs

     26,624   
  

 

 

 

Total liabilities

     28,078   
  

 

 

 

Shareholders’ equity

  

Shareholders’ equity

     4,079,349   
  

 

 

 

Total liabilities and shareholders’ equity

   $ 4,107,427   
  

 

 

 

Shares outstanding

     200,010   
  

 

 

 

Net asset value per share

   $ 20.40   
  

 

 

 

Market value per share (Note 2)

   $ 20.27   
  

 

 

 

 

See accompanying notes to financial statements.

 

F-29


Table of Contents

PROSHARES ULTRA DJ-UBS NATURAL GAS

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2011

Futures Contracts Purchased††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Natural Gas - NYMEX, expires March 2012

     271       $ 8,173,360       $ (825,510

 

†† Cash collateral in the amount of $725,409 was pledged to cover margin requirements for open futures contracts as of December 31, 2011.

 

See accompanying notes to financial statements.

 

F-30


Table of Contents

PROSHARES ULTRA DJ-UBS NATURAL GAS

STATEMENT OF OPERATIONS

FOR THE PERIOD FROM APRIL 5, 2011 (INCEPTION) TO DECEMBER 31, 2011

 

     April 5, 2011
(Inception) through
December 31, 2011
 

Investment Income

  

Interest

   $ —     
  

 

 

 

Expenses

  

Management fee

     1,454   

Brokerage commissions

     2,531   

Offering costs

     6,474   
  

 

 

 

Total expenses

     10,459   
  

 

 

 

Net investment income (loss)

     (10,459
  

 

 

 

Realized and unrealized gain (loss) on investment activity

  

Net realized gain (loss) on

  

Futures contracts

     (1,481,685

Short-term U.S. government and agency obligations

     (134
  

 

 

 

Net realized gain (loss)

     (1,481,819
  

 

 

 

Change in net unrealized appreciation/depreciation on

  

Futures contracts

     (825,510
  

 

 

 

Change in net unrealized appreciation/depreciation

     (825,510
  

 

 

 

Net realized and unrealized gain (loss)

     (2,307,329
  

 

 

 

Net income (loss)

   $ (2,317,788
  

 

 

 

Net income (loss) per weighted-average share

   $ (20.19
  

 

 

 

Weighted-average shares outstanding

     114,783   
  

 

 

 

 

See accompanying notes to financial statements.

 

F-31


Table of Contents

PROSHARES ULTRA DJ-UBS NATURAL GAS

STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE PERIOD FROM APRIL 5, 2011 (INCEPTION) TO DECEMBER 31, 2011

 

     April 5, 2011
(Inception) through
December 31, 2011
 

Shareholders’ equity, beginning of period

   $ —     

Addition of 200,010 shares

     6,397,137   
  

 

 

 

Net investment income (loss)

     (10,459

Net realized gain (loss)

     (1,481,819

Change in net unrealized appreciation/depreciation

     (825,510
  

 

 

 

Net income (loss)

     (2,317,788
  

 

 

 

Shareholders’ equity, end of period

   $ 4,079,349   
  

 

 

 

 

See accompanying notes to financial statements.

 

F-32


Table of Contents

PROSHARES ULTRA DJ-UBS NATURAL GAS

STATEMENT OF CASH FLOWS

FOR THE PERIOD FROM APRIL 5, 2011 (INCEPTION) TO DECEMBER 31, 2011

 

     April 5, 2011
(Inception) through
December 31, 2011
 

Cash flow from operating activities

  

Net income (loss)

   $ (2,317,788

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

  

Decrease (Increase) in segregated cash balances with brokers for futures contracts

     (725,409

Change in offering costs

     (20,150

Increase (Decrease) in management fee payable

     1,454   

Increase (Decrease) in payable for offering costs

     26,624   
  

 

 

 

Net cash provided by (used in) operating activities

     (3,035,269
  

 

 

 

Cash flow from financing activities

  

Proceeds from addition of shares

     6,397,137   
  

 

 

 

Net increase (decrease) in cash

     3,361,868   

Cash, beginning of period

     —     
  

 

 

 

Cash, end of period

   $ 3,361,868   
  

 

 

 

 

See accompanying notes to financial statements.

 

F-33


Table of Contents

PROSHARES SHORT DJ-UBS NATURAL GAS*

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2011      December 31, 2010  

Assets

     

Cash

   $ 200       $ 200   

Offering costs (Note 5)

     29,090         —     
  

 

 

    

 

 

 

Total assets

     29,290         200   
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Payable for offering costs

     29,090         —     
  

 

 

    

 

 

 

Total liabilities

     29,090         —     
  

 

 

    

 

 

 

Shareholders’ equity

     

Shareholders’ equity

     200         200   
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 29,290       $ 200   
  

 

 

    

 

 

 

 

* See Note 1.

 

See accompanying notes to financial statements.

 

F-34


Table of Contents

PROSHARES ULTRASHORT DJ-UBS NATURAL GAS

STATEMENT OF FINANCIAL CONDITION

 

     December 31, 2011  

Assets

  

Cash

   $ 2,969,266   

Segregated cash balances with brokers for futures contracts

     1,439,775   

Short-term U.S. government and agency obligations (Note 3) (cost $2,621,895)

     2,621,684   

Receivable on open futures contracts

     123,128   

Offering costs (Note 5)

     20,150   
  

 

 

 

Total assets

     7,174,003   
  

 

 

 

Liabilities and shareholders’ equity

  

Liabilities

  

Management fee payable

     5,069   

Payable for offering costs

     26,624   
  

 

 

 

Total liabilities

     31,693   
  

 

 

 

Shareholders’ equity

  

Shareholders’ equity

     7,142,310   
  

 

 

 

Total liabilities and shareholders’ equity

   $ 7,174,003   
  

 

 

 

Shares outstanding

     100,010   
  

 

 

 

Net asset value per share

   $ 71.42   
  

 

 

 

Market value per share (Note 2)

   $ 71.88   
  

 

 

 

 

See accompanying notes to financial statements.

 

F-35


Table of Contents

PROSHARES ULTRASHORT DJ-UBS NATURAL GAS

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2011

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(37% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.011% due 05/10/12

   $ 2,622,000       $ 2,621,684   
     

 

 

 

Total short-term U.S. government and agency obligations (cost $2,621,895)

      $ 2,621,684   
     

 

 

 

 

 

 

Futures Contracts Sold††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Natural Gas - NYMEX, expires March 2012

     474       $ 14,295,840       $ 1,381,010   

 

†† Cash collateral in the amount of $1,439,775 was pledged to cover margin requirements for open futures contracts as of December 31, 2011.

 

See accompanying notes to financial statements.

 

F-36


Table of Contents

PROSHARES ULTRASHORT DJ-UBS NATURAL GAS

STATEMENT OF OPERATIONS

FOR THE PERIOD FROM APRIL 5, 2011 (INCEPTION) TO DECEMBER 31, 2011

 

     April 5, 2011
(Inception) through
December 31, 2011
 

Investment Income

  

Interest

   $ 13   
  

 

 

 

Expenses

  

Management fee

     5,069   

Brokerage commissions

     4,082   

Offering costs

     6,474   
  

 

 

 

Total expenses

     15,625   
  

 

 

 

Net investment income (loss)

     (15,612
  

 

 

 

Realized and unrealized gain (loss) on investment activity

  

Net realized gain (loss) on

  

Futures contracts

     1,776,461   

Short-term U.S. government and agency obligations

     (138
  

 

 

 

Net realized gain (loss)

     1,776,323   
  

 

 

 

Change in net unrealized appreciation/depreciation on

  

Futures contracts

     1,381,010   

Short-term U.S. government and agency obligations

     (211
  

 

 

 

Change in net unrealized appreciation/depreciation

     1,380,799   
  

 

 

 

Net realized and unrealized gain (loss)

     3,157,122   
  

 

 

 

Net income (loss)

   $ 3,141,510   
  

 

 

 

Net income (loss) per weighted-average share

   $ 31.41   
  

 

 

 

Weighted-average shares outstanding

     100,010   
  

 

 

 

 

See accompanying notes to financial statements.

 

F-37


Table of Contents

PROSHARES ULTRASHORT DJ-UBS NATURAL GAS

STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE PERIOD FROM APRIL 5, 2011 (INCEPTION) TO DECEMBER 31, 2011

 

     April 5, 2011
(Inception) through
December 31, 2011
 

Shareholders’ equity, beginning of period

   $ —     

Addition of 100,010 shares

     4,000,800   
  

 

 

 

Net investment income (loss)

     (15,612

Net realized gain (loss)

     1,776,323   

Change in net unrealized appreciation/depreciation

     1,380,799   
  

 

 

 

Net income (loss)

     3,141,510   
  

 

 

 

Shareholders’ equity, end of period

   $ 7,142,310   
  

 

 

 

 

See accompanying notes to financial statements.

 

F-38


Table of Contents

PROSHARES ULTRASHORT DJ-UBS NATURAL GAS

STATEMENT OF CASH FLOWS

FOR THE PERIOD FROM APRIL 5, 2011 (INCEPTION) TO DECEMBER 31, 2011

 

     April 5, 2011
(Inception) through
December 31, 2011
 

Cash flow from operating activities

  

Net income (loss)

   $ 3,141,510   

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

  

Decrease (Increase) in segregated cash balances with brokers for futures contracts

     (1,439,775

Net sale (purchase) of short-term U.S. government and agency obligations

     (2,621,895

Change in unrealized appreciation/depreciation on investments

     211   

Decrease (Increase) in receivable on futures contracts

     (123,128

Change in offering costs

     (20,150

Increase (Decrease) in management fee payable

     5,069   

Increase (Decrease) in payable for offering costs

     26,624   
  

 

 

 

Net cash provided by (used in) operating activities

     (1,031,534
  

 

 

 

Cash flow from financing activities

  

Proceeds from addition of shares

     4,000,800   
  

 

 

 

Net increase (decrease) in cash

     2,969,266   

Cash, beginning of period

     —     
  

 

 

 

Cash, end of period

   $ 2,969,266   
  

 

 

 

 

See accompanying notes to financial statements.

 

F-39


Table of Contents

PROSHARES ULTRA GOLD

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2011      December 31, 2010  

Assets

     

Cash

   $ 400,533       $ 1,262,424   

Segregated cash balances with brokers for futures contracts

     22,950         467,775   

Short-term U.S. government and agency obligations (Note 3) (cost $399,322,327 and $249,242,580, respectively)

     399,317,740         249,250,657   

Unrealized appreciation on forward agreements

     —           8,724,587   

Receivable from capital shares sold

     7,796,997         —     

Receivable on open futures contracts

     540         60,830   
  

 

 

    

 

 

 

Total assets

     407,538,760         259,766,273   
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Management fee payable

     303,120         204,198   

Unrealized depreciation on forward agreements

     80,836,280         —     
  

 

 

    

 

 

 

Total liabilities

     81,139,400         204,198   
  

 

 

    

 

 

 

Shareholders’ equity

     

Shareholders’ equity

     326,399,360         259,562,075   
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 407,538,760       $ 259,766,273   
  

 

 

    

 

 

 

Shares outstanding

     4,300,014         3,750,014   
  

 

 

    

 

 

 

Net asset value per share

   $ 75.91       $ 69.22   
  

 

 

    

 

 

 

Market value per share (Note 2)

   $ 79.01       $ 70.72   
  

 

 

    

 

 

 

 

See accompanying notes to financial statements.

 

F-40


Table of Contents

PROSHARES ULTRA GOLD

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2011

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(122% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.021% due 01/12/12

   $ 20,709,000       $ 20,708,983   

0.016% due 01/19/12†

     39,270,000         39,269,933   

0.016% due 01/26/12

     26,463,000         26,462,929   

0.005% due 02/02/12

     31,328,000         31,327,884   

0.001% due 02/09/12†

     46,596,000         46,595,571   

0.003% due 02/16/12†

     50,000,000         49,999,445   

0.000% due 03/01/12†

     20,000,000         19,999,548   

0.002% due 03/08/12†

     20,000,000         19,999,322   

0.000% due 03/15/12†

     16,433,000         16,432,379   

0.005% due 03/22/12†

     81,232,000         81,228,613   

0.002% due 04/05/12

     2,353,000         2,352,854   

0.010% due 04/12/12†

     30,671,000         30,671,000   

0.011% due 05/10/12†

     14,271,000         14,269,279   
     

 

 

 

Total short-term U.S. government and agency obligations (cost $399,322,327)

      $ 399,317,740   
     

 

 

 

 

 

 

Futures Contracts Purchased††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Gold Futures - COMEX, expires February 2012

     2       $ 313,360       $ (41,660

Forward Agreements^

 

     Settlement Date    Commitment to
(Deliver)/Receive
     Notional Amount
at Value*
     Unrealized
Appreciation
(Depreciation)
 

Forward agreements with Goldman Sachs International based on 0.995 Fine Troy Ounce Gold

   01/06/12    $ 122,620       $ 187,753,292       $ (23,233,998

Forward agreements with Societe Generale S.A. based on 0.995 Fine Troy Ounce Gold

   01/06/12      13,600         20,824,025         (2,297,693

Forward agreements with UBS AG based on 0.995 Fine Troy Ounce Gold

   01/06/12      289,900         443,889,082         (55,304,589
           

 

 

 
            $ (80,836,280
           

 

 

 

 

All or partial amount segregated as collateral for forward agreements.
†† Cash collateral in the amount of $22,950 was pledged to cover margin requirements for open futures contracts as of December 31, 2011.
^ The positions and counterparties herein are as of December 31, 2011. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.
* For forward agreements, a positive amount represents “long” exposure to the underlying commodity. A negative amount represents “short” exposure to the underlying commodity.

 

See accompanying notes to financial statements.

 

F-41


Table of Contents

PROSHARES ULTRA GOLD

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2010

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(96% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.110% due 01/06/11

   $ 8,000       $ 8,000   

0.115% due 01/13/11†

     47,146,000         47,145,651   

0.133% due 01/20/11†

     53,152,000         53,151,043   

0.134% due 01/27/11†

     27,987,000         27,986,088   

0.115% due 02/03/11

     2,764,000         2,763,805   

0.120% due 02/10/11†

     22,359,000         22,356,923   

0.110% due 02/17/11†

     32,364,000         32,359,640   

0.108% due 02/24/11

     44,791,000         44,783,968   

0.130% due 03/31/11

     18,701,000         18,695,539   
     

 

 

 

Total short-term U.S. government and agency obligations (cost $249,242,580)

      $ 249,250,657   
     

 

 

 

 

 

 

Futures Contracts Purchased††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Gold Futures - COMEX, expires February 2011

     77       $ 10,944,780       $ 305,980   

Forward Agreements^

 

     Settlement Date    Commitment to
(Deliver)/Receive
     Notional Amount
at Value*
     Unrealized
Appreciation
(Depreciation)
 

Forward agreements with Goldman Sachs International based on 0.995 Fine Troy Ounce Gold

   01/06/11    $ 65,620       $ 92,235,472       $ 1,668,106   

Forward agreements with UBS AG based on 0.995 Fine Troy Ounce Gold

   01/06/11      296,500         416,760,400         7,056,481   
           

 

 

 
            $ 8,724,587   
           

 

 

 

 

All or partial amount segregated as collateral for forward agreements.
†† Cash collateral in the amount of $467,775 was pledged to cover margin requirements for open futures contracts as of December 31, 2010.
^ The positions and counterparties herein are as of December 31, 2010. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.
* For forward agreements, a positive amount represents “long” exposure to the underlying commodity. A negative amount represents “short” exposure to the underlying commodity.

 

See accompanying notes to financial statements.

 

F-42


Table of Contents

PROSHARES ULTRA GOLD

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

 

     Year ended
December 31, 2011
    Year ended
December 31, 2010
    Year ended
December 31, 2009
 

Investment Income

      

Interest

   $ 146,143      $ 271,540      $ 55,592   
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     3,118,702        1,863,659        1,014,224   

Brokerage commissions

     2,927        3,806        4,213   

Offering costs

     —          —          284,355   
  

 

 

   

 

 

   

 

 

 

Total expenses

     3,121,629        1,867,465        1,302,792   
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (2,975,486     (1,595,925     (1,247,200
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Futures contracts

     1,874,338        1,766,498        1,905,831   

Forward agreements

     98,213,726        74,670,736        38,020,273   

Short-term U.S. government and agency obligations

     2,234        7,467        —     
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     100,090,298        76,444,701        39,926,104   
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Futures contracts

     (347,640     500,180        (233,970

Forward agreements

     (89,560,867     13,958,847        (4,648,006

Short-term U.S. government and agency obligations

     (12,664     10,998        (2,921
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     (89,921,171     14,470,025        (4,884,897
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     10,169,127        90,914,726        35,041,207   
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 7,193,641      $ 89,318,801      $ 33,794,007   
  

 

 

   

 

 

   

 

 

 

Net income (loss) per weighted-average share

   $ 1.87      $ 24.67      $ 9.17   
  

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding

     3,852,480        3,620,973        3,686,863   
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

F-43


Table of Contents

PROSHARES ULTRA GOLD

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

 

     Year ended
December 31, 2011
    Year ended
December 31, 2010
    Year ended
December 31, 2009
 

Shareholders’ equity, beginning of period

   $ 259,562,075      $ 156,476,709      $ 27,736,722   

Addition of shares (1,350,000, 1,800,000 and 5,250,000, respectively)

     128,281,626        93,908,829        193,756,011   

Redemption of shares (800,000, 1,600,000 and 2,600,000, respectively)

     (68,637,982     (80,142,264     (98,810,031
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of shares (550,000, 200,000 and 2,650,000, respectively)

     59,643,644        13,766,565        94,945,980   
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (2,975,486     (1,595,925     (1,247,200

Net realized gain (loss)

     100,090,298        76,444,701        39,926,104   

Change in net unrealized appreciation/depreciation

     (89,921,171     14,470,025        (4,884,897
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     7,193,641        89,318,801        33,794,007   
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 326,399,360      $ 259,562,075      $ 156,476,709   
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

F-44


Table of Contents

PROSHARES ULTRA GOLD

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

 

     Year ended
December 31, 2011
    Year ended
December 31, 2010
    Year ended
December 31, 2009
 

Cash flow from operating activities

      

Net income (loss)

   $ 7,193,641      $ 89,318,801      $ 33,794,007   

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

      

Decrease (Increase) in segregated cash balances with brokers for futures contracts

     444,825        13,062        (377,871

Net sale (purchase) of short-term U.S. government and agency obligations

     (150,079,747     (81,153,989     (168,088,591

Change in unrealized appreciation/depreciation on investments

     89,573,531        (13,969,845     4,650,927   

Decrease (Increase) in receivable on futures contracts

     60,290        (27,900     (30,045

Decrease (Increase) in receivable from Sponsor

     —          —          43,098   

Change in offering costs

     —          —          284,355   

Increase (Decrease) in management fee payable

     98,922        54,319        149,879   

Increase (Decrease) in accounts payable

     —          —          (208,045
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (52,708,538     (5,765,552     (129,782,286
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     120,484,629        93,908,829        198,417,932   

Payment on shares redeemed

     (68,637,982     (86,977,321     (91,974,974
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     51,846,647        6,931,508        106,442,958   
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     (861,891     1,165,956        (23,339,328

Cash, beginning of period

     1,262,424        96,468        23,435,796   
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 400,533      $ 1,262,424      $ 96,468   
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

F-45


Table of Contents

PROSHARES SHORT GOLD*

STATEMENTS OF FINANCIAL CONDITION

 

    December 31, 2011     December 31, 2010  

Assets

   

Cash

  $ 200      $ 200   

Offering costs (Note 5)

    12,424        —     
 

 

 

   

 

 

 

Total assets

    12,624        200   
 

 

 

   

 

 

 

Liabilities and shareholders’ equity

   

Liabilities

   

Payable for offering costs

    12,424        —     
 

 

 

   

 

 

 

Total liabilities

    12,424        —     
 

 

 

   

 

 

 

Shareholders’ equity

   

Shareholders’ equity

    200        200   
 

 

 

   

 

 

 

Total liabilities and shareholders’ equity

  $ 12,624      $ 200   
 

 

 

   

 

 

 

 

* See Note 1.

 

See accompanying notes to financial statements.

 

F-46


Table of Contents

PROSHARES ULTRASHORT GOLD

STATEMENTS OF FINANCIAL CONDITION

 

    December 31, 2011     December 31, 2010  

Assets

   

Cash

  $ 330,841      $ 404,683   

Segregated cash balances with brokers for futures contracts

    17,770        364,500   

Short-term U.S. government and agency obligations (Note 3) (cost $164,677,030 and $80,111,190, respectively)

    164,673,175        80,114,447   

Unrealized appreciation on forward agreements

    33,401,358        —     
 

 

 

   

 

 

 

Total assets

    198,423,144        80,883,630   
 

 

 

   

 

 

 

Liabilities and shareholders’ equity

   

Liabilities

   

Payable on open futures contracts

    —          94,800   

Management fee payable

    124,573        64,932   

Unrealized depreciation on forward agreements

    —          2,991,391   
 

 

 

   

 

 

 

Total liabilities

    124,573        3,151,123   
 

 

 

   

 

 

 

Shareholders’ equity

   

Shareholders’ equity

    198,298,571        77,732,507   
 

 

 

   

 

 

 

Total liabilities and shareholders’ equity

  $ 198,423,144      $ 80,883,630   
 

 

 

   

 

 

 

Shares outstanding

    9,589,901        2,739,901   
 

 

 

   

 

 

 

Net asset value per share (Note 1)

  $ 20.68      $ 28.37   
 

 

 

   

 

 

 

Market value per share (Note 1) (Note 2)

  $ 19.81      $ 27.80   
 

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

F-47


Table of Contents

PROSHARES ULTRASHORT GOLD

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2011

 

    Principal Amount     Value  

Short-term U.S. government and agency obligations

   

(83% of shareholders’ equity)

   

U.S. Treasury Bills:

   

0.016% due 01/26/12

  $ 9,321,000      $ 9,320,975   

0.005% due 02/02/12

    17,200,000        17,199,936   

0.001% due 02/09/12

    28,671,000        28,670,736   

0.016% due 02/23/12

    6,989,000        6,988,908   

0.000% due 03/01/12

    12,000,000        11,999,729   

0.001% due 03/08/12†

    22,699,000        22,698,231   

0.000% due 03/15/12†

    14,734,000        14,733,443   

0.003% due 03/22/12†

    37,957,000        37,955,417   

0.003% due 04/05/12

    10,597,000        10,596,344   

0.011% due 05/10/12†

    4,510,000        4,509,456   
   

 

 

 

Total short-term U.S. government and agency obligations (cost $164,677,030)

    $ 164,673,175   
   

 

 

 

 

 

 

Futures Contracts Sold††

 

    Number of
Contracts
    Notional Amount
at Value
    Unrealized
Appreciation
(Depreciation)
 

Gold Futures - COMEX, expires February 2012

    2      $ 313,360      $ 41,800   

Forward Agreements^

 

    Settlement Date   Commitment to
(Deliver)/Receive
    Notional Amount
at Value*
    Unrealized
Appreciation
(Depreciation)
 

Forward agreements with Goldman Sachs International based on 0.995 Fine Troy Ounce Gold

  01/06/12   $ (41,898   $ (64,153,380   $ 3,763,637   

Forward agreements with Societe Generale S.A. based on 0.995 Fine Troy Ounce Gold

  01/06/12     (21,000     (32,154,744     1,668,871   

Forward agreements with UBS AG based on 0.995 Fine Troy Ounce Gold

  01/06/12     (195,950     (300,034,721     27,968,850   
       

 

 

 
        $ 33,401,358   
       

 

 

 

 

All or partial amount segregated as collateral for forward agreements.
†† Cash collateral in the amount of $17,770 was pledged to cover margin requirements for open futures contracts as of December 31, 2011.
^ The positions and counterparties herein are as of December 31, 2011. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.
* For forward agreements, a positive amount represents “long” exposure to the underlying commodity. A negative amount represents “short” exposure to the underlying commodity.

 

See accompanying notes to financial statements.

 

F-48


Table of Contents

PROSHARES ULTRASHORT GOLD

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2010

 

    Principal Amount     Value  

Short-term U.S. government and agency obligations

   

(103% of shareholders’ equity)

   

U.S. Treasury Bills:

   

0.110% due 01/06/11

  $ 2,000      $ 2,000   

0.114% due 01/13/11

    6,655,000        6,654,951   

0.157% due 01/20/11†

    30,149,000        30,148,457   

0.137% due 01/27/11†

    10,249,000        10,248,666   

0.115% due 02/03/11†

    1,860,000        1,859,869   

0.121% due 02/10/11

    365,000        364,966   

0.111% due 02/17/11†

    25,860,000        25,856,517   

0.108% due 02/24/11

    3,525,000        3,524,446   

0.130% due 03/31/11

    1,455,000        1,454,575   
   

 

 

 

Total short-term U.S. government and agency obligations (cost $80,111,190)

    $ 80,114,447   
   

 

 

 

 

 

 

Futures Contracts Sold††

 

    Number of
Contracts
    Notional Amount
at Value
    Unrealized
Appreciation
(Depreciation)
 

Gold Futures - COMEX, expires February 2011

    60      $ 8,528,400      $ (292,750

Forward Agreements^

 

    Settlement Date   Commitment to
(Deliver)/Receive
    Notional Amount
at Value*
    Unrealized
Appreciation
(Depreciation)
 

Forward agreements with Goldman Sachs International based on 0.995 Fine Troy Ounce Gold

  01/06/11   $ (27,798   $ (39,072,869   $ (685,426

Forward agreements with UBS AG based on 0.995 Fine Troy Ounce Gold

  01/06/11     (76,400     (107,387,840     (2,305,965
       

 

 

 
        $ (2,991,391
       

 

 

 

 

All or partial amount segregated as collateral for forward agreements.
†† Cash collateral in the amount of $364,500 was pledged to cover margin requirements for open futures contracts as of December 31, 2010.
^ The positions and counterparties herein are as of December 31, 2010. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.
* For forward agreements, a positive amount represents “long” exposure to the underlying commodity. A negative amount represents “short” exposure to the underlying commodity.

 

See accompanying notes to financial statements.

 

F-49


Table of Contents

PROSHARES ULTRASHORT GOLD

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

 

     Year ended
December 31, 2011
    Year ended
December 31, 2010
    Year ended
December 31, 2009
 

Investment Income

      

Interest

   $ 51,785      $ 103,561      $ 16,787   
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     1,092,472        693,428        131,683   

Brokerage commissions

     2,512        3,103        3,532   

Offering costs

     —          —          284,355   
  

 

 

   

 

 

   

 

 

 

Total expenses

     1,094,984        696,531        419,570   
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (1,043,199     (592,970     (402,783
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Futures contracts

     (813,845     (847,406     (640,078

Forward agreements

     (44,365,616     (36,923,353     (18,989,796

Short-term U.S. government and agency obligations

     1,157        3,292        —     
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     (45,178,304     (37,767,467     (19,629,874
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Futures contracts

     334,550        (331,890     61,830   

Forward agreements

     36,392,749        (5,135,453     2,057,405   

Short-term U.S. government and agency obligations

     (7,112     5,448        (2,191
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     36,720,187        (5,461,895     2,117,044   
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     (8,458,117     (43,229,362     (17,512,830
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (9,501,316   $ (43,822,332   $ (17,915,613
  

 

 

   

 

 

   

 

 

 

Net income (loss) per weighted-average share (Note 1)

   $ (1.68   $ (23.09   $ (27.57
  

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding (Note 1)

     5,663,189        1,897,740        649,811   
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

F-50


Table of Contents

PROSHARES ULTRASHORT GOLD

STATEMENTS OF CHANGES IN SHARESHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

 

    Year ended
December 31, 2011
    Year ended
December 31, 2010
    Year ended
December 31, 2009
 

Shareholders’ equity, beginning of period

  $ 77,732,507      $ 67,602,811      $ 3,875,093   

Addition of shares (10,100,000, 2,100,000 and 1,970,000, respectively) (Note 1)

    196,587,378        82,715,498        134,255,857   

Redemption of shares (3,250,000, 650,102 and 720,000, respectively) (Note 1)

    (66,519,998     (28,763,470     (52,612,526
 

 

 

   

 

 

   

 

 

 

Net addition (redemption) of shares (6,850,000, 1,449,898 and 1, 250, 000, respectively) (Note 1)

    130,067,380        53,952,028        81,643,331   
 

 

 

   

 

 

   

 

 

 

Net investment income (loss)

    (1,043,199     (592,970     (402,783

Net realized gain (loss)

    (45,178,304     (37,767,467     (19,629,874

Change in net unrealized appreciation/depreciation

    36,720,187        (5,461,895     2,117,044   
 

 

 

   

 

 

   

 

 

 

Net income (loss)

    (9,501,316     (43,822,332     (17,915,613
 

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

  $ 198,298,571      $ 77,732,507      $ 67,602,811   
 

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

F-51


Table of Contents

PROSHARES ULTRASHORT GOLD

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

 

     Year ended
December 31, 2011
    Year ended
December 31, 2010
    Year ended
December 31, 2009
 

Cash flow from operating activities

      

Net income (loss)

   $ (9,501,316   $ (43,822,332   $ (17,915,613

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

      

Decrease (Increase) in segregated cash balances for forward agreements

     —          —          540,000   

Decrease (Increase) in segregated cash balances with brokers for futures contracts

     346,730        (223,584     (113,167

Net sale (purchase) of short-term U.S. government and agency obligations

     (84,565,840     (13,798,235     (66,312,955

Change in unrealized appreciation/depreciation on investments

     (36,385,637     5,130,005        (2,055,214

Decrease (Increase) in receivable from Sponsor

     —          —          51,088   

Change in offering costs

     —          —          284,355   

Increase (Decrease) in management fee payable

     59,641        10,966        53,966   

Increase (Decrease) in payable on futures contracts

     (94,800     94,800        (10,931

Increase (Decrease) in accounts payable

     —          —          (208,046
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (130,141,222     (52,608,380     (85,686,517
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     196,587,378        82,715,498        134,255,857   

Payment on shares redeemed

     (66,519,998     (29,778,225     (51,597,771
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     130,067,380        52,937,273        82,658,086   
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     (73,842     328,893        (3,028,431

Cash, beginning of period

     404,683        75,790        3,104,221   
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 330,841      $ 404,683      $ 75,790   
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

F-52


Table of Contents

PROSHARES ULTRA SILVER

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2011      December 31, 2010  

Assets

     

Cash

   $ 772,442       $ 2,505,032   

Segregated cash balances with brokers for futures contracts

     49,950         2,395,913   

Short-term U.S. government and agency obligations (Note 3) (cost $771,936,564 and $495,898,270, respectively)

     771,925,669         495,915,529   

Unrealized appreciation on forward agreements

     —           46,191,568   

Receivable from capital shares sold

     13,966,567         —     

Receivable on open futures contracts

     6,000         391,421   
  

 

 

    

 

 

 

Total assets

     786,720,628         547,399,463   
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Management fee payable

     569,435         395,544   

Unrealized depreciation on forward agreements

     179,326,773         —     
  

 

 

    

 

 

 

Total liabilities

     179,896,208         395,544   
  

 

 

    

 

 

 

Shareholders’ equity

     

Shareholders’ equity

     606,824,420         547,003,919   
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 786,720,628       $ 547,399,463   
  

 

 

    

 

 

 

Shares outstanding

     14,050,028         7,000,028   
  

 

 

    

 

 

 

Net asset value per share (Note 1)

   $ 43.19       $ 78.14   
  

 

 

    

 

 

 

Market value per share (Note 1) (Note 2)

   $ 41.65       $ 79.30   
  

 

 

    

 

 

 

 

See accompanying notes to financial statements.

 

F-53


Table of Contents

PROSHARES ULTRA SILVER

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2011

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(127% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.021% due 01/12/12

   $ 4,962,000       $ 4,961,996   

0.011% due 01/19/12

     41,103,000         41,102,930   

0.016% due 01/26/12

     103,409,000         103,408,721   

0.003% due 02/02/12†

     45,670,000         45,669,831   

0.000% due 02/09/12†

     31,909,000         31,908,707   

0.003% due 02/16/12

     20,613,000         20,612,771   

0.016% due 02/23/12†

     62,392,000         62,391,183   

0.000% due 03/01/12†

     50,000,000         49,998,870   

0.003% due 03/08/12†

     50,000,000         49,998,305   

(0.001)% due 03/15/12†

     87,691,000         87,687,685   

0.004% due 03/22/12†

     184,845,000         184,837,292   

0.000% due 04/05/12

     7,080,000         7,079,562   

0.010% due 04/12/12†

     64,164,000         64,164,000   

0.011% due 05/10/12†

     18,106,000         18,103,816   
     

 

 

 

Total short-term U.S. government and agency obligations (cost $771,936,564)

      $ 771,925,669   
     

 

 

 

 

 

 

Futures Contracts Purchased††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Silver Futures - COMEX, expires March 2012

     2       $ 279,150       $ (60,850

Forward Agreements^

 

     Settlement Date    Commitment to
(Deliver)/Receive
     Notional Amount
at Value*
     Unrealized
Appreciation
(Depreciation)
 

Forward agreements with Goldman Sachs International based on 0.999 Fine Troy Ounce Silver

   01/06/12    $ 9,383,800       $ 264,444,868       $ (31,071,813

Forward agreements with Societe Generale S.A. based on 0.999 Fine Troy Ounce Silver

   01/06/12      1,005,000         28,321,905         (25,647

Forward agreements with UBS AG based on 0.999 Fine Troy Ounce Silver

   01/06/12      32,671,000         920,701,451         (148,229,313
           

 

 

 
            $ (179,326,773
           

 

 

 

 

All or partial amount segregated as collateral for forward agreements.
†† Cash collateral in the amount of $49,950 was pledged to cover margin requirements for open futures contracts as of December 31, 2011.
^ The positions and counterparties herein are as of December 31, 2011. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.
* For forward agreements, a positive amount represents “long” exposure to the underlying commodity. A negative amount represents “short” exposure to the underlying commodity.

 

See accompanying notes to financial statements.

 

F-54


Table of Contents

PROSHARES ULTRA SILVER

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2010

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(91% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.106% due 01/06/11†

   $ 1,713,000       $ 1,712,999   

0.111% due 01/13/11†

     120,905,000         120,904,105   

0.119% due 01/20/11†

     98,760,000         98,758,222   

0.135% due 01/27/11†

     59,599,000         59,597,057   

0.120% due 02/03/11

     26,914,000         26,912,100   

0.120% due 02/10/11†

     75,577,000         75,569,979   

0.110% due 02/17/11†

     6,506,000         6,505,124   

0.108% due 02/24/11

     80,653,000         80,640,337   

0.130% due 03/31/11

     25,323,000         25,315,606   
     

 

 

 

Total short-term U.S. government and agency obligations (cost $495,898,270)

      $ 495,915,529   
     

 

 

 

 

 

 

Futures Contracts Purchased††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Silver Futures - COMEX, expires March 2011

     229       $ 35,422,865       $ 3,056,220   

Forward Agreements^

 

     Settlement Date    Commitment to
(Deliver)/Receive
     Notional Amount
at Value*
     Unrealized
Appreciation
(Depreciation)
 

Forward agreements with Goldman Sachs International based on 0.999 Fine Troy Ounce Silver

   01/06/11    $ 8,095,800       $ 247,992,165       $ 10,761,350   

Forward agreements with UBS AG based on 0.999 Fine Troy Ounce Silver

   01/06/11      26,454,000         810,344,219         35,430,218   
           

 

 

 
            $ 46,191,568   
           

 

 

 

 

All or partial amount segregated as collateral for forward agreements.
†† Cash collateral in the amount of $2,395,913 was pledged to cover margin requirements for open futures contracts as of December 31, 2010.
^ The positions and counterparties herein are as of December 31, 2010. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.
* For forward agreements, a positive amount represents “long” exposure to the underlying commodity. A negative amount represents “short” exposure to the underlying commodity.

 

See accompanying notes to financial statements.

 

F-55


Table of Contents

PROSHARES ULTRA SILVER

STATEMENTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2011, 2010 AND 2009

 

     Year ended
December 31, 2011
    Year ended
December 31, 2010
    Year ended
December 31, 2009
 

Investment Income

      

Interest

   $ 423,786      $ 310,024      $ 28,466   
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     8,372,487        2,027,722        710,900   

Brokerage commissions

     7,511        6,268        5,134   

Offering costs

     —          —          71,126   
  

 

 

   

 

 

   

 

 

 

Total expenses

     8,379,998        2,033,990        787,160   
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (7,956,212     (1,723,966     (758,694
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Futures contracts

     4,093,993        7,706,675        1,910,810   

Forward agreements

     (213,571,085     208,546,511        41,804,200   

Short-term U.S. government and agency obligations

     46,248        12,355        —     
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     (209,430,844     216,265,541        43,715,010   
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Futures contracts

     (3,117,070     3,625,020        (560,755

Forward agreements

     (225,518,341     53,419,755        (6,971,360

Short-term U.S. government and agency obligations

     (28,154     24,562        (7,303
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     (228,663,565     57,069,337        (7,539,418
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     (438,094,409     273,334,878        36,175,592   
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (446,050,621   $ 271,610,912      $ 35,416,898   
  

 

 

   

 

 

   

 

 

 

Net income (loss) per weighted-average share (Note 1)

   $ (43.26   $ 48.37      $ 10.67   
  

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding (Note 1)

     10,312,083        5,615,370        3,318,384   
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

F-56


Table of Contents

PROSHARES ULTRA SILVER

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEAR ENDED DECEMBER 31, 2011, 2010 AND 2009

 

     Year ended
December 31, 2011
    Year ended
December 31, 2010
    Year ended
December 31, 2009
 

Shareholders’ equity, beginning of period

   $ 547,003,919      $ 145,416,382      $ 10,011,149   

Addition of shares (15,650,000, 5,400,000 and 7,000,000, respectively) (Note 1)

     1,259,593,245        244,471,386        161,850,670   

Redemption of shares (8,600,000, 3,500,000 and 2,600,000, respectively) (Note 1)

     (753,722,123     (114,494,761     (61,862,335
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of shares (7,050,000, 1,900,000 and 4, 400, 000, respectively) (Note 1)

     505,871,122        129,976,625        99,988,335   
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (7,956,212     (1,723,966     (758,694

Net realized gain (loss)

     (209,430,844     216,265,541        43,715,010   

Change in net unrealized appreciation/depreciation

     (228,663,565     57,069,337        (7,539,418
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     (446,050,621     271,610,912        35,416,898   
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 606,824,420      $ 547,003,919      $ 145,416,382   
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

F-57


Table of Contents

PROSHARES ULTRA SILVER

STATEMENTS OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 2011, 2010 AND 2009

 

     Year ended
December 31, 2011
    Year ended
December 31, 2010
    Year ended
December 31, 2009
 

Cash flow from operating activities

      

Net income (loss)

   $ (446,050,621   $ 271,610,912      $ 35,416,898   

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

      

Decrease (Increase) in segregated cash balances with brokers for futures contracts

     2,345,963        (1,467,775     (854,433

Net sale (purchase) of short-term U.S. government and agency obligations

     (276,038,294     (338,118,894     (157,779,376

Change in unrealized appreciation/depreciation on investments

     225,546,495        (53,444,317     6,978,663   

Decrease (Increase) in receivable on futures contracts

     385,421        (391,421     24,488   

Decrease (Increase) in receivable from Sponsor

     —          —          30,776   

Change in offering costs

     —          —          71,126   

Increase (Decrease) in management fee payable

     173,891        271,655        123,889   

Increase (Decrease) in accounts payable

     —          —          (42,976
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (493,637,145     (121,539,840     (116,030,945
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     1,245,626,678        244,471,386        163,320,200   

Payment on shares redeemed

     (753,722,123     (120,502,184     (55,854,912
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     491,904,555        123,969,202        107,465,288   
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     (1,732,590     2,429,362        (8,565,657

Cash, beginning of period

     2,505,032        75,670        8,641,327   
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 772,442      $ 2,505,032      $ 75,670   
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

F-58


Table of Contents

PROSHARES ULTRASHORT SILVER

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2011      December 31, 2010  

Assets

     

Cash

   $ 648,166       $ 3,514,285   

Segregated cash balances with brokers for futures contracts

     43,140         512,663   

Short-term U.S. government and agency obligations (Note 3) (cost $215,358,257 and $105,316,101, respectively)

     215,352,919         105,319,504   

Unrealized appreciation on forward agreements

     43,015,723         —     

Receivable from capital shares sold

     8,437,981         —     
  

 

 

    

 

 

 

Total assets

     267,497,929         109,346,452   
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Payable for capital shares redeemed

     20,503,124         —     

Payable on open futures contracts

     —           227,423   

Management fee payable

     180,884         75,903   

Unrealized depreciation on forward agreements

     —           10,010,345   
  

 

 

    

 

 

 

Total liabilities

     20,684,008         10,313,671   
  

 

 

    

 

 

 

Shareholders’ equity

     

Shareholders’ equity

     246,813,921         99,032,781   
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 267,497,929       $ 109,346,452   
  

 

 

    

 

 

 

Shares outstanding

     16,094,369         2,482,479   
  

 

 

    

 

 

 

Net asset value per share (Note 1)

   $ 15.34       $ 39.89   
  

 

 

    

 

 

 

Market value per share (Note 1) (Note 2)

   $ 15.87       $ 39.28   
  

 

 

    

 

 

 

 

See accompanying notes to financial statements.

 

F-59


Table of Contents

PROSHARES ULTRASHORT SILVER

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2011

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(87% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.021% due 01/12/12

   $ 3,322,000       $ 3,321,997   

0.016% due 01/19/12

     2,677,000         2,676,995   

0.016% due 01/26/12

     7,104,000         7,103,981   

0.005% due 02/02/12

     4,504,000         4,503,983   

0.001% due 02/09/12†

     41,873,000         41,872,615   

0.016% due 02/23/12

     7,490,000         7,489,902   

0.000% due 03/01/12†

     20,000,000         19,999,548   

0.001% due 03/08/12†

     66,733,000         66,730,738   

0.001% due 03/15/12†

     24,582,000         24,581,071   

0.002% due 03/22/12†

     18,981,000         18,980,209   

0.000% due 04/05/12

     18,093,000         18,091,880   
     

 

 

 

Total short-term U.S. government and agency obligations (cost $215,358,257)

      $ 215,352,919   
     

 

 

 

 

 

 

Futures Contracts Sold††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Silver Futures - COMEX, expires March 2012

     2       $ 279,150       $ 60,850   

Forward Agreements^

 

     Settlement Date    Commitment to
(Deliver)/Receive
    Notional Amount
at Value*
    Unrealized
Appreciation
(Depreciation)
 

Forward agreements with Goldman Sachs International based on 0.999 Fine Troy Ounce Silver

   01/06/12    $ (6,725,500   $ (189,531,316   $ 11,971,443   

Forward agreements with Societe Generale S.A. based on 0.999 Fine Troy Ounce Silver

   01/06/12      (1,005,000     (28,321,905     (2,002,298

Forward agreements with UBS AG based on 0.999 Fine Troy Ounce Silver

   01/06/12      (9,779,000     (275,581,999     33,046,578   
         

 

 

 
          $ 43,015,723   
         

 

 

 

 

All or partial amount segregated as collateral for forward agreements.
†† Cash collateral in the amount of $43,140 was pledged to cover margin requirements for open futures contracts as of December 31, 2011.
^ The positions and counterparties herein are as of December 31, 2011. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.
* For forward agreements, a positive amount represents “long” exposure to the underlying commodity. A negative amount represents “short” exposure to the underlying commodity.

 

See accompanying notes to financial statements.

 

F-60


Table of Contents

PROSHARES ULTRASHORT SILVER

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2010

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(106% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.106% due 01/06/11†

   $ 807,000       $ 806,999   

0.117% due 01/13/11†

     31,073,000         31,072,770   

0.144% due 01/20/11†

     20,060,000         20,059,639   

0.135% due 01/27/11†

     825,000         824,973   

0.115% due 02/03/11

     16,883,000         16,881,808   

0.121% due 02/10/11†

     4,180,000         4,179,612   

0.120% due 02/17/11†

     9,147,000         9,145,768   

0.109% due 02/24/11

     18,236,000         18,233,137   

0.130% due 03/31/11

     4,116,000         4,114,798   
     

 

 

 

Total short-term U.S. government and agency obligations (cost $105,316,101)

      $ 105,319,504   
     

 

 

 

 

 

 

Futures Contracts Sold††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Silver Futures - COMEX, expires March 2011

     49       $ 7,579,565       $ (519,420

Forward Agreements^

 

     Settlement Date    Commitment to
(Deliver)/Receive
    Notional Amount
at Value*
    Unrealized
Appreciation
(Depreciation)
 

Forward agreements with Goldman Sachs International based on 0.999 Fine Troy Ounce Silver

   01/06/11    $ (1,727,500   $ (52,917,126   $ (2,469,105

Forward agreements with UBS AG based on 0.999 Fine Troy Ounce Silver

   01/06/11      (4,498,000     (137,783,636     (7,541,240
         

 

 

 
          $ (10,010,345
         

 

 

 

 

All or partial amount segregated as collateral for forward agreements.
†† Cash collateral in the amount of $512,663 was pledged to cover margin requirements for open futures contracts as of December 31, 2010.
^ The positions and counterparties herein are as of December 31, 2010. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.
* For forward agreements, a positive amount represents “long” exposure to the underlying commodity. A negative amount represents “short” exposure to the underlying commodity.

 

See accompanying notes to financial statements.

 

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PROSHARES ULTRASHORT SILVER

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

 

     Year ended
December 31, 2011
    Year ended
December 31, 2010
    Year ended
December 31, 2009
 

Investment Income

      

Interest

   $ 146,064      $ 95,673      $ 15,541   
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     3,530,293        631,456        257,865   

Brokerage commissions

     3,784        3,090        4,382   

Offering costs

     —          —          142,197   
  

 

 

   

 

 

   

 

 

 

Total expenses

     3,534,077        634,546        404,444   
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (3,388,013     (538,873     (388,903
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Futures contracts

     2,855,508        (1,309,400     (664,595

Forward agreements

     (174,216,829     (87,744,703     (40,120,635

Short-term U.S. government and agency obligations

     (774     4,340        —     
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     (171,362,095     (89,049,763     (40,785,230
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Futures contracts

     580,270        (704,155     185,385   

Forward agreements

     53,026,068        (12,869,409     2,811,580   

Short-term U.S. government and agency obligations

     (8,741     6,324        (2,921
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     53,597,597        (13,567,240     2,994,044   
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     (117,764,498     (102,617,003     (37,791,186
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (121,152,511   $ (103,155,876   $ (38,180,089
  

 

 

   

 

 

   

 

 

 

Net income (loss) per weighted-average share (Note 1)

   $ (5.21   $ (152.09   $ (235.74
  

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding (Note 1)

     23,253,858        678,259        161,956   
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

F-62


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PROSHARES ULTRASHORT SILVER

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

 

     Year ended
December 31, 2011
    Year ended
December 31, 2010
    Year ended
December 31, 2009
 

Shareholders’ equity, beginning of period

   $ 99,032,781      $ 64,516,145      $ 1,960,071   

Addition of shares (70,637,500, 2,667,500 and 581,250, respectively) (Note 1)

     1,193,126,146        196,300,406        178,025,835   

Redemption of shares (57,025,610, 527,521 and 241,250, respectively) (Note 1)

     (924,192,495     (58,627,894     (77,289,672
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of shares (13,611,890, 2,139,979 and 340,000, respectively) (Note 1)

     268,933,651        137,672,512        100,736,163   
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (3,388,013     (538,873     (388,903

Net realized gain (loss)

     (171,362,095     (89,049,763     (40,785,230

Change in net unrealized appreciation/depreciation

     53,597,597        (13,567,240     2,994,044   
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     (121,152,511     (103,155,876     (38,180,089
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 246,813,921      $ 99,032,781      $ 64,516,145   
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

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PROSHARES ULTRASHORT SILVER

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

 

     Year ended
December 31, 2011
    Year ended
December 31, 2010
    Year ended
December 31, 2009
 

Cash flow from operating activities

      

Net income (loss)

   $ (121,152,511   $ (103,155,876   $ (38,180,089

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

      

Decrease (Increase) in segregated cash balances for forward agreements

     —          —          820,000   

Decrease (Increase) in segregated cash balances with brokers for futures contracts

     469,523        (65,010     (425,373

Net sale (purchase) of short-term U.S. government and agency obligations

     (110,042,156     (40,540,939     (64,775,162

Change in unrealized appreciation/depreciation on investments

     (53,017,327     12,863,085        (2,808,659

Decrease (Increase) in receivable from Sponsor

     —          —          38,902   

Change in offering costs

     —          —          142,197   

Increase (Decrease) in management fee payable

     104,981        23,293        52,610   

Increase (Decrease) in payable on futures contracts

     (227,423     227,423        (5,171

Increase (Decrease) in accounts payable

     —          —          (97,742
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (283,864,913     (130,648,024     (105,238,487
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     1,184,688,165        196,300,406        178,025,835   

Payment on shares redeemed

     (903,689,371     (62,216,409     (73,701,157
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     280,998,794        134,083,997        104,324,678   
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     (2,866,119     3,435,973        (913,809

Cash, beginning of period

     3,514,285        78,312        992,121   
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 648,166      $ 3,514,285      $ 78,312   
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

F-64


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PROSHARES ULTRAPRO AUSTRALIAN DOLLAR*

STATEMENT OF FINANCIAL CONDITION

 

     December 31, 2011  

Assets

  

Cash

   $ 200   

Offering costs (Note 5)

     41,000   
  

 

 

 

Total assets

     41,200   
  

 

 

 

Liabilities and shareholders’ equity

  

Liabilities

  

Payable for offering costs

     41,000   
  

 

 

 

Total liabilities

     41,000   
  

 

 

 

Shareholders’ equity

  

Shareholders’ equity

   $ 200   
  

 

 

 

Total liabilities and shareholders’ equity

   $ 41,200   
  

 

 

 

 

* See Note 1.

 

See accompanying notes to financial statements.

 

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PROSHARES ULTRA AUSTRALIAN DOLLAR*

STATEMENT OF FINANCIAL CONDITION

 

     December 31, 2011  

Assets

  

Cash

   $ 200   

Offering costs (Note 5)

     41,000   
  

 

 

 

Total assets

     41,200   
  

 

 

 

Liabilities and shareholders’ equity

  

Liabilities

  

Payable for offering costs

     41,000   
  

 

 

 

Total liabilities

     41,000   
  

 

 

 

Shareholders’ equity

  

Shareholders’ equity

   $ 200   
  

 

 

 

Total liabilities and shareholders’ equity

   $ 41,200   
  

 

 

 

 

* See Note 1.

 

See accompanying notes to financial statements.

 

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PROSHARES SHORT AUSTRALIAN DOLLAR*

STATEMENT OF FINANCIAL CONDITION

 

     December 31, 2011  

Assets

  

Cash

   $ 200   

Offering costs (Note 5)

     41,000   
  

 

 

 

Total assets

     41,200   
  

 

 

 

Liabilities and shareholders’ equity

  

Liabilities

  

Payable for offering costs

     41,000   
  

 

 

 

Total liabilities

     41,000   
  

 

 

 

Shareholders’ equity

  

Shareholders’ equity

   $ 200   
  

 

 

 

Total liabilities and shareholders’ equity

   $ 41,200   
  

 

 

 

 

* See Note 1.

 

See accompanying notes to financial statements.

 

F-67


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PROSHARES ULTRASHORT AUSTRALIAN DOLLAR*

STATEMENT OF FINANCIAL CONDITION

 

     December 31, 2011  

Assets

  

Cash

   $ 200   

Offering costs (Note 5)

     41,000   
  

 

 

 

Total assets

     41,200   
  

 

 

 

Liabilities and shareholders’ equity

  

Liabilities

  

Payable for offering costs

     41,000   
  

 

 

 

Total liabilities

     41,000   
  

 

 

 

Shareholders’ equity

  

Shareholders’ equity

   $ 200   
  

 

 

 

Total liabilities and shareholders’ equity

   $ 41,200   
  

 

 

 

 

* See Note 1.

 

See accompanying notes to financial statements.

 

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PROSHARES ULTRAPRO SHORT AUSTRALIAN DOLLAR*

STATEMENT OF FINANCIAL CONDITION

 

     December 31, 2011  

Assets

  

Cash

   $ 200   

Offering costs (Note 5)

     41,000   
  

 

 

 

Total assets

     41,200   
  

 

 

 

Liabilities and shareholders’ equity

  

Liabilities

  

Payable for offering costs

     41,000   
  

 

 

 

Total liabilities

     41,000   
  

 

 

 

Shareholders’ equity

  

Shareholders’ equity

   $ 200   
  

 

 

 

Total liabilities and shareholders’ equity

   $ 41,200   
  

 

 

 

 

* See Note 1.

 

See accompanying notes to financial statements.

 

F-69


Table of Contents

PROSHARES ULTRAPRO CANADIAN DOLLAR*

STATEMENT OF FINANCIAL CONDITION

 

     December 31, 2011  

Assets

  

Cash

   $ 200   

Offering costs (Note 5)

     41,000   
  

 

 

 

Total assets

     41,200   
  

 

 

 

Liabilities and shareholders’ equity

  

Liabilities

  

Payable for offering costs

     41,000   
  

 

 

 

Total liabilities

     41,000   
  

 

 

 

Shareholders’ equity

  

Shareholders’ equity

   $ 200   
  

 

 

 

Total liabilities and shareholders’ equity

   $ 41,200   
  

 

 

 

 

* See Note 1.

 

See accompanying notes to financial statements.

 

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PROSHARES ULTRA CANADIAN DOLLAR*

STATEMENT OF FINANCIAL CONDITION

 

     December 31, 2011  

Assets

  

Cash

   $ 200   

Offering costs (Note 5)

     41,000   
  

 

 

 

Total assets

     41,200   
  

 

 

 

Liabilities and shareholders’ equity

  

Liabilities

  

Payable for offering costs

     41,000   
  

 

 

 

Total liabilities

     41,000   
  

 

 

 

Shareholders’ equity

  

Shareholders’ equity

   $ 200   
  

 

 

 

Total liabilities and shareholders’ equity

   $ 41,200   
  

 

 

 

 

* See Note 1.

 

See accompanying notes to financial statements.

 

F-71


Table of Contents

PROSHARES SHORT CANADIAN DOLLAR*

STATEMENT OF FINANCIAL CONDITION

 

     December 31, 2011  

Assets

  

Cash

   $ 200   

Offering costs (Note 5)

     41,000   
  

 

 

 

Total assets

     41,200   
  

 

 

 

Liabilities and shareholders’ equity

  

Liabilities

  

Payable for offering costs

     41,000   
  

 

 

 

Total liabilities

     41,000   
  

 

 

 

Shareholders’ equity

  

Shareholders’ equity

   $ 200   
  

 

 

 

Total liabilities and shareholders’ equity

   $ 41,200   
  

 

 

 

 

* See Note 1.

 

See accompanying notes to financial statements.

 

F-72


Table of Contents

PROSHARES ULTRASHORT CANADIAN DOLLAR*

STATEMENT OF FINANCIAL CONDITION

 

     December 31, 2011  

Assets

  

Cash

   $ 200   

Offering costs (Note 5)

     41,000   
  

 

 

 

Total assets

     41,200   
  

 

 

 

Liabilities and shareholders’ equity

  

Liabilities

  

Payable for offering costs

     41,000   
  

 

 

 

Total liabilities

     41,000   
  

 

 

 

Shareholders’ equity

  

Shareholders’ equity

   $ 200   
  

 

 

 

Total liabilities and shareholders’ equity

   $ 41,200   
  

 

 

 

 

* See Note 1.

 

See accompanying notes to financial statements.

 

F-73


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PROSHARES ULTRAPRO SHORT CANADIAN DOLLAR*

STATEMENT OF FINANCIAL CONDITION

 

     December 31, 2011  

Assets

  

Cash

   $ 200   

Offering costs (Note 5)

     41,000   
  

 

 

 

Total assets

     41,200   
  

 

 

 

Liabilities and shareholders’ equity

  

Liabilities

  

Payable for offering costs

     41,000   
  

 

 

 

Total liabilities

     41,000   
  

 

 

 

Shareholders’ equity

  

Shareholders’ equity

   $ 200   
  

 

 

 

Total liabilities and shareholders’ equity

   $ 41,200   
  

 

 

 

 

* See Note 1.

 

See accompanying notes to financial statements.

 

F-74


Table of Contents

PROSHARES ULTRAPRO EURO*

STATEMENT OF FINANCIAL CONDITION

 

     December 31, 2011  

Assets

  

Cash

   $ 200   

Offering costs (Note 5)

     41,000   
  

 

 

 

Total assets

     41,200   
  

 

 

 

Liabilities and shareholders’ equity

  

Liabilities

  

Payable for offering costs

     41,000   
  

 

 

 

Total liabilities

     41,000   
  

 

 

 

Shareholders’ equity

  

Shareholders’ equity

   $ 200   
  

 

 

 

Total liabilities and shareholders’ equity

   $ 41,200   
  

 

 

 

 

* See Note 1.

 

See accompanying notes to financial statements.

 

F-75


Table of Contents

PROSHARES ULTRA EURO

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2011      December 31, 2010  

Assets

     

Cash

   $ 10,469       $ 13,447   

Short-term U.S. government and agency obligations (Note 3) (cost $10,068,969 and $7,373,910, respectively)

     10,068,707         7,374,157   

Unrealized appreciation on foreign currency forward contracts

     —           348,179   
  

 

 

    

 

 

 

Total assets

     10,079,176         7,735,783   
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Management fee payable

     6,216         6,099   

Unrealized depreciation on foreign currency forward contracts

     518,212         —     
  

 

 

    

 

 

 

Total liabilities

     524,428         6,099   
  

 

 

    

 

 

 

Shareholders’ equity

     

Shareholders’ equity

     9,554,748         7,729,684   
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 10,079,176       $ 7,735,783   
  

 

 

    

 

 

 

Shares outstanding

     400,014         300,014   
  

 

 

    

 

 

 

Net asset value per share

   $ 23.89       $ 25.76   
  

 

 

    

 

 

 

Market value per share (Note 2)

   $ 23.87       $ 25.86   
  

 

 

    

 

 

 

 

See accompanying notes to financial statements.

 

F-76


Table of Contents

PROSHARES ULTRA EURO

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2011

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(105% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.016% due 01/26/12

   $ 405,000       $ 404,999   

0.005% due 02/02/12

     1,880,000         1,879,993   

0.002% due 02/09/12

     578,000         577,995   

0.000% due 03/01/12†

     2,456,000         2,455,945   

0.000% due 03/08/12†

     1,597,000         1,596,946   

0.000% due 03/22/12

     1,217,000         1,216,949   

0.003% due 04/05/12

     1,936,000         1,935,880   
     

 

 

 

Total short-term U.S. government and agency obligations (cost $10,068,969)

      $ 10,068,707   
     

 

 

 

 

 

 

Foreign Currency Forward Contracts^

 

     Settlement Date    Local Currency     Notional Amount
at Value (USD)
    Unrealized
Appreciation
(Depreciation)
 

Contracts to Purchase

         

Euro with Goldman Sachs International

   01/13/12      7,334,525      $ 9,492,896      $ (245,253

Euro with UBS AG

   01/13/12      7,824,000        10,126,412        (279,809
         

 

 

 
          $ (525,062
         

 

 

 

Contracts to Sell

         

Euro with Goldman Sachs International

   01/13/12      (183,800   $ (237,888   $ 3,190   

Euro with UBS AG

   01/13/12      (208,900     (270,374     3,660   
         

 

 

 
          $ 6,850   
         

 

 

 

 

All or partial amount segregated as collateral for foreign currency forward contracts.
^ The positions and counterparties herein are as of December 31, 2011. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.

 

See accompanying notes to financial statements.

 

F-77


Table of Contents

PROSHARES ULTRA EURO

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2010

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(95% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.115% due 01/06/11

   $ 11,000       $ 11,000   

0.090% due 01/13/11

     265,000         264,998   

0.173% due 01/20/11†

     2,300,000         2,299,959   

0.100% due 01/27/11

     241,000         240,992   

0.115% due 02/03/11

     248,000         247,982   

0.121% due 02/10/11

     150,000         149,986   

0.110% due 02/17/11

     1,102,000         1,101,852   

0.108% due 02/24/11

     2,079,000         2,078,674   

0.130% due 03/31/11

     979,000         978,714   
     

 

 

 

Total short-term U.S. government and agency obligations (cost $7,373,910)

      $ 7,374,157   
     

 

 

 

 

 

 

Foreign Currency Forward Contracts^

 

     Settlement Date    Local Currency     Notional Amount
at Value (USD)
    Unrealized
Appreciation
(Depreciation)
 

Contracts to Purchase

         

Euro with Goldman Sachs International

   01/07/11      6,509,725      $ 8,701,573      $ 191,373   

Euro with UBS AG

   01/07/11      5,408,200        7,229,160        162,114   
         

 

 

 
          $ 353,487   
         

 

 

 

Contracts to Sell

         

Euro with Goldman Sachs International

   01/07/11      (274,700   $ (367,192   $ (4,476

Euro with UBS AG

   01/07/11      (75,600     (101,055     (832
         

 

 

 
          $ (5,308
         

 

 

 

 

All or partial amount segregated as collateral for foreign currency forward contracts.
^ The positions and counterparties herein are as of December 31, 2010. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.

 

See accompanying notes to financial statements.

 

F-78


Table of Contents

PROSHARES ULTRA EURO

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

 

     Year ended
December 31, 2011
    Year ended
December 31, 2010
    Year ended
December 31, 2009
 

Investment Income

      

Interest

   $ 4,536      $ 16,178      $ 2,956   
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     79,638        108,841        7,827   

Offering costs

     —          —          69,640   

Limitation by Sponsor

     —          —          (13,795
  

 

 

   

 

 

   

 

 

 

Total expenses

     79,638        108,841        63,672   
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (75,102     (92,663     (60,716
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Foreign currency forward contracts

     354,369        (602,156     699,029   

Short-term U.S. government and agency obligations

     36        1,081        —     
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     354,405        (601,075     699,029   
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Foreign currency forward contracts

     (866,391     625,437        (136,713

Short-term U.S. government and agency obligations

     (509     539        (292
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     (866,900     625,976        (137,005
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     (512,495     24,901        562,024   
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (587,597   $ (67,762   $ 501,308   
  

 

 

   

 

 

   

 

 

 

Net income (loss) per weighted-average share

   $ (1.95   $ (0.15   $ 2.18   
  

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding

     300,973        458,370        230,014   
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

F-79


Table of Contents

PROSHARES ULTRA EURO

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

 

     Year ended
December 31, 2011
    Year ended
December 31, 2010
    Year ended
December 31, 2009
 

Shareholders’ equity, beginning of period

   $ 7,729,684      $ 7,531,857      $ 4,386,411   

Addition of shares (100,000, 850,000 and 150,000, respectively)

     2,412,661        20,023,154        3,982,252   

Redemption of shares (0, 800,000 and 50,000, respectively)

     —          (19,757,565     (1,338,114
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of shares (100,000, 50,000 and 100,000, respectively)

     2,412,661        265,589        2,644,138   
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (75,102     (92,663     (60,716

Net realized gain (loss)

     354,405        (601,075     699,029   

Change in net unrealized appreciation/depreciation

     (866,900     625,976        (137,005
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     (587,597     (67,762     501,308   
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 9,554,748      $ 7,729,684      $ 7,531,857   
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

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PROSHARES ULTRA EURO

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

 

     Year ended
December 31, 2011
    Year ended
December 31, 2010
    Year ended
December 31, 2009
 

Cash flow from operating activities

      

Net income (loss)

   $ (587,597   $ (67,762   $ 501,308   

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

      

Net sale (purchase) of short-term U.S. government and agency obligations

     (2,695,059     362,652        (7,736,562

Change in unrealized appreciation/depreciation on investments

     866,900        (625,976     137,005   

Decrease (Increase) in receivable from Sponsor

     —          —          32,913   

Change in offering costs

     —          —          69,640   

Increase (Decrease) in management fee payable

     117        (216     6,315   

Increase (Decrease) in accounts payable

     —          —          (42,977
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (2,415,639     (331,302     (7,032,358
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     2,412,661        20,023,154        3,982,252   

Payment on shares redeemed

     —          (19,757,565     (1,338,114
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     2,412,661        265,589        2,644,138   
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     (2,978     (65,713     (4,388,220

Cash, beginning of period

     13,447        79,160        4,467,380   
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 10,469      $ 13,447      $ 79,160   
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

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PROSHARES SHORT EURO*

STATEMENT OF FINANCIAL CONDITION

 

     December 31, 2011  

Assets

  

Cash

   $ 200   

Offering costs (Note 5)

     41,000   
  

 

 

 

Total assets

     41,200   
  

 

 

 

Liabilities and shareholders’ equity

  

Liabilities

  

Payable for offering costs

     41,000   
  

 

 

 

Total liabilities

     41,000   
  

 

 

 

Shareholders’ equity

  

Shareholders’ equity

   $ 200   
  

 

 

 

Total liabilities and shareholders’ equity

   $ 41,200   
  

 

 

 

 

* See Note 1.

 

See accompanying notes to financial statements.

 

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PROSHARES ULTRASHORT EURO

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2011      December 31, 2010  

Assets

     

Cash

   $ 102,088       $ 251,588   

Short-term U.S. government and agency obligations (Note 3) (cost $1,012,198,282 and $471,813,434, respectively)

     1,012,174,281         471,829,446   

Unrealized appreciation on foreign currency forward contracts

     67,430,954         —     

Receivable from capital shares sold

     21,299,733         —     
  

 

 

    

 

 

 

Total assets

     1,101,007,056         472,081,034   
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Payable for capital shares redeemed

     —           4,109,402   

Management fee payable

     847,510         364,560   

Unrealized depreciation on foreign currency forward contracts

     —           23,194,077   
  

 

 

    

 

 

 

Total liabilities

     847,510         27,668,039   
  

 

 

    

 

 

 

Shareholders’ equity

     

Shareholders’ equity

     1,100,159,546         444,412,995   
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 1,101,007,056       $ 472,081,034   
  

 

 

    

 

 

 

Shares outstanding

     54,100,014         21,900,014   
  

 

 

    

 

 

 

Net asset value per share

   $ 20.34       $ 20.29   
  

 

 

    

 

 

 

Market value per share (Note 2)

   $ 20.35       $ 20.31   
  

 

 

    

 

 

 

 

See accompanying notes to financial statements.

 

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PROSHARES ULTRASHORT EURO

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2011

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(92% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.021% due 01/12/12

   $ 69,530,000       $ 69,529,944   

0.010% due 01/19/12

     139,850,000         139,849,762   

0.016% due 01/26/12

     17,506,000         17,505,953   

0.003% due 02/02/12

     43,929,000         43,928,838   

0.001% due 02/09/12

     82,219,000         82,218,244   

0.004% due 02/16/12

     39,794,000         39,793,558   

0.016% due 02/23/12

     90,834,000         90,832,810   

0.000% due 03/01/12†

     45,000,000         44,998,983   

0.001% due 03/08/12†

     86,014,000         86,011,084   

0.001% due 03/15/12†

     45,000,000         44,998,299   

0.003% due 03/22/12†

     138,663,000         138,657,218   

0.003% due 04/05/12

     108,698,000         108,691,272   

0.010% due 05/10/12†

     105,171,000         105,158,316   
     

 

 

 

Total short-term U.S. government and agency obligations (cost $1,012,198,282)

      $ 1,012,174,281   
     

 

 

 

 

 

 

Foreign Currency Forward Contracts^

 

     Settlement Date    Local Currency     Notional Amount
at Value (USD)
    Unrealized
Appreciation
(Depreciation)
 

Contracts to Purchase

         

Euro with Goldman Sachs International

   01/13/12      30,950,200      $ 40,058,087      $ (1,352,661

Euro with UBS AG

   01/13/12      53,564,700        69,327,481        (692,235
         

 

 

 
          $ (2,044,896
         

 

 

 

Contracts to Sell

         

Euro with Goldman Sachs International

   01/13/12      (881,320,025   $ (1,140,670,959   $ 33,372,107   

Euro with UBS AG

   01/13/12      (903,636,400     (1,169,554,497     36,103,743   
         

 

 

 
          $ 69,475,850   
         

 

 

 

 

All or partial amount segregated as collateral for foreign currency forward contracts.
^ The positions and counterparties herein are as of December 31, 2011. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.

 

See accompanying notes to financial statements.

 

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PROSHARES ULTRASHORT EURO

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2010

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(106% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.103% due 01/06/11

   $ 2,146,000       $ 2,145,998   

0.113% due 01/13/11†

     103,643,000         103,642,233   

0.136% due 01/20/11†

     122,103,000         122,100,802   

0.145% due 01/27/11

     9,796,000         9,795,681   

0.134% due 02/03/11†

     72,353,000         72,347,892   

0.121% due 02/10/11

     4,325,000         4,324,598   

0.110% due 02/17/11

     33,032,000         33,027,551   

0.109% due 02/24/11

     96,559,000         96,543,840   

0.130% due 03/31/11†

     27,909,000         27,900,851   
     

 

 

 

Total short-term U.S. government and agency obligations (cost $471,813,434)

      $ 471,829,446   
     

 

 

 

 

 

 

Foreign Currency Forward Contracts^

 

     Settlement Date    Local Currency     Notional Amount
at Value (USD)
    Unrealized
Appreciation
(Depreciation)
 

Contracts to Purchase

         

Euro with Goldman Sachs International

   01/07/11      93,466,300      $ 124,936,741      $ 75,371   

Euro with UBS AG

   01/07/11      56,570,100        75,617,457        855,607   
         

 

 

 
          $ 930,978   
         

 

 

 

Contracts to Sell

         

Euro with Goldman Sachs International

   01/07/11      (417,611,725   $ (558,223,100   $ (12,262,061

Euro with UBS AG

   01/07/11      (396,904,800     (530,544,078     (11,862,994
         

 

 

 
          $ (24,125,055
         

 

 

 

 

All or partial amount segregated as collateral for foreign currency forward contracts.
^ The positions and counterparties herein are as of December 31, 2010. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.

 

See accompanying notes to financial statements.

 

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PROSHARES ULTRASHORT EURO

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

 

     Year ended
December 31, 2011
    Year ended
December 31, 2010
    Year ended
December 31, 2009
 

Investment Income

      

Interest

   $ 271,533      $ 574,152      $ 23,700   
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     6,179,382        3,379,964        303,788   

Offering costs

     —          —          69,641   
  

 

 

   

 

 

   

 

 

 

Total expenses

     6,179,382        3,379,964        373,429   
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (5,907,849     (2,805,812     (349,729
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Foreign currency forward contracts

     (5,409,463     48,542,523        (10,304,179

Short-term U.S. government and agency obligations

     3,715        35,434        —     
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     (5,405,748     48,577,957        (10,304,179
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Foreign currency forward contracts

     90,625,031        (25,149,044     1,803,814   

Short-term U.S. government and agency obligations

     (40,013     21,854        (5,842
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     90,585,018        (25,127,190     1,797,972   
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     85,179,270        23,450,767        (8,506,207
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 79,271,421      $ 20,644,955      $ (8,855,936
  

 

 

   

 

 

   

 

 

 

Net income (loss) per weighted-average share

   $ 2.22      $ 1.25      $ (4.45
  

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding

     35,660,288        16,567,274        1,989,603   
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

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PROSHARES ULTRASHORT EURO

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

 

     Year ended
December 31, 2011
    Year ended
December 31, 2010
    Year ended
December 31, 2009
 

Shareholders’ equity, beginning of period

   $ 444,412,995      $ 100,847,786      $ 7,331,163   

Addition of shares (50,600,000, 35,700,000 and 6,050,000, respectively)

     916,146,552        737,508,814        123,512,066   

Redemption of shares (18,400,000, 19,200,000 and 1,000,000, respectively)

     (339,671,422     (414,588,560     (21,139,507
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of shares (32,200,000, 16,500,000 and 5,050,000, respectively)

     576,475,130        322,920,254        102,372,559   
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (5,907,849     (2,805,812     (349,729

Net realized gain (loss)

     (5,405,748     48,577,957        (10,304,179

Change in net unrealized appreciation/depreciation

     90,585,018        (25,127,190     1,797,972   
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     79,271,421        20,644,955        (8,855,936
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 1,100,159,546      $ 444,412,995      $ 100,847,786   
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

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PROSHARES ULTRASHORT EURO

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

 

     Year ended
December 31, 2011
    Year ended
December 31, 2010
    Year ended
December 31, 2009
 

Cash flow from operating activities

      

Net income (loss)

   $ 79,271,421      $ 20,644,955      $ (8,855,936

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

      

Net sale (purchase) of short-term U.S. government and agency obligations

     (540,384,848     (372,937,234     (98,876,200

Change in unrealized appreciation/depreciation on investments

     (90,585,018     25,127,190        (1,797,972

Decrease (Increase) in receivable from Sponsor

     —          —          32,234   

Change in offering costs

     —          —          69,641   

Increase (Decrease) in management fee payable

     482,950        310,986        53,574   

Increase (Decrease) in accounts payable

     —          —          (42,977
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (551,215,495     (326,854,103     (109,417,636
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     894,846,819        737,508,814        123,512,066   

Payment on shares redeemed

     (343,780,824     (410,479,158     (21,139,507
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     551,065,995        327,029,656        102,372,559   
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     (149,500     175,553        (7,045,077

Cash, beginning of period

     251,588        76,035        7,121,112   
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 102,088      $ 251,588      $ 76,035   
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

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PROSHARES ULTRAPRO SHORT EURO*

STATEMENT OF FINANCIAL CONDITION

 

     December 31, 2011  

Assets

  

Cash

   $ 200   

Offering costs (Note 5)

     41,000   
  

 

 

 

Total assets

     41,200   
  

 

 

 

Liabilities and shareholders’ equity

  

Liabilities

  

Payable for offering costs

     41,000   
  

 

 

 

Total liabilities

     41,000   
  

 

 

 

Shareholders’ equity

  

Shareholders’ equity

   $ 200   
  

 

 

 

Total liabilities and shareholders’ equity

   $ 41,200   
  

 

 

 

 

* See Note 1.

 

See accompanying notes to financial statements.

 

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PROSHARES ULTRAPRO SWISS FRANC*

STATEMENT OF FINANCIAL CONDITION

 

     December 31, 2011  

Assets

  

Cash

   $ 200   

Offering costs (Note 5)

     41,000   
  

 

 

 

Total assets

     41,200   
  

 

 

 

Liabilities and shareholders’ equity

  

Liabilities

  

Payable for offering costs

     41,000   
  

 

 

 

Total liabilities

     41,000   
  

 

 

 

Shareholders’ equity

  

Shareholders’ equity

   $ 200   
  

 

 

 

Total liabilities and shareholders’ equity

   $ 41,200   
  

 

 

 

 

* See Note 1.

 

See accompanying notes to financial statements.

 

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PROSHARES ULTRA SWISS FRANC*

STATEMENT OF FINANCIAL CONDITION

 

     December 31, 2011  

Assets

  

Cash

   $ 200   

Offering costs (Note 5)

     41,000   
  

 

 

 

Total assets

     41,200   
  

 

 

 

Liabilities and shareholders’ equity

  

Liabilities

  

Payable for offering costs

     41,000   
  

 

 

 

Total liabilities

     41,000   
  

 

 

 

Shareholders’ equity

  

Shareholders’ equity

   $ 200   
  

 

 

 

Total liabilities and shareholders’ equity

   $ 41,200   
  

 

 

 

 

* See Note 1.

 

See accompanying notes to financial statements.

 

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PROSHARES SHORT SWISS FRANC*

STATEMENT OF FINANCIAL CONDITION

 

     December 31, 2011  

Assets

  

Cash

   $ 200   

Offering costs (Note 5)

     41,000   
  

 

 

 

Total assets

     41,200   
  

 

 

 

Liabilities and shareholders’ equity

  

Liabilities

  

Payable for offering costs

     41,000   
  

 

 

 

Total liabilities

     41,000   
  

 

 

 

Shareholders’ equity

  

Shareholders’ equity

   $ 200   
  

 

 

 

Total liabilities and shareholders’ equity

   $ 41,200   
  

 

 

 

 

* See Note 1.

 

See accompanying notes to financial statements.

 

F-92


Table of Contents

PROSHARES ULTRASHORT SWISS FRANC*

STATEMENT OF FINANCIAL CONDITION

 

     December 31, 2011  

Assets

  

Cash

   $ 200   

Offering costs (Note 5)

     41,000   
  

 

 

 

Total assets

     41,200   
  

 

 

 

Liabilities and shareholders’ equity

  

Liabilities

  

Payable for offering costs

     41,000   
  

 

 

 

Total liabilities

     41,000   
  

 

 

 

Shareholders’ equity

  

Shareholders’ equity

   $ 200   
  

 

 

 

Total liabilities and shareholders’ equity

   $ 41,200   
  

 

 

 

 

* See Note 1.

 

See accompanying notes to financial statements.

 

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Table of Contents

PROSHARES ULTRAPRO SHORT SWISS FRANC*

STATEMENT OF FINANCIAL CONDITION

 

     December 31, 2011  

Assets

  

Cash

   $ 200   

Offering costs (Note 5)

     41,000   
  

 

 

 

Total assets

     41,200   
  

 

 

 

Liabilities and shareholders’ equity

  

Liabilities

  

Payable for offering costs

     41,000   
  

 

 

 

Total liabilities

     41,000   
  

 

 

 

Shareholders’ equity

  

Shareholders’ equity

   $ 200   
  

 

 

 

Total liabilities and shareholders’ equity

   $ 41,200   
  

 

 

 

 

* See Note 1.

 

See accompanying notes to financial statements.

 

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PROSHARES ULTRAPRO U.S. DOLLAR*

STATEMENT OF FINANCIAL CONDITION

 

     December 31, 2011  

Assets

  

Cash

   $ 200   

Offering costs (Note 5)

     41,000   
  

 

 

 

Total assets

     41,200   
  

 

 

 

Liabilities and shareholders’ equity

  

Liabilities

  

Payable for offering costs

     41,000   
  

 

 

 

Total liabilities

     41,000   
  

 

 

 

Shareholders’ equity

  

Shareholders’ equity

   $ 200   
  

 

 

 

Total liabilities and shareholders’ equity

   $ 41,200   
  

 

 

 

 

* See Note 1.

 

See accompanying notes to financial statements.

 

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PROSHARES ULTRA U.S. DOLLAR*

STATEMENT OF FINANCIAL CONDITION

 

     December 31, 2011  

Assets

  

Cash

   $ 200   

Offering costs (Note 5)

     41,000   
  

 

 

 

Total assets

     41,200   
  

 

 

 

Liabilities and shareholders’ equity

  

Liabilities

  

Payable for offering costs

     41,000   
  

 

 

 

Total liabilities

     41,000   
  

 

 

 

Shareholders’ equity

  

Shareholders’ equity

   $ 200   
  

 

 

 

Total liabilities and shareholders’ equity

   $ 41,200   
  

 

 

 

 

* See Note 1.

 

See accompanying notes to financial statements.

 

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PROSHARES SHORT U.S. DOLLAR*

STATEMENT OF FINANCIAL CONDITION

 

     December 31, 2011  

Assets

  

Cash

   $ 200   

Offering costs (Note 5)

     41,000   
  

 

 

 

Total assets

     41,200   
  

 

 

 

Liabilities and shareholders’ equity

  

Liabilities

  

Payable for offering costs

     41,000   
  

 

 

 

Total liabilities

     41,000   
  

 

 

 

Shareholders’ equity

  

Shareholders’ equity

   $ 200   
  

 

 

 

Total liabilities and shareholders’ equity

   $ 41,200   
  

 

 

 

 

* See Note 1.

 

See accompanying notes to financial statements.

 

F-97


Table of Contents

PROSHARES ULTRASHORT U.S. DOLLAR*

STATEMENT OF FINANCIAL CONDITION

 

     December 31, 2011  

Assets

  

Cash

   $ 200   

Offering costs (Note 5)

     41,000   
  

 

 

 

Total assets

     41,200   
  

 

 

 

Liabilities and shareholders’ equity

  

Liabilities

  

Payable for offering costs

     41,000   
  

 

 

 

Total liabilities

     41,000   
  

 

 

 

Shareholders’ equity

  

Shareholders’ equity

   $ 200   
  

 

 

 

Total liabilities and shareholders’ equity

   $ 41,200   
  

 

 

 

 

* See Note 1.

 

See accompanying notes to financial statements.

 

F-98


Table of Contents

PROSHARES ULTRAPRO SHORT U.S. DOLLAR*

STATEMENT OF FINANCIAL CONDITION

 

     December 31, 2011  

Assets

  

Cash

   $ 200   

Offering costs (Note 5)

     41,000   
  

 

 

 

Total assets

     41,200   
  

 

 

 

Liabilities and shareholders’ equity

  

Liabilities

  

Payable for offering costs

     41,000   
  

 

 

 

Total liabilities

     41,000   
  

 

 

 

Shareholders’ equity

  

Shareholders’ equity

   $ 200   
  

 

 

 

Total liabilities and shareholders’ equity

   $ 41,200   
  

 

 

 

 

* See Note 1.

 

See accompanying notes to financial statements.

 

F-99


Table of Contents

PROSHARES ULTRAPRO YEN*

STATEMENT OF FINANCIAL CONDITION

 

     December 31, 2011  

Assets

  

Cash

   $ 200   

Offering costs (Note 5)

     41,000   
  

 

 

 

Total assets

     41,200   
  

 

 

 

Liabilities and shareholders’ equity

  

Liabilities

  

Payable for offering costs

     41,000   
  

 

 

 

Total liabilities

     41,000   
  

 

 

 

Shareholders’ equity

  

Shareholders’ equity

   $ 200   
  

 

 

 

Total liabilities and shareholders’ equity

   $ 41,200   
  

 

 

 

 

* See Note 1.

 

See accompanying notes to financial statements.

 

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Table of Contents

PROSHARES ULTRA YEN

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2011      December 31, 2010  

Assets

     

Cash

   $ 5,798       $ 10,637   

Short-term U.S. government and agency obligations (Note 3) (cost $5,366,951 and $4,733,572, respectively)

     5,366,875         4,733,703   

Unrealized appreciation on foreign currency forward contracts

     102,727         283,503   
  

 

 

    

 

 

 

Total assets

     5,475,400         5,027,843   
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Management fee payable

     4,325         3,603   
  

 

 

    

 

 

 

Total liabilities

     4,325         3,603   
  

 

 

    

 

 

 

Shareholders’ equity

     

Shareholders’ equity

     5,471,075         5,024,240   
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 5,475,400       $ 5,027,843   
  

 

 

    

 

 

 

Shares outstanding

     150,014         150,014   
  

 

 

    

 

 

 

Net asset value per share

   $ 36.47       $ 33.49   
  

 

 

    

 

 

 

Market value per share (Note 2)

   $ 36.50       $ 33.29   
  

 

 

    

 

 

 

 

See accompanying notes to financial statements.

 

F-101


Table of Contents

PROSHARES ULTRA YEN

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2011

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(98% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.021% due 01/12/12

   $ 1,504,000       $ 1,503,999   

0.016% due 01/19/12

     1,037,000         1,036,998   

0.005% due 02/02/12

     726,000         725,997   

0.003% due 03/08/12†

     1,359,000         1,358,954   

0.002% due 04/05/12

     278,000         277,983   

0.011% due 05/10/12

     463,000         462,944   
     

 

 

 

Total short-term U.S. government and agency obligations (cost $5,366,951)

      $ 5,366,875   
     

 

 

 

 

 

 

Foreign Currency Forward Contracts^

 

     Settlement Date    Local Currency     Notional Amount
at Value (USD)
    Unrealized
Appreciation
(Depreciation)
 

Contracts to Purchase

         

Yen with Goldman Sachs International

   01/13/12      361,210,000      $ 4,693,138      $ 43,342   

Yen with UBS AG

   01/13/12      486,460,000        6,320,489        60,268   
         

 

 

 
          $ 103,610   
         

 

 

 

Contracts to Sell

         

Yen with Goldman Sachs International

   01/13/12      (2,500,000   $ (32,482   $ (457

Yen with UBS AG

   01/13/12      (2,940,000     (38,199     (426
         

 

 

 
          $ (883
         

 

 

 

 

All or partial amount segregated as collateral for foreign currency forward contracts.
^ The positions and counterparties herein are as of December 31, 2011. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.

 

See accompanying notes to financial statements.

 

F-102


Table of Contents

PROSHARES ULTRA YEN

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2010

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(94% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.115% due 01/06/11†

   $ 274,000       $ 274,000   

0.092% due 01/13/11

     1,975,000         1,974,985   

0.131% due 01/20/11†

     689,000         688,988   

0.113% due 01/27/11

     455,000         454,985   

0.115% due 02/03/11

     100,000         99,993   

0.121% due 02/10/11

     115,000         114,989   

0.107% due 02/24/11

     678,000         677,894   

0.130% due 03/31/11

     448,000         447,869   
     

 

 

 

Total short-term U.S. government and agency obligations (cost $4,733,572)

      $ 4,733,703   
     

 

 

 

 

 

 

Foreign Currency Forward Contracts^

 

     Settlement Date    Local Currency     Notional Amount
at Value (USD)
    Unrealized
Appreciation
(Depreciation)
 

Contracts to Purchase

         

Yen with Goldman Sachs International

   01/07/11      398,750,000      $ 4,908,950      $ 169,715   

Yen with UBS AG

   01/07/11      441,640,000        5,436,962        123,053   
         

 

 

 
          $ 292,768   
         

 

 

 

Contracts to Sell

         

Yen with Goldman Sachs International

   01/07/11      (24,020,000   $ (295,707   $ (9,265
         

 

 

 

 

All or partial amount segregated as collateral for foreign currency forward contracts.
^ The positions and counterparties herein are as of December 31, 2010. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.

 

See accompanying notes to financial statements.

 

F-103


Table of Contents

PROSHARES ULTRA YEN

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

 

     Year ended     Year ended     Year ended  
     December 31, 2011     December 31, 2010     December 31, 2009  

Investment Income

      

Interest

   $ 1,871      $ 6,585      $ 1,709   
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     41,443        44,676        4,210   

Offering costs

     —          —          69,639   

Limitation by Sponsor

     —          —          (35,417
  

 

 

   

 

 

   

 

 

 

Total expenses

     41,443        44,676        38,432   
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (39,572     (38,091     (36,723
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Foreign currency forward contracts

     564,813        826,717        (241,945

Short-term U.S. government and agency obligations

     19        41        —     
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     564,832        826,758        (241,945
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Foreign currency forward contracts

     (180,776     599,316        (114,239

Short-term U.S. government and agency obligations

     (207     277        (146
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     (180,983     599,593        (114,385
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     383,849        1,426,351        (356,330
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 344,277      $ 1,388,260      $ (393,053
  

 

 

   

 

 

   

 

 

 

Net income (loss) per weighted-average share

   $ 2.75      $ 8.66      $ (2.55
  

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding

     125,219        160,288        154,124   
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

F-104


Table of Contents

PROSHARES ULTRA YEN

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

 

     Year ended
December 31, 2011
    Year ended
December 31, 2010
    Year ended
December 31, 2009
 

Shareholders’ equity, beginning of period

   $ 5,024,240      $ 3,921,267      $ 2,845,053   

Addition of shares (50,000, 100,000 and 100,000, respectively)

     1,696,147        3,077,318        2,725,367   

Redemption of shares (50,000, 100,000 and 50,000, respectively)

     (1,593,589     (3,362,605     (1,256,100
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of shares (0, 0 and 50,000, respectively)

     102,558        (285,287     1,469,267   
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (39,572     (38,091     (36,723

Net realized gain (loss)

     564,832        826,758        (241,945

Change in net unrealized appreciation/depreciation

     (180,983     599,593        (114,385
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     344,277        1,388,260        (393,053
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 5,471,075      $ 5,024,240      $ 3,921,267   
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

F-105


Table of Contents

PROSHARES ULTRA YEN

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

 

     Year ended
December 31, 2011
    Year ended
December 31, 2010
    Year ended
December 31, 2009
 

Cash flow from operating activities

      

Net income (loss)

   $ 344,277      $ 1,388,260      $ (393,053

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

      

Net sale (purchase) of short-term U.S. government and agency obligations

     (633,379     (578,293     (4,155,279

Change in unrealized appreciation/depreciation on investments

     180,983        (599,593     114,385   

Decrease (Increase) in receivable from Sponsor

     —          —          33,137   

Change in offering costs

     —          —          69,639   

Increase (Decrease) in management fee payable

     722        206        3,397   

Increase (Decrease) in accounts payable

     —          —          (42,975
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (107,397     210,580        (4,370,749
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     1,696,147        3,077,318        2,725,367   

Payment on shares redeemed

     (1,593,589     (3,362,605     (1,256,100
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     102,558        (285,287     1,469,267   
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     (4,839     (74,707     (2,901,482

Cash, beginning of period

     10,637        85,344        2,986,826   
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 5,798      $ 10,637      $ 85,344   
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

F-106


Table of Contents

PROSHARES SHORT YEN*

STATEMENT OF FINANCIAL CONDITION

 

     December 31, 2011  

Assets

  

Cash

   $ 200   

Offering costs (Note 5)

     41,000   
  

 

 

 

Total assets

     41,200   
  

 

 

 

Liabilities and shareholders’ equity

  

Liabilities

  

Payable for offering costs

     41,000   
  

 

 

 

Total liabilities

     41,000   
  

 

 

 

Shareholders’ equity

  

Shareholders’ equity

   $ 200   
  

 

 

 

Total liabilities and shareholders’ equity

   $ 41,200   
  

 

 

 

 

* See Note 1.

 

See accompanying notes to financial statements.

 

F-107


Table of Contents

PROSHARES ULTRASHORT YEN

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2011      December 31, 2010  

Assets

     

Cash

   $ 22,338       $ 120,494   

Short-term U.S. government and agency obligations (Note 3) (cost $219,407,765 and $223,865,319, respectively)

     219,404,292         223,873,131   

Receivable from capital shares sold

     6,249,734         —     
  

 

 

    

 

 

 

Total assets

     225,676,364         223,993,625   
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Management fee payable

     180,224         170,158   

Unrealized depreciation on foreign currency forward contracts

     4,364,146         16,137,654   
  

 

 

    

 

 

 

Total liabilities

     4,544,370         16,307,812   
  

 

 

    

 

 

 

Shareholders’ equity

     

Shareholders’ equity

     221,131,994         207,685,813   
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 225,676,364       $ 223,993,625   
  

 

 

    

 

 

 

Shares outstanding

     5,399,294         4,416,671   
  

 

 

    

 

 

 

Net asset value per share (Note 1)

   $ 40.96       $ 47.02   
  

 

 

    

 

 

 

Market value per share (Note 1) (Note 2)

   $ 40.95       $ 47.01   
  

 

 

    

 

 

 

 

See accompanying notes to financial statements.

 

F-108


Table of Contents

PROSHARES ULTRASHORT YEN

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2011

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(99% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.021% due 01/12/12

   $ 11,624,000       $ 11,623,991   

0.010% due 01/19/12

     44,696,000         44,695,924   

0.016% due 01/26/12

     48,298,000         48,297,870   

0.002% due 02/09/12†

     36,606,000         36,605,663   

0.000% due 03/01/12†

     7,000,000         6,999,842   

0.002% due 03/08/12†

     10,901,000         10,900,630   

0.000% due 03/15/12†

     9,764,000         9,763,631   

0.005% due 03/22/12

     16,390,000         16,389,317   

0.002% due 04/05/12

     9,218,000         9,217,429   

0.011% due 05/10/12†

     24,913,000         24,909,995   
     

 

 

 

Total short-term U.S. government and agency obligations (cost $219,407,765)

      $ 219,404,292   
     

 

 

 

 

 

 

Foreign Currency Forward Contracts^

 

     Settlement Date    Local Currency     Notional Amount
at Value (USD)
    Unrealized
Appreciation
(Depreciation)
 

Contracts to Purchase

         

Yen with Goldman Sachs International

   01/13/12      1,157,460,000      $ 15,038,674      $ 10,036   

Yen with UBS AG

   01/13/12      1,743,810,000        22,657,016        224,070   
         

 

 

 
          $ 234,106   
         

 

 

 

Contracts to Sell

         

Yen with Goldman Sachs International

   01/13/12      (17,594,930,000   $ (228,607,826   $ (2,177,796

Yen with UBS AG

   01/13/12      (19,346,660,000     (251,367,745     (2,420,456
         

 

 

 
          $ (4,598,252
         

 

 

 

 

All or partial amount segregated as collateral for foreign currency forward contracts.
^ The positions and counterparties herein are as of December 31, 2011. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.

 

See accompanying notes to financial statements.

 

F-109


Table of Contents

PROSHARES ULTRASHORT YEN

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2010

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(108% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.103% due 01/06/11

   $ 5,293,000       $ 5,292,996   

0.111% due 01/13/11†

     30,836,000         30,835,772   

0.136% due 01/20/11†

     67,636,000         67,634,783   

0.118% due 01/27/11

     28,156,000         28,155,082   

0.109% due 02/03/11†

     33,492,000         33,489,635   

0.121% due 02/10/11

     1,110,000         1,109,897   

0.110% due 02/17/11

     8,576,000         8,574,845   

0.107% due 02/24/11

     32,360,000         32,354,919   

0.130% due 03/31/11†

     16,430,000         16,425,202   
     

 

 

 

Total short-term U.S. government and agency obligations (cost $223,865,319)

      $ 223,873,131   

 

 

 

Foreign Currency Forward Contracts^

 

     Settlement Date    Local Currency     Notional Amount
at Value (USD)
    Unrealized
Appreciation
(Depreciation)
 

Contracts to Purchase

         

Yen with Goldman Sachs International

   01/07/11      4,660,570,000      $ 57,375,559      $ 1,244,985   

Yen with UBS AG

   01/07/11      3,734,640,000        45,976,577        611,783   
         

 

 

 
          $ 1,856,768   
         

 

 

 

Contracts to Sell

         

Yen with Goldman Sachs International

   01/07/11      (20,869,950,000   $ (256,926,737   $ (8,865,037

Yen with UBS AG

   01/07/11      (21,245,680,000     (261,552,292     (9,129,385
         

 

 

 
          $ (17,994,422
         

 

 

 

 

All or partial amount segregated as collateral for foreign currency forward contracts.
^ The positions and counterparties herein are as of December 31, 2010. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.

 

See accompanying notes to financial statements.

 

F-110


Table of Contents

PROSHARES ULTRASHORT YEN

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

 

     Year ended
December 31, 2011
    Year ended
December 31, 2010
    Year ended
December 31, 2009
 

Investment Income

      

Interest

   $ 182,452      $ 233,813      $ 25,604   
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     2,824,586        1,447,095        304,905   

Offering costs

     —          —          69,641   
  

 

 

   

 

 

   

 

 

 

Total expenses

     2,824,586        1,447,095        374,546   
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (2,642,134     (1,213,282     (348,942
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Foreign currency forward contracts

     (50,029,053     (22,116,381     (6,039,297

Short-term U.S. government and agency obligations

     4,169        6,893        —     
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     (50,024,884     (22,109,488     (6,039,297
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Foreign currency forward contracts

     11,773,508        (21,002,722     4,729,151   

Short-term U.S. government and agency obligations

     (11,285     10,003        (2,191
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     11,762,223        (20,992,719     4,726,960   
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     (38,262,661     (43,102,207     (1,312,337
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (40,904,795   $ (44,315,489   $ (1,661,279
  

 

 

   

 

 

   

 

 

 

Net income (loss) per weighted-average share (Note 1)

   $ (6.14   $ (15.88   $ (2.85
  

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding (Note 1)

     6,664,842        2,790,005        583,840   
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

F-111


Table of Contents

PROSHARES ULTRASHORT YEN

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

 

     Year ended
December 31, 2011
    Year ended
December 31, 2010
    Year ended
December 31, 2009
 

Shareholders’ equity, beginning of period

   $ 207,685,813      $ 67,487,917      $ 2,166,617   

Addition of shares (6,683,333, 4,683,333 and 1,650,000, respectively) (Note 1)

     308,667,664        256,674,572        110,783,920   

Redemption of shares (5,700,710, 1,316,667 and 633,333, respectively) (Note 1)

     (254,316,688     (72,161,187     (43,801,341
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of shares (982,623, 3,366,666 and 1,016,667, respectively) (Note 1)

     54,350,976        184,513,385        66,982,579   
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (2,642,134     (1,213,282     (348,942

Net realized gain (loss)

     (50,024,884     (22,109,488     (6,039,297

Change in net unrealized appreciation/depreciation

     11,762,223        (20,992,719     4,726,960   
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     (40,904,795     (44,315,489     (1,661,279
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 221,131,994      $ 207,685,813      $ 67,487,917   
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

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PROSHARES ULTRASHORT YEN

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

 

     Year ended
December 31, 2011
    Year ended
December 31, 2010
    Year ended
December 31, 2009
 

Cash flow from operating activities

      

Net income (loss)

   $ (40,904,795   $ (44,315,489   $ (1,661,279

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

      

Net sale (purchase) of short-term U.S. government and agency obligations

     4,457,554        (161,267,333     (62,597,986

Change in unrealized appreciation/depreciation on investments

     (11,762,223     20,992,719        (4,726,960

Decrease (Increase) in receivable from Sponsor

     —          —          33,660   

Change in offering costs

     —          —          69,641   

Increase (Decrease) in management fee payable

     10,066        121,788        48,370   

Increase (Decrease) in accounts payable

     —          —          (42,978
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (48,199,398     (184,468,315     (68,877,532
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     302,417,930        256,674,572        110,783,920   

Payment on shares redeemed

     (254,316,688     (72,161,187     (43,801,341
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     48,101,242        184,513,385        66,982,579   
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     (98,156     45,070        (1,894,953

Cash, beginning of period

     120,494        75,424        1,970,377   
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 22,338      $ 120,494      $ 75,424   
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

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PROSHARES ULTRAPRO SHORT YEN*

STATEMENT OF FINANCIAL CONDITION

 

     December 31, 2011  

Assets

  

Cash

   $ 200   

Offering costs (Note 5)

     41,000   
  

 

 

 

Total assets

     41,200   
  

 

 

 

Liabilities and shareholders’ equity

  

Liabilities

  

Payable for offering costs

     41,000   
  

 

 

 

Total liabilities

     41,000   
  

 

 

 

Shareholders’ equity

  

Shareholders’ equity

   $ 200   
  

 

 

 

Total liabilities and shareholders’ equity

   $ 41,200   
  

 

 

 

 

* See Note 1.

 

See accompanying notes to financial statements.

 

F-114


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PROSHARES ULTRA VIX SHORT-TERM FUTURES ETF

STATEMENT OF FINANCIAL CONDITION

 

     December 31, 2011  

Assets

  

Cash

   $ 2,972,032   

Segregated cash balances with brokers for futures contracts

     6,303,800   

Receivable from capital shares sold

     2,469,584   

Offering costs (Note 5)

     21,691   
  

 

 

 

Total assets

     11,767,107   
  

 

 

 

Liabilities and shareholders’ equity

  

Liabilities

  

Payable on open futures contracts

     1,852,966   

Management fee payable

     4,264   

Payable for offering costs

     28,764   
  

 

 

 

Total liabilities

     1,885,994   
  

 

 

 

Shareholders’ equity

  

Shareholders’ equity

     9,881,113   
  

 

 

 

Total liabilities and shareholders’ equity

   $ 11,767,107   
  

 

 

 

Shares outstanding

     800,010   
  

 

 

 

Net asset value per share

   $ 12.35   
  

 

 

 

Market value per share (Note 2)

   $ 12.16   
  

 

 

 

 

See accompanying notes to financial statements.

 

F-115


Table of Contents

PROSHARES ULTRA VIX SHORT-TERM FUTURES ETF

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2011

Futures Contracts Purchased††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

VIX Futures - CBOE, expires January 2012

     431       $ 11,507,700       $ (904,390

VIX Futures - CBOE, expires February 2012

     302         8,199,300         141,600   
        

 

 

 
         $ (762,790
        

 

 

 

 

†† Cash collateral in the amount of $6,303,800 was pledged to cover margin requirements for open futures contracts as of December 31, 2011.

 

See accompanying notes to financial statements.

 

F-116


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PROSHARES ULTRA VIX SHORT-TERM FUTURES ETF

STATEMENT OF OPERATIONS

FOR THE PERIOD FROM APRIL 5, 2011 (INCEPTION) TO DECEMBER 31, 2011

 

     April 5, 2011
(Inception) through
December 31, 2011
 

Investment Income

  

Interest

   $ —     
  

 

 

 

Expenses

  

Management fee

     4,264   

Brokerage commissions

     5,441   

Offering costs

     7,073   
  

 

 

 

Total expenses

     16,778   
  

 

 

 

Net investment income (loss)

     (16,778
  

 

 

 

Realized and unrealized gain (loss) on investment activity

  

Net realized gain (loss) on

  

Futures contracts

     (3,524,662

Short-term U.S. government and agency obligations

     (91
  

 

 

 

Net realized gain (loss)

     (3,524,753
  

 

 

 

Change in net unrealized appreciation/depreciation on

  

Futures contracts

     (762,790
  

 

 

 

Change in net unrealized appreciation/depreciation

     (762,790
  

 

 

 

Net realized and unrealized gain (loss)

     (4,287,543
  

 

 

 

Net income (loss)

   $ (4,304,321
  

 

 

 

Net income (loss) per weighted-average share

   $ (15.26
  

 

 

 

Weighted-average shares outstanding

     282,032   
  

 

 

 

 

See accompanying notes to financial statements.

 

F-117


Table of Contents

PROSHARES ULTRA VIX SHORT-TERM FUTURES ETF

STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE PERIOD FROM APRIL 5, 2011 (INCEPTION) TO DECEMBER 31, 2011

 

     April 5, 2011
(Inception) through
December 31, 2011
 

Shareholders’ equity, beginning of period

   $ —     

Addition of 800,010 shares

     14,185,434   
  

 

 

 

Net investment income (loss)

     (16,778

Net realized gain (loss)

     (3,524,753

Change in net unrealized appreciation/depreciation

     (762,790
  

 

 

 

Net income (loss)

     (4,304,321
  

 

 

 

Shareholders’ equity, end of period

   $ 9,881,113   
  

 

 

 

 

See accompanying notes to financial statements.

 

F-118


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PROSHARES ULTRA VIX SHORT-TERM FUTURES ETF

STATEMENT OF CASH FLOWS

FOR THE PERIOD FROM APRIL 5, 2011 (INCEPTION) TO DECEMBER 31, 2011

 

     April 5, 2011
(Inception) through
December 31, 2011
 

Cash flow from operating activities

  

Net income (loss)

   $ (4,304,321

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

  

Decrease (Increase) in segregated cash balances with brokers for futures contracts

     (6,303,800

Change in offering costs

     (21,691

Increase (Decrease) in management fee payable

     4,264   

Increase (Decrease) in payable on futures contracts

     1,852,966   

Increase (Decrease) in payable for offering costs

     28,764   
  

 

 

 

Net cash provided by (used in) operating activities

     (8,743,818
  

 

 

 

Cash flow from financing activities

  

Proceeds from addition of shares

     11,715,850   
  

 

 

 

Net increase (decrease) in cash

     2,972,032   

Cash, beginning of period

     —     
  

 

 

 

Cash, end of period

   $ 2,972,032   
  

 

 

 

 

See accompanying notes to financial statements.

 

F-119


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PROSHARES VIX SHORT-TERM FUTURES ETF

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2011      December 31, 2010  

Assets

     

Cash

   $ 563,350       $ 400   

Short-term U.S. government and agency obligations (Note 3) (cost $27,358,785 and $0, respectively)

     27,357,824         —     

Receivable from capital shares sold

     1,909,463         —     

Receivable on open futures contracts

     742,451         —     

Offering costs (Note 5)

     1,090         198,998   
  

 

 

    

 

 

 

Total assets

     30,574,178         199,398   
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Management fee payable

     24,275         —     

Payable for offering costs

     —           198,998   
  

 

 

    

 

 

 

Total liabilities

     24,275         198,998   
  

 

 

    

 

 

 

Shareholders’ equity

     

Shareholders’ equity

     30,549,903         400   
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 30,574,178       $ 199,398   
  

 

 

    

 

 

 

Shares outstanding

     400,005         5   
  

 

 

    

 

 

 

Net asset value per share

   $ 76.37       $ 80.00   
  

 

 

    

 

 

 

Market value per share (Note 2)

   $ 75.74       $ 80.00   
  

 

 

    

 

 

 

 

See accompanying notes to financial statements.

 

F-120


Table of Contents

PROSHARES VIX SHORT-TERM FUTURES ETF

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2011

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(90% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.005% due 02/02/12†

   $ 3,117,000       $ 3,116,988   

0.002% due 02/09/12†

     2,309,000         2,308,979   

0.016% due 02/23/12†

     1,096,000         1,095,986   

0.001% due 03/15/12†

     5,655,000         5,654,786   

0.002% due 03/22/12†

     7,424,000         7,423,690   

0.002% due 04/05/12

     5,625,000         5,624,652   

0.011% due 05/10/12†

     2,133,000         2,132,743   
     

 

 

 

Total short-term U.S. government and agency obligations (cost $27,358,785)

      $ 27,357,824   
     

 

 

 

 

 

 

Futures Contracts Purchased

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

VIX Futures - CBOE, expires January 2012

     668       $ 17,835,600       $ (1,871,470

VIX Futures - CBOE, expires February 2012

     466         12,651,900         295,500   
        

 

 

 
         $ (1,575,970
        

 

 

 

 

All or partial amount segregated as collateral for futures contracts.

 

See accompanying notes to financial statements.

 

F-121


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PROSHARES VIX SHORT-TERM FUTURES ETF

STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2011

 

     Year ended
December 31, 2011
 

Investment Income

  

Interest

   $ 12,243   
  

 

 

 

Expenses

  

Management fee

     96,904   

Offering costs

     197,908   
  

 

 

 

Total expenses

     294,812   
  

 

 

 

Net investment income (loss)

     (282,569
  

 

 

 

Realized and unrealized gain (loss) on investment activity

  

Net realized gain (loss) on

  

Futures contracts

     3,732,227   

Short-term U.S. government and agency obligations

     2,218   
  

 

 

 

Net realized gain (loss)

     3,734,445   
  

 

 

 

Change in net unrealized appreciation/depreciation on

  

Futures contracts

     (1,575,970

Short-term U.S. government and agency obligations

     (961
  

 

 

 

Change in net unrealized appreciation/depreciation

     (1,576,931
  

 

 

 

Net realized and unrealized gain (loss)

     2,157,514   
  

 

 

 

Net income (loss)

   $ 1,874,945   
  

 

 

 

Net income (loss) per weighted-average share

   $ 3.44   
  

 

 

 

Weighted-average shares outstanding

     544,273   
  

 

 

 

 

See accompanying notes to financial statements.

 

F-122


Table of Contents

PROSHARES VIX SHORT-TERM FUTURES ETF

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEAR ENDED DECEMBER 31, 2011

 

     Year ended
December 31, 2011
 

Shareholders’ equity, beginning of period

   $ 400   

Addition of shares (4,725,000 and 5, respectively)

     297,178,431   

Redemption of shares (4,325,000 and 0, respectively)

     (268,503,873
  

 

 

 

Net addition (redemption) of shares (400,000 and 5, respectively)

     28,674,558   
  

 

 

 

Net investment income (loss)

     (282,569

Net realized gain (loss)

     3,734,445   

Change in net unrealized appreciation/depreciation

     (1,576,931
  

 

 

 

Net income (loss)

     1,874,945   
  

 

 

 

Shareholders’ equity, end of period

   $ 30,549,903   
  

 

 

 

 

See accompanying notes to financial statements.

 

F-123


Table of Contents

PROSHARES VIX SHORT-TERM FUTURES ETF

STATEMENTS OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 2011

 

     Year ended
December 31, 2011
 

Cash flow from operating activities

  

Net income (loss)

   $ 1,874,945   

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

  

Net sale (purchase) of short-term U.S. government and agency obligations

     (27,358,785

Change in unrealized appreciation/depreciation on investments

     961   

Decrease (Increase) in receivable on futures contracts

     (742,451

Change in offering costs

     197,908   

Increase (Decrease) in management fee payable

     24,275   

Increase (Decrease) in payable for offering costs

     (198,998
  

 

 

 

Net cash provided by (used in) operating activities

     (26,202,145
  

 

 

 

Cash flow from financing activities

  

Proceeds from addition of shares

     295,268,968   

Payment on shares redeemed

     (268,503,873
  

 

 

 

Net cash provided by (used in) financing activities

     26,765,095   
  

 

 

 

Net increase (decrease) in cash

     562,950   

Cash, beginning of period

     400   
  

 

 

 

Cash, end of period

   $ 563,350   
  

 

 

 

 

See accompanying notes to financial statements.

 

F-124


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PROSHARES SHORT VIX SHORT-TERM FUTURES ETF

STATEMENT OF FINANCIAL CONDITION

 

     December 31, 2011  

Assets

  

Cash

   $ 5,521,055   

Segregated cash balances with brokers for futures contracts

     2,252,358   

Offering costs (Note 5)

     21,691   
  

 

 

 

Total assets

     7,795,104   
  

 

 

 

Liabilities and shareholders’ equity

  

Liabilities

  

Management fee payable

     5,916   

Payable for offering costs

     28,764   
  

 

 

 

Total liabilities

     34,680   
  

 

 

 

Shareholders’ equity

  

Shareholders’ equity

     7,760,424   
  

 

 

 

Total liabilities and shareholders’ equity

   $ 7,795,104   
  

 

 

 

Shares outstanding

     150,010   
  

 

 

 

Net asset value per share

   $ 51.73   
  

 

 

 

Market value per share (Note 2)

   $ 52.28   
  

 

 

 

 

See accompanying notes to financial statements.

 

F-125


Table of Contents

PROSHARES SHORT VIX SHORT-TERM FUTURES ETF

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2011

Futures Contracts Sold††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

VIX Futures - CBOE, expires January 2012

     171       $ 4,565,700       $ 181,280   

VIX Futures - CBOE, expires February 2012

     119         3,230,850         (91,100
        

 

 

 
         $ 90,180   
        

 

 

 

 

†† Cash collateral in the amount of $2,252,358 was pledged to cover margin requirements for open futures contracts as of December 31, 2011.

 

See accompanying notes to financial statements.

 

F-126


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PROSHARES SHORT VIX SHORT-TERM FUTURES ETF

STATEMENT OF OPERATIONS

FOR THE PERIOD FROM APRIL 5, 2011 (INCEPTION) TO DECEMBER 31, 2011

 

     April 5, 2011
(Inception) through
December 31, 2011
 

Investment Income

  

Interest

   $ 1   
  

 

 

 

Expenses

  

Management fee

     5,916   

Brokerage commissions

     3,345   

Offering costs

     7,073   
  

 

 

 

Total expenses

     16,334   
  

 

 

 

Net investment income (loss)

     (16,333
  

 

 

 

Realized and unrealized gain (loss) on investment activity

  

Net realized gain (loss) on

  

Futures contracts

     1,355,975   

Short-term U.S. government and agency obligations

     (138
  

 

 

 

Net realized gain (loss)

     1,355,837   
  

 

 

 

Change in net unrealized appreciation/depreciation on

  

Futures contracts

     90,180   
  

 

 

 

Change in net unrealized appreciation/depreciation

     90,180   
  

 

 

 

Net realized and unrealized gain (loss)

     1,446,017   
  

 

 

 

Net income (loss)

   $ 1,429,684   
  

 

 

 

Net income (loss) per weighted-average share

   $ 12.23   
  

 

 

 

Weighted-average shares outstanding

     116,864   
  

 

 

 

 

See accompanying notes to financial statements.

 

F-127


Table of Contents

PROSHARES SHORT VIX SHORT-TERM FUTURES ETF

STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE PERIOD FROM APRIL 5, 2011 (INCEPTION) TO DECEMBER 31, 2011

 

     April 5, 2011
(Inception) through
December 31, 2011
 

Shareholders’ equity, beginning of period

   $ —     

Addition of 150,010 shares

     6,330,740   
  

 

 

 

Net investment income (loss)

     (16,333

Net realized gain (loss)

     1,355,837   

Change in net unrealized appreciation/depreciation

     90,180   
  

 

 

 

Net income (loss)

     1,429,684   
  

 

 

 

Shareholders’ equity, end of period

   $ 7,760,424   
  

 

 

 

 

See accompanying notes to financial statements.

 

F-128


Table of Contents

PROSHARES SHORT VIX SHORT-TERM FUTURES ETF

STATEMENT OF CASH FLOWS

FOR THE PERIOD FROM APRIL 5, 2011 (INCEPTION) TO DECEMBER 31, 2011

 

     April 5, 2011
(Inception) through
December 31, 2011
 

Cash flow from operating activities

  

Net income (loss)

   $ 1,429,684   

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

  

Decrease (Increase) in segregated cash balances with brokers for futures contracts

     (2,252,358

Change in offering costs

     (21,691

Increase (Decrease) in management fee payable

     5,916   

Increase (Decrease) in payable for offering costs

     28,764   
  

 

 

 

Net cash provided by (used in) operating activities

     (809,685
  

 

 

 

Cash flow from financing activities

  

Proceeds from addition of shares

     6,330,740   
  

 

 

 

Net increase (decrease) in cash

     5,521,055   

Cash, beginning of period

     —     
  

 

 

 

Cash, end of period

   $ 5,521,055   
  

 

 

 

 

See accompanying notes to financial statements.

 

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PROSHARES ULTRASHORT VIX SHORT-TERM FUTURES ETF*

STATEMENT OF FINANCIAL CONDITION

 

     December 31, 2011  

Assets

  

Cash

   $ 400   

Offering costs (Note 5)

     18,478   
  

 

 

 

Total assets

     18,878   
  

 

 

 

Liabilities and shareholders’ equity

  

Liabilities

  

Payable for offering costs

     18,478   
  

 

 

 

Total liabilities

     18,478   
  

 

 

 

Shareholders’ equity

  

Shareholders’ equity

   $ 400   
  

 

 

 

Total liabilities and shareholders’ equity

   $ 18,878   
  

 

 

 

 

* See Note 1.

 

See accompanying notes to financial statements.

 

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PROSHARES ULTRA VIX MID-TERM FUTURES ETF*

STATEMENT OF FINANCIAL CONDITION

 

     December 31, 2011  

Assets

  

Cash

   $ 400   

Offering costs (Note 5)

     18,478   
  

 

 

 

Total assets

     18,878   
  

 

 

 

Liabilities and shareholders’ equity

  

Liabilities

  

Payable for offering costs

     18,478   
  

 

 

 

Total liabilities

     18,478   
  

 

 

 

Shareholders’ equity

  

Shareholders’ equity

   $ 400   
  

 

 

 

Total liabilities and shareholders’ equity

   $ 18,878   
  

 

 

 

 

* See Note 1.

 

See accompanying notes to financial statements.

 

F-131


Table of Contents

PROSHARES VIX MID-TERM FUTURES ETF

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2011      December 31, 2010  

Assets

     

Cash

   $ 627,557       $ 400   

Short-term U.S. government and agency obligations (Note 3) (cost $89,398,343 and $0, respectively)

     89,392,389         —     

Receivable on open futures contracts

     798,319         —     

Offering costs (Note 5)

     682         124,374   

Limitation by Sponsor

     2,481         —     
  

 

 

    

 

 

 

Total assets

     90,821,428         124,774   
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Payable for offering costs

     —           124,374   
  

 

 

    

 

 

 

Total liabilities

     —           124,374   
  

 

 

    

 

 

 

Shareholders’ equity

     

Shareholders’ equity

     90,821,428         400   
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 90,821,428       $ 124,774   
  

 

 

    

 

 

 

Shares outstanding

     1,225,005         5   
  

 

 

    

 

 

 

Net asset value per share

   $ 74.14       $ 80.00   
  

 

 

    

 

 

 

Market value per share (Note 2)

   $ 74.13       $ 80.00   
  

 

 

    

 

 

 

 

See accompanying notes to financial statements.

 

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PROSHARES VIX MID-TERM FUTURES ETF

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2011

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(98% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.016% due 01/19/12†

   $ 285,000       $ 285,000   

0.005% due 02/02/12†

     2,933,000         2,932,989   

0.002% due 03/08/12†

     6,991,000         6,990,763   

0.003% due 03/22/12†

     9,774,000         9,773,592   

0.002% due 04/05/12

     7,099,000         7,098,561   

0.011% due 05/10/12†

     62,319,000         62,311,484   
     

 

 

 

Total short-term U.S. government and agency obligations (cost $89,398,343)

      $ 89,392,389   
     

 

 

 

 

 

 

Futures Contracts Purchased

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

VIX Futures - CBOE, expires April 2012

     616       $ 17,494,400       $ (1,596,450

VIX Futures - CBOE, expires May 2012

     1,047         30,048,900         (2,372,050

VIX Futures - CBOE, expires June 2012

     1,047         30,467,700         (2,237,250

VIX Futures - CBOE, expires July 2012

     431         12,822,250         93,000   
        

 

 

 
         $ (6,112,750
        

 

 

 

 

All or partial amount segregated as collateral for futures contracts.

 

See accompanying notes to financial statements.

 

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PROSHARES VIX MID-TERM FUTURES ETF

STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2011

 

     Year ended
December 31, 2011
 

Investment Income

  

Interest

   $ 4,090   
  

 

 

 

Expenses

  

Offering costs

     123,692   

Limitation by Sponsor

     (2,481
  

 

 

 

Total expenses

     121,211   
  

 

 

 

Net investment income (loss)

     (117,121
  

 

 

 

Realized and unrealized gain (loss) on investment activity

  

Net realized gain (loss) on

  

Futures contracts

     (514,060

Short-term U.S. government and agency obligations

     333   
  

 

 

 

Net realized gain (loss)

     (513,727
  

 

 

 

Change in net unrealized appreciation/depreciation on

  

Futures contracts

     (6,112,750

Short-term U.S. government and agency obligations

     (5,954
  

 

 

 

Change in net unrealized appreciation/depreciation

     (6,118,704
  

 

 

 

Net realized and unrealized gain (loss)

     (6,632,431
  

 

 

 

Net income (loss)

   $ (6,749,552
  

 

 

 

Net income (loss) per weighted-average share

   $ (34.29
  

 

 

 

Weighted-average shares outstanding

     196,828   
  

 

 

 

 

See accompanying notes to financial statements.

 

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PROSHARES VIX MID-TERM FUTURES ETF

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEAR ENDED DECEMBER 31, 2011

 

     Year ended
December 31, 2011
 

Shareholders’ equity, beginning of period

   $ 400   

Addition of shares (1,600,000 and 5, respectively)

     123,191,472   

Redemption of shares (375,000 and 0, respectively)

     (25,620,892
  

 

 

 

Net addition (redemption) of shares (1,225,000 and 5, respectively)

     97,570,580   
  

 

 

 

Net investment income (loss)

     (117,121

Net realized gain (loss)

     (513,727

Change in net unrealized appreciation/depreciation

     (6,118,704
  

 

 

 

Net income (loss)

     (6,749,552
  

 

 

 

Shareholders’ equity, end of period

   $ 90,821,428   
  

 

 

 

 

See accompanying notes to financial statements.

 

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PROSHARES VIX MID-TERM FUTURES ETF

STATEMENTS OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 2011

 

     Year ended
December 31, 2011
 

Cash flow from operating activities

  

Net income (loss)

   $ (6,749,552

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

  

Net sale (purchase) of short-term U.S. government and agency obligations

     (89,398,343

Change in unrealized appreciation/depreciation on investments

     5,954   

Decrease (Increase) in receivable on futures contracts

     (798,319

Decrease (Increase) in Limitation by Sponsor

     (2,481

Change in offering costs

     123,692   

Increase (Decrease) in payable for offering costs

     (124,374
  

 

 

 

Net cash provided by (used in) operating activities

     (96,943,423
  

 

 

 

Cash flow from financing activities

  

Proceeds from addition of shares

     123,191,472   

Payment on shares redeemed

     (25,620,892
  

 

 

 

Net cash provided by (used in) financing activities

     97,570,580   
  

 

 

 

Net increase (decrease) in cash

     627,157   

Cash, beginning of period

     400   
  

 

 

 

Cash, end of period

   $ 627,557   
  

 

 

 

 

See accompanying notes to financial statements.

 

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PROSHARES SHORT VIX MID-TERM FUTURES ETF*

STATEMENT OF FINANCIAL CONDITION

 

     December 31, 2011  

Assets

  

Cash

   $ 400   

Offering costs (Note 5)

     18,478   
  

 

 

 

Total assets

     18,878   
  

 

 

 

Liabilities and shareholders’ equity

  

Liabilities

  

Payable for offering costs

     18,478   
  

 

 

 

Total liabilities

     18,478   
  

 

 

 

Shareholders’ equity

  

Shareholders’ equity

   $ 400   
  

 

 

 

Total liabilities and shareholders’ equity

   $ 18,878   
  

 

 

 

 

* See Note 1.

 

See accompanying notes to financial statements.

 

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PROSHARES ULTRASHORT VIX MID-TERM FUTURES ETF*

STATEMENT OF FINANCIAL CONDITION

 

     December 31, 2011  

Assets

  

Cash

   $ 400   

Offering costs (Note 5)

     18,478   
  

 

 

 

Total assets

     18,878   
  

 

 

 

Liabilities and shareholders’ equity

  

Liabilities

  

Payable for offering costs

     18,478   
  

 

 

 

Total liabilities

     18,478   
  

 

 

 

Shareholders’ equity

  

Shareholders’ equity

   $ 400   
  

 

 

 

Total liabilities and shareholders’ equity

   $ 18,878   
  

 

 

 

 

* See Note 1.

 

See accompanying notes to financial statements.

 

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PROSHARES MANAGED FUTURES STRATEGY*

STATEMENT OF FINANCIAL CONDITION

 

     December 31, 2011  

Assets

  

Cash

   $ 200   

Offering costs (Note 5)

     90,800   
  

 

 

 

Total assets

     91,000   
  

 

 

 

Liabilities and shareholders’ equity

  

Liabilities

  

Payable for offering costs

     90,800   
  

 

 

 

Total liabilities

     90,800   
  

 

 

 

Shareholders’ equity

  

Shareholders’ equity

   $ 200   
  

 

 

 

Total liabilities and shareholders’ equity

   $ 91,000   
  

 

 

 

 

* See Note 1.

 

See accompanying notes to financial statements.

 

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PROSHARES COMMODITY MANAGED FUTURES STRATEGY*

STATEMENT OF FINANCIAL CONDITION

 

     December 31, 2011  

Assets

  

Cash

   $ 200   

Offering costs (Note 5)

     62,100   
  

 

 

 

Total assets

     62,300   
  

 

 

 

Liabilities and shareholders’ equity

  

Liabilities

  

Payable for offering costs

     62,100   
  

 

 

 

Total liabilities

     62,100   
  

 

 

 

Shareholders’ equity

  

Shareholders’ equity

   $ 200   
  

 

 

 

Total liabilities and shareholders’ equity

   $ 62,300   
  

 

 

 

 

* See Note 1.

 

See accompanying notes to financial statements.

 

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PROSHARES FINANCIAL MANAGED FUTURES STRATEGY*

STATEMENT OF FINANCIAL CONDITION

 

     December 31, 2011  

Assets

  

Cash

   $ 200   

Offering costs (Note 5)

     62,100   
  

 

 

 

Total assets

     62,300   
  

 

 

 

Liabilities and shareholders’ equity

  

Liabilities

  

Payable for offering costs

     62,100   
  

 

 

 

Total liabilities

     62,100   
  

 

 

 

Shareholders’ equity

  

Shareholders’ equity

   $ 200   
  

 

 

 

Total liabilities and shareholders’ equity

   $ 62,300   
  

 

 

 

 

* See Note 1.

 

See accompanying notes to financial statements.

 

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PROSHARES TRUST II

COMBINED STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2011      December 31, 2010  

Assets

     

Cash

   $ 19,145,045       $ 13,024,692   

Segregated cash balances with brokers for futures contracts

     34,136,628         18,624,601   

Short-term U.S. government and agency obligations (Note 3) (cost $3,314,826,965 and $2,036,391,604, respectively)

     3,314,757,692         2,036,464,179   

Unrealized appreciation on swap agreements

     3,215,991         7,405,394   

Unrealized appreciation on forward agreements

     76,417,081         54,916,155   

Unrealized appreciation on foreign currency forward contracts

     67,533,681         631,682   

Receivable from capital shares sold

     62,130,059         —     

Receivable on open futures contracts

     2,247,035         3,487,401   

Offering costs (Note 5)

     1,481,880         323,372   

Limitation by Sponsor

     2,481         —     
  

 

 

    

 

 

 

Total assets

     3,581,067,573         2,134,877,476   
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Payable for capital shares redeemed

     20,503,124         46,689,878   

Payable on open futures contracts

     1,852,966         1,462,367   

Management fee payable

     2,597,445         1,633,355   

Payable for offering costs

     1,507,202         323,372   

Unrealized depreciation on swap agreements

     10,714,573         4,275,758   

Unrealized depreciation on forward agreements

     260,163,053         13,001,736   

Unrealized depreciation on foreign currency forward contracts

     4,882,358         39,331,731   
  

 

 

    

 

 

 

Total liabilities

     302,220,721         106,718,197   
  

 

 

    

 

 

 

Shareholders’ equity

     

Shareholders’ equity

     3,278,846,852         2,028,159,279   
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 3,581,067,573       $ 2,134,877,476   
  

 

 

    

 

 

 

Shares outstanding

     117,337,823         50,431,669   
  

 

 

    

 

 

 

 

See accompanying notes to financial statements.

 

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PROSHARES TRUST II

COMBINED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

 

     Year ended
December 31, 2011
    Year ended
December 31, 2010
    Year ended
December 31, 2009
 

Investment Income

      

Interest

   $ 1,488,418      $ 2,204,494      $ 310,755   
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     30,117,213        14,363,309        5,737,178   

Brokerage commissions

     188,289        220,365        361,667   

Offering costs

     348,694        —          1,826,288   

Limitation by Sponsor

     (2,481     —          (295,214
  

 

 

   

 

 

   

 

 

 

Total expenses

     30,651,715        14,583,674        7,629,919   
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (29,163,297     (12,379,180     (7,319,164
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Futures contracts

     56,934,780        70,572,775        42,798,965   

Swap agreements

     83,959,005        104,723,688        46,529,721   

Forward agreements

     (333,939,804     158,549,191        20,714,042   

Foreign currency forward contracts

     (54,519,334     26,650,703        (15,886,392

Short-term U.S. government and agency obligations

     86,757        140,591        —     
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     (247,478,596     360,636,948        94,156,336   
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Futures contracts

     (14,502,350     (7,696,405     4,138,580   

Swap agreements

     (10,628,218     (17,978,314     21,349,568   

Forward agreements

     (225,660,391     49,373,740        (6,750,381

Foreign currency forward contracts

     101,351,372        (44,927,013     6,282,013   

Short-term U.S. government and agency obligations

     (141,848     119,604        (47,029
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     (149,581,435     (21,108,388     24,972,751   
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     (397,060,031     339,528,560        119,129,087   
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (426,223,328   $ 327,149,380      $ 111,809,923   
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

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PROSHARES TRUST II

COMBINED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

 

     Year ended
December 31, 2011
    Year ended
December 31, 2010
    Year ended
December 31, 2009
 

Shareholders’ equity, beginning of period

   $ 2,028,159,279      $ 1,036,945,528      $ 180,592,515   

Addition of shares (206,730,873, 92,163,343 and 60,178,750, respectively)

     6,261,642,221        3,380,476,387        2,663,403,894   

Redemption of shares (139,824,719, 67,136,790 and 39,007,083, respectively)

     (4,584,731,320     (2,716,412,016     (1,918,860,804
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of shares (66,906,154, 25,026,553 and 21,171,667, respectively)

     1,676,910,901        664,064,371        744,543,090   
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (29,163,297     (12,379,180     (7,319,164

Net realized gain (loss)

     (247,478,596     360,636,948        94,156,336   

Change in net unrealized appreciation/depreciation

     (149,581,435     (21,108,388     24,972,751   
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     (426,223,328     327,149,380        111,809,923   
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 3,278,846,852      $ 2,028,159,279      $ 1,036,945,528   
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

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PROSHARES TRUST II

COMBINED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

 

     Year ended
December 31, 2011
    Year ended
December 31, 2010
    Year ended
December 31, 2009
 

Cash flow from operating activities

      

Net income (loss)

   $ (426,223,328   $ 327,149,380      $ 111,809,923   

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

      

Decrease (Increase) in segregated cash balances for swap agreements

     —          485,000        2,250,000   

Decrease (Increase) in segregated cash balances for forward agreements

     —          —          1,360,000   

Decrease (Increase) in segregated cash balances with brokers for futures contracts

     (15,512,027     1,110,593        23,365,819   

Net sale (purchase) of short-term U.S. government and agency obligations

     (1,278,435,361     (995,453,703     (1,040,937,901

Change in unrealized appreciation/depreciation on investments

     135,079,085        13,411,983        (20,834,171

Decrease (Increase) in receivable on futures contracts

     1,240,366        (1,988,027     19,055,737   

Change in offering costs

     (1,084,596     (323,372     1,826,288   

Decrease (Increase) in receivable from Sponsor

     —          —          455,130   

Decrease (Increase) in Limitation by Sponsor

     (2,481     —          —     

Increase (Decrease) in management fee payable

     964,090        793,254        840,101   

Increase (Decrease) in payable on futures contracts

     390,599        191,298        (3,010,931

Increase (Decrease) in accounts payable

     —          —          (1,285,527

Increase (Decrease) in payable for offering costs

     1,109,918        323,372        —     
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (1,582,473,735     (654,300,222     (905,105,532
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     6,199,512,162        3,388,721,333        2,677,370,601   

Payment on shares redeemed

     (4,610,918,074     (2,722,363,462     (1,875,608,014
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     1,588,594,088        666,357,871        801,762,587   
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     6,120,353        12,057,649        (103,342,945

Cash, beginning of period

     13,024,692        967,043        104,309,988   
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 19,145,045      $ 13,024,692      $ 967,043   
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

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PROSHARES TRUST II

NOTES TO FINANCIAL STATEMENTS

December 31, 2011

NOTE 1 – ORGANIZATION

ProShares Trust II (formerly known as the Commodities and Currencies Trust) (the “Trust”) is a Delaware statutory trust formed on October 9, 2007 and currently organized into separate series (each, a “Fund” and collectively, the “Funds”). The following eighteen series of the Trust: (i) ProShares Ultra DJ-UBS Commodity, ProShares UltraShort DJ-UBS Commodity, ProShares Ultra DJ-UBS Crude Oil, ProShares UltraShort DJ-UBS Crude Oil, ProShares Ultra DJ-UBS Natural Gas, ProShares UltraShort DJ-UBS Natural Gas, ProShares Ultra Gold, ProShares UltraShort Gold, ProShares Ultra Silver, ProShares UltraShort Silver, ProShares Ultra Euro, ProShares UltraShort Euro, ProShares Ultra Yen and ProShares UltraShort Yen (each, a “Leveraged Fund” and collectively, the “Leveraged Funds”); (ii) ProShares Ultra VIX Short-Term Futures ETF and ProShares Short VIX Short-Term Futures ETF (each, a “Geared VIX Fund” and collectively, the “Geared VIX Funds”); and (iii) ProShares VIX Short-Term Futures ETF and ProShares VIX Mid-Term Futures ETF (each, a “Matching VIX Fund” and collectively, the “Matching VIX Funds”), issue common units of beneficial interest (“Shares”), which represent units of fractional undivided beneficial interest in and ownership of only that Leveraged Fund, Geared VIX Fund or Matching VIX Fund. The Shares of each Leveraged Fund, Geared VIX Fund and Matching VIX Fund are listed on the New York Stock Exchange Archipelago (“NYSE Arca”).

The Trust has also registered shares for thirty-five additional series: (i) ProShares Short DJ-UBS Natural Gas and ProShares Short Gold (each, a “Short Fund” and collectively, the “Short Funds”); (ii) ProShares UltraShort VIX Short-Term Futures ETF, ProShares Ultra VIX Mid-Term Futures ETF, ProShares Short VIX Mid-Term Futures ETF and ProShares UltraShort VIX Mid-Term Futures ETF (each, a “New Geared VIX Fund” and collectively, the “New Geared VIX Funds”); (iii) ProShares Managed Futures Strategy, ProShares Commodity Managed Futures Strategy and ProShares Financial Managed Futures Strategy (each, a “Managed Futures Fund” and collectively, the “Managed Futures Funds”); (iv) ProShares UltraPro Australian Dollar, ProShares Ultra Australian Dollar, ProShares Short Australian Dollar, ProShares UltraShort Australian Dollar, ProShares UltraPro Short Australian Dollar, ProShares UltraPro Canadian Dollar, ProShares Ultra Canadian Dollar, ProShares Short Canadian Dollar, ProShares UltraShort Canadian Dollar, ProShares UltraPro Short Canadian Dollar, ProShares UltraPro Euro, ProShares Short Euro, ProShares UltraPro Short Euro, ProShares UltraPro Swiss Franc, ProShares Ultra Swiss Franc, ProShares Short Swiss Franc, ProShares UltraShort Swiss Franc, ProShares UltraPro Short Swiss Franc, ProShares UltraPro Yen, ProShares Short Yen and ProShares UltraPro Short Yen (each, a “New Currency Fund” and collectively, the “New Currency Funds”); and (v) ProShares UltraPro U.S. Dollar, ProShares Ultra U.S. Dollar, ProShares Short U.S. Dollar, ProShares UltraShort U.S. Dollar, ProShares UltraPro Short U.S. Dollar (each, a “Currency Index Fund” and collectively, the “Currency Index Funds”). The Short Funds, the New Geared VIX Funds, the Managed Futures Funds and the New Currency Funds are collectively referred to herein as the “New Funds”. The Geared VIX Funds, the New Geared VIX Funds and the Matching VIX Funds are collectively referred to as the “VIX Funds” in this Annual Report on Form 10-K. The Leveraged Funds, the Short Funds, the Geared VIX Funds, the New Geared VIX Funds and the New Currency Funds, are collectively referred to as the “Geared Funds” in these Notes to Financial Statements.

As of December 31, 2011, each of the Short Funds, the Managed Futures Funds and the New Currency Funds and each of the New Geared VIX Funds had seed capital of $400, but none of the New Funds had commenced investment operations; therefore, these Financial Statements do not include Schedules of Investments, Statements of Operations, Statements of Changes in Shareholders’ Equity or Statements of Cash Flows for the New Funds.

The Trust had no operations prior to November 24, 2008 other than matters relating to its organization, the registration of each series under the Securities Act of 1933, as amended, and the sale and issuance to ProShare Capital Management LLC (the “Sponsor”) of fourteen Shares at an aggregate purchase price of $350 in each of the following Funds: ProShares Ultra DJ-UBS Commodity, ProShares UltraShort DJ-UBS Commodity, ProShares Ultra DJ-UBS Crude Oil, ProShares UltraShort DJ-UBS Crude Oil, ProShares Ultra Gold, ProShares UltraShort Gold, ProShares Ultra Silver, ProShares UltraShort Silver, ProShares Ultra Euro, ProShares UltraShort Euro, ProShares Ultra Yen and ProShares UltraShort Yen.

Eight of the Funds, ProShares Ultra DJ-UBS Commodity, ProShares UltraShort DJ-UBS Commodity, ProShares Ultra DJ-UBS Crude Oil, ProShares UltraShort DJ-UBS Crude Oil, ProShares Ultra Euro, ProShares UltraShort Euro, ProShares Ultra Yen and ProShares UltraShort Yen, commenced trading on the NYSE Arca on November 25, 2008. Four of the Funds, ProShares Ultra Gold, ProShares UltraShort Gold, ProShares Ultra Silver, and ProShares UltraShort Silver,

 

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commenced trading on the NYSE Arca on December 3, 2008. Two of the Funds, ProShares VIX Short-Term Futures ETF and ProShares VIX Mid-Term Futures ETF, commenced trading on the NYSE Arca on January 3, 2011. Two of the Funds, ProShares Ultra VIX Short-Term Futures ETF and ProShares Short VIX Short-Term Futures ETF, commenced trading on the NYSE Arca on October 3, 2011. Two of the Funds, ProShares Ultra DJ-UBS Natural Gas and ProShares UltraShort DJ-UBS Natural Gas, commenced trading on the NYSE Arca on October 4, 2011. As of December 31, 2011, the New Funds had not yet commenced trading.

Groups of Funds are collectively referred to in several different ways. References to “UltraPro Funds,” “Ultra Funds,” “Short Funds,” “UltraShort Funds” or UltraPro Short Funds” refer to the different Funds based upon their investment objectives, but without distinguishing among the Funds’ benchmarks. References to “Commodity Index Funds”, “Commodity Funds,” “Currency Index Funds” and “Currency Funds” refer to the different Funds according to their general benchmark categories without distinguishing among the Funds’ investment objectives or Fund-specific benchmarks. References to “VIX Funds” refer to the different Funds based upon their investment objective and their general benchmark categories. References to “Managed Futures Funds” refer to the different Funds according to which index the Fund intends to gain exposure.

Each “UltraPro” Fund will seek daily investment results (before fees and expenses) that correspond to three times (3x) the daily performance of its corresponding benchmark. Each “Ultra” Fund seeks or will seek daily investment results (before fees and expenses) that correspond to twice (2x) the daily performance of its corresponding benchmark. Each “Short” Fund will seek daily investment results (before fees and expenses) that correspond to the inverse (-1x) of the daily performance of its corresponding benchmark. Each “UltraShort” Fund seeks or will seek daily investment results (before fees and expenses) that correspond to twice the inverse (-2x) of the daily performance of its corresponding benchmark. Each “UltraPro Short” Fund seeks or will seek daily investment results (before fees and expenses) that correspond to three times the inverse (-3x) of the daily performance of its corresponding benchmark. Daily performance is measured from the calculation of one NAV to the next. Each of the Geared Funds generally invests or will invest in Financial Instruments (i.e., commodity-based, currency-based or equity market volatility-based instruments whose value is derived from the value of an underlying asset, rate or index, including futures contracts and options on futures contracts, swap agreements, forward contracts and other commodity-based or currency-based options contracts) as a substitute for investing directly in commodities, currencies, or equity market volatility products in order to gain exposure to the commodity index, currency benchmark, commodity, currency or to an equity market volatility index. The Financial Instruments in which ProShares Short DJ-UBS Natural Gas will invest are limited to futures contracts. Financial Instruments also are used to produce economically “leveraged” or “inverse” investment results for the Funds. Each Matching VIX Fund seeks daily investment results (before fees and expenses) that match the performance of a benchmark. Each Geared VIX Fund and each New Geared XIV Fund seeks or will seek daily investment results (before fees and expenses) that correspond to a multiple or the inverse of the daily performance of a benchmark. Each VIX Fund intends to obtain exposure to its benchmark by investing in futures contracts (“VIX futures contracts”) based on the Chicago Board Options Exchange (“CBOE”) Volatility Index (the “VIX”). The Managed Futures Funds will seek to provide investment results (before fees and expenses) that correspond to the performance of the S&P Dynamic Futures Index (the “DFI” or the “Index”), the S&P Dynamic Commodities Futures Index (the “DCFI”) or the S&P Dynamic Financial Futures Index (the “DFFI”) (each a “Sub-Index” and collectively, the “Sub-Indexes”). Each Managed Futures Fund intends to obtain exposure to the Index or to a Sub-Index, as applicable, by primarily investing in unleveraged positions in U.S. exchange-traded futures contracts on sixteen different tangible commodities (the “Commodities Futures Contracts”) or futures contracts on eight different financials, such as major currencies and U.S. Treasury securities (the “Financials Futures Contracts” and together with the Commodities Futures Contracts, the “Index Components”).

The Geared Funds do not seek to achieve their stated investment objective over a period of time greater than one day because mathematical compounding prevents the Geared Funds from achieving such results. Accordingly, results over periods of time greater than one day should not be expected to be a simple multiple (e.g., 3x, 2x, -1, -2x or -3x) of the period return of the corresponding benchmark and will likely differ significantly. The Matching VIX Funds seek to achieve their stated investment objective both over a single day and over time. The Managed Futures Funds seek to achieve their stated investment objective over time.

ProShares Ultra DJ-UBS Commodity, ProShares UltraShort DJ-UBS Commodity, ProShares Ultra DJ-UBS Crude Oil and ProShares UltraShort DJ-UBS Crude Oil each have a benchmark that is an index designed to track the performance of commodity futures contracts, as applicable and as listed below. The daily performance of these indexes and the corresponding funds will likely be very different from the daily performance of the price of the related physical commodities.

 

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Renaming of Indexes and Funds

On May 6, 2009, UBS Securities LLC acquired the commodity business of AIG Financial Products Corp. Effective May 7, 2009, the Dow Jones-AIG Commodity Indexes were re-branded as the Dow Jones-UBS Commodity Indexes. The Dow Jones-UBS Commodity Indexes have an identical methodology to the Dow Jones-AIG Commodity Indexes and take the identical form and format of the Dow Jones-AIG Commodity Indexes. In connection therewith:

The following Indexes were renamed:

 

Former Index Name    New Index Name
Dow Jones-AIG Commodity Index    Dow Jones-UBS Commodity Index
Dow Jones-AIG Crude Oil Sub-Index    Dow Jones-UBS Crude Oil Sub-Index
The following Funds were renamed:   
Former Fund Name    New Fund Name
ProShares Ultra DJ-AIG Commodity    ProShares Ultra DJ-UBS Commodity
ProShares UltraShort DJ-AIG Commodity    ProShares UltraShort DJ-UBS Commodity
ProShares Ultra DJ-AIG Crude Oil    ProShares Ultra DJ-UBS Crude Oil
ProShares UltraShort DJ-AIG Crude Oil    ProShares UltraShort DJ-UBS Crude Oil

Share Splits and Reverse Share Splits

Prior to the opening of trading on the NYSE Arca on April 15, 2010, ProShares UltraShort Gold executed a 1-for-5 reverse split of shares, and ProShares UltraShort Silver executed a 1-for-10 reverse split of shares. The funds traded at their post-split prices on April 15, 2010. The ticker symbols for the funds did not change, and they continue to trade on the NYSE Arca.

Prior to the opening of trading on the NYSE Arca on February 25, 2011, ProShares UltraShort DJ-UBS Commodity and ProShares UltraShort DJ-UBS Crude Oil executed a 1-for-5 reverse split of shares and ProShares UltraShort Silver and ProShares Ultra DJ-UBS Crude Oil executed a 1-for-4 reverse split of shares. The funds traded at their post-split prices on February 25, 2011. The ticker symbols for the funds did not change, and they continue to trade on the NYSE Arca.

Prior to the opening of trading on the NYSE Arca on October 13, 2011, ProShares Ultra Silver executed a 2-for-1 split of shares and ProShares UltraShort Yen executed a 1-for-3 reverse split of shares. The funds traded at their post-split prices on October 13, 2011. The ticker symbols for the funds did not change, and they continue to trade on the NYSE Arca.

The reverse splits were applied retroactively for all periods presented, reducing the number of shares outstanding for each of ProShares UltraShort Gold, ProShares UltraShort Silver, ProShares UltraShort DJ-UBS Commodity, ProShares Ultra DJ-UBS Crude Oil, ProShares UltraShort DJ-UBS Crude Oil and ProShares UltraShort Yen, and resulted in a proportionate increase in the price per share and per share information of each such Fund. Therefore, the reverse splits did not change the aggregate net asset value of a shareholder’s investment at the time of the split.

The split was applied retroactively for all periods presented, increasing the number of shares outstanding for ProShares Ultra Silver, and resulted in a proportionate decrease in the price per share and per share information of ProShares Ultra Silver Fund. Therefore, the split did not change the aggregate net asset value of a shareholder’s investment at the time of the split.

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies followed by each Fund, as applicable, in preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

 

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Use of Estimates & Indemnifications

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in these financial statements. Actual results could differ from those estimates.

In the normal course of business, the Trust enters into contracts that contain a variety of representations which provide general indemnifications. The Trust’s maximum exposure under these arrangements cannot be known; however, the Trust expects any risk of loss to be remote.

Basis of Presentation

Pursuant to rules and regulations of the U.S. Securities and Exchange Commission (“SEC”), audited financial statements are presented for the Trust as a whole, as the SEC registrant, and for each Fund individually. The debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to a particular Fund shall be enforceable only against the assets of such Fund and not against the assets of the Trust generally or any other Fund. Accordingly, the assets of one Fund of the Trust include only those funds and other assets that are paid to, held by or distributed to the Trust for the purchase of Units in that Fund.

Statement of Cash Flows

The cash amount shown in the Statements of Cash Flows is the amount reported as cash in the Statement of Financial Condition dated December 31, 2011, and represents non-segregated cash with the custodian and does not include short-term investments.

Final Net Asset Value for Fiscal Period

The times of the calculation of the Leveraged Funds’, the Geared VIX Funds’ and the Matching VIX Funds’ final net asset value for creation and redemption of fund shares for the year ended December 31, 2011 were as follows. All times are Eastern Standard Time:

 

     NAV Calculation Time      NAV Calculation Date  

Ultra Silver, UltraShort Silver

     7:00 A.M.         December 31   

Ultra Gold, UltraShort Gold

     10:00 A.M.         December 31   

Ultra DJ-UBS Commodity, UltraShort DJ-UBS Commodity

     2:30 P.M.         December 31   

Ultra DJ-UBS Crude Oil, UltraShort DJ-UBS Crude Oil

     2:30 P.M.         December 31   

Ultra DJ-UBS Natural Gas, UltraShort DJ-UBS Natural Gas

     2:30 P.M.         December 31   

Ultra Euro, UltraShort Euro

     4:00 P.M.         December 31   

Ultra Yen, UltraShort Yen

     4:00 P.M.         December 31   

VIX Short-Term Futures ETF, VIX Mid-Term Futures ETF

     4:15 P.M.         December 31   

Ultra VIX Short-Term Futures ETF, Short VIX Short-Term Futures ETF

     4:15 P.M.         December 31   

Although the Leveraged Funds’, the Geared VIX Funds’ and the Matching VIX Funds’ shares may continue to trade on secondary markets subsequent to the calculation of the final NAV, these times represent the final opportunity to transact in creation or redemption units for the three months and the year ended December 31, 2011.

Market value per share is determined at the close of the NYSE Arca and may be later than when the Funds’ NAV per share is calculated.

 

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For financial reporting purposes, the Leveraged Funds’, the Geared VIX Funds’ and the Matching VIX Funds’ value transactions based upon the final closing price in their primary markets. Accordingly, the investment valuations in these financial statements differ from those used in the calculation of some Leveraged Funds’ final creation/redemption NAV for the year ended December 31, 2011.

Investment Valuation

Short-term investments are valued at market price. Treasury securities having a maturity of greater than sixty days are valued at market price. In each of these situations, valuations are typically categorized as Level I in the fair value hierarchy.

Derivatives (e.g., futures, swaps and forward agreements) are generally valued using independent sources and/or agreements with counterparties or other procedures as determined by the Sponsor. Futures contracts, except for those entered into by the Gold and Silver Funds, are generally valued at the last settled price on the applicable exchange on which that future trades. Futures contracts entered into by the Gold and Silver Funds are valued at the last sales price prior to the time at which the NAV per Share of a Fund is determined. These valuations are typically categorized as Level I in the fair value hierarchy. If there was no sale on that day, and for non-exchange-traded derivatives, 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. Such fair value prices would be generally determined based on available inputs about the current value of the underlying financial instrument or commodity and would be based on principles that the Sponsor deems fair and equitable so long as such principles are consistent with normal industry standards. When market closing prices are not available, the Sponsor may fair value an asset of a Fund pursuant to the policies the Sponsor has adopted, which are consistent with normal industry standards. Depending on the source and relevant significance of valuation inputs, these instruments may be classified as Level II or Level III in the fair value hierarchy.

Fair value pricing may require subjective determinations about the value of an investment. While Leveraged Funds’, the Geared VIX Funds’ and the Matching VIX Funds’ policies are intended to result in a calculation of a Leveraged Funds’, a Geared VIX Funds’ or a Matching VIX Funds’ NAV that fairly reflects investment values as of the time of pricing, a Leveraged Fund, a Geared VIX Fund or a Matching VIX Fund cannot ensure that fair values determined by the Sponsor or persons acting at their direction would accurately reflect the price that a Fund could obtain for an investment if it were to dispose of that investment as of the time of pricing (for instance, in a forced or distressed sale). The prices used by a Leveraged Fund or a VIX Fund may differ from the value that would be realized if the investments were sold and the differences could be material to the financial statements.

Fair Value of Financial Instruments

The Funds disclose the fair value of their investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The disclosure requirements establish a fair value hierarchy that distinguishes between: (1) market participant assumptions developed based on market data obtained from sources independent of the Funds (observable inputs); and (2) the Funds’ own assumptions about market participant assumptions developed based on the best information available under the circumstances (unobservable inputs). The three levels defined by the disclosure requirements hierarchy are as follows:

Level I – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level II – Inputs other than quoted prices included within Level I that are observable for the asset or liability, either directly or indirectly. Level II assets include the following: quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs).

Level III – Unobservable pricing input at the measurement date for the asset or liability. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available.

 

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In some instances, the inputs used to measure fair value might fall in different levels of the fair value hierarchy. The level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest input level that is significant to the fair value measurement in its entirety.

Fair value measurements also require additional disclosure when the volume and level of activity for the asset or liability have significantly decreased, as well as when circumstances indicate that a transaction is not orderly.

The following table summarizes the valuation of investments at December 31, 2011 using the fair value hierarchy:

 

     Level I - Quoted Prices     Level II - Other Significant Observable Inputs        
     Short-Term U.S.
Government and
Agencies
     Futures
Contracts
    Forward
Agreements
    Foreign
Currency
Forward
Contracts
    Swap
Agreements
    Total  

Ultra DJ-UBS Commodity

   $ 9,713,685       $ —        $ —        $ —        $ (707,177   $ 9,006,508   

UltraShort DJ-UBS Commodity

     8,534,690         —          —          —          570,751        9,105,441   

Ultra DJ-UBS Crude Oil

     246,919,569         (1,365,330     —          —          (10,007,396     235,546,843   

UltraShort DJ-UBS Crude Oil

     131,934,193         247,040        —          —          2,645,240        134,826,473   

Ultra DJ-UBS Natural Gas

     —           (825,510     —          —          —          (825,510

UltraShort DJ-UBS Natural Gas

     2,621,684         1,381,010        —          —          —          4,002,694   

Ultra Gold

     399,317,740         (41,660     (80,836,280     —          —          318,439,800   

UltraShort Gold

     164,673,175         41,800        33,401,358        —          —          198,116,333   

Ultra Silver

     771,925,669         (60,850     (179,326,773     —          —          592,538,046   

UltraShort Silver

     215,352,919         60,850        43,015,723        —          —          258,429,492   

Ultra Euro

     10,068,707         —          —          (518,212     —          9,550,495   

UltraShort Euro

     1,012,174,281         —          —          67,430,954        —          1,079,605,235   

Ultra Yen

     5,366,875         —          —          102,727        —          5,469,602   

UltraShort Yen

     219,404,292         —          —          (4,364,146     —          215,040,146   

Ultra VIX Short-Term Futures ETF

     —           (762,790     —          —          —          (762,790

VIX Short-Term Futures ETF

     27,357,824         (1,575,970     —          —          —          25,781,854   

Short VIX Short-Term Futures ETF

     —           90,180        —          —          —          90,180   

VIX Mid-Term Futures ETF

     89,392,389         (6,112,750     —          —          —          83,279,639   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Trust

   $ 3,314,757,692       $ (8,923,980   $ (183,745,972   $ 62,651,323      $ (7,498,582   $ 3,177,240,481   

At December 31, 2011, there were no Level III portfolio investments for which significant unobservable inputs were used to determine fair value.

At December 31, 2011, there were no significant transfers in or out of Level I and Level II fair value measurements.

The inputs or methodology used for valuing investments are not necessarily an indication of the risk associated with investing in those securities.

The following table summarizes the valuation of investments at December 31, 2010 using the fair value hierarchy:

 

     Level I - Quoted Prices     Level II - Other Significant Observable Inputs        
     Short-Term U.S.
Government  and
Agencies
     Futures
Contracts
    Forward
Agreements
    Foreign
Currency
Forward
Contracts
    Swap
Agreements
    Total  

Ultra DJ-UBS Commodity

   $ 16,426,651       $ —        $ —        $ —        $ 1,755,750      $ 18,182,401   

UltraShort DJ-UBS Commodity

     1,594,842         —          —          —          (164,150     1,430,692   

Ultra DJ-UBS Crude Oil

     244,394,920         5,412,760        —          —          5,649,644        255,457,324   

UltraShort DJ-UBS Crude Oil

     135,637,192         (2,384,420     —          —          (4,111,608     129,141,164   

Ultra Gold

     249,250,657         305,980        8,724,587        —          —          258,281,224   

UltraShort Gold

     80,114,447         (292,750     (2,991,391     —          —          76,830,306   

Ultra Silver

     495,915,529         3,056,220        46,191,568        —          —          545,163,317   

UltraShort Silver

     105,319,504         (519,420     (10,010,345     —          —          94,789,739   

Ultra Euro

     7,374,157         —          —          348,179        —          7,722,336   

UltraShort Euro

     471,829,446         —          —          (23,194,077     —          448,635,369   

Ultra Yen

     4,733,703         —          —          283,503        —          5,017,206   

UltraShort Yen

     223,873,131         —          —          (16,137,654     —          207,735,477   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Trust

   $ 2,036,464,179       $ 5,578,370      $ 41,914,419      $ (38,700,049   $ 3,129,636      $ 2,048,386,555   

 

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At December 31, 2010, there were no Level III portfolio investments for which significant unobservable inputs were used to determine fair value.

At December 31, 2010, there were no significant transfers in or out of Level I or Level II fair value measurements.

The inputs or methodology used for valuing investments are not necessarily an indication of the risk associated with investing in those securities.

Investment Transactions and Related Income

Investment transactions are recorded on the trade date. All such transactions are recorded on the identified cost basis and marked to market daily. Unrealized appreciation/depreciation on open contracts are reflected in the Statements of Financial Condition and changes in the unrealized appreciation/depreciation between periods are reflected in the Statements of Operations. Discounts on short-term securities purchased are amortized and reflected as Interest Income in the Statements of Operations.

Brokerage Commissions and Fees

Each Fund pays or will pay its respective brokerage commissions, including applicable exchange fees, National Futures Association (“NFA”) fees, give-up fees, pit brokerage fees and other transaction related fees and expenses charged in connection with trading activities for each Fund’s investment in U.S. Commodity Futures Trading Commission regulated investments. The effects of trading spreads, financing costs/fees associated with Financial Instruments, and costs relating to the purchase of U.S. Treasury securities or similar high credit quality short-term fixed-income or similar securities would also be borne by the Funds. Brokerage commissions on futures contracts are recognized on a half-turn basis. For the year ended December 31, 2011, the Sponsor paid and is currently paying brokerage commissions on VIX futures contracts for the Matching VIX Funds by reimbursing the Matching VIX Funds monthly for the brokerage commissions paid.

Federal Income Tax

Each Fund is registered as a series of a Delaware statutory trust and is or will be treated as a partnership for U.S. federal income tax purposes. Accordingly, no Fund expects to incur U.S. federal income tax liability; rather, each beneficial owner of a Fund’s Shares is or will be required to take into account its allocable share of its Fund’s income, gain, loss, deductions and other items for its Fund’s taxable year ending with or within the beneficial owner’s taxable year.

Management of the Funds has reviewed all open tax years and major jurisdictions and concluded that there is no tax liability resulting from unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken in future tax returns. The Funds are also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. On an ongoing basis, management will monitor its tax positions taken under the interpretation to determine if adjustments to conclusions are necessary based on factors including, but not limited to, on-going analysis of tax law, regulation, and interpretations thereof.

 

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NOTE 3 – INVESTMENTS

Short-Term Investments

The Funds may purchase U.S. Treasury Bills, agency securities, and other high-credit quality short-term fixed income or similar securities with original maturities of one year or less. A portion of these investments may be posted as collateral in connection with swap agreements and/or used as collateral for a Fund’s trading in futures and forward contracts.

Accounting for Derivative Instruments

In seeking to achieve each Fund’s investment objective, 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 returns consistent with a Fund’s objective.

All open derivative positions at period-end for each Fund are disclosed in the Schedule of Investments and the notional value of these open positions relative to the shareholders’ equity of each Fund is generally representative of the notional value of open positions to shareholders’ equity throughout the reporting period for each respective Fund. The volume associated with derivative positions varies on a daily basis as each Fund transacts derivative contracts in order to achieve the appropriate exposure, as expressed in notional value, in comparison to shareholders’ equity consistent with each Fund’s investment objective.

Following is a description of the derivative instruments used by the Funds during the reporting period, including the primary underlying risk exposures related to each instrument type.

Futures Contracts

The Funds enter into futures contracts to gain exposure to changes in the value of an underlying index or commodity. A futures contract obligates the seller to deliver (and the purchaser to accept) the future delivery of a specified quantity and type of a commodity at a specified time and place. The contractual obligations of a buyer or seller may generally be satisfied by taking or making physical delivery of the underlying commodity, if applicable, 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, or by cash settlement at expiration of contract.

Upon entering into a futures contract, each Fund is required to deposit and maintain as collateral at least such initial margin as required by the exchange on which the transaction is effected. The initial margin is segregated as cash balances with brokers for futures contracts, as disclosed in the Statements of Financial Condition, and is restricted as to its use. The Funds that enter into futures contracts maintain collateral at the broker in the form of U.S. Treasury securities and cash. These U.S. Treasury securities are restricted as to their use and are denoted as such on the Schedules of Investments. Pursuant to the futures contract, each Fund generally agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the futures contract. Such receipts or payments are known as variation margin and are recorded by each Fund as unrealized gains or losses. Each Fund will realize a gain or loss upon closing of a futures transaction.

Futures contracts involve, to varying degrees, elements of market risk (specifically commodity price risk or equity market volatility risk) and exposure to loss in excess of the amount of variation margin. The face or contract amounts reflect the extent of the total exposure each Fund has in the particular classes of instruments. Additional risks associated with the use of futures contracts are imperfect correlation between movements in the price of the futures contracts and the market value of the underlying index or commodity and the possibility of an illiquid market for a futures contract. With futures contracts, there is minimal counterparty risk to the Funds since futures contracts are exchange-traded and the exchange’s clearinghouse, as counterparty to all exchange-traded futures contracts, guarantees the futures contracts against default.

Swap Agreements

Certain of the Funds enter into swap agreements for purposes of pursuing their investment objectives or as a substitute for investing directly in (or shorting) commodities, or to create an economic hedge against a position. Swap agreements are two-party contracts entered into primarily with institutional investors for a specified period, ranging from a day to more than one year. In a standard swap transaction, two parties agree to exchange the returns earned or realized on a particular predetermined investment, instrument or index in exchange for a fixed or floating rate of return in respect of a predetermined notional amount. In the case of futures contracts based indices, such as those used by the Commodity Index

 

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Funds, the reference interest rate is zero. The gross returns to be exchanged are calculated with respect to a notional amount and the benchmark returns to which the swap is linked. Swap agreements do not involve the delivery of underlying instruments.

Generally, swap agreements entered into by the Funds calculate and settle the obligations of the parties to the agreement on a “net basis” with a single payment. Consequently, each Fund’s current obligations (or rights) under a swap agreement will generally be equal only to the net amount to be paid or received under the agreement based on the relative values of such obligations (or rights) (the “net amount”). In a typical swap agreement entered into by an UltraPro Fund or an Ultra Fund, the UltraPro Fund or Ultra Fund would be entitled to settlement payments in the event the benchmark increases and would be required to make payments to the swap counterparties in the event the benchmark decreases, adjusted for any transaction costs or trading spreads on the notional amount the Funds may pay. In a typical swap agreement entered into by an UltraShort Fund or an UltraPro Short, the UltraShort Fund or the UltraPro Short Fund would be required to make payments to the swap counterparties in the event the benchmark increases and would be entitled to settlement payments in the event the benchmark decreases, adjusted for any transaction costs or trading spreads on the notional amount the Funds may pay.

The net amount of the excess, if any, of each Fund’s obligations over its entitlements with respect to each swap agreement is accrued on a daily basis and an amount of cash and/or securities having an aggregate NAV at least equal to such accrued excess is maintained in a segregated account by the Funds’ Custodian. Until a swap agreement is settled in cash, the gain or loss on the notional amount less any transaction costs or trading spreads payable by each Fund on the notional amount are recorded as “unrealized appreciation or depreciation on swap agreements” and, when cash is exchanged, the gain or loss realized is recorded as “realized gains or losses on swap agreements.” Swap agreements are generally valued at the last settled price of the benchmark referenced Index.

The Trust, on behalf of a Fund, may enter into agreements with certain counterparties for derivative transactions. 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 the party under the agreement. This could cause a Fund to have to enter into a new transaction with the same counterparty, enter into a transaction with a different counterparty or seek to achieve its investment objective through any number of different investments or investment techniques.

Swap agreements involve, to varying degrees, elements of market risk (commodity price risk) and exposure to loss in excess of the unrealized gain/loss reflected. The notional amounts reflect the extent of the total investment exposure each Fund has under the swap agreement, which may exceed the NAV of each Fund. Additional risks associated with the use of swap agreements are imperfect correlation between movements in the notional amount and the price of the underlying reference index and the inability of counterparties to perform. Each Fund bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty. A Fund will enter into swap agreements only with large, well-capitalized and well established financial institutions. The creditworthiness of each of the firms that is a party to a swap agreement is monitored by the Sponsor. The Sponsor may use various techniques to minimize credit risk including early termination and payment, using different counterparties, limiting the net amount due from any individual counterparty and generally requiring collateral to be posted by the counterparty in an amount approximately equal to that owed to the Funds. All of the outstanding swap agreements at December 31, 2011 contractually terminate within one month but may be terminated without penalty by either party daily. Upon termination, the Fund is entitled to pay or receive the “unrealized appreciation or depreciation” amount.

The Funds, as applicable, collateralize swap agreements by segregating or designating cash and/or certain securities as indicated on the Statements of Financial Condition or Schedules of Investments. Such collateral is 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 Funds. In the event of a default by the counterparty, the Funds will seek withdrawal of this collateral from the segregated account and may incur certain costs in exercising its right with respect to the collateral.

If a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the Leveraged Funds may experience significant delays in obtaining any recovery in a bankruptcy or other reorganizational proceeding. The Funds may obtain only limited recovery or may obtain no recovery in such circumstances.

 

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The Funds remain subject to credit risk with respect to the amount they expect to receive from counterparties. However, 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, in an amount approximately equal to what the counterparty owes the Fund. In the event of the bankruptcy of a counterparty, the Fund will have direct access to the collateral received from the counterparty, generally as of the day prior to the bankruptcy, because there is a one day time lag between the Fund’s request for collateral and the delivery of such collateral. To the extent any such collateral is insufficient, the Funds will be exposed to counterparty risk as described above, including the possible delays in recovering amounts as a result of bankruptcy proceedings. As of December 31, 2011, the collateral posted by counterparties consisted of U.S. Treasury securities.

Forward Contracts

Certain of the Funds enter into forward contracts for purposes of pursuing their investment objectives and as a substitute for investing directly in (or shorting) commodities and/or currencies. A forward contract is an agreement between two parties to purchase or sell a specified quantity of a commodity or currency at or before a specified date in the future at a specified price. Forward contracts are typically traded in the over-the-counter (“OTC”) markets and all details of the contract are negotiated between the counterparties to the agreement. Accordingly, the forward contracts are valued by reference to the contracts traded in the OTC markets.

The contractual obligations of a buyer or seller may generally be satisfied by taking or making physical delivery of the underlying commodity or currency, establishing an opposite position in the contract and recognizing the profit or loss on both positions simultaneously on the delivery date or, in some instances, paying a cash settlement before the designated date of delivery. The forward contracts are adjusted by the daily fluctuation of the underlying commodity or currency and any gains or losses are recorded for financial statement purposes as unrealized gains or losses until the contract settlement date.

Forward contracts are, in general, not cleared or guaranteed by a third party. The Funds may collateralize forward commodity contracts by segregating or designating cash and/or certain securities as indicated on their Statements of Financial Condition or Schedules of Investments. Such collateral is 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 Funds. In the event of a default by the counterparty, the Funds will seek withdrawal of this collateral from the segregated account and may incur certain costs in exercising its right with respect to the collateral. If a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the Funds may experience significant delays in obtaining any recovery in a bankruptcy or other reorganizational proceeding. The Funds may obtain only limited recovery or may obtain no recovery in such circumstances.

The Funds remain subject to credit risk with respect to the amount they expect to receive from counterparties, as those amounts are not similarly collateralized by the counterparty. However, 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, in an amount approximately equal to what the counterparty owes the Fund. In the event of the bankruptcy of a counterparty, the Fund will have direct access to the collateral received from the counterparty, generally as of the day prior to the bankruptcy, because there is a one day time lag between the Fund’s request for collateral and the delivery of such collateral. To the extent any such collateral is insufficient, the Funds will be exposed to counterparty risk as described above, including the possible delays in recovering amounts as a result of bankruptcy proceedings. As of December 31, 2011, the collateral posted by counterparties consisted of U.S. Treasury securities.

Participants in trading 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.

A Fund will enter into forward contracts only with large, well-capitalized and well established financial institutions. The creditworthiness of each of the firms that is a party to a forward contract is monitored by the Sponsor.

 

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Fair Value of Derivative Instruments

as of December 31, 2011

 

Asset Derivatives

   

Liability Derivatives

 

Derivatives not

accounted for

as hedging

instruments

  

Statements of
Financial

Condition

Location

  

Fund

   Unrealized
Appreciation
   

Statements of
Financial

Condition

Location

  

Fund

   Unrealized
Depreciation
 

Commodities Contracts

  

Receivables on open futures contracts, unrealized appreciation on swap and/or forward agreements

  

ProShares UltraShort DJ-UBS Commodity

   $ 570,751     

Payable on open futures contracts, unrealized depreciation on swap and/or forward agreements

  

ProShares Ultra DJ-UBS Commodity

   $ 707,177   
     

ProShares UltraShort DJ-UBS Crude Oil

     3,145,557     

ProShares Ultra DJ-UBS Crude Oil

     11,372,726
     

ProShares UltraShort DJ-UBS Natural Gas

     1,381,010     

ProShares UltraShort DJ-UBS Crude Oil

     253,277   
     

ProShares UltraShort Gold

     33,443,158     

ProShares Ultra DJ-UBS Natural Gas

     825,510
     

ProShares UltraShort Silver

     45,078,871     

ProShares Ultra Gold

     80,877,940
             

ProShares Ultra Silver

     179,387,623
             

ProShares UltraShort Silver

     2,002,298   

Foreign Exchange Contracts

  

Unrealized appreciation on foreign currency forward contracts

  

ProShares Ultra Euro

     6,850     

Unrealized depreciation on foreign currency forward contracts

  

ProShares Ultra Euro

     525,062   
     

ProShares UltraShort Euro

     69,475,850        

ProShares UltraShort Euro

     2,044,896   
     

ProShares Ultra Yen

     103,610        

ProShares Ultra Yen

     883   
     

ProShares UltraShort Yen

     234,106        

ProShares UltraShort Yen

     4,598,252   

VIX Futures Contracts

  

Receivables on open futures contracts

  

ProShares Ultra VIX Short-Term Futures ETF

     141,600  

Payable on open futures contracts

  

ProShares Ultra VIX Short-Term Futures ETF

     904,390
     

ProShares VIX Short-Term Futures ETF

     295,500     

ProShares VIX Short-Term Futures ETF

     1,871,470
     

ProShares Short VIX Short-Term Futures ETF

     181,280     

ProShares Short VIX Short-Term Futures ETF

     91,100
     

ProShares VIX Mid-Term Futures ETF

     93,000     

ProShares VIX Mid-Term Futures ETF

     6,205,750
        

 

 

         

 

 

 
     

Total Trust

   $ 154,151,143     

Total Trust

   $ 291,668,354

 

* Includes cumulative appreciation/depreciation of futures contracts as reported in the Schedules of Investments. Only current day’s variation margin is reported within the Statements of Financial Condition in receivable/payable on open futures contracts.

 

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Fair Value of Derivative Instruments

as of December 31, 2010

 

Asset Derivatives

   

Liability Derivatives

 

Derivatives not
accounted for

as hedging

instruments

  

Statements of

Financial

Condition

Location

  

Fund

   Unrealized
Appreciation
   

Statements of

Financial

Condition

Location

  

Fund

   Unrealized
Depreciation
 

Commodities Contracts

  

Receivables on open futures contracts, unrealized appreciation on swap and/or forward agreements

  

ProShares Ultra DJ-UBS Commodity

   $ 1,755,750     

Payable on open futures contracts, unrealized depreciation on swap and/or forward agreements

  

ProShares UltraShort DJ-UBS Commodity

   $ 164,150   
     

ProShares Ultra DJ-UBS Crude Oil

     11,062,404     

ProShares UltraShort DJ-UBS Crude Oil

     6,496,028
     

ProShares Ultra Gold

     9,030,567     

ProShares UltraShort Gold

     3,284,141
     

ProShares Ultra Silver

     49,247,788     

ProShares UltraShort Silver

     10,529,765

Foreign Exchange Contracts

  

Unrealized appreciation on foreign currency forward contracts

  

ProShares Ultra Euro

     353,487     

Unrealized depreciation on foreign currency forward contracts

  

ProShares Ultra Euro

     5,308   
     

ProShares UltraShort Euro

     930,978        

ProShares UltraShort Euro

     24,125,055   
     

ProShares Ultra Yen

     292,768        

ProShares Ultra Yen

     9,265   
     

ProShares UltraShort Yen

     1,856,768        

ProShares UltraShort Yen

     17,994,422   
        

 

 

         

 

 

 
     

Total Trust

   $ 74,530,510     

Total Trust

   $ 62,608,134

 

* Includes cumulative appreciation/depreciation of futures contracts as reported in the Schedules of Investments. Only current day’s variation margin is reported within the Statements of Financial Condition in receivable/payable on open futures contracts.

 

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The Effect of Derivative Instruments on the Statements of Operations

For the year ended December 31, 2011

 

Derivatives not

accounted for as

hedging instruments

  

Location of Gain or

(Loss) on Derivatives

Recognized in Income

  

Fund

   Realized Gain or  (Loss)
on Derivatives
Recognized in Income
    Change in Unrealized
Appreciation or
Depreciation on
Derivatives Recognized in
Income
 

Commodity Contracts

  

Net realized gain (loss) on futures contracts, swap and/or forward agreements/changes in unrealized appreciation/ depreciation on futures contracts, swap and/or forward agreements

  

ProShares Ultra DJ-UBS Commodity

   $ (2,051,498   $ (2,462,927
     

ProShares UltraShort DJ-UBS Commodity

     (3,511,808     734,901   
     

ProShares Ultra DJ-UBS Crude Oil

     110,381,975        (22,435,130
     

ProShares UltraShort DJ-UBS Crude Oil

     26,720,866        9,388,308   
     

ProShares Ultra DJ-UBS Natural Gas

     (1,481,685     (825,510
     

ProShares UltraShort DJ-UBS Natural Gas

     1,776,461        1,381,010   
     

ProShares Ultra Gold

     100,088,064        (89,908,507
     

ProShares UltraShort Gold

     (45,179,461     36,727,299   
     

ProShares Ultra Silver

     (209,477,092     (228,635,411
     

ProShares UltraShort Silver

     (171,361,321     53,606,338   

Foreign Exchange Contracts

  

Net realized gain (loss) on foreign currency forward contracts/changes in unrealized appreciation/ depreciation on foreign currency forward contracts

  

ProShares Ultra Euro

     354,369        (866,391
     

ProShares UltraShort Euro

     (5,409,463     90,625,031   
     

ProShares Ultra Yen

     564,813        (180,776
     

ProShares UltraShort Yen

     (50,029,053     11,773,508   

VIX Futures Contracts

  

Net realized gain (loss) on futures contracts/ changes in unrealized appreciation/ depreciation on futures contracts

  

ProShares Ultra VIX Short-Term Futures ETF

     (3,524,662     (762,790
     

ProShares VIX Short-Term Futures ETF

     3,732,227        (1,575,970
     

ProShares Short VIX Short-Term Futures ETF

     1,355,975        90,180   
     

ProShares VIX Mid-Term Futures ETF

     (514,060     (6,112,750
        

 

 

   

 

 

 
     

Total Trust

   $ (247,565,353   $ (149,439,587

 

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The Effect of Derivative Instruments on the Statements of Operations

For the year ended December 31, 2010

 

Derivatives not

accounted for as

hedging instruments

 

Location of Gain or

(Loss) on Derivatives

Recognized in Income

 

Fund

  Realized Gain or  (Loss)
on Derivatives
Recognized in Income
    Change in  Unrealized
Appreciation or
Depreciation on Derivatives
Recognized in
Income
 

Commodity Contracts

 

Net realized gain (loss) on futures contracts, swap and/or forward agreements/changes in unrealized appreciation/ depreciation on futures contracts, swaps and/or forward agreements

 

ProShares Ultra DJ-UBS Commodity

  $ 2,383,511      $ 577,782   
   

ProShares UltraShort DJ-UBS Commodity

    (691,056     52,455   
   

ProShares Ultra DJ-UBS Crude Oil

    151,266,418        (26,944,472
   

ProShares UltraShort DJ-UBS Crude Oil

    15,021,223        (2,449,639
   

ProShares Ultra Gold

    76,437,234        14,459,027   
   

ProShares UltraShort Gold

    (37,770,759     (5,467,343
   

ProShares Ultra Silver

    216,253,186        57,044,775   
   

ProShares UltraShort Silver

    (89,054,103     (13,573,564

Foreign Exchange Contracts

 

Net realized gain (loss) on foreign currency forward contracts/ changes in unrealized appreciation/depreciation on foreign currency forward contracts

 

ProShares Ultra Euro

    (602,156     625,437   
   

ProShares UltraShort Euro

    48,542,523        (25,149,044
   

ProShares Ultra Yen

    826,717        599,316   
   

ProShares UltraShort Yen

    (22,116,381     (21,002,722
     

 

 

   

 

 

 
   

Total Trust

  $ 360,496,357      $ (21,227,992

 

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The Effect of Derivative Instruments on the Statements of Operations

For the year ended December 31, 2009

 

Derivatives not

accounted for as

hedging instruments

 

Location of Gain or

(Loss) on Derivatives

Recognized in Income

 

Fund

  Realized Gain or  (Loss)
on Derivatives
Recognized in Income
    Change in  Unrealized
Appreciation or
Depreciation on Derivatives
Recognized in

Income
 

Commodity Contracts

 

Net realized gain (loss) on futures contracts, swap and/or forward agreements/changes in unrealized appreciation/ depreciation on futures contracts, swap and/or forward agreements

 

ProShares Ultra DJ-UBS Commodity

  $ 4,280,412      $ 993,385   
   

ProShares UltraShort DJ-UBS Commodity

    (2,479,160     209,596   
   

ProShares Ultra DJ-UBS Crude Oil

    100,784,061        25,328,476   
   

ProShares UltraShort DJ-UBS Crude Oil

    (15,768,595     (495,799
   

ProShares Ultra Gold

    39,926,104        (4,881,976
   

ProShares UltraShort Gold

    (19,629,874     2,119,235   
   

ProShares Ultra Silver

    43,715,010        (7,532,115
   

ProShares UltraShort Silver

    (40,785,230     2,996,965   

Foreign Exchange Contracts

 

Net realized gain (loss) on foreign currency forward contracts/ changes in unrealized appreciation/depreciation on foreign currency forward contracts

 

ProShares Ultra Euro

    699,029        (136,713
   

ProShares UltraShort Euro

    (10,304,179     1,803,814   
   

ProShares Ultra Yen

    (241,945     (114,239
   

ProShares UltraShort Yen

    (6,039,297     4,729,151   
     

 

 

   

 

 

 
   

Total Trust

  $ 94,156,336      $ 25,019,780   

 

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NOTE 4 – AGREEMENTS

Management Fee

Each Leveraged Fund, Geared VIX Fund and Managed Futures Fund pays or will pay the Sponsor a Management Fee, monthly in arrears, in an amount equal to 0.95% per annum of its average daily NAV of such Fund. In the first year of the Leveraged Funds’ and VIX Funds’ operations, the Sponsor did not charge its fee in an amount equal to the organization and offering costs. The Sponsor reimbursed or will reimburse each Leveraged Fund, Geared VIX Fund and Managed Futures Fund, if applicable, to the extent that its offering costs exceeded or exceed 0.95% of its average daily NAV of each Fund for the first year of operations. Each Matching VIX Fund pays the Sponsor a Management Fee, monthly in arrears, in an amount equal to 0.85% per annum of its average daily NAV. The Sponsor will not charge its fee in the first year of operation of each New Fund in an amount equal to the offering costs. The Sponsor has agreed to reimburse each New Fund to the extent that its offering costs exceed the Management Fee for the first year of operations. The Management Fee is or will be paid in consideration of the Sponsor’s services as commodity pool operator and commodity trading advisor, and for managing the business and affairs of the Funds. From the Management Fee, the Sponsor pays or will pay the fees and expenses of the Administrator, Custodian, Distributor, Transfer Agent and the licensors for the Commodity Index Funds (Dow Jones & Company, Inc. and UBS Securities LLC, together, “DJ-UBS”), the routine operational, administrative and other ordinary expenses of each Fund, and the normal and expected expenses incurred in connection with the continuous offering of Shares of each Fund after the commencement of its trading operations, including, but not limited to, expenses such as ongoing SEC registration fees not exceeding 0.021% per annum of the NAV of a Fund and Financial Industry Regulatory Authority (“FINRA”) filing fees. For the year ended December 31, 2011, the Sponsor paid and is currently paying brokerage commissions on VIX futures contracts for the Matching VIX Funds. Each Fund incurs and pays, and each New Fund will incur and pay, its non-recurring and unusual fees and expenses.

The Administrator

The Sponsor and the Trust, for itself and on behalf of each Fund, has appointed Brown Brothers Harriman & Co. (“BBH&Co.”) as the Administrator of the Funds, and the Sponsor, the Trust, on its own behalf and on behalf of each Fund, and BBH&Co. have entered into an Administrative Agency Agreement (the “Administration Agreement”) in connection therewith. Pursuant to the terms of the Administration Agreement and under the supervision and direction of the Sponsor and the Trust, BBH&Co. prepares and files certain regulatory filings on behalf of the Funds. BBH&Co. may also perform other services for the Funds pursuant to the Administration Agreement as mutually agreed upon by the Sponsor, the Trust and BBH&Co. from time to time. Pursuant to the terms of the Administration Agreement, BBH&Co. also serves as the Transfer Agent of the Funds. The Administrator’s fees are or will be paid on behalf of the Funds by the Sponsor.

The Custodian

BBH&Co. serves as Custodian of the Funds, and the Trust, on its own behalf and on behalf of each Fund, and BBH&Co. have entered into a Custodian Agreement in connection therewith. Pursuant to the terms of the Custodian Agreement, BBH&Co. is responsible for the holding and safekeeping of assets delivered to it by the Funds, and performing various administrative duties in accordance with instructions delivered to BBH&Co. by the Funds. The Custodian’s fees are or will be paid on behalf of the Funds by the Sponsor.

The Distributor

SEI Investments Distribution Co. (“SEI”), serves as Distributor of the Funds and assists the Sponsor and the Administrator with certain functions and duties relating to distribution and marketing, including taking creation and redemption orders, consulting with the marketing staff of the Sponsor and its affiliates with respect to compliance with the requirements of FINRA and/or the NFA in connection with marketing efforts, and reviewing and filing of marketing materials with FINRA and/or the NFA. SEI retains all marketing materials separately for each Fund, at c/o SEI, One Freedom Valley Drive, Oaks, PA 19456. The Sponsor, on behalf of each Fund, has entered into a Distribution Services Agreement with SEI.

 

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Routine Operational, Administrative and Other Ordinary Expenses

The Sponsor pays or will pay all of the routine operational, administrative and other ordinary expenses of each Fund generally, as determined by the Sponsor including, but not limited to, fees and expenses of the Administrator, Custodian, Distributor, Transfer Agent, DJ-UBS, accounting and auditing fees and expenses, tax preparation expenses, legal fees not in excess of $100,000 per annum, ongoing SEC registration fees not exceeding 0.021% per annum of the NAV of a Fund, FINRA filing fees, individual K-1 preparation and mailing fees not exceeding 0.10% per annum of the NAV of a Fund, and report preparation and mailing expenses.

Non-Recurring Fees and Expenses

Each Fund pays or will pay all non-recurring and unusual fees and expenses, if any, as determined by the Sponsor. Non-recurring fees and expenses are fees and expenses such as legal claims and liabilities, litigation costs or indemnification or other material expenses which are not currently anticipated obligations of the Funds. Such fees and expenses are those that are non-recurring, unexpected or unusual in nature.

NOTE 5 – ORGANIZATION AND OFFERING COSTS

Organization costs are expensed as incurred and offering costs will be amortized by the Funds over a twelve month period on a straight-line basis. The Sponsor did not charge its Management Fee in the first year of operations of any Leveraged Fund, Geared VIX Fund or Matching VIX Fund in an amount equal to the organization and offering costs. The Sponsor reimbursed or will reimburse each Fund, except for the Matching VIX Funds, if its organization and offering costs exceeded 0.95% of its average daily NAV. The Sponsor reimbursed each Matching VIX Fund if its organization and offering costs exceeded 0.85% of its average daily NAV for the first year of operations.

Offering costs on the New Funds will be amortized over a twelve month period on a straight-line basis. The Sponsor will not charge its Management Fee in the first year of operations of each New Fund in an amount equal to the offering costs. The Sponsor has agreed to reimburse each New Fund to the extent that its offering costs exceed 0.95% of its average daily NAV for the first year of operations. At December 31, 2011, amounts payable for offering costs are reflected in the Statement of Financial Condition for each New Fund.

NOTE 6 – CREATION AND REDEMPTION OF CREATION UNITS

Each Fund issues and redeems or will issue and redeem shares from time to time, but only in one or more Creation Units. A Creation Unit is or will be a block of 50,000 Shares of a Geared Fund or a Managed Futures Fund and 25,000 Shares of a Matching VIX Fund. Creation Units may be created or redeemed only by Authorized Participants. As a result of the reverse share splits as described in Note 1, certain redemptions as disclosed in the Statements of Changes in Shareholders’ Equity reflect payment of fractional share balances on beneficial shareholder accounts.

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

Transaction Fees on Creation and Redemption Transactions

The manner by which Creation Units are purchased or redeemed is dictated by the terms of the Authorized Participant Agreement and Authorized Participant Handbook. By placing a purchase order, an Authorized Participant agrees to: (1) deposit cash with the Custodian; and (2) if permitted by the Sponsor in its sole discretion with respect to a VIX Fund, enter into or arrange for an exchange of futures contract for related position (“EFCRP”) or block trade with the VIX Fund whereby the Authorized Participant would also transfer to such Fund a number and type of exchange-traded VIX futures contracts at or near the closing settlement price for such contracts on the purchase order date.

 

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Authorized Participants may pay a fixed transaction fee of up to $500 in connection with each order to create or redeem a Creation Unit in order to compensate BBH&Co., as the Administrator, the Custodian and the Transfer Agent of each Fund and its Shares, for services in processing the creation and redemption of Creation Units. Authorized Participants also may pay a variable transaction fee to the Fund of up to 0.10% of the value of the Creation Unit that is purchased or redeemed unless the transaction fee is waived or otherwise adjusted by the Sponsor. The Sponsor provides such Authorized Participant with prompt notice in advance of any such waiver or adjustment of the transaction fee. Authorized Participants may sell the Shares included in the Creation Units they purchase from the Funds to other investors in the secondary market.

Transaction fees for the years ended December 31, 2011, 2010 and 2009, which are included in the Sale and/or Redemption of Shares on the Statements of Changes in Shareholders’ Equity, were as follows:

 

Fund

   Year Ended
December 31, 2011
     Year Ended
December 31, 2010
     Year Ended
December 31, 2009
 

Ultra DJ-UBS Commodity

   $ 1,754       $ 5,561       $ 9,028   

UltraShort DJ-UBS Commodity

     34,814         1,911         1,258   

Ultra DJ-UBS Crude Oil

     532,022         560,895         534,221   

UltraShort DJ-UBS Crude Oil

     244,564         241,115         188,773   

Ultra DJ-UBS Natural Gas

     641         —           —     

UltraShort DJ-UBS Natural Gas

     400         —           —     

Ultra Gold

     43,207         38,269         64,224   

UltraShort Gold

     57,263         24,530         41,076   

Ultra Silver

     454,059         77,861         49,367   

UltraShort Silver

     457,001         56,371         56,339   

Ultra Euro

     —           —           —     

UltraShort Euro

     —           —           —     

Ultra Yen

     —           —           —     

UltraShort Yen

     —           —           —     

Ultra VIX Short-Term Futures ETF

     3,421         —           —     

VIX Short-Term Futures ETF

     —           —           —     

Short VIX Short-Term Futures ETF

     754         —           —     

VIX Mid-Term Futures ETF

     —           —           —     
  

 

 

    

 

 

    

 

 

 

Total Trust

   $ 1,829,900       $ 1,006,513       $ 944,286   

 

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NOTE 7 – FINANCIAL HIGHLIGHTS

Selected data for a Share outstanding throughout the period ended December 31, 2011:

Ultra ProShares

For the Period Ended December 31, 2011

 

Per Share Operating Performance

   Ultra DJ-
UBS
Commodity+
    Ultra DJ-
UBS
Crude
Oil*+
    Ultra DJ-
UBS
Natural
Gas++
    Ultra Gold+     Ultra
Silver*+
    Ultra Euro+     Ultra Yen+  

Net asset value, beginning of period

   $ 36.3723      $ 50.0017      $ 40.0000      $ 69.2163      $ 78.1431      $ 25.7644      $ 33.4918   

Net investment income (loss)

     (0.3045     (0.3807     (0.0911     (0.7724     (0.7715     (0.2495     (0.3160

Net realized and unrealized gain (loss)#

     (10.1873     (8.7382     (19.5132     7.4627        (34.1813     (1.6289     3.2946   

Change in net asset value from operations

     (10.4918     (9.1189     (19.6043     6.6903        (34.9528     (1.8784     2.9786   

Net asset value, at December 31, 2011

   $ 25.8805      $ 40.8828      $ 20.3957      $ 75.9066      $ 43.1903      $ 23.8860      $ 36.4704   

Market value per share, at December 31, 2010†

   $ 36.27      $ 49.98      $ 40.00      $ 70.72      $ 79.30      $ 25.86      $ 33.29   

Market value per share, at December 31, 2011†

   $ 25.64      $ 40.94      $ 20.27      $ 79.01      $ 41.65      $ 23.87      $ 36.50   

Total Return, at net asset value

     (28.8 )%      (18.2 )%      (49.0 )%^      9.7     (44.7 )%      (7.3 )%      8.9

Total Return, at market value

     (29.3 )%      (18.1 )%      (49.3 )%^      11.7     (47.5 )%      (7.7 )%      9.6

Ratios to Average Net Assets

              

Expense ratio

     (0.95 )%      (0.98 )%      (1.25 )%**      (0.95 )%      (0.95 )%      (0.95 )%      (0.95 )% 

Expense ratio, excluding brokerage commissions

     (0.95 )%      (0.95 )%      (0.95 )%**      (0.95 )%      (0.95 )%      (0.95 )%      (0.95 )% 

Net investment income (loss)

     (0.89 )%      (0.93 )%      (1.25 )%**      (0.91 )%      (0.90 )%      (0.90 )%      (0.91 )% 

 

* See Note 1 of these Notes to Financial Statements.
+ For the year ended December 31, 2011.
++ From commencement of operations, October 4, 2011, through December 31, 2011.
# The amount shown for a share outstanding throughout the period may not accord with the change in aggregate gains and losses during the period because of timing of creation and redemption units in relation to fluctuating net asset value during the period.
Market values are determined at the close of the New York Stock Exchange, which may be later than when the Funds’ net asset value is calculated.
^ Percentages are not annualized for the period ended December 31, 2011.

The returns for a share outstanding for 2011 are calculated based on the initial offering price upon commencement of investment operations of $40.0000.

 

** Percentages are annualized.

 

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UltraShort ProShares

For the Period Ended December 31, 2011

 

Per Share Operating Performance

   UltraShort
DJ-UBS
Commodity*+
    UltraShort
DJ-UBS

Crude
Oil*+
    UltraShort
DJ-UBS

Natural
Gas++
    UltraShort
Gold+
    UltraShort
Silver*+
    UltraShort
Euro+
    UltraShort
Yen*+
 

Net asset value, beginning of period

   $ 47.9976      $ 50.8516      $ 40.0000      $ 28.3706      $ 39.8927      $ 20.2928      $ 47.0232   

Net investment income (loss)

     (0.4380     (0.4253     (0.1561     (0.1842     (0.1457     (0.1657     (0.3964

Net realized and unrealized gain (loss)#

     9.3611        (11.6112     31.5721        (7.5085     (24.4116     0.2086        (5.6711

Change in net asset value from operations

     8.9231        (12.0365     31.4160        (7.6927     (24.5573     0.0429        (6.0675

Net asset value, at December 31, 2011

   $ 56.9207      $ 38.8151      $ 71.4160      $ 20.6779      $ 15.3354      $ 20.3357      $ 40.9557   

Market value per share, at December 31, 2010†

   $ 48.30      $ 50.85      $ 40.00      $ 27.80      $ 39.28      $ 20.31      $ 47.01   

Market value per share, at December 31, 2011†

   $ 56.19      $ 38.69      $ 71.88      $ 19.81      $ 15.87      $ 20.35      $ 40.95   

Total Return, at net asset value

     18.6     (23.7 )%      78.5 %^      (27.1 )%      (61.6 )%      0.2     (12.9 )% 

Total Return, at market value

     16.3     (23.9 )%      79.7 %^      (28.7 )%      (59.6 )%      0.2     (12.9 )% 

Ratios to Average Net Assets

              

Expense ratio

     (0.95 )%      (0.99 )%      (1.29 )%**      (0.95 )%      (0.95 )%      (0.95 )%      (0.95 )% 

Expense ratio, excluding brokerage commissions

     (0.95 )%      (0.95 )%      (0.95 )%**      (0.95 )%      (0.95 )%      (0.95 )%      (0.95 )% 

Net investment income (loss)

     (0.92 )%      (0.94 )%      (1.28 )%**      (0.91 )%      (0.91 )%      (0.91 )%      (0.89 )% 

 

* See Note 1 of these Notes to Financial Statements.
+ For the year ended December 31, 2011.
++ From commencement of operations, October 4, 2011, through December 31, 2011.
# The amount shown for a share outstanding throughout the period may not accord with the change in aggregate gains and losses during the period because of timing of creation and redemption units in relation to fluctuating net asset value during the period.
Market values are determined at the close of the New York Stock Exchange, which may be later than when the Funds’ net asset value is calculated.
^ Percentages are not annualized for the period ended December 31, 2011.

The returns for a share outstanding for 2011 are calculated based on the initial offering price upon commencement of investment operations of $40.0000.

 

** Percentages are annualized.

 

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VIX ProShares

For the Period Ended December 31, 2011

 

Per Share Operating Performance

   Ultra VIX
Short-Term
Futures
ETF+
    VIX  Short-
Term
Futures
ETF++
    Short VIX
Short-Term
Futures
ETF+
    VIX Mid-
Term
Futures
ETF++
 

Net asset value, beginning of period

   $ 40.0000      $ 80.0000      $ 40.0000      $ 80.0000   

Net investment income (loss)

     (0.0595     (0.5192     (0.1398     (0.5950

Net realized and unrealized gain (loss)#

     (27.5893     (3.1070     11.8725        (5.2654

Change in net asset value from operations

     (27.6488     (3.6262     11.7327        (5.8604

Net asset value, at December 31, 2011

   $ 12.3512      $ 76.3738      $ 51.7327      $ 74.1396   

Market value per share, at December 31, 2010†

   $ 40.00      $ 80.00      $ 40.00      $ 80.00   

Market value per share, at December 31, 2011†

   $ 12.16      $ 75.74      $ 52.28      $ 74.13   

Total Return, at net asset value

     (69.1 )%^      (4.5 )%^      29.3 %^      (7.3 )%^ 

Total Return, at market value

     (69.6 )%^      (5.3 )%^      30.7 %^      (7.3 )%^ 

Ratios to Average Net Assets

        

Expense ratio

     (1.41 )%**      (0.85 )%**      (1.19 )%**      (0.85 )%** 

Expense ratio, excluding brokerage commissions

     (0.95 )%**      (0.85 )%**      (0.95 )%**      (0.85 )%** 

Net investment income (loss)

     (1.41 )%**      (0.81 )%**      (1.19 )%**      (0.82 )%** 

 

+ From commencement of operations, October 3, 2011, through December 31, 2011.
++ From commencement of operations, January 3, 2011, through December 31, 2011.
# The amount shown for a share outstanding throughout the period may not accord with the change in aggregate gains and losses during the period because of timing of creation and redemption units in relation to fluctuating net asset value during the period.
Market values are determined at the close of the New York Stock Exchange, which may be later than when the Funds’ net asset value is calculated.
^ Percentages are not annualized for the period ended December 31, 2011.

The returns for a share outstanding for 2011 are calculated based on the initial offering price upon commencement of investment operations of $40.0000 for ProShares Ultra VIX Short-Term Futures ETF and ProShares Short VIX Short-Term Futures ETF and $80.0000 for ProShares VIX Short-Term Futures ETF and ProShares VIX Mid-Term Futures ETF.

 

** Percentages are annualized.

 

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Selected data for a Share outstanding throughout the year ended December 31, 2010:

Ultra ProShares

For the Year Ended December 31, 2010

 

Per Share Operating Performance

   Ultra DJ-
UBS
Commodity
    Ultra DJ-
UBS
Crude
Oil*
    Ultra Gold     Ultra
Silver*
    Ultra Euro     Ultra Yen  

Net asset value, at December 31, 2009

   $ 28.2051      $ 50.4982      $ 44.0778      $ 28.5129      $ 30.1257      $ 26.1393   

Net investment income (loss)

     (0.2066     (0.3581     (0.4407     (0.3070     (0.2022     (0.2376

Net realized and unrealized gain (loss)#

     8.3738        (0.1384     25.5792        49.9372        (4.1591     7.5901   

Change in net asset value from operations

     8.1672        (0.4965     25.1385        49.6302        (4.3613     7.3525   

Net asset value, at December 31, 2010

   $ 36.3723      $ 50.0017      $ 69.2163      $ 78.1431      $ 25.7644      $ 33.4918   

Market value per share, at December 31, 2009†

   $ 28.43      $ 50.72      $ 44.68      $ 28.08      $ 30.17      $ 26.58   

Market value per share, at December 31, 2010†

   $ 36.27      $ 49.98      $ 70.72      $ 79.30      $ 25.86      $ 33.29   

Total Return, at net asset value

     29.0     (1.0 )%      57.0     174.1     (14.5 )%      28.1

Total Return, at market value

     27.6     (1.5 )%      58.3     182.4     (14.3 )%      25.2

Ratios to Average Net Assets

            

Expense ratio

     (0.95 )%      (0.99 )%      (0.95 )%      (0.95 )%      (0.95 )%      (0.95 )% 

Expense ratio, excluding brokerage commissions

     (0.95 )%      (0.95 )%      (0.95 )%      (0.95 )%      (0.95 )%      (0.95 )% 

Net investment income (loss)

     (0.78 )%      (0.86 )%      (0.81 )%      (0.81 )%      (0.81 )%      (0.81 )% 

 

* See Note 1 of these Notes to Financial Statements.
# The amount shown for a share outstanding throughout the period may not accord with the change in aggregate gains and losses during the period because of timing of creation and redemption units in relation to fluctuating net asset value during the period.
Market values are determined at the close of the New York Stock Exchange, which may be later than when the Funds’ net asset value is calculated.

 

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UltraShort ProShares

For the Year Ended December 31, 2010

 

Per Share Operating Performance

   UltraShort
DJ-UBS
Commodity*
    UltraShort
DJ-UBS

Crude
Oil*
    UltraShort
Gold*
    UltraShort
Silver*
    UltraShort
Euro
    UltraShort
Yen*
 

Net asset value, at December 31, 2009

   $ 73.1052      $ 68.4432      $ 52.4052      $ 188.3683      $ 18.6755      $ 64.2739   

Net investment income (loss)

     (0.6245     (0.5639     (0.3125     (0.7945     (0.1694     (0.4349

Net realized and unrealized gain (loss)#

     (24.4831     (17.0277     (23.7221     (147.6811     1.7867        (16.8158

Change in net asset value from operations

     (25.1076     (17.5916     (24.0346     (148.4756     1.6173        (17.2507

Net asset value, at December 31, 2010

   $ 47.9976      $ 50.8516      $ 28.3706      $ 39.8927      $ 20.2928      $ 47.0232   

Market value per share, at December 31, 2009†

   $ 73.25      $ 68.25      $ 51.75      $ 191.60      $ 18.70      $ 63.90   

Market value per share, at December 31, 2010†

   $ 48.30      $ 50.85      $ 27.80      $ 39.28      $ 20.31      $ 47.01   

Total Return, at net asset value

     (34.3 )%      (25.7 )%      (45.9 )%      (78.8 )%      8.7     (26.8 )% 

Total Return, at market value

     (34.1 )%      (25.5 )%      (46.3 )%      (79.5 )%      8.6     (26.4 )% 

Ratios to Average Net Assets

            

Expense ratio

     (0.95 )%      (1.01 )%      (0.95 )%      (0.95 )%      (0.95 )%      (0.95 )% 

Expense ratio, excluding brokerage commissions

     (0.95 )%      (0.95 )%      (0.95 )%      (0.95 )%      (0.95 )%      (0.95 )% 

Net investment income (loss)

     (0.82 )%      (0.88 )%      (0.81 )%      (0.81 )%      (0.79 )%      (0.80 )% 

 

* See Note 1 of these Notes to Financial Statements.
# The amount shown for a share outstanding throughout the period may not accord with the change in aggregate gains and losses during the period because of timing of creation and redemption units in relation to fluctuating net asset value during the period.
Market values are determined at the close of the New York Stock Exchange, which may be later than when the Funds’ net asset value is calculated.

 

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Selected data for a Share outstanding throughout the year ended December 31, 2009:

Ultra ProShares

For the Year Ended December 31, 2009

 

Per Share Operating Performance

   Ultra DJ-
UBS
Commodity
    Ultra DJ-
UBS
Crude
Oil*
    Ultra Gold     Ultra
Silver*
    Ultra Euro     Ultra Yen  

Net asset value, at December 31, 2008

   $ 22.1647      $ 59.1246      $ 30.8181      $ 14.3011      $ 29.2400      $ 28.4465   

Net investment income (loss)

     (0.2142     (0.4095     (0.3383     (0.2286     (0.2640     (0.2383

Net realized and unrealized gain (loss)#

     6.2546        (8.2169     13.5980        14.4404        1.1497        (2.0689

Change in net asset value from operations

     6.0404        (8.6264     13.2597        14.2118        0.8857        (2.3072

Net asset value, at December 31, 2009

   $ 28.2051      $ 50.4982      $ 44.0778      $ 28.5129      $ 30.1257      $ 26.1393   

Market value per share, at December 31, 2008†

   $ 22.15      $ 54.76      $ 31.60      $ 15.75      $ 29.49      $ 28.66   

Market value per share, at December 31, 2009†

   $ 28.43      $ 50.72      $ 44.68      $ 28.08      $ 30.17      $ 26.58   

Total Return, at net asset value

     27.3     (14.6 )%      43.0     99.4     3.0     (8.1 )% 

Total Return, at market value

     28.4     (7.4 )%      41.4     78.3     2.3     (7.3 )% 

Ratios to Average Net Assets

            

Expense ratio

     (0.95 )%      (1.04 )%      (0.95 )%      (0.96 )%      (0.95 )%      (0.95 )% 

Expense ratio, excluding brokerage commissions

     (0.95 )%      (0.95 )%      (0.95 )%      (0.95 )%      (0.95 )%      (0.95 )% 

Net investment income (loss)

     (0.92 )%      (1.00 )%      (0.91 )%      (0.92 )%      (0.91 )%      (0.91 )% 

 

* See Note 1 of these Notes to Financial Statements.
# The amount shown for a share outstanding throughout the period may not accord with the change in aggregate gains and losses during the period because of timing of creation and redemption units in relation to fluctuating net asset value during the period.
Market values are determined at the close of the New York Stock Exchange, which may be later than when the Funds’ net asset value is calculated.

 

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UltraShort ProShares

For the Year Ended December 31, 2009

 

Per Share Operating Performance

   UltraShort
DJ-UBS
Commodity*
    UltraShort
DJ-UBS
Crude Oil*
    UltraShort
Gold*
    UltraShort
Silver*
    UltraShort
Euro
    UltraShort
Yen*
 

Net asset value, at December 31, 2008

   $ 133.9741      $ 145.0196      $ 96.8701      $ 784.0284      $ 20.9453      $ 64.9894   

Net investment income (loss)

     (0.9385     (0.8992     (0.6198     (2.4013     (0.1758     (0.5977

Net realized and unrealized gain (loss)

     (59.9304     (75.6772     (43.8451     (593.2588     (2.0940     (0.1178

Change in net asset value from operations

     (60.8689     (76.5764     (44.4649     (595.6601     (2.2698     (0.7155

Net asset value, at December 31, 2009

   $ 73.1052      $ 68.4432      $ 52.4052      $ 188.3683      $ 18.6755      $ 64.2739   

Market value per share, at December 31, 2008†

   $ 137.90      $ 158.30      $ 95.50      $ 700.40      $ 21.26      $ 65.55   

Market value per share, at December 31, 2009†

   $ 73.25      $ 68.25      $ 51.75      $ 191.60      $ 18.70      $ 63.90   

Total Return, at net asset value

     (45.4 )%      (52.8 )%      (45.9 )%      (76.0 )%      (10.8 )%      (1.1 )% 

Total Return, at market value

     (46.9 )%      (56.9 )%      (45.8 )%      (72.6 )%      (12.0 )%      (2.5 )% 

Ratios to Average Net Assets

            

Expense ratio

     (0.95 )%      (1.07 )%      (0.96 )%      (0.96 )%      (0.95 )%      (0.95 )% 

Expense ratio, excluding brokerage commissions

     (0.95 )%      (0.95 )%      (0.95 )%      (0.95 )%      (0.95 )%      (0.95 )% 

Net investment income (loss)

     (0.93 )%      (1.03 )%      (0.92 )%      (0.92 )%      (0.89 )%      (0.89 )% 

 

* See Note 1 of these Notes to Financial Statements.
Market values are determined at the close of the New York Stock Exchange, which may be later than when the Funds’ net asset value is calculated.

 

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NOTE 8 – RISK

Correlation and Compounding Risk

The Geared Funds do not seek to achieve their stated investment objective over a period of time greater than one day because mathematical compounding prevents the Funds from achieving such results. Accordingly, results over periods of time greater than one day should not be expected to be a simple inverse correlation (-1x) or multiple (3x or 2x) or inverse multiple (-3x or -2x) of the period return of the corresponding benchmark and will likely differ significantly. The Geared Funds seek daily results as measured from the calculation of one NAV to the next. The Matching VIX Funds seek to achieve their stated investment objective both over a single day and over time. The Managed Futures Funds seek to achieve their stated investment objective over time.

While the Funds expect to meet their investment objectives, several factors may affect their ability to do so. Among these factors are: (1) a Fund’s expenses, including fees, transaction costs and the cost of the investment techniques employed by that Fund (such as costs related to the purchase, sale and storage of the commodities or currencies and the cost of leverage, all of which may be embedded in financial instruments used by a Fund); (2) less than all of the commodities in the relevant benchmark index being held by a Commodity Index Fund or its weighting of investment exposure to such commodities being different from that of the relevant benchmark index; (3) an imperfect correlation between the performance of instruments held by a Fund, such as swaps, futures contracts and/or forward contracts, and the performance of the applicable underlying indices, commodities or currencies in the cash market; (4) bid-ask spreads; (5) holding instruments traded in a market that has become illiquid or disrupted; (6) a Fund’s share prices being rounded to the nearest cent; (7) changes to a benchmark index that are not disseminated in advance; (8) the need to conform a Fund’s portfolio holdings to comply with investment restrictions or policies or regulatory or tax law requirements; (9) early and unanticipated closings of the markets on which the holdings of a Fund trade, resulting in the inability of the Fund to execute intended portfolio transactions.

A number of factors may affect a Geared Fund’s ability to achieve a high degree of correlation with its benchmark, and there can be no guarantee that a Fund will achieve a high degree of correlation. Failure to achieve a high degree of correlation may prevent a Geared Fund from achieving its investment objective. A number of factors may adversely affect a Geared Fund’s correlation with its benchmark, including fees, expenses, transaction costs, costs and risks associated with the use of leveraged investment techniques, income items, accounting standards and disruptions or illiquidity in the markets for the commodities or Financial Instruments (i.e., commodity-based or currency-based instruments whose value is derived from the value of an underlying asset, rate or index) in which the Fund invests. A Geared Fund may not have investment exposure to all of the commodities or currencies in its underlying benchmark index, or its weighting of investment exposure to such commodities or currencies may be different from that of the index. In addition, a Geared Fund may invest in commodities or currencies or Financial Instruments not included in the index underlying its benchmark. A Geared Fund may be subject to large movements of assets into and out of the Fund, potentially resulting in the Fund being over- or under-exposed to its benchmark. Activities surrounding annual index reconstitutions and other index rebalancing or reconstitution events may hinder a Geared Fund’s ability to meet its daily investment objective on or around that day. Each Geared Fund seeks to rebalance its portfolio daily to keep leverage consistent with its daily investment objective.

Compounding affects all investments, but has a more significant impact on a Geared Fund. The Geared Funds are “geared” in the sense that they have investment objectives to match a multiple, the inverse or a multiple of the inverse of the performance of an index on a given day. These Funds are subject to all of the correlation risks described above. In addition, there is a special form of correlation risk that derives from such Funds’ having a single day investment objective in combination with the use of leverage, which is that for periods greater than one day, the effect of compounding may cause the performance of a Fund to be either greater than or less than the index performance (or the inverse of the index performance) times the stated multiple in the Fund objective, before accounting for fees and fund expenses. This effect can be even more significant in the case of the Leveraged Funds due to the use of leverage. The Geared Funds are designed to provide leveraged (e.g. 3x or 2x), inverse (e.g. -1x) or inverse leveraged (e.g. -3x or -2x) results on a daily basis (before fees and expenses). Investors should monitor their holdings consistent with their strategies, as frequently as daily.

 

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Counterparty Risk

A Fund will be subject to credit risk with respect to the amount it expects to receive from counterparties to Financial Instruments entered into by the Fund. The Funds structure the agreements such that either party can terminate the contract without penalty prior to the termination date. A Fund may be negatively impacted if a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties. A Fund may experience significant delays in obtaining any recovery in a bankruptcy or other reorganization proceeding and a Fund may obtain only limited recovery or may obtain no recovery in such circumstances. The Funds have sought to mitigate risks by generally requiring that the counterparties for each Fund agree to post collateral for the benefit of the Fund, marked to market daily, in an amount approximately equal to what the counterparty owes the Fund. In the event of the bankruptcy of a counterparty, the Fund will have direct access to the collateral received from the counterparty, generally as of the day prior to the bankruptcy, because there is a one day time lag between the Fund’s request for collateral and the delivery of such collateral. To the extent any such collateral is insufficient, the Funds will be exposed to counterparty risk as described above, including the possible delays in recovering amounts as a result of bankruptcy proceedings. The Funds typically enter into transactions with counterparties whose credit rating, at the time of the transaction, is investment grade, as determined by a nationally recognized statistical rating organization, or, if unrated, judged by the Sponsor to be of comparable quality.

Leverage Risk

The Funds use investment techniques that may be considered aggressive, including the use of futures contracts, swap agreements and forward agreements. The Funds’ investment in Financial Instruments may involve a small investment relative to the amount of investment exposure assumed and may result in losses exceeding the amounts invested. Such instruments, particularly when used to create leverage, may expose the Funds to potentially dramatic changes (losses or gains) in the value of the instruments.

Liquidity Risk

In certain circumstances, such as the disruption of the orderly markets for the commodities or Financial Instruments in which a Fund invests, a Fund might not be able to dispose of certain holdings quickly or at prices that represent true market value in the judgment of the Sponsor. Such a situation may prevent a Fund from limiting losses, realizing gains or achieving a high correlation or inverse correlation with its underlying index.

“Contango” and “Backwardation” Risk

In Funds that hold futures contracts, as the futures contracts near expiration, they are generally replaced by contracts that have a later expiration. Thus, for example, a contract purchased and held in November 2011 may specify a January 2012 expiration. For an UltraPro Fund, an Ultra Fund and a VIX Fund, as that contract nears expiration, it may be replaced by selling the January 2012 contract and purchasing the contract expiring in March 2012. This process is referred to as “rolling.” Rolling may have a positive or negative impact on performance. For example, historically, the prices of certain types of futures contracts have frequently been higher for contracts with shorter-term expirations than for contracts with longer-term expirations, which is referred to as “backwardation.” In these circumstances, absent other factors, the sale of the January 2012 contract would take place at a price that is higher than the price at which the March 2012 contract is purchased, thereby creating a gain in connection with rolling. While certain types of futures contracts have historically exhibited consistent periods of backwardation, backwardation will likely not exist in these markets at all times. The presence of contango (where prices of contracts are higher in the distant delivery months than in the nearer delivery months due to the costs of long-term storage of a physical commodity prior to delivery or other factors) in certain futures contracts at the time of rolling would be expected to adversely affect an UltraPro Fund, an Ultra Fund or a VIX Fund that invests in such futures and positively affect an UltraShort Fund, a Short Fund or an UltraPro Short Fund that invests in such futures. Similarly, the presence of backwardation in certain futures contracts at the time of rolling such contracts would be expected to adversely affect the Short Funds, UltraShort Funds and UltraPro Short and positively affect the UltraPro Funds, Ultra Funds and existing VIX Funds.

Since the introduction of VIX futures contracts, there have frequently been periods where VIX futures prices reflect higher expected volatility levels further out in time. This can result in a loss from “rolling” the VIX futures to maintain the constant weighted average maturity of the VIX Futures Index. Losses from exchanging a lower priced VIX future for a higher priced longer-term future in the rolling process would adversely affect the value of each VIX Futures Index and the VIX Funds and, accordingly, decrease the return of the VIX Funds.

 

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Gold and silver historically exhibit persistent “contango” markets rather than backwardation. Natural gas, like crude oil, moves in and out of backwardation and contango but historically has been in contango most commonly. It is generally believed this is because the market needs to build inventories for most of the year in order to have enough storage to make it through a normal winter. Periods of backwardation are typically thought to be caused by demand shocks or supply shortages such as an unusually cold winter or a hurricane.

NOTE 9 – LEGAL PROCEEDINGS

The Trust and certain principals of the Sponsor are defendants (along with several other parties) in a consolidated class action lawsuit styled In re ProShares Trust Securities Litigation, Civ. No. 09-cv-6935, filed in the United States District Court for the Southern District of New York. The complaint, as amended, alleges that the defendants violated Sections 11 and 15 of the Securities Act of 1933 by including untrue statements of material fact and omitting material facts in the Registration Statement for one or more ProShares ETFs and allegedly failing to adequately disclose the Funds’ investment objectives and risks. The six Funds of the Trust named in the complaint are ProShares Ultra Silver, ProShares UltraShort Gold, ProShares Ultra Gold, ProShares UltraShort DJ-UBS Crude Oil, ProShares Ultra DJ-UBS Crude Oil and ProShares UltraShort Silver. The Trust believes the complaint is without merit and that the anticipated outcome will not adversely impact the operation of the Trust or any of its Funds. Accordingly, no loss contingency has been recorded in the balance sheet and the amount of loss, if any, cannot be reasonably estimated at this time.

NOTE 10 – SUBSEQUENT EVENTS

Management has evaluated the possibility of subsequent events existing in the Trust’s and the Funds’ financial statements through the date the financial statements were issued. The subsequent events were as follows:

Effective Monday, January 2, 2012, the official name for the Dow Jones-UBS Crude Oil Sub-IndexSM (Ticker: DJUBSCL) changed to the Dow Jones-UBS WTI Crude Oil Sub-IndexSM. The ticker did not change as a result of the name change.

 

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

PROSHARES TRUST II

 

/s/ Louis Mayberg

By: Louis Mayberg
Principal Executive Officer
Date: February 29, 2012

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

/s/ Louis Mayberg

By: Louis Mayberg
Principal Executive Officer
Date: February 29, 2012

/s/ Edward Karpowicz

By: Edward Karpowicz
Principal Financial Officer
Date: February 29, 2012