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ProShares Trust II - Annual Report: 2013 (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, 2013.

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)

 

 

(Title of 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, 2013 and the number of outstanding units for each Fund as of February 14, 2014 are included in the table below.

 

     Aggregate Market Value of
the Fund’s Units Held by
Non-Affiliates
as of
June 30, 2013
     Number of Outstanding Units
as of
February 14, 2014
 

ProShares UltraShort DJ-UBS Commodity

   $ 3,898,005         59,997   

ProShares UltraShort DJ-UBS Crude Oil

     252,231,959         8,819,944   

ProShares UltraShort DJ-UBS Natural Gas

     19,795,776         1,374,951   

ProShares UltraShort Gold

     159,428,157         1,196,977   

ProShares UltraShort Silver

     76,812,181         808,488   

ProShares Short Euro

     3,801,190         200,005   

ProShares UltraShort Australian Dollar

     23,270,233         550,005   

ProShares UltraShort Euro

     509,256,270         24,050,014   

ProShares UltraShort Yen

     525,410,760         6,249,294   

ProShares Ultra DJ-UBS Commodity

     3,792,265         150,014   

ProShares Ultra DJ-UBS Crude Oil

     218,272,509         4,299,170   

ProShares Ultra DJ-UBS Natural Gas

     42,422,061         1,019,941   

ProShares Ultra Gold

     149,511,125         3,000,014   

ProShares Ultra Silver

     459,850,476         7,396,533   

ProShares Ultra Australian Dollar

     3,396,170         100,005   

ProShares Ultra Euro

     3,487,826         100,014   

ProShares Ultra Yen

     3,165,295         150,014   

ProShares VIX Short-Term Futures ETF

     174,708,239         3,924,812   

ProShares VIX Mid-Term Futures ETF

     72,037,641         3,000,005   

ProShares Ultra VIX Short-Term Futures ETF

     214,321,341         3,520,099   

ProShares Short VIX Short-Term Futures ETF

     117,676,569         4,850,040   

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.

     26   

Item 1B. Unresolved Staff Comments.

     49   

Item 2. Properties.

     49   

Item 3. Legal Proceedings.

     49   

Item 4. Mine Safety Disclosures.

     49   

Part II.

  

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

     50   

Item 6. Selected Financial Data.

     59   

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

     66   

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

     102   

Item 8. Financial Statements and Supplementary Data.

     121   

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

     132   

Item 9A. Controls and Procedures.

     132   

Item 9B. Other Information.

     133   

Part III.

  

Item 10. Directors, Executive Officers and Corporate Governance.

     134   

Item 11. Executive Compensation.

     137   

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

     138   

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

     138   

Item 14. Principal Accounting Fees and Services.

     138   

Part IV.

  

Item 15. Exhibits and Financial Statement Schedules.

     139   

Exhibit Index

     139   

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 is currently organized into separate series (each, a “Fund” and collectively, the “Funds”). As of December 31, 2013, the following twenty-one series of the Trust have commenced investment operations: (i) ProShares UltraShort DJ-UBS Commodity, ProShares UltraShort DJ-UBS Crude Oil, ProShares UltraShort DJ-UBS Natural Gas, ProShares UltraShort Gold, ProShares UltraShort Silver, ProShares UltraShort Australian Dollar, ProShares UltraShort Euro, ProShares UltraShort Yen, ProShares Ultra DJ-UBS Commodity, ProShares Ultra DJ-UBS Crude Oil, ProShares Ultra DJ-UBS Natural Gas, ProShares Ultra Gold, ProShares Ultra Silver, ProShares Ultra Australian Dollar, ProShares Ultra Euro and ProShares Ultra Yen (each, a “Leveraged Fund” and collectively, the “Leveraged Funds”); (ii) ProShares Short Euro (the “Short Euro Fund”); (iii) 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 (iv) ProShares VIX Short-Term Futures ETF and ProShares VIX Mid-Term Futures ETF (each, a “Matching VIX Fund” and collectively, the “Matching VIX Funds”). Each of the Funds listed above issues common units of beneficial interest (“Shares”), which represent units of fractional undivided beneficial interest in and ownership of only that Leveraged Fund, Short Euro Fund, Geared VIX Fund or Matching VIX Fund. The Shares of each Leveraged Fund, the Short Euro Fund, each Geared VIX Fund and each Matching VIX Fund are listed on the New York Stock Exchange Archipelago (“NYSE Arca”). The Leveraged Funds, the Short Euro Fund and the Geared VIX Funds, are collectively referred to as the “Geared Funds” in these Notes to Financial Statements. The 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 Trust registered shares for thirty-two additional series: (i) ProShares Short DJ-UBS Natural Gas and ProShares Short Gold (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 (collectively, the “New Geared VIX Funds”); (iii) ProShares Managed Futures Strategy and ProShares Commodity Managed Futures Strategy (each, a “Managed Futures Fund” and collectively, the “Managed Futures Funds”); (iv) ProShares Financial Managed Futures Strategy; (v) ProShares UltraPro Australian Dollar, ProShares Short 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 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; and (vi) 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 (collectively, the “Currency Index Funds”). ProShares UltraPro Short Euro and the Managed Futures Funds are collectively referred to as the “New Funds” in this Annual Report on Form 10-K. The thirty-two additional series were never publicly offered and their registration has subsequently been terminated. Thus, as of December 31, 2013, the only Funds that have registered amounts are the twenty-one series of the Trust that have commenced investment operations.

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 UltraShort DJ-UBS Commodity, ProShares UltraShort DJ-UBS Crude Oil, ProShares UltraShort Gold, ProShares UltraShort Silver, ProShares UltraShort Euro, ProShares UltraShort Yen, ProShares Ultra DJ-UBS Commodity, ProShares Ultra DJ-UBS Crude Oil, ProShares Ultra Gold, ProShares Ultra Silver, ProShares Ultra Euro and ProShares Ultra Yen.

Groups of Funds are collectively referred to in this Annual Report on Form 10-K in several different ways. References to “Short Funds,” “UltraShort Funds,” or “Ultra 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” 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.

As further described below, each “Short” Fund seeks 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 daily investment results (before fees and expenses) that correspond to two times the inverse (-2x) of the daily performance of its corresponding benchmark. Each “Ultra” Fund seeks daily investment results (before fees and expenses) that correspond to two times (2x) the daily performance of its corresponding benchmark. Each Matching VIX Fund seeks investment results (before fees and expenses), both over a single day and over time, that match the performance of its corresponding benchmark. Daily performance is measured from the calculation of one net asset value per Share (“NAV”) to the next.

Each of the Funds generally invests in Financial Instruments (i.e., instruments whose value is derived from the value of an underlying asset, rate or index, including futures contracts, swap agreements, forward contracts and other instruments) as a substitute for investing directly in commodities, currencies or spot volatility products in order to gain exposure to the commodity futures index, commodity, currency or exchange rate, equity volatility index or applicable commodity or financial futures contracts. Financial Instruments also are used to produce economically “inverse,” “inverse leveraged” or “leveraged” investment results for the Geared Funds.

 

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Each Geared Fund seeks investment results for a single day only, not for longer periods. A “single day” is measured from the time a Fund calculates its respective NAV to the time of the Fund’s next NAV calculation. 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 -1x, -2x or 2x of the return of the index to which such Geared Fund is benchmarked for that 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 or UltraShort Fund). Longer holding periods, higher benchmark volatility, inverse exposure and greater leverage each affect the impact of compounding on a Geared Fund’s returns. Daily compounding of a Geared Fund’s investment returns can dramatically and adversely affect its longer-term performance during periods of high volatility. 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 leveraged, inverse or inverse leveraged investment results. Shareholders who invest in the Funds should actively manage and monitor their investments, as frequently as daily. The Matching VIX Funds seek to achieve their stated investment objective both over a single day and over time.

Each Geared Fund continuously offers and redeems its Shares in blocks of 50,000 Shares and each Matching VIX Fund continuously offers and redeems 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 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 per Share 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. Additionally, the price at which an Authorized Participant sells a Share may be higher or lower than the price paid by such Authorized Participant in connection with the creation of such Share in a Creation Unit. 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 fees or compensation in connection with their sale of Shares to the public. An Authorized Participant may receive commissions or fees from investors who purchase Shares through their commission or fee-based brokerage accounts.

As of December 31, 2013, ProShare Capital Management LLC, a Maryland limited liability company, served as the Trust’s Sponsor (the “Sponsor”) and commodity pool operator. On February 17, 2013, the Sponsor’s commodity trading advisor registration was withdrawn. Wilmington Trust Company serves as the Trustee of the Trust (the “Trustee”). 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”).

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.

 

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Investment Objectives and Principal Investment Strategies

Investment Objectives

The Geared Funds

Investment Objectives of the “Short” Funds

Each “Short” Fund seeks daily investment results (before fees and expenses) that correspond to the inverse (-1x) 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. 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. Each Short Fund will acquire short exposure through 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 has exposure intended to approximate the inverse (-1x) of its corresponding benchmark at the time of its NAV calculation.

Investment Objectives of the “UltraShort” Funds

Each “UltraShort” Fund seeks daily investment results (before fees and expenses) that correspond to two times 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 two times as much on a percentage basis as its corresponding benchmark when the benchmark falls. Conversely, its value on a given day (before fees and expenses) should lose approximately two times as much on a percentage basis as the corresponding benchmark when the benchmark rises. Each UltraShort Fund acquires short exposure through 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 exposure intended to approximate two times the inverse (-2x) of its corresponding benchmark at the time of its NAV calculation.

Investment Objectives of the “Ultra” Funds

Each “Ultra” Fund seeks daily investment results (before fees and expenses) that correspond to two times (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 two times as much on a percentage basis as its corresponding benchmark when the benchmark rises. Conversely, its value on a given day (before fees and expenses) should lose approximately two times as much on a percentage basis as the corresponding benchmark when the benchmark declines. Each Ultra Fund acquires long exposure through 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 exposure intended to approximate two times (2x) its corresponding benchmark at the time of its 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 the S&P 500 VIX Short-Term Futures Index (the “Short-Term VIX Index”) or the S&P 500 VIX Mid-Term Futures Index (the “Mid-Term VIX Index”) (each a “VIX Futures Index” and together, the “VIX Futures Indexes”). The VIX Futures Indexes seek to offer exposure to forward market equity volatility through publicly traded futures markets. If a Matching VIX Fund is

 

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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 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 Chicago Board Options Exchange (“CBOE”) Volatility Index (the “VIX”), and the Matching VIX Funds should not be expected to match the performance of the VIX.

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 WTI Crude Oil SubindexSM. The Dow Jones-UBS WTI Crude Oil Subindex is designed to track crude oil futures prices.

ProShares Ultra DJ-UBS Natural Gas and ProShares UltraShort DJ-UBS Natural Gas: The Dow Jones-UBS Natural Gas SubindexSM. The Dow Jones-UBS Natural Gas Subindex is designed to track natural gas futures prices traded on the NYMEX.

ProShares Ultra 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 Ultra Australian Dollar and ProShares UltraShort 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 Ultra Euro, ProShares Short Euro and ProShares UltraShort 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.

ProShares Ultra Yen and ProShares UltraShort 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 and ProShares Short VIX Short-Term Futures: The S&P 500 VIX Short-Term Futures Index. The S&P 500 VIX Short-Term Futures Index seeks to offer exposure to market volatility through publicly traded futures markets and is designed to measure the return from a rolling long position in the first and second month VIX futures contracts.

ProShares VIX Mid-Term Futures: The S&P 500 VIX Mid-Term Futures Index. The S&P 500 VIX Mid-Term Futures Index seeks to offer exposure to market volatility through publicly traded futures markets and is designed to measure the return from a rolling long position in the fourth, fifth, sixth and seventh month VIX futures contracts.

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, which 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 respective investment objectives. Each Geared Fund invests principally in any one of or combinations of Financial Instruments, including swap agreements, 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 or Currency Fund invests may vary daily. The Funds do

 

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not currently intend to invest directly in any commodity or currency. Each VIX Fund intends to obtain exposure to the applicable equity market volatility index by primarily investing in VIX futures contracts based on the VIX. Each Fund will also hold cash or cash equivalents such as U.S. Treasury securities or other high credit quality, short-term fixed-income or similar securities (such as shares of money market funds and collateralized repurchase agreements) for direct investment or as collateral for Financial Instruments. Each Fund may invest up to 100% of its assets in any of these types of cash or cash equivalent securities.

The Sponsor does not invest the assets of the Funds based on its view of the investment merit of a particular investment, other than for cash management purposes, 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 exposed at all times to the Fund’s underlying benchmark without regard to market conditions, trends or direction.

For the Commodity Index Funds and the VIX Funds, a Fund may obtain exposure through Financial Instruments to a representative sample of the components in its underlying index, which have 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 Commodity Index Fund or a VIX 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 overweigh or underweigh 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 that have traditionally been entered into primarily by institutional investors in OTC markets for a specified period ranging from a day to more than a year. However, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) provides for significant reforms of the OTC derivatives markets, including a requirement to execute certain swap and forward transactions on a CFTC-regulated market and/or to clear such transactions through a CFTC-regulated central clearing organization. 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 (the “interest rate leg,” which will also include the cost of borrowing for short swaps) in respect of a predetermined notional amount. The notional amount of the agreement reflects the extent of a Fund’s total investment exposure under the swap agreement. Transaction or commission costs are reflected in the benchmark level at which the transaction is entered into. The gross returns to be exchanged are calculated with respect to the notional amount and the benchmark returns to which the swap is linked. Swaps are usually closed out on a net basis, i.e., the two payment streams are netted out in a cash settlement on the payment date specified in the agreement, with the parties receiving or paying, as the case may be, only the net amount of the two payments. Thus, while the notional amount reflects a Fund’s total investment exposure under the swap agreement (i.e., the entire face amount or principal of a swap agreement), the net amount is a Fund’s current obligations (or rights) under the swap agreement, which is the net amount to be paid or received under the agreement based on the relative values of the positions held by each party to the agreement on any given termination date. In a typical swap agreement entered into by an UltraShort Fund or a 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, absent fees, transaction costs and interest, the Ultra 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.

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 total investment exposure under the swap agreement. An UltraShort Fund’s or a Short 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

 

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associated with the use of swap agreements arise from the imperfect correlations between movements in the notional amount and the price of the underlying investments and the inability of counterparties to perform. Each Fund that invests in swaps bears the risk of loss of the net amount, if any, expected to be received under a swap agreement in the event of the default or bankruptcy of a swap counterparty. Each such Fund enters or intends to enter into swap agreements only with major, global financial institutions; however, there are no limitations on the percentage of its assets each Fund may invest in swap agreements with a particular counterparty. Each Fund that invests in swaps may 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 that invests in swaps generally collateralizes the swap agreements with cash and/or certain securities. Collateral posted in connection with uncleared derivative transactions is generally held for the benefit of the counterparty in a segregated tri-party account at the Custodian to protect the counterparty against non-payment by the Fund. The counterparty also may collateralize the uncleared swap agreements with cash and/or certain securities, which collateral is typically held for the benefit of the Fund in a segregated tri-party account at the Custodian. In the event of a default by the counterparty, and the Fund is owed money in the uncleared swap transaction, such Fund will seek withdrawal of this collateral from the segregated account and may incur certain costs exercising its right with respect to the collateral. These Funds remain subject to credit risk with respect to the amount it expects to receive from counterparties.

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

The counterparty risk for cleared derivative transactions is generally lower than for uncleared OTC derivatives since generally a clearing organization becomes substituted for each counterparty to a cleared derivative contract and, in effect, guarantees the parties’ performance under the contract as each party to a trade looks only to the clearing house for performance of financial obligations. In addition, cleared derivative transactions benefit from daily marking-to-market and settlement, and segregation and minimum capital requirements applicable to intermediaries.

Forward Contracts

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

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

 

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

The forward markets provide what has typically been a highly liquid market for foreign exchange trading, and in certain cases the prices quoted for foreign exchange forward contracts may be more favorable than the prices for foreign exchange futures contracts traded on U.S. exchanges. Forward contracts have traditionally not been cleared or guaranteed by a third party. However, the Dodd-Frank Act provides for significant reforms of OTC derivatives markets, including a requirement to execute most forward transactions on a CFTC regulated market and/or to clear such transactions through a CFTC-regulated central clearing organization. Commercial banks participating in trading OTC foreign exchange forward contracts often do not require margin deposits, but rely upon internal credit limitations and their judgments regarding the creditworthiness of their counterparties. In recent years, however, many OTC market participants in foreign exchange trading have begun to require that their counterparties post margin.

Futures Contracts

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 commodity at a specified time and place or alternatively, may call for cash settlement as is the case with VIX futures contracts. Futures contracts are traded on a wide variety of commodities, including bonds, interest rates, agricultural products, stock indexes, currencies, energy, metals, economic indicators and statistical measures. The notional size and calendar term 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. Each Fund generally deposits cash with a Futures Commission Merchant (“FCM”) for its open positions in futures contracts, which may, in turn, transfer such deposits to the clearing house to protect the clearing house against non-payment by the Fund. The clearing house becomes substituted for each counterparty to a futures contract, and, in effect, guarantees performance. In addition, the FCM may require the Funds to deposit collateral in excess of the clearing house’s margin requirements for the FCM’s own protection.

Certain futures contracts, such as VIX futures contracts (including the futures contracts that comprise each of the VIX Futures Indexes), 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 asset. For other futures contracts, the contractual obligations of a buyer or seller may generally be satisfied by taking or making physical delivery of the underlying asset or by making an offsetting sale or purchase of an identical futures contract on the same or linked exchange before the designated date of delivery. The difference between the price at which the futures contract is purchased or sold and the price paid for the offsetting sale or purchase, after allowance for brokerage commissions, constitutes the profit or loss to the trader.

Regulations

Derivatives exchanges in the United States are subject to regulation under the CEA, by the CFTC, the governmental agency having responsibility for regulation of derivatives exchanges and trading on those exchanges. Following the adoption of the Dodd-Frank Act, the CFTC also has authority to regulate OTC derivative markets, including certain OTC foreign exchange markets. The CFTC has exclusive authority to designate exchanges for the trading of specific futures contracts and options on futures contracts and to prescribe rules and regulations of the marketing of each. The CFTC also regulates the activities of “commodity pool operators” and the CFTC has adopted regulations with respect to certain of such persons’ activities. Pursuant to its authority, the CFTC requires a commodity pool operator, such as the Sponsor, to keep accurate, current and orderly records with respect to each pool it operates. The CFTC may suspend, modify or terminate the registration of any registrant for failure to comply with CFTC rules or regulations. Suspension, restriction or termination of the Sponsor’s registration as a commodity pool operator would prevent it, until such time (if

 

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any) as such registration were to be reinstated, from managing, and might result in the termination of the Funds. The CEA requires all FCMs to meet and maintain specified fitness and financial requirements, segregate customer funds from proprietary funds and account separately for all customers’ funds and positions, and to maintain specified books and records open to inspection by the staff of the CFTC. See “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” in this Annual Report on Form 10-K.

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

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

Pursuant to authority in the CEA, the 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 pool operators, FCMs, swap dealers, commodity trading advisors, introducing brokers and their respective associated persons and floor brokers. The Sponsor is a member of the NFA (the Funds themselves are not required to become members of the NFA). As an NFA member, the Sponsor is subject to NFA standards relating to fair trade practices, financial condition, and consumer protection. The CFTC is prohibited by statute from regulating trading on foreign commodity exchanges and markets.

The CEA and CFTC regulations prohibit market abuse and generally require that all futures exchange-based trading be conducted in compliance with rules designed to ensure the integrity of market prices and without any intent to manipulate prices. CFTC regulations and futures exchange rules also impose limits on the size of the positions that a person may hold or control as well as standards for aggregating certain positions. The rules of the CFTC and the futures exchanges also authorize special emergency actions to halt, suspend or limit trading overall or to restrict, halt, suspend or limit the trading of an individual trader or to otherwise impose special reporting or margin requirements. See also “Item 1A. Risk Factors. Regulatory changes or actions, including the implementation of new Legislation, may alter the operations and profitability of the Funds” and “Item 1A. Risk Factors. Regulatory and exchange accountability levels may restrict the creation of Creation Units and the operation of the Trust” in this Annual Report on Form 10-K.

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

Overview of the Dow Jones-UBS Family of Indices

Dow Jones-UBS Commodity IndexSM

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. It is intended to reflect the overall commodity sector by measuring the performance of commodity futures contracts. The performance of the commodity futures market is often very different than the performance of the physical, or “spot”, commodities market. See “Item 1A. Risk Factors. The Commodity Index Funds are linked to an index comprised of commodity futures contracts, and are not 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” in this Annual Report on Form 10-K. Unlike equities, which entitle the holder to a continuing stake in a corporation, commodity futures contracts specify a delivery date for the underlying physical commodity or its cash equivalent. The Dow Jones-UBS is a “rolling index,” which means that the Dow Jones-UBS does not take actual physical possession of any commodities; rather, it tracks a rolling futures position. 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, generally beginning on the fifth business day of the month and ending on the ninth business day. Each day, approximately 20% of each rolling futures position that is included in the month’s roll is rolled, increasing from 0% to 20%, 40%, 60%, 80% and finally 100%. The Dow Jones-UBS is calculated by applying the weighting

 

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adjustments at the close of each day, with the adjusted weights used for the next day’s calculation. Not all contracts are rolled every month; generally the futures that underlie the indexes within the Dow Jones-UBS family roll approximately every other month. The exact roll methodology differs between certain commodities. The index will reflect the performance of its underlying commodities, including the impact of rolling, without regard to income earned on cash positions. For more information about the risks associated with rolling futures positions, see “Item 1A. Risk Factors. Potential negative impact from rolling futures positions” in this Annual Report on Form 10-K.

The Dow Jones-UBS is comprised of five different commodity sectors: energy, livestock, industrial metals, precious metals and agriculture. These five sectors track futures contracts prices of 22 specific commodities: natural gas, WTI crude oil, brent crude, unleaded gasoline, heating oil, live cattle, lean hogs, Hard Red Winter Wheat (KBWT), wheat, corn, soybeans, soybean oil, soybean meal, 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 can constitute more than 15% of the Dow-Jones UBS and 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 reweighting of the components. The Dow Jones-UBS family of indices also includes ten subindexes that group commodities based on type, as well as single commodity subindexes representing each of the commodities that are currently tracked by the Dow Jones-UBS. As discussed below, ProShares UltraShort DJ-UBS Crude Oil and ProShares Ultra DJ-UBS Crude Oil are designed to track one of these subindexes, the Dow Jones-UBS WTI Crude Oil SubindexSM and ProShares UltraShort DJ-UBS Natural Gas and ProShares Ultra DJ-UBS Natural Gas are designed to track another one of these sub-indexes, the Dow Jones-UBS Natural Gas Subindex SM.

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.

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 & Company, Inc. (“Dow Jones”). DJ-UBS Commodity Index Advisory Committee members are drawn from the academic, financial and legal communities. 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, announced after approval by the Committee and implemented the following January.

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. 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 contract trades exclusively on the Chicago Board of Trade’s (“CBOT”) electronic trading platform. A daily settlement price for the Dow Jones-UBS is published at approximately 5:00 p.m. (Eastern Time).

The Dow Jones-UBS is designed to provide:

 

    Weightings that reflect economic significance

 

    Diversification

 

    Annual reweighting and rebalancing

 

    Liquidity

The Dow Jones-UBS 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 at 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.

 

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As of October 31, 2013, the most recent available date of such information prior to December 31, 2013, the individual commodity weightings for the Dow Jones-UBS for 2013 and 2014 were as follows:

 

Commodity    2013 Target Weights (%)     2014 Target Weights (%)  

Natural Gas

     10.42     9.45 %

WTI Crude Oil

     9.21     8.49 %

Brent Crude Oil

     5.79     6.51 %

Unleaded Gasoline

     3.46     3.62 %

Heating Oil

     3.52     3.72 %

Live Cattle

     3.28     3.27 %

Lean Hogs

     1.90     1.87 %

Wheat

     3.43     3.34 %

HRW Wheat

     1.32     1.21 %

Corn

     7.05     7.20 %

Soybeans

     5.49     5.68 %

Soybean Oil

     2.74     2.83 %

Soybean Meal

     2.61     2.68 %

Aluminum

     4.91     4.72 %

Copper

     7.28     7.51 %

Zinc

     2.52     2.31 %

Nickel

     2.24     2.05 %

Gold

     10.82     11.53 %

Silver

     3.90     4.14 %

Sugar

     3.89     3.96 %

Cotton

     1.77     1.58

Coffee

     2.44     2.32

Dow Jones-UBS WTI Crude Oil SubindexSM

ProShares Ultra DJ-UBS Crude Oil and ProShares UltraShort DJ-UBS Crude Oil are designed to correspond (before fees and expenses) to two times (2x) or two times the inverse (-2x) of the daily performance of the Dow Jones-UBS WTI Crude Oil SubindexSM, a sub-index of the Dow Jones-UBS. The Dow Jones-UBS WTI Crude Oil SubindexSM is intended to reflect the performance of crude oil as measured by the price of futures contracts of West Texas Intermediate sweet, light crude oil traded on the NYMEX, including the impact of rolling, without regard to income earned on cash positions. The performance of the crude oil futures market is normally very different than the performance of the physical crude oil market (e.g., the price of crude oil at port). See “Item 1A. Risk Factors. The Commodity Index Funds are linked to an index comprised of commodity futures contracts, and are not 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” in this Annual Report on Form 10-K.

The Dow Jones-UBS WTI Crude Oil SubindexSM is based on the Crude Oil component of the Dow Jones-UBS, which is described above under “Dow Jones-UBS Commodity IndexSM,” and tracks what is known as a rolling futures position. The roll occurs over a period of five Dow Jones-UBS business days in certain months according to a pre-determined schedule, generally beginning on the fifth business day of the month and ending on the ninth business day. Each day, approximately 20% of each rolling futures position that is included in the month’s roll is rolled, increasing from 0% to 20%, 40%, 60%, 80% and finally 100%. The exact roll methodology differs between certain commodities. The Dow Jones-UBS will reflect the performance of its underlying crude oil futures contracts, including the impact of rolling, without regard to income earned on cash positions. For more information about the risks associated with rolling futures positions, see “Item 1A. Risk Factors. Potential negative impact from rolling futures positions” in this Annual Report on Form 10-K.

Dow Jones-UBS Natural Gas SubindexSM

ProShares Ultra DJ-UBS Natural Gas and ProShares UltraShort DJ-UBS Natural Gas are designed to correspond (before fees and expenses) to two times (2x) or two times the inverse (-2x) of the daily performance of the Dow Jones-UBS Natural Gas SubindexSM, respectively. The Dow Jones-UBS Natural Gas SubindexSM is intended to reflect the performance of a rolling position in natural gas futures contracts traded on the NYMEX without regard to income earned on cash positions. An investment in natural gas futures

 

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contracts may often perform very differently than the price of physical natural gas (e.g., the wellhead or end-user price of natural gas). See “Item 1A. Risk Factors. The Commodity Index Funds are linked to an index comprised of commodity futures contracts, and are not 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” in this Annual Report on Form 10-K.

The Dow Jones-UBS Natural Gas SubindexSM is based on the Natural Gas component of the Dow Jones-UBS, which is described above under “Dow Jones-UBS Commodity IndexSM,” and tracks what is known as a rolling futures position. The roll occurs over a period of five Dow Jones-UBS business days in certain months according to a pre-determined schedule, generally beginning on the fifth business day of the month and ending on the ninth business day. Each day, approximately 20% of each rolling futures position that is included in the month’s roll is rolled, increasing from 0% to 20%, 40%, 60%, 80% and finally 100%. The exact roll methodology differs between certain commodities. The index will reflect the performance of its underlying natural gas contracts, including the impact of rolling, without regard to income earned on cash positions. For more information about the risks associated with rolling futures positions, see “Item 1A. Risk Factors. Potential negative impact from rolling futures positions” in this Annual Report on Form 10-K.

Information About the Index Licensor

The Dow Jones-UBS Commodity IndexesSM are a joint product of DJI Opco, LLC (“DJI Opco”), a subsidiary of S&P Dow Jones Indices LLC, and UBS Securities LLC (“UBS Securities”), and have been licensed for use. Dow Jones® and DJ® are trademarks of Dow Jones Trademark Holdings, LLC (“Dow Jones”); “UBS” is a registered trademark of UBS AG (“UBS AG”); S&P® is a registered trademark of Standard & Poor’s Financial Services LLC; and these trademarks have been licensed for use by DJI Opco and sublicensed for certain purposes by the Trust (“Licensee”).

The Funds are not sponsored, endorsed, sold or promoted by Dow Jones, UBS AG, UBS Securities, DJI Opco or any of their subsidiaries or affiliates. None of Dow Jones, UBS AG, UBS Securities, DJI Opco 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 AG, UBS Securities, DJI Opco or any of their subsidiaries or affiliates to the Licensee is the licensing of certain trademarks, trade names and service marks and of the DJ-UBSCI, which is determined, composed and calculated by DJI Opco in conjunction with UBS Securities without regard to the Licensee or the Funds. UBS Securities and DJI Opco have no obligation to take the needs of the Licensee or the owners of the Funds into consideration in determining, composing or calculating DJ-UBSCI. None of Dow Jones, UBS AG, UBS Securities, DJI Opco 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 Funds to be issued or in the determination or calculation of the equation by which the Funds are to be converted into cash, surrendered or redeemed, as the case may be. None of Dow Jones, UBS AG, UBS Securities, DJI Opco or any of their subsidiaries or affiliates shall have any obligation or liability, including, without limitation, to Fund customers, in connection with the administration, marketing or trading of the Funds. Notwithstanding the foregoing, UBS AG, UBS Securities, CME Group Inc., an affiliate of S&P Dow Jones Indices LLC, and their respective subsidiaries and affiliates may independently issue and/or sponsor financial products unrelated to the Funds currently being issued by Licensee, but which may be similar to and competitive with the Funds. In addition, UBS AG, UBS Securities, CME Group Inc. and their subsidiaries and affiliates actively trade commodities, commodity indexes and commodity futures (including the Dow Jones-UBS Commodity Index and Dow Jones-UBS Commodity Index Total ReturnSM), 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 Index and Funds.

This Annual Report on Form 10-K relates only to the Funds and does not relate to the exchange-traded physical commodities underlying any of the DJ-UBSCI components. Purchasers of the Funds should not conclude that the inclusion of a futures contract in the Dow Jones-UBS Commodity Index is any form of investment recommendation of the futures contract or the underlying exchange-traded physical commodity by Dow Jones, UBS AG, UBS Securities, DJI Opco or any of their subsidiaries or affiliates. The information in the Annual Report on Form 10-K regarding the Dow Jones-UBS Commodity Index components has been derived solely from publicly available documents. None of Dow Jones, UBS AG, UBS Securities, DJI Opco or any of their subsidiaries or

 

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affiliates has made any due diligence inquiries with respect to the Dow Jones-UBS Commodity Index components in connection with the Funds. None of Dow Jones, UBS AG, UBS Securities, DJI Opco or any of their subsidiaries or affiliates makes any representation that these publicly available documents or any other publicly available information regarding the Dow Jones-UBS Commodity 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 AG, UBS SECURITIES, DJI OPCO OR ANY OF THEIR SUBSIDIARIES OR AFFILIATES GUARANTEES THE ACCURACY AND/OR THE COMPLETENESS OF THE DOW JONES-UBS COMMODITY INDEX OR ANY DATA RELATED THERETO AND NONE OF DOW JONES, UBS AG, UBS SECURITIES, DJI OPCO OR ANY OF THEIR SUBSIDIARIES OR AFFILIATES SHALL HAVE ANY LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS THEREIN. NONE OF DOW JONES, UBS AG, UBS SECURITIES, DJI OPCO OR ANY OF THEIR SUBSIDIARIES OR AFFILIATES MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE LICENSEE, OWNERS OF THE FUNDS OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE DOW JONES-UBS COMMODITY INDEXSM OR ANY DATA RELATED THERETO. NONE OF DOW JONES, UBS AG, UBS SECURITIES, DJI OPCO 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 DOW JONES-UBS COMMODITY INDEXSM OR ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL DOW JONES, UBS AG, UBS SECURITIES, DJI OPCO 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 UBS SECURITIES, DJI OPCO AND THE LICENSEE, OTHER THAN UBS AG AND THE LICENSORS OF DJI OPCO.

Description of the Commodity Benchmarks

Gold

ProShares UltraShort Gold and ProShares Ultra Gold are designed to correspond (before fees and expenses) to two times the inverse (-2x) or two times (2x), respectively, 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.

A London gold “fix” is conducted each trading day at 3:00 p.m. London time providing a reference gold price 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.

Silver

ProShares UltraShort Silver and ProShares Ultra Silver are designed to correspond (before fees and expenses) to two times the inverse (-2x) or two times (2x), respectively, 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

 

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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 of the Fund. 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 a reference silver price 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.

Description of the Currencies Benchmarks

The Currency Funds are designed to correspond (before fees and expenses) to the inverse (-1), two times the inverse (-2x), or two times (2x) 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 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 to pursue its investment objective.

Australian Dollar

ProShares UltraShort Australian Dollar and ProShares Ultra Australian Dollar are designed to correspond (before fees and expenses) to two times the inverse (-2x) or two times (2x) of the daily performance of the Australian dollar spot price versus the U.S. dollar, respectively. 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 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).

Euro

ProShares Short Euro, ProShares UltraShort Euro and ProShares Ultra Euro are designed to correspond (before fees and expenses) to the inverse (-1), two times the inverse (-2x), or two times (2x) of the daily performance of the euro spot price versus the U.S. dollar, respectively. 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

 

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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.

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. As of December 31, 2013, 23 countries used the euro, including Andorra, Cyprus, Estonia, Kosovo, Malta, Monaco, Montenegro, San Marino, Slovakia, Slovenia and the Vatican City. As of January 1, 2014, Latvia became the twenty-fourth country to use the euro.

Although the European countries that have adopted the euro are members of the European Union (“EU”), Bulgaria, Czech Republic, Denmark, Croatia, Lithuania, Hungary, Poland, Romania, Sweden and the United Kingdom are EU members that have not adopted the euro as their national currency.

Japanese Yen

ProShares UltraShort Yen and ProShares Ultra Yen are designed to correspond (before fees and expenses) to two times the inverse (-2x) or two times (2x), respectively, 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.

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 VIX Index employs rules for selecting VIX futures contracts comprising the Short-Term VIX 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 VIX 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 VIX Index also employs rules for selecting its VIX futures contracts comprising the Mid-Term VIX 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 VIX Index represent the prices for four contract months of VIX futures contracts, representing a rolling long position in the fourth, fifth, sixth and seventh month VIX futures contracts. The Mid-Term VIX 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 will be published by Bloomberg L.P. in real time and at the close of trading on each VIX Futures Index business day 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

  

 

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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 contracts 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.”

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 November 29, 2013, the VIX was 13.70 and the price of the December 2013 VIX futures contracts expiring on December 17, 2013 was 13.95. In this example, the price of the VIX represented the 30-day implied, or “spot,” volatility (the volatility expected for the period from November 29, 2013 to December 31, 2013) of the S&P 500 and the December VIX futures contracts represented forward implied volatility (the volatility expected for the period from December 17, 2013 to January 21, 2014) 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 an 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 (“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.

 

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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, 2013, the S&P 500 included companies with capitalizations between $3.3 billion and $504.9 billion. The average capitalization of the companies comprising the Index was approximately $35 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 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 VIX FUTURES 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 VIX FUTURES 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 VIX FUTURES 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 FUNDS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE VIX FUTURES 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 VIX FUTURES 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 VIX FUTURES INDEXES OR ANY DATA INCLUDED THEREIN, EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.

 

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Creation and Redemption of Shares

Each Fund creates and redeems Shares from time to time, but only in one or more Creation Units. A Creation Unit is a block of 50,000 Shares of a Geared 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.

The manner by which Creation Units are purchased and 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 deposit cash (unless as provided otherwise in the prospectus) with the Custodian of the Funds. If permitted by the Sponsor in its sole discretion with respect to a Fund, an Authorized Participant may also agree to enter into or arrange for an exchange of a futures contract for related position (“EFCRP”) or block trade with the relevant Fund whereby the Authorized Participant would also transfer to such Fund a number and type of exchange-traded futures contracts at or near the closing settlement price for such contracts on the purchase order date. Similarly, the Sponsor in its sole discretion may agree with an Authorized Participant to use an EFCRP to effect an order to redeem Creation Units.

An EFCRP is a technique permitted by the rules of the applicable futures exchange that, as utilized by a Fund in the Sponsor’s discretion, would allow such Fund to take a position in a futures contract from an Authorized Participant, or give futures contracts to an Authorized Participant, in the case of a redemption, rather than to enter the futures exchange markets to obtain such a position. An EFCRP by itself will not change either party’s net risk position materially. Because the futures position that a Fund would otherwise need to take in order to meet its investment objective can be obtained without unnecessarily impacting the financial or futures markets or their pricing, EFCRPs can generally be viewed as transactions beneficial to a Fund. A block trade is a technique that permits certain Funds to obtain a futures position without going through the market auction system and can generally be viewed as a transaction beneficial to the Fund.

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 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 and to offset the costs of increasing or decreasing derivative positions. 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 must be 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.

 

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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.

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 on which the NAV of such Fund is determined. Purchase orders must be placed by the cut-off time shown below or earlier if the NYSE, a Fund’s primary listing exchange, or other exchange material to the valuation or operation of such Fund (an “Exchange” as defined below) closes before the cut-off time. 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 non-refundable transaction fee due for the purchase order.

Determination of Required Payment

The total payment required to create each Creation Unit is the NAV of 50,000 Shares of the applicable Geared Fund or 25,000 Shares of the applicable Matching VIX Fund on the purchase order date plus the applicable transaction fee. For each Fund, Authorized Participants have create/redeem cut-off times prior to the NAV calculation time, which may be different from the close of the U.S. markets, as shown in the table below.

 

Underlying Benchmark

  

Create/Redeem Cutoff

   

NAV Calculation Time

 

Silver

     6:30 a.m. (Eastern Time     7:00 a.m. (Eastern Time )* 

Gold

     9:30 a.m. (Eastern Time     10:00 a.m. (Eastern Time )* 

DJ-UBS Commodity IndexSM

     10:45 a.m. (Eastern Time     3:00 p.m. (Eastern Time

S&P VIX Short-Term Futures

     2:00 p.m. (Eastern Time     4:15 p.m. (Eastern Time

S&P VIX Mid-Term Futures

     2:00 p.m. (Eastern Time     4:15 p.m. (Eastern Time

DJ-UBS WTI Crude Oil SubindexSM

     2:00 p.m. (Eastern Time     2:30 p.m. (Eastern Time

DJ-UBS Natural Gas SubindexSM

     2:00 p.m. (Eastern Time     2:30 p.m. (Eastern Time

Australian dollar

     3:00 p.m. (Eastern Time     4:00 p.m. (Eastern Time

Euro

     3:00 p.m. (Eastern Time     4:00 p.m. (Eastern Time

Yen

     3:00 p.m. (Eastern Time     4:00 p.m. (Eastern Time

 

* 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.

 

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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 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. Additional fees may apply for special settlement. 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 Fund, as well as to deliver cash, in the creation process, futures contracts required for settlement must be transferred directly to the 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 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 to purchase, or postpone the purchase settlement date, (1) for any period during which any of the NYSE, NYSE Arca, CBOE, CFE, CME (including CBOT and NYMEX) or ICE or other exchange material to the valuation or operation of the Funds (each, an “Exchange”) is closed 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 a 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

 

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Creation Units. If a redemption order is received prior to the applicable cut-off time, or earlier if any Exchange closes before the 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.

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 EFCRP 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 EFCRP 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 any remaining whole Creation Units are received if: (1) the Sponsor receives the fee applicable to the extension of the redemption distribution date which the Sponsor may, from time to time, determine, and; (2) 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 Exchange is closed or when trading is suspended or restricted on such Exchanges in any of

 

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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, the NAV includes any unrealized profit or loss on open Financial Instruments, 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 the NAV. Each Fund’s NAV is calculated on each day other than a day when the NYSE or one (or more) of such Fund’s Exchanges is closed for regular trading. The Funds compute their NAVs at the times set forth below, or an earlier time as set forth on www.ProShares.com if necessitated by the NYSE or an Exchange closing early.

 

Fund

  

NAV Calculation Time

    
ProShares UltraShort Silver      
ProShares Ultra Silver    7:00 a.m. (Eastern Time)*   
ProShares UltraShort Gold      
ProShares Ultra Gold    10:00 a.m. (Eastern Time)*   
ProShares UltraShort DJ-UBS Crude Oil      
ProShares Ultra DJ-UBS Crude Oil    2:30 p.m. (Eastern Time)   
ProShares UltraShort DJ-UBS Natural Gas      
ProShares Ultra DJ-UBS Natural Gas    2:30 p.m. (Eastern Time)   
ProShares UltraShort DJ-UBS Commodity      
ProShares Ultra DJ-UBS Commodity    3:00 p.m. (Eastern Time)   
ProShares UltraShort Australian Dollar      
ProShares Ultra Australian Dollar    4:00 p.m. (Eastern Time)   
ProShares Short Euro      
ProShares UltraShort Euro      
ProShares Ultra Euro    4:00 p.m. (Eastern Time)   
ProShares UltraShort Yen      
ProShares Ultra Yen    4:00 p.m. (Eastern Time)   
ProShares VIX Short-Term Futures      
ProShares Ultra VIX Short-Term Futures      
ProShares Short VIX Short-Term Futures    4:15 p.m. (Eastern Time)   
ProShares VIX Mid-Term Futures    4:15 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.

 

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In calculating the NAV of a 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 reference asset 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 the NAV calculation. Futures contracts traded on a U.S. exchange are calculated at their then-current market value, which is based upon the settlement price (for the Commodity Index Funds and the VIX Funds) or the last traded price before the NAV time (for the Commodity Funds and the Currency Funds), for that particular futures contract traded on the applicable U.S. exchange on the date with respect to which the NAV is being determined. If a futures contract traded on a U.S. 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. Such fair value prices would generally be determined based on available inputs about the current value of the underlying reference assets and would be based on principles that the Sponsor deems fair and equitable so long as such principles are consistent with normal industry standards.

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 NAV 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 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 IOPV for Funds based on the Dow Jones-UBS WTI Crude Oil SubindexSM and the DJ-UBS Natural Gas IndexSM will not update following the determination of the 2:30 p.m. settlement price of the futures contracts underlying those indexes. The IOPVs for Funds based on the DJ-UBS Commodity IndexSM will receive progressively more limited updates during a trading day as the settlement price for each individual component is determined, and such IOPVs will not update after all of the underlying components have determined settlement prices.

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

 

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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

The Shares of each Fund are listed on the NYSE Arca. Eight of the Funds, ProShares UltraShort DJ-UBS Commodity, UltraShort DJ-UBS Crude Oil, ProShares UltraShort Euro, ProShares UltraShort Yen, ProShares Ultra DJ-UBS Commodity, ProShares Ultra DJ-UBS Crude Oil, ProShares Ultra Euro and ProShares Ultra Yen, began trading on the NYSE Arca on November 25, 2008. Four of the Funds, ProShares UltraShort Silver, ProShares UltraShort Gold, ProShares Ultra Silver and ProShares Ultra 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 Funds, ProShares UltraShort DJ-UBS Natural Gas and ProShares Ultra DJ-UBS Natural Gas, began trading on the NYSE Arca on October 4, 2011. One of the Funds, ProShares Short Euro, commenced trading on the NYSE Arca on June 26, 2012. Two of the Funds, ProShares UltraShort Australian Dollar and ProShares Ultra Australian Dollar, commenced trading on the NYSE Arca on July 17, 2012. The Shares of each Fund that has commenced investment operations are listed on the NYSE Arca under the following symbols:

 

Fund

  

Ticker Symbol

    
ProShares UltraShort DJ-UBS Commodity    CMD   
ProShares UltraShort DJ-UBS Crude Oil    SCO   
ProShares UltraShort DJ-UBS Natural Gas    KOLD   
ProShares UltraShort Gold    GLL   
ProShares UltraShort Silver    ZSL   
ProShares Short Euro    EUFX   
ProShares UltraShort Australian Dollar    CROC   
ProShares UltraShort Euro    EUO   
ProShares UltraShort Yen    YCS   
ProShares Ultra DJ-UBS Commodity    UCD   
ProShares Ultra DJ-UBS Crude Oil    UCO   
ProShares Ultra DJ-UBS Natural Gas    BOIL   
ProShares Ultra Gold    UGL   
ProShares Ultra Silver    AGQ   
ProShares Ultra Australian Dollar    GDAY   
ProShares Ultra Euro    ULE   
ProShares Ultra Yen    YCL   
ProShares VIX Short-Term Futures ETF    VIXY   
ProShares VIX Mid-Term Futures ETF    VIXM   
ProShares Ultra VIX Short-Term Futures ETF    UVXY   
ProShares Short VIX Short-Term Futures ETF    SVXY   

Secondary market purchases and sales of Shares are subject to ordinary brokerage commissions and charges. The Shares of each Fund trade like any other exchange-listed security.

Fees and Expenses

Offering Expenses

The Trust has paid expenses incurred in connection with organizing the initial offering of each Fund’s Shares, and the Sponsor did not charge its fee in the first year of operations of each Fund in an amount equal to the offering costs. The Sponsor reimbursed each Leveraged Fund, the Short Euro Fund and each Geared VIX Fund to the extent that its 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 offering costs

 

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exceeded 0.85% 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.

Offering expenses mean those expenses incurred in connection with 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 pays 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 the Dow Jones-UBS Commodity IndexSM as well as for each subindex that serves as a benchmark for a Commodity Index Fund. The Sponsor pays S&P a licensing fee for use of the VIX Futures Indexes as indexes for the VIX Funds.

Routine Operational, Administrative and Other Ordinary Expenses

The Sponsor pays 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, ProFunds Distributors, Inc., an affiliated broker-dealer of the Sponsor, 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 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 all 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, 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. Routine operational, administrative and other ordinary expenses are not deemed extraordinary expenses.

 

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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. The price at which an Authorized Participant sells a Share may be higher or lower than the price paid by such Authorized Participant in connection with the creation of such Share in a Creation Unit.

Brokerage Commissions and Fees

Each Fund, with the exception of the Matching VIX Funds, pays 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 is currently paying brokerage commissions on VIX futures contracts for the Matching VIX Funds.

Other Transaction Costs

The Funds bear other transaction costs including the effects of trading spreads and financing costs/fees, if any, 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 and collateralized repurchase agreements).

Employees

The Trust has no employees.

 

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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 and ProShares Short VIX Short-Term Futures ETF;

 

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

 

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

 

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

 

    The term “Currency Fund” refers to ProShares Short Euro, ProShares UltraShort Australian Dollar, ProShares UltraShort Euro, ProShares UltraShort Yen, ProShares Ultra Australian Dollar, ProShares Ultra Euro and ProShares Ultra Yen;

 

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

 

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

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 a single 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 correspond (before fees and expenses) to the inverse (e.g., -1x), the inverse multiple (e.g., -2x), or the multiple (e.g., 2x), 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 single day is the result of its return for each day compounded over the period and usually will differ from the inverse (-1x), two times the inverse (-2x), or two times (2x) 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 or an UltraShort Fund), as a result of daily rebalancing, the benchmark’s volatility and compounding. Longer holding periods, higher benchmark volatility, inverse exposure and greater leverage each affect the impact of compounding on a Geared Fund’s returns. Daily compounding of a Geared Fund’s investment returns can dramatically and adversely affect 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 Geared Fund’s underlying benchmark.

 

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Each Ultra or UltraShort 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 two times as volatile on a daily basis as the return of a fund with an objective of matching the same benchmark. The daily return of a Short or an UltraShort Fund is designed to return the inverse (-1x) or two times the inverse (-2x) 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 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 examples below illustrate how daily geared fund returns can behave for periods longer than a single day. Each involves a hypothetical fund XYZ that seeks to double the daily performance of benchmark XYZ. On each day, fund XYZ performs in line with its objective (two times (2x) the benchmark’s daily performance before fees and expenses). Notice that, in the first example (showing an overall benchmark loss for the period), over the entire seven-day period, the fund’s total return is more than two times the loss of the period return of the benchmark. For the seven-day period, benchmark XYZ lost 3.26% while fund XYZ lost 7.01% (versus -6.52% or 2 x -3.26%).

 

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

Start

     100.00           $ 100.00   

Day 1

     97.00         –3.00     –6.00   $ 94.00   

Day 2

     99.91         3.00     6.00   $ 99.64   

Day 3

     96.91         –3.00     –6.00   $ 93.66   

Day 4

     99.82         3.00     6.00   $ 99.28   

Day 5

     96.83         –3.00     –6.00   $ 93.32   

Day 6

     99.73         3.00     6.00   $ 98.92   

Day 7

     96.74         –3.00     –6.00   $ 92.99   
     

 

 

   

 

 

   

Total Return

        3.26     7.01  
     

 

 

   

 

 

   

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

 

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

Start

     100.00           $ 100.00   

Day 1

     103.00         3.00     6.00   $ 106.00   

Day 2

     99.91         –3.00     –6.00   $ 99.64   

Day 3

     102.91         3.00     6.00   $ 105.62   

Day 4

     99.82         –3.00     –6.00   $ 99.28   

Day 5

     102.81         3.00     6.00   $ 105.24   

Day 6

     99.73         –3.00     –6.00   $ 98.92   

Day 7

     102.72         3.00     6.00   $ 104.86   
     

 

 

   

 

 

   

Total Return

        2.72     4.86  
     

 

 

   

 

 

   

These effects are caused by compounding, which exists in all investments, but has a more significant impact in geared funds. In general, during periods of higher benchmark volatility, compounding will cause results for periods longer than a single day to be less than two times (2x) the return of the benchmark (or less than the inverse (-1x) or two times the inverse (-2x) times the return of the benchmark for the Short Funds or the UltraShort Funds, respectively). This effect becomes more pronounced as volatility increases.

 

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Conversely, in periods of lower benchmark volatility (particularly when combined with higher benchmark returns), fund returns over longer periods can be higher than two times (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 and the UltraShort 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 a single day, a geared fund is likely to underperform or overperform (but not match) the benchmark performance (or the inverse of the benchmark performance) times the multiple stated as the daily fund objective. Investors should understand the consequences of holding daily rebalanced funds for periods longer than a single day and should actively manage and monitor their investments, as frequently as daily. A one-year period is used solely for illustrative purposes. Deviations from the benchmark return (or the inverse of the benchmark return) times the fund multiple can occur over periods as short as two days (each day as measured from NAV to NAV) and may also occur in periods shorter than a single 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 (-1x, -2x or 2x) 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 also be different than that shown. Each of the graphs also assumes a volatility rate of 65%, 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 Index). A benchmark’s volatility rate is a statistical measure of the magnitude of fluctuations in its returns.

 

LOGO

 

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LOGO

 

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LOGO

 

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LOGO

The historical five year average volatility of the benchmarks utilized by the Funds range from 10.37% to 65.24%, as set forth in the table below.

 

Index

   Identifier    Historical Five-Year
Average Volatility Rate
As of December 31, 2013
 

Dow Jones-UBS Commodity IndexSM

   DJUBSTR Index      17.51

Dow Jones-UBS WTI Crude Oil SubindexSM

   DJUBSCL Index      31.73

Dow Jones-UBS Natural Gas SubindexSM

   DJUBSNG Index      42.18

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

   GOLDLNPM
Index
     19.65

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

   SLVRLND Index      40.15

The U.S. Dollar price of the Euro

   EURUSD Curncy      10.37

The U.S. Dollar price of the Japanese Yen

   JPYUSD Curncy      10.40

The U.S. Dollar price of the Australian Dollar

   AUDUSD Curncy      13.60

S&P 500 VIX Short-Term Futures Index

   SPVXSP Index      65.24

S&P 500 VIX Mid-Term Futures Index

   SPVXMP Index      31.32

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 inverse, inverse leveraged or leveraged exposure) and cash reinvestment rates of zero percent; and c) the fund consistently maintaining perfect exposure (-1x, -2x or 2x) as of the fund’s NAV time each day. If these assumptions were different, the fund’s performance would be different than that shown. If fund expenses, transaction costs and financing expenses were included, the fund’s performance would be different than that shown. The tables below show examples in which a geared fund has an investment objective to correspond (before fees and expenses) to the inverse (-1), two times the inverse (-2x) or two times

 

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

Estimated Fund Return Over One Year When the Fund 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

Performance

    Inverse
(-1x) of
One Year
Benchmark
Performance
                Benchmark Volatility  
    0%     5%     10%     15%     20%     25%     30%     35%     40%     45%     50%     55%     60%     65%     70%  
  -60%        60     150.0     149.4     147.5     144.4     140.2     134.9     128.5     121.2     113.0     104.2     94.7     84.7     74.4     63.9     53.2
  -55%        55     122.2     121.7     120.0     117.3     113.5     108.8     103.1     96.6     89.4     81.5     73.1     64.2     55.0     45.6     36.1
  -50%        50     100.0     99.5     98.0     95.6     92.2     87.9     82.8     76.9     70.4     63.3     55.8     47.8     39.5     31.1     22.5
  -45%        45     81.8     81.4     80.0     77.8     74.7     70.8     66.2     60.9     54.9     48.5     41.6     34.4     26.9     19.2     11.4
  -40%        40     66.7     66.3     65.0     63.0     60.1     56.6     52.3     47.5     42.0     36.1     29.8     23.2     16.3     9.2     2.1
  -35%        35     53.8     53.5     52.3     50.4     47.8     44.5     40.6     36.1     31.1     25.6     19.8     13.7     7.3     0.8     -5.7
  -30%        30     42.9     42.5     41.4     39.7     37.3     34.2     30.6     26.4     21.7     16.7     11.3     5.6     -0.3     -6.4     -12.5
  -25%        25     33.3     33.0     32.0     30.4     28.1     25.3     21.9     18.0     13.6     8.9     3.8     -1.5     -7.0     -12.6     -18.3
  -20%        20     25.0     24.7     23.8     22.2     20.1     17.4     14.2     10.6     6.5     2.1     -2.6     -7.6     -12.8     -18.1     -23.4
  -15%        15     17.6     17.4     16.5     15.0     13.0     10.5     7.5     4.1     0.3     -3.9     -8.4     -13.1     -17.9     -22.9     -27.9
  -10%        10     11.1     10.8     10.0     8.6     6.8     4.4     1.5     -1.7     -5.3     -9.3     -13.5     -17.9     -22.5     -27.2     -31.9
  -5%        5     5.3     5.0     4.2     2.9     1.1     -1.1     -3.8     -6.9     -10.3     -14.0     -18.0     -22.2     -26.6     -31.0     -35.5
  0%        0     0.0     -0.2     -1.0     -2.2     -3.9     -6.1     -8.6     -11.5     -14.8     -18.3     -22.1     -26.1     -30.2     -34.5     -38.7
  5%        -5     -4.8     -5.0     -5.7     -6.9     -8.5     -10.5     -13.0     -15.7     -18.8     -22.2     -25.8     -29.6     -33.6     -37.6     -41.7
  10%        -10     -9.1     -9.3     -10.0     -11.1     -12.7     -14.6     -16.9     -19.6     -22.5     -25.8     -29.2     -32.8     -36.6     -40.4     -44.3
  15%        -15     -13.0     -13.3     -13.9     -15.0     -16.5     -18.3     -20.5     -23.1     -25.9     -29.0     -32.3     -35.7     -39.3     -43.0     -46.7
  20%        -20     -16.7     -16.9     -17.5     -18.5     -19.9     -21.7     -23.8     -26.3     -29.0     -31.9     -35.1     -38.4     -41.9     -45.4     -48.9
  25%        -25     -20.0     -20.2     -20.8     -21.8     -23.1     -24.8     -26.9     -29.2     -31.8     -34.7     -37.7     -40.9     -44.2     -47.6     -51.0
  30%        -30     -23.1     -23.3     -23.8     -24.8     -26.1     -27.7     -29.7     -31.9     -34.5     -37.2     -40.1     -43.2     -46.3     -49.6     -52.9
  35%        -35     -25.9     -26.1     -26.7     -27.6     -28.8     -30.4     -32.3     -34.5     -36.9     -39.5     -42.3     -45.3     -48.3     -51.5     -54.6
  40%        -40     -28.6     -28.7     -29.3     -30.2     -31.4     -32.9     -34.7     -36.8     -39.1     -41.7     -44.4     -47.2     -50.2     -53.2     -56.2
  45%        -45     -31.0     -31.2     -31.7     -32.6     -33.7     -35.2     -37.0     -39.0     -41.2     -43.7     -46.3     -49.0     -51.9     -54.8     -57.7
  50%        -50     -33.3     -33.5     -34.0     -34.8     -35.9     -37.4     -39.1     -41.0     -43.2     -45.6     -48.1     -50.7     -53.5     -56.3     -59.2
  55%        -55     -35.5     -35.6     -36.1     -36.9     -38.0     -39.4     -41.0     -42.9     -45.0     -47.3     -49.8     -52.3     -55.0     -57.7     -60.5
  60%        -60     -37.5     -37.7     -38.1     -38.9     -40.0     -41.3     -42.9     -44.7     -46.7     -49.0     -51.3     -53.8     -56.4     -59.0     -61.7

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

 

One Year

Benchmark

Performance

    Two
Times
the
Inverse

(-2x)  of
One-Year
Bench-

mark
Perfor-
mance
                Benchmark Volatility  
    0%     5%     10%     15%     20%     25%     30%     35%     40%     45%     50%     55%     60%     65%     70%  
  -60%        120     525.0     520.3     506.5     484.2     454.3     418.1     377.1     332.8     286.7     240.4     195.2     152.2     112.2     76.0     43.7
  -55%        110     393.8     390.1     379.2     361.6     338.0     309.4     277.0     242.0     205.6     169.0     133.3     99.3     67.7     39.0     13.5
  -50%        100     300.0     297.0     288.2     273.9     254.8     231.6     205.4     177.0     147.5     117.9     88.9     61.4     35.8     12.6     -8.0
  -45%        90     230.6     228.1     220.8     209.0     193.2     174.1     152.4     128.9     104.6     80.1     56.2     33.4     12.3     -6.9     -24.0
  -40%        80     177.8     175.7     169.6     159.6     146.4     130.3     112.0     92.4     71.9     51.3     31.2     12.1     -5.7     -21.8     -36.1
  -35%        70     136.7     134.9     129.7     121.2     109.9     96.2     80.7     63.9     46.5     28.9     11.8     -4.5     -19.6     -33.4     -45.6
  -30%        60     104.1     102.6     98.1     90.8     81.0     69.2     55.8     41.3     26.3     11.2     -3.6     -17.6     -30.7     -42.5     -53.1
  -25%        50     77.8     76.4     72.5     66.2     57.7     47.4     35.7     23.1     10.0     -3.2     -16.0     -28.3     -39.6     -49.9     -59.1
  -20%        40     56.3     55.1     51.6     46.1     38.6     29.5     19.3     8.2     -3.3     -14.9     -26.2     -36.9     -46.9     -56.0     -64.1
  -15%        30     38.4     37.4     34.3     29.4     22.8     14.7     5.7     -4.2     -14.4     -24.6     -34.6     -44.1     -53.0     -61.0     -68.2
  -10%        20     23.5     22.5     19.8     15.4     9.5     2.3     -5.8     -14.5     -23.6     -32.8     -41.7     -50.2     -58.1     -65.2     -71.6
  -5%        10     10.8     10.0     7.5     3.6     -1.7     -8.1     -15.4     -23.3     -31.4     -39.6     -47.7     -55.3     -62.4     -68.8     -74.5
  0%        0     0.0     -0.7     -3.0     -6.5     -11.3     -17.1     -23.7     -30.8     -38.1     -45.5     -52.8     -59.6     -66.0     -71.8     -77.0
  5%        -10     -9.3     -10.0     -12.0     -15.2     -19.6     -24.8     -30.8     -37.2     -43.9     -50.6     -57.2     -63.4     -69.2     -74.5     -79.1
  10%        -20     -17.4     -18.0     -19.8     -22.7     -26.7     -31.5     -36.9     -42.8     -48.9     -55.0     -61.0     -66.7     -71.9     -76.7     -81.0
  15%        -30     -24.4     -25.0     -26.6     -29.3     -32.9     -37.3     -42.3     -47.6     -53.2     -58.8     -64.3     -69.5     -74.3     -78.7     -82.6
  20%        -40     -30.6     -31.1     -32.6     -35.1     -38.4     -42.4     -47.0     -51.9     -57.0     -62.2     -67.2     -72.0     -76.4     -80.4     -84.0
  25%        -50     -36.0     -36.5     -37.9     -40.2     -43.2     -46.9     -51.1     -55.7     -60.4     -65.1     -69.8     -74.2     -78.3     -82.0     -85.3
  30%        -60     -40.8     -41.3     -42.6     -44.7     -47.5     -50.9     -54.8     -59.0     -63.4     -67.8     -72.0     -76.1     -79.9     -83.3     -86.4
  35%        -70     -45.1     -45.5     -46.8     -48.7     -51.3     -54.5     -58.1     -62.0     -66.0     -70.1     -74.1     -77.9     -81.4     -84.6     -87.4
  40%        -80     -49.0     -49.4     -50.5     -52.3     -54.7     -57.7     -61.1     -64.7     -68.4     -72.2     -75.9     -79.4     -82.7     -85.6     -88.3
  45%        -90     -52.4     -52.8     -53.8     -55.5     -57.8     -60.6     -63.7     -67.1     -70.6     -74.1     -77.5     -80.8     -83.8     -86.6     -89.1
  50%        -100     -55.6     -55.9     -56.9     -58.5     -60.6     -63.2     -66.1     -69.2     -72.5     -75.8     -79.0     -82.1     -84.9     -87.5     -89.8
  55%        -110     -58.4     -58.7     -59.6     -61.1     -63.1     -65.5     -68.2     -71.2     -74.2     -77.3     -80.3     -83.2     -85.9     -88.3     -90.4
  60%        -120     -60.9     -61.2     -62.1     -63.5     -65.4     -67.6     -70.2     -73.0     -75.8     -78.7     -81.5     -84.2     -86.7     -89.0     -91.0

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

 

One Year

Benchmark

Performance

    Two Times
(2x) One
Year
Benchmark
Performance
                Benchmark Volatility  
    0%     5%     10%     15%     20%     25%     30%     35%     40%     45%     50%     55%     60%     65%     70%  
  -60%        -120     -84.0     -84.0     -84.2     -84.4     -84.6     -85.0     -85.4     -85.8     -86.4     -86.9     -87.5     -88.2     -88.8     -89.5     -90.2
  -55%        -110     -79.8     -79.8     -80.0     -80.2     -80.5     -81.0     -81.5     -82.1     -82.7     -83.5     -84.2     -85.0     -85.9     -86.7     -87.6
  -50%        -100     -75.0     -75.1     -75.2     -75.6     -76.0     -76.5     -77.2     -77.9     -78.7     -79.6     -80.5     -81.5     -82.6     -83.6     -84.7
  -45%        -90     -69.8     -69.8     -70.1     -70.4     -70.9     -71.6     -72.4     -73.2     -74.2     -75.3     -76.4     -77.6     -78.9     -80.2     -81.5
  -40%        -80     -64.0     -64.1     -64.4     -64.8     -65.4     -66.2     -67.1     -68.2     -69.3     -70.6     -72.0     -73.4     -74.9     -76.4     -77.9
  -35%        -70     -57.8     -57.9     -58.2     -58.7     -59.4     -60.3     -61.4     -62.6     -64.0     -65.5     -67.1     -68.8     -70.5     -72.3     -74.1
  -30%        -60     -51.0     -51.1     -51.5     -52.1     -52.9     -54.0     -55.2     -56.6     -58.2     -60.0     -61.8     -63.8     -65.8     -67.9     -70.0
  -25%        -50     -43.8     -43.9     -44.3     -45.0     -46.0     -47.2     -48.6     -50.2     -52.1     -54.1     -56.2     -58.4     -60.8     -63.1     -65.5
  -20%        -40     -36.0     -36.2     -36.6     -37.4     -38.5     -39.9     -41.5     -43.4     -45.5     -47.7     -50.2     -52.7     -55.3     -58.1     -60.8
  -15%        -30     -27.8     -27.9     -28.5     -29.4     -30.6     -32.1     -34.0     -36.1     -38.4     -41.0     -43.7     -46.6     -49.6     -52.6     -55.7
  -10%        -20     -19.0     -19.2     -19.8     -20.8     -22.2     -23.9     -26.0     -28.3     -31.0     -33.8     -36.9     -40.1     -43.5     -46.9     -50.4
  -5%        -10     -9.8     -10.0     -10.6     -11.8     -13.3     -15.2     -17.5     -20.2     -23.1     -26.3     -29.7     -33.3     -37.0     -40.8     -44.7
  0%        0     0.0     -0.2     -1.0     -2.2     -3.9     -6.1     -8.6     -11.5     -14.8     -18.3     -22.1     -26.1     -30.2     -34.5     -38.7
  5%        10     10.3     10.0     9.2     7.8     5.9     3.6     0.8     -2.5     -6.1     -10.0     -14.1     -18.5     -23.1     -27.7     -32.5
  10%        20     21.0     20.7     19.8     18.3     16.3     13.7     10.6     7.0     3.1     -1.2     -5.8     -10.6     -15.6     -20.7     -25.9
  15%        30     32.3     31.9     30.9     29.3     27.1     24.2     20.9     17.0     12.7     8.0     3.0     -2.3     -7.7     -13.3     -19.0
  20%        40     44.0     43.6     42.6     40.8     38.4     35.3     31.6     27.4     22.7     17.6     12.1     6.4     0.5     -5.6     -11.8
  25%        50     56.3     55.9     54.7     52.8     50.1     46.8     42.8     38.2     33.1     27.6     21.7     15.5     9.0     2.4     -4.3
  30%        60     69.0     68.6     67.3     65.2     62.4     58.8     54.5     49.5     44.0     38.0     31.6     24.9     17.9     10.8     3.5
  35%        70     82.3     81.8     80.4     78.2     75.1     71.2     66.6     61.2     55.3     48.8     41.9     34.7     27.2     19.4     11.7
  40%        80     96.0     95.5     94.0     91.6     88.3     84.1     79.1     73.4     67.0     60.1     52.6     44.8     36.7     28.5     20.1
  45%        90     110.3     109.7     108.2     105.6     102.0     97.5     92.2     86.0     79.2     71.7     63.7     55.4     46.7     37.8     28.8
  50%        100     125.0     124.4     122.8     120.0     116.2     111.4     105.6     99.1     91.7     83.8     75.2     66.3     57.0     47.5     37.8
  55%        110     140.3     139.7     137.9     134.9     130.8     125.7     119.6     112.6     104.7     96.2     87.1     77.5     67.6     57.5     47.2
  60%        120     156.0     155.4     153.5     150.3     146.0     140.5     134.0     126.5     118.1     109.1     99.4     89.2     78.6     67.8     56.8

The foregoing tables are intended to isolate the effect of benchmark volatility and benchmark performance on the return of inverse, inverse leveraged or 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.

Correlation Risks Specific to the Geared Funds.

In order to achieve a high degree of correlation with their applicable underlying benchmarks, the Geared Funds seek to rebalance their portfolios daily to keep exposure consistent with their investment objectives. Being materially under- or overexposed to the benchmarks may prevent such Geared 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 Geared Funds, regulatory restrictions or extreme market volatility will adversely affect such Geared 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., -1x, -2x or 2x, as applicable) at the end of each day, and the likelihood of being materially under- or overexposed is higher on days when the benchmark levels are volatile near the close of the trading day. In addition, unlike other funds that do not rebalance their portfolios as frequently, each Geared Fund may be subject to increased trading costs associated with daily portfolio rebalancings in order to maintain appropriate exposure to the underlying benchmarks. Such costs include commissions paid to the FCMs, and may vary by FCM.

 

-32-


Table of Contents

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 “Correlation Risks For All Funds.” below.

Intraday Price Performance Risk.

Each Geared Fund is rebalanced at or about the time of its NAV calculation time (which may be other than at the close of the U.S. equity markets). As such, the intraday position of the Geared Fund will generally be different from the Geared Fund’s stated daily investment objective (e.g., -1x, -2x or 2x). 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 Geared Fund’s stated daily inverse, inverse multiple or multiple.

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

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

For example, because the UltraShort and Ultra Funds include a -2x or 2x multiplier, a single-day movement in the relevant benchmark approaching 50% 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 upward single-day or intraday movements in the underlying benchmark of the UltraShort Funds or downward single-day or intraday movements in the underlying benchmark of the Ultra Funds, even if the underlying benchmark maintains a level greater than zero at all times.

Inverse positions can also result in unlimited losses as the benchmark rises. For the Short Funds, a single-day or intraday increase in the level of the Fund’s benchmark approaching 100% could result in the total loss or almost total loss of an investor’s investment even if such Fund’s benchmark subsequently moves lower.

Risks Specific to the Commodity Funds, the Commodity Index Funds, the Currency Funds and the VIX Funds.

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 Currency 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:

 

    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 commodities. Technological factors may include such developments as substitutes for particular commodities.

 

    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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    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, 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.

 

    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.

 

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

With regard to the Currency Funds, several factors may affect the value of foreign currencies or the U.S. dollar, and in turn, Financial Instruments and other 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;

 

    Sovereign action to set or restrict currency conversion; and

 

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

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;

 

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    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. In addition, the impact of changes in the value of a commodity or currency will affect investors differently depending upon the Commodity Fund or Currency Fund in which investors invest. Daily increases in the value of a commodity or currency will negatively impact the daily performance of Shares of the Short and UltraShort Commodity or Currency Funds. Similarly, the impact of changes in the level of a commodity index or a VIX Futures Index will affect investors depending upon the Commodity Index Fund or VIX Fund in which the investors invest. Daily increases in the level of a commodity index or a VIX Futures Index will negatively impact the daily performance of Shares of the Short VIX Fund and the UltraShort Commodity Index Funds.

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

The European financial markets and the value of the euro have experienced significant volatility recently, in part related to unemployment, budget deficits and economic downturns. In addition, several member countries of the Economic and Monetary Union of the EU 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 cause prolonged volatility in euro-related investments.

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. Increased volatility related to the euro could exacerbate the effects of daily compounding on the performance of each of ProShares Short Euro, ProShares UltraShort Euro and ProShares Ultra Euro over periods longer than a single day. If the euro is abandoned by all countries that have adopted its use, the Fund may be forced to switch benchmarks or liquidate.

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 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 Index.

 

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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 implies that the level of VIX futures and the VIX Futures Indexes will likely also be constrained within a band and revert to a long-term mean over time. Because of the mean reverting nature of the VIX Futures Indexes, investors should not expect the VIX Funds to appreciate in value over extended periods. Rather, the VIX Futures Indexes, the VIX Ultra Fund and the Matching VIX Funds will rise and fall (or fall and rise) and the VIX Short Fund 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 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.

Risks Related to All Funds

Correlation Risks for all Funds.

While the Funds seek to meet their investment objectives, there is no guarantee they will do so. Factors that may affect a Fund’s ability to meet its investment objective include: (1) the Sponsor’s ability to purchase and sell Financial Instruments in a manner that correlates to a Fund’s objective; (2) an imperfect correlation between the performance of the Financial Instruments held by a Fund and the performance of the applicable benchmark; (3) bid-ask spreads on such Financial Instruments; (4) fees, expenses, transaction costs, financing costs associated with the use of Financial Instruments and commission costs; (5) holding Financial Instruments traded in a market that has become illiquid or disrupted; (6) a Fund’s Share prices being rounded to the nearest cent and/or valuation methodologies; (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; (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.

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

 

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Each Fund seeks to provide investment return results that correspond (before fees and expenses) to the performance of, or 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 (e.g., by effecting changes in the composition of a portfolio on the basis of judgments relating to economic, financial and market considerations with a view toward obtaining positive results under all market conditions). Rather, each Fund seeks investment results that correspond (before fees and expenses) to the performance of, or a multiple, the inverse, or an inverse multiple of 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 a Matching Fund or an Ultra Fund. It is possible to lose money over time when an underlying benchmark is down for the corresponding Short or UltraShort Fund, due to the effects of daily rebalancing, volatility and compounding (see “Correlation Risks Specific to the Geared Funds” in this Annual Report on Form 10-K for additional details).

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 correspond (before fees and taxes) to an inverse multiple or a multiple of the daily performance of its applicable benchmark, which is intended to reflect the performance of the prices of futures contracts on certain 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 derivatives 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. Depending upon the direction and level of the benchmark changes, the Funds may underperform or outperform a portfolio of cash market commodities.

If a Commodity Index Fund establishes its positions through the use of sampling, such Fund may experience additional tracking error.

Tracking error is the difference between the performance of an index tracking fund and its applicable benchmark index. While each Commodity Index Fund seeks to provide investment results that correspond (before fees and expenses) to the performance of, an inverse multiple or a multiple of the daily performance of its corresponding index, as applicable, it is possible that tracking error may increase because of the differences between the proportion of exposure Financial Instruments held by a Commodity Index Fund have to components included in the applicable benchmark index and the proportional weight that such components carry within the index.

A Commodity Index Fund may obtain exposure through Financial Instruments to a representative sample of the components in its underlying index, which have 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 Commodity Index Fund may obtain exposure to components not included in its 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. Index tracking funds that use sampling may experience greater tracking error than index tracking funds that fully replicate an underlying index by obtaining exposure on a proportionate basis to all components of that index.

 

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Investments linked to commodities, commodity futures contracts, 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.

Investments linked to commodities, commodity futures contracts, currencies, and/or equity market volatility benchmarks can be highly volatile and may experience large losses. In particular, trading in natural gas futures contracts (or other Financial Instruments linked to natural gas) and trading in VIX futures contracts have been very volatile and can be expected to be very volatile in the future. High volatility may have an adverse impact on the Funds beyond the impact of any performance-based losses of the underlying benchmark, especially the Geared Funds. See “Risks Specific to the Geared Funds” in this Annual Report on Form 10-K for additional details.

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.” The Funds do not intend to take physical delivery of any reference asset underlying a futures contract, but instead to “roll” their respective positions.

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 a Matching VIX Fund or an Ultra VIX Fund.

The Commodity Funds do not invest in bullion itself as certain other exchange-traded products do. Not investing directly in bullion may introduce additional tracking error and these Commodity Funds are 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 (or inverse performance) of gold and silver bullion may introduce tracking error to the performance of the Commodity Funds. While prices of Financial Instruments are, as a rule, related to the prices of an underlying cash market, they are not perfectly correlated. In addition, the use of Financial Instruments causes 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 historically prevalent backwardated markets would be expected to adversely affect the Ultra Funds.

 

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Credit and liquidity risks associated with collateralized repurchase agreements.

A portion of each Fund’s assets may be 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 and collateralized repurchase agreements). These securities may be used for direct investment or serve as collateral for such Fund’s trading in Financial Instruments, as applicable, and may include collateralized repurchase agreements. Collateralized repurchase agreements involve an agreement to purchase a security and to sell that security back to the original seller at an agreed-upon price. The resale price reflects the purchase price plus an agreed-upon incremental amount which is unrelated to the coupon rate or maturity of the purchased security. As protection against the risk that the original seller will not fulfill its obligation, the buyer receives collateral marked-to-market daily, and maintained at a value at least equal to the sale price plus the accrued incremental amount. Although the collateralized repurchase agreements that the Funds enter into require that counterparties (which act as original sellers) over-collateralize the amount owed to a Fund with U.S. Treasury securities and/or agency securities, there is a risk that such collateral could decline in price at the same time that the counterparty defaults on its obligation to repurchase the security. If this occurs, a Fund may incur losses or delays in receiving proceeds. To minimize these risks, the Funds typically enter into transactions only with major global financial institutions.

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.

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 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 applicable 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.

 

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For the Funds linked to an index, changes implemented by the index provider or the CBOE 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 such 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 such Fund’s Shares. The index providers 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 such Fund’s Shares. In addition, for the VIX Funds, the CBOE can make methodological changes to the calculation of the VIX that could affect the value of VIX futures contracts and, consequently, the value of the VIX Funds’ Shares. There can be no assurance that the CBOE will not change the VIX calculation methodology in a way which may affect the value of the VIX Funds’ Shares. The CBOE may also alter, discontinue or suspend calculation or dissemination of the VIX and/or exercise settlement value. Any of these actions could adversely affect the value of such Funds’ 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 may be 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. Such Funds will use either swap agreements and/or forward contracts referencing their respective benchmarks. These Funds may also invest in other swap agreements or forward contracts if such investments tend to exhibit trading prices or returns that correlate with the benchmark or a component of the benchmark and will further the investment objective of the Fund. Other Funds may invest in swap agreements or forward contracts if position accountability rules or position limits are reached with respect to specific futures contracts or the market for a specific futures contract experiences emergencies (e.g., natural disaster, terrorist attack, or an act of God) or disruptions (e.g., a trading halt or a flash crash) that prevents such Fund from obtaining the appropriate amount of investment exposure to the affected futures contract or certain other futures contracts. Although unlikely, such Funds, under these circumstances, could have 100% exposure to swap agreements or futures contracts, as applicable.

Swap agreements and forward contracts are generally traded in over-the–counter markets and have only recently become subject to regulation by the CFTC. CFTC rules, however, do not cover all types of swap agreements and forward contracts. Investors, therefore, may 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.

The Funds will be subject to credit risk with respect to counterparties to the derivatives contracts (whether a clearing corporation in the case of cleared instruments or another third party in the case of OTC uncleared instruments). 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.

 

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

OTC swaps and forward contracts are less liquid than futures contracts because they are not traded on an exchange, do not have uniform terms and conditions, and are generally entered into based upon the creditworthiness of the parties and the availability of credit support, such as collateral, and in general, are not transferable without the consent of the counterparty. If the level of the Fund’s benchmark has a dramatic intraday move that would cause a material decline in the Fund’s NAV, the terms of the swap may permit the counterparty to immediately close out the transaction with the Fund. In that event, it may not be possible for the Fund to enter into another swap 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, particularly if the level of the Fund’s benchmark reverses all or part of its intraday move by the end of the day. In addition, cleared derivative transactions benefit from daily marking-to-market and settlement, and segregation and minimum capital requirements applicable to intermediaries. Transactions entered into directly between two counterparties generally do not benefit from such protections. This exposes the Funds to the risk that a counterparty will not settle a transaction in accordance with its terms and conditions because of a dispute over the terms of the contract (whether or not bona fide) or because of a credit or liquidity problem, thus causing the Funds to suffer a loss.

As of December 31, 2013, the Funds’ approved counterparties for swap agreements and forward contracts are: Deutsche Bank AG, UBS AG, Goldman Sachs International and Société Générale. The Sponsor regularly reviews the performance of its counterparties for, among other things, creditworthiness and execution quality. In addition, the Sponsor periodically considers the addition of new counterparties. Thus, the list of counterparties noted above may change at any time. Each day, the Funds disclose their portfolio holdings as of the prior Business Day (as such term is defined in “Creation and Redemption of Shares-Creation Procedures” in Part I, Item 1 of this Annual Report on Form 10-K). Each Fund’s portfolio holdings identifies its counterparties, as applicable. This portfolio holdings information may be accessed through the web on the Sponsor’s website at www.ProShares.com.

More information about Deutsche Bank AG, including its current financial statements, may be found on the SEC’s EDGAR website under Central Index Key No (“CIK No.”) 0001159508 (for Deutsche Bank AG). More information about UBS AG, including its current financial statements, may also be found on the SEC’s EDGAR website under CIK No. 0001114446 (for UBS AG). More information about Goldman Sachs International, a U.K. broker-dealer and subsidiary of The Goldman Sachs Group, Inc., may also be found on the SEC’s EDGAR website under CIK No. 0000886982 (for The Goldman Sachs Group, Inc.). The Goldman Sachs Group, Inc. consolidates the financial statements of each of its subsidiaries, including Goldman Sachs International, with its own. More information about Société Générale, a French public limited company, including its current financial statements as filed with the AMF (the French securities regulator), may be found on Société Générale’s website. Please note that the references to third-party websites have been provided solely for informational purposes. Neither the Funds nor the Sponsor endorses or is responsible for the content or information contained on any third-party website, including with respect to any financial statements. In addition, neither the Funds nor the Sponsor makes any warranty, express or implied or assumes any legal liability or responsibility for the accuracy, completeness or usefulness of any such information.

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

 

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The counterparty for cleared derivative transactions is generally lower than for uncleared OTC derivatives since generally a clearing organization becomes substituted for each counterparty to a cleared derivative contract and, in effect, guarantees the parties’ performance under the contract as each party to a trade looks only to the clearing house for performance of financial obligations. However, there can be no assurance that the clearing house, or its members, will satisfy its obligations to the Fund.

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.

The Funds have a limited 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.

The Funds have limited 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, 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. 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 listed and traded on the applicable Exchange, 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, Chicago Mercantile Exchange (including the Chicago Board of Trade and the New York Mercantile Exchange), the Intercontinental Exchange, 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

 

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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 applicable Exchange, 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 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 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 applicable Exchange 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 applicable Exchange 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 (and/or the reference assets) may be reduced after such fixing or settlement time. As a result, during the time when the applicable Exchange is open but after the applicable fixing or settlement time or an underlying component, 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. Furthermore, the NAV for certain Funds is determined prior to the close of the applicable Exchange, and the NAV for certain Funds is determined after the close of its applicable Exchange. Consequently, for those Funds, the closing market price per Share may differ from the NAV per Share at the end of each day. Also, during the time when the applicable Exchange is open but the Fund’s NAV has already been determined (or, in the case of a VIX Fund, closed but before the determination of NAV), there could be market developments or other events that cause or exacerbate the difference between the price of the Shares of such Funds 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.

The number of underlying components in a Fund’s benchmark may also impact volatility, which could adversely affect an investment in the Shares. For example, each of the indexes for the Commodity Index Funds is concentrated in terms of the number and type of commodities represented, and some of the subindexes are solely concentrated in a single commodity futures contract. In addition, the benchmarks for the Currency Funds are concentrated solely on a single currency and the benchmarks for the VIX Funds are concentrated solely in VIX futures contracts. Investors should be aware that other benchmarks are more diversified in terms of both the number and variety of investments included. Concentration in fewer underlying components may result in a greater degree of volatility in a benchmark and the NAV of the Fund which corresponds to that benchmark under specific market conditions and over time.

 

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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. 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.

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

Trading in Shares of a Fund may be halted due to market conditions or, in light of applicable Exchange rules and procedures, for reasons that, in the view of the applicable Exchange, make trading in Shares of a Fund inadvisable. In addition, trading is subject to trading halts caused by extraordinary market volatility pursuant to “circuit breaker” rules that require trading to be halted for a specified period based on a specified decline or rise in a market index (e.g., 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

 

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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.

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

Under the Trust Agreement, as may be further amended and restated from time to time, 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.

Similarly, the CEA requires a clearing organization approved by the CFTC as a derivatives clearing organization to segregate all funds and other property received from a clearing member’s clients in connection with domestic futures and options contracts from any funds held at the clearing organization to support the clearing member’s proprietary trading. Nevertheless, customer funds held at a clearing organization in connection with any futures or options contracts may be held in a commingled omnibus account, which may not identify the name of the clearing member’s individual customers. With respect to futures and options contracts, a clearing organization may use assets of a non-defaulting customer held in an omnibus account at the clearing organization to satisfy payment obligations of a defaulting customer of the clearing member to the clearing organization. As a result, in the event of a default of the clearing FCM’s other clients or the clearing FCM’s failure to extend its own funds in connection with any such default, a Fund may not be able to recover the full amount of assets deposited by the clearing FCM on behalf of the Fund with the clearing organization.

 

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

A court could potentially conclude that the assets and liabilities of one Fund are not segregated from those of another 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 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

 

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

The partner information tax returns on Schedule K-1 which the Funds will distribute to shareholders will contain information regarding the income items and expense items of the Funds. If you have not received Schedule K-1s from other investments, you may find that preparing your tax return may require additional time, or it may be necessary for you to retain an accountant or other tax preparer, at an additional expense to you, to assist you in the preparation of your return.

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

Under current law, long-term capital gains are taxed to non-corporate investors at a maximum U.S. federal income tax rate of 20%. This tax treatment may be adversely affected, changed or repealed by future changes in tax laws at any time.

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

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

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.

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

In addition, the SEC, CFTC and the exchanges are authorized to take extraordinary actions in the event of a market emergency, including, for example, the retroactive implementation of speculative position limits or higher margin requirements, the establishment of daily price limits and the suspension of trading. The regulation of swaps 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.

In particular, the Dodd-Frank Act was signed into law on July 21, 2010. The Dodd-Frank 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

 

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framework for OTC derivatives, including certain Financial Instruments, such as swaps, in which certain of the Funds may invest. Title VII of the Dodd-Frank Act makes broad changes to the OTC derivatives market, grants significant new authority to the SEC and the CFTC to regulate OTC derivatives and market participants, and 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 mandatory use of clearinghouse mechanisms for many OTC derivative transactions.

The CFTC, SEC and other federal regulators have been tasked with developing the rules and regulations enacting the provisions of the Dodd-Frank Act. 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 legislation and the related regulations that may 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 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.

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

Many U.S. commodities exchanges and boards of trade limit the amount of fluctuation permitted in futures contract prices during a single trading day by regulations referred to as “daily price fluctuation limits” or “daily limits.” Once the daily limit has been reached in a particular contract, no trades may be made that day at a price beyond that limit or trading may be suspended for specified periods during the trading day. In addition, the CFTC, U.S. futures exchanges and certain non-U.S. exchanges have established limits referred to as “speculative position limits” or “accountability levels” on the maximum net long or short futures positions that any person may hold or control in derivatives traded on such exchanges.

In connection with these limits, the Dodd-Frank Act has required the CFTC to adopt regulations establishing speculative position limits applicable to regulated futures and OTC derivatives and impose aggregate speculative position limits across regulated U.S. futures, OTC positions and certain futures contracts traded on non-U.S. exchanges. In accordance with this mandate, in October 2011 the CFTC finalized rules that established position limits with respect to 28 physical delivery commodity futures and options contracts, as well as to swaps that are economically equivalent to such contracts. The new position limits established by the CFTC would apply with respect to contracts traded on all U.S. and certain foreign exchanges on an aggregate basis. In addition, the CFTC required U.S. commodities exchanges to establish corresponding speculative position limits. Under the proposed CFTC regulations, all accounts owned or managed by an entity that is responsible for such accounts’ trading decisions, their principals and their affiliates would be combined for position limit purposes.

In September 2012, the U.S. District Court in Washington, D.C. struck down these CFTC position limit rules adopted in connection with the Dodd-Frank Act, remanding such rules to the CFTC to resolve various issues identified in the court’s decision. On November 5, 2013, the CFTC re-proposed regulations on position limits with respect to the 28 physical delivery commodity futures and options contracts, as well as to swaps that are economically equivalent to such contracts. The proposed position limits would apply with respect to contracts traded on all U.S. and certain foreign exchanges on an aggregate basis. In addition, the CFTC proposed amendments to the requirements of U.S. commodities exchanges to establish corresponding speculative position limits. Under the proposed CFTC regulations, all accounts owned or managed by an entity that is responsible for such accounts’ trading decisions, their principals and their affiliates would be combined for position limit purposes. Although it is unclear what final position limit rules will be, the Sponsor is subject to current position and accountability limits established by the CFTC and other exchanges. Accordingly, it may be required to reduce the size of outstanding positions or not enter into new positions that would otherwise be taken for the Funds in order to comply with those limits or any future limits established by the CFTC and the relevant exchanges.

Derivative contract prices could move to a limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of derivatives positions and potentially subjecting the Funds to substantial losses or periods in which such Funds do not create additional Creation Units. Modification of trades made by the Trust, if required, could adversely affect the Trust’s operations and profitability and significantly limit the Trust’s ability to reinvest income in additional contracts, create additional Creation Units, or add to existing positions in the desired amount.

 

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

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

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

 

Item 1B. Unresolved Staff Comments.

None.

 

Item 2. Properties.

Not applicable.

 

Item 3. Legal Proceedings.

None.

 

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 UltraShort DJ-UBS Commodity, ProShares UltraShort DJ-UBS Crude Oil, ProShares UltraShort Euro, ProShares UltraShort Yen, ProShares Ultra DJ-UBS Commodity, ProShares Ultra DJ-UBS Crude Oil, ProShares Ultra Euro and ProShares Ultra Yen, commenced trading on the NYSE Arca on November 25, 2008. Four of the Funds, ProShares UltraShort Gold, ProShares UltraShort Silver, ProShares Ultra Gold, and ProShares Ultra Silver, 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 UltraShort DJ-UBS Natural Gas and ProShares Ultra DJ-UBS Natural Gas, commenced trading on the NYSE Arca on October 4, 2011. One of the Funds, ProShares Short Euro, commenced trading on the NYSE Arca on June 26, 2012. Two of the Funds, ProShares UltraShort Australian Dollar and ProShares Ultra Australian Dollar, commenced trading on the NYSE Arca on July 17, 2012. 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 2013

 

Fund

   High      Low  

ProShares UltraShort DJ-UBS Commodity

     

First Quarter

   $ 58.21       $ 48.98   

Second Quarter

     65.04         54.54   

Third Quarter

     68.89         53.88   

Fourth Quarter

     66.59         56.76   

ProShares UltraShort DJ-UBS Crude Oil

     

First Quarter

   $ 42.94       $ 35.47   

Second Quarter

     45.99         34.68   

Third Quarter

     35.82         26.51   

Fourth Quarter

     36.61         29.07   

ProShares UltraShort DJ-UBS Natural Gas*

     

First Quarter

   $ 118.16       $ 69.02   

Second Quarter

     90.29         58.12   

Third Quarter

     110.45         74.89   

Fourth Quarter

     106.41         60.25   

ProShares UltraShort Gold

     

First Quarter

   $ 71.54       $ 60.45   

Second Quarter

     114.96         67.65   

Third Quarter

     109.95         77.75   

Fourth Quarter

     106.44         82.35   

ProShares UltraShort Silver

     

First Quarter

   $ 56.09       $ 43.05   

Second Quarter

     116.25         55.71   

Third Quarter

     111.70         61.59   

Fourth Quarter

     96.24         65.93   

ProShares Short Euro

     

First Quarter

   $ 39.75       $ 36.51   

Second Quarter

     39.10         36.81   

Third Quarter

     38.47         36.41   

Fourth Quarter

     36.70         35.51   

ProShares UltraShort Australian Dollar

     

First Quarter

   $ 39.19       $ 36.31   

Second Quarter

     46.89         35.83   

Third Quarter

     49.07         42.01   

Fourth Quarter

     47.93         39.89   

 

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ProShares UltraShort Euro

     

First Quarter

   $ 20.22       $ 17.56   

Second Quarter

     20.10         18.17   

Third Quarter

     20.07         17.64   

Fourth Quarter

     18.24         16.90   

ProShares UltraShort Yen

     

First Quarter

   $ 62.07       $ 50.83   

Second Quarter

     70.80         57.18   

Third Quarter

     66.71         59.45   

Fourth Quarter

     70.92         60.31   

ProShares Ultra DJ-UBS Commodity

     

First Quarter

   $ 26.50       $ 22.30   

Second Quarter

     23.70         18.40   

Third Quarter

     21.36         18.03   

Fourth Quarter

     21.41         18.41   

ProShares Ultra DJ-UBS Crude Oil

     

First Quarter

   $ 33.17       $ 27.08   

Second Quarter

     31.87         24.75   

Third Quarter

     40.02         30.59   

Fourth Quarter

     36.09        
28.05
  

ProShares Ultra DJ-UBS Natural Gas

     

First Quarter

   $ 52.25       $ 33.14   

Second Quarter

     59.72         35.35   

Third Quarter

     41.50         27.68   

Fourth Quarter

     45.63         26.84   

ProShares Ultra Gold

     

First Quarter

   $ 87.58       $ 73.60   

Second Quarter

     77.44         41.30   

Third Quarter

     58.80         42.71   

Fourth Quarter

     53.11         40.09   

ProShares Ultra Silver^

     

First Quarter

   $ 200.56       $ 148.40   

Second Quarter

     148.08         60.04   

Third Quarter

     106.08         61.84   

Fourth Quarter

     89.92         59.88   

ProShares Ultra Australian Dollar

     

First Quarter

   $ 43.09       $ 40.32   

Second Quarter

     42.87         32.98   

Third Quarter

     35.55         30.96   

Fourth Quarter

     36.96         31.00   

ProShares Ultra Euro

     

First Quarter

   $ 26.13       $ 22.63   

Second Quarter

     25.01         21.58   

Third Quarter

     25.44         22.39   

Fourth Quarter

     26.36         24.11   

ProShares Ultra Yen

     

First Quarter

   $ 28.20       $ 22.52   

Second Quarter

     24.41         19.50   

Third Quarter

     23.50         20.21   

Fourth Quarter

     22.15         18.59   

ProShares VIX Short-Term Futures ETF*

     

First Quarter

   $ 79.10       $ 53.95   

Second Quarter

     62.40         48.52   

Third Quarter

     55.61         36.08   

Fourth Quarter

     46.75         27.58   

 

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ProShares VIX Mid-Term Futures ETF

     

First Quarter

   $ 33.10       $ 26.02   

Second Quarter

     29.23         24.00   

Third Quarter

     28.23         21.98   

Fourth Quarter

     24.90         19.16   

ProShares Ultra VIX Short-Term Futures ETF*^

     

First Quarter

   $ 713.60       $ 300.80   

Second Quarter

     359.36         224.80   

Third Quarter

     284.68         115.52   

Fourth Quarter

     190.00         62.64   

ProShares Short VIX Short-Term Futures ETF^

     

First Quarter

   $ 47.52       $ 34.97   

Second Quarter

     50.43         35.15   

Third Quarter

     57.82         39.33   

Fourth Quarter

     69.95         43.63   

 

* See Note 1 of the Notes to Financial Statements in Item 15 of Part IV in this Annual Report on Form 10-K.
^ See Note 9 of the Notes to Financial Statements in Item 15 of Part IV in this Annual Report on Form 10-K.

Fiscal Year 2012

 

Fund

   High      Low  

ProShares UltraShort DJ-UBS Commodity

     

First Quarter

   $ 56.89       $ 49.70   

Second Quarter

     68.00         53.49   

Third Quarter

     59.15         45.00   

Fourth Quarter

     54.36         48.26   

ProShares UltraShort DJ-UBS Crude Oil

     

First Quarter

   $ 41.16       $ 30.76   

Second Quarter

     61.03         33.15   

Third Quarter

     52.56         34.66   

Fourth Quarter

     47.46         38.79   

ProShares UltraShort DJ-UBS Natural Gas*

     

First Quarter

   $ 49.35       $ 22.10   

Second Quarter

     61.63         28.15   

Third Quarter

     32.28         21.22   

Fourth Quarter

     26.27         18.00   

ProShares UltraShort Gold*

     

First Quarter

   $ 76.36       $ 14.75   

Second Quarter

     78.84         16.50   

Third Quarter

     74.76         13.96   

Fourth Quarter

     65.58         13.77   

ProShares UltraShort Silver*

     

First Quarter

   $ 73.85       $ 40.60   

Second Quarter

     74.95         49.70   

Third Quarter

     72.18         38.90   

Fourth Quarter

     52.52         38.61   

ProShares Short Euro

     

First Quarter

   $ —         $ —     

Second Quarter

     40.27         39.38   

Third Quarter

     41.45         37.83   

Fourth Quarter

     39.13         36.73   

ProShares UltraShort Australian Dollar

     

First Quarter

   $ —         $ —     

Second Quarter

     —           —     

 

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Third Quarter

     40.53         37.28   

Fourth Quarter

     40.58         36.58   

ProShares UltraShort Euro

     

First Quarter

   $ 21.31       $ 18.61   

Second Quarter

     22.07         18.94   

Third Quarter

     23.03         19.18   

Fourth Quarter

     20.62         18.72   

ProShares UltraShort Yen

     

First Quarter

   $ 48.44       $ 39.95   

Second Quarter

     47.24         41.64   

Third Quarter

     43.71         40.48   

Fourth Quarter

     50.80         41.19   

ProShares Ultra DJ-UBS Commodity

     

First Quarter

   $ 29.19       $ 25.42   

Second Quarter

     26.66         20.66   

Third Quarter

     29.55         23.43   

Fourth Quarter

     27.86         23.60   

ProShares Ultra DJ-UBS Crude Oil

     

First Quarter

   $ 49.85       $ 37.82   

Second Quarter

     44.88         23.13   

Third Quarter

     37.11         25.84   

Fourth Quarter

     32.07         25.54   

ProShares Ultra DJ-UBS Natural Gas*

     

First Quarter

   $ 110.50       $ 37.40   

Second Quarter

     51.96         29.35   

Third Quarter

     59.61         37.11   

Fourth Quarter

     60.48         38.62   

ProShares Ultra Gold

     

First Quarter

   $ 102.48       $ 81.72   

Second Quarter

     89.95         73.50   

Third Quarter

     98.40         75.36   

Fourth Quarter

     99.12         81.59   

ProShares Ultra Silver

     

First Quarter

   $ 74.65       $ 44.43   

Second Quarter

     57.80         34.50   

Third Quarter

     60.63         35.39   

Fourth Quarter

     60.52         42.04   

ProShares Ultra Australian Dollar

     

First Quarter

   $ —         $ —     

Second Quarter

     —           —     

Third Quarter

     42.21         39.25   

Fourth Quarter

     42.89         39.78   

ProShares Ultra Euro

     

First Quarter

   $ 25.79       $ 22.79   

Second Quarter

     25.15         21.64   

Third Quarter

     24.49         20.52   

Fourth Quarter

     24.79         22.28   

ProShares Ultra Yen

     

First Quarter

   $ 37.09       $ 30.61   

Second Quarter

     35.08         31.32   

Third Quarter

     35.50         33.47   

Fourth Quarter

     34.90         28.28   

ProShares VIX Short-Term Futures ETF

     

First Quarter

   $ 73.37       $ 33.15   

Second Quarter

     48.80         32.13   

Third Quarter

     32.11         18.08   

 

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Fourth Quarter

     20.14         14.96   

ProShares VIX Mid-Term Futures ETF

     

First Quarter

   $ 73.04       $ 56.07   

Second Quarter

     65.84         53.90   

Third Quarter

     54.54         40.71   

Fourth Quarter

     41.74         32.55   

ProShares Ultra VIX Short-Term Futures ETF*

     

First Quarter

   $ 679.80       $ 126.40   

Second Quarter

     248.70         97.60   

Third Quarter

     96.30         27.86   

Fourth Quarter

     33.40         17.35   

ProShares Short VIX Short-Term Futures ETF*

     

First Quarter

   $ 53.76       $ 27.00   

Second Quarter

     50.85         32.26   

Third Quarter

     72.52         43.58   

Fourth Quarter

     79.35         60.98   

 

* See Note 1 of the Notes to Financial Statements in Item 15 of Part IV in this Annual Report on Form 10-K.

The approximate number of holders of the Shares of each Fund as of December 31, 2013 was as follows:

 

Fund

   Number of Holders  

ProShares UltraShort DJ-UBS Commodity

     132   

ProShares UltraShort DJ-UBS Crude Oil

     6,171   

ProShares UltraShort DJ-UBS Natural Gas

     792   

ProShares UltraShort Gold

     7,943   

ProShares UltraShort Silver

     8,535   

ProShares Short Euro

     435   

ProShares UltraShort Australian Dollar

     726   

ProShares UltraShort Euro

     19,869   

ProShares UltraShort Yen

     11,660   

ProShares Ultra DJ-UBS Commodity

     455   

ProShares Ultra DJ-UBS Crude Oil

     8,592   

ProShares Ultra DJ-UBS Natural Gas

     3,247   

ProShares Ultra Gold

     9,738   

ProShares Ultra Silver

     36,555   

ProShares Ultra Australian Dollar

     40   

ProShares Ultra Euro

     215   

ProShares Ultra Yen

     250   

ProShares VIX Short-Term Futures ETF

     26,954   

ProShares VIX Mid-Term Futures ETF

     6,674   

ProShares Ultra VIX Short-Term Futures ETF

     21,590   

ProShares Short VIX Short-Term Futures ETF

     4,956   

Total:

     175,529   

The Funds made no distributions to Shareholders during the fiscal year ended December 31, 2013. The Funds have no obligation to make periodic distributions to Shareholders.

b) The Trust initially registered Shares on its Registration Statement 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 registered Shares and re-allocated the remaining amount of the registered Shares among the Funds listed on its Registration Statement on Form S-3 (No. 333-163511), which became effective on December 4, 2009. It then registered additional Shares and/or added Funds pursuant to post-effective amendments to that Registration Statement on Form S-3, which became effective on May 28, 2010, November 5, 2010, December 23, 2010 and April 13, 2011, as well as on a

 

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Registration Statement on Form S-1 (No. 333-178707), which became effective on June 25, 2012. On June 26, 2012, a post-effective amendment to the Registration Statement on Form S-3 (No. 333-163511) was declared effective, which registered additional Shares for ProShares Ultra DJ-UBS Crude Oil and terminated the offerings for certain publicly offered Funds and certain Funds that had never been publicly offered. New offerings for those Funds that had been publicly offered were registered on an accompanying Registration Statement on Form S-1 (No. 333-176878), which was also declared effective on June 26, 2012. On September 24, 2012, a Registration Statement on Form S-1 (No. 333-183672) was declared effective, which registered additional Shares for ProShares Ultra VIX Short-Term Futures ETF, ProShares VIX Short-Term Futures ETF and ProShares Short VIX Short-Term Futures ETF. This registration statement (No. 333- 183672) was a combined prospectus and acted as a post-effective amendment to the Form S-1 (No. 333-176878). On September 27, 2012, a Registration Statement on Form S-3 (No. 333-183674) was declared effective, which registered additional Shares for ProShares Ultra DJ-UBS Crude Oil, ProShares UltraShort DJ-UBS Crude Oil and ProShares UltraShort Euro. This registration statement was a combined prospectus and acted as a post-effective amendment to the Form S-3 (No. 333-163511). On September 28, 2012, a post-effective amendment to a Registration Statement on Form S-1 (333-178707) was declared effective, terminating the proposed offerings of several unlaunched currency funds. On January 30, 2013, a Registration Statement on Form S-1 (No. 333-185288) was declared effective. That registration statement, which registered additional Shares to ProShares Short VIX Short-Term Futures ETF, acted as a combined prospectus and post-effective amendment to the Trust’s Form S-1 Registration Statements (File Nos. 333-183672 and 333-178707). Also, on January 30, 2013, a Registration Statement on Form S-3 (File No. 333-185289) was declared effective. That registration statement, which registered additional Shares to ProShares Ultra DJ-UBS Crude Oil, ProShares UltraShort Euro, ProShares Ultra VIX Short-Term Futures ETF and ProShares VIX Short-Term Futures ETF, acted as a combined prospectus and post-effective amendment to the Trust’s Form S-1 Registration Statement (No. 333-193672) and Form S-3 Registration Statement (No. 333-183674). On April 24, 2013, a post-effective amendment to the Form S-1 Registration Statement (333-185288) was declared effective, terminating the registered but unlaunched offerings related to: ProShares UltraPro Short Euro, ProShares Managed Futures Strategy and ProShares Commodity Managed Futures Strategy. On April 29, 2013, a Registration Statement on Form S-3 (333-187820) was declared effective, which registered additional Shares for ProShares Ultra DJ-UBS Crude Oil, ProShares UltraShort DJ-UBS Crude Oil, ProShares Ultra Silver, ProShares UltraShort Silver, ProShares UltraShort Euro, ProShares UltraShort Yen, ProShares Ultra VIX Short-Term Futures ETF and ProShares VIX Short-Term Futures ETF. That registration statement was a combined prospectus and acted as a post-effective amendment to the Form S-3 (No. 333-185289). On May 21, 2013, a Registration Statement on Form S-1 (333-188215) was declared effective, which registered additional Shares for ProShares Ultra DJ-UBS Natural Gas, ProShares UltraShort DJ-UBS Natural Gas, ProShares Short VIX Short-Term Futures ETF and ProShares VIX Mid-Term Futures ETF. That registration statement was a combined prospectus and acted as a post-effective amendment to the Form S-1 (No. 333-185288). On July 30, 2013, a Registration Statement on Form S-3 (No. 333-189967) was declared effective, which registered additional Shares for ProShares DJ-UBS Crude Oil and ProShares UltraShort Yen and partially terminated registered and unissued Shares of ProShares Ultra DJ-UBS Crude Oil, ProShares Ultra Silver, ProShares UltraShort Silver, ProShares UltraShort Euro and ProShares VIX Short-Term Futures ETF. That registration statement was a combined prospectus and acted as a post-effective amendment to the Form S-3 (No. 333-187820). Thus, as of December 31, 2013, the Trust had two effective registration statements outstanding: 1) a Form S-1 Registration Statement (No. 333-188215); and 2) a Form S-3 Registration Statement (No. 333-189967).

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 and collateralized repurchase agreements) that may be used to collateralize swap agreements or forward contracts or deposited with FCMs as margin in connection with any futures transactions. Each Geared Fund continuously offers and redeems its Shares in blocks of 50,000 Shares, and each Matching VIX Fund continuously offers and redeems Shares in blocks of 25,000 Shares.

 

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Title of Securities Registered

  Amount
Registered As of
December 31, 2013
    Shares Sold
For the Three
Months
Ended

December 31,
2013
    Sale Price of
Shares

Sold For the
Three Months
Ended

December 31,
2013
    Shares Sold
For the Year
Ended

December 31,
2013
    Sale Price of
Shares

Sold For the
Year Ended
December 31,
2013
 

ProShares UltraShort DJ-UBS Commodity Common Units of Beneficial Interest

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

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

  $ 3,275,000,000        950,000      $ 30,455,974        23,300,000      $ 764,617,811   

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

  $ 570,000,000        200,000      $ 13,125,880        587,500      $ 43,490,786   

ProShares UltraShort Gold Common Units of Beneficial Interest

  $ 1,000,000,000        900,000      $ 85,645,979        2,650,000      $ 233,728,116   

ProShares UltraShort Silver Common Units of Beneficial Interest

  $ 2,700,000,000        400,000      $ 30,934,170        3,450,000      $ 251,109,632   

ProShares Short Euro Common Units of Beneficial Interest

  $ 200,000,000        50,000      $ 1,796,120        150,000      $ 5,544,514   

ProShares UltraShort Australian Dollar Common Units of Beneficial Interest

  $ 200,000,000        50,000      $ 2,255,293        500,000      $ 20,808,405   

ProShares UltraShort Euro Common Units of Beneficial Interest

  $ 2,753,506,872        —        $ —          6,250,000      $ 119,076,233   

ProShares UltraShort Yen Common Units of Beneficial Interest

  $ 1,800,000,000        1,350,000      $ 90,082,502        5,650,000      $ 362,152,598   

ProShares Ultra DJ-UBS Commodity Common Units of Beneficial Interest

  $ 300,000,000        —        $ —          —        $ —     

ProShares Ultra DJ-UBS Crude Oil Common Units of Beneficial Interest1

  $ 4,408,246,073        3,750,000      $ 114,959,884        11,450,000      $ 334,161,435   

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

  $ 680,000,000        1,650,000      $ 48,741,842        5,400,000      $ 182,988,911   

ProShares Ultra Gold Common Units of Beneficial Interest

  $ 1,000,000,000        —        $ —          550,000      $ 30,696,013   

ProShares Ultra Silver Common Units of Beneficial Interest

  $ 3,300,000,000        725,000      $ 49,454,398        4,112,500      $ 383,200,214   

ProShares Ultra Australian Dollar Common Units of Beneficial Interest

  $ 200,000,000        —        $ —          —        $ —     

ProShares Ultra Euro Common Units of Beneficial Interest

  $ 500,000,000        50,000      $ 1,261,329        50,000      $ 1,261,329   

ProShares Ultra Yen Common Units of Beneficial Interest

  $ 500,000,000        —        $ —          50,000      $ 1,323,474   

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

  $ 3,250,000,000        7,925,000      $ 259,907,695        16,095,000      $ 688,146,488   

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

  $ 1,300,000,000        850,000      $ 18,487,919        6,050,000      $ 151,394,850   

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

  $ 8,000,000,000        3,800,000      $ 353,138,601        9,900,000      $ 1,958,417,114   

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

  $ 2,750,000,000        2,300,000      $ 126,854,669        11,500,000      $ 529,295,847   

Total:

  $ 39,186,752,945        24,950,000      $ 1,227,102,255        107,695,000      $ 6,061,413,770   

 

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c) From October 1, 2013 through December 31, 2013, 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 UltraShort DJ-UBS Commodity

     

10/01/13 to 10/31/13

     —           —     

11/01/13 to 11/30/13

     —           —     

12/01/13 to 12/31/13

     —           —     

ProShares UltraShort DJ-UBS Crude Oil

     

10/01/13 to 10/31/13

     4,050,000       $ 31.43   

11/01/13 to 11/30/13

     3,350,000       $ 35.11   

12/01/13 to 12/31/13

     100,000       $ 32.27   

ProShares UltraShort DJ-UBS Natural Gas

     

10/01/13 to 10/31/13

     —           —     

11/01/13 to 11/30/13

     50,000       $ 82.34   

12/01/13 to 12/31/13

     —           —     

ProShares UltraShort Gold

     

10/01/13 to 10/31/13

     750,000       $ 87.44   

11/01/13 to 11/30/13

     100,000       $ 92.23   

12/01/13 to 12/31/13

     350,000       $ 101.20   

ProShares UltraShort Silver

     

10/01/13 to 10/31/13

     450,000       $ 71.33   

11/01/13 to 11/30/13

     100,000       $ 78.46   

12/01/13 to 12/31/13

     100,000       $ 85.78   

ProShares Short Euro

     

10/01/13 to 10/31/13

     —           —     

11/01/13 to 11/30/13

     —           —     

12/01/13 to 12/31/13

     —           —     

ProShares UltraShort Australian Dollar

     

10/01/13 to 10/31/13

     —           —     

11/01/13 to 11/30/13

     —           —     

12/01/13 to 12/31/13

     —           —     

ProShares UltraShort Euro

     

10/01/13 to 10/31/13

     900,000       $ 17.39   

11/01/13 to 11/30/13

     —           —     

12/01/13 to 12/31/13

     350,000       $ 17.06   

ProShares UltraShort Yen

     

10/01/13 to 10/31/13

     500,000       $ 61.50   

11/01/13 to 11/30/13

     —           —     

12/01/13 to 12/31/13

     —           —     

ProShares Ultra DJ-UBS Commodity

     

10/01/13 to 10/31/13

     —           —     

11/01/13 to 11/30/13

     50,000       $ 18.70   

12/01/13 to 12/31/13

     —           —     

ProShares Ultra DJ-UBS Crude Oil

     

10/01/13 to 10/31/13

     800,000       $ 34.84   

 

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11/01/13 to 11/30/13

     300,000       $ 29.47   

12/01/13 to 12/31/13

     2,150,000       $ 31.79   

ProShares Ultra DJ-UBS Natural Gas

     

10/01/13 to 10/31/13

     500,000       $ 35.13   

11/01/13 to 11/30/13

     350,000       $ 33.00   

12/01/13 to 12/31/13

     2,100,000       $ 40.25   

ProShares Ultra Gold

     

10/01/13 to 10/31/13

     150,000       $ 47.49   

11/01/13 to 11/30/13

     —           —     

12/01/13 to 12/31/13

     50,000       $ 41.94   

ProShares Ultra Silver*

     

10/01/13 to 10/31/13

     275,000       $ 82.42   

11/01/13 to 11/30/13

     —           —     

12/01/13 to 12/31/13

     —           —     

ProShares Ultra Australian Dollar

     

10/01/13 to 10/31/13

     —           —     

11/01/13 to 11/30/13

     —           —     

12/01/13 to 12/31/13

     —           —     

ProShares Ultra Euro

     

10/01/13 to 10/31/13

     —           —     

11/01/13 to 11/30/13

     —           —     

12/01/13 to 12/31/13

     50,000       $ 25.66   

ProShares Ultra Yen

     

10/01/13 to 10/31/13

     —           —     

11/01/13 to 11/30/13

     —           —     

12/01/13 to 12/31/13

     —           —     

ProShares VIX Short-Term Futures ETF

     

10/01/13 to 10/31/13

     1,250,000       $ 40.36   

11/01/13 to 11/30/13

     325,000       $ 32.03   

12/01/13 to 12/31/13

     1,100,000       $ 30.59   

ProShares VIX Mid-Term Futures ETF

     

10/01/13 to 10/31/13

     1,050,000       $ 22.44   

11/01/13 to 11/30/13

     425,000       $ 22.09   

12/01/13 to 12/31/13

     900,000       $ 20.33   

ProShares Ultra VIX Short-Term Futures ETF*

     

10/01/13 to 10/31/13

     925,000       $ 155.09   

11/01/13 to 11/30/13

     162,500       $ 79.23   

12/01/13 to 12/31/13

     1,412,500       $ 81.51   

ProShares Short VIX Short-Term Futures ETF*

     

10/01/13 to 10/31/13

     1,300,000       $ 56.85   

11/01/13 to 11/30/13

     300,000       $ 61.10   

12/01/13 to 12/31/13

     400,000       $ 67.37   

Total:

     27,475,000       $ 45.59   

 

* See Note 9 of the Notes to Financial Statements in Item 15 of Part IV 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, 2013, 2012, 2011, 2010 and 2009 for each Fund, as applicable, 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 ULTRASHORT DJ-UBS COMMODITY

 

     Year ended
December 31,
2013
    Year ended
December 31,
2012
    Year ended
December 31,
2011
    Year ended
December 31,
2010
    Year ended
December 31,
2009
 

Total assets

   $ 3,828,135     $ 3,248,525     $ 9,114,501     $ 1,605,496     $ 3,143,524  

Total shareholders’ equity at end of period

     3,797,427       3,245,965       9,107,146       1,440,073       2,924,426  

Net investment income (loss)

     (32,130 )     (47,749 )     (133,153 )     (24,504 )     (34,690 )

Net realized and unrealized gain (loss)

     583,592       340,212       (2,775,425 )     (638,367 )     (2,269,710 )

Net income (loss)

     551,462       292,463       (2,908,578 )     (662,871 )     (2,304,400 )

Net increase (decrease) in net asset value per share

     9.19       (2.82 )     8.92       (25.11 )     (60.86 )

PROSHARES ULTRASHORT DJ-UBS CRUDE OIL

 

     Year ended
December 31,
2013
    Year ended
December 31,
2012
    Year ended
December 31,
2011
    Year ended
December 31,
2010
    Year ended
December 31,
2009
 

Total assets

   $ 258,594,876     $ 96,137,916     $ 144,499,971     $ 143,897,039     $ 78,978,388  

Total shareholders’ equity at end of period

     256,060,149       89,481,266       144,389,893       132,214,257       76,656,626  

Net investment income (loss)

     (2,544,628 )     (1,078,664 )     (1,211,735 )     (784,150 )     (785,316 )

Net realized and unrealized gain (loss)

     (6,221,827 )     35,047,625       36,113,078       12,590,308       (16,268,045 )

Net income (loss)

     (8,766,455 )     33,968,961       34,901,343       11,806,158       (17,053,361 )

Net increase (decrease) in net asset value per share

     (8.58 )     1.49       (12.03 )     (17.59 )     (76.58 )

PROSHARES ULTRASHORT DJ-UBS NATURAL GAS

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    April 5, 2011 (Inception)
through December 31,
2011
 

Total assets

   $ 22,744,708     $ 12,780,598     $ 7,174,003  

Total shareholders’ equity at end of period

     22,734,767       12,768,340       7,142,310  

Net investment income (loss)

     (209,360 )     (196,407 )     (15,612 )

Net realized and unrealized gain (loss)

     (1,952,152 )     241,864       3,157,122  

Net income (loss)

     (2,161,512 )     45,457       3,141,510  

Net increase (decrease) in net asset value per share

     (32.18 )     6.92       41.89  

 

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Table of Contents

PROSHARES ULTRASHORT GOLD

 

     Year ended
December 31,
2013
    Year ended
December 31,
2012
    Year ended
December 31,
2011
    Year ended
December 31,
2010
    Year ended
December 31,
2009
 

Total assets

   $ 154,835,279     $ 92,495,298     $ 198,423,144     $ 80,883,630     $ 68,671,532  

Total shareholders’ equity at end of period

     139,436,456       92,416,742       198,298,571       77,732,507       67,602,811  

Net investment income (loss)

     (1,175,860 )     (1,106,213 )     (1,043,199 )     (592,970 )     (402,783 )

Net realized and unrealized gain (loss)

     63,024,399       (39,758,386 )     (8,458,117 )     (43,229,362 )     (17,512,830 )

Net income (loss)

     61,848,539       (40,864,599 )     (9,501,316 )     (43,822,332 )     (17,915,613 )

Net increase (decrease) in net asset value per share

     39.65       (18.84 )     (30.77 )     (96.14 )     (177.85 )

PROSHARES ULTRASHORT SILVER

 

     Year ended
December 31,
2013
    Year ended
December 31,
2012
    Year ended
December 31,
2011
    Year ended
December 31,
2010
    Year ended
December 31,
2009
 

Total assets

   $ 115,311,683     $ 105,882,964     $ 267,497,929     $ 109,346,452     $ 68,157,270  

Total shareholders’ equity at end of period

     112,989,686       100,656,703       246,813,921       99,032,781       64,516,145  

Net investment income (loss)

     (973,304 )     (1,403,142 )     (3,388,013 )     (538,873 )     (388,903 )

Net realized and unrealized gain (loss)

     91,898,519       (51,826,102 )     (117,764,498 )     (102,617,003 )     (37,791,186 )

Net income (loss)

     90,925,215       (53,229,244 )     (121,152,511 )     (103,155,876 )     (38,180,089 )

Net increase (decrease) in net asset value per share

     38.39       (25.28 )     (122.78 )     (742.38 )     (2,978.30 )

PROSHARES SHORT EURO

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    December 12, 2011
(Inception) through
December 31, 2011
 

Total assets

   $ 8,903,836     $ 3,804,040     $ 41,200  

Total shareholders’ equity at end of period

     8,896,842       3,763,040       200  

Net investment income (loss)

     (51,170 )     (17,891 )     —    

Net realized and unrealized gain (loss)

     (359,542 )     (219,269 )     —    

Net income (loss)

     (410,712 )     (237,160 )     —    

Net increase (decrease) in net asset value per share

     (2.04 )     (2.37 )     —    

 

-60-


Table of Contents

PROSHARES ULTRASHORT AUSTRALIAN DOLLAR

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    December 12, 2011
(Inception) through
December 31, 2011
 

Total assets

   $ 28,091,462     $ 3,832,949       41,200   

Total shareholders’ equity at end of period

     27,983,279       3,780,999       200   

Net investment income (loss)

     (159,424 )     (16,229 )     —     

Net realized and unrealized gain (loss)

     3,553,299       (202,972 )     —     

Net income (loss)

     3,393,875       (219,201 )     —     

Net increase (decrease) in net asset value per share

     8.83       (2.19 )     —     

PROSHARES ULTRASHORT EURO

 

     Year ended
December 31,
2013
    Year ended
December 31,
2012
    Year ended
December 31,
2011
    Year ended
December 31,
2010
    Year ended
December 31,
2009
 

Total assets

   $ 438,217,450     $ 553,957,981     $ 1,101,007,056     $ 472,081,034     $ 100,901,360  

Total shareholders’ equity at end of period

     418,001,115       526,778,026       1,100,159,546       444,412,995       100,847,786  

Net investment income (loss)

     (4,375,512 )     (7,447,508 )     (5,907,849 )     (2,805,812 )     (349,729 )

Net realized and unrealized gain (loss)

     (48,644,550 )     (33,586,639 )     85,179,270       23,450,767       (8,506,207 )

Net income (loss)

     (53,020,062 )     (41,034,147 )     79,271,421       20,644,955       (8,855,936 )

Net increase (decrease) in net asset value per share

     (1.96 )     (1.32 )     0.05       1.61       (2.27 )

PROSHARES ULTRASHORT YEN

 

     Year ended
December 31,
2013
    Year ended
December 31,
2012
    Year ended
December 31,
2011
    Year ended
December 31,
2010
    Year ended
December 31,
2009
 

Total assets

   $ 590,489,940     $ 409,067,507     $ 225,676,364     $ 223,993,625     $ 67,536,287  

Total shareholders’ equity at end of period

     588,121,516       408,563,630       221,131,994       207,685,813       67,487,917  

Net investment income (loss)

     (4,398,231 )     (2,184,694 )     (2,642,134 )     (1,213,282 )     (348,942 )

Net realized and unrealized gain (loss)

     155,319,469       69,835,696       (38,262,661 )     (43,102,207 )     (1,312,337 )

Net income (loss)

     150,921,238       67,651,002       (40,904,795 )     (44,315,489 )     (1,661,279 )

Net increase (decrease) in net asset value per share

     20.11       9.80       (6.06 )     (17.25 )     (0.72 )

 

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Table of Contents

PROSHARES ULTRA DJ-UBS COMMODITY

 

     Year ended
December 31,
2013
    Year ended
December 31,
2012
    Year ended
December 31,
2011
    Year ended
December 31,
2010
    Year ended
December 31,
2009
 

Total assets

   $ 2,917,408     $ 6,408,497     $ 9,773,138     $ 18,200,144     $ 19,759,132  

Total shareholders’ equity at end of period

     2,915,034       6,097,211       9,058,529       18,186,658       19,743,932  

Net investment income (loss)

     (38,477 )     (73,484 )     (145,601 )     (101,507 )     (159,995 )

Net realized and unrealized gain (loss)

     (933,021 )     (134,794 )     (4,514,955 )     2,964,022       5,272,629  

Net income (loss)

     (971,498 )     (208,278 )     (4,660,556 )     2,862,515       5,112,634  

Net increase (decrease) in net asset value per share

     (4.96 )     (1.49 )     (10.49 )     8.16       6.05  

PROSHARES ULTRA DJ-UBS CRUDE OIL

 

     Year ended
December 31,
2013
    Year ended
December 31,
2012
    Year ended
December 31,
2011
    Year ended
December 31,
2010
    Year ended
December 31,
2009
 

Total assets

   $ 143,904,994     $ 499,982,244     $ 261,618,033     $ 264,616,122     $ 359,277,448  

Total shareholders’ equity at end of period

     142,773,429       483,508,964       251,395,322       228,133,077       323,819,670  

Net investment income (loss)

     (2,196,281 )     (3,248,430 )     (3,186,369 )     (2,867,437 )     (2,745,473 )

Net realized and unrealized gain (loss)

     68,042,170       (17,357,813 )     87,943,855       124,409,546       126,094,280  

Net income (loss)

     65,845,889       (20,606,243 )     84,757,486       121,542,109       123,348,807  

Net increase (decrease) in net asset value per share

     2.70       (11.49 )     (9.12 )     (0.50 )     (8.62 )

PROSHARES ULTRA DJ-UBS NATURAL GAS

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    April 5, 2011 (Inception)
through December 31,
2011
 

Total assets

   $ 68,626,038     $ 77,963,078     $ 4,107,427  

Total shareholders’ equity at end of period

     62,915,779       73,019,370       4,079,349  

Net investment income (loss)

     (821,690 )     (566,310 )     (10,459 )

Net realized and unrealized gain (loss)

     41,585,400       (5,825,840 )     (2,307,329 )

Net income (loss)

     40,763,710       (6,392,150 )     (2,317,788 )

Net increase (decrease) in net asset value per share

     (0.21 )     (62.93 )     (98.02 )

 

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Table of Contents

PROSHARES ULTRA GOLD

 

     Year ended
December 31,
2013
    Year ended
December 31,
2012
    Year ended
December 31,
2011
    Year ended
December 31,
2010
    Year ended
December 31,
2009
 

Total assets

   $ 141,039,466     $ 350,986,079     $ 407,538,760     $ 259,766,273     $ 168,695,905  

Total shareholders’ equity at end of period

     132,017,405       335,054,752       326,399,360       259,562,075       156,476,709  

Net investment income (loss)

     (1,925,215 )     (3,169,265 )     (2,975,486 )     (1,595,925 )     (1,247,200 )

Net realized and unrealized gain (loss)

     (156,804,545 )     31,641,746       10,169,127       90,914,726       35,041,207  

Net income (loss)

     (158,729,760 )     28,472,481       7,193,641       89,318,801       33,794,007  

Net increase (decrease) in net asset value per share

     (42.51 )     7.85       6.69       25.14       13.26  

PROSHARES ULTRA SILVER

 

     Year ended
December 31,
2013
    Year ended
December 31,
2012
    Year ended
December 31,
2011
    Year ended
December 31,
2010
    Year ended
December 31,
2009
 

Total assets

   $ 468,353,977     $ 894,123,114     $ 786,720,628     $ 547,399,463     $ 158,775,881  

Total shareholders’ equity at end of period

     465,479,519       747,725,400       606,824,420       547,003,919       145,416,382  

Net investment income (loss)

     (5,280,707 )     (6,918,157 )     (7,956,212 )     (1,723,966 )     (758,694 )

Net realized and unrealized gain (loss)

     (558,275,777 )     (32,752,438 )     (438,094,409 )     273,334,878       36,175,592  

Net income (loss)

     (563,556,484 )     (39,670,595 )     (446,050,621 )     271,610,912       35,416,898  

Net increase (decrease) in net asset value per share

     (108.56 )     (0.87 )     (139.81 )     198.52       56.84  

PROSHARES ULTRA AUSTRALIAN DOLLAR

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    December 12, 2011
(Inception) through
December 31, 2011
 

Total assets

   $ 3,170,750     $ 4,191,068     $ 41,200  

Total shareholders’ equity at end of period

     3,168,165       4,150,068       200  

Net investment income (loss)

     (34,905 )     (17,298 )     —    

Net realized and unrealized gain (loss)

     (946,998 )     167,166       —    

Net income (loss)

     (981,903 )     149,868       —    

Net increase (decrease) in net asset value per share

     (9.82 )     1.50       —    

 

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Table of Contents

PROSHARES ULTRA EURO

 

     Year ended
December 31,
2013
    Year ended
December 31,
2012
    Year ended
December 31,
2011
    Year ended
December 31,
2010
    Year ended
December 31,
2009
 

Total assets

   $ 2,626,494     $ 4,876,503     $ 10,079,176     $ 7,735,783     $ 7,815,430  

Total shareholders’ equity at end of period

     2,603,827       4,870,316       9,554,748       7,729,684       7,531,857  

Net investment income (loss)

     (35,024 )     (60,126 )     (75,102 )     (92,663 )     (60,716 )

Net realized and unrealized gain (loss)

     224,084       207,279       (512,495 )     24,901       562,024  

Net income (loss)

     189,060       147,153       (587,597 )     (67,762 )     501,308  

Net increase (decrease) in net asset value per share

     1.68       0.46       (1.87 )     (4.37 )     0.89  

PROSHARES ULTRA YEN

 

     Year ended
December 31,
2013
    Year ended
December 31,
2012
    Year ended
December 31,
2011
    Year ended
December 31,
2010
    Year ended
December 31,
2009
 

Total assets

   $ 2,960,724     $ 4,739,474     $ 5,475,400     $ 5,027,843     $ 4,240,477  

Total shareholders’ equity at end of period

     2,795,026       4,227,995       5,471,075       5,024,240       3,921,267  

Net investment income (loss)

     (31,774 )     (44,440 )     (39,572 )     (38,091 )     (36,723 )

Net realized and unrealized gain (loss)

     (1,544,017 )     (1,198,640 )     383,849       1,426,351       (356,330 )

Net income (loss)

     (1,575,791 )     (1,243,080 )     344,277       1,388,260       (393,053 )

Net increase (decrease) in net asset value per share

     (9.55 )     (8.29 )     2.98       7.35       (2.31 )

PROSHARES VIX SHORT-TERM FUTURES ETF

 

     Year ended
December 31,

2013
    Year ended
December 31,

2012
    Year ended
December 31,

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

Total assets

   $ 279,169,502     $ 183,678,945     $ 30,574,178     $ 199,398  

Total shareholders’ equity at end of period

     270,398,554       137,657,464       30,549,903       400  

Net investment income (loss)

     (1,584,119 )     (1,053,112 )     (282,569 )     —    

Net realized and unrealized gain (loss)

     (161,051,480 )     (159,588,720 )     2,157,514       —    

Net income (loss)

     (162,635,599 )     (160,641,832 )     1,874,945       —    

Net increase (decrease) in net asset value per share

     (55.40 )     (297.93 )     (18.13 )     —    

 

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Table of Contents

PROSHARES VIX MID-TERM FUTURES ETF

 

     Year ended
December 31,

2013
    Year ended
December 31,

2012
    Year ended
December 31,

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

Total assets

   $ 56,501,754     $ 89,824,581     $ 90,821,428     $ 124,774  

Total shareholders’ equity at end of period

     51,134,323       37,302,992       90,821,428       400  

Net investment income (loss)

     (546,566 )     (786,167 )     (117,121 )     —    

Net realized and unrealized gain (loss)

     (31,648,251 )     (70,590,582 )     (6,632,431 )     —    

Net income (loss)

     (32,194,817 )     (71,376,749 )     (6,749,552 )     —    

Net increase (decrease) in net asset value per share

     (15.40 )     (39.44 )     (5.86 )     —    

PROSHARES ULTRA VIX SHORT-TERM FUTURES ETF

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    April 5, 2011 (Inception)
through

December 31, 2011
 

Total assets

   $ 229,779,878     $ 156,387,315     $ 11,767,107  

Total shareholders’ equity at end of period

     226,233,584       84,716,132       9,881,113  

Net investment income (loss)

     (4,828,761 )     (3,001,646 )     (16,778 )

Net realized and unrealized gain (loss)

     (432,159,208 )     (506,284,763 )     (4,287,543 )

Net income (loss)

     (436,987,969 )     (509,286,409 )     (4,304,321 )

Net increase (decrease) in net asset value per share

     (738.19 )     (28,867.74 )     (66,326.99 )

PROSHARES SHORT VIX SHORT-TERM FUTURES ETF

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    April 5, 2011 (Inception)
through

December 31, 2011
 

Total assets

   $ 141,868,875     $ 95,411,974     $ 7,795,104  

Total shareholders’ equity at end of period

     141,751,202       82,663,633       7,760,424  

Net investment income (loss)

     (1,328,369 )     (437,699 )     (16,333 )

Net realized and unrealized gain (loss)

     96,687,035       11,731,268       1,446,017  

Net income (loss)

     95,358,666       11,293,569       1,429,684  

Net increase (decrease) in net asset value per share

     34.43       20.13       2.93  

 

-65-


Table of Contents
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 “Short” Fund seeks 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 daily investment results (before fees and expenses) that correspond to two times the inverse (-2x) of the daily performance of its corresponding benchmark. Each “Ultra” Fund seeks daily investment results (before fees and expenses) that correspond to two times (2x) the daily performance of its corresponding benchmark. Daily performance is measured from the calculation of one NAV to the next. Each of the Funds generally invests in Financial Instruments (i.e., instruments whose value is derived from the value of an underlying asset, rate or index, including futures contracts, swap agreements, forward contracts and other instruments) as a substitute for investing directly in commodities, currencies, or spot volatility products in order to gain exposure to the commodity futures index, commodity, currency or exchange rate equity volatility index or applicable commodity or financial futures contracts. Financial Instruments also are used to produce economically “inverse,” “inverse leveraged” or “leveraged” investment results for the Geared 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, and usually will differ from -1x, -2x or 2x, of the return of the Geared Fund’s benchmark for that period. Longer holding periods, higher benchmark volatility, inverse exposure and greater leverage each affect the impact of compounding on a Geared Fund’s returns. Daily compounding of a Geared Fund’s investment returns can dramatically and adversely affect its longer-term performance during periods of high volatility. 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, leveraged, inverse or inverse leveraged investment results. Shareholders who invest in the Geared Funds should actively manage and monitor their investments, as frequently as daily.

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

 

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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, 2013, 2012 and 2011, each of the Funds earned interest income as follows:

 

Fund

   Interest Income Year
Ended
December 31, 2013
     Interest Income
Year Ended
December 31, 2012
     Interest Income
Year Ended
December 31, 2011
 

ProShares UltraShort DJ-UBS Commodity

   $ 1,899       $ 3,017      $ 3,661  

ProShares UltraShort DJ-UBS Crude Oil

     113,487         75,194        70,449  

ProShares UltraShort DJ-UBS Natural Gas

     8,620         7,994        13  

ProShares UltraShort Gold

     61,891         76,519        51,785  

ProShares UltraShort Silver

     60,178         100,092        146,064  

ProShares Short Euro*

     1,996         1,508        —    

ProShares UltraShort Australian Dollar**

     5,653         1,432        —    

ProShares UltraShort Euro

     224,967         525,386        271,533  

ProShares UltraShort Yen

     209,601         170,226        182,452  

ProShares Ultra DJ-UBS Commodity

     2,066         4,965        10,504  

ProShares Ultra DJ-UBS Crude Oil

     135,291         240,162        159,287  

ProShares Ultra DJ-UBS Natural Gas

     33,341         30,397        —     

ProShares Ultra Gold

     130,437         242,432        146,143  

ProShares Ultra Silver

     348,317         520,233        423,786  

ProShares Ultra Australian Dollar**

     1,570         1,493        —    

ProShares Ultra Euro

     1,901         3,690        4,536  

ProShares Ultra Yen

     1,795         3,524        1,871  

ProShares VIX Short-Term Futures ETF

     77,010         77,462        12,243  

ProShares VIX Mid-Term Futures ETF

     25,811         49,908        4,090  

ProShares Ultra VIX Short-Term Futures ETF

     70,016         61,217        —     

ProShares Short VIX Short-Term Futures ETF

     36,503         18,261        1  

 

* Fund commenced investment operations on June 26, 2012.
** Fund commenced investment operations on July 17, 2012.

Each Fund’s underlying swaps, futures and forward contracts, as applicable, may be 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 to 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 large size of the positions in which a Fund 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 Investments related to one benchmark, which in many cases is highly concentrated.

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).

Market Risk

Trading in futures contracts involves each Fund entering into contractual commitments to purchase or sell a commodity, currency or spot volatility product 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, currency or spot volatility product, it would be required to make delivery of that commodity, currency or spot volatility product 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, currency or spot volatility product can rise is unlimited, entering into commitments to sell commodities, currencies or spot volatility products would expose a Fund to theoretically unlimited risk.

 

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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 as well as certain swaps 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.

Certain 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 an uncleared swap agreement defaults, the Fund’s risk of loss typically 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 will generally consist 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;

 

    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.

Off-Balance Sheet Arrangements and Contractual Obligations

As of February 26, 2014, 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.

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, the Short Euro Fund and the VIX Funds value transactions based upon the final closing price in their primary markets. Accordingly, the investment valuations in these financial statements may differ from those used in the calculation of certain Leveraged Funds’, the Short Euro Fund’s and VIX Funds’ final creation/redemption NAV for the year ended December 31, 2013.

Short-term investments are valued at amortized cost which approximates fair value for daily NAV purposes. For financial reporting purposes, short-term investments are valued at their market price using information provided by a third-party pricing service or market quotations.

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, Silver, Australian Dollar and Short Euro 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, Silver, Australian Dollar and Short Euro Funds are valued at the last sales price prior to the time at which the NAV per Share of a Fund is determined. For financial reporting purposes, all futures contracts are valued at last settled price. 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.

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.

 

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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 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. The Sponsor is currently paying the brokerage commissions on the VIX futures contracts for the Matching VIX Funds.

Results of Operations for the Year Ended December 31, 2013 Compared to the Years Ended December 31, 2012 and 2011

ProShares UltraShort DJ-UBS Commodity*

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2013, 2012 and 2011:

 

     Year Ended
December 31,
2013
    Year Ended
December 31,
2012
    Year Ended
December 31,
2011
 

NAV beginning of period

   $ 3,245,965     $ 9,107,146     $ 1,440,073  

NAV end of period

   $ 3,797,427     $ 3,245,965     $ 9,107,146  

Percentage change in NAV

     17.0     (64.4 )%      532.4

Shares outstanding beginning of period

     59,997       159,997       30,003  

Shares outstanding end of period

     59,997       59,997       159,997  

Percentage change in shares outstanding

     0.0     (62.5 )%      433.3

Shares created

     —          —          1,780,000  

Shares redeemed

     —          100,000       1,650,006  

Per share NAV beginning of period

   $ 54.10     $ 56.92     $ 48.00  

Per share NAV end of period

   $ 63.29     $ 54.10     $ 56.92  

Percentage change in per share NAV

     17.0     (5.0 )%      18.6

Percentage change in benchmark

     (9.6 )%      (1.1 )%      (13.3 )% 

Benchmark annualized volatility

     10.0     13.9     18.3

During the year ended December 31, 2013, 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 inverse of the daily performance of the Dow Jones-UBS Commodity Index. There was no net change in the Fund’s outstanding Shares from December 31, 2012 to December 31, 2013. By comparison, during the year ended December 31, 2012, the decrease in the Fund’s NAV resulted primarily from a decrease from 159,997 outstanding shares at December 31, 2011 to 59,997 outstanding Shares at December 31, 2012. 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 inverse of the daily performance of the Dow Jones-UBS Commodity Index. By comparison, 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.

 

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For the years ended December 31, 2013, 2012 and 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. The Fund’s per Share NAV increase of 17.0% for the year ended December 31, 2013, as compared to the Fund’s per Share NAV decrease of 5.0% for the year ended December 31, 2012, was primarily due to appreciation in the value of the assets of the Fund during the year ended December 31, 2013. The Fund’s per Share NAV decrease of 5.0% for the year ended December 31, 2012, as compared to the Fund’s per Share NAV increase of 18.6% for the year ended December 31, 2011, was primarily due to depreciation in the value of the assets of the Fund in conjunction with significant decrease in outstanding shares during the year ended December 31, 2012.

During the year ended December 31, 2013, the Fund’s per Share NAV reached its high for the year on November 19, 2013 at $67.46 per Share and reached its low for the year on January 30, 2013 at $51.04 per Share. By comparison, during the year ended December 31, 2012, the Fund’s per Share NAV reached its high for the year on June 1, 2012 at $68.06 per Share and reached its low for the year on September 14, 2012 at $46.01 per Share. By comparison, 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.

The benchmark’s decline of 9.6% for the year ended December 31, 2013, as compared to the benchmark’s decline of 1.1% for the year ended December 31, 2012, can be attributed to a greater depreciation of the underlying components of the index during the year ended December 31, 2013. The benchmark’s decline of 1.1% for the year ended December 31, 2012, as compared to the benchmark’s decline of 13.3% for the year ended December 31, 2011, can be attributed to a lesser depreciation of the underlying components of the index during the year ended December 31, 2012.

Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2013, 2012 and 2011:

 

     Year Ended
December 31, 2013
    Year Ended
December 31, 2012
    Year Ended
December 31, 2011
 

Net investment income (loss)

   $ (32,130 )   $ (47,749 )   $ (133,153 )

Management fee

     34,029       50,766       136,814  

Net realized gain (loss)

     760,026       761,941       (3,510,053 )

Change in net unrealized appreciation/depreciation

     (176,434 )     (421,729 )     734,628  

Net income (loss)

   $ 551,462     $ 292,463     $ (2,908,578 )

The Fund’s net income increased for the year ended December 31, 2013, as compared to the year ended December 31, 2012, primarily due to a greater depreciation of the underlying components of the index, notably Gold and Silver, during the year ended December 31, 2013. By comparison, the Fund’s net income increased for the year ended December 31, 2012, as compared to the year ended December 31, 2011, primarily due to a lesser depreciation of the underlying components of the index, notably Crude Oil, in conjunction with a significant decrease in outstanding shares, during the year ended December 31, 2012.

 

* See Note 1 of the Notes to Financial Statements in Item 15 of Part IV 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 UltraShort DJ-UBS Crude Oil*

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2013, 2012 and 2011:

 

     Year Ended
December 31,
2013
    Year Ended
December 31,
2012
    Year Ended
December 31,
2011
 

NAV beginning of period

   $ 89,481,266     $ 144,389,893     $ 132,214,257  

NAV end of period

   $ 256,060,149     $ 89,481,266     $ 144,389,893  

Percentage change in NAV

     186.2     (38.0 )%      9.2

Shares outstanding beginning of period

     2,219,944       3,719,944       2,600,003  

Shares outstanding end of period

     8,069,944       2,219,944       3,719,944  

Percentage change in shares outstanding

     263.5     (40.3 )%      43.1

Shares created

     23,300,000       5,900,000       12,530,000  

Shares redeemed

     17,450,000       7,400,000       11,410,059  

Per share NAV beginning of period

   $ 40.31     $ 38.82     $ 50.85  

Per share NAV end of period

   $ 31.73     $ 40.31     $ 38.82  

Percentage change in per share NAV

     (21.3 )%      3.8     (23.7 )% 

Percentage change in benchmark

     6.8     (11.8 )%      (3.7 )% 

Benchmark annualized volatility

     18.0     26.0     33.7

During the year ended December 31, 2013, the increase in the Fund’s NAV resulted from an increase from 2,219,944 outstanding Shares at December 31, 2012 to 8,069,944 outstanding Shares at December 31, 2013. 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 WTI Crude Oil SubindexSM. By comparison, during the year ended December 31, 2012, the decrease in the Fund’s NAV resulted primarily from a decrease from 3,719,944 outstanding Shares at December 31, 2011 to 2,219,944 outstanding Shares at December 31, 2012. 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 inverse of the daily performance of the Dow Jones-UBS WTI Crude Oil SubindexSM. By comparison, 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 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 WTI Crude Oil SubindexSM.

For the years ended December 31, 2013, 2012 and 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. The Fund’s per Share NAV decrease of 21.3% for the year ended December 31, 2013, as compared to the Fund’s per Share NAV increase of 3.8% for the year ended December 31, 2012, was primarily due to a depreciation in the value of the assets of the Fund during the year ended December 31, 2013. The Fund’s per Share NAV increase of 3.8% for the year ended December 31, 2012, as compared to the Fund’s per Share NAV decrease of 23.7% for the year ended December 31, 2011, was primarily due to appreciation in the value of the assets of the Fund during the year ended December 31, 2012.

During the year ended December 31, 2013, the Fund’s per Share NAV reached its high for the year on April 17, 2013 at $45.45 per Share and reached its low for the year on September 9, 2013 at $26.59 per Share. By comparison, during the year ended December 31, 2012, the Fund’s per Share NAV reached its high for the year on June 28, 2012 at $60.49 per Share and reached its low for the year on October 9, 2012 at $31.27 per Share. By comparison, 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.

The benchmark’s rise of 6.8% for the year ended December 31, 2013, as compared to the benchmark’s decline of 11.8% for the year ended December 31, 2012, can be attributed to an increase in the price of WTI Crude Oil during the year ended December 31, 2013. By comparison, the benchmark’s decline of 11.8% for the year ended December 31, 2012, as compared to the benchmark’s decline of 3.7% for the year ended December 31, 2011, can be attributed to a greater decrease in the price of WTI Crude Oil during the year ended December 31, 2012.

 

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Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2013, 2012 and 2011:

 

     Year Ended
December 31, 2013
    Year Ended
December 31, 2012
    Year Ended
December 31, 2011
 

Net investment income (loss)

   $ (2,544,628 )   $ (1,078,664 )   $ (1,211,735 )

Management fee

     2,581,084       1,121,597       1,228,633  

Brokerage commission

     77,031       32,261       53,551  

Net realized gain (loss)

     (12,299,811 )     47,569,966       26,732,698  

Change in net unrealized appreciation/depreciation

     6,077,984       (12,522,341 )     9,380,380  

Net income (loss)

   $ (8,766,455 )   $ 33,968,961     $ 34,901,343  

The Fund’s net income decreased for the year ended December 31, 2013, as compared to the year ended December 31, 2012, primarily due to an increase in the price of WTI Crude Oil during the year ended December 31, 2013. By comparison, the Fund’s net income decreased for the year ended December 31, 2012, as compared to the year ended December 31, 2011, primarily due to a decrease in the price of WTI Crude Oil, in conjunction with a significant decrease in outstanding shares, during the year ended December 31, 2012.

 

* See Note 1 of the Notes to Financial Statements in Item 15 of Part IV in this Annual Report on Form 10-K regarding the reverse Share split for the ProShares UltraShort DJ-UBS Crude Oil Fund.

ProShares UltraShort DJ-UBS Natural Gas*

Since the Fund commenced investment operations on October 4, 2011, the Fund’s results of operations for the period ended December 31, 2011 may not be meaningful.

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2013 and 2012 and the period from commencement of operations to December 31, 2011:

 

     Year Ended
December 31,
2013
    Year Ended
December 31,
2012
    October 4, 2011
(Commencement of
Operations) through
December 31, 2011
 

NAV beginning of period

   $ 12,768,340     $ 7,142,310     $ 400  

NAV end of period

   $ 22,734,767     $ 12,768,340     $ 7,142,310  

Percentage change in NAV

     78.1     78.8     1,785,477.5

Shares outstanding beginning of period

     125,008       75,008       8   

Shares outstanding end of period

     324,952       125,008       75,008  

Percentage change in shares outstanding

     159.9     66.7     937,500.0

Shares created

     587,500       262,500       75,000  

Shares redeemed

     387,556       212,500        —     

Per share NAV beginning of period

   $ 102.14     $ 95.22     $ 53.33   

Per share NAV end of period

   $ 69.96     $ 102.14     $ 95.22  

Percentage change in per share NAV

     (31.5 )%      7.3     78.5

Percentage change in benchmark

     4.9     (30.6 )%      (27.7 )% 

Benchmark annualized volatility

     29.9     46.3     29.5

During the period ended December 31, 2013, the increase in the Fund’s NAV resulted from an increase from 125,008 outstanding Shares at December 31, 2012 to 324,952 outstanding Shares at December 31, 2013. 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 SubindexSM. By comparison, during the year ended December 31, 2012, the increase in the Fund’s NAV resulted primarily from an increase from 75,008 outstanding Shares at December 31, 2011 to 125,008 outstanding Shares at December 31, 2012. 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 Natural Gas SubindexSM. By comparison, during the period ended December 31, 2011, the increase in the Fund’s

 

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NAV resulted primarily from an increase from 8 outstanding Shares at October 4, 2011 to 75,008 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 Natural Gas SubindexSM.

For the years ended December 31, 2013 and 2012 and 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. The Fund’s per Share NAV decrease of 31.5% for the year ended December 31, 2013, as compared to the Fund’s per Share NAV increase of 7.3% for the year ended December 31, 2012, was primarily due to a depreciation in the value of the assets of the Fund during the year ended December 31, 2013. The Fund’s per Share NAV increase of 7.3% for the year ended December 31, 2012, as compared to the Fund’s per Share NAV increase of 78.5% for the period ended December 31, 2011, was primarily due to a lesser appreciation in the value of the assets of the Fund during the year ended December 31, 2012.

During the year ended December 31, 2013, the Fund’s per Share NAV reached its high for the period on April 19, 2013 at $116.81 per Share and reached its low for the period on January 9, 2013 at $59.27 per Share. By comparison, during the year ended December 31, 2012, the Fund’s per Share NAV reached its high for the year on April 19, 2012 at $245.67 per Share and reached its low for the year on November 23, 2012 at $72.38 per Share. By comparison, during the period ended December 31, 2011, the Fund’s per Share NAV reached its high for the period on December 30, 2011 at $95.24 per Share and reached its low for the period on October 14, 2011 at $53.00 per Share.

The benchmark’s rise of 4.9% for the year ended December 31, 2013, as compared to the benchmark’s decline of 30.6% for the year ended December 31, 2012, can be attributed to an increase in the price of Henry Hub Natural Gas during the year ended December 31, 2013. The benchmark’s decline of 30.6% for the year ended December 31, 2012, as compared to the benchmark’s decline of 27.7% for the period ended December 31, 2011 can be attributed to a greater decrease in the price of Henry Hub Natural Gas during the year ended December 31, 2012.

Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2013 and 2012 and the period from commencement of operations to December 31, 2011:

 

     Year Ended
December 31, 2013
    Year Ended
December 31, 2012
    October 4, 2011
(Commencement of
Operations) through
December 31, 2011
 

Net investment income (loss)

   $ (209,360 )   $ (196,407 )   $ (15,612 )

Management fee

     172,542       76,306       5,069  

Brokerage commission

     45,438       64,176       4,082  

Offering costs

     —          63,919       6,474  

Net realized gain (loss)

     (2,584,895 )     1,212,995       1,776,323  

Change in net unrealized appreciation/depreciation

     632,743       (971,131 )     1,380,799  

Net income (loss)

   $ (2,161,512 )   $ 45,457     $ 3,141,510  

The Fund’s net income decreased for the year ended December 31, 2013, as compared to the year ended December 31, 2012, primarily due to an increase in the price of Henry Hub Natural Gas, during the year ended December 31, 2013. By comparison, the Fund’s net income decreased for the year ended December 31, 2012, as compared to the period ended December 31, 2011, primarily due to a decrease in the price of Henry Hub Natural Gas in conjunction with a significant increase in outstanding shares, during the year ended December 31, 2012.

 

* See Note 1 of the Notes to Financial Statements in Item 15 of Part IV in this Annual Report on Form 10-K regarding the Share split for the ProShares UltraShort DJ-UBS Natural Gas Fund.

 

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ProShares UltraShort Gold*

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2013, 2012 and 2011:

 

     Year Ended
December 31,
2013
    Year Ended
December 31,
2012
    Year Ended
December 31,
2011
 

NAV beginning of period

   $ 92,416,742     $ 198,298,571     $ 77,732,507  

NAV end of period

   $ 139,436,456     $ 92,416,742     $ 198,298,571  

Percentage change in NAV

     50.9     (53.4 )%      155.1

Shares outstanding beginning of period

     1,446,978       2,397,475       684,975  

Shares outstanding end of period

     1,346,978       1,446,978       2,397,475  

Percentage change in shares outstanding

     (6.9 )%      (39.7 )%      250.0

Shares created

     2,650,000       50,000       2,525,000  

Shares redeemed

     2,750,000       1,000,497       812,500  

Per share NAV beginning of period

   $ 63.87     $ 82.71     $ 113.48  

Per share NAV end of period

   $ 103.52     $ 63.87     $ 82.71  

Percentage change in per share NAV

     62.1     (22.8 )%      (27.1 )% 

Percentage change in benchmark

     (27.3 )%      8.3     8.9

Benchmark annualized volatility

     21.8     17.1     21.2

During the year ended December 31, 2013, 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 inverse 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 was offset by a decrease from 1,446,978 outstanding Shares at December 31, 2012 to 1,346,978 outstanding Shares at December 31, 2013. By comparison, during the year ended December 31, 2012, the decrease in the Fund’s NAV resulted primarily from a decrease from 2,397,475 outstanding Shares at December 31, 2011 to 1,446,978 outstanding Shares at December 31, 2012. 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 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, 2011, the increase in the Fund’s NAV resulted primarily from an increase from 684,975 outstanding Shares at December 31, 2010 to 2,397,475 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 gold bullion as measured by the U.S. dollar p.m. fixing price for delivery in London.

For the years ended December 31, 2013, 2012 and 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. The Fund’s per Share NAV increase of 62.1% for the year ended December 31, 2013, as compared to the Fund’s per Share NAV decrease of 22.8% for the year ended December 31, 2012, was primarily due to an appreciation in the value of the assets of the Fund during the year ended December 31, 2013. The Fund’s per Share NAV decrease of 22.8% for the year ended December 31, 2012, as compared the Fund’s per Share NAV decrease of 27.1% for the year ended December 31, 2011, was primarily due to a relatively lesser depreciation in the value of the assets of the Fund during the year ended December 31, 2012.

During the year ended December 31, 2013, the Fund’s per Share NAV reached its high for the period on June 28, 2013 at $114.11 per Share and reached its low for the period on January 1, 2013 at $61.07 per Share. By comparison, during the year ended December 31, 2012, the Fund’s per Share NAV reached its high for the year on May 30, 2012 at $77.48 per Share and reached its low for the year on October 4, 2012 at $55.30 per Share. By comparison, during the year ended December 31, 2011, the Fund’s per Share NAV reached its high for the year on January 28, 2011 at $128.39 per Share and reached its low for the year on September 6, 2011 at $58.07 per Share.

The benchmark’s decline of 27.3% for the year ended December 31, 2013, as compared to the benchmark’s rise of 8.3% for the year ended December 31, 2012, can be attributed to a decrease in the price of spot gold in U.S. dollar terms during the year ended December 31, 2013. By comparison, the benchmark’s rise of 8.3% for the year ended December 31, 2012, as compared to the benchmark’s rise of 8.9% for the year ended December 31, 2011, can be attributed to a lesser increase in the price of spot gold in U.S. dollar terms during the year ended December 31, 2012.

 

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Net Income /Loss

The following table provides summary income information for the Fund for the years ended December 31, 2013, 2012 and 2011:

 

     Year Ended
December 31, 2013
    Year Ended
December 31, 2012
    Year Ended
December 31, 2011
 

Net investment income (loss)

   $ (1,175,860 )   $ (1,106,213 )   $ (1,043,199 )

Management fee

     1,237,712       1,182,691       1,092,472  

Brokerage commission

     39       41       2,512  

Net realized gain (loss)

     61,123,058       (10,065,649 )     (45,178,304 )

Change in net unrealized appreciation/depreciation

     1,901,341       (29,692,737 )     36,720,187  

Net income (loss)

   $ 61,848,539     $ (40,864,599 )   $ (9,501,316 )

The Fund’s net income increased for the year ended December 31, 2013, as compared to the year ended December 31, 2012, primarily due to a decrease in the price of spot gold in U.S. dollar terms during the year ended December 31, 2013. By comparison, the Fund’s net income decreased for the year ended December 31, 2012, as compared to the year ended December 31, 2011, primarily due to an increase in the price of spot gold in U.S. dollar terms, in conjunction with a significant decrease in outstanding Shares, during the year ended December 31, 2012.

 

* See Note 1 of the Notes to Financial Statements in Item 15 of Part IV in this Annual Report on Form 10-K regarding the reverse Share split for the ProShares UltraShort Gold Fund.

ProShares UltraShort Silver*

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2013, 2012 and 2011:

 

     Year Ended
December 31,
2013
    Year Ended
December 31,
2012
    Year Ended
December 31,
2011
 

NAV beginning of period

   $ 100,656,703     $ 246,813,921     $ 99,032,781  

NAV end of period

   $ 112,989,686     $ 100,656,703     $ 246,813,921  

Percentage change in NAV

     12.3     (59.2 )%      149.2

Shares outstanding beginning of period

     1,958,489       3,218,874       496,496  

Shares outstanding end of period

     1,258,489       1,958,489       3,218,874  

Percentage change in shares outstanding

     (35.7 )%      (39.2 )%      548.3

Shares created

     3,450,000       5,960,000       14,127,500  

Shares redeemed

     4,150,000       7,220,385       11,405,122  

Per share NAV beginning of period

   $ 51.40     $ 76.68     $ 199.46  

Per share NAV end of period

   $ 89.78     $ 51.40     $ 76.68  

Percentage change in per share NAV

     74.7     (33.0 )%      (61.6 )% 

Percentage change in benchmark

     (34.9 )%      6.3     (8.0 )% 

Benchmark annualized volatility

     31.5     29.4     60.9

During the year ended December 31, 2013, 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 inverse 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 was offset by a decrease from 1,958,489 outstanding Shares at December 31, 2012 to 1,258,489 outstanding Shares at December 31, 2013. By comparison, during the year ended December 31, 2012, the decrease in the Fund’s NAV resulted primarily from a decrease from 3,218,874 outstanding Shares at December 31, 2011 to 1,958,489 outstanding Shares at December 31, 2012. 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 silver bullion as measured by the U.S. dollar fixing price for delivery in London. By comparison,

 

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during the year ended December 31, 2011, the increase in the Fund’s NAV resulted from an increase from 496,496 outstanding Shares at December 31, 2010 to 3,218,874 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 silver bullion as measured by the U.S. dollar fixing price for delivery in London.

For the years ended December 31, 2013, 2012 and 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. The Fund’s per Share NAV increase of 74.7% for the year ended December 31, 2013, as compared to the Fund’s per Share NAV decrease of 33.0% for the year ended December 31, 2012, was primarily due to an appreciation in the value of the assets of the Fund during the year ended December 31, 2013. The Fund’s per Share NAV decrease of 33.0% for the year ended December 31, 2012, as compared to the Fund’s per Share NAV decrease of 61.6% for the year ended December 31, 2011, was primarily due to a lesser depreciation in the value of the assets of the Fund during the year ended December 31, 2012.

During the year ended December 31, 2013, the Fund’s per Share NAV reached its high for the period on June 27, 2013 at $113.67 per Share and reached its low for the period on January 23, 2013 at $43.72 per Share. By comparison, during the year ended December 31, 2012, the Fund’s per Share NAV reached its high for the year on January 3, 2012 at $73.38 per Share and reached its low for the year on October 4, 2012 at $39.13 per Share. By comparison, during the year ended December 31, 2011, the Fund’s per Share NAV reached its high for the year on January 25, 2011 at $255.54 per Share and reached its low for the year on August 22, 2011 at $54.63 per Share.

The benchmark’s decline of 34.9% for the year ended December 31, 2013, as compared to the benchmark’s rise of 6.3% for the year ended December 31, 2012, can be attributed to a decrease in the price of spot silver in U.S. dollar terms during the year ended December 31, 2013. The benchmark’s rise of 6.3% for the year ended December 31, 2012, as compared to the benchmark’s decline of 8.0% for the year ended December 31, 2011, can be attributed to an increase in the price of spot silver in U.S. dollar terms during the year ended December 31, 2012.

Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2013, 2012 and 2011:

 

     Year Ended
December 31, 2013
    Year Ended
December 31, 2012
    Year Ended
December 31, 2011
 

Net investment income (loss)

   $ (973,304 )   $ (1,403,142 )   $ (3,388,013 )

Management fee

     1,033,442       1,503,193       3,530,293  

Brokerage commission

     40       41       3,784  

Net realized gain (loss)

     113,463,320       (28,109,405 )     (171,362,095 )

Change in net unrealized appreciation/depreciation

     (21,564,801 )     (23,716,697 )     53,597,597  

Net income (loss)

   $ 90,925,215     $ (53,229,244 )   $ (121,152,511 )

The Fund’s net income increased for the year ended December 31, 2013, as compared to the year ended December 31, 2012, primarily due to a decrease in the price of spot silver in U.S. dollar terms during the year ended December 31, 2013. By comparison, the Fund’s net income increased for the year ended December 31, 2012, as compared to the year ended December 31, 2011, primarily due to an increase in the price of spot silver in U.S. dollar terms, in conjunction with a significant decrease in outstanding shares, during the year ended December 31, 2012.

 

* See Note 1 of the Notes to Financial Statements in Item 15 of Part IV in this Annual Report on Form 10-K regarding the reverse Share splits for the ProShares UltraShort Silver Fund.

ProShares Short Euro

Since the Fund commenced investment operations on June 26, 2012, comparisons of the Fund’s results of operations for the year ended December 31, 2011 have not been provided and the Fund’s results of operations for the period ended December 31, 2012 may not be meaningful.

 

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Fund Performance

The following table provides summary performance information for the Fund for the year ended December 31, 2013 and the period from commencement of operations to December 31, 2012:

 

     Year Ended
December 31, 2013
    June 26, 2012
(Commencement of
Operations) through
December 31, 2012
 

NAV beginning of period

   $ 3,763,040     $ 200  

NAV end of period

   $ 8,896,842     $ 3,763,040  

Percentage change in NAV

     136.4     1,881,420.0

Shares outstanding beginning of period

     100,005       5  

Shares outstanding end of period

     250,005       100,005  

Percentage change in shares outstanding

     150.0     2,000,000.0

Shares created

     150,000       100,000  

Shares redeemed

     —          —     

Per share NAV beginning of period

   $ 37.63     $ 40.00  

Per share NAV end of period

   $ 35.59     $ 37.63  

Percentage change in per share NAV

     (5.4 )%      (5.9 )% 

Percentage change in benchmark

     4.3     5.6

Benchmark annualized volatility

     7.5     8.0

During the year ended December 31, 2013, the increase in the Fund’s NAV resulted from an increase from 100,005 outstanding Shares at December 31, 2012 to 250,005 outstanding Shares at December 31, 2013. 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 inverse of the daily performance of the spot price of the euro versus the U.S. dollar. By comparison, during the period ended December 31, 2012, the increase in the Fund’s NAV resulted from an increase from 5 outstanding Shares at June 26, 2012 to 100,005 outstanding Shares at December 31, 2012. 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 inverse of the daily performance of the spot price of the euro versus the U.S. dollar.

For the year ended December 31, 2013 and the period ended December 31, 2012, the Fund’s daily performance had a statistical correlation over 0.99 of the inverse of the daily performance of its benchmark. The Fund’s per Share NAV decrease of 5.4% for the year ended December 31, 2013, as compared to the Fund’s per Share NAV decrease of 5.9% for the period ended December 31, 2012, was primarily due to a lesser depreciation in the value of the assets held by the Fund during the year ended December 31, 2013.

During the year ended December 31, 2013, the Fund’s per Share NAV reached its high for the period on March 27, 2013 at $38.76 per Share and reached its low for the period on December 30, 2013 at $35.56 per Share. By comparison, during the period ended December 31, 2012, the Fund’s per Share NAV reached its high for the period on July 24, 2012 at $41.33 per Share and reached its low for the period on December 20, 2012 at $37.50 per Share.

The benchmark’s rise of 4.3% for the year ended December 31, 2013, as compared to the benchmark’s rise of 5.6% for the period ended December 31, 2012, can be attributed to a lesser increase in the value of the euro versus the U.S. dollar during the period ended December 31, 2013. By comparison, the benchmark’s rise of 5.6% for the period ended December 31, 2012, can be attributed to an increase in the value of the euro versus the U.S. dollar during the period ended December 31, 2012.

 

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Net Income/Loss

The following table provides summary income information for the Fund for the year ended December 31, 2013 and the period from commencement of operations to December 31, 2012:

 

     Year Ended
December 31, 2013
    June 26, 2012
(Commencement of
Operations) through
December 31, 2012
 

Net investment income (loss)

   $ (51,170 )   $ (17,891 )

Management fee

     35,075       —     

Brokerage commission

     812       313  

Offering costs

     45,511       21,231  

Limitation by Sponsor

     (28,232 )     (2,145 )

Net realized gain (loss)

     (381,830 )     (164,401 )

Change in net unrealized appreciation/depreciation

     22,288       (54,868 )

Net income (loss)

   $ (410,712 )   $ (237,160 )

The Fund’s net income decreased for the year ended December 31, 2013, as compared to the period ended December 31, 2012, primarily due to an increase in the value of the euro versus the U.S. dollar and a higher asset base during the year ended December 31, 2013.

ProShares UltraShort Australian Dollar

Since the Fund commenced investment operations on July 17, 2012, comparisons of the Fund’s results of operations for the year ended December 31, 2011 have not been provided and the Fund’s results of operations for the period ended December 31, 2012 may not be meaningful.

Fund Performance

The following table provides summary performance information for the Fund for the year ended December 31, 2013 and the period from commencement of operations to December 31, 2012:

 

     Year Ended
December 31, 2013
    July 17, 2012
(Commencement of
Operations) through
December 31, 2012
 

NAV beginning of period

   $ 3,780,999     $ 200  

NAV end of period

   $ 27,983,279     $ 3,780,999  

Percentage change in NAV

     640.1     1,890,399.5

Shares outstanding beginning of period

     100,005       5  

Shares outstanding end of period

     600,005       100,005  

Percentage change in shares outstanding

     500.0     2,000,000.0

Shares created

     500,000       100,000  

Shares redeemed

     —          —     

Per share NAV beginning of period

   $ 37.81     $ 40.00  

Per share NAV end of period

   $ 46.64     $ 37.81  

Percentage change in per share NAV

     23.4     (5.5 )% 

Percentage change in benchmark

     (14.1 )%      0.8

Benchmark annualized volatility

     10.1     7.5

During the year ended December 31, 2013, the increase in the Fund’s NAV resulted primarily from an increase from 100,005 outstanding Shares at December 31, 2012 to 600,005 outstanding Shares at December 31, 2013. 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 Australian dollar versus the U.S. dollar. By comparison, during the period ended December 31, 2012, the increase in the Fund’s NAV resulted from an increase from 5 outstanding Shares at July 17, 2012 to 100,005 outstanding Shares at December 31, 2012. 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 Australian dollar versus the U.S. dollar.

 

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For the year ended December 31, 2013 and the period ended December 31, 2012, 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 23.4% for the year ended December 31, 2013, as compared to the Fund’s per Share NAV decrease of 5.5% for the period ended December 31, 2012, was primarily due to an appreciation in the value of the assets held by the Fund during the year ended December 31, 2013.

During the year ended December 31, 2013, the Fund’s per Share NAV reached its high for the period on August 2, 2013 at $48.58 per Share and reached its low for the period on April 11, 2013 at $35.89 per Share. By comparison, during the period ended December 31, 2012, the Fund’s per Share NAV reached its high for the period on September 5, 2012 at $40.44 per Share and reached its low for the period on December 14, 2012 at $36.68 per Share.

The benchmark’s decline of 14.1% for the year ended December 31, 2013, as compared to the benchmark’s rise of 0.8% for the period ended December 31, 2012, can be attributed to a decrease in the value of the Australian dollar versus the U.S. dollar during the period ended December 31, 2013. By comparison, the benchmark’s rise of 0.8% for the period ended December 31, 2012, can be attributed to an increase in the value of the Australian dollar versus the U.S. dollar during the period ended December 31, 2012.

Net Income/Loss

The following table provides summary income information for the year ended December 31, 2013 and the period from commencement of operations to December 31, 2012:

 

     Year Ended
December 31, 2013
    July 17, 2012
(Commencement of
Operations) through
December 31, 2012
 

Net investment income (loss)

   $ (159,424 )   $ (16,229 )

Management fee

     106,713       —     

Brokerage commission

     11,753       1,006  

Offering costs

     47,870       18,871  

Limitation by Sponsor

     (1,259 )     (2,216 )

Net realized gain (loss)

     2,720,005       (288,744 )

Change in net unrealized appreciation/depreciation

     833,294       85,772  

Net income (loss)

   $ 3,393,875     $ (219,201 )

The Fund’s net income increased for the year ended December 31, 2013, as compared to the period ended December 31, 2012, primarily due to a decrease in the value of the Australian dollar versus the U.S. dollar during the year ended December 31, 2013.

ProShares UltraShort Euro

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2013, 2012 and 2011:

 

     Year Ended
December 31,
2013
    Year Ended
December 31,
2012
    Year Ended
December 31,
2011
 

NAV beginning of period

   $ 526,778,026     $ 1,100,159,546     $ 444,412,995  

NAV end of period

   $ 418,001,115     $ 526,778,026     $ 1,100,159,546  

Percentage change in NAV

     (20.6 )%      (52.1 )%      147.6

Shares outstanding beginning of period

     27,700,014       54,100,014       21,900,014  

Shares outstanding end of period

     24,500,014       27,700,014       54,100,014  

Percentage change in shares outstanding

     (11.6 )%      (48.8 )%      147.0

Shares created

     6,250,000       12,900,000       50,600,000  

Shares redeemed

     9,450,000       39,300,000       18,400,000  

Per share NAV beginning of period

   $ 19.02     $ 20.34     $ 20.29  

Per share NAV end of period

   $ 17.06     $ 19.02     $ 20.34  

Percentage change in per share NAV

     (10.3 )%      (6.5 )%      0.2

Percentage change in benchmark

     4.3     2.0     (3.2 )% 

Benchmark annualized volatility

     7.5     8.3     11.4

 

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During the year ended December 31, 2013, the decrease in the Fund’s NAV resulted primarily from a decrease from 27,700,014 outstanding Shares at December 31, 2012 to 24,500,014 outstanding Shares at December 31, 2013. 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 spot price of the euro versus the U.S. dollar. By comparison, during the year ended December 31, 2012, the decrease in the Fund’s NAV resulted primarily from a decrease from 54,100,014 outstanding Shares at December 31, 2011 to 27,700,014 outstanding Shares at December 31, 2012. 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 spot price of the euro versus the U.S. dollar. By comparison, 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 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.

For the years ended December 31, 2013, 2012 and 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. The Fund’s per Share NAV decrease of 10.3% for the year ended December 31, 2013, as compared to the Fund’s per Share NAV decrease of 6.5% for the year ended December 31, 2012, was primarily due to a greater depreciation in the value of the assets held by the Fund during the year ended December 31, 2013. The Fund’s per Share NAV decrease of 6.5% for the year ended December 31, 2012, as compared to the Fund’s per Share NAV increase of 0.2% for the year ended December 31, 2011, was primarily due to a depreciation in the value of the assets held by the Fund during the year ended December 31, 2012.

During the year ended December 31, 2013, the Fund’s per Share NAV reached its high for the period on March 27, 2013 at $20.16 per Share and reached its low for the period on December 30, 2013 at $16.96 per Share. By comparison, during the year ended December 31, 2012, the Fund’s per Share NAV reached its high for the year on July 24, 2012 at $22.94 per Share and reached its low for the year on February 24, 2012 at $18.67 per Share. By comparison, 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.

The benchmark’s rise of 4.3% for the year ended December 31, 2013, as compared to the benchmark’s rise of 2.0% for the year ended December 31, 2012, can be attributed to a greater increase in the value of the euro versus the U.S. dollar during the year ended December 31, 2013. By comparison, the benchmark’s rise of 2.0% for the year ended December 31, 2012, as compared to the benchmark’s decline of 3.2% for the year ended December 31, 2011, can be attributed to an increase in the value of the euro versus the U.S. dollar during the year ended December 31, 2012.

Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2013, 2012 and 2011:

 

     Year Ended
December 31, 2013
    Year Ended
December 31, 2012
    Year Ended
December 31, 2011
 

Net investment income (loss)

   $ (4,375,512 )   $ (7,447,508 )   $ (5,907,849 )

Management fee

     4,600,479       7,972,894       6,179,382  

Net realized gain (loss)

     (48,055,883 )     46,954,540       (5,405,748 )

Change in net unrealized appreciation/depreciation

     (588,667 )     (80,541,179 )     90,585,018  

Net income (loss)

   $ (53,020,062 )   $ (41,034,147 )   $ 79,271,421  

 

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The Fund’s net income decreased for the year ended December 31, 2013, as compared to the year ended December 31, 2012, primarily due to a greater rise in the value of the euro versus the U.S. dollar during the year ended December 31, 2013. By comparison, the Fund’s net income decreased for the year ended December 31, 2012, as compared to the year ended December 31, 2011, primarily due to a rise in the value of the euro versus the U.S. dollar during the year ended December 31, 2012.

ProShares UltraShort Yen*

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2013, 2012 and 2011:

 

     Year Ended
December 31,
2013
    Year Ended
December 31,
2012
    Year Ended
December 31,
2011
 

NAV beginning of period

   $ 408,563,630     $ 221,131,994     $ 207,685,813  

NAV end of period

   $ 588,121,516     $ 408,563,630     $ 221,131,994  

Percentage change in NAV

     43.9     84.8     6.5

Shares outstanding beginning of period

     8,049,294       5,399,294       4,416,671  

Shares outstanding end of period

     8,299,294       8,049,294       5,399,294  

Percentage change in shares outstanding

     3.1     49.1     22.2

Shares created

     5,650,000       6,550,000       6,683,333  

Shares redeemed

     5,400,000       3,900,000       5,700,710  

Per share NAV beginning of period

   $ 50.76     $ 40.96     $ 47.02  

Per share NAV end of period

   $ 70.86     $ 50.76     $ 40.96  

Percentage change in per share NAV

     39.6     23.9     (12.9 )% 

Percentage change in benchmark

     (17.6 )%      (11.3 )%      5.5

Benchmark annualized volatility

     12.3     7.6     8.8

During the year ended December 31, 2013, the increase in the Fund’s NAV resulted primarily from an increase from 8,049,294 outstanding Shares at December 31, 2012 to 8,299,294 outstanding Shares at December 31, 2013. 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 Japanese yen versus the U.S. dollar. By comparison, during the year ended December 31, 2012, the increase in the Fund’s NAV resulted primarily from an increase from 5,399,294 outstanding Shares at December 31, 2011 to 8,049,294 outstanding Shares at December 31, 2012. 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 Japanese yen versus the U.S. dollar. By comparison, during the year ended December 31, 2011, the increase in the Fund’s NAV resulted 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.

For the years ended December 31, 2013, 2012 and 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. The Fund’s per Share NAV increase of 39.6% for the year ended December 31, 2013, as compared to the Fund’s per Share NAV increase of 23.9% for the year ended December 31, 2012, was primarily due to a greater appreciation in the value of the assets held by the Fund during the year ended December 31, 2013. The Fund’s per Share NAV increase of 23.9% for the year ended December 31, 2012, as compared to the decrease of 12.9% for the year ended December 31, 2011, was primarily due to an appreciation in the value of the assets held by the Fund during the year ended December 31, 2012.

 

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During the year ended December 31, 2013, the Fund’s per Share NAV reached its high for the period on December 31, 2013 at $70.86 per Share and reached its low for the period on January 8, 2013 at $51.09 per Share. By comparison, during the year ended December 31, 2012, the Fund’s per Share NAV reached its high for the year on December 31, 2012 at $50.76 per Share and reached its low for the year on February 2, 2012 at $40.08 per Share. By comparison, 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.

The benchmark’s decline of 17.6% for the year ended December 31, 2013, as compared to the benchmark’s decline of 11.3% for the year ended December 31, 2012, can be attributed to a greater decline in the value of the Japanese yen versus the U.S. dollar during the year ended December 31, 2013. By comparison, the benchmark’s decline of 11.3% for the year ended December 31, 2012, as compared to the benchmark’s rise of 5.5% for the year ended December 31, 2011, can be attributed to a decline in the value of the Japanese yen versus the U.S. dollar during the year ended December 31, 2012.

Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2013, 2012 and 2011:

 

     Year Ended
December 31, 2013
    Year Ended
December 31, 2012
    Year Ended
December 31, 2011
 

Net investment income (loss)

   $ (4,398,231 )   $ (2,184,694 )   $ (2,642,134 )

Management fee

     4,607,832       2,354,920       2,824,586  

Net realized gain (loss)

     164,024,125       27,342,607       (50,024,884 )

Change in net unrealized appreciation/depreciation

     (8,704,656 )     42,493,089       11,762,223  

Net income (loss)

   $ 150,921,238     $ 67,651,002     $ (40,904,795 )

The Fund’s net income increased for the year ended December 31, 2013, as compared to the year ended December 31, 2012, primarily due to a greater decrease in the value of the Japanese yen versus the U.S. dollar during the year ended December 31, 2013. By comparison, the Fund’s net income increased for the year ended December 31, 2012, as compared to the year ended December 31, 2011, primarily due to a decrease in the value of the Japanese yen versus the U.S. dollar during the year ended December 31, 2012.

 

* See Note 1 of the Notes to Financial Statements in Item 15 of Part IV in this Annual Report on Form 10-K regarding the reverse Share split for the ProShares UltraShort Yen Fund.

ProShares Ultra DJ-UBS Commodity

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2013, 2012 and 2011:

 

     Year Ended
December 31,
2013
    Year Ended
December 31,
2012
    Year Ended
December 31,
2011
 

NAV beginning of period

   $ 6,097,211     $ 9,058,529     $ 18,186,658  

NAV end of period

   $ 2,915,034     $ 6,097,211     $ 9,058,529  

Percentage change in NAV

     (52.2 )%      (32.7 )%      (50.2 )% 

Shares outstanding beginning of period

     250,014       350,014       500,014  

Shares outstanding end of period

     150,014       250,014       350,014  

Percentage change in shares outstanding

     (40.0 )%      (28.6 )%      (30.0 )% 

Shares created

     —          —          50,000  

Shares redeemed

     100,000       100,000       200,000  

Per share NAV beginning of period

   $ 24.39     $ 25.88     $ 36.37  

Per share NAV end of period

   $ 19.43     $ 24.39     $ 25.88  

Percentage change in per share NAV

     (20.3 )%      (5.8 )%      (28.8 )% 

Percentage change in benchmark

     (9.6 )%      (1.1 )%      (13.3 )% 

Benchmark annualized volatility

     10.0     13.9     18.3

 

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During the year ended December 31, 2013, the decrease in the Fund’s NAV resulted primarily from a decrease from 250,014 outstanding shares at December 31, 2012 to 150,014 outstanding Shares at December 31, 2013. 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, 2012, the decrease in the Fund’s NAV resulted primarily from a decrease from 350,014 outstanding Shares at December 31, 2011 to 250,014 outstanding shares at December 31, 2012. 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, 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.

For the years ended December 31, 2013, 2012 and 2011, 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 20.3% for the year ended December 31, 2013, as compared to the Fund’s per Share NAV decrease of 5.8% for the year ended December 31, 2012, was primarily due to a greater depreciation in the value of the assets of the Fund during the year ended December 31, 2013. The Fund’s per Share NAV decrease of 5.8% for the year ended December 31, 2012, as compared to the Fund’s per Share NAV decrease of 28.8% for the year ended December 31, 2011, was primarily due to a lesser depreciation in the value of the assets of the Fund during the year ended December 31, 2012.

During the year ended December 31, 2013, the Fund’s per Share NAV reached its high for the period on January 30, 2013 at $25.72 per Share and reached its low for the period on November 19, 2013 at $18.33 per Share. By comparison, during the year ended December 31, 2012, the Fund’s per Share NAV reached its high for the year on September 14, 2012 at $29.39 per Share and reached its low for the year on June 1, 2012 at $20.71 per Share. By comparison, 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.

The benchmark’s decline of 9.6% for the year ended December 31, 2013, as compared to the benchmark’s decline of 1.1% for the year ended December 31, 2012, can be attributed to a greater depreciation of the underlying components of the index during the year ended December 31, 2013. By comparison, the benchmark’s decline of 1.1% for the year ended December 31, 2012, as compared to the benchmark’s decline of 13.3% for the year ended December 31, 2011, can be attributed to a lesser depreciation of the underlying components of the index during the year ended December 31, 2012.

Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2013, 2012 and 2011:

 

     Year Ended
December 31, 2013
    Year Ended
December 31, 2012
    Year Ended
December 31, 2011
 

Net investment income (loss)

   $ (38,477 )   $ (73,484 )   $ (145,601 )

Management fee

     40,543       78,449       156,105  

Net realized gain (loss)

     (1,254,295 )     (536,107 )     (2,051,301 )

Change in net unrealized appreciation/depreciation

     321,274       401,313       (2,463,654 )

Net income (loss)

   $ (971,498 )   $ (208,278 )   $ (4,660,556 )

 

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The Fund’s net income decreased for the year ended December 31, 2013, as compared to the year ended December 31, 2012, primarily due to a greater depreciation of the underlying components of the index, notably Gold and Silver, during the year ended December 31, 2013. By comparison, the Fund’s net income increased for the year ended December 31, 2012, as compared to the year ended December 31, 2011, primarily due to a lesser depreciation of the underlying components of the index, notably Crude Oil, during the year ended December 31, 2012.

ProShares Ultra DJ-UBS Crude Oil*

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2013, 2012 and 2011:

 

     Year Ended
December 31,
2013
    Year Ended
December 31,
2012
    Year Ended
December 31,
2011
 

NAV beginning of period

   $ 483,508,964     $ 251,395,322     $ 228,133,077  

NAV end of period

   $ 142,773,429     $ 483,508,964     $ 251,395,322  

Percentage change in NAV

     (70.5 )%      92.3     10.2

Shares outstanding beginning of period

     16,449,170       6,149,170       4,562,504  

Shares outstanding end of period

     4,449,170       16,449,170       6,149,170  

Percentage change in shares outstanding

     (73.0 )%      167.5     34.8

Shares created

     11,450,000       28,550,000       29,625,000  

Shares redeemed

     23,450,000       18,250,000       28,038,334  

Per share NAV beginning of period

   $ 29.39     $ 40.88     $ 50.00  

Per share NAV end of period

   $ 32.09     $ 29.39     $ 40.88  

Percentage change in per share NAV

     9.2     (28.1 )%      (18.2 )% 

Percentage change in benchmark

     6.8     (11.8 )%      (3.7 )% 

Benchmark annualized volatility

     18.0     26.0     33.7

During the year ended December 31, 2013, the decrease in the Fund’s NAV resulted from a decrease from 16,449,170 outstanding Shares at December 31, 2012 to 4,449,170 outstanding Shares at December 31, 2013. 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 WTI Crude Oil SubindexSM. By comparison, during the year ended December 31, 2012, the increase in the Fund’s NAV resulted from an increase from 6,149,170 outstanding Shares at December 31, 2011 to 16,449,170 outstanding Shares at December 31, 2012. 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 WTI Crude Oil SubindexSM. By comparison, 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 WTI Crude Oil SubindexSM.

For the years ended December 31, 2013, 2012 and 2011, 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 9.2% for the year ended December 31, 2013, as compared to the Fund’s per Share NAV decrease of 28.1% for the year ended December 31, 2012, was primarily due to an appreciation in the value of the assets of the Fund during the year ended December 31, 2013. The Fund’s per Share NAV decrease of 28.1% for the year ended December 31, 2012, as compared to the Fund’s per Share NAV decrease of 18.2% for the year ended December 31, 2011, was primarily due to a relatively greater depreciation in the value of the assets of the Fund during the year ended December 31, 2012.

 

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During the year ended December 31, 2013, the Fund’s per Share NAV reached its high for the period on September 6, 2013 at $39.87 per Share and reached its low for the period on April 17, 2013 at $25.06 per Share. By comparison, during the year ended December 31, 2012, the Fund’s per Share NAV reached its high for the year on February 24, 2012 at $49.25 per Share and reached its low for the year on June 28, 2012 at $23.36 per Share. By comparison, 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.

The benchmark’s rise of 6.8% for the year ended December 31, 2013, as compared to the benchmark’s decline of 11.8% for the year ended December 31, 2012, can be attributed to an increase in the price of WTI Crude Oil during the year ended December 31, 2013. By comparison, the benchmark’s decline of 11.8% for the year ended December 31, 2012, as compared to the benchmark’s decline of 3.7% for the year ended December 31, 2011, can be attributed to a greater decrease in the price of WTI Crude Oil during the year ended December 31, 2012.

Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2013, 2012 and 2011:

 

     Year Ended
December 31, 2013
    Year Ended
December 31, 2012
    Year Ended
December 31, 2011
 

Net investment income (loss)

   $ (2,196,281 )   $ (3,248,430 )   $ (3,186,369 )

Management fee

     2,275,701       3,400,756       3,243,051  

Brokerage commission

     55,871       87,836       102,605  

Net realized gain (loss)

     120,757,237       (84,049,115 )     110,396,094  

Change in net unrealized appreciation/depreciation

     (52,715,067 )     66,691,302       (22,452,239 )

Net income (loss)

   $ 65,845,889     $ (20,606,243 )   $ 84,757,486  

The Fund’s net income increased for the year ended December 31, 2013, as compared to the year ended December 31, 2012, primarily due to an increase in the price of WTI Crude Oil during the year ended December 31, 2013. By comparison, the Fund’s net income decreased for the year ended December 31, 2012, as compared to the year ended December 31, 2011, primarily due to a greater decrease in the price of WTI Crude Oil during the year ended December 31, 2012.

 

* See Note 1 of the Notes to Financial Statements in Item 15 of Part IV in this Annual Report on Form 10-K regarding the reverse Share split for the ProShares Ultra DJ-UBS Crude Oil Fund.

ProShares Ultra DJ-UBS Natural Gas*

Since the Fund commenced investment operations on October 4, 2011, the Fund’s results of operations for the period ended December 31, 2011 may not be meaningful.

 

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Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2013 and 2012 and the period from commencement of operations to December 31, 2011:

 

     Year Ended
December 31,
2013
    Year Ended
December 31,
2012
    October 4, 2011
(Commencement of
Operations) through
December 31, 2011
 

NAV beginning of period

   $ 73,019,370     $ 4,079,349     $ 400  

NAV end of period

   $ 62,915,779     $ 73,019,370     $ 4,079,349  

Percentage change in NAV

     (13.8 )%      1,690.0     1,019,737.3

Shares outstanding beginning of period

     1,869,941       40,002       2  

Shares outstanding end of period

     1,619,941       1,869,941       40,002  

Percentage change in shares outstanding

     (13.4 )%      4,574.6     2,000,000.0

Shares created

     5,400,000       2,930,000       40,000  

Shares redeemed

     5,650,000       1,100,061       —     

Per share NAV beginning of period

   $ 39.05     $ 101.98     $ 200.00  

Per share NAV end of period

   $ 38.84     $ 39.05     $ 101.98  

Percentage change in per share NAV

     (0.5 )%      (61.7 )%      (49.0 )% 

Percentage change in benchmark

     4.9     (30.6 )%      (27.7 )% 

Benchmark annualized volatility

     29.9     46.3     29.5

During the year ended December 31, 2013, the decrease in the Fund’s NAV resulted from a decrease from 1,869,941 outstanding Shares at December 31, 2012 to 1,619,941 outstanding Shares at December 31, 2013. 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 Natural Gas SubindexSM.. By comparison, during the year ended December 31, 2012, the increase in the Fund’s NAV resulted from an increase from 40,002 outstanding Shares at December 31, 2011 to 1,869,941 outstanding Shares at December 31, 2012. The increase in the Fund’s NAV was partially 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 SubindexSM. By comparison, during the period ended December 31, 2011, the increase in the Fund’s NAV resulted primarily from an increase from 2 outstanding Shares at October 4, 2011 to 40,002 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 SubindexSM.

For the years ended December 31, 2013 and 2012 and 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. The Fund’s per Share NAV decrease of 0.5% for the year ended December 31, 2013, as compared to the Fund’s per Share NAV decrease of 61.7% for the year ended December 31, 2012, was primarily due to a lesser depreciation in the value of the assets of the Fund during the year ended December 31, 2013. The Fund’s per Share NAV decrease of 61.7% for the year ended December 31, 2012, as compared to the Fund’s per Share NAV decrease of 49.0% for the period ended December 31, 2011, was primarily due to a greater depreciation in the value of the assets of the Fund during the year ended December 31, 2012.

During the year ended December 31, 2013, the Fund’s per Share NAV reached its high for the period on April 19, 2013 at $59.32 per Share and reached its low for the period on November 4, 2013 at $27.41 per Share. By comparison, during the year ended December 31, 2012, the Fund’s per Share NAV reached its high for the year on January 4, 2012 at $109.49 per Share and reached its low for the year on April 19, 2012 at $29.42 per Share. By comparison, during the period ended December 31, 2011, the Fund’s per Share NAV reached its high for the period on October 4, 2011 at $200.00 per Share and reached its low for the period on December 30, 2011 at $101.98 per Share.

The benchmark’s rise of 4.9% for the year ended December 31, 2013, as compared to the benchmark’s decline of 30.6% for the year ended December 31, 2012, can be attributed to an increase in the price of Henry Hub Natural Gas during the year ended December 31, 2013. By comparison, the benchmark’s decline of 30.6% for the year ended December 31, 2012, as compared to the benchmark’s decline of 27.7% for the period ended December 31, 2011, can be attributed to a greater decrease in the price of Henry Hub Natural Gas during the year ended December 31, 2012.

 

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Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2013 and 2012 and the period from commencement of operations to December 31, 2011:

 

     Year Ended
December 31, 2013
    Year Ended
December 31, 2012
    October 4, 2011
(Commencement of

Operations) through
December 31, 2011
 

Net investment income (loss)

   $ (821,690 )   $ (566,310 )   $ (10,459 )

Management fee

     707,598       404,318       1,454  

Brokerage commission

     147,433       128,470       2,531  

Offering costs

     —          63,919       6,474  

Net realized gain (loss)

     41,422,856       (2,835,183 )     (1,481,819 )

Change in net unrealized appreciation/depreciation

     162,544       (2,990,657 )     (825,510 )

Net income (loss)

   $ 40,763,710     $ (6,392,150 )   $ (2,317,788 )

The Fund’s net income increased for the year ended December 31, 2013, as compared to the year ended December 31, 2012, primarily due to an increase in the price of Henry Hub Natural Gas during the year ended December 31, 2013. The Fund’s net income decreased for the year ended December 31, 2012, as compared to the period ended December 31, 2011, primarily due to a greater decrease in the price of Henry Hub Natural Gas during the year ended December 31, 2012.

 

* See Note 1 of the Notes to Financial Statements in Item 15 of Part IV in this Annual Report on Form 10-K regarding the reverse Share split for the ProShares Ultra DJ-UBS Natural Gas Fund.

ProShares Ultra Gold

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2013, 2012 and 2011:

 

     Year Ended
December 31,
2013
    Year Ended
December 31,
2012
    Year Ended
December 31,
2011
 

NAV beginning of period

   $ 335,054,752     $ 326,399,360     $ 259,562,075  

NAV end of period

   $ 132,017,405     $ 335,054,752     $ 326,399,360  

Percentage change in NAV

     (60.6 )%      2.7     25.8

Shares outstanding beginning of period

     4,000,014       4,300,014       3,750,014  

Shares outstanding end of period

     3,200,014       4,000,014       4,300,014  

Percentage change in shares outstanding

     (20.0 )%      (7.0 )%      14.7

Shares created

     550,000       500,000       1,350,000  

Shares redeemed

     1,350,000       800,000       800,000  

Per share NAV beginning of period

   $ 83.76     $ 75.91     $ 69.22  

Per share NAV end of period

   $ 41.26     $ 83.76     $ 75.91  

Percentage change in per share NAV

     (50.7 )%      10.4     9.7

Percentage change in benchmark

     (27.3 )%      8.3     8.9

Benchmark annualized volatility

     21.8     17.1     21.2

During the year ended December 31, 2013, the decrease 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 decrease in the Fund’s NAV also resulted in part from a decrease from 4,000,014 outstanding Shares at December 31, 2012 to 3,200,014 outstanding Shares at December 31, 2013. By comparison, during the year ended December 31, 2012, 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 gold bullion as measured by the U.S. dollar p.m. fixing price for delivery in London. The increase in the Fund’s NAV was offset by a decrease from 4,300,014 outstanding Shares at December 31, 2011 to 4,000,014 outstanding Shares at December 31, 2012. By comparison, 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.

 

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For the years ended December 31, 2013, 2012 and 2011, 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 50.7% for the year ended December 31, 2013, as compared to the Fund’s per Share NAV increase of 10.4% for the year ended December 31, 2013, was primarily due to the depreciation in the value of the assets of the Fund during the year ended December 31, 2013. The Fund’s per Share NAV increase of 10.4% for the year ended December 31, 2012, as compared to the Fund’s per Share NAV increase of 9.7% for the year ended December 31, 2011, was primarily due to the greater appreciation in the value of the assets of the Fund during the year ended December 31, 2012.

During the year ended December 31, 2013, the Fund’s per Share NAV reached its high for the period on January 2, 2013 at $87.40 per Share and reached its low for the period on December 20, 2013 at $40.65 per Share. By comparison, during the year ended December 31, 2012, the Fund’s per Share NAV reached its high for the year on February 28, 2012 at $101.40 per Share and reached its low for the year on May 30, 2012 at $74.51 per Share. By comparison, 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.

The benchmark’s decline of 27.3% for the year ended December 31, 2013, as compared to the benchmark’s rise of 8.3% for the year ended December 31, 2012, can be attributed to a decrease in the price of spot gold in U.S. dollar terms during the year ended December 31, 2013. By comparison, the benchmark’s rise of 8.3% for the year ended December 31, 2012, as compared to the benchmark’s rise of 8.9% for the year ended December 31, 2011, can be attributed to a lesser increase in the price of spot gold in U.S. dollar terms during the year ended December 31, 2012.

Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2013, 2012 and 2011:

 

     Year Ended
December 31, 2013
    Year Ended
December 31, 2012
    Year Ended
December 31, 2011
 

Net investment income (loss)

   $ (1,925,215 )   $ (3,169,265 )   $ (2,975,486 )

Management fee

     2,055,613       3,411,655       3,118,702  

Brokerage commission

     39       42       2,927  

Net realized gain (loss)

     (165,625,006 )     (33,589,632 )     100,090,298  

Change in net unrealized appreciation/depreciation

     8,820,461       65,231,378       (89,921,171 )

Net income (loss)

   $ (158,729,760 )   $ 28,472,481     $ 7,193,641  

The Fund’s net income decreased for the year ended December 31, 2013, as compared to the year ended December 31, 2012, primarily due to a decrease in the price of spot gold in U.S. dollar terms during the year ended December 31, 2013. By comparison, the Fund’s net income increased for the year ended December 31, 2012, as compared to the year ended December 31, 2011, primarily due to an increase in the price of spot gold in U.S. dollar terms, in conjunction with a higher average shares outstanding, during the year ended December 31, 2012.

 

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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, 2013, 2012 and 2011:

 

     Year Ended
December 31,
2013
    Year Ended
December 31,
2012
    Year Ended
December 31,
2011
 

NAV beginning of period

   $ 747,725,400     $ 606,824,420     $ 547,003,919  

NAV end of period

   $ 465,479,519     $ 747,725,400     $ 606,824,420  

Percentage change in NAV

     (37.7 )%      23.2     10.9

Shares outstanding beginning of period

     4,350,007       3,512,507       1,750,007  

Shares outstanding end of period

     7,350,007       4,350,007       3,512,507  

Percentage change in shares outstanding

     69.0     23.8     100.7

Shares created

     4,112,500       2,262,500       3,912,500  

Shares redeemed

     1,112,500       1,425,000       2,150,000  

Per share NAV beginning of period

   $ 171.89     $ 172.76     $ 312.57  

Per share NAV end of period

   $ 63.33     $ 171.89     $ 172.76  

Percentage change in per share NAV

     (63.2 )%      (0.5 )%      (44.7 )% 

Percentage change in benchmark

     (34.9 )%      6.3     (8.0 )% 

Benchmark annualized volatility

     31.5     29.4     60.9

During the year ended December 31, 2013, the decrease 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 silver bullion as measured by the U.S. dollar fixing price for delivery in London. The decrease in the Fund’s NAV was offset by an increase from 4,350,007 outstanding Shares at December 31, 2012 to 7,350,007 outstanding Shares at December 31, 2013. By comparison, during the year ended December 31, 2012, the increase in the Fund’s NAV resulted primarily from an increase from 3,512,507 outstanding Shares at December 31, 2011 to 4,350,007 outstanding Shares at December 31, 2012. 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. By comparison, during the year ended December 31, 2011, the increase in the Fund’s NAV resulted from an increase from 1,750,007 outstanding Shares at December 31, 2010 to 3,512,507 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.

For the years ended December 31, 2013, 2012 and 2011, 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 63.2% for the year ended December 31, 2013, as compared to the Fund’s per Share NAV decrease of 0.5% for the year ended December 31, 2012, was primarily due to relatively greater depreciation in the value of the assets of the Fund during the year ended December 31, 2013. The Fund’s per Share NAV decrease of 0.5% for the year ended December 31, 2012, as compared to the Fund’s per Share NAV decrease of 44.7% for the year ended December 31, 2011, was primarily due to relatively lesser depreciation in the value of the assets of the Fund during the year ended December 31, 2012.

During the year ended December 31, 2013, the Fund’s per Share NAV reached its high for the period on January 23, 2013 at $197.58 per Share and reached its low for the period on December 4, 2013 at $60.89 per Share. By comparison, during the year ended December 31, 2012, the Fund’s per Share NAV reached its high for the year on February 29, 2012 at $294.08 per Share and reached its low for the year on July 12, 2012 at $143.05 per Share. By comparison, during the year ended December 31, 2011, the Fund’s per Share NAV reached its high for the year on April 28, 2011 at $738.44 per Share and reached its low for the year on December 29, 2011 at $149.69 per Share.

The benchmark’s decline of 34.9% for the year ended December 31, 2013, as compared to the benchmark’s rise of 6.3% for the year ended December 31, 2012, can be attributed to a decrease in the price of spot silver in U.S. dollar terms during the year ended December 31, 2013. The benchmark’s rise of 6.3% for the year ended December 31, 2012, as compared to the benchmark’s decline of 8.0% for the year ended December 31, 2011, can be attributed to an increase in the price of spot silver in U.S. dollar terms during the year ended December 31, 2012.

 

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Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2013, 2012 and 2011:

 

     Year Ended
December 31, 2013
    Year Ended
December 31, 2012
    Year Ended
December 31, 2011
 

Net investment income (loss)

   $ (5,280,707 )   $ (6,918,157 )   $ (7,956,212 )

Management fee

     5,628,988       7,438,345       8,372,487  

Brokerage commission

     36       45       7,511  

Net realized gain (loss)

     (701,518,468 )     (66,421,123 )     (209,430,844 )

Change in net unrealized appreciation/depreciation

     143,242,691       33,668,685       (228,663,565 )

Net income (loss)

   $ (563,556,484 )   $ (39,670,595 )   $ (446,050,621 )

The Fund’s net income decreased for the year ended December 31, 2013, as compared to the year ended December 31, 2012, primarily due to a decrease in the price of spot silver in U.S. dollar terms during the year ended December 31, 2013. By comparison, the Fund’s net income increased for the year ended December 31, 2012, as compared to the year ended December 31, 2011, primarily due to an increase in the price of spot silver in U.S. dollar terms during the year ended December 31, 2012.

 

* See Note 1 and Note 9 of the Notes to Financial Statements in Item 15 of Part IV in this Annual Report on Form 10-K regarding the reverse Share split for the ProShares Ultra Silver Fund.

ProShares Ultra Australian Dollar

Since the Fund commenced investment operations on July 17, 2012, comparisons of the Fund’s results of operations for the year ended December 31, 2011 have not been provided and the Fund’s results of operations for the period ended December 31, 2012 may not be meaningful.

Fund Performance

The following table provides summary performance information for the Fund for the year ended December 31, 2013 and the period from commencement of operations to December 31, 2012:

 

     Year Ended
December 31, 2013
    July 17, 2012
(Commencement of

Operations) through
December 31, 2012
 

NAV beginning of period

   $ 4,150,068     $ 200  

NAV end of period

   $ 3,168,165     $ 4,150,068  

Percentage change in NAV

     (23.7 )%      2,074,934.0

Shares outstanding beginning of period

     100,005       5  

Shares outstanding end of period

     100,005       100,005  

Percentage change in shares outstanding

     0.0     2,000,000.0

Shares created

     —          100,000  

Shares redeemed

     —          —     

Per share NAV beginning of period

   $ 41.50     $ 40.00  

Per share NAV end of period

   $ 31.68     $ 41.50  

Percentage change in per share NAV

     (23.7 )%      3.8

Percentage change in benchmark

     (14.1 )%      0.8

Benchmark annualized volatility

     10.1     7.5

During the year ended December 31, 2013, the decrease 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 Australian dollar versus the U.S. dollar. There was no net change in the Fund’s outstanding Shares from December 31, 2012 to December 31, 2013. By comparison, during the period ended December 31, 2012, the increase in the Fund’s NAV resulted primarily from an increase from 5 outstanding Shares at July 17, 2012 to 100,005 outstanding Shares at December 31, 2012. 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 Australian dollar versus the U.S. dollar.

 

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For the year ended December 31, 2013 and the period ended December 31, 2012, 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 23.7% for the year ended December 31, 2013, as compared to the Fund’s per Share NAV increase of 3.8% for the period ended December 31, 2012, was primarily due to a depreciation in the value of the assets held by the Fund during the year ended December 31, 2013.

During the year ended December 31, 2013, the Fund’s per Share NAV reached its high for the period on April 11, 2013 at $43.27 per Share and reached its low for the period on December 18, 2013 at $31.08 per Share. By comparison, during the period ended December 31, 2012, the Fund’s per Share NAV reached its high for the period on December 14, 2012 at $42.82 per Share and reached its low for the period on September 5, 2012 at $39.29 per Share.

The benchmark’s decline of 14.1% for the year ended December 31, 2013, as compared to the benchmark’s rise of 0.8% for the period ended December 31, 2012, can be attributed to a decrease in the value of the Australian dollar versus the U.S. dollar during the period ended December 31, 2013. By comparison, the benchmark’s rise of 0.8% for the period ended December 31, 2012, can be attributed to an increase in the value of the Australian dollar versus the U.S. dollar during the period ended December 31, 2012.

Net Income/Loss

The following table provides summary income information for the year ended December 31, 2013 and the period from commencement of operations to December 31, 2012:

 

     Year Ended
December 31, 2013
    July 17, 2012
(Commencement of

Operations) through
December 31, 2012
 

Net investment income (loss)

   $ (34,905 )   $ (17,298 )

Management fee

     14,696       —     

Brokerage commission

     1,545       932  

Offering costs

     47,870       18,871  

Limitation by Sponsor

     (27,636 )     (1,012 )

Net realized gain (loss)

     (928,014 )     265,989  

Change in net unrealized appreciation/depreciation

     (18,984 )     (98,823 )

Net income (loss)

   $ (981,903 )   $ 149,868  

The Fund’s net income decreased for the year ended December 31, 2013, as compared to the period ended December 31, 2012, primarily due to a decrease in the value of the Australian dollar versus the U.S. dollar during the year ended December 31, 2013.

ProShares Ultra Euro

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2013, 2012 and 2011:

 

     Year Ended
December 31,
2013
    Year Ended
December 31,
2012
    Year Ended
December 31,
2011
 

NAV beginning of period

   $ 4,870,316     $ 9,554,748     $ 7,729,684  

NAV end of period

   $ 2,603,827     $ 4,870,316     $ 9,554,748  

Percentage change in NAV

     (46.5 )%      (49.0 )%      23.6

Shares outstanding beginning of period

     200,014       400,014       300,014  

Shares outstanding end of period

     100,014       200,014       400,014  

Percentage change in shares outstanding

     (50.0 )%      (50.0 )%      33.3

Shares created

     50,000       50,000       100,000  

Shares redeemed

     150,000       250,000        —     

Per share NAV beginning of period

   $ 24.35     $ 23.89     $ 25.76  

Per share NAV end of period

   $ 26.03     $ 24.35     $ 23.89  

Percentage change in per share NAV

     6.9     1.9     (7.3 )% 

Percentage change in benchmark

     4.3     2.0     (3.2 )% 

Benchmark annualized volatility

     7.5     8.3     11.4

 

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During the year ended December 31, 2013, the decrease in the Fund’s NAV resulted from a decrease from 200,014 outstanding Shares at December 31, 2012 to 100,014 outstanding Shares at December 31, 2013. The decrease in the Fund’s NAV was offset by 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, 2012, the decrease in the Fund’s NAV resulted primarily from a decrease from 400,014 outstanding Shares at December 31, 2011 to 200,014 outstanding Shares at December 31, 2012. 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 spot price of the euro versus the U.S. dollar. By comparison, during the year ended December 31, 2011, the increase in the Fund’s NAV resulted 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.

For the years ended December 31, 2013, 2012 and 2011, 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 6.9% for the year ended December 31, 2013, as compared to the Fund’s per Share NAV increase of 1.9% for the year ended December 31, 2012, was primarily due to a greater appreciation in the value of the assets held by the Fund during the year ended December 31, 2013. The Fund’s per Share NAV increase of 1.9% for the year ended December 31, 2012, as compared to the Fund’s per Share NAV decrease of 7.3% for the year ended December 31, 2011, was primarily due to an appreciation in the value of the assets held by the Fund during the year ended December 31, 2012.

During the year ended December 31, 2013, the Fund’s per Share NAV reached its high for the period on October 25, 2013 at $26.28 per Share and reached its low for the period on July 9, 2013 at $22.64 per Share. By comparison, during the year ended December 31, 2012, the Fund’s per Share NAV reached its high for the year on February 24, 2012 at $25.78 per Share and reached its low for the year on July 24, 2012 at $20.56 per Share. By comparison, 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.

The benchmark’s rise of 4.3% for the year ended December 31, 2013, as compared to the benchmark’s rise of 2.0% for the year ended December 31, 2012, can be attributed to a greater increase in the value of the euro versus the U.S. dollar during the year ended December 31, 2013. By comparison, the benchmark’s rise of 2.0% for the year ended December 31, 2012, as compared to the benchmark’s decline of 3.2% for the year ended December 31, 2011, can be attributed to an increase in the value of the euro versus the U.S. dollar during the year ended December 31, 2012.

Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2013, 2012 and 2011:

 

     Year Ended
December 31, 2013
    Year Ended
December 31, 2012
    Year Ended
December 31, 2011
 

Net investment income (loss)

   $ (35,024 )   $ (60,126 )   $ (75,102 )

Management fee

     36,925       63,816       79,638  

Net realized gain (loss)

     210,205       (398,426 )     354,405  

Change in net unrealized appreciation/depreciation

     13,879       605,705       (866,900 )

Net income (loss)

   $ 189,060     $ 147,153     $ (587,597 )

 

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The Fund’s net income increased for the year ended December 31, 2013, as compared to the year ended December 31, 2012, primarily due to a relatively greater increase in the value of the euro versus the U.S. dollar during the year ended December 31, 2013. By comparison, the Fund’s net income increased for the year ended December 31, 2012, as compared to the year ended December 31, 2011, primarily due to a rise in the value of the euro versus the U.S. dollar during the year ended December 31, 2012.

ProShares Ultra Yen

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2013, 2012 and 2011:

 

     Year Ended
December 31,
2013
    Year Ended
December 31,
2012
    Year Ended
December 31,
2011
 

NAV beginning of period

   $ 4,227,995     $ 5,471,075     $ 5,024,240  

NAV end of period

   $ 2,795,026     $ 4,227,995     $ 5,471,075  

Percentage change in NAV

     (33.9 )%      (22.7 )%      8.9

Shares outstanding beginning of period

     150,014       150,014       150,014  

Shares outstanding end of period

     150,014       150,014       150,014  

Percentage change in shares outstanding

     0.0     0.0     0.0

Shares created

     50,000       —          50,000  

Shares redeemed

     50,000       —          50,000  

Per share NAV beginning of period

   $ 28.18     $ 36.47     $ 33.49  

Per share NAV end of period

   $ 18.63     $ 28.18     $ 36.47  

Percentage change in per share NAV

     (33.9 )%      (22.7 )%      8.9

Percentage change in benchmark

     (17.6 )%      (11.3 )%      5.5

Benchmark annualized volatility

     12.3     7.6     8.8

During the year ended December 31, 2013, the decrease 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 during the year ended December 31, 2012. There was no net change in the Fund’s outstanding Shares from December 31, 2012 to December 31, 2013. By comparison, during the year ended December 31, 2012, the decrease 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 during the year ended December 31, 2012. There was no net change in the Fund’s outstanding Shares from December 31, 2011 to December 31, 2012. By comparison, during the year ended 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 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.

For the years ended December 31, 2013, 2012 and 2011, 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 33.9% for the year ended December 31, 2013, as compared to the Fund’s per Share NAV decrease of 22.7% for the year ended December 31, 2012, was primarily due to a relatively greater depreciation in the value of the assets held by the Fund during the year ended December 31, 2013. The Fund’s per Share NAV decrease of 22.7% for the year ended December 31, 2012, as compared to the Fund’s per Share NAV increase of 8.9% for the year ended December 31, 2011, was primarily due to a depreciation in the value of the assets held by the Fund during the year ended December 31, 2012.

 

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During the year ended December 31, 2013, the Fund’s per Share NAV reached its high for the period on January 8, 2013 at $27.97 per Share and reached its low for the period on December 31, 2013 at $18.63 per Share. By comparison, during the year ended December 31, 2012, the Fund’s per Share NAV reached its high for the year on February 2, 2012 at $37.15 per Share and reached its low for the year on December 31, 2012 at $28.18 per Share. By comparison, 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.

The benchmark’s decline of 17.6% for the year ended December 31, 2013, as compared to the benchmark’s decline of 11.3% for the year ended December 31, 2012, can be attributed to a greater decline in the value of the Japanese yen versus the U.S. dollar during the year ended December 31, 2013. The benchmark’s decline of 11.3% for the year ended December 31, 2012, as compared to the benchmark’s rise of 5.5% for the year ended December 31, 2011, can be attributed to a decline in the value of the Japanese yen versus the U.S. dollar during the year ended December 31, 2012.

Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2013, 2012 and 2011:

 

     Year Ended
December 31, 2013
    Year Ended
December 31, 2012
    Year Ended
December 31, 2011
 

Net investment income (loss)

   $ (31,774 )   $ (44,440 )   $ (39,572 )

Management fee

     33,569       47,964       41,443  

Net realized gain (loss)

     (1,879,101 )     (601,910 )     564,832  

Change in net unrealized appreciation/depreciation

     335,084       (596,730 )     (180,983 )

Net income (loss)

   $ (1,575,791 )   $ (1,243,080 )   $ 344,277  

The Fund’s net income decreased for the year ended December 31, 2013, as compared to the year ended December 31, 2012, primarily due to a relatively greater decrease in the value of the Japanese yen versus the U.S. dollar during the year ended December 31, 2013. By comparison, the Fund’s net income decreased for the year ended December 31, 2012, as compared to the year ended December 31, 2011, primarily due to a decrease in the value of the Japanese yen versus the U.S. dollar during the year ended December 31, 2012.

ProShares VIX Short-Term Futures ETF*

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2013 and 2012 and the period from commencement of operations to December 31, 2011:

 

     Year Ended
December 31,
2013
    Year Ended
December 31,
2012
    January 3, 2011
(Commencement of

Operations) through
December 31, 2011
 

NAV beginning of period

   $ 137,657,464     $ 30,549,903     $ 400  

NAV end of period

   $ 270,398,554     $ 137,657,464     $ 30,549,903  

Percentage change in NAV

     96.4     350.6     7,637,375.8

Shares outstanding beginning of period

     1,640,001       80,001       1  

Shares outstanding end of period

     9,474,812       1,640,001       80,001  

Percentage change in shares outstanding

     477.7     1,950.0     8,000,000.0

Shares created

     16,095,000       5,585,000       945,000  

Shares redeemed

     8,260,189       4,025,000       865,000  

Per share NAV beginning of period

   $ 83.94     $ 381.87     $ 400.00  

Per share NAV end of period

   $ 28.54     $ 83.94     $ 381.87  

Percentage change in per share NAV

     (66.0 )%      (78.0 )%      (4.5 )% 

Percentage change in benchmark

     (65.7 )%      (77.9 )%      (2.1 )% 

Benchmark annualized volatility

     57.9     74.2     78.4

 

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During the year ended December 31, 2013, the increase in the Fund’s NAV resulted from an increase from 1,640,001 outstanding Shares at December 31, 2012 to 9,474,812 outstanding Shares at December 31, 2013. 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. By comparison, during the year ended December 31, 2012, the increase in the Fund’s NAV resulted from an increase from 80,001 outstanding Shares at December 31, 2011 to 1,640,001 outstanding Shares at December 31, 2012. 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. By comparison, during the period ended December 31, 2011, the increase in the Fund’s NAV resulted from an increase from 1 outstanding Share at January 3, 2011 to 80,001 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 years ended December 31, 2013 and 2012 and 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. The Fund’s per Share NAV decrease of 66.0% for the year ended December 31, 2013, as compared to the Fund’s per Share NAV decrease of 78.0% for the year ended December 31, 2012, was primarily due to a lesser decline in prices of the first and second month VIX futures during the year ended December 31, 2013. The Fund’s per Share NAV decrease of 78.0% for the year ended December 31, 2012, as compared to the Fund’s per Share NAV decrease of 4.5% for the period ended December 31, 2011, was primarily due to a greater decline in prices of the first and second month VIX futures during the year ended December 31, 2012.

During the year ended December 31, 2013, the Fund’s per Share NAV reached its high for the period on January 3, 2013 at $76.11 per Share and reached its low for the period on December 26, 2013 at $27.63 per Share. By comparison, during the year ended December 31, 2012, the Fund’s per Share NAV reached its high for the year on January 3, 2012 at $358.13 per Share and reached its low for the year on December 18, 2012 at $75.65 per Share. By comparison, during the period ended December 31, 2011, the Fund’s per Share NAV reached its high for the period on October 3, 2011 at $618.83 per Share and reached its low for the period on July 7, 2011 at $215.73 per Share.

The benchmark’s decline of 65.7% for the year ended December 31, 2013, as compared to the benchmark’s decline of 77.9% for the year ended December 31, 2012, can be attributed to a lesser decline in prices of the near-term futures contracts on the VIX futures curve during the year ended December 31, 2013. The benchmark’s decline of 77.9% for the year ended December 31, 2012, as compared to the benchmark’s decline of 2.1% for the period ended December 31, 2011, can be attributed to a decline in prices of the near-term futures contracts on the VIX futures curve during the year ended December 31, 2012.

Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2013 and 2012 and the period from commencement of operations to December 31, 2011:

 

     Year Ended
December 31, 2013
    Year Ended
December 31, 2012
    January 3, 2011
(Commencement of

Operations) through
December 31, 2011
 

Net investment income (loss)

   $ (1,584,119 )   $ (1,053,112 )   $ (282,569 )

Management fee

     1,661,129       1,129,484       96,904  

Offering costs

     —          1,090       197,908  

Net realized gain (loss)

     (144,624,652 )     (160,947,857 )     3,734,445  

Change in net unrealized appreciation/depreciation

     (16,426,828 )     1,359,137       (1,576,931 )

Net income (loss)

   $ (162,635,599 )   $ (160,641,832 )   $ 1,874,945  

The Fund’s net income decreased for the year ended December 31, 2013, as compared to the year ended December 31, 2012, primarily due to declining futures prices and a higher net asset base during the year ended December 31,

 

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2013. By comparison, the Fund’s net income decreased for the year ended December 31, 2012, as compared to the period ended December 31, 2011, primarily due to a higher asset base and declining futures prices during the year ended December 31, 2012.

 

* See Note 1 of the Notes to Financial Statements in Item 15 of Part IV in this Annual Report on Form 10-K regarding the reverse Share split for the ProShares VIX Short-Term Futures ETF.

ProShares VIX Mid-Term Futures ETF

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2013 and 2012 and the period from commencement of operations to December 31, 2011:

 

     Year Ended
December 31,
2013
    Year Ended
December 31,
2012
    January 3, 2011
(Commencement of

Operations) through
December 31, 2011
 

NAV beginning of period

   $ 37,302,992     $ 90,821,428     $ 400  

NAV end of period

   $ 51,134,323     $ 37,302,992     $ 90,821,428  

Percentage change in NAV

     37.1     (58.9 )%      22,705,257.0

Shares outstanding beginning of period

     1,075,005       1,225,005       5  

Shares outstanding end of period

     2,650,005       1,075,005       1,225,005  

Percentage change in shares outstanding

     146.5     (12.2 )%      24,500,000.0

Shares created

     6,050,000       2,425,000       1,600,000  

Shares redeemed

     4,475,000       2,575,000       375,000  

Per share NAV beginning of period

   $ 34.70     $ 74.14     $ 80.00  

Per share NAV end of period

   $ 19.30     $ 34.70     $ 74.14  

Percentage change in per share NAV

     (44.4 )%      (53.2 )%      (7.3 )% 

Percentage change in benchmark

     (43.8 )%      (52.9 )%      (6.3 )% 

Benchmark annualized volatility

     25.1     32.0     39.2

During the year ended December 31, 2013, the increase in the Fund’s NAV resulted from an increase from 1,075,005 outstanding Shares at December 31, 2012 to 2,650,005 outstanding Shares at December 31, 2013. 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. By comparison, during the year ended December 31, 2012, the decrease in the Fund’s NAV resulted primarily from a decrease from 1,225,005 outstanding Shares at December 31, 2011 to 1,075,005 outstanding Shares at December 31, 2012. 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 the daily performance of the S&P 500 VIX Mid-Term Futures Index. By comparison, during the period ended December 31, 2011, the increase in the Fund’s NAV resulted 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 years ended December 31, 2013 and 2012 and 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. The Fund’s per Share NAV decrease of 44.4% for the year ended December 31, 2013, as compared to the Fund’s per Share NAV decrease of 53.2% for the year ended December 31, 2012, was primarily due to a lesser depreciation in the value of the assets of the Fund during the year ended December 31, 2013. The Fund’s per Share NAV decrease of 53.2% for the year ended December 31, 2012, as compared to the decrease of 7.3% for the period ended December 31, 2011, was primarily due to a greater depreciation in the value of the assets of the Fund during the year ended December 31, 2012.

During the year ended December 31, 2013, the Fund’s per Share NAV reached its high for the period on January 3, 2013 at $32.37 per Share and reached its low for the period on December 26, 2013 at $19.26 per Share. By comparison, during the year ended December 31, 2012, the Fund’s per Share NAV reached its high for the year on January 3, 2012 at $71.93 per Share and reached its

 

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low for the year on December 18, 2012 at $32.79 per Share. By comparison, 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 43.8% for the year ended December 31, 2013, as compared to the benchmark’s decline of 52.9% for the year ended December 31, 2012, can be attributed to a lesser decline in prices of the futures contracts that made up the S&P 500 VIX Mid-Term Futures Index during the year ended December 31, 2013. By comparison, the benchmark’s decline of 52.9% for the year ended December 31, 2012, as compared to the benchmark’s decline of 6.3% for the period ended December 31, 2011, can be attributed to a greater decline in prices of the futures contracts that made up the S&P 500 VIX Mid-Term Futures Index during the year ended December 31, 2012.

Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2013 and 2012 and the period from commencement of operations to December 31, 2011:

 

     Year Ended
December 31, 2013
    Year Ended
December 31, 2012
    January 3, 2011
(Commencement of

Operations) through
December 31, 2011
 

Net investment income (loss)

   $ (546,566 )   $ (786,167 )   $ (117,121 )

Management fee

     572,377       835,393       —     

Offering costs

     —          682       123,692  

Limitation by Sponsor

     —          —          (2,481 )

Net realized gain (loss)

     (28,219,941 )     (75,241,872 )     (513,727 )

Change in net unrealized appreciation/depreciation

     (3,428,310 )     4,651,290       (6,118,704 )

Net income (loss)

   $ (32,194,817 )   $ (71,376,749 )   $ (6,749,552 )

The Fund’s net income increased for the year ended December 31, 2013, as compared to the year ended December 31, 2012, primarily due to a lesser decline in futures prices during the year ended December 31, 2013. By comparison, the Fund’s net income decreased for the year ended December 31, 2012, as compared to the period ended December 31, 2011, primarily due to declining futures prices during the year ended December 31, 2012.

ProShares Ultra VIX Short-Term Futures ETF*

Since the Fund commenced investment operations on October 3, 2011, the Fund’s results of operations for the period ended December 31, 2011 may not be meaningful.

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2013 and 2012 and from commencement of operations to December 31, 2011:

 

     Year Ended
December 31,
2013
    Year Ended
December 31,
2012
    October 3, 2011
(Commencement of

Operations) through
December 31, 2011
 

NAV beginning of period

   $ 84,716,132     $ 9,881,113     $ 400  

NAV end of period

   $ 226,233,584     $ 84,716,132     $ 9,881,113  

Percentage change in NAV

     167.0     757.4     2,470,178.3

Shares outstanding beginning of period

     105,202       333       0  

Shares outstanding end of period

     3,372,389       105,202       333  

Percentage change in shares outstanding

     3,105.6     31,492.2     7,991,900.0

Shares created

     9,900,000       663,438       333  

Shares redeemed

     6,632,813       558,569       —     

Per share NAV beginning of period

   $ 805.27     $ 29,673.01     $ 96,000.00  

Per share NAV end of period

   $ 67.08     $ 805.27     $ 29,673.01  

Percentage change in per share NAV

     (91.7 )%      (97.3 )%      (69.1 )% 

Percentage change in benchmark

     (65.7 )%      (77.9 )%      (37.9 )% 

Benchmark annualized volatility

     57.9     74.2     93.1

 

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During the year ended December 31, 2013, the increase in the Fund’s NAV resulted from an increase from 105,202 outstanding Shares at December 31, 2012 to 3,372,389 outstanding Shares at December 31, 2013. 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. By comparison, during the year ended December 31, 2012, the increase in the Fund’s NAV resulted from an increase from 333 outstanding Shares at December 31, 2011 to 105,202 outstanding Shares at December 31, 2012. 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. By comparison, during the period ended December 31, 2011, the increase in the Fund’s NAV resulted primarily from an increase from 0 outstanding Shares at October 3, 2011 to 333 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 years ended December 31, 2013 and 2012 and 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. The Fund’s per Share NAV decrease of 91.7% for the year ended December 31, 2013, as compared to the Fund’s per Share NAV decrease of 97.3% for the year ended December 31, 2012, was primarily due to a lesser decline in prices of the first and second month VIX futures during the year ended December 31, 2013. The Fund’s per Share NAV decrease of 97.3% for the year ended December 31, 2012, as compared to the Fund’s per Share NAV decrease of 69.1% for the period ended December 31, 2011, was primarily due to a greater decline in prices of the first and second month VIX futures during the year ended December 31, 2012.

During the year ended December 31, 2013, the Fund’s per Share NAV reached its high for the period on January 3, 2013 at $652.25 per Share and reached its low for the period on December 26, 2013 at $62.89 per Share. By comparison, during the year ended December 31, 2012, the Fund’s per Share NAV reached its high for the year on January 3, 2012 at $25,960.80 per Share and reached its low for the year on December 18, 2012 at $710.80 per Share. By comparison, during the period ended December 31, 2011, the Fund’s per Share NAV reached its high for the period on October 3, 2011 at $96,000 per Share and reached its low for the period on December 21, 2011 at $25,287.60 per Share.

The benchmark’s decline of 65.7% for the year ended December 31, 2013, as compared to the benchmark’s decline of 77.9% for the year ended December 31, 2012, can be attributed to a lesser decline in prices of the near-term futures contracts on the VIX futures curve during the year ended December 31, 2013. The benchmark’s decline of 77.9% for the year ended December 31, 2012, as compared to the benchmark’s decline of 37.9% for the period ended December 31, 2011, can be attributed to declining prices of the near-term futures contracts on the VIX futures curve during the year ended December 31, 2012.

 

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Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2013 and 2012 and from commencement of operations to December 31, 2011:

 

     Year Ended
December 31, 2013
    Year Ended
December 31, 2012
    October 3, 2011
(Commencement of

Operations) through
December 31, 2011
 

Net investment income (loss)

   $ (4,828,761 )   $ (3,001,646 )   $ (16,778 )

Management fee

     2,555,345       1,579,190       4,264  

Brokerage commission

     2,343,432       1,413,912       5,441  

Offering costs

     —          69,761       7,073  

Net realized gain (loss)

     (405,797,946 )     (509,401,530 )     (3,524,753 )

Change in net unrealized appreciation/depreciation

     (26,361,262 )     3,116,767       (762,790 )

Net income (loss)

   $ (436,987,969 )   $ (509,286,409 )   $ (4,304,321 )

The Fund’s net income increased for the year ended December 31, 2013, as compared to the year ended December 31, 2012, primarily due to a lesser decline in futures prices during the year ended December 31, 2013. By comparison, the Fund’s net income decreased for the year ended December 31, 2012, as compared to the period ended December 31, 2011, primarily due to a higher asset base and declining futures prices during the year ended December 31, 2012.

 

* See Note 1 and Note 9 of the Notes to Financial Statements in Item 15 of Part IV in this Annual Report on Form 10-K regarding the reverse Share splits for the ProShares Ultra VIX Short-Term Futures ETF.

ProShares Short VIX Short-Term Futures ETF*

Since the Fund commenced investment operations on October 3, 2011, the Fund’s results of operations for the period ended December 31, 2011 may not be meaningful.

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2013 and 2012 and the period from commencement of operations to December 31, 2011:

 

     Year Ended
December 31,
2013
    Year Ended
December 31,
2012
    October 3, 2011
(Commencement of
Operations) through
December 31, 2011
 

NAV beginning of period

   $ 82,663,633     $ 7,760,424     $ 400  

NAV end of period

   $ 141,751,202     $ 82,663,633     $ 7,760,424  

Percentage change in NAV

     71.5     965.2     1,940,006.0

Shares outstanding beginning of period

     2,500,040       600,040       40  

Shares outstanding end of period

     2,100,040       2,500,040       600,040  

Percentage change in shares outstanding

     (16.0 )%      316.7     1,500,000.0

Shares created

     11,500,000       20,900,000       600,000  

Shares redeemed

     11,900,000       19,000,000       —     

Per share NAV beginning of period

   $ 33.06     $ 12.93     $ 10.00  

Per share NAV end of period

   $ 67.50     $ 33.06     $ 12.93  

Percentage change in per share NAV

     104.2     155.7     29.3

Percentage change in benchmark

     (65.7 )%      (77.9 )%      (37.9 )% 

Benchmark annualized volatility

     57.9     74.2     93.1

During the year ended December 31, 2013, 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 the inverse of the daily performance of the S&P 500 VIX Short-Term Futures Index. The increase in the Fund’s NAV was offset by a decrease from 2,500,040 outstanding Shares at December 31, 2012 to 2,100,040 outstanding Shares at December 31, 2013. By comparison, during the year ended December 31, 2012, the increase in the Fund’s NAV resulted primarily from an increase from 600,040 outstanding Shares at December 31, 2011 to 2,500,040 outstanding Shares at December 31, 2012. The increase in the Fund’s NAV also resulted in part from the cumulative effect of the Fund seeking daily

 

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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. By comparison, during the period ended December 31, 2011, the increase in the Fund’s NAV resulted primarily from an increase from 40 outstanding Shares at October 3, 2011 to 600,040 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 years ended December 31, 2013 and 2012 and 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. The Fund’s per Share NAV increase of 104.2% for the year ended December 31, 2013, as compared to the Fund’s per Share NAV increase of 155.7% for the year ended December 31, 2012, was primarily due to a lesser decline in prices of the first and second month VIX futures during the year ended December 31, 2013. The Fund’s per Share NAV increase of 155.7% for the year ended December 31, 2012, as compared to the Fund’s per Share NAV increase of 29.3% for the period ended December 31, 2011, was primarily due to a greater decline in prices of the first and second month VIX futures during the year ended December 31, 2012.

During the year ended December 31, 2013, the Fund’s per Share NAV reached its high for the period on December 26, 2013 at $69.78 per Share and reached its low for the period on June 24, 2013 at $35.51 per Share. By comparison, during the year ended December 31, 2012, the Fund’s per Share NAV reached its high for the year on December 18, 2012 at $39.25 per Share and reached its low for the year on January 3, 2012 at $13.74 per Share. By comparison, during the period ended December 31, 2011, the Fund’s per Share NAV reached its high for the period on October 28, 2011 at $14.60 per Share and reached its low for the period on November 25, 2011 at $9.69 per Share.

The benchmark’s decline of 65.7% for the year ended December 31, 2013, as compared to the benchmark’s decline of 77.9% for the year ended December 31, 2012, can be attributed to a lesser decline in prices of the near-term futures contracts on the VIX futures curve during the year ended December 31, 2013. The benchmark’s decline of 77.9% for the year ended December 31, 2012, as compared to the benchmark’s decline of 37.9% for the period ended December 31, 2011, can be attributed to declining prices of the near-term futures contracts on the VIX futures curve during the year ended December 31, 2012.

Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2013 and 2012 and the period from commencement of operations to December 31, 2011:

 

     Year Ended
December 31, 2013
    Year Ended
December 31, 2012
    October 3, 2011
(Commencement of
Operations) through

December 31, 2011
 

Net investment income (loss)

   $ (1,328,369 )   $ (437,699 )   $ (16,333 )

Management fee

     845,479       196,650       5,916  

Brokerage commission

     519,393       189,549       3,345  

Offering costs

     —          69,761       7,073  

Net realized gain (loss)

     87,181,110       13,206,071       1,355,837  

Change in net unrealized appreciation/depreciation

     9,505,925       (1,474,803 )     90,180  

Net income (loss)

   $ 95,358,666     $ 11,293,569     $ 1,429,684  

The Fund’s net income increased for the year ended December 31, 2013, as compared to the year ended December 31, 2012, primarily due to a higher asset base and declining futures prices during the year ended December 31, 2013. The Fund’s net income increased for the year ended December 31, 2012, as compared to the period ended December 31, 2011, primarily due to a higher asset base and declining futures prices during the year ended December 31, 2012.

 

* See Note 1 and Note 9 of the Notes to Financial Statements in Item 15 of Part IV in this Annual Report on Form 10-K regarding the Share split for the ProShares Short VIX Short-Term Futures ETF.

 

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Since ProShares UltraShort Australian Dollar and ProShares Ultra Australian Dollar commenced investment operations on July 17, 2012 and ProShares Short Euro commenced investment operations on June 26, 2012, comparisons of positions in certain Financial Instruments held by each of ProShares UltraShort Australian Dollar, ProShares Ultra Australian Dollar and ProShares Short Euro for the year ended December 31, 2012 may not be meaningful.

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, 2013 and 2012, each of the Commodity Funds and the Commodity Index Funds’ positions were as follows:

ProShares UltraShort DJ-UBS Commodity:

As of December 31, 2013 and 2012, 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, 2013 and 2012, which were sensitive to commodity price risk.

 

Swap Agreements as of December 31, 2013  

Reference Index

   Counterparty    Long or
Short
   Index Close      Notional
Amount at
Value
 

Dow Jones-UBS Commodity Index

   Deutsche Bank AG    Short    $ 125.7515       $ (2,912,629

Dow Jones-UBS Commodity Index

   Goldman Sachs
International
   Short      125.7515         (3,114,183

Dow Jones-UBS Commodity Index

   UBS AG    Short      125.7515         (1,567,698

 

Swap Agreements as of December 31, 2012

 

Reference Index

   Counterparty    Long or
Short
   Index Close      Notional
Amount at
Value
 

Dow Jones-UBS Commodity Index

   Goldman Sachs
International
   Short    $ 139.0707       $ (4,729,704

Dow Jones-UBS Commodity Index

   UBS AG    Short      139.0707         (1,763,052

The December 31, 2013 and 2012 short swap notional values are calculated by multiplying units times the closing level of the Index. These short notional values will increase (decrease) proportionally with decreases (increases) in the level of the Index. Additional gains (losses) associated with these contracts will be equal to any such subsequent decreases (increases) in short notional values, 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 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 a single 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.

 

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ProShares UltraShort DJ-UBS Crude Oil:

As of December 31, 2013 and 2012, 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 WTI Crude Oil SubindexSM. The following tables provide information about the Fund’s positions in these Financial Instruments as of December 31, 2013 and 2012, which were sensitive to commodity price risk.

 

Futures Positions as of December 31, 2013  

Contract

   Long or
Short
   Expiration    Contracts      Valuation
Price
     Contract
Multiplier
     Notional Amount
at Value
 

WTI Crude Oil (NYMEX)

   Short    March 2014      2,203      $ 98.55         1,000       $ (217,105,650

 

Swap Agreements as of December 31, 2013  

Reference Index

   Counterparty    Long or
Short
   Index Close      Notional
Amount at
Value
 

Dow Jones-UBS WTI Crude Oil Subindex

   Deutsche Bank AG    Short    $ 244.4323       $ (81,834,893

Dow Jones-UBS WTI Crude Oil Subindex

   Goldman Sachs
International
   Short      244.4323         (79,971,962

Dow Jones-UBS WTI Crude Oil Subindex

   Societe Generale S.A.    Short      244.4323         (53,493,455

Dow Jones-UBS WTI Crude Oil Subindex

   UBS AG    Short      244.4323         (79,680,364

 

Futures Positions as of December 31, 2012  

Contract

   Long or
Short
   Expiration    Contracts      Valuation
Price
     Contract
Multiplier
     Notional Amount
at Value
 

WTI Crude Oil (NYMEX)

   Short    March 2013         825      $ 92.27         1,000       $ (76,122,750

 

Swap Agreements as of December 31, 2012  

Reference Index

   Counterparty    Long or
Short
   Index Close      Notional
Amount at
Value
 

Dow Jones-UBS WTI Crude Oil Subindex

   Goldman Sachs
International
   Short    $ 228.9141       $ (37,668,290

Dow Jones-UBS WTI Crude Oil Subindex

   Societe Generale S.A.    Short      228.9141         (16,223,148

Dow Jones-UBS WTI Crude Oil Subindex

   UBS AG    Short      228.9141         (48,930,885

The December 31, 2013 and 2012 short futures notional values are calculated by multiplying the number of contracts held times the valuation price times the contract multiplier. The December 31, 2013 and 2012 short swap notional values are calculated by multiplying the number of units times the closing level of the Index. These short notional values will increase (decrease) proportionally with decreases (increases) 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 decreases (increases) in short notional values, 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 short exposure to the Index for every $1.00 of net assets. While the above information properly

 

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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 a single 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 Natural Gas:

As of December 31, 2013 and 2012, 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, 2013 and 2012, which were sensitive to commodity price risk.

 

Futures Positions as of December 31, 2013  

Contract

   Long or
Short
   Expiration    Contracts      Valuation
Price
     Contract
Multiplier
     Notional Amount
at Value
 

Natural Gas (NYMEX)

   Short    March 2014      1,084      $ 4.19         10,000       $ (45,452,120

 

Futures Positions as of December 31, 2012  

Contract

   Long or
Short
   Expiration    Contracts      Valuation
Price
     Contract
Multiplier
     Notional Amount
at Value
 

Natural Gas (NYMEX)

   Short    March 2013         759      $ 3.37         10,000       $ (25,540,350

The December 31, 2013 and 2012 short futures notional values are calculated by multiplying the number of contracts held times the valuation price times the contract multiplier. The short notional values will increase (decrease) proportionally with decreases (increases) in the price of the futures contract. Additional gains (losses) associated with these contracts will be equal to any such subsequent decreases (increases) in short notional values, 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 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 a single day.

ProShares UltraShort Gold:

As of December 31, 2013 and 2012, 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, 2013 and 2012, which were sensitive to commodity price risk.

 

Futures Positions as of December 31, 2013  

Contract

   Long or
Short
   Expiration    Contracts      Valuation
Price
     Contract
Multiplier
     Notional Amount
at Value
 

Gold Futures (COMEX)

   Short    February 2014      2      $ 1,202.30         100       $ (240,460

 

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Forward Agreements as of December 31, 2013  

Reference Index

   Counterparty    Long or
Short
   Valuation
Price
     Notional Amount
at Value
 

0.995 Fine Troy Ounce Gold

   Deutsche Bank AG    Short    $ 1,204.50       $ (135,867,600

0.995 Fine Troy Ounce Gold

   Goldman Sachs
International
   Short      1,204.50         (56,247,741

0.995 Fine Troy Ounce Gold

   Societe Generale S.A.    Short      1,204.50         (24,933,150

0.995 Fine Troy Ounce Gold

   UBS AG    Short      1,204.50         (61,610,175

 

Futures Positions as of December 31, 2012  

Contract

   Long or
Short
   Expiration    Contracts      Valuation
Price
     Contract
Multiplier
     Notional Amount
at Value
 

Gold Futures (COMEX)

   Short    February 2013      2      $ 1,675.80         100       $ (335,160

 

Forward Agreements as of December 31, 2012  

Reference Index

   Counterparty    Long or
Short
   Valuation
Price
     Notional Amount
at Value
 

0.995 Fine Troy Ounce Gold

   Deutsche Bank AG    Short    $ 1,657.63       $ (108,574,765

0.995 Fine Troy Ounce Gold

   Goldman Sachs
International
   Short      1,657.63         (27,513,343

0.995 Fine Troy Ounce Gold

   Societe Generale S.A.    Short      1,657.63         (22,212,242

0.995 Fine Troy Ounce Gold

   UBS AG    Short      1,657.63         (26,273,436

The December 31, 2013 and 2012 short futures notional values are calculated by multiplying the number of contracts held times the valuation price times the contract multiplier. The December 31, 2013 and 2012 short forward notional values equal units multiplied by the forward price. These short notional values will increase (decrease) proportionally with decreases (increases) 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 decreases (increases) in notional values, 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 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 a single 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.

 

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ProShares UltraShort Silver:

As of December 31, 2013 and 2012, 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, 2013 and 2012, which were sensitive to commodity price risk.

 

Futures Positions as of December 31, 2013  

Contract

   Long or
Short
   Expiration    Contracts      Valuation
Price
     Contract
Multiplier
     Notional Amount
at Value
 

Silver Futures (COMEX)

   Short    March 2014      2      $ 19.370         5,000       $ (193,700

 

Forward Agreements as of December 31, 2013  

Reference Index

   Counterparty    Long or
Short
   Valuation
Price
     Notional Amount
at Value
 

0.999 Fine Troy Ounce Silver

   Deutsche Bank AG    Short    $ 19.6524       $ (119,839,790

0.999 Fine Troy Ounce Silver

   Goldman Sachs
International
   Short      19.6524         (46,151,483

0.999 Fine Troy Ounce Silver

   Societe Generale S.A.    Short      19.6524         (22,680,826

0.999 Fine Troy Ounce Silver

   UBS AG    Short      19.6524         (37,112,306

 

Futures Positions as of December 31, 2012  

Contract

   Long or
Short
   Expiration    Contracts      Valuation
Price
     Contract
Multiplier
     Notional Amount
at Value
 

Silver Futures (COMEX)

   Short    March 2013      2      $ 30.227         5,000       $ (302,270

 

Forward Agreements as of December 31, 2012         

Reference Index

   Counterparty    Long or
Short
   Valuation
Price
     Notional Amount
at Value
 

0.999 Fine Troy Ounce Silver

   Deutsche Bank AG    Short    $ 29.9545       $ (103,432,889

0.999 Fine Troy Ounce Silver

   Goldman Sachs
International
   Short      29.9545         (33,773,699

0.999 Fine Troy Ounce Silver

   Societe Generale S.A.    Short      29.9545         (37,532,989

0.999 Fine Troy Ounce Silver

   UBS AG    Short      29.9545         (26,270,097

The December 31, 2013 and 2012 short futures notional values are calculated by multiplying the number of contracts held times the valuation price times the contract multiplier. The December 31, 2013 and 2012 short forward notional values equal units multiplied by the forward price. These short notional values will increase (decrease) proportionally with decreases (increases) 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 decreases (increases) in short notional values, 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 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 a single 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.

 

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ProShares Ultra DJ-UBS Commodity:

As of December 31, 2013 and 2012, 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, 2013 and 2012, which were sensitive to commodity price risk.

 

Swap Agreements as of December 31, 2013  

Reference Index

   Counterparty    Long or
Short
   Index Close      Notional
Amount at
Value
 

Dow Jones-UBS Commodity Index

   Deutsche Bank AG    Long    $ 125.7515       $ 2,549,441  

Dow Jones-UBS Commodity Index

   Goldman Sachs
International
   Long      125.7515         2,157,299  

Dow Jones-UBS Commodity Index

   UBS AG    Long      125.7515         1,113,381  

 

Swap Agreements as of December 31, 2012

 

Reference Index

   Counterparty    Long or
Short
   Index Close      Notional
Amount at
Value
 

Dow Jones-UBS Commodity Index

   Goldman Sachs
International
   Long    $ 139.0707       $ 7,780,320  

Dow Jones-UBS Commodity Index

   UBS AG    Long      139.0707         4,411,987  

The December 31, 2013 and 2012 swap notional values are calculated by multiplying units times the closing level of the Index. These notional values 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 values, 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 a single 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, 2013 and 2012, 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 WTI Crude Oil SubindexSM. The following tables provide information about the Fund’s positions in these Financial Instruments as of December 31, 2013 and 2012, which were sensitive to commodity price risk.

 

Futures Positions as of December 31, 2013  

Contract

   Long or
Short
   Expiration    Contracts      Valuation
Price
     Contract
Multiplier
     Notional Amount
at Value
 

WTI Crude Oil (NYMEX)

   Long    March 2014      1,103      $ 98.55         1,000       $ 108,700,650  

 

Swap Agreements as of December 31, 2013  

Reference Index

   Counterparty    Long or
Short
   Index Close      Notional
Amount at
Value
 

Dow Jones-UBS WTI Crude Oil Subindex

   Deutsche Bank AG    Long    $ 244.4323       $ 52,210,040  

Dow Jones-UBS WTI Crude Oil Subindex

   Goldman Sachs
International
   Long      244.4323         54,411,119  

Dow Jones-UBS WTI Crude Oil Subindex

   Societe Generale S.A.    Long      244.4323         26,715,890  

Dow Jones-UBS WTI Crude Oil Subindex

   UBS AG    Long      244.4323         43,518,797  

 

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Futures Positions as of December 31, 2012  

Contract

   Long or
Short
   Expiration    Contracts      Valuation
Price
     Contract
Multiplier
     Notional Amount
at Value
 

WTI Crude Oil (NYMEX)

   Long    March 2013      4,378      $ 92.27         1,000       $ 403,958,060  

 

Swap Agreements as of December 31, 2012  

Reference Index

   Counterparty    Long or
Short
   Index Close      Notional
Amount at
Value
 

Dow Jones-UBS WTI Crude Oil Subindex

   Goldman Sachs
International
   Long    $ 228.9141       $ 232,506,653  

Dow Jones-UBS WTI Crude Oil Subindex

   Societe Generale S.A.    Long      228.9141         128,396,742  

Dow Jones-UBS WTI Crude Oil Subindex

   UBS AG    Long      228.9141         202,152,019  

The December 31, 2013 and 2012 futures notional values are calculated by multiplying the number of contracts held times the valuation price times the contract multiplier. The December 31, 2013 and 2012 swap notional values are calculated by multiplying the number of units times the closing level of the Index. These notional values 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 values, 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 a single 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 Natural Gas:

As of December 31, 2013 and 2012, the ProShares Ultra 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, 2013 and 2012, which were sensitive to commodity price risk.

 

Futures Positions as of December 31, 2013  

Contract

   Long or
Short
   Expiration    Contracts      Valuation
Price
     Contract
Multiplier
     Notional Amount
at Value
 

Natural Gas (NYMEX)

   Long    March 2014      3,001      $ 4.19         10,000       $ 125,831,930  

 

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Futures Positions as of December 31, 2012  

Contract

   Long or
Short
   Expiration    Contracts      Valuation
Price
     Contract
Multiplier
     Notional Amount
at Value
 

Natural Gas (NYMEX)

   Long    March 2013      4,340      $ 3.37         10,000       $ 146,041,000  

The December 31, 2013 and 2012 futures notional values are calculated by multiplying the number of contracts held times the valuation price times the contract multiplier. The notional values will increase (decrease) proportionally with increases (decreases) in the price of the futures contract, as applicable. Additional gains (losses) associated with these contracts will be equal to any such subsequent increases (decreases) in notional values, 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 a single day.

ProShares Ultra Gold:

As of December 31, 2013 and 2012, 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, 2013 and 2012, which were sensitive to commodity price risk.

 

Futures Positions as of December 31, 2013  

Contract

   Long or
Short
   Expiration    Contracts      Valuation
Price
     Contract
Multiplier
     Notional Amount
at Value
 

Gold Futures (COMEX)

   Long    February 2014      2      $ 1,202.30         100       $ 240,460  

 

Forward Agreements as of December 31, 2013  

Reference Index

   Counterparty    Long or
Short
   Valuation
Price
     Notional Amount
at Value
 

0.995 Fine Troy Ounce Gold

   Deutsche Bank AG    Long    $ 1,204.50       $ 130,688,250  

0.995 Fine Troy Ounce Gold

   Goldman Sachs
International
   Long      1,204.50         53,985,690  

0.995 Fine Troy Ounce Gold

   Societe Generale S.A.    Long      1,204.50         33,846,450  

0.995 Fine Troy Ounce Gold

   UBS AG    Long      1,204.50         45,289,200  

 

Futures Positions as of December 31, 2012  

Contract

   Long or
Short
   Expiration    Contracts      Valuation
Price
     Contract
Multiplier
     Notional Amount
at Value
 

Gold Futures (COMEX)

   Long    February 2013      2      $ 1,675.80         100       $ (335,160 )

 

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Forward Agreements as of December 31, 2012  

Reference Index

   Counterparty    Long or
Short
   Valuation
Price
     Notional Amount
at Value
 

0.995 Fine Troy Ounce Gold

   Deutsche Bank AG    Long    $ 1,657.63       $ 200,241,704   

0.995 Fine Troy Ounce Gold

   Goldman Sachs
International
   Long      1,657.63         151,540,535   

0.995 Fine Troy Ounce Gold

   Societe Generale S.A.    Long      1,657.63         163,110,792   

0.995 Fine Troy Ounce Gold

   UBS AG    Long      1,657.63         154,822,642   

The December 31, 2013 and 2012 futures notional values are calculated by multiplying the number of contracts held times the valuation price times the contract multiplier. The December 31, 2013 and 2012 forward notional values equal units multiplied by the forward price. These notional values 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 values, 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 a single 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, 2013 and 2012, 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, 2013 and 2012, which were sensitive to commodity price risk.

 

Futures Positions as of December 31, 2013  

Contract

   Long or
Short
   Expiration    Contracts      Valuation
Price
     Contract
Multiplier
     Notional Amount
at Value
 

Silver Futures (COMEX)

   Long    March 2014      2      $ 19.370         5,000       $ 193,700  

 

Forward Agreements as of December 31, 2013  

Reference Index

   Counterparty    Long or
Short
   Valuation
Price
     Notional Amount
at Value
 

0.999 Fine Troy Ounce Silver

   Deutsche Bank AG    Long    $ 19.6524       $ 500,401,818  

0.999 Fine Troy Ounce Silver

   Goldman Sachs
International
   Long      19.6524         167,674,296  

0.999 Fine Troy Ounce Silver

   Societe Generale S.A.    Long      19.6524         96,573,904  

0.999 Fine Troy Ounce Silver

   UBS AG    Long      19.6524         166,079,032  

 

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Futures Positions as of December 31, 2012  

Contract

   Long or
Short
   Expiration    Contracts      Valuation
Price
     Contract
Multiplier
     Notional Amount
at Value
 

Silver Futures (COMEX)

   Long    March 2013      2      $ 30.227         5,000       $ 302,270  

 

Forward Agreements as of December 31, 2012  

Reference Index

   Counterparty    Long or
Short
   Valuation
Price
     Notional Amount
at Value
 

0.999 Fine Troy Ounce Silver

   Deutsche Bank AG    Long    $ 29.9542       $ 521,352,073  

0.999 Fine Troy Ounce Silver

   Goldman Sachs
International
   Long      29.9545         318,290,526  

0.999 Fine Troy Ounce Silver

   Societe Generale S.A.    Long      29.9545         357,417,094  

0.999 Fine Troy Ounce Silver

   UBS AG    Long      29.9545         297,987,366  

The December 31, 2013 and 2012 futures notional values are calculated by multiplying the number of contracts held times the valuation price times the contract multiplier. The December 31, 2013 and 2012 forward notional values equal units multiplied by the forward price. These notional values 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 values, 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 a single 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 Fund’s Financial Instruments, which are sensitive to changes in exchange rates. As of December 31, 2013 and 2012, each of the Currency Funds’ positions was as follows:

ProShares Short Euro:

As of December 31, 2013 and 2012, the ProShares Short Euro Fund was exposed to inverse exchange rate price risk through its holdings of Euro/USD foreign currency futures contracts. The following table provides information about the Fund’s positions in these Financial Instruments as of December 31, 2013 and 2012, which were sensitive to exchange rate price risk.

 

Futures Positions as of December 31, 2013  

Contract

   Long or
Short
   Expiration    Contracts      Valuation
Price
     Contract
Multiplier
     Notional Amount
at Value
 

Euro Fx Currency Futures (CME)

   Short    March 2014      52      $ 1.3788         125,000       $ (8,962,200

 

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Futures Positions as of December 31, 2012  

Contract

   Long or
Short
   Expiration    Contracts      Valuation
Price
     Contract
Multiplier
     Notional Amount
at Value
 

Euro Fx Currency Futures (CME)

   Short    March 2013      23      $ 1.321         125,000       $ (3,797,300

The December 31, 2013 and 2012 short futures notional values are calculated by multiplying the number of contracts held times the valuation price times the contract multiplier. The short notional values will increase (decrease) proportionally with decreases (increases) in the price of the futures contract. Additional gains (losses) associated with these contracts will be equal to any such subsequent decreases (increases) in short notional values, 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 $1.00 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 one. See “Item 1A. Risk Factors” in the Form 10-K for additional information regarding performance for periods longer than a single day.

ProShares UltraShort Australian Dollar:

As of December 31, 2013 and 2012, the ProShares UltraShort Australian Dollar Fund was exposed to inverse exchange rate price risk through its holdings of AUD/USD foreign currency futures contracts. The following table provides information about the Fund’s positions in these Financial Instruments as of December 31, 2013 and 2012, which were sensitive to exchange rate price risk.

 

Futures Positions as of December 31, 2013  

Contract

   Long or
Short
   Expiration    Contracts      Valuation
Price
     Contract
Multiplier
     Notional Amount
at Value
 

Australian Dollar Fx Currency Futures (CME)

   Short    March 2014      629      $ 88.82         1,000       $ (55,867,780

 

Futures Positions as of December 31, 2012

 

Contract

   Long or
Short
   Expiration    Contracts      Valuation
Price
     Contract
Multiplier
     Notional Amount
at Value
 

Australian Dollar Fx Currency Futures (CME)

   Short    March 2013      73      $ 103.250         1,000       $ (7,537,250

The December 31, 2013 and 2012 short futures notional values are calculated by multiplying the number of contracts held times the valuation price times the contract multiplier. The short notional values will increase (decrease) proportionally with decreases (increases) in the price of the futures contract. Additional gains (losses) associated with these contracts will be equal to any such subsequent decreases (increases) in short notional values, 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 short exposure to the Australian dollar 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 Australian dollar and multiplying by negative two. See “Item 1A. Risk Factors” in the Form 10-K for additional information regarding performance for periods longer than a single day.

 

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ProShares UltraShort Euro:

As of December 31, 2013 and 2012, 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, 2013 and 2012, which were sensitive to exchange rate price risk.

 

Foreign Currency Forward Contracts as of December 31, 2013  

Reference Currency

   Counterparty    Long or
Short
   Settlement
Date
   Euro     Forward
Rate
     Market Value
USD
 

Euro

   Goldman Sachs
International
   Long    01/10/14      19,352,500       1.3758       $   26,625,017  

Euro

   UBS AG    Long    01/10/14        35,427,500       1.3758         48,740,875  

Euro

   Goldman Sachs
International
   Short    01/10/14      (323,915,825     1.3758         (445,640,837

Euro

   UBS AG    Short    01/10/14      (338,474,500     1.3758         (465,670,547

 

Foreign Currency Forward Contracts as of December 31, 2012  

Reference Currency

   Counterparty    Long or
Short
   Settlement
Date
   Euro     Forward
Rate
     Market Value
USD
 

Euro

   Goldman Sachs
International
   Long    01/04/13      82,837,700       1.3195       $ 109,305,330  

Euro

   UBS AG    Long    01/04/13      175,817,700       1.3195         231,993,545  

Euro

   Goldman Sachs
International
   Short    01/04/13      (492,005,225     1.3195         (649,206,743

Euro

   UBS AG    Short    01/04/13      (563,892,200     1.3195         (744,062,460

The December 31, 2013 and 2012 USD market values equal the number of euros multiplied by the forward rate. These short notional values will increase (decrease) proportionally with decreases (increases) in the forward price. Additional gains (losses) associated with these contracts will be equal to any such subsequent decreases (increases) in short notional values, 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 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 a single 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, 2013 and 2012, 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, 2013 and 2012, which were sensitive to exchange rate price risk.

 

Foreign Currency Forward Contracts as of December 31, 2013  

Reference Currency

   Counterparty    Long or
Short
   Settlement
Date
   Yen     Forward
Rate
     Market Value
USD
 

Yen

   Goldman Sachs
International
   Long    01/10/14      3,967,682,500       0.00950       $ 37,685,648  

Yen

   UBS AG    Long    01/10/14      3,710,762,600       0.00950         35,245,383  

Yen

   Goldman Sachs
International
   Short    01/10/14      (66,470,096,200     0.00950         (631,343,013

Yen

   UBS AG    Short    01/10/14      (65,021,781,500     0.00950         (617,586,701

 

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Foreign Currency Forward Contracts as of December 31, 2012  

Reference Currency

   Counterparty    Long or
Short
   Settlement
Date
   Yen     Forward
Rate
     Market Value
USD
 

Yen

   UBS AG    Long    01/04/13      601,353,100       0.011529       $ 6,933,000  

Yen

   Goldman Sachs
International
   Short    01/04/13      (33,732,636,200     0.011529         (388,903,561

Yen

   UBS AG    Short    01/04/13      (37,798,808,300     0.011529         (435,782,459

The December 31, 2013 and 2012 USD market values equal the number of yen multiplied by the forward rate. These short notional values will increase (decrease) proportionally with decreases (increases) in the forward price. Additional gains (losses) associated with these contracts will be equal to any such subsequent decreases (increases) in short notional values, 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 short 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 a single 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 Australian Dollar:

As of December 31, 2013 and 2012, the ProShares Ultra Australian Dollar Fund was exposed to exchange rate price risk through its holdings of AUD/USD foreign currency futures contracts. The following table provides information about the Fund’s positions in these Financial Instruments as of December 31, 2013 and 2012, which were sensitive to exchange rate price risk.

 

Futures Positions as of December 31, 2013  

Contract

   Long or
Short
   Expiration    Contracts      Valuation
Price
     Contract
Multiplier
     Notional Amount
at Value
 

Australian Dollar Fx Currency Futures (CME)

   Long    March 2014      71      $     88.82         1,000       $ 6,306,220  

 

Futures Positions as of December 31, 2012  

Contract

   Long or
Short
   Expiration    Contracts      Valuation
Price
     Contract
Multiplier
     Notional Amount
at Value
 

Australian Dollar Fx Currency Futures (CME)

   Long    March 2013      80      $ 103.250         1,000       $ 8,260,000  

The December 31, 2013 and 2012 futures notional values are calculated by multiplying the number of contracts held times the valuation price times the contract multiplier. The notional values will increase (decrease) proportionally with increases (decreases) in the price of the futures contract. Additional gains (losses) associated with these contracts will be equal to any such subsequent increases (decreases) in notional values, 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 Australian dollar 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

 

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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 Australian dollar and multiplying by two. See “Item 1A. Risk Factors” in the Form 10-K for additional information regarding performance for periods longer than a single day.

ProShares Ultra Euro:

As of December 31, 2013 and 2012, 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, 2013 and 2012, which were sensitive to exchange rate price risk.

 

Foreign Currency Forward Contracts as of December 31, 2013  

Reference Currency

   Counterparty    Long or
Short
   Settlement
Date
   Euro     Forward
Rate
     Market Value
USD
 

Euro

   Goldman Sachs
International
   Long    01/10/14      2,652,025       1.3758       $ 3,648,635  

Euro

   UBS AG    Long    01/10/14      3,078,100       1.3758         4,234,826  

Euro

   Goldman Sachs
International
   Short    01/10/14      (1,918,800     1.3758         (2,639,870

Euro

   UBS AG    Short    01/10/14      (26,300     1.3758         (36,184

 

Foreign Currency Forward Contracts as of December 31, 2012  

Reference Currency

   Counterparty    Long or
Short
   Settlement
Date
   Euro     Forward
Rate
     Market Value
USD
 

Euro

   Goldman Sachs
International
   Long    01/04/13      3,207,025       1.3195       $ 4,231,708  

Euro

   UBS AG    Long    01/04/13      4,319,600       1.3195         5,699,764  

Euro

   Goldman Sachs
International
   Short    01/04/13      (23,900     1.3195         (31,536

Euro

   UBS AG    Short    01/04/13         (100,900     1.3195         (133,139

The December 31, 2013 and 2012 USD market value equals the number of euros multiplied by the forward rate. These notional values will increase (decrease) proportionally with increases (decreases) in the forward price. Additional gains (losses) associated with these contracts will be equal to any such subsequent increases (decreases) in notional values, 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 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 a single 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 Ultra Yen:

As of December 31, 2013 and 2012, 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, 2013 and 2012, which were sensitive to exchange rate price risk.

 

Foreign Currency Forward Contracts as of December 31, 2013  

Reference Currency

   Counterparty    Long or
Short
   Settlement
Date
   Yen     Forward
Rate
     Market Value
USD
 

Yen

   Goldman Sachs
International
   Long    01/10/14      296,968,900       0.00950       $ 2,820,656  

Yen

   UBS AG    Long    01/10/14      321,381,200       0.00950         3,052,527  

Yen

   Goldman Sachs
International
   Short    01/10/14      (11,926,300     0.00950         (113,278

Yen

   UBS AG    Short    01/10/14      (17,263,400     0.00950         (163,970

 

Foreign Currency Forward Contracts as of December 31, 2012  

Reference Currency

   Counterparty    Long or
Short
   Settlement
Date
   Yen     Forward
Rate
     Market Value
USD
 

Yen

   Goldman Sachs
International
   Long    01/04/13      353,636,200       0.011529       $ 4,077,072  

Yen

   UBS AG    Long    01/04/13      424,732,500       0.011529         4,896,741  

Yen

   Goldman Sachs
International
   Short    01/04/13      (19,923,300     0.011529         (229,696

Yen

   UBS AG    Short    01/04/13      (25,219,500     0.011529         (290,756

The December 31, 2013 and 2012 USD market values equal the number of yen multiplied by the forward rate. These notional values will increase (decrease) proportionally with increases (decreases) in the forward price. Additional gains (losses) associated with these contracts will be equal to any such subsequent increases (decreases) in notional values, 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 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 a single 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, 2013 and 2012, each of the VIX Funds’ positions were as follows:

ProShares VIX Short-Term Futures ETF

As of December 31, 2013 and 2012, 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, 2013 and 2012, which were sensitive to equity market volatility risk.

 

Futures Positions as of December 31, 2013  

Contract

   Long or
Short
   Expiration    Contracts      Valuation
Price
     Contract
Multiplier
     Notional Amount
at Value
 

VIX Futures (CBOE)

   Long    January 2014      11,195      $ 13.95         1,000       $ 156,170,250  

VIX Futures (CBOE)

   Long    February 2014      7,748        14.75         1,000         114,283,000  

 

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Futures Positions as of December 31, 2012  

Contract

   Long or
Short
   Expiration    Contracts      Valuation
Price
     Contract
Multiplier
     Notional Amount
at Value
 

VIX Futures (CBOE)

   Long    January 2013      4,208      $ 17.70         1,000       $ 74,481,600  

VIX Futures (CBOE)

   Long    February 2013      3,372        18.50         1,000         62,382,000  

The December 31, 2013 and 2012 futures notional values are calculated by multiplying the number of contracts held times the valuation price times the contract multiplier. The notional values will increase (decrease) proportionally with increases (decreases) in the price of the futures contract. Additional gains (losses) associated with these contracts will be equal to any such subsequent increases (decreases) in notional values, before accounting for spreads or transaction or financing costs. The Fund will generally attempt to adjust its positions in Financial Instruments each day to match the performance of the Index. While the above information properly represents the then current equity 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. See “Item 1A. Risk Factors” in the Form 10-K for additional information regarding performance for periods longer than a single day.

ProShares VIX Mid-Term Futures ETF

As of December 31, 2013 and 2012, 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, 2013 and 2012, which were sensitive to equity market volatility risk.

 

Futures Positions as of December 31, 2013  

Contract

   Long or
Short
   Expiration    Contracts      Valuation
Price
     Contract
Multiplier
     Notional Amount
at Value
 

VIX Futures (CBOE)

   Long    April 2014      594      $ 16.25         1,000       $ 9,652,500  

VIX Futures (CBOE)

   Long    May 2014      1,005        16.80         1,000         16,884,000  

VIX Futures (CBOE)

   Long    June 2014      1,005        17.25         1,000         17,336,250  

VIX Futures (CBOE)

   Long    July 2014      411        17.70         1,000         7,274,700  
Futures Positions as of December 31, 2012  

Contract

   Long or
Short
   Expiration    Contracts      Valuation
Price
     Contract
Multiplier
     Notional Amount
at Value
 

VIX Futures (CBOE)

   Long    April 2013      322      $ 20.40         1,000       $ 6,568,800  

VIX Futures (CBOE)

   Long    May 2013      580        21.00         1,000         12,180,000  

VIX Futures (CBOE)

   Long    June 2013      580        21.90         1,000         12,702,000  

VIX Futures (CBOE)

   Long    July 2013      258        22.75         1,000         5,869,500  

The December 31, 2013 and 2012 futures notional values are calculated by multiplying the number of contracts held times the valuation price times the contract multiplier. The notional values will increase (decrease) proportionally with increases (decreases) in the price of the futures contract. Additional gains (losses) associated with these contracts will be equal to any such subsequent increases (decreases) in short notional values, before accounting for spreads or transaction or financing costs. The Fund will generally attempt to adjust its positions in Financial Instruments each day to match the performance of the Index. While the above information properly represents the then current equity 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. See “Item 1A. Risk Factors” in the Form 10-K for additional information regarding performance for periods longer than a single day.

 

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ProShares Ultra VIX Short-Term Futures ETF

As of December 31, 2013 and 2012, 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 tables provide information about the Fund’s positions in VIX futures contracts as of December 31, 2013 and 2012, which were sensitive to equity market volatility risk.

 

Futures Positions as of December 31, 2013  

Contract

   Long or
Short
   Expiration    Contracts      Valuation
Price
     Contract
Multiplier
     Notional Amount
at Value
 

VIX Futures (CBOE)

   Long    January 2014      18,727      $ 13.95         1,000       $ 261,241,650  

VIX Futures (CBOE)

   Long    February 2014      12,964        14.75         1,000         191,219,000  
Futures Positions as of December 31, 2012  

Contract

   Long or
Short
   Expiration    Contracts      Valuation
Price
     Contract
Multiplier
     Notional Amount
at Value
 

VIX Futures (CBOE)

   Long    January 2013      4,779      $ 17.70         1,000       $ 84,588,300  

VIX Futures (CBOE)

   Long    February 2013      3,827        18.50         1,000         70,799,500  

The December 31, 2013 and 2012 futures notional values are calculated by multiplying the number of contracts held times the valuation price times the contract multiplier. These notional values will increase (decrease) proportionally with increases (decreases) in the price of the futures contract. Additional gains (losses) associated with these contracts will be equal to any such subsequent increases (decreases) in notional values, 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 equity 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 the Form 10-K for additional information regarding performance for periods longer than a single day.

ProShares Short VIX Short-Term Futures ETF

As of December 31, 2013 and 2012, 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, 2013 and 2012, which were sensitive to equity market volatility risk.

 

Futures Positions as of December 31, 2013  

Contract

   Long or
Short
   Expiration    Contracts      Valuation
Price
     Contract
Multiplier
     Notional Amount
at Value
 

VIX Futures (CBOE)

   Short    January 2014      5,867      $ 13.95         1,000       $ (81,844,650

VIX Futures (CBOE)

   Short    February 2014      4,061        14.75         1,000         (59,899,750
Futures Positions as of December 31, 2012  

Contract

   Long or
Short
   Expiration    Contracts      Valuation
Price
     Contract
Multiplier
     Notional Amount
at Value
 

VIX Futures (CBOE)

   Short    January 2013      2,556      $ 17.70         1,000       $ (45,241,200

VIX Futures (CBOE)

   Short    February 2013      2,051        18.50         1,000         (37,943,500

 

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The December 31, 2013 and 2012 short futures notional values are calculated by multiplying the number of contracts held times the valuation price times the contract multiplier. The short notional values will increase (decrease) proportionally with decreases (increases) in the price of the futures contract. Additional gains (losses) associated with these contracts will be equal to any such subsequent decreases (increases) in short notional values, 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 $1.00 of short exposure to the Index for every $1.00 of net assets. While the above information properly represents the then current equity 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 one. See “Item 1A. Risk Factors” in the Form 10-K for additional information regarding performance for periods longer than a single day.

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 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 Short Fund seeks 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 daily investment results (before fees and expenses) that correspond to two times the inverse (-2x) of the daily performance of its corresponding benchmark. Each Ultra Fund seeks daily investment results (before fees and expenses) that correspond to two times (2x) the daily performance of its corresponding benchmark. Each Matching VIX Fund seeks investment results (before fees and expenses), both over a single day and over time, 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 a single 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. Shareholders who invest in the Funds should actively manage and monitor their investments, 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 a single day. The Matching VIX Funds seek to achieve their stated investment objective both over a single day and over time.

Primary Market Risk Exposure

The primary market risks that the Funds are exposed to depend on each Fund’s investment objective and corresponding benchmark. For example, the primary market risk that the ProShares UltraShort DJ-UBS Crude Oil and the ProShares Ultra DJ-UBS Crude Oil Funds are exposed to are inverse and direct 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.

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.

 

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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 Fund and daily decreases in the price of an underlying commodity or commodity index will negatively impact the daily performance of Shares of 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 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 a Short Fund or an UltraShort Fund and daily decreases in the price of a currency will negatively impact the daily performance of Shares of 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” in this Annual Report on 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.

Managing Market Risks

Each Fund seeks to remain fully exposed to the corresponding benchmark at the levels implied by the relevant investment objective (-1x, -2x or 2x), 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.

 

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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 Ultra Fund has risen on a given day, net assets of the Fund should rise. As a result, 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 Ultra Fund should fall. As a result, the Fund’s long exposure will generally need to be decreased. Net assets for Short Funds or UltraShort Funds will generally decrease when the Index rises on a given day. As a result, the Fund’s short exposure may need to be decreased. Conversely, if the Index has fallen on a given day, a Short Fund’s, or an UltraShort Fund’s assets should rise. As a result, the Fund’s 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 fails to perform its obligations. Each Fund intends to enter into swap and forward agreements only with major global 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).

 

Item 8. Financial Statements and Supplementary Data.

Statement of Operations for the three month periods ended March 31, 2013 and 2012, June 30, 2013 and 2012, September 30, 2013 and 2012, and December 31, 2013 and 2012, and the years ended December 31, 2013 and 2012 for each Fund, as applicable.

PROSHARES ULTRASHORT DJ-UBS COMMODITY

 

     Three months ended (unaudited)  
     March 31,
2013
    June 30,
2013
    September 30,
2013
    December 31,
2013
    Year ended
December 31,
2013
 

Net investment income (loss)

   $ (6,860   $ (7,940   $ (8,450   $ (8,880   $ (32,130
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ 66,892      $ 655,164      $ (198,343   $ 59,879      $ 583,592   

Net income (loss)

   $ 60,032      $ 647,224      $ (206,793   $ 50,999      $ 551,462   

Net increase (decrease) in net asset value per share

   $ 1.00      $ 10.79      $ (3.45   $ 0.85      $ 9.19   
     Three months ended (unaudited)  
     March 31,
2012
    June 30,
2012
    September 30,
2012
    December 31,
2012
    Year ended
December 31,
2012
 

Net investment income (loss)

   $ (19,503 )   $ (14,834 )   $ (6,822 )   $ (6,590 )   $ (47,749 )
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (286,425 )   $ 910,795      $ (655,216 )   $ 371,058      $ 340,212   

Net income (loss)

   $ (305,928 )   $ 895,961      $ (662,038 )   $ 364,468      $ 292,463   

Net increase (decrease) in net asset value per share

   $ (1.91 )   $ 4.05      $ (11.03 )   $ 6.07      $ (2.82 )

 

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PROSHARES ULTRASHORT DJ-UBS CRUDE OIL

 

     Three months ended (unaudited)  
     March 31,
2013
    June 30,
2013
    September 30,
2013
    December 31,
2013
    Year ended
December 31,
2013
 

Net investment income (loss)

   $ (321,310   $ (438,268   $ (1,036,872   $ (748,178   $ (2,544,628
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (7,626,876   $ 10,910,913      $ (41,506,278   $ 32,000,414      $ (6,221,827

Net income (loss)

   $ (7,948,186   $ 10,472,645      $ (42,543,150   $ 31,252,236      $ (8,766,455

Net increase (decrease) in net asset value per share

   $ (3.83   $ (0.14   $ (6.08   $ 1.47      $ (8.58
     Three months ended (unaudited)  
     March 31,
2012
    June 30,
2012
    September 30,
2012
    December 31,
2012
    Year ended
December 31,
2012
 

Net investment income (loss)

   $ (335,925 )   $ (268,706 )   $ (241,721 )   $ (232,312 )   $ (1,078,664 )
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (4,727,063 )   $  49,643,334      $ (14,418,639 )   $ 4,549,993      $ 35,047,625   

Net income (loss)

   $   (5,062,988 )   $ 49,374,628      $ (14,660,360 )   $ 4,317,681      $ 33,968,961   

Net increase (decrease) in net asset value per share

   $ (3.58 )   $ 13.99      $ (8.63 )   $ (0.29 )   $ 1.49   

PROSHARES ULTRASHORT DJ-UBS NATURAL GAS

 

     Three months ended (unaudited)  
     March 31,
2013
    June 30,
2013
    September 30,
2013
    December 31,
2013
    Year ended
December 31,
2013
 

Net investment income (loss)

   $ (43,566   $ (74,590   $ (48,035   $ (43,169   $ (209,360
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (5,679,637   $ 4,991,846      $ 1,001,581      $ (2,265,942   $ (1,952,152

Net income (loss)

   $ (5,723,203   $ 4,917,256      $ 953,546      $ (2,309,111   $ (2,161,512

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

   $ (30.28   $ 16.71      $ 3.08      $ (21.69   $ (32.18
     Three months ended (unaudited)  
     March 31,
2012
    June 30,
2012
    September 30,
2012
    December 31,
2012
    Year ended
December 31,
2012
 

Net investment income (loss)

   $ (44,543 )   $ (64,525 )   $ (41,588 )   $ (45,751 )   $ (196,407 )
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $  10,368,292      $   (9,266,342 )   $ (3,747,142 )   $   2,887,056      $      241,864   

Net income (loss)

   $ 10,323,749      $ (9,330,867 )   $   (3,788,730 )   $ 2,841,305      $ 45,457   

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

   $ 100.54      $ (74.49   $ (32.72 )   $ 13.59      $ 6.92   

 

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PROSHARES ULTRASHORT GOLD

 

     Three months ended (unaudited)  
     March 31,
2013
    June 30,
2013
    September 30,
2013
    December 31,
2013
    Year ended
December 31,
2013
 

Net investment income (loss)

   $ (210,717   $ (349,253   $ (283,915   $ (331,975   $ (1,175,860
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ 5,891,080      $ 75,931,449      $ (38,028,963   $ 19,230,833      $ 63,024,399   

Net income (loss)

   $ 5,680,363      $ 75,582,196      $ (38,312,878   $ 18,898,858      $ 61,848,539   

Net increase (decrease) in net asset value per share

   $ 4.00      $ 46.23      $ (25.99   $ 15.41      $ 39.65   
     Three months ended (unaudited)  
     March 31,
2012
    June 30,
2012
    September 30,
2012
    December 31,
2012
    Year ended
December 31,
2012
 

Net investment income (loss)

   $ (342,867 )   $ (302,804 )   $ (256,499 )   $ (204,043 )   $ (1,106,213 )
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (34,607,326 )   $ 7,643,572      $ (24,877,579 )   $ 12,082,947      $ (39,758,386 )

Net income (loss)

   $ (34,950,193 )   $ 7,340,768      $ (25,134,078 )   $ 11,878,904      $ (40,864,599 )

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

   $ (14.97 )   $ 3.25      $ (14.67 )   $ 7.55      $ (18.84 )

PROSHARES ULTRASHORT SILVER

 

     Three months ended (unaudited)  
     March 31,
2013
    June 30,
2013
    September 30,
2013
    December 31,
2013
    Year ended
December 31,
2013
 

Net investment income (loss)

   $ (228,180   $ (273,413   $ (210,470   $ (261,241   $ (973,304
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ 10,137,402      $ 92,499,186      $ (26,077,138   $ 15,339,069      $ 91,898,519   

Net income (loss)

   $ 9,909,222      $ 92,225,773      $ (26,287,608   $ 15,077,828      $ 90,925,215   

Net increase (decrease) in net asset value per share

   $ 2.66      $ 56.54      $ (34.03   $ 13.21      $ 38.38   
     Three months ended (unaudited)  
     March 31,
2012
    June 30,
2012
    September 30,
2012
    December 31,
2012
    Year ended
December 31,
2012
 

Net investment income (loss)

   $ (487,831 )   $ (371,361 )   $ (290,149 )   $ (253,801 )   $ (1,403,142 )
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (70,018,033 )   $ 52,347,709      $ (67,146,826 )   $ 32,991,048      $ (51,826,102 )

Net income (loss)

   $ (70,505,864 )   $ 51,976,348      $ (67,436,975 )   $ 32,737,247      $ (53,229,244 )

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

   $ (24.24 )   $ 17.49      $ (30.05 )   $ 11.52      $ (25.28 )

 

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PROSHARES SHORT EURO

 

     Three months ended (unaudited)  
     March 31,
2013
    June 30,
2013
    September 30,
2013
    December 31,
2013
    Year ended
December 31,
2013
 

Net investment income (loss)

   $ (8,405   $ (8,572   $ (16,029   $ (18,164   $ (51,170
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ 108,751      $ (61,980   $ (247,809   $ (158,504   $ (359,542

Net income (loss)

   $      100,346      $        (70,552   $      (263,838   $      (176,668   $      (410,712

Net increase (decrease) in net asset value per share

   $ 1.00      $ (0.70   $ (1.54   $ (0.80   $ (2.04

 

     July 26, 2012
(Commencement
of Operations)
through
June 30, 2012
(unaudited)
    Three months
ended
September 30,
2012
(unaudited)
    Three months
ended
December 31,
2012
(unaudited)
    Year ended
December 31,
2012
 

Net investment income (loss)

   $ (477 )   $ (9,011 )   $ (8,403 )   $ (17,891 )
  

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (52,313 )   $ (65,844 )   $ (101,112 )   $ (219,269 )

Net income (loss)

   $ (52,790 )   $ (74,855 )   $ (109,515 )   $ (237,160 )

Net increase (decrease) in net asset value per share

   $ (0.53 )   $ (0.75 )   $ (1.09 )   $ (2.37 )

PROSHARES ULTRASHORT AUSTRALIAN DOLLAR

 

     Three months ended (unaudited)  
     March 31,
2013
    June 30,
2013
    September 30,
2013
    December 31,
2013
    Year ended
December 31,
2013
 

Net investment income (loss)

   $ (8,669   $ (30,369   $ (59,621   $ (60,765   $ (159,424
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $        (83,154   $    3,301,237      $   (1,475,308   $   1,810,524      $    3,553,299   

Net income (loss)

   $ (91,823   $ 3,270,868      $ (1,534,929   $ 1,749,759      $ 3,393,875   

Net increase (decrease) in net asset value per share

   $ (0.92   $ 9.52      $ (2.81   $ 3.04      $ 8.83   

 

     July 17, 2012
(Commencement
of Operations)
through
September 30,
2012
(unaudited)
    Three months
ended
December 31,
2012
(unaudited)
    Year ended
December 31,
2012
 

Net investment income (loss)

   $ (7,544 )   $ (8,685 )   $ (16,229 )
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (122,330 )   $ (80,642 )   $ (202,972 )

Net income (loss)

   $ (129,874 )   $ (89,327 )   $ (219,201 )

Net increase (decrease) in net asset value per share

   $ (1.30 )   $ (0.89 )   $ (2.19 )

PROSHARES ULTRASHORT EURO

 

     Three months ended (unaudited)  
     March 31,
2013
    June 30,
2013
    September 30,
2013
    December 31,
2013
    Year ended
December 31,
2013
 

Net investment income (loss)

   $ (1,093,113   $ (1,151,118   $ (1,130,081   $ (1,001,200   $ (4,375,512
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ 23,862,208      $ (17,083,818   $ (39,284,267   $ (16,138,673   $ (48,644,550

Net income (loss)

   $ 22,769,095      $ (18,234,936   $ (40,414,348   $ (17,139,873   $ (53,020,062

Net increase (decrease) in net asset value per share

   $ 0.99      $ (0.72   $ (1.55   $ (0.68   $ (1.96

 

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Table of Contents
     Three months ended (unaudited)  
     March 31,
2012
    June 30,
2012
    September 30,
2012
    December 31,
2012
    Year ended
December 31,
2012
 

Net investment income (loss)

   $ (2,152,538 )   $ (1,941,599 )   $ (1,892,376 )   $ (1,460,995 )   $ (7,447,508 )
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (59,640,258 )   $ 90,621,012      $ (27,155,422 )   $ (37,411,971 )   $ (33,586,639 )

Net income (loss)

   $ (61,792,796 )   $ 88,679,413      $ (29,047,798 )   $ (38,872,966 )   $   (41,034,147 )

Net increase (decrease) in net asset value per share

   $ (1.37 )   $ 1.94      $ (0.78 )   $ (1.11 )   $ (1.32 )

PROSHARES ULTRASHORT YEN

 

     Three months ended (unaudited)  
     March 31,
2013
    June 30,
2013
    September 30,
2013
    December 31,
2013
    Year ended
December 31,
2013
 

Net investment income (loss)

   $ (935,606   $ (1,178,365   $ (1,164,837   $ (1,119,423   $ (4,398,231
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ 61,500,278      $ 41,277,109      $ (14,083,894   $ 66,625,976      $  155,319,469   

Net income (loss)

   $  60,564,672      $ 40,098,744      $ (15,248,731   $ 65,506,553      $ 150,921,238   

Net increase (decrease) in net asset value per share

   $ 8.25      $ 5.10      $ (1.92   $ 8.67      $ 20.10   

 

     Three months ended (unaudited)  
     March 31,
2012
    June 30,
2012
    September 30,
2012
    December 31,
2012
    Year ended
December 31,
2012
 

Net investment income (loss)

   $ (569,225 )   $ (529,790 )   $ (495,697 )   $ (589,982 )   $ (2,184,694 )
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $  38,296,324      $ (19,396,894 )   $ (11,472,269 )   $ 62,408,535      $ 69,835,696   

Net income (loss)

   $ 37,727,099      $ (19,926,684 )   $ (11,967,966 )   $ 61,818,553      $    67,651,002   

Net increase (decrease) in net asset value per share

   $ 6.09      $ (3.52 )   $ (2.23 )   $ 9.46      $ 9.80   

PROSHARES ULTRA DJ-UBS COMMODITY

 

     Three months ended (unaudited)  
     March 31,
2013
    June 30,
2013
    September 30,
2013
    December 31,
2013
    Year ended
December 31,
2013
 

Net investment income (loss)

   $ (11,629   $ (9,573   $ (9,375   $ (7,900   $ (38,477
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $       (87,638   $      (860,431   $      148,876      $     (133,828   $       (933,021

Net income (loss)

   $ (99,267   $ (870,004   $ 139,501      $ (141,728   $ (971,498

Net increase (decrease) in net asset value per share

   $ (0.78   $ (4.35   $ 0.70      $ (0.53   $ (4.96

 

-125-


Table of Contents
     Three months ended (unaudited)  
     March 31,
2012
    June 30,
2012
    September 30,
2012
    December 31,
2012
    Year ended
December 31,
2012
 

Net investment income (loss)

   $ (22,013 )   $ (18,004 )   $ (19,548 )   $ (13,919 )   $ (73,484 )
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ 99,304      $ (886,086 )   $ 1,527,523      $ (875,535 )   $ (134,794 )

Net income (loss)

   $ 77,291      $ (904,090 )   $ 1,507,975      $ (889,454 )   $ (208,278 )

Net increase (decrease) in net asset value per share

   $ 0.22      $ (2.58 )   $ 4.48      $ (3.61 )   $ (1.49 )
  PROSHARES ULTRA DJ-UBS CRUDE OIL   
     Three months ended (unaudited)  
     March 31,
2013
    June 30,
2013
    September 30,
2013
    December 31,
2013
    Year ended
December 31,
2013
 

Net investment income (loss)

   $ (792,030   $ (655,340   $ (383,510   $ (365,401   $ (2,196,281
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ 37,813,890      $ (1,318,287   $ 35,386,540      $ (3,839,973   $ 68,042,170   

Net income (loss)

   $ 37,021,860      $ (1,973,627   $ 35,003,030      $ (4,205,374   $ 65,845,889   

Net increase (decrease) in net asset value per share

   $ 2.28      $ (1.51   $ 4.55      $ (2.62   $ 2.70   
     Three months ended (unaudited)  
     March 31,
2012
    June 30, 2012     September 30,
2012
    December 31,
2012
    Year ended
December 31,
2012
 

Net investment income (loss)

   $ (644,318 )   $ (679,477 )   $ (868,686 )   $ (1,055,949 )   $ (3,248,430 )
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ 24,645,121      $ (95,765,975 )   $ 60,875,920      $ (7,112,879 )   $ (17,357,813 )

Net income (loss)

   $ 24,000,803      $ (96,445,452 )   $ 60,007,234      $ (8,168,828 )   $ (20,606,243 )

Net increase (decrease) in net asset value per share

   $ 1.93      $ (15.10 )   $ 3.60      $ (1.92 )   $ (11.49 )
  PROSHARES ULTRA DJ-UBS NATURAL GAS   
     Three months ended (unaudited)  
     March 31,
2013
    June 30,
2013
    September 30,
2013
    December 31,
2013
    Year ended
December 31,
2013
 

Net investment income (loss)

   $ (197,871   $ (111,690   $ (214,137   $ (297,992   $ (821,690
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ 23,612,230      $ (10,837,515   $ (5,107,353   $ 33,918,038      $ 41,585,400   

Net income (loss)

   $ 23,414,359      $ (10,949,205   $ (5,321,490   $ 33,620,046      $ 40,763,710   

Net increase (decrease) in net asset value per share

   $ 11.20      $ (14.23   $ (3.76   $ 6.58      $ (0.21

 

-126-


Table of Contents
     Three months ended (unaudited)  
     March 31,
2012
    June 30,
2012
    September 30,
2012
    December 31,
2012
    Year ended
December 31,
2012
 

Net investment income (loss)

   $ (67,946 )   $ (151,025 )   $ (177,136 )   $ (170,203 )   $ (566,310 )
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (20,700,932 )   $ 13,458,075      $ 15,057,958      $ (13,640,941 )   $ (5,825,840 )

Net income (loss)

   $ (20,768,878 )   $ 13,307,050      $ 14,880,822      $ (13,811,144 )   $ (6,392,150 )

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

   $ (64.29 )   $ 8.00      $ 5.45      $ (12.09 )   $ (62.93 )
  PROSHARES ULTRA GOLD   
     Three months ended (unaudited)  
     March 31,
2013
    June 30,
2013
    September 30,
2013
    December 31,
2013
    Year ended
December 31,
2013
 

Net investment income (loss)

   $ (703,550   $ (478,211   $ (391,586   $ (351,868   $ (1,925,215
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (25,530,014   $ (130,983,691   $ 30,664,955      $ (30,955,795   $ (156,804,545

Net income (loss)

   $ (26,233,564   $ (131,461,902   $ 30,273,369      $ (31,307,663   $ (158,729,760

Net increase (decrease) in net asset value per share

   $ (6.57   $ (35.51   $ 9.07      $ (9.49   $ (42.50
     Three months ended (unaudited)  
     March 31,
2012
    June 30,
2012
    September 30,
2012
    December 31,
2012
    Year ended
December 31,
2012
 

Net investment income (loss)

   $ (878,349 )   $ (753,951 )   $ (762,841 )   $ (774,124 )   $ (3,169,265 )
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ 46,616,415      $ (32,627,228 )   $ 70,513,591      $ (52,861,032 )   $ 31,641,746   

Net income (loss)

   $ 45,738,066      $ (33,381,179 )   $ 69,750,750      $ (53,635,156 )   $ 28,472,481   

Net increase (decrease) in net asset value per share

   $ 11.88      $ (8.03 )   $ 17.41      $ (13.41 )   $ 7.85   
  PROSHARES ULTRA SILVER   
     Three months ended (unaudited)  
     March 31,
2013
    June 30,
2013
    September 30,
2013
    December 31,
2013
    Year ended
December 31,
2013
 

Net investment income (loss)

   $ (1,624,407   $ (1,206,634   $ (1,265,741   $ (1,183,925   $ (5,280,707
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (78,055,718   $ (491,068,555   $ 124,899,612      $ (114,051,116   $ (558,275,777

Net income (loss)

   $ (79,680,125   $ (492,275,189   $ 123,633,871      $ (115,235,041   $ (563,556,484

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

   $ (17.98   $ (90.94   $ 17.31      $ (16.95   $ (108.56
     Three months ended (unaudited)  
     March 31,
2012
    June 30,
2012
    September 30,
2012
    December 31,
2012
    Year ended
December 31,
2012
 

Net investment income (loss)

   $ (1,833,327 )   $ (1,610,787 )   $ (1,659,417 )   $ (1,814,626 )   $ (6,918,157 )
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ 141,046,911      $ (288,257,836 )   $ 365,198,197      $ (250,739,710 )   $ (32,752,438 )

Net income (loss)

   $ 139,213,584      $ (289,868,623 )   $ 363,538,780      $ (252,554,336 )   $ (39,670,595 )

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

   $ 46.82      $ (71.45 )   $ 87.06      $ (63.30 )   $ (0.87 )

 

-127-


Table of Contents

PROSHARES ULTRA AUSTRALIAN DOLLAR

 

     Three months ended (unaudited)  
     March 31,
2013
    June 30,
2013
    September 30,
2013
    December 31,
2013
    Year ended
December 31,
2013
 

Net investment income (loss)

   $ (9,492   $ (9,095   $ (8,041   $ (8,277   $ (34,905
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ 74,430      $ (922,515   $ 154,043      $ (252,956   $ (946,998

Net income (loss)

   $    64,938      $ (931,610   $ 146,002      $ (261,233   $ (981,903

Net increase (decrease) in net asset value per share

   $ 0.65      $ (9.32   $ 1.46      $ (2.61   $ (9.82

 

     July 17, 2012
(Commencement
of Operations)
through
September 30,
2012
(unaudited)
    Three months
ended
December 31,
2012
(unaudited)
    Year ended
December 31,
2012
 

Net investment income (loss)

   $ (7,953 )   $ (9,345 )   $ (17,298 )
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ 97,126      $ 70,040      $ 167,166   

Net income (loss)

   $ 89,173      $ 60,695      $ 149,868   

Net increase (decrease) in net asset value per share

   $ 0.89      $ 0.61      $ 1.50   

PROSHARES ULTRA EURO

 

     Three months ended (unaudited)  
     March 31,
2013
    June 30,
2013
    September 30,
2013
    December 31,
2013
    Year ended
December 31,
2013
 

Net investment income (loss)

   $ (10,724   $ (8,143   $ (8,123   $ (8,034   $ (35,024
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (286,525   $ 133,877      $ 268,708      $ 108,024      $ 224,084   

Net income (loss)

   $ (297,249   $ 125,734      $ 260,585      $ 99,990      $ 189,060   

Net increase (decrease) in net asset value per share

   $ (1.49   $ 0.61      $ 1.78      $ 0.78      $ 1.68   
     Three months ended (unaudited)  
     March 31,
2012
    June 30,
2012
    September 30,
2012
    December 31,
2012
    Year ended
December 31,
2012
 

Net investment income (loss)

   $ (22,829 )   $ (14,414 )   $ (12,208 )   $ (10,675 )   $ (60,126 )
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ 562,609      $ (788,758 )   $ 155,523      $ 277,905      $ 207,279   

Net income (loss)

   $ 539,780      $ (803,172 )   $ 143,315      $ 267,230      $ 147,153   

Net increase (decrease) in net asset value per share

   $ 1.36      $ (2.61 )   $ 0.57      $ 1.14      $ 0.46   

 

-128-


Table of Contents

PROSHARES ULTRA YEN

 

     Three months ended (unaudited)  
     March 31,
2013
    June 30,
2013
    September 30,
2013
    December 31,
2013
    Year ended
December 31,
2013
 

Net investment income (loss)

   $ (10,060   $ (7,227   $ (7,357   $ (7,130   $ (31,774
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (794,354   $ (375,897   $ 45,140      $ (418,906   $ (1,544,017

Net income (loss)

   $      (804,414   $      (383,124   $        37,783      $      (426,036   $     (1,575,791

Net increase (decrease) in net asset value per share

   $ (4.41   $ (2.55   $ 0.25      $ (2.84   $ (9.55
     Three months ended (unaudited)  
     March 31,
2012
    June 30,
2012
    September 30,
2012
    December 31,
2012
    Year ended
December 31,
2012
 

Net investment income (loss)

   $ (11,811 )   $ (10,964 )   $ (11,359 )   $ (10,306 )   $ (44,440 )
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (753,684 )   $ 329,652      $ 236,957      $ (1,011,565 )   $ (1,198,640 )

Net income (loss)

   $ (765,495 )   $ 318,688      $ 225,598      $ (1,021,871 )   $ (1,243,080 )

Net increase (decrease) in net asset value per share

   $ (5.10 )   $ 2.12      $ 1.51      $ (6.82 )   $ (8.29 )

PROSHARES VIX SHORT-TERM FUTURES ETF

 

     Three months ended (unaudited)  
     March 31,
2013
    June 30,
2013
    September 30,
2013
    December 31,
2013
    Year ended
December 31,
2013
 

Net investment income (loss)

   $ (327,343   $ (435,228   $ (354,687   $ (466,861   $ (1,584,119
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (63,535,423   $ 20,734,426      $ (56,630,451   $ (61,620,032   $ (161,051,480

Net income (loss)

   $ (63,862,766   $ 20,299,198      $ (56,985,138   $ (62,086,893   $ (162,635,599

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

   $ (29.82   $ 1.82      $ (16.39   $ (11.01   $ (55.40
     Three months ended (unaudited)  
     March 31,
2012
    June 30,
2012
    September 30,
2012
    December 31,
2012
    Year ended
December 31,
2012
 

Net investment income (loss)

   $ (141,555 )   $ (306,475 )   $ (293,913 )   $ (311,169 )   $ (1,053,112 )
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (60,075,627 )   $ (8,326,725 )   $ (72,595,794 )   $ (18,590,574 )   $ (159,588,720 )

Net income (loss)

   $ (60,217,182 )   $ (8,633,200 )   $ (72,889,707 )   $ (18,901,743 )   $ (160,641,832 )

Net increase (decrease) in net asset value per share

   $ (204.39 )   $ (17.44 )   $ (65.02 )   $ (11.08 )   $ (297.93 )

 

-129-


Table of Contents

PROSHARES VIX MID-TERM FUTURES ETF

 

     Three months ended (unaudited)  
     March 31,
2013
    June 30,
2013
    September 30,
2013
    December 31,
2013
    Year ended
December 31,
2013
 

Net investment income (loss)

   $ (97,496   $ (126,773   $ (165,692   $ (156,605   $ (546,566
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (10,666,924   $ 4,968,921      $ (13,237,039   $ (12,713,209   $ (31,648,251

Net income (loss)

   $ (10,764,420   $ 4,842,148      $ (13,402,731   $ (12,869,814   $ (32,194,817

Net increase (decrease) in net asset value per share

   $ (8.26   $ 1.85      $ (5.11   $ (3.88   $ (15.40
     Three months ended (unaudited)  
     March 31,
2012
    June 30,
2012
    September 30,
2012
    December 31,
2012
    Year ended
December 31,
2012
 

Net investment income (loss)

   $ (204,860 )   $ (209,003 )   $ (189,842 )   $ (182,462 )   $ (786,167 )
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (27,455,589 )   $ 1,693,852      $ (27,514,173 )   $ (17,314,672 )   $ (70,590,582 )

Net income (loss)

   $   (27,660,449 )   $    1,484,849      $   (27,704,015 )   $   (17,497,134 )   $   (71,376,749 )

Net increase (decrease) in net asset value per share

   $ (18.19 )   $ (0.91 )   $ (13.53 )   $ (6.81 )   $ (39.44 )

PROSHARES ULTRA VIX SHORT-TERM FUTURES ETF

 

     Three months ended (unaudited)  
     March 31,
2013
    June 30,
2013
    September 30,
2013
    December 31,
2013
    Year ended
December 31,
2013
 

Net investment income (loss)

   $ (1,072,705   $ (1,390,499   $ (1,259,552   $ (1,106,005   $ (4,828,761
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (143,776,907   $ 39,753,861      $ (187,604,306   $ (140,531,856   $ (432,159,208

Net income (loss)

   $ (144,849,612   $ 38,363,362      $ (188,863,858   $ (141,637,861   $ (436,987,969

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

   $ (502.22   $ (15.06   $ (149.88   $ (71.02   $ (738.19
     Three months ended (unaudited)  
     March 31,
2012
    June 30,
2012
    September 30,
2012
    December 31,
2012
    Year ended
December 31,
2012
 

Net investment income (loss)

   $ (341,612 )   $ (933,216 )   $ (1,045,175 )   $ (681,643 )   $ (3,001,646 )
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (152,856,089 )   $ (85,292,129 )   $ (259,596,838 )   $ (8,539,707 )   $ (506,284,763 )

Net income (loss)

   $ (153,197,701 )   $ (86,225,345 )   $ (260,642,013 )   $ (9,221,350 )   $ (509,286,409 )

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

   $ (23,953.95   $ (1,870.65 )   $ (2,632.80 )   $ (410.34 )   $ (28,867.74 )

 

-130-


Table of Contents

PROSHARES SHORT VIX SHORT-TERM FUTURES ETF

 

     Three months ended (unaudited)  
     March 31,
2013
    June 30,
2013
    September 30,
2013
    December 31,
2013
    Year ended
December 31,
2013
 

Net investment income (loss)

   $ (213,419   $ (296,200   $ (339,271   $ (479,479   $ (1,328,369
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ 28,978,416      $ (7,151,632   $ 34,822,564      $ 40,037,687      $ 96,687,035   

Net income (loss)

   $ 28,764,997      $ (7,447,832   $ 34,483,293      $ 39,558,208      $ 95,358,666   

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

   $ 13.04      $ (6.97   $ 13.38      $ (14.99   $ 34.43   
     Three months ended (unaudited)  
     March 31,
2012
    June 30,
2012
    September 30,
2012
    December 31,
2012
    Year ended
December 31,
2012
 

Net investment income (loss)

   $ (54,031 )   $ (95,652 )   $ (123,735 )   $ (164,281 )   $ (437,699 )
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ 7,673,494      $ (3,010,050 )   $ 10,124,237      $ (3,056,413 )   $ 11,731,268   

Net income (loss)

   $ 7,619,463      $ (3,105,702 )   $ 10,000,502      $ (3,220,694 )   $ 11,293,569   

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

   $ 11.81      $ (2.10 )   $ 11.38      $ (0.96   $ 20.13   

See the Index to Financial Statements on Page 140 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 and Note 9 of the Notes to Financial Statements in Item 15 of Part IV in this Annual Report on Form 10-K.

 

-131-


Table of Contents
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, 2013, 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’ 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, 2013. 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, 2013.

The effectiveness of the Trust’s and the Funds’ internal control over financial reporting as of December 31, 2013 has been audited by PricewaterhouseCoopers LLP, the independent registered public accounting firm, as stated in their report which is included herein.

 

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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, 2013 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.

As of December 31, 2013, the Sponsor served as the Trust’s commodity pool operator.

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

As of December 31, 2013, the Sponsor served as the commodity pool operator of the Trust and the Funds, and previously also served as the commodity trading advisor to the Trust and the Funds. The Sponsor is registered as a commodity pool operator 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 membership with the NFA on August 30, 2000 but later re-applied and had its membership 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. On February 17, 2013, the Sponsor’s commodity trading advisor registration was withdrawn. 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, 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.

 

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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 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 and Principal of the Sponsor
Todd B. Johnson*    Principal Executive Officer of the Trust and Chief Investment Officer and Principal of the Sponsor
Hratch Najarian    Director, Portfolio Management and Principal of the Sponsor
Jeffrey A. Ploshnick    Senior Portfolio Manager and Associated Person of the Sponsor
Ryan T. 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 supervises persons who participate 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 and commodity pool operators registered under the CEA. PFA is also a commodity trading advisor registered under the CEA.

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 a listed principal of PFA since November 26, 2012; and Chairman, Chief Executive Officer and a member of PSA since January 2005 and a listed principal of PSA since January 14, 2014. As Chairman and Chief Executive Officer of the Sponsor, PFA and PSA, Mr. Sapir’s responsibilities include oversight of all aspects of the Sponsor, PFA and PSA, respectively.

Louis M. Mayberg, a member and a listed principal of the Sponsor since June 9, 2008; a member of PFA since April 1997 and a listed principal of PFA since November 26, 2012; and a member of PSA since January 2005 and a listed principal of PSA since January 14, 2014. Mr. Mayberg served as Principal Executive Officer of the Trust from June 2008 to December 2013.

William E. Seale, Ph.D., a member and a listed principal of the Sponsor since June 11, 1999; a member of PFA since April 1997 and a listed principal of PFA since November 26, 2012; and a member of PSA since April 2005 and a listed principal of PSA since January 14, 2014. Dr. Seale served as Chief Investment Officer of PFA from January 2003 to July 2005 and from October 2006 to June 2008 and as 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 an ownership interest in the Sponsor and PSA. The Sapir Family Trust has a 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 an ownership interest in the Sponsor and PFA. Northstar Trust has a 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 and a listed principal of the Sponsor since September 18, 2013. Mr. Karpowicz has been employed by PFA since July 2002 and PSA since its inception as Vice President of Financial Administration. Mr. Karpowicz is 50 years old.

 

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Todd B. Johnson, Principal Executive Officer of the Trust since January 2014; Chief Investment Officer of the Sponsor since February 27, 2009, a registered swap associated person of the Sponsor since January 4, 2013, a registered associated person of the Sponsor since January 29, 2010, and a listed principal of the Sponsor since January 16, 2009. As Principal Executive Officer of the Trust, his responsibilities include oversight of the operations of the Trust. As Chief Investment Officer of the Sponsor, Mr. Johnson’s responsibilities include oversight of the investment management activities of the Sponsor. Mr. Johnson has served as Chief Investment Officer of PFA and PSA since December 2008 and has been registered as an associated person of PFA since December 5, 2012 and listed as a principal of PFA since November 26, 2012. In addition, Mr. Johnson has been listed as a principal of PSA since January 14, 2014. 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. Mr. Johnson is 50 years old.

Hratch Najarian, Director, Portfolio Management of the Sponsor since August 2013 and a listed principal of the Sponsor since October 15, 2013. In these roles, Mr. Najarian’s responsibilities include day-to-day portfolio management of the Funds. Mr. Najarian also serves as Director, Portfolio Management of PFA and PSA since August 2013, and is listed as a principal of PFA since January 8, 2014 and a principal of PSA since January 14, 2014. Mr. Najarian served as Senior Portfolio Manager of PSA from December 2009 through September 2013. He also served as Senior Portfolio Manager of PFA from December 2009 through September 2013, as Portfolio Manager of PFA from May 2007 through November 2009, and as Associate Portfolio Manager of PFA from November 2004 through April 2007.

Jeffrey A. Ploshnick, Senior Portfolio Manager of the Sponsor since April 12, 2011, a registered associated person and an NFA associate member of the Sponsor since April 12, 2011. In these roles, Mr. Ploshnick’s responsibilities include day-to-day portfolio management of the Currency Funds. Mr. Ploshnick has been registered as an associated person of PFA since December 5, 2012. Mr. Ploshnick also serves as a Senior Portfolio Manager of PFA since May 2007 and has served as Portfolio Manager from February 2001 to April 2007.

Ryan T. Dofflemeyer, Portfolio Manager of the Sponsor since January 3, 2011, a registered associated person and an NFA associate member of the Sponsor since October 26, 2010. In these roles, Mr. Dofflemeyer’s responsibilities include day-to-day portfolio management of the Commodity Index Funds, the Commodity Funds and the VIX Funds. Mr. Dofflemeyer has been registered as an associated person of PFA since December 5, 2012. Mr. Dofflemeyer also serves as a Portfolio Manager of PFA since August 2007 and was a Portfolio Analyst between October 2003 and August 2007. In addition, Mr. Dofflemeyer also serves as a Portfolio Manager for Horizon BetaPro Funds (investment funds) since May 2008 and served as a Portfolio Manager of PSA from March 2010 through September 2013. Mr. Dofflemeyer worked as a Research Assistant for the Investment Company Institute (investment funds trade organization) from September 2001 to August 2003.

Lisa P. Johnson, a listed principal of the Sponsor since November 11, 2008 and a listed principal of PFA since November 26, 2012, and a listed principal of PSA since January 14, 2014. 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, a listed principal of PFA since November 26, 2012, and a listed principal of PSA since January 14, 2014. Mr. Frye’s responsibilities include the review and approval of advertising material of the Sponsor. Mr. Frye has been employed as Chief Compliance Officer of PFA since October 2002 and of PSA since December 2004.

 

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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 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, or the members or officers of the Sponsor receive compensation from the Funds.

The Sponsor receives 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 receives 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, 2013, the following represents Management Fees earned by the Sponsor:

 

Fund

      

ProShares UltraShort DJ-UBS Commodity

   $ 34,029   

ProShares UltraShort DJ-UBS Crude Oil

     2,581,084   

ProShares UltraShort DJ-UBS Natural Gas

     172,542   

ProShares UltraShort Gold

     1,237,712   

ProShares UltraShort Silver

     1,033,442   

ProShares Short Euro

     6,843   

ProShares UltraShort Australian Dollar

     105,453   

ProShares UltraShort Euro

     4,600,479   

ProShares UltraShort Yen

     4,607,832   

ProShares Ultra DJ-UBS Commodity

     40,543   

ProShares Ultra DJ-UBS Crude Oil

     2,275,701   

ProShares Ultra DJ-UBS Natural Gas

     707,598   

ProShares Ultra Gold

     2,055,613   

ProShares Ultra Silver

     5,628,988   

ProShares Ultra Australian Dollar

     36,925   

ProShares Ultra Euro

     36,924   

ProShares Ultra Yen

     33,569   

ProShares VIX Short-Term Futures ETF

     1,661,129   

ProShares VIX Mid-Term Futures ETF

     572,377   

ProShares Ultra VIX Short-Term Futures ETF

     2,555,345   

ProShares Short VIX Short-Term Futures ETF

     845,479   

 

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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.

 

Item 14. Principal Accounting Fees and Services.

(1) to (4). Fees for services performed by PricewaterhouseCoopers LLP (“PwC”) for the years ended December 31, 2013 and 2012 were as follows:

 

    

Year Ended

December 31, 2013

    

Year Ended

December 31, 2012

 

Audit Fees

     735,000         710,000   

Audit-Related Fees

     7,500         32,500   

Tax Fees

     3,186,400         3,270,913   

All Other Fees

     —           —     
  

 

 

    

 

 

 

Total

     3,928,900         4,013,413   

Audit fees for the years ended December 31, 2013 and 2012 consist of fees paid to PwC for the audit of the Funds’ December 31, 2013 and 2012 annual financial statements included in the Annual Report on Form 10-K for the years ended December 31, 2013 and 2012, 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-related fees for the years ended December 31, 2013 and 2012 consist of fees paid to PwC for the review of 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, 2013 or 2012 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 140 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 402 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, 2013

Index

 

Documents

   Page  

Report of Independent Registered Public Accounting Firm

     141   

Statements of Financial Condition, Schedules of Investments, Statements of Operations, Statements of Changes in Shareholders’ Equity and Statements of Cash Flows:

  

ProShares UltraShort DJ-UBS Commodity

     143   

ProShares UltraShort DJ-UBS Crude Oil

     149   

ProShares UltraShort DJ-UBS Natural Gas

     155   

ProShares UltraShort Gold

     161   

ProShares UltraShort Silver

     167   

ProShares Short Euro

     173   

ProShares UltraShort Australian Dollar

     179   

ProShares UltraShort Euro

     185   

ProShares UltraShort Yen

     191   

ProShares Ultra DJ-UBS Commodity

     197   

ProShares Ultra DJ-UBS Crude Oil

     203   

ProShares Ultra DJ-UBS Natural Gas

     209   

ProShares Ultra Gold

     215   

ProShares Ultra Silver

     221   

ProShares Ultra Australian Dollar

     227   

ProShares Ultra Euro

     233   

ProShares Ultra Yen

     239   

ProShares VIX Short-Term Futures ETF

     245   

ProShares VIX Mid-Term Futures ETF

     251   

ProShares Ultra VIX Short-Term Futures ETF

     257   

ProShares Short VIX Short-Term Futures ETF

     263   

ProShares Trust II

     269   

Notes to Financial Statements

     273   

 

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Reports 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, including the schedule of investments, and the related combined and 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 at December 31, 2013 and 2012, and the individual financial positions of each of the following twenty-one funds comprising the ProShares Trust II

 

ProShares UltraShort DJ-UBS Commodity (a)

   ProShares Ultra Gold (a)

ProShares UltraShort DJ-UBS Crude Oil (a)

   ProShares Ultra Silver (a)

ProShares UltraShort DJ-UBS Natural Gas (b)

   ProShares Ultra Australian Dollar (d)

ProShares UltraShort Gold (a)

   ProShares Ultra Euro (a)

ProShares UltraShort Silver (a)

   ProShares Ultra Yen (a)

ProShares Short Euro (c)

   ProShares VIX Short-Term Futures ETF (a)

ProShares UltraShort Australian Dollar (d)

   ProShares VIX Mid-Term Futures ETF (a)

ProShares UltraShort Euro (a)

   ProShares Ultra VIX Short-Term Futures ETF (b)

ProShares UltraShort Yen (a)

   ProShares Short VIX Short-Term Futures ETF (b)

ProShares Ultra DJ-UBS Commodity (a)

  

 

ProShares Ultra DJ-UBS Crude Oil (a)

   ProShares Trust II (“combined”) (a)

ProShares Ultra DJ-UBS Natural Gas (b)

  

 

(a) A statement of financial condition, including the schedule of investments, is presented as of December 31, 2013 and 2012, and the related statements of operations, of changes in shareholders’ equity and of cash flows are presented for each of the three years in the period ended December 31, 2013.
(b) A statement of financial condition, including the schedule of investments, is presented as of December 31, 2013 and 2012, and the related statements of operations, of changes in shareholders’ equity and of cash flows are presented for the year ended December 31, 2013, the year ended December 31, 2012 and for the period from April 5, 2011 (Inception) through December 31, 2011.
(c) A statement of financial condition, including the schedule of investments, is presented as of December 31, 2013 and 2012, and the related statements of operations, of changes in shareholders’ equity and of cash flows are presented for the year ended December 31, 2013 and for the period from June 26, 2012 (Commencement of Investment Operations) through December 31, 2012.
(d) A statement of financial condition, including the schedule of investments, is presented as of December 31, 2013 and 2012, and the related statements of operations, of changes in shareholders’ equity and of cash flows are presented for the year ended December 31, 2013 and for the period from July 17, 2012 (Commencement of Investment Operations) through December 31, 2012.

 

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(collectively, the “Trust”) at December 31, 2013 and 2012, and the combined and individual results of their operations and their cash flows, for the respective periods described in (a) (b) (c) and (d) 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, 2013, based on criteria established in Internal Control - Integrated Framework (1992) 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 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 audits 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

Baltimore, Maryland

February 28, 2014

 

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PROSHARES ULTRASHORT DJ-UBS COMMODITY

STATEMENTS OF FINANCIAL CONDITION

 

     December 31,
2013
     December 31,
2012
 

Assets

     

Cash

   $ 374,245      $ 296,119  

Short-term U.S. government and agency obligations (Note 3) (cost $3,453,851 and $2,803,598, respectively)

     3,453,890        2,803,904  

Unrealized appreciation on swap agreements

     —           148,502  
  

 

 

    

 

 

 

Total assets

     3,828,135        3,248,525  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Management fee payable

     3,043        2,560  

Unrealized depreciation on swap agreements

     27,665        —     
  

 

 

    

 

 

 

Total liabilities

     30,708        2,560  
  

 

 

    

 

 

 

Shareholders’ equity

     

Shareholders’ equity

     3,797,427        3,245,965  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 3,828,135      $ 3,248,525  
  

 

 

    

 

 

 

Shares outstanding

     59,997        59,997  
  

 

 

    

 

 

 

Net asset value per share

   $ 63.29      $ 54.10  
  

 

 

    

 

 

 

Market value per share (Note 2)

   $ 58.41      $ 51.64  
  

 

 

    

 

 

 

See accompanying notes to financial statements.

 

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Table of Contents

PROSHARES ULTRASHORT DJ-UBS COMMODITY

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2013

 

    Principal Amount     Value  

Short-term U.S. government and agency obligations

   

(91% of shareholders’ equity)

   

U.S. Treasury Bills:

   

0.023% due 02/06/14†

  $ 2,691,000     $ 2,690,961  

0.053% due 02/27/14

    290,000       289,989  

0.040% due 03/20/14†

    200,000       199,974  

0.061% due 04/10/14†

    273,000       272,966  
   

 

 

 

Total short-term U.S. government and agency obligations (cost $3,453,851)

    $ 3,453,890  
   

 

 

 

Swap Agreements^

    Rate Received
(Paid)
    Termination
Date
  Notional Amount
at Value*
    Unrealized
Appreciation
(Depreciation)
 

Swap agreement with Deutsche Bank AG based on Dow Jones-UBS Commodity Index

    (0.25 )%    01/06/14   $ (2,912,629   $ (11,710

Swap agreement with Goldman Sachs International based on Dow Jones-UBS Commodity Index

    (0.25   01/06/14     (3,114,183     (12,945

Swap agreement with UBS AG based on Dow Jones-UBS Commodity Index

    (0.60   01/06/14     (1,567,698     (3,010
       

 

 

 
        $ (27,665
       

 

 

 

 

All or partial amount pledged as collateral for swap agreements.
^ The positions and counterparties herein are as of December 31, 2013. 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

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2012

 

    Principal Amount     Value  

Short-term U.S. government and agency obligations

   

(86% of shareholders’ equity)

   

U.S. Treasury Bills:

   

0.095% due 01/03/13

  $ 147,000     $ 147,000  

0.126% due 02/14/13†

    2,498,000       2,497,911  

0.086% due 02/21/13†

    159,000       158,993  
   

 

 

 

Total short-term U.S. government and agency obligations (cost $2,803,598)

    $ 2,803,904  
   

 

 

 

Swap Agreements^

 

    Rate Received
(Paid)
    Termination
Date
  Notional Amount
at Value*
    Unrealized
Appreciation
(Depreciation)
 

Swap agreement with Goldman Sachs International based on Dow Jones-UBS Commodity Index

    (0.25 )%    01/07/13   $ (4,729,704   $ 104,181  

Swap agreement with UBS AG based on Dow Jones-UBS Commodity Index

    (0.60   01/07/13     (1,763,052     44,321  
       

 

 

 
        $ 148,502  
       

 

 

 

 

All or partial amount pledged as collateral for swap agreements.
^ The positions and counterparties herein are as of December 31, 2012. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* 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.

 

-145-


Table of Contents

PROSHARES ULTRASHORT DJ-UBS COMMODITY

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

 

    Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Investment Income

     

Interest

  $ 1,899     $ 3,017     $ 3,661  
 

 

 

   

 

 

   

 

 

 

Expenses

     

Management fee

    34,029       50,766       136,814  
 

 

 

   

 

 

   

 

 

 

Total expenses

    34,029       50,766       136,814  
 

 

 

   

 

 

   

 

 

 

Net investment income (loss)

    (32,130 )     (47,749 )     (133,153 )
 

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

     

Net realized gain (loss) on

     

Swap agreements

    760,002       761,879       (3,511,808 )

Short-term U.S. government and agency obligations

    24       62       1,755  
 

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

    760,026       761,941       (3,510,053 )
 

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

     

Swap agreements

    (176,167 )     (422,249 )     734,901  

Short-term U.S. government and agency obligations

    (267 )     520       (273 )
 

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

    (176,434 )     (421,729 )     734,628  
 

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

    583,592       340,212       (2,775,425 )
 

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 551,462     $ 292,463     $ (2,908,578 )
 

 

 

   

 

 

   

 

 

 

Net income (loss) per weighted-average share (Note 1)

  $ 9.19     $ 3.00     $ (9.57 )
 

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding (Note 1)

    59,997       97,565       303,998  
 

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

-146-


Table of Contents

PROSHARES ULTRASHORT DJ-UBS COMMODITY

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Shareholders’ equity, beginning of period

   $ 3,245,965     $ 9,107,146     $ 1,440,073  

Addition of 0, 0 and 1,780,000 shares, respectively (Note 1)

     —         —         84,549,839  

Redemption of 0, 100,000 and 1,650,006 shares, respectively (Note 1)

     —         (6,153,644 )     (73,974,188 )
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of 0, (100,000) and 129,994 shares, respectively (Note 1)

     —         (6,153,644 )     10,575,651  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (32,130 )     (47,749 )     (133,153 )

Net realized gain (loss)

     760,026       761,941       (3,510,053 )

Change in net unrealized appreciation/depreciation

     (176,434 )     (421,729 )     734,628  
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     551,462       292,463       (2,908,578 )
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 3,797,427     $ 3,245,965     $ 9,107,146  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

-147-


Table of Contents

PROSHARES ULTRASHORT DJ-UBS COMMODITY

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Cash flow from operating activities

      

Net income (loss)

   $ 551,462     $ 292,463     $ (2,908,578 )

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

     (650,253 )     5,731,306       (6,940,121 )

Change in unrealized appreciation/depreciation on investments

     176,434       421,729       (734,628 )

Increase (Decrease) in management fee payable

     483       (4,795 )     6,082  
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     78,126       6,440,703       (10,577,245 )
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     —         —         84,549,839  

Payment on shares redeemed

     —         (6,153,644 )     (73,974,188 )
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     —         (6,153,644 )     10,575,651  
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     78,126       287,059       (1,594 )

Cash, beginning of period

     296,119       9,060       10,654  
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 374,245     $ 296,119     $ 9,060  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

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Table of Contents

PROSHARES ULTRASHORT DJ-UBS CRUDE OIL

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2013      December 31, 2012  

Assets

     

Cash

   $ 1,872,915      $ 658,676  

Segregated cash balances with brokers for futures contracts

     7,633,395        4,401,374  

Short-term U.S. government and agency obligations (Note 3) (cost $247,573,678 and $87,042,320, respectively)

     247,584,623        87,046,389  

Receivable from capital shares sold

     —          4,031,477  

Receivable on open futures contracts

     1,503,943        —    
  

 

 

    

 

 

 

Total assets

     258,594,876        96,137,916  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Payable on open futures contracts

     —          979,336  

Management fee payable

     201,827        70,254  

Unrealized depreciation on swap agreements

     2,332,900        5,607,060  
  

 

 

    

 

 

 

Total liabilities

     2,534,727        6,656,650  
  

 

 

    

 

 

 

Shareholders’ equity

     

Shareholders’ equity

     256,060,149        89,481,266  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 258,594,876      $ 96,137,916  
  

 

 

    

 

 

 

Shares outstanding

     8,069,944        2,219,944  
  

 

 

    

 

 

 

Net asset value per share

   $ 31.73      $ 40.31  
  

 

 

    

 

 

 

Market value per share (Note 2)

   $ 31.58      $ 40.44  
  

 

 

    

 

 

 

See accompanying notes to financial statements.

 

-149-


Table of Contents

PROSHARES ULTRASHORT DJ-UBS CRUDE OIL

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2013

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

  

(97% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.022% due 02/06/14†

   $ 53,403,000      $ 53,402,221  

0.052% due 03/06/14†

     14,666,000        14,664,717  

0.057% due 03/13/14

     2,963,000        2,962,769  

0.042% due 03/20/14†

     19,889,000        19,886,448  

0.075% due 04/03/14

     4,678,000        4,677,172  

0.061% due 04/10/14†

     28,254,000        28,250,539  

0.080% due 04/17/14†

     60,345,000        60,338,840  

0.093% due 04/24/14†

     2,000,000        1,999,627  

0.080% due 05/01/14†

     6,659,000        6,657,899  

0.088% due 05/08/14†

     2,477,000        2,476,523  

0.061% due 05/22/14†

     41,947,000        41,937,212  

0.076% due 06/05/14†

     5,200,000        5,198,777  

0.079% due 06/26/14

     5,134,000        5,131,879  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $247,573,678)

      $ 247,584,623  
     

 

 

 

Futures Contracts Sold††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Crude Oil - NYMEX, expires March 2014

     2,203      $ 217,105,650      $ (1,232,773

Swap Agreements^

 

     Rate Received
(Paid)
    Termination
Date
   Notional Amount
at Value*
    Unrealized
Appreciation
(Depreciation)
 

Swap agreement with Deutsche Bank AG based on Dow Jones-UBS WTI Crude Oil Sub-Index

     (0.25 )%    01/06/14    $ (81,834,893   $ (570,114

Swap agreement with Goldman Sachs International based on Dow Jones-UBS WTI Crude Oil Sub-Index

     (0.25   01/06/14      (79,971,962     (632,990

Swap agreement with Societe Generale S.A. based on Dow Jones-UBS WTI Crude Oil Sub-Index

     (0.25   01/06/14      (53,493,455     (402,586

Swap agreement with UBS AG based on Dow Jones-UBS WTI Crude Oil Sub-Index

     (0.25   01/06/14      (79,680,364     (727,210
         

 

 

 
          $ (2,332,900
         

 

 

 

 

All or partial amount pledged as collateral for swap agreements.
†† Cash collateral in the amount of $7,633,395 was pledged to cover margin requirements for open futures contracts as of December 31, 2013.
^ The positions and counterparties herein are as of December 31, 2013. 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 CRUDE OIL

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2012

     Principal Amount      Value  

Short-term U.S. government and agency obligations

  

(97% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.095% due 01/03/13

   $ 28,622,000      $ 28,621,984  

0.096% due 01/10/13†

     9,012,000        9,011,940  

0.105% due 01/31/13†

     14,165,000        14,164,600  

0.105% due 02/07/13†

     937,000        936,972  

0.118% due 02/14/13†

     19,431,000        19,430,304  

0.071% due 02/21/13†

     5,758,000        5,757,760  

0.077% due 03/28/13

     6,391,000        6,390,472  

0.061% due 04/25/13†

     2,733,000        2,732,357  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $87,042,320)

      $ 87,046,389  
     

 

 

 

Futures Contracts Sold††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Crude Oil - NYMEX, expires March 2013

     825      $ 76,122,750      $ (4,029,721

Swap Agreements^

 

     Rate Received
(Paid)
    Termination
Date
   Notional Amount
at Value*
    Unrealized
Appreciation
(Depreciation)
 

Swap agreement with Goldman Sachs International based on Dow Jones-UBS WTI Crude Oil Sub-Index

     (0.25 )%    01/07/13    $ (37,668,290   $ (1,880,292

Swap agreement with Societe Generale S.A. based on Dow Jones-UBS WTI Crude Oil Subindex

     (0.25   01/07/13      (16,223,148     (1,730,366

Swap agreement with UBS AG based on Dow Jones-UBS WTI Crude Oil Sub-Index

     (0.25   01/07/13      (48,930,885     (1,996,402
         

 

 

 
          $ (5,607,060
         

 

 

 

 

All or partial amount pledged as collateral for swap agreements.
†† Cash collateral in the amount of $4,401,374 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.
^ The positions and counterparties herein are as of December 31, 2012. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* 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.

 

-151-


Table of Contents

PROSHARES ULTRASHORT DJ-UBS CRUDE OIL

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Investment Income

      

Interest

   $ 113,487     $ 75,194     $ 70,449  
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     2,581,084       1,121,597       1,228,633  

Brokerage commissions

     77,031       32,261       53,551  
  

 

 

   

 

 

   

 

 

 

Total expenses

     2,658,115       1,153,858       1,282,184  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (2,544,628 )     (1,078,664 )     (1,211,735 )
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Futures contracts

     (4,299,671 )     16,109,009       11,024,364  

Swap agreements

     (8,005,328 )     31,455,754       15,696,502  

Short-term U.S. government and agency obligations

     5,188       5,203       11,832  
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     (12,299,811 )     47,569,966       26,732,698  
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Futures contracts

     2,796,948       (4,276,761 )     2,631,460  

Swap agreements

     3,274,160       (8,252,300 )     6,756,848  

Short-term U.S. government and agency obligations

     6,876       6,720       (7,928 )
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     6,077,984       (12,522,341 )     9,380,380  
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     (6,221,827 )     35,047,625       36,113,078  
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (8,766,455 )   $ 33,968,961     $ 34,901,343  
  

 

 

   

 

 

   

 

 

 

Net income (loss) per weighted-average share (Note 1)

   $ (1.05 )   $ 11.32     $ 12.25  
  

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding (Note 1)

     8,388,848       3,000,545       2,849,379  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

-152-


Table of Contents

PROSHARES ULTRASHORT DJ-UBS CRUDE OIL

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Shareholders’ equity, beginning of period

   $ 89,481,266     $ 144,389,893     $ 132,214,257  

Addition of 23,300,000, 5,900,000 and 12,530,000 shares, respectively (Note 1)

     764,617,811       230,873,903       544,053,277  

Redemption of 17,450,000, 7,400,000 and 11,410,059 shares, respectively (Note 1)

     (589,272,473 )     (319,751,491 )     (566,778,984 )
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of 5,850,000, (1,500,000) and 1,119,941 shares, respectively (Note 1)

     175,345,338       (88,877,588 )     (22,725,707 )
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (2,544,628 )     (1,078,664 )     (1,211,735 )

Net realized gain (loss)

     (12,299,811 )     47,569,966       26,732,698  

Change in net unrealized appreciation/depreciation

     6,077,984       (12,522,341 )     9,380,380  
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     (8,766,455 )     33,968,961       34,901,343  
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 256,060,149     $ 89,481,266     $ 144,389,893  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

-153-


Table of Contents

PROSHARES ULTRASHORT DJ-UBS CRUDE OIL

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Cash flow from operating activities

      

Net income (loss)

   $ (8,766,455 )   $ 33,968,961     $ 34,901,343  

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

     (3,232,021 )     4,677,309       (4,826,183 )

Net sale (purchase) of short-term U.S. government and agency obligations

     (160,531,358 )     44,894,524       3,695,071  

Change in unrealized appreciation/depreciation on investments

     (3,281,036 )     8,245,580       (6,748,920 )

Decrease (Increase) in receivable on futures contracts

     (1,503,943 )     576,597       (576,597 )

Increase (Decrease) in management fee payable

     131,573       (39,824 )     (7,199 )

Increase (Decrease) in payable on futures contracts

     (979,336 )     979,336       (1,140,144 )
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (178,162,576 )     93,302,483       25,297,371  
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     768,649,288       226,842,426       544,053,277  

Payment on shares redeemed

     (589,272,473 )     (319,751,491 )     (573,092,737 )
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     179,376,815       (92,909,065 )     (29,039,460 )
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     1,214,239       393,418       (3,742,089 )

Cash, beginning of period

     658,676       265,258       4,007,347  
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 1,872,915     $ 658,676     $ 265,258  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

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PROSHARES ULTRASHORT DJ-UBS NATURAL GAS

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2013      December 31, 2012  

Assets

     

Cash

   $ 564,647      $ 310,060  

Segregated cash balances with brokers for futures contracts

     2,384,800        1,795,030  

Short-term U.S. government and agency obligations (Note 3) (cost $18,274,602 and $10,042,198, respectively)

     18,274,713        10,042,731  

Receivable on open futures contracts

     1,520,548        632,777  
  

 

 

    

 

 

 

Total assets

     22,744,708        12,780,598  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Management fee payable

     9,941        12,258  
  

 

 

    

 

 

 

Total liabilities

     9,941        12,258  
  

 

 

    

 

 

 

Shareholders’ equity

     

Shareholders’ equity

     22,734,767        12,768,340  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 22,744,708      $ 12,780,598  
  

 

 

    

 

 

 

Shares outstanding (Note 1)

     324,952        125,008  
  

 

 

    

 

 

 

Net asset value per share (Note 1)

   $ 69.96      $ 102.14  
  

 

 

    

 

 

 

Market value per share (Note 1) (Note 2)

   $ 69.36      $ 101.64  
  

 

 

    

 

 

 

See accompanying notes to financial statements.

 

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Table of Contents

PROSHARES ULTRASHORT DJ-UBS NATURAL GAS

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2013

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

  

(80% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.049% due 02/06/14

   $ 146,000      $ 145,998  

0.051% due 03/06/14

     731,000        730,936  

0.056% due 03/13/14

     1,392,000        1,391,892  

0.034% due 03/20/14

     905,000        904,884  

0.059% due 04/10/14

     675,000        674,917  

0.075% due 04/17/14

     522,000        521,947  

0.081% due 05/01/14

     2,245,000        2,244,629  

0.068% due 05/08/14

     3,322,000        3,321,361  

0.065% due 06/12/14

     1,761,000        1,760,606  

0.064% due 06/19/14

     6,580,000        6,577,543  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $18,274,602)

      $ 18,274,713  
     

 

 

 

Futures Contracts Sold††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Natural Gas - NYMEX, expires March 2014

     1,084      $ 45,452,120      $ 1,042,300  

 

†† Cash collateral in the amount of $2,384,800 was pledged to cover margin requirements for open futures contracts as of December 31, 2013.

See accompanying notes to financial statements.

 

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Table of Contents

PROSHARES ULTRASHORT DJ-UBS NATURAL GAS

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2012

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

  

(79% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.095% due 01/03/13

   $ 2,387,000      $ 2,386,998  

0.090% due 01/10/13

     36,000        36,000  

0.100% due 01/31/13

     1,634,000        1,633,954  

0.104% due 02/07/13

     2,406,000        2,405,928  

0.078% due 02/21/13

     3,580,000        3,579,851  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $10,042,198)

      $ 10,042,731  
     

 

 

 

Futures Contracts Sold††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Natural Gas - NYMEX, expires March 2013

     759      $ 25,540,350      $ 409,135  

 

†† Cash collateral in the amount of $1,795,030 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.

See accompanying notes to financial statements.

 

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Table of Contents

PROSHARES ULTRASHORT DJ-UBS NATURAL GAS

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

AND FOR THE PERIOD FROM APRIL 5, 2011 (INCEPTION) TO DECEMBER 31, 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    April 5, 2011
(Inception)
through
December 31, 2011
 

Investment Income

      

Interest

   $ 8,620     $ 7,994     $ 13  
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     172,542       76,306       5,069  

Brokerage commissions

     45,438       64,176       4,082  

Offering costs

     —         63,919       6,474  
  

 

 

   

 

 

   

 

 

 

Total expenses

     217,980       204,401       15,625  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (209,360 )     (196,407 )     (15,612 )
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Futures contracts

     (2,585,514 )     1,212,600       1,776,461  

Short-term U.S. government and agency obligations

     619       395       (138 )
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     (2,584,895 )     1,212,995       1,776,323  
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Futures contracts

     633,165       (971,875 )     1,381,010  

Short-term U.S. government and agency obligations

     (422 )     744       (211 )
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     632,743       (971,131 )     1,380,799  
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     (1,952,152 )     241,864       3,157,122  
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (2,161,512 )   $ 45,457     $ 3,141,510  
  

 

 

   

 

 

   

 

 

 

Net income (loss) per weighted-average share (Note 1)

   $ (9.52 )   $ 0.36     $ 41.88  
  

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding (Note 1)

     227,135       126,135       75,008  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

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Table of Contents

PROSHARES ULTRASHORT DJ-UBS NATURAL GAS

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

AND FOR THE PERIOD FROM APRIL 5, 2011 (INCEPTION) TO DECEMBER 31, 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    April 5, 2011
(Inception) through
December 31, 2011
 

Shareholders’ equity, beginning of period

   $ 12,768,340     $ 7,142,310     $ —    

Addition of 587,500, 262,500 and 75,008 shares, respectively (Note 1)

     43,490,786       33,115,715       4,000,800  

Redemption of 387,556, 212,500 and 0 shares, respectively (Note 1)

     (31,362,847 )     (27,535,142 )     —    
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of 199,944, 50,000 and 75,008 shares, respectively (Note 1)

     12,127,939       5,580,573       4,000,800  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (209,360 )     (196,407 )     (15,612 )

Net realized gain (loss)

     (2,584,895 )     1,212,995       1,776,323  

Change in net unrealized appreciation/depreciation

     632,743       (971,131 )     1,380,799  
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     (2,161,512 )     45,457       3,141,510  
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 22,734,767     $ 12,768,340     $ 7,142,310  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

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Table of Contents

PROSHARES ULTRASHORT DJ-UBS NATURAL GAS

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

AND FOR THE PERIOD FROM APRIL 5, 2011 (INCEPTION) TO DECEMBER 31, 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    April 5, 2011
(Inception)
through
December 31, 2011
 

Cash flow from operating activities

      

Net income (loss)

   $ (2,161,512 )   $ 45,457     $ 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

     (589,770 )     (355,255 )     (1,439,775 )

Net sale (purchase) of short-term U.S. government and agency obligations

     (8,232,404 )     (7,420,303 )     (2,621,895 )

Change in unrealized appreciation/depreciation on investments

     422       (744 )     211  

Decrease (Increase) in receivable on futures contracts

     (887,771 )     (509,649 )     (123,128 )

Change in offering cost

     —         20,150       (20,150 )

Increase (Decrease) in management fee payable

     (2,317 )     7,189       5,069  

Increase (Decrease) in payable for offering costs

     —         (26,624 )     26,624  
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (11,873,352 )     (8,239,779 )     (1,031,534 )
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     43,490,786       33,115,715       4,000,800  

Payment on shares redeemed

     (31,362,847 )     (27,535,142 )     —    
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     12,127,939       5,580,573       4,000,800  
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     254,587       (2,659,206 )     2,969,266  

Cash, beginning of period

     310,060       2,969,266       —    
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 564,647     $ 310,060     $ 2,969,266  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

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Table of Contents

PROSHARES ULTRASHORT GOLD

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2013      December 31, 2012  

Assets

     

Cash

   $ 197,647      $ 175,194  

Segregated cash balances with brokers for futures contracts

     15,950        14,850  

Short-term U.S. government and agency obligations (Note 3) (cost $148,987,995 and $88,573,928, respectively)

     148,988,329        88,575,398  

Unrealized appreciation on forward agreements

     5,633,053        3,729,856  

Receivable on open futures contracts

     300        —    
  

 

 

    

 

 

 

Total assets

     154,835,279        92,495,298  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Payable for capital shares redeemed

     15,275,004        —    

Payable on open futures contracts

     —          3,980  

Management fee payable

     123,819        74,576  
  

 

 

    

 

 

 

Total liabilities

     15,398,823        78,556  
  

 

 

    

 

 

 

Shareholders’ equity

     

Shareholders’ equity

     139,436,456        92,416,742  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 154,835,279      $ 92,495,298  
  

 

 

    

 

 

 

Shares outstanding (Note 1)

     1,346,978        1,446,978  
  

 

 

    

 

 

 

Net asset value per share (Note 1)

   $ 103.52      $ 63.87  
  

 

 

    

 

 

 

Market value per share (Note 1) (Note 2)

   $ 103.53      $ 62.60  
  

 

 

    

 

 

 

See accompanying notes to financial statements.

 

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Table of Contents

PROSHARES ULTRASHORT GOLD

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2013

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

  

(107% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.017% due 02/06/14†

   $ 6,963,000      $ 6,962,898  

0.050% due 03/06/14

     39,266,000        39,262,564  

0.027% due 03/20/14†

     49,626,000        49,619,632  

0.071% due 04/03/14

     22,053,000        22,049,098  

0.087% due 05/01/14†

     11,790,000        11,788,051  

0.088% due 05/08/14†

     14,693,000        14,690,172  

0.076% due 06/05/14†

     4,617,000        4,615,914  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $148,987,995)

      $ 148,988,329  
     

 

 

 

Futures Contracts Sold††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Gold Futures - COMEX, expires February 2014

     2      $ 240,460      $ 14,520  

Forward Agreements^

 

     Rate Received
(Paid)
  Settlement Date    Commitment to
(Deliver)/Receive
    Notional Amount
at Value*
    Unrealized
Appreciation
(Depreciation)
 

Forward agreements with Deutsche Bank AG based on 0.995 Fine Troy Ounce Gold

   (0.30)%   01/06/14    $ (112,800   $ (135,867,600   $ 2,258,281  

Forward agreements with Goldman Sachs International based on 0.995 Fine Troy Ounce Gold

   (0.40)   01/06/14      (46,698     (56,247,741     1,411,290  

Forward agreements with Societe Generale S.A. based on 0.995 Fine Troy Ounce Gold

   (0.50)   01/06/14      (20,700     (24,933,150     665,044  

Forward agreements with UBS AG based on 0.995 Fine Troy Ounce Gold

   (0.40)   01/06/14      (51,150     (61,610,175     1,298,438  
           

 

 

 
            $ 5,633,053  
           

 

 

 

 

All or partial amount pledged as collateral for forward agreements.
†† Cash collateral in the amount of $15,950 was pledged to cover margin requirements for open futures contracts as of December 31, 2013.
^ The positions and counterparties herein are as of December 31, 2013. 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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Table of Contents

PROSHARES ULTRASHORT GOLD

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2012

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

  

(96% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.096% due 01/03/13

   $ 58,266,000      $ 58,265,967  

0.100% due 01/31/13†

     15,118,000        15,117,574  

0.118% due 02/14/13†

     2,904,000        2,903,896  

0.090% due 02/21/13†

     4,411,000        4,410,816  

0.061% due 04/25/13†

     7,879,000        7,877,145  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $88,573,928)

      $ 88,575,398  
     

 

 

 

Futures Contracts Sold††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Gold Futures - COMEX, expires February 2013

     2      $ 335,160      $ 15,240  

Forward Agreements^

 

     Rate Received
(Paid)
  Settlement Date    Commitment to
(Deliver)/Receive
    Notional Amount
at Value*
    Unrealized
Appreciation
(Depreciation)
 

Forward agreements with Deutsche Bank AG based on 0.995 Fine Troy Ounce Gold

   (0.30)%   01/07/13    $ (65,500   $ (108,574,765   $ 2,389,236  

Forward agreements with Goldman Sachs International based on 0.995 Fine Troy Ounce Gold

   (0.65)   01/07/13      (16,598     (27,513,343     452,059  

Forward agreements with Societe Generale S.A. based on 0.995 Fine Troy Ounce Gold

   (0.50)   01/07/13      (13,400     (22,212,242     499,264  

Forward agreements with UBS AG based on 0.995 Fine Troy Ounce Gold

   (0.65)   01/07/13      (15,850     (26,273,436     389,297  
           

 

 

 
            $ 3,729,856  
           

 

 

 

 

All or partial amount pledged as collateral for forward agreements.
†† Cash collateral in the amount of $14,850 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.
^ The positions and counterparties herein are as of December 31, 2012. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* 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.

 

-163-


Table of Contents

PROSHARES ULTRASHORT GOLD

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Investment Income

      

Interest

   $ 61,891     $ 76,519     $ 51,785  
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     1,237,712       1,182,691       1,092,472  

Brokerage commissions

     39       41       2,512  
  

 

 

   

 

 

   

 

 

 

Total expenses

     1,237,751       1,182,732       1,094,984  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (1,175,860 )     (1,106,213 )     (1,043,199 )
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Futures contracts

     97,060       7,600       (813,845 )

Forward agreements

     61,027,349       (10,075,098 )     (44,365,616 )

Short-term U.S. government and agency obligations

     (1,351 )     1,849       1,157  
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     61,123,058       (10,065,649 )     (45,178,304 )
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Futures contracts

     (720 )     (26,560 )     334,550  

Forward agreements

     1,903,197       (29,671,502 )     36,392,749  

Short-term U.S. government and agency obligations

     (1,136 )     5,325       (7,112 )
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     1,901,341       (29,692,737 )     36,720,187  
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     63,024,399       (39,758,386 )     (8,458,117 )
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 61,848,539     $ (40,864,599 )   $ (9,501,316 )
  

 

 

   

 

 

   

 

 

 

Net income (loss) per weighted-average share (Note 1)

   $ 39.77     $ (21.80 )   $ (6.71 )
  

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding (Note 1)

     1,555,197       1,874,767       1,415,797  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

-164-


Table of Contents

PROSHARES ULTRASHORT GOLD

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Shareholders’ equity, beginning of period

   $ 92,416,742     $ 198,298,571     $ 77,732,507  

Addition of 2,650,000, 50,000 and 2,525,000 shares, respectively (Note 1)

     233,728,116       2,905,948       196,587,378  

Redemption of 2,750,000, 1,000,497 and 812,500 shares, respectively (Note 1)

     (248,556,941 )     (67,923,178 )     (66,519,998 )
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of (100,000), (950,497) and 1,712,500 shares, respectively (Note 1)

     (14,828,825 )     (65,017,230 )     130,067,380  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (1,175,860 )     (1,106,213 )     (1,043,199 )

Net realized gain (loss)

     61,123,058       (10,065,649 )     (45,178,304 )

Change in net unrealized appreciation/depreciation

     1,901,341       (29,692,737 )     36,720,187  
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     61,848,539       (40,864,599 )     (9,501,316 )
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 139,436,456     $ 92,416,742     $ 198,298,571  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

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Table of Contents

PROSHARES ULTRASHORT GOLD

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Cash flow from operating activities

      

Net income (loss)

   $ 61,848,539     $ (40,864,599 )   $ (9,501,316 )

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

     (1,100 )     2,920       346,730  

Net sale (purchase) of short-term U.S. government and agency obligations

     (60,414,067 )     76,103,102       (84,565,840 )

Change in unrealized appreciation/depreciation on investments

     (1,902,061 )     29,666,177       (36,385,637 )

Decrease (Increase) in receivable on futures contracts

     (300 )     —         —    

Increase (Decrease) in management fee payable

     49,243       (49,997 )     59,641  

Increase (Decrease) in payable on futures contracts

     (3,980 )     3,980       (94,800 )
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (423,726 )     64,861,583       (130,141,222 )
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     233,728,116       2,905,948       196,587,378  

Payment on shares redeemed

     (233,281,937 )     (67,923,178 )     (66,519,998 )
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     446,179       (65,017,230 )     130,067,380  
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     22,453       (155,647 )     (73,842 )

Cash, beginning of period

     175,194       330,841       404,683  
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 197,647     $ 175,194     $ 330,841  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

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Table of Contents

PROSHARES ULTRASHORT SILVER

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2013      December 31, 2012  

Assets

     

Cash

   $ 461,167      $ 344,378  

Segregated cash balances with brokers for futures contracts

     22,000        24,200  

Short-term U.S. government and agency obligations (Note 3) (cost $114,822,672 and $86,199,868, respectively)

     114,826,066        86,206,701  

Unrealized appreciation on forward agreements

     —          19,307,685  

Receivable on open futures contracts

     2,450        —    
  

 

 

    

 

 

 

Total assets

     115,311,683        105,882,964  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Payable for capital shares redeemed

     —          5,138,116  

Payable on open futures contracts

     —          2,520  

Management fee payable

     94,140        85,625  

Unrealized depreciation on forward agreements

     2,227,857        —    
  

 

 

    

 

 

 

Total liabilities

     2,321,997        5,226,261  
  

 

 

    

 

 

 

Shareholders’ equity

     

Shareholders’ equity

     112,989,686        100,656,703  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 115,311,683      $ 105,882,964  
  

 

 

    

 

 

 

Shares outstanding (Note 1)

     1,258,489        1,958,489  
  

 

 

    

 

 

 

Net asset value per share (Note 1)

   $ 89.78      $ 51.40  
  

 

 

    

 

 

 

Market value per share (Note 1) (Note 2)

   $ 90.19      $ 50.07  
  

 

 

    

 

 

 

See accompanying notes to financial statements.

 

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Table of Contents

PROSHARES ULTRASHORT SILVER

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2013

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

  

(102% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.017% due 02/06/14

   $ 14,500,000      $ 14,499,789  

0.100% due 02/13/14

     3,997,000        3,996,953  

0.051% due 03/06/14†

     26,555,000        26,552,676  

0.025% due 03/13/14†

     4,084,000        4,083,682  

0.047% due 03/20/14†

     23,168,000        23,165,027  

0.075% due 04/17/14†

     8,507,000        8,506,132  

0.081% due 05/01/14†

     25,666,000        25,661,758  

0.057% due 05/22/14†

     8,362,000        8,360,049  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $114,822,672)

      $ 114,826,066  
     

 

 

 

Futures Contracts Sold††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Silver Futures - COMEX, expires March 2014

     2      $ 193,700      $ 14,200  

Forward Agreements^

 

     Rate Received
(Paid)
  Settlement Date    Commitment to
(Deliver)/Receive
    Notional Amount
at Value*
    Unrealized
Appreciation
(Depreciation)
 

Forward agreements with Deutsche Bank AG based on 0.999 Fine Troy Ounce Silver

   (0.30)%   01/06/14    $ (6,145,000   $ (119,839,790   $ (445,752

Forward agreements with Goldman Sachs International based on 0.999 Fine Troy Ounce Silver

   (0.40)   01/06/14      (2,366,500     (46,151,483     (1,257,636

Forward agreements with Societe Generale S.A. based on 0.999 Fine Troy Ounce Silver

   (0.50)   01/06/14      (1,163,000     (22,680,826     (7,359

Forward agreements with UBS AG based on 0.999 Fine Troy Ounce Silver

   (0.45)   01/06/14      (1,903,000     (37,112,306     (517,110
           

 

 

 
            $ (2,227,857
           

 

 

 

 

All or partial amount pledged as collateral for forward agreements.
†† Cash collateral in the amount of $22,000 was pledged to cover margin requirements for open futures contracts as of December 31, 2013.
^ The positions and counterparties herein are as of December 31, 2013. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* 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

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2012

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

  

(86% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.085% due 01/10/13†

   $ 4,414,000      $ 4,413,971  

0.100% due 02/07/13†

     11,897,000        11,896,644  

0.105% due 02/14/13†

     34,295,000        34,293,771  

0.086% due 02/21/13†

     34,563,000        34,561,560  

0.061% due 04/25/13†

     1,041,000        1,040,755  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $86,199,868)

      $ 86,206,701  
     

 

 

 

Futures Contracts Sold††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Silver Futures - COMEX, expires March 2013

     2      $ 302,270      $ 40,020  

Forward Agreements^

 

     Rate Received
(Paid)
  Settlement Date    Commitment to
(Deliver)/Receive
    Notional Amount
at Value*
    Unrealized
Appreciation
(Depreciation)
 

Forward agreements with Deutsche Bank AG based on 0.999 Fine Troy Ounce Silver

   (0.30)%   01/07/13    $ (3,453,000   $ (103,432,889   $ 10,786,801  

Forward agreements with Goldman Sachs International based on 0.999 Fine Troy Ounce Silver

   (0.80)   01/07/13      (1,127,500     (33,773,699     3,141,119  

Forward agreements with Societe Generale S.A. based on 0.999 Fine Troy Ounce Silver

   (0.50)   01/07/13      (1,253,000     (37,532,989     3,255,649  

Forward agreements with UBS AG based on 0.999 Fine Troy Ounce Silver

   (0.85)   01/07/13      (877,000     (26,270,097     2,124,116  
           

 

 

 
            $ 19,307,685  
           

 

 

 

 

All or partial amount pledged as collateral for forward agreements.
†† Cash collateral in the amount of $24,200 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.
^ The positions and counterparties herein are as of December 31, 2012. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* 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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Table of Contents

PROSHARES ULTRASHORT SILVER

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012, 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Investment Income

      

Interest

   $ 60,178     $ 100,092     $ 146,064  
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     1,033,442       1,503,193       3,530,293  

Brokerage commissions

     40       41       3,784  
  

 

 

   

 

 

   

 

 

 

Total expenses

     1,033,482       1,503,234       3,534,077  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (973,304 )     (1,403,142 )     (3,388,013 )
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Futures contracts

     137,040       960       2,855,508  

Forward agreements

     113,319,364       (28,115,932 )     (174,216,829 )

Short-term U.S. government and agency obligations

     6,916       5,567       (774 )
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     113,463,320       (28,109,405 )     (171,362,095 )
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Futures contracts

     (25,820 )     (20,830 )     580,270  

Forward agreements

     (21,535,542 )     (23,708,038 )     53,026,068  

Short-term U.S. government and agency obligations

     (3,439 )     12,171       (8,741 )
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     (21,564,801 )     (23,716,697 )     53,597,597  
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     91,898,519       (51,826,102 )     (117,764,498 )
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 90,925,215     $ (53,229,244 )   $ (121,152,511 )
  

 

 

   

 

 

   

 

 

 

Net income (loss) per weighted-average share (Note 1)

   $ 58.14     $ (18.23 )   $ (26.05 )
  

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding (Note 1)

     1,563,968       2,919,786       4,650,772  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

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PROSHARES ULTRASHORT SILVER

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Shareholders’ equity, beginning of period

   $ 100,656,703     $ 246,813,921     $ 99,032,781  

Addition of 3,450,000, 5,960,000 and 14,127,500 shares, respectively (Note 1)

     251,109,632       310,340,710       1,193,126,146  

Redemption of 4,150,000, 7,220,385 and 11,405,122 shares, respectively (Note 1)

     (329,701,864 )     (403,268,684 )     (924,192,495 )
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of (700,000), (1,260,385) and 2,722,378 shares, respectively (Note 1)

     (78,592,232 )     (92,927,974 )     268,933,651  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (973,304 )     (1,403,142 )     (3,388,013 )

Net realized gain (loss)

     113,463,320       (28,109,405 )     (171,362,095 )

Change in net unrealized appreciation/depreciation

     (21,564,801 )     (23,716,697 )     53,597,597  
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     90,925,215       (53,229,244 )     (121,152,511 )
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 112,989,686     $ 100,656,703     $ 246,813,921  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

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Table of Contents

PROSHARES ULTRASHORT SILVER

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Cash flow from operating activities

      

Net income (loss)

   $ 90,925,215     $ (53,229,244 )   $ (121,152,511 )

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

     2,200       18,940       469,523  

Net sale (purchase) of short-term U.S. government and agency obligations

     (28,622,804 )     129,158,389       (110,042,156 )

Change in unrealized appreciation/depreciation on investments

     21,538,981       23,695,867       (53,017,327 )

Decrease (Increase) in receivable on futures contracts

     (2,450 )     —         —    

Increase (Decrease) in management fee payable

     8,515       (95,259 )     104,981  

Increase (Decrease) in payable on futures contracts

     (2,520 )     2,520       (227,423 )
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     83,847,137       99,551,213       (283,864,913 )
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     251,109,632       318,778,691       1,184,688,165  

Payment on shares redeemed

     (334,839,980 )     (418,633,692 )     (903,689,371 )
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (83,730,348 )     (99,855,001 )     280,998,794  
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     116,789       (303,788 )     (2,866,119 )

Cash, beginning of period

     344,378       648,166       3,514,285  
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 461,167     $ 344,378     $ 648,166  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

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Table of Contents

PROSHARES SHORT EURO

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2013      December 31, 2012  

Assets

     

Cash

   $ 863,980      $ 302,359  

Segregated cash balances with brokers for futures contracts

     128,700        63,250  

Short-term U.S. government and agency obligations (Note 3) (cost $7,901,405 and $3,409,716, respectively)

     7,902,056        3,409,904  

Receivable on open futures contracts

     9,100        6,612  

Offering costs (Note 5)

     —          19,770  

Limitation by Sponsor

     —          2,145  
  

 

 

    

 

 

 

Total assets

     8,903,836        3,804,040  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Management fee payable

     6,994        —    

Payable for offering costs

     —          41,000  
  

 

 

    

 

 

 

Total liabilities

     6,994        41,000  
  

 

 

    

 

 

 

Shareholders’ equity

     

Shareholders’ equity

     8,896,842        3,763,040  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 8,903,836      $ 3,804,040  
  

 

 

    

 

 

 

Shares outstanding

     250,005        100,005  
  

 

 

    

 

 

 

Net asset value per share

   $ 35.59      $ 37.63  
  

 

 

    

 

 

 

Market value per share (Note 2)

   $ 35.66      $ 37.64  
  

 

 

    

 

 

 

See accompanying notes to financial statements.

 

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Table of Contents

PROSHARES SHORT EURO

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2013

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(89% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.037% due 02/06/14

   $ 357,000      $ 356,995  

0.053% due 02/27/14

     2,859,000        2,858,889  

0.053% due 03/06/14

     1,505,000        1,504,868  

0.057% due 03/13/14

     110,000        109,991  

0.086% due 06/12/14

     3,072,000        3,071,313  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $7,901,405)

      $ 7,902,056  
     

 

 

 

Futures Contracts Sold††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Euro Fx Currency Futures - CME, expires March 2014

     52      $ 8,962,200      $ (33,231

 

†† Cash collateral in the amount of $128,700 was pledged to cover margin requirements for open futures contracts as of December 31, 2013.

See accompanying notes to financial statements.

 

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Table of Contents

PROSHARES SHORT EURO

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2012

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(91% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.100% due 01/31/13

   $ 3,410,000      $ 3,409,904  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $3,409,716)

      $ 3,409,904  
     

 

 

 

Futures Contracts Sold††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Euro Fx Currency Futures - CME, expires March 2013

     23      $ 3,797,300      $ (55,056

 

†† Cash collateral in the amount of $63,250 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.

See accompanying notes to financial statements.

 

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Table of Contents

PROSHARES SHORT EURO*

STATEMENTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2013 AND FOR THE PERIOD FROM JUNE 26, 2012 (COMMENCEMENT OF

INVESTMENT OPERATIONS) THROUGH DECEMBER 31, 2012

 

     Year ended
December 31, 2013
    June 26, 2012
(Commencement of
Investment Operations)
through

December 31, 2012
 

Investment Income

    

Interest

   $ 1,996     $ 1,508  
  

 

 

   

 

 

 

Expenses

    

Management fee

     35,075       —    

Brokerage commissions

     812       313  

Offering costs

     45,511       21,231  

Limitation by Sponsor

     (28,232 )     (2,145 )
  

 

 

   

 

 

 

Total expenses

     53,166       19,399  
  

 

 

   

 

 

 

Net investment income (loss)

     (51,170 )     (17,891 )
  

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

    

Net realized gain (loss) on

    

Futures contracts

     (381,987 )     (164,400 )

Short-term U.S. government and agency obligations

     157       (1 )
  

 

 

   

 

 

 

Net realized gain (loss)

     (381,830 )     (164,401 )
  

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

    

Futures contracts

     21,825       (55,056 )

Short-term U.S. government and agency obligations

     463       188  
  

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     22,288       (54,868 )
  

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     (359,542 )     (219,269 )
  

 

 

   

 

 

 

Net income (loss)

   $ (410,712 )   $ (237,160 )
  

 

 

   

 

 

 

Net income (loss) per weighted-average share

   $ (2.75 )   $ (2.38 )
  

 

 

   

 

 

 

Weighted-average shares outstanding

     149,183       99,476  
  

 

 

   

 

 

 

 

* Since the Fund commenced investment operations on June 26, 2012, the Statement of Operations for the year ended December 31, 2011 has not been provided.

See accompanying notes to financial statements.

 

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Table of Contents

PROSHARES SHORT EURO*

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEAR ENDED DECEMBER 31, 2013 AND FOR THE PERIOD FROM JUNE 26, 2012 (COMMENCEMENT OF

INVESTMENT OPERATIONS) THROUGH DECEMBER 31, 2012

 

     Year ended
December 31, 2013
    June 26, 2012
(Commencement of
Investment Operations)
through
December 31, 2012
 

Shareholders’ equity, beginning of period

   $ 3,763,040     $ 200  

Addition of 150,000 and 100,000 shares, respectively

     5,544,514       4,000,000  

Net investment income (loss)

     (51,170 )     (17,891 )

Net realized gain (loss)

     (381,830 )     (164,401 )

Change in net unrealized appreciation/depreciation

     22,288       (54,868 )
  

 

 

   

 

 

 

Net income (loss)

     (410,712 )     (237,160 )
  

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 8,896,842     $ 3,763,040  
  

 

 

   

 

 

 

 

* Since the Fund commenced investment operations on June 26, 2012, the only activity for the year ended December 31, 2011 was the initial seeding of the Fund, as such the Statement of Changes in Shareholders’ Equity for the year ended December 31, 2011 has not been provided.

See accompanying notes to financial statements.

 

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Table of Contents

PROSHARES SHORT EURO*

STATEMENTS OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 2013 AND FOR THE PERIOD FROM JUNE 26, 2012 (COMMENCEMENT OF

INVESTMENT OPERATIONS) THROUGH DECEMBER 31, 2012

 

     Year ended
December 31, 2013
    June 26, 2012
(Commencement of
Investment Operations)
through
December 31, 2012
 

Cash flow from operating activities

    

Net income (loss)

   $ (410,712 )   $ (237,160 )

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

     (65,450 )     (63,250 )

Net sale (purchase) of short-term U.S. government and agency obligations

     (4,491,689 )     (3,409,716 )

Change in unrealized appreciation/depreciation on investments

     (463 )     (188 )

Decrease (Increase) in receivable on futures contracts

     (2,488 )     (6,612 )

Decrease (Increase) in Limitation by Sponsor

     2,145       (2,145 )

Change in offering cost

     19,770       21,230  

Increase (Decrease) in management fee payable

     6,994       —    

Increase (Decrease) in payable for offering costs

     (41,000 )     —    
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (4,982,893 )     (3,697,841 )
  

 

 

   

 

 

 

Cash flow from financing activities

    

Proceeds from addition of shares

     5,544,514       4,000,000  
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     5,544,514       4,000,000  
  

 

 

   

 

 

 

Net increase (decrease) in cash

     561,621       302,159  

Cash, beginning of period

     302,359       200  
  

 

 

   

 

 

 

Cash, end of period

   $ 863,980     $ 302,359  
  

 

 

   

 

 

 

 

* Since the Fund commenced investment operations on June 26, 2012, the only activity for the year ended December 31, 2011 was the initial seeding of the Fund, as such the Statement of Cash Flows for the year ended December 31, 2011 has not been provided.

See accompanying notes to financial statements.

 

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PROSHARES ULTRASHORT AUSTRALIAN DOLLAR

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2013      December 31, 2012  

Assets

     

Cash

   $ 2,751,320      $ 361,157  

Segregated cash balances with brokers for futures contracts

     1,141,635        144,540  

Short-term U.S. government and agency obligations (Note 3) (cost $24,197,046 and $3,302,725, respectively)

     24,198,507        3,302,907  

Offering costs (Note 5)

     —          22,129  

Limitation by Sponsor

     —          2,216  
  

 

 

    

 

 

 

Total assets

     28,091,462        3,832,949  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Payable on open futures contracts

     86,166        10,950  

Management fee payable

     22,017        —     

Payable for offering costs

     —           41,000  
  

 

 

    

 

 

 

Total liabilities

     108,183        51,950  
  

 

 

    

 

 

 

Shareholders’ equity

     

Shareholders’ equity

     27,983,279        3,780,999  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 28,091,462      $ 3,832,949  
  

 

 

    

 

 

 

Shares outstanding

     600,005        100,005  
  

 

 

    

 

 

 

Net asset value per share

   $ 46.64      $ 37.81  
  

 

 

    

 

 

 

Market value per share (Note 2)

   $ 46.66      $ 37.74  
  

 

 

    

 

 

 

See accompanying notes to financial statements.

 

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PROSHARES ULTRASHORT AUSTRALIAN DOLLAR

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2013

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(86% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.032% due 02/06/14

   $ 1,761,000      $ 1,760,974  

0.061% due 03/13/14

     1,872,000        1,871,854  

0.073% due 04/03/14

     659,000        658,883  

0.066% due 04/17/14

     1,269,000        1,268,871  

0.085% due 04/24/14

     651,000        650,879  

0.076% due 05/01/14

     2,167,000        2,166,642  

0.088% due 05/08/14

     2,324,000        2,323,553  

0.073% due 05/22/14

     13,353,000        13,349,884  

0.065% due 06/12/14

     147,000        146,967  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $24,197,046)

      $ 24,198,507  
     

 

 

 

Futures Contracts Sold††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Australian Dollar Fx Currency Futures - CME, expires March 2014

     629      $ 55,867,780      $ 917,605  

 

†† Cash collateral in the amount of $1,141,635 was pledged to cover margin requirements for open futures contracts as of December 31, 2013.

See accompanying notes to financial statements.

 

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PROSHARES ULTRASHORT AUSTRALIAN DOLLAR

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2012

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(87% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.100% due 01/31/13

   $ 3,303,000      $ 3,302,907  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $3,302,725)

      $ 3,302,907  
     

 

 

 

Futures Contracts Sold††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Australian Dollar Fx Currency Futures - CME, expires March 2013

     73      $ 7,537,250      $ 85,590  

 

†† Cash collateral in the amount of $144,540 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.

See accompanying notes to financial statements.

 

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Table of Contents

PROSHARES ULTRASHORT AUSTRALIAN DOLLAR*

STATEMENTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2013 AND FOR THE PERIOD FROM JULY 17, 2012 (COMMENCEMENT OF

INVESTMENT OPERATIONS) THROUGH DECEMBER 31, 2012

 

     Year ended
December 31, 2013
    July 17, 2012
(Commencement of
Investment Operations)
through
December 31, 2012
 

Investment Income

    

Interest

   $ 5,653     $ 1,432  
  

 

 

   

 

 

 

Expenses

    

Management fee

     106,713       —     

Brokerage commissions

     11,753       1,006  

Offering costs

     47,870       18,871  

Limitation by Sponsor

     (1,259 )     (2,216 )
  

 

 

   

 

 

 

Total expenses

     165,077       17,661  
  

 

 

   

 

 

 

Net investment income (loss)

     (159,424 )     (16,229 )
  

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

    

Net realized gain (loss) on

    

Futures contracts

     2,720,079       (288,740 )

Short-term U.S. government and agency obligations

     (74 )     (4 )
  

 

 

   

 

 

 

Net realized gain (loss)

     2,720,005       (288,744 )
  

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

    

Futures contracts

     832,015       85,590  

Short-term U.S. government and agency obligations

     1,279       182  
  

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     833,294       85,772  
  

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     3,553,299       (202,972 )
  

 

 

   

 

 

 

Net income (loss)

   $ 3,393,875     $ (219,201 )
  

 

 

   

 

 

 

Net income (loss) per weighted-average share

   $ 9.21     $ (2.21 )
  

 

 

   

 

 

 

Weighted-average shares outstanding

     368,635       99,410  
  

 

 

   

 

 

 

 

* Since the Fund commenced investment operations on July 17, 2012, the Statement of Operations for the year ended December 31, 2011 has not been provided.

See accompanying notes to financial statements.

 

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Table of Contents

PROSHARES ULTRASHORT AUSTRALIAN DOLLAR*

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEAR ENDED DECEMBER 31, 2013 AND FOR THE PERIOD FROM JULY 17, 2012 (COMMENCEMENT OF

INVESTMENT OPERATIONS) THROUGH DECEMBER 31, 2012

 

     Year ended
December 31, 2013
    July 17, 2012
(Commencement of
Investment Operations)
through
December 31, 2012
 

Shareholders’ equity, beginning of period

   $ 3,780,999     $ 200  

Addition of 500,000 and 100,000 shares, respectively

     20,808,405       4,000,000  

Net investment income (loss)

     (159,424 )     (16,229 )

Net realized gain (loss)

     2,720,005       (288,744 )

Change in net unrealized appreciation/depreciation

     833,294       85,772  
  

 

 

   

 

 

 

Net income (loss)

     3,393,875       (219,201 )
  

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 27,983,279     $ 3,780,999  
  

 

 

   

 

 

 

 

* Since the Fund commenced investment operations on July 17, 2012, the only activity for the year ended December 31, 2011 was the initial seeding of the Fund, as such the Statement of Changes in Shareholders’ Equity for the year ended December 31, 2011 has not been provided.

See accompanying notes to financial statements.

 

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Table of Contents

PROSHARES ULTRASHORT AUSTRALIAN DOLLAR*

STATEMENTS OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 2013 AND FOR THE PERIOD FROM JULY 17, 2012 (COMMENCEMENT OF

INVESTMENT OPERATION) THROUGH DECEMBER 31, 2012

 

     Year ended
December 31, 2013
    July 17, 2012
(Commencement of
Investment Operations)
through
December 31, 2012
 

Cash flow from operating activities

    

Net income (loss)

   $ 3,393,875     $ (219,201 )

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

     (997,095 )     (144,540 )

Net sale (purchase) of short-term U.S. government and agency obligations

     (20,894,321 )     (3,302,725 )

Change in unrealized appreciation/depreciation on investments

     (1,279 )     (182 )

Decrease (Increase) in Limitation by Sponsor

     2,216       (2,216 )

Change in offering cost

     22,129       18,871  

Increase (Decrease) in management fee payable

     22,017       —     

Increase (Decrease) in payable on futures contracts

     75,216       10,950  

Increase (Decrease) in payable for offering costs

     (41,000 )     —     
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (18,418,242 )     (3,639,043 )
  

 

 

   

 

 

 

Cash flow from financing activities

    

Proceeds from addition of shares

     20,808,405       4,000,000  
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     20,808,405       4,000,000  
  

 

 

   

 

 

 

Net increase (decrease) in cash

     2,390,163       360,957  

Cash, beginning of period

     361,157       200  
  

 

 

   

 

 

 

Cash, end of period

   $ 2,751,320     $ 361,157  
  

 

 

   

 

 

 

 

* Since the Fund commenced investment operations on July 17, 2012, the only activity for the year ended December 31, 2011 was the initial seeding of the Fund, as such the Statement of Cash Flows for the year ended December 31, 2011 has not been provided.

See accompanying notes to financial statements.

 

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Table of Contents

PROSHARES ULTRASHORT EURO

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2013      December 31, 2012  

Assets

     

Cash

   $ 218,940      $ 276,372  

Short-term U.S. government and agency obligations (Note 3) (cost $437,821,545 and $553,417,216, respectively)

     437,847,159        553,430,562  

Unrealized appreciation on foreign currency forward contracts

     151,351        251,047  
  

 

 

    

 

 

 

Total assets

     438,217,450        553,957,981  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Payable for capital shares redeemed

     5,971,084        13,282,209  

Management fee payable

     345,393        499,127  

Unrealized depreciation on foreign currency forward contracts

     13,899,858        13,398,619  
  

 

 

    

 

 

 

Total liabilities

     20,216,335        27,179,955  
  

 

 

    

 

 

 

Shareholders’ equity

     

Shareholders’ equity

     418,001,115        526,778,026  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 438,217,450      $ 553,957,981  
  

 

 

    

 

 

 

Shares outstanding

     24,500,014        27,700,014  
  

 

 

    

 

 

 

Net asset value per share

   $ 17.06      $ 19.02  
  

 

 

    

 

 

 

Market value per share (Note 2)

   $ 17.06      $ 19.01  
  

 

 

    

 

 

 

See accompanying notes to financial statements.

 

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Table of Contents

PROSHARES ULTRASHORT EURO

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2013

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(105% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.014% due 02/06/14†

   $ 32,976,000      $ 32,975,519  

0.053% due 02/27/14†

     198,499,000        198,491,280  

0.070% due 04/03/14

     47,020,000        47,011,680  

0.081% due 05/01/14†

     59,285,000        59,275,202  

0.083% due 05/08/14†

     92,077,000        92,059,275  

0.086% due 06/12/14†

     8,036,000        8,034,203  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $437,821,545)

      $ 437,847,159  
     

 

 

 

Foreign Currency Forward Contracts^

 

     Settlement Date    Local Currency     Notional Amount
at Value (USD)
    Unrealized
Appreciation
(Depreciation)
 

Contracts to Purchase

         

Euro with Goldman Sachs International

   01/10/14      19,352,500     $ 26,625,017     $ 64,104  

Euro with UBS AG

   01/10/14      35,427,500       48,740,875       87,247  
         

 

 

 
          $ 151,351  
         

 

 

 

Contracts to Sell

         

Euro with Goldman Sachs International

   01/10/14      (323,915,825   $ (445,640,837   $ (6,820,802

Euro with UBS AG

   01/10/14      (338,474,500     (465,670,547     (7,079,056
         

 

 

 
          $ (13,899,858
         

 

 

 

 

All or partial amount pledged as collateral for foreign currency forward contracts.
^ The positions and counterparties herein are as of December 31, 2013. 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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Table of Contents

PROSHARES ULTRASHORT EURO

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2012

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(105% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.093% due 01/10/13†

   $ 446,483,000      $ 446,480,031  

0.104% due 01/31/13†

     60,397,000        60,395,297  

0.082% due 02/21/13†

     37,139,000        37,137,452  

0.061% due 04/25/13†

     9,420,000        9,417,782  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $553,417,216)

      $ 553,430,562  
     

 

 

 

Foreign Currency Forward Contracts^

 

     Settlement Date    Local Currency     Notional Amount
at Value (USD)
    Unrealized
Appreciation
(Depreciation)
 

Contracts to Purchase

         

Euro with Goldman Sachs International

   01/04/13      82,837,700     $ 109,305,330     $ 251,047  

Euro with UBS AG

   01/04/13      175,817,700       231,993,545       (362,118
         

 

 

 
          $ (111,071
         

 

 

 

Contracts to Sell

         

Euro with Goldman Sachs International

   01/04/13      (492,005,225   $ (649,206,743   $ (6,048,832

Euro with UBS AG

   01/04/13      (563,892,200     (744,062,460     (6,987,669
         

 

 

 
          $ (13,036,501
         

 

 

 

 

All or partial amount pledged as collateral for foreign currency forward contracts.
^ The positions and counterparties herein are as of December 31, 2012. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.

See accompanying notes to financial statements.

 

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Table of Contents

PROSHARES ULTRASHORT EURO

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Investment Income

      

Interest

   $ 224,967     $ 525,386     $ 271,533  
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     4,600,479       7,972,894       6,179,382  
  

 

 

   

 

 

   

 

 

 

Total expenses

     4,600,479       7,972,894       6,179,382  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (4,375,512 )     (7,447,508 )     (5,907,849 )
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Foreign currency forward contracts

     (48,063,036 )     46,946,419       (5,409,463 )

Short-term U.S. government and agency obligations

     7,153       8,121       3,715  
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     (48,055,883 )     46,954,540       (5,405,748 )
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Foreign currency forward contracts

     (600,935 )     (80,578,526 )     90,625,031  

Short-term U.S. government and agency obligations

     12,268       37,347       (40,013 )
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     (588,667 )     (80,541,179 )     90,585,018  
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     (48,644,550 )     (33,586,639 )     85,179,270  
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (53,020,062 )   $ (41,034,147 )   $ 79,271,421  
  

 

 

   

 

 

   

 

 

 

Net income (loss) per weighted-average share

   $ (2.03 )   $ (0.99 )   $ 2.22  
  

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding

     26,095,630       41,293,047       35,660,288  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

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Table of Contents

PROSHARES ULTRASHORT EURO

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Shareholders’ equity, beginning of period

   $ 526,778,026     $ 1,100,159,546     $ 444,412,995  

Addition of 6,250,000, 12,900,000 and 50,600,000 shares, respectively

     119,076,233       263,481,506       916,146,552  

Redemption of 9,450,000, 39,300,000 and 18,400,000 shares, respectively

     (174,833,082 )     (795,828,879 )     (339,671,422 )
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of (3,200,000), (26,400,000) and 32,200,000 shares, respectively

     (55,756,849 )     (532,347,373 )     576,475,130  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (4,375,512 )     (7,447,508 )     (5,907,849 )

Net realized gain (loss)

     (48,055,883 )     46,954,540       (5,405,748 )

Change in net unrealized appreciation/depreciation

     (588,667 )     (80,541,179 )     90,585,018  
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     (53,020,062 )     (41,034,147 )     79,271,421  
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 418,001,115     $ 526,778,026     $ 1,100,159,546  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

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Table of Contents

PROSHARES ULTRASHORT EURO

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Cash flow from operating activities

      

Net income (loss)

   $ (53,020,062 )   $ (41,034,147 )   $ 79,271,421  

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

     115,595,671       458,781,066       (540,384,848 )

Change in unrealized appreciation/depreciation on investments

     588,667       80,541,179       (90,585,018 )

Increase (Decrease) in management fee payable

     (153,734 )     (348,383 )     482,950  
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     63,010,542       497,939,715       (551,215,495 )
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     119,076,233       284,781,239       894,846,819  

Payment on shares redeemed

     (182,144,207 )     (782,546,670 )     (343,780,824 )
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (63,067,974 )     (497,765,431 )     551,065,995  
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     (57,432 )     174,284       (149,500 )

Cash, beginning of period

     276,372       102,088       251,588  
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 218,940     $ 276,372     $ 102,088  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

-190-


Table of Contents

PROSHARES ULTRASHORT YEN

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2013      December 31, 2012  

Assets

     

Cash

   $ 575,108      $ 363,826  

Short-term U.S. government and agency obligations (Note 3) (cost $558,563,134 and $362,731,936, respectively)

     558,597,264        362,743,231  

Unrealized appreciation on foreign currency forward contracts

     31,317,568        38,346,817  

Receivable from capital shares sold

     —           7,613,633  
  

 

 

    

 

 

 

Total assets

     590,489,940        409,067,507  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Management fee payable

     437,540        271,235  

Unrealized depreciation on foreign currency forward contracts

     1,930,884        232,642  
  

 

 

    

 

 

 

Total liabilities

     2,368,424        503,877  
  

 

 

    

 

 

 

Shareholders’ equity

     

Shareholders’ equity

     588,121,516        408,563,630  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 590,489,940      $ 409,067,507  
  

 

 

    

 

 

 

Shares outstanding

     8,299,294        8,049,294  
  

 

 

    

 

 

 

Net asset value per share

   $ 70.86      $ 50.76  
  

 

 

    

 

 

 

Market value per share (Note 2)

   $ 70.91      $ 50.77  
  

 

 

    

 

 

 

See accompanying notes to financial statements.

 

-191-


Table of Contents

PROSHARES ULTRASHORT YEN

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2013

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(95% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.021% due 02/06/14†

   $ 15,473,000      $ 15,472,774  

0.052% due 03/06/14

     50,872,000        50,867,548  

0.011% due 03/20/14†

     83,948,000        83,937,227  

0.087% due 04/17/14†

     31,984,000        31,980,735  

0.093% due 05/01/14†

     20,349,000        20,345,637  

0.086% due 05/08/14†

     19,927,000        19,923,164  

0.078% due 05/22/14

     101,809,000        101,785,245  

0.076% due 06/05/14

     100,035,000        100,011,464  

0.086% due 06/12/14†

     100,037,000        100,014,631  

0.085% due 06/26/14

     34,273,000        34,258,839  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $558,563,134)

      $ 558,597,264  
     

 

 

 

Foreign Currency Forward Contracts^

 

     Settlement Date    Local Currency     Notional Amount
at Value (USD)
    Unrealized
Appreciation
(Depreciation)
 

Contracts to Purchase

         

Yen with Goldman Sachs International

   01/10/14      3,967,682,500     $ 37,685,648     $ (884,849

Yen with UBS AG

   01/10/14      3,710,762,600       35,245,383       (1,046,035
         

 

 

 
          $ (1,930,884
         

 

 

 

Contracts to Sell

         

Yen with Goldman Sachs International

   01/10/14      (66,470,096,200   $ (631,343,013   $ 15,716,318  

Yen with UBS AG

   01/10/14      (65,021,781,500     (617,586,701     15,601,250  
         

 

 

 
          $ 31,317,568  
         

 

 

 

 

All or partial amount pledged as collateral for foreign currency forward contracts.
^ The positions and counterparties herein are as of December 31, 2013. 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.

 

-192-


Table of Contents

PROSHARES ULTRASHORT YEN

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2012

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(89% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.096% due 01/10/13†

   $ 97,804,000      $ 97,803,349  

0.100% due 01/31/13†

     120,969,000        120,965,589  

0.093% due 02/14/13†

     11,501,000        11,500,588  

0.074% due 02/21/13†

     47,762,000        47,760,010  

0.077% due 03/28/13

     17,297,000        17,295,570  

0.062% due 04/25/13†

     67,434,000        67,418,125  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $362,731,936)

      $ 362,743,231  
     

 

 

 

Foreign Currency Forward Contracts^

 

     Settlement Date    Local Currency     Notional Amount
at Value (USD)
    Unrealized
Appreciation
(Depreciation)
 

Contracts to Purchase

         

Yen with UBS AG

   01/04/13      601,353,100     $ 6,933,000     $ (232,642
         

 

 

 
          $ (232,642
         

 

 

 

Contracts to Sell

         

Yen with Goldman Sachs International

   01/04/13      (33,732,636,200   $ (388,903,561   $ 18,518,532  

Yen with UBS AG

   01/04/13      (37,798,808,300     (435,782,459     19,828,285  
         

 

 

 
          $ 38,346,817  
         

 

 

 

 

All or partial amount pledged as collateral for foreign currency forward contracts.
^ The positions and counterparties herein are as of December 31, 2012. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.

See accompanying notes to financial statements.

 

-193-


Table of Contents

PROSHARES ULTRASHORT YEN

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Investment Income

      

Interest

   $ 209,601     $ 170,226     $ 182,452  
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     4,607,832       2,354,920       2,824,586  
  

 

 

   

 

 

   

 

 

 

Total expenses

     4,607,832       2,354,920       2,824,586  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (4,398,231 )     (2,184,694 )     (2,642,134 )
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Foreign currency forward contracts

     164,019,598       27,341,631       (50,029,053 )

Short-term U.S. government and agency obligations

     4,527       976       4,169  
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     164,024,125       27,342,607       (50,024,884 )
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Foreign currency forward contracts

     (8,727,491 )     42,478,321       11,773,508  

Short-term U.S. government and agency obligations

     22,835       14,768       (11,285 )
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     (8,704,656 )     42,493,089       11,762,223  
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     155,319,469       69,835,696       (38,262,661 )
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 150,921,238     $ 67,651,002     $ (40,904,795 )
  

 

 

   

 

 

   

 

 

 

Net income (loss) per weighted-average share (Note 1)

   $ 19.43     $ 11.91     $ (6.14 )
  

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding (Note 1)

     7,767,376       5,679,622       6,664,842  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

-194-


Table of Contents

PROSHARES ULTRASHORT YEN

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Shareholders’ equity, beginning of period

   $ 408,563,630     $ 221,131,994     $ 207,685,813  

Addition of 5,650,000, 6,550,000 and 6,683,333 shares, respectively (Note 1)

     362,152,598       291,223,076       308,667,664  

Redemption of 5,400,000, 3,900,000 and 5,700,710 shares, respectively (Note 1)

     (333,515,950 )     (171,442,442 )     (254,316,688 )
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of 250,000, 2,650,000 and 982,623 shares, respectively (Note 1)

     28,636,648       119,780,634       54,350,976  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (4,398,231 )     (2,184,694 )     (2,642,134 )

Net realized gain (loss)

     164,024,125       27,342,607       (50,024,884 )

Change in net unrealized appreciation/depreciation

     (8,704,656 )     42,493,089       11,762,223  
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     150,921,238       67,651,002       (40,904,795 )
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 588,121,516     $ 408,563,630     $ 221,131,994  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

-195-


Table of Contents

PROSHARES ULTRASHORT YEN

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Cash flow from operating activities

      

Net income (loss)

   $ 150,921,238     $ 67,651,002     $ (40,904,795 )

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

     (195,831,198 )     (143,324,171 )     4,457,554  

Change in unrealized appreciation/depreciation on investments

     8,704,656       (42,493,089 )     (11,762,223 )

Increase (Decrease) in management fee payable

     166,305       91,011       10,066  
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (36,038,999 )     (118,075,247 )     (48,199,398 )
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     369,766,231       289,859,177       302,417,930  

Payment on shares redeemed

     (333,515,950 )     (171,442,442 )     (254,316,688 )
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     36,250,281       118,416,735       48,101,242  
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     211,282       341,488       (98,156 )

Cash, beginning of period

     363,826       22,338       120,494  
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 575,108     $ 363,826     $ 22,338  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

-196-


Table of Contents

PROSHARES ULTRA DJ-UBS COMMODITY

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2013      December 31, 2012  

Assets

     

Cash

   $ 85,642      $ 167,546  

Short-term U.S. government and agency obligations (Note 3) (cost $2,816,627 and $6,240,818, respectively)

     2,816,688        6,240,951  

Unrealized appreciation on swap agreements

     15,078        —     
  

 

 

    

 

 

 

Total assets

     2,917,408        6,408,497  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Management fee payable

     2,374        5,018  

Unrealized depreciation on swap agreements

     —           306,268  
  

 

 

    

 

 

 

Total liabilities

     2,374        311,286  
  

 

 

    

 

 

 

Shareholders’ equity

     

Shareholders’ equity

     2,915,034        6,097,211  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 2,917,408      $ 6,408,497  
  

 

 

    

 

 

 

Shares outstanding

     150,014        250,014  
  

 

 

    

 

 

 

Net asset value per share

   $ 19.43      $ 24.39  
  

 

 

    

 

 

 

Market value per share (Note 2)

   $ 19.13      $ 23.93  
  

 

 

    

 

 

 

See accompanying notes to financial statements.

 

-197-


Table of Contents

PROSHARES ULTRA DJ-UBS COMMODITY

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2013

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(97% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.026% due 02/06/14†

   $ 1,077,000      $ 1,076,984  

0.053% due 02/27/14

     226,000        225,991  

0.011% due 03/20/14†

     517,000        516,934  

0.081% due 05/01/14†

     192,000        191,968  

0.076% due 06/05/14

     805,000        804,811  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $2,816,627)

      $ 2,816,688  
     

 

 

 

Swap Agreements^

 

     Rate Received
(Paid)
    Termination
Date
   Notional
Amount at
Value*
     Unrealized
Appreciation
(Depreciation)
 

Swap agreement with Deutsche Bank AG based on Dow Jones-UBS Commodity Index

     (0.25 )%    01/06/14    $ 2,549,441      $ 6,454  

Swap agreement with Goldman Sachs International based on Dow Jones-UBS Commodity Index

     (0.25   01/06/14      2,157,299        4,974  

Swap agreement with UBS AG based on Dow Jones-UBS Commodity Index

     (0.60   01/06/14      1,113,381        3,650  
          

 

 

 
           $ 15,078  
          

 

 

 

 

All or partial amount pledged as collateral for swap agreements.
^ The positions and counterparties herein are as of December 31, 2013. 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.

 

-198-


Table of Contents

PROSHARES ULTRA DJ-UBS COMMODITY

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2012

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(102% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.095% due 01/03/13

   $ 2,914,000      $ 2,913,998  

0.092% due 01/10/13†

     2,530,000        2,529,983  

0.118% due 02/14/13†

     505,000        504,982  

0.086% due 02/21/13†

     292,000        291,988  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $6,240,818)

      $ 6,240,951  
     

 

 

 

Swap Agreements^

 

     Rate Received
(Paid)
    Termination
Date
   Notional Amount
at Value*
     Unrealized
Appreciation
(Depreciation)
 

Swap agreement with Goldman Sachs International based on Dow Jones-UBS Commodity Index

     (0.25 )%    01/07/13    $ 7,780,320      $ (198,117

Swap agreement with UBS AG based on Dow Jones-UBS Commodity Index

     (0.60   01/07/13      4,411,987        (108,151
          

 

 

 
           $ (306,268
          

 

 

 

 

All or partial amount pledged as collateral for swap agreements.
^ The positions and counterparties herein are as of December 31, 2012. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* 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.

 

-199-


Table of Contents

PROSHARES ULTRA DJ-UBS COMMODITY

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Investment Income

      

Interest

   $ 2,066     $ 4,965     $ 10,504  
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     40,543       78,449       156,105  
  

 

 

   

 

 

   

 

 

 

Total expenses

     40,543       78,449       156,105  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (38,477 )     (73,484 )     (145,601 )
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Swap agreements

     (1,254,251 )     (536,107 )     (2,051,498 )

Short-term U.S. government and agency obligations

     (44 )     —          197  
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     (1,254,295 )     (536,107 )     (2,051,301 )
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Swap agreements

     321,346       400,909       (2,462,927 )

Short-term U.S. government and agency obligations

     (72 )     404       (727 )
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     321,274       401,313       (2,463,654 )
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     (933,021 )     (134,794 )     (4,514,955 )
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (971,498 )   $ (208,278 )   $ (4,660,556 )
  

 

 

   

 

 

   

 

 

 

Net income (loss) per weighted-average share

   $ (4.91 )   $ (0.65 )   $ (9.75 )
  

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding

     197,822       320,779       478,096  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

-200-


Table of Contents

PROSHARES ULTRA DJ-UBS COMMODITY

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Shareholders’ equity, beginning of period

   $ 6,097,211     $ 9,058,529     $ 18,186,658  

Addition of 0, 0 and 50,000 shares, respectively

     —          —          1,782,755  

Redemption of 100,000, 100,000 and 200,000 shares, respectively

     (2,210,679 )     (2,753,040 )     (6,250,328 )
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of (100,000), (100,000) and (150,000) shares, respectively

     (2,210,679 )     (2,753,040 )     (4,467,573 )
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (38,477 )     (73,484 )     (145,601 )

Net realized gain (loss)

     (1,254,295 )     (536,107 )     (2,051,301 )

Change in net unrealized appreciation/depreciation

     321,274       401,313       (2,463,654 )
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     (971,498 )     (208,278 )     (4,660,556 )
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 2,915,034     $ 6,097,211     $ 9,058,529  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

-201-


Table of Contents

PROSHARES ULTRA DJ-UBS COMMODITY

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Cash flow from operating activities

      

Net income (loss)

   $ (971,498 )   $ (208,278 )   $ (4,660,556 )

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

     3,424,191       3,473,138       6,712,239  

Change in unrealized appreciation/depreciation on investments

     (321,274 )     (401,313 )     2,463,654  

Increase (Decrease) in management fee payable

     (2,644 )     (2,414 )     (6,054 )
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     2,128,775       2,861,133       4,509,283  
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     —          —          1,782,755  

Payment on shares redeemed

     (2,210,679 )     (2,753,040 )     (6,250,328 )
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (2,210,679 )     (2,753,040 )     (4,467,573 )
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     (81,904 )     108,093       41,710  

Cash, beginning of period

     167,546       59,453       17,743  
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 85,642     $ 167,546     $ 59,453  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

-202-


Table of Contents

PROSHARES ULTRA DJ-UBS CRUDE OIL

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2013      December 31, 2012  

Assets

     

Cash

   $ 689,596      $ 2,198,932  

Segregated cash balances with brokers for futures contracts

     3,821,895        23,356,627  

Short-term U.S. government and agency obligations (Note 3) (cost $137,423,179 and $437,644,628, respectively)

     137,435,610        437,662,650  

Unrealized appreciation on swap agreements

     1,957,893        33,333,620  

Receivable on open futures contracts

     —           3,430,415  
  

 

 

    

 

 

 

Total assets

     143,904,994        499,982,244  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Payable for capital shares redeemed

     —           16,071,243  

Payable on open futures contracts

     997,210        —     

Management fee payable

     134,355        402,037  
  

 

 

    

 

 

 

Total liabilities

     1,131,565        16,473,280  
  

 

 

    

 

 

 

Shareholders’ equity

     

Shareholders’ equity

     142,773,429        483,508,964  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 143,904,994      $ 499,982,244  
  

 

 

    

 

 

 

Shares outstanding

     4,449,170        16,449,170  
  

 

 

    

 

 

 

Net asset value per share

   $ 32.09      $ 29.39  
  

 

 

    

 

 

 

Market value per share (Note 2)

   $ 32.22      $ 29.32  
  

 

 

    

 

 

 

See accompanying notes to financial statements.

 

-203-


Table of Contents

PROSHARES ULTRA DJ-UBS CRUDE OIL

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2013

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

  

(96% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.016% due 02/06/14†

   $ 13,712,000      $ 13,711,800  

0.100% due 02/13/14†

     7,335,000        7,334,915  

0.043% due 03/06/14

     11,796,000        11,794,968  

0.054% due 03/13/14

     1,270,000        1,269,901  

0.042% due 03/20/14

     500,000        499,936  

0.073% due 04/03/14

     2,188,000        2,187,613  

0.077% due 04/10/14

     6,830,000        6,829,163  

0.077% due 04/17/14†

     69,787,000        69,779,876  

0.085% due 04/24/14

     1,277,000        1,276,762  

0.083% due 05/01/14†

     7,864,000        7,862,700  

0.086% due 05/08/14†

     10,806,000        10,803,920  

0.071% due 05/22/14

     2,580,000        2,579,398  

0.076% due 06/05/14

     424,000        423,900  

0.065% due 06/12/14†

     1,081,000        1,080,758  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $137,423,179)

      $ 137,435,610  
     

 

 

 

Futures Contracts Purchased††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Crude Oil - NYMEX, expires March 2014

     1,103       $ 108,700,650       $ 626,661   

Swap Agreements^

 

    Rate Received
(Paid)
    Termination
Date
     Notional Amount
at Value*
     Unrealized
Appreciation
(Depreciation)
 

Swap agreement with Deutsche Bank AG based on Dow Jones-UBS WTI Crude Oil Sub-Index

    (0.25 )%      01/06/14       $ 52,210,040      $ 622,117  

Swap agreement with Goldman Sachs International based on Dow Jones-UBS WTI Crude Oil Sub-Index

    (0.25     01/06/14         54,411,119        576,723  

Swap agreement with Societe Generale S.A. based on Dow Jones-UBS WTI Crude Oil Sub-Index

    (0.25     01/06/14         26,715,890        275,816  

Swap agreement with UBS AG based on Dow Jones-UBS WTI Crude Oil Sub-Index

    (0.25     01/06/14         43,518,797        483,237  
         

 

 

 
          $ 1,957,893  
         

 

 

 

 

All or partial amount pledged as collateral for swap agreements.
†† Cash collateral in the amount of $3,821,895 was pledged to cover margin requirements for open futures contracts as of December 31, 2013.
^ The positions and counterparties herein are as of December 31, 2013. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* 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.

 

-204-


Table of Contents

PROSHARES ULTRA DJ-UBS CRUDE OIL

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2012

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

  

(91% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.095% due 01/03/13

   $ 144,182,000      $ 144,181,919  

0.086% due 01/10/13†

     12,362,000        12,361,918  

0.100% due 01/31/13†

     17,785,000        17,784,498  

0.101% due 02/07/13†

     104,961,000        104,957,860  

0.111% due 02/14/13†

     88,118,000        88,114,843  

0.022% due 02/21/13†

     33,883,000        33,881,588  

0.077% due 03/28/13

     9,851,000        9,850,186  

0.066% due 04/18/13

     2,900,000        2,899,402  

0.061% due 04/25/13†

     23,636,000        23,630,436  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $437,644,628)

      $ 437,662,650  
     

 

 

 

Futures Contracts Purchased††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Crude Oil - NYMEX, expires March 2013

     4,378      $ 403,958,060      $ 21,960,410  

Swap Agreements^

 

     Rate Received
(Paid)
    Termination
Date
   Notional Amount
at Value*
     Unrealized
Appreciation
(Depreciation)
 

Swap agreement with Goldman Sachs International based on Dow Jones-UBS WTI Crude Oil Subindex

     (0.25 )%    01/07/13    $ 232,506,653      $ 14,334,730  

Swap agreement with Societe Generale S.A. based on Dow Jones-UBS WTI Crude Oil Subindex

     (0.25   01/07/13      128,396,742        8,989,866  

Swap agreement with UBS AG based on Dow Jones-UBS WTI Crude Oil Subindex

     (0.25   01/07/13      202,152,019        10,009,024  
          

 

 

 
           $ 33,333,620  
          

 

 

 

 

All or partial amount pledged as collateral for swap agreements.

 

†† Cash collateral in the amount of $23,356,627 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.

 

^ The positions and counterparties herein are as of December 31, 2012. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.

 

* 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.

 

-205-


Table of Contents

PROSHARES ULTRA DJ-UBS CRUDE OIL

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012, 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Investment Income

      

Interest

   $ 135,291     $ 240,162     $ 159,287  
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     2,275,701       3,400,756       3,243,051  

Brokerage commissions

     55,871       87,836       102,605  
  

 

 

   

 

 

   

 

 

 

Total expenses

     2,331,572       3,488,592       3,345,656  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (2,196,281 )     (3,248,430 )     (3,186,369 )
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Futures contracts

     52,686,859       (28,210,259 )     36,556,166  

Swap agreements

     68,059,089       (55,851,708 )     73,825,809  

Short-term U.S. government and agency obligations

     11,289       12,852       14,119  
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     120,757,237       (84,049,115 )     110,396,094  
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Futures contracts

     (21,333,749 )     23,325,740       (6,778,090 )

Swap agreements

     (31,375,727 )     43,341,016       (15,657,040 )

Short-term U.S. government and agency obligations

     (5,591 )     24,546       (17,109 )
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     (52,715,067 )     66,691,302       (22,452,239 )
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     68,042,170       (17,357,813 )     87,943,855  
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 65,845,889     $ (20,606,243 )   $ 84,757,486  
  

 

 

   

 

 

   

 

 

 

Net income (loss) per weighted-average share (Note 1)

   $ 8.54     $ (1.84 )   $ 10.13  
  

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding (Note 1)

     7,709,992       11,187,012       8,370,067  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

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Table of Contents

PROSHARES ULTRA DJ-UBS CRUDE OIL

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012, 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Shareholders’ equity, beginning of period

   $ 483,508,964     $ 251,395,322     $ 228,133,077  

Addition of 11,450,000, 28,550,000 and 29,625,000 shares, respectively (Note 1)

     334,161,435       853,881,447       1,173,453,517  

Redemption of 23,450,000, 18,250,000 and 28,038,334 shares, respectively (Note 1)

     (740,742,859 )     (601,161,562 )     (1,234,948,758 )
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of (12,000,000), 10,300,000 and 1,586,666 shares, respectively (Note 1)

     (406,581,424 )     252,719,885       (61,495,241 )
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (2,196,281 )     (3,248,430 )     (3,186,369 )

Net realized gain (loss)

     120,757,237       (84,049,115 )     110,396,094  

Change in net unrealized appreciation/depreciation

     (52,715,067 )     66,691,302       (22,452,239 )
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     65,845,889       (20,606,243 )     84,757,486  
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 142,773,429     $ 483,508,964     $ 251,395,322  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

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Table of Contents

PROSHARES ULTRA DJ-UBS CRUDE OIL

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012, 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Cash flow from operating activities

      

Net income (loss)

   $ 65,845,889     $ (20,606,243 )   $ 84,757,486  

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

     19,534,732       (9,153,834 )     (3,571,543 )

Net sale (purchase) of short-term U.S. government and agency obligations

     300,221,449       (190,718,535 )     (2,541,758 )

Change in unrealized appreciation/depreciation on investments

     31,381,318       (43,365,562 )     15,674,149  

Decrease (Increase) in receivable on futures contracts

     3,430,415       (3,430,415 )     3,035,150  

Increase (Decrease) in management fee payable

     (267,682 )     186,722       (1,007 )

Increase (Decrease) in payable on futures contracts

     997,210       —          —     
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     421,143,331       (267,087,867 )     97,352,477  
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     334,161,435       853,881,447       1,173,453,517  

Payment on shares redeemed

     (756,814,102 )     (585,090,319 )     (1,271,215,481 )
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (422,652,667 )     268,791,128       (97,761,964 )
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     (1,509,336 )     1,703,261       (409,487 )

Cash, beginning of period

     2,198,932       495,671       905,158  
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 689,596     $ 2,198,932     $ 495,671  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

-208-


Table of Contents

PROSHARES ULTRA DJ-UBS NATURAL GAS

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2013      December 31, 2012  

Assets

     

Cash

   $ 3,102,827      $ 3,385,764  

Segregated cash balances with brokers for futures contracts

     6,602,200        10,264,090  

Short-term U.S. government and agency obligations (Note 3) (cost $58,918,095 and $64,312,441, respectively)

     58,921,011        64,313,224  
  

 

 

    

 

 

 

Total assets

     68,626,038        77,963,078  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Payable on open futures contracts

     5,628,532        4,891,783  

Management fee payable

     81,727        51,925  
  

 

 

    

 

 

 

Total liabilities

     5,710,259        4,943,708  
  

 

 

    

 

 

 

Shareholders’ equity

     

Shareholders’ equity

     62,915,779        73,019,370  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 68,626,038      $ 77,963,078  
  

 

 

    

 

 

 

Shares outstanding (Note 1)

     1,619,941        1,869,941  
  

 

 

    

 

 

 

Net asset value per share (Note 1)

   $ 38.84      $ 39.05  
  

 

 

    

 

 

 

Market value per share (Note 1) (Note 2)

   $ 39.28      $ 39.24  
  

 

 

    

 

 

 

See accompanying notes to financial statements.

 

-209-


Table of Contents

PROSHARES ULTRA DJ-UBS NATURAL GAS

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2013

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(94% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.015% due 02/06/14

   $ 371,000      $ 370,995  

0.100% due 02/13/14

     3,925,000        3,924,954  

0.053% due 03/06/14

     1,197,000        1,196,895  

0.055% due 03/13/14

     6,686,000        6,685,480  

0.042% due 03/20/14

     2,792,000        2,791,642  

0.055% due 04/03/14

     5,086,000        5,085,100  

0.060% due 04/10/14

     8,844,000        8,842,917  

0.080% due 04/17/14

     43,000        42,996  

0.082% due 04/24/14

     4,789,000        4,788,106  

0.092% due 05/01/14

     3,500,000        3,499,421  

0.091% due 05/08/14

     2,534,000        2,533,512  

0.064% due 05/22/14

     5,515,000        5,513,713  

0.076% due 06/05/14

     10,791,000        10,788,461  

0.082% due 06/26/14

     2,858,000        2,856,819  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $58,918,095)

      $ 58,921,011  
     

 

 

 

Futures Contracts Purchased††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Natural Gas - NYMEX, expires March 2014

     3,001      $ 125,831,930      $ (3,656,539

 

†† Cash collateral in the amount of $6,602,200 was pledged to cover margin requirements for open futures contracts as of December 31, 2013.

See accompanying notes to financial statements.

 

-210-


Table of Contents

PROSHARES ULTRA DJ-UBS NATURAL GAS

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2012

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

  

(88% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.095% due 01/03/13

   $ 934,000      $ 934,000  

0.087% due 01/10/13

     10,170,000        10,169,932  

0.102% due 02/07/13

     3,849,000        3,848,885  

0.104% due 02/14/13

     3,103,000        3,102,889  

0.048% due 02/21/13

     26,359,000        26,357,902  

0.077% due 03/28/13

     1,410,000        1,409,883  

0.066% due 04/18/13

     2,987,000        2,986,384  

0.059% due 04/25/13

     15,507,000        15,503,349  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $64,312,441)

      $ 64,313,224  
     

 

 

 

Futures Contracts Purchased††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Natural Gas - NYMEX, expires March 2013

     4,340      $ 146,041,000      $ (3,816,950

 

†† Cash collateral in the amount of $10,264,090 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.

See accompanying notes to financial statements.

 

-211-


Table of Contents

PROSHARES ULTRA DJ-UBS NATURAL GAS

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

AND THE PERIOD FROM APRIL 5, 2011 (INCEPTION) TO DECEMBER 31, 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    April 5, 2011
(Inception)
through

December 31, 2011
 

Investment Income

      

Interest

   $ 33,341     $ 30,397     $ —    
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     707,598       404,318       1,454  

Brokerage commissions

     147,433       128,470       2,531  

Offering costs

     —          63,919       6,474  
  

 

 

   

 

 

   

 

 

 

Total expenses

     855,031       596,707       10,459  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (821,690 )     (566,310 )     (10,459 )
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Futures contracts

     41,418,165       (2,839,309 )     (1,481,685 )

Short-term U.S. government and agency obligations

     4,691       4,126       (134 )
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     41,422,856       (2,835,183 )     (1,481,819 )
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Futures contracts

     160,411       (2,991,440 )     (825,510 )

Short-term U.S. government and agency obligations

     2,133       783       —     
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     162,544       (2,990,657 )     (825,510 )
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     41,585,400       (5,825,840 )     (2,307,329 )
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 40,763,710     $ (6,392,150 )   $ (2,317,788 )
  

 

 

   

 

 

   

 

 

 

Net income (loss) per weighted-average share (Note 1)

   $ 20.11     $ (5.88 )   $ (100.96 )
  

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding (Note 1)

     2,027,064       1,088,025       22,957  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

-212-


Table of Contents

PROSHARES ULTRA DJ-UBS NATURAL GAS

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

AND THE PERIOD FROM APRIL 5, 2011 (INCEPTION) TO DECEMBER 31, 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    April 5, 2011
(Inception)
through

December 31, 2011
 

Shareholders’ equity, beginning of period

   $ 73,019,370     $ 4,079,349     $ —    

Addition of 5,400,000, 2,930,000 and 40,002 shares, respectively (Note 1)

     182,988,911       133,210,470       6,397,137  

Redemption of 5,650,000, 1,100,061 and 0 shares, respectively (Note 1)

     (233,856,212 )     (57,878,299 )     —     
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of (250,000), 1,829,939 and 40,002 shares, respectively (Note 1)

     (50,867,301 )     75,332,171       6,397,137  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (821,690 )     (566,310 )     (10,459 )

Net realized gain (loss)

     41,422,856       (2,835,183 )     (1,481,819 )

Change in net unrealized appreciation/depreciation

     162,544       (2,990,657 )     (825,510 )
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     40,763,710       (6,392,150 )     (2,317,788 )
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 62,915,779     $ 73,019,370     $ 4,079,349  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

-213-


Table of Contents

PROSHARES ULTRA DJ-UBS NATURAL GAS

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

AND THE PERIOD FROM APRIL 5, 2011 (INCEPTION) TO DECEMBER 31, 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    April 5, 2011
(Inception)
through

December 31, 2011
 

Cash flow from operating activities

      

Net income (loss)

   $ 40,763,710     $ (6,392,150 )   $ (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

     3,661,890       (9,538,681 )     (725,409 )

Net sale (purchase) of short-term U.S. government and agency obligations

     5,394,346       (64,312,441 )     —     

Change in unrealized appreciation/depreciation on investments

     (2,133 )     (783 )     —     

Change in offering cost

     —          20,150       (20,150 )

Increase (Decrease) in management fee payable

     29,802       50,471       1,454  

Increase (Decrease) in payable on futures contracts

     736,749       4,891,783       —     

Increase (Decrease) in payable for offering costs

     —          (26,624 )     26,624  
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     50,584,364       (75,308,275 )     (3,035,269 )
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     182,988,911       133,210,470       6,397,137  

Payment on shares redeemed

     (233,856,212 )     (57,878,299 )     —     
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (50,867,301 )     75,332,171       6,397,137  
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     (282,937 )     23,896       3,361,868  

Cash, beginning of period

     3,385,764       3,361,868       —     
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 3,102,827     $ 3,385,764     $ 3,361,868  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

-214-


Table of Contents

PROSHARES ULTRA GOLD

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2013      December 31, 2012  

Assets

     

Cash

   $ 142,566      $ 342,345  

Segregated cash balances with brokers for futures contracts

     15,950        14,850  

Short-term U.S. government and agency obligations (Note 3) (cost $140,884,104 and $350,608,755, respectively)

     140,880,950        350,624,904  

Receivable on open futures contracts

     —           3,980  
  

 

 

    

 

 

 

Total assets

     141,039,466        350,986,079  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Payable for capital shares redeemed

     2,097,225        —     

Payable on open futures contracts

     300        —     

Management fee payable

     111,562        279,269  

Unrealized depreciation on forward agreements

     6,812,974        15,652,058  
  

 

 

    

 

 

 

Total liabilities

     9,022,061        15,931,327  
  

 

 

    

 

 

 

Shareholders’ equity

     

Shareholders’ equity

     132,017,405        335,054,752  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 141,039,466      $ 350,986,079  
  

 

 

    

 

 

 

Shares outstanding

     3,200,014        4,000,014  
  

 

 

    

 

 

 

Net asset value per share

   $ 41.26      $ 83.76  
  

 

 

    

 

 

 

Market value per share (Note 2)

   $ 41.26      $ 85.34  
  

 

 

    

 

 

 

See accompanying notes to financial statements.

 

-215-


Table of Contents

PROSHARES ULTRA GOLD

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2013

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

  

(107% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.017% due 02/06/14†

   $ 39,093,000      $ 39,092,430  

0.051% due 03/06/14†

     23,937,000        23,934,906  

0.011% due 03/20/14†

     51,752,000        51,745,359  

0.080% due 04/17/14†

     10,244,000        10,242,954  

0.070% due 05/22/14†

     15,423,000        15,419,401  

0.086% due 06/12/14

     446,000        445,900  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $140,884,104)

      $ 140,880,950  
     

 

 

 

Futures Contracts Purchased††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Gold Futures - COMEX, expires February 2014

     2      $ 240,460      $ (14,560

Forward Agreements^

 

     Rate Received
(Paid)
  Settlement Date    Commitment to
(Deliver)/Receive
     Notional Amount
at Value*
     Unrealized
Appreciation
(Depreciation)
 

Forward agreements with Deutsche Bank AG based on 0.995 Fine Troy Ounce Gold

   (0.30)%   01/06/14    $ 108,500      $ 130,688,250      $ (3,543,937

Forward agreements with Goldman Sachs International based on 0.995 Fine Troy Ounce Gold

   (0.45)   01/06/14      44,820        53,985,690        (1,327,335

Forward agreements with Societe Generale S.A. based on 0.995 Fine Troy Ounce Gold

   (0.50)   01/06/14      28,100        33,846,450        (785,038

Forward agreements with UBS AG based on 0.995 Fine Troy Ounce Gold

   (0.40)   01/06/14      37,600        45,289,200        (1,156,664
             

 

 

 
              $ (6,812,974
             

 

 

 

 

All or partial amount pledged as collateral for forward agreements.
†† Cash collateral in the amount of $15,950 was pledged to cover margin requirements for open futures contracts as of December 31, 2013.
^ The positions and counterparties herein are as of December 31, 2013. 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.

 

-216-


Table of Contents

PROSHARES ULTRA GOLD

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2012

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

  

(105% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.096% due 01/03/13

   $ 146,333,000      $ 146,332,918  

0.087% due 01/10/13†

     45,695,000        45,694,696  

0.106% due 02/14/13†

     153,832,000        153,826,489  

0.090% due 02/21/13†

     4,771,000        4,770,801  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $350,608,755)

      $ 350,624,904  
     

 

 

 

Futures Contracts Purchased††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Gold Futures - COMEX, expires February 2013

     2      $ 335,160      $ (15,240

Forward Agreements^

 

     Rate Received
(Paid)
  Settlement Date    Commitment to
(Deliver)/Receive
     Notional Amount
at Value*
     Unrealized
Appreciation
(Depreciation)
 

Forward agreements with Deutsche Bank AG based on 0.995 Fine Troy Ounce Gold

   (0.30)%   01/07/13    $ 120,800      $ 200,241,704      $ (4,622,873

Forward agreements with Goldman Sachs International based on 0.995 Fine Troy Ounce Gold

   (0.75)   01/07/13      91,420        151,540,535        (3,678,367

Forward agreements with Societe Generale S.A. based on 0.995 Fine Troy Ounce Gold

   (0.50)   01/07/13      98,400        163,110,792        (3,715,989

Forward agreements with UBS AG based on 0.995 Fine Troy Ounce Gold

   (0.75)   01/07/13      93,400        154,822,642        (3,634,829
             

 

 

 
              $ (15,652,058
             

 

 

 

 

All or partial amount pledged as collateral for forward agreements.
†† Cash collateral in the amount of $14,850 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.
^ The positions and counterparties herein are as of December 31, 2012. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* 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.

 

-217-


Table of Contents

PROSHARES ULTRA GOLD

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Investment Income

      

Interest

   $ 130,437     $ 242,432     $ 146,143  
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     2,055,613       3,411,655       3,118,702  

Brokerage commissions

     39       42       2,927  
  

 

 

   

 

 

   

 

 

 

Total expenses

     2,055,652       3,411,697       3,121,629  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (1,925,215 )     (3,169,265 )     (2,975,486 )
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Futures contracts

     (97,160 )     (7,480 )     1,874,338  

Forward agreements

     (165,535,626 )     (33,585,416 )     98,213,726  

Short-term U.S. government and agency obligations

     7,780       3,264       2,234  
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     (165,625,006 )     (33,589,632 )     100,090,298  
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Futures contracts

     680       26,420       (347,640 )

Forward agreements

     8,839,084       65,184,222       (89,560,867 )

Short-term U.S. government and agency obligations

     (19,303 )     20,736       (12,664 )
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     8,820,461       65,231,378       (89,921,171 )
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     (156,804,545 )     31,641,746       10,169,127  
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (158,729,760 )   $ 28,472,481     $ 7,193,641  
  

 

 

   

 

 

   

 

 

 

Net income (loss) per weighted-average share

   $ (44.55 )   $ 6.90     $ 1.87  
  

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding

     3,562,617       4,126,517       3,852,480  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

-218-


Table of Contents

PROSHARES ULTRA GOLD

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Shareholders’ equity, beginning of period

   $ 335,054,752     $ 326,399,360     $ 259,562,075  

Addition of 550,000, 500,000 and 1,350,000 shares, respectively

     30,696,013       49,880,610       128,281,626  

Redemption of 1,350,000, 800,000 and 800,000 shares, respectively

     (75,003,600 )     (69,697,699 )     (68,637,982 )
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of (800,000), (300,000) and 550,000 shares, respectively

     (44,307,587 )     (19,817,089 )     59,643,644  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (1,925,215 )     (3,169,265 )     (2,975,486 )

Net realized gain (loss)

     (165,625,006 )     (33,589,632 )     100,090,298  

Change in net unrealized appreciation/depreciation

     8,820,461       65,231,378       (89,921,171 )
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     (158,729,760 )     28,472,481       7,193,641  
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 132,017,405     $ 335,054,752     $ 326,399,360  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

-219-


Table of Contents

PROSHARES ULTRA GOLD

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Cash flow from operating activities

      

Net income (loss)

   $ (158,729,760 )   $ 28,472,481     $ 7,193,641  

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

     (1,100 )     8,100       444,825  

Net sale (purchase) of short-term U.S. government and agency obligations

     209,724,651       48,713,572       (150,079,747 )

Change in unrealized appreciation/depreciation on investments

     (8,819,781 )     (65,204,958 )     89,573,531  

Decrease (Increase) in receivable on futures contracts

     3,980       (3,440 )     60,290  

Increase (Decrease) in management fee payable

     (167,707 )     (23,851 )     98,922  

Increase (Decrease) in payable on futures contracts

     300       —          —     
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     42,010,583       11,961,904       (52,708,538 )
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     30,696,013       57,677,607       120,484,629  

Payment on shares redeemed

     (72,906,375 )     (69,697,699 )     (68,637,982 )
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (42,210,362 )     (12,020,092 )     51,846,647  
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     (199,779 )     (58,188 )     (861,891 )

Cash, beginning of period

     342,345       400,533       1,262,424  
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 142,566     $ 342,345     $ 400,533  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

-220-


Table of Contents

PROSHARES ULTRA SILVER

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2013      December 31, 2012  

Assets

     

Cash

   $ 463,001      $ 890,051  

Segregated cash balances with brokers for futures contracts

     22,000        24,200  

Short-term U.S. government and agency obligations (Note 3) (cost $467,849,038 and $891,006,493, respectively)

     467,868,976        891,057,386  

Receivable from capital shares sold

     —           2,148,957  

Receivable on open futures contracts

     —           2,520  
  

 

 

    

 

 

 

Total assets

     468,353,977        894,123,114  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Payable on open futures contracts

     2,450        —     

Management fee payable

     379,128        657,008  

Unrealized depreciation on forward agreements

     2,492,880        145,740,706  
  

 

 

    

 

 

 

Total liabilities

     2,874,458        146,397,714  
  

 

 

    

 

 

 

Shareholders’ equity

     

Shareholders’ equity

     465,479,519        747,725,400  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 468,353,977      $ 894,123,114  
  

 

 

    

 

 

 

Shares outstanding (Note 9)

     7,350,007        4,350,007  
  

 

 

    

 

 

 

Net asset value per share (Note 9)

   $ 63.33      $ 171.89  
  

 

 

    

 

 

 

Market value per share (Note 9) (Note 2)

   $ 63.04      $ 176.40  
  

 

 

    

 

 

 

See accompanying notes to financial statements.

 

-221-


Table of Contents

PROSHARES ULTRA SILVER

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2013

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

  

(101% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.010% due 02/06/14†

   $ 246,229,000      $ 246,225,410  

0.047% due 03/06/14†

     26,139,000        26,136,713  

0.042% due 03/20/14†

     1,793,000        1,792,770  

0.070% due 04/03/14

     14,766,000        14,763,387  

0.066% due 04/10/14†

     7,392,000        7,391,094  

0.080% due 04/17/14†

     137,765,000        137,750,937  

0.093% due 04/24/14†

     2,451,000        2,450,542  

0.093% due 05/01/14

     2,934,000        2,933,515  

0.088% due 05/08/14†

     5,908,000        5,906,863  

0.069% due 05/22/14†

     22,523,000        22,517,745  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $467,849,038)

      $ 467,868,976  
     

 

 

 

Futures Contracts Purchased††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Silver Futures - COMEX, expires March 2014

     2      $ 193,700      $ (14,200

Forward Agreements^

 

     Rate Received
(Paid)
  Settlement Date    Commitment to
(Deliver)/Receive
     Notional Amount
at Value*
     Unrealized
Appreciation
(Depreciation)
 

Forward agreements with Deutsche Bank AG based on 0.999 Fine Troy Ounce Silver

   (0.30)%   01/06/14    $ 25,659,000      $ 500,401,818      $ (350,663

Forward agreements with Goldman Sachs International based on 0.999 Fine Troy Ounce Silver

   (0.45)   01/06/14      8,597,800        167,674,296        (1,345,433

Forward agreements with Societe Generale S.A. based on 0.999 Fine Troy Ounce Silver

   (0.50)   01/06/14      4,952,000        96,573,904        (28,581

Forward agreements with UBS AG based on 0.999 Fine Troy Ounce Silver

   (0.45)   01/06/14      8,516,000        166,079,032        (768,203
             

 

 

 
              $ (2,492,880
             

 

 

 

 

All or partial amount pledged as collateral for forward agreements.

 

†† Cash collateral in the amount of $22,000 was pledged to cover margin requirements for open futures contracts as of December 31, 2013.

 

^ The positions and counterparties herein are as of December 31, 2013. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.

 

* 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.

 

-222-


Table of Contents

PROSHARES ULTRA SILVER

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2012

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

  

(119% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.088% due 01/10/13†

   $ 264,070,000      $ 264,068,244  

0.103% due 02/07/13

     16,680,000        16,679,501  

0.105% due 02/14/13†

     293,246,000        293,235,493  

0.085% due 02/21/13†

     262,191,000        262,180,074  

0.064% due 04/25/13†

     54,907,000        54,894,074  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $891,006,493)

      $ 891,057,386  
     

 

 

 

Futures Contracts Purchased††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Silver Futures - COMEX, expires March 2013

     2      $ 302,270      $ (40,020

Forward Agreements^

 

     Rate Received
(Paid)
  Settlement Date    Commitment to
(Deliver)/Receive
     Notional Amount
at Value*
     Unrealized
Appreciation
(Depreciation)
 

Forward agreements with Deutsche Bank AG based on 0.999 Fine Troy Ounce Silver

   (0.30)%   01/07/13    $ 17,405,000      $ 521,352,073      $ (44,873,116

Forward agreements with Goldman Sachs International based on 0.999 Fine Troy Ounce Silver

   (0.90)   01/07/13      10,625,800        318,290,526        (34,491,042

Forward agreements with Societe Generale S.A. based on 0.999 Fine Troy Ounce Silver

   (0.50)   01/07/13      11,932,000        357,417,094        (34,802,217

Forward agreements with UBS AG based on 0.999 Fine Troy Ounce Silver

   (0.95)   01/07/13      9,948,000        297,987,366        (31,574,331
             

 

 

 
              $ (145,740,706
             

 

 

 

 

All or partial amount pledged as collateral for forward agreements.
†† Cash collateral in the amount of $24,200 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.
^ The positions and counterparties herein are as of December 31, 2012. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* 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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Table of Contents

PROSHARES ULTRA SILVER

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Investment Income

      

Interest

   $ 348,317     $ 520,233     $ 423,786  
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     5,628,988       7,438,345       8,372,487  

Brokerage commissions

     36       45       7,511  
  

 

 

   

 

 

   

 

 

 

Total expenses

     5,629,024       7,438,390       8,379,998  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (5,280,707 )     (6,918,157 )     (7,956,212 )
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Futures contracts

     (137,594 )     (6,160 )     4,093,993  

Forward agreements

     (701,395,135 )     (66,420,332 )     (213,571,085 )

Short-term U.S. government and agency obligations

     14,261       5,369       46,248  
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     (701,518,468 )     (66,421,123 )     (209,430,844 )
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Futures contracts

     25,820       20,830       (3,117,070 )

Forward agreements

     143,247,826       33,586,067       (225,518,341 )

Short-term U.S. government and agency obligations

     (30,955 )     61,788       (28,154 )
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     143,242,691       33,668,685       (228,663,565 )
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     (558,275,777 )     (32,752,438 )     (438,094,409 )
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (563,556,484 )   $ (39,670,595 )   $ (446,050,621 )
  

 

 

   

 

 

   

 

 

 

Net income (loss) per weighted-average share (Note 1) (Note 9)

   $ (93.80 )   $ (9.91 )   $ (173.02 )
  

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding (Note 1) (Note 9)

     6,008,363       4,001,407       2,578,021  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

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PROSHARES ULTRA SILVER

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Shareholders’ equity, beginning of period

   $ 747,725,400     $ 606,824,420     $ 547,003,919  

Addition of 4,112,500, 2,262,500 and 3,912,500 shares, respectively (Note 1) (Note 9)

     383,200,214       463,625,109       1,259,593,245  

Redemption of 1,112,500, 1,425,000 and 2,150,000 shares, respectively (Note 1) (Note 9)

     (101,889,611 )     (283,053,534 )     (753,722,123 )
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of 3,000,000, 837,500 and 1,762,500 shares, respectively (Note 1) (Note 9)

     281,310,603       180,571,575       505,871,122  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (5,280,707 )     (6,918,157 )     (7,956,212 )

Net realized gain (loss)

     (701,518,468 )     (66,421,123 )     (209,430,844 )

Change in net unrealized appreciation/depreciation

     143,242,691       33,668,685       (228,663,565 )
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     (563,556,484 )     (39,670,595 )     (446,050,621 )
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 465,479,519     $ 747,725,400     $ 606,824,420  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

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PROSHARES ULTRA SILVER

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Cash flow from operating activities

      

Net income (loss)

   $ (563,556,484 )   $ (39,670,595 )   $ (446,050,621 )

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

     2,200       25,750       2,345,963  

Net sale (purchase) of short-term U.S. government and agency obligations

     423,157,455       (119,069,929 )     (276,038,294 )

Change in unrealized appreciation/depreciation on investments

     (143,216,871 )     (33,647,855 )     225,546,495  

Decrease (Increase) in receivable on futures contracts

     2,520       3,480       385,421  

Increase (Decrease) in management fee payable

     (277,880 )     87,573       173,891  

Increase (Decrease) in payable on futures contracts

     2,450       —          —     
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (283,886,610 )     (192,271,576 )     (493,637,145 )
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     385,349,171       475,442,719       1,245,626,678  

Payment on shares redeemed

     (101,889,611 )     (283,053,534 )     (753,722,123 )
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     283,459,560       192,389,185       491,904,555  
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     (427,050 )     117,609       (1,732,590 )

Cash, beginning of period

     890,051       772,442       2,505,032  
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 463,001     $ 890,051     $ 772,442  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

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PROSHARES ULTRA AUSTRALIAN DOLLAR

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2013      December 31, 2012  

Assets

     

Cash

   $ 314,796      $ 426,634  

Segregated cash balances with brokers for futures contracts

     128,865        158,400  

Short-term U.S. government and agency obligations (Note 3) (cost $2,716,026 and $3,570,687, respectively)

     2,716,439        3,570,894  

Receivable on open futures contracts

     10,650        12,000  

Offering costs (Note 5)

     —           22,128  

Limitation by Sponsor

     —           1,012  
  

 

 

    

 

 

 

Total assets

     3,170,750        4,191,068  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Management fee payable

     2,585        —     

Payable for offering costs

     —           41,000  
  

 

 

    

 

 

 

Total liabilities

     2,585        41,000  
  

 

 

    

 

 

 

Shareholders’ equity

     

Shareholders’ equity

     3,168,165        4,150,068  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 3,170,750      $ 4,191,068  
  

 

 

    

 

 

 

Shares outstanding

     100,005        100,005  
  

 

 

    

 

 

 

Net asset value per share

   $ 31.68      $ 41.50  
  

 

 

    

 

 

 

Market value per share (Note 2)

   $ 31.61      $ 41.45  
  

 

 

    

 

 

 

See accompanying notes to financial statements.

 

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PROSHARES ULTRA AUSTRALIAN DOLLAR

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2013

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(86% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.016% due 02/06/14

   $ 78,000      $ 77,999  

0.053% due 02/27/14

     105,000        104,996  

0.065% due 04/17/14

     86,000        85,991  

0.086% due 06/12/14

     2,448,000        2,447,453  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $2,716,026)

      $ 2,716,439  
     

 

 

 

Futures Contracts Purchased††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Australian Dollar Fx Currency Futures - CME, expires March 2014

     71      $ 6,306,220      $ (118,220

 

†† Cash collateral in the amount of $128,865 was pledged to cover margin requirements for open futures contracts as of December 31, 2013.

See accompanying notes to financial statements.

 

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Table of Contents

PROSHARES ULTRA AUSTRALIAN DOLLAR

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2012

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(86% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.100% due 01/31/13

   $ 3,178,000      $ 3,177,910  

0.086% due 02/21/13

     393,000        392,984  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $3,570,687)

      $ 3,570,894  
     

 

 

 

Futures Contracts Purchased††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Australian Dollar Fx Currency Futures - CME, expires March 2013

     80      $ 8,260,000      $ (99,030

 

†† Cash collateral in the amount of $158,400 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.

See accompanying notes to financial statements.

 

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Table of Contents

PROSHARES ULTRA AUSTRALIAN DOLLAR*

STATEMENTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2013 AND FOR THE PERIOD FROM JULY 17, 2012 (COMMENCEMENT OF INVESTMENT OPERATIONS) THROUGH DECEMBER 31, 2012

 

     Year ended
December 31, 2013
    July 17, 2012
(Commencement of
Investment Operations)
through
December 31, 2012
 

Investment Income

    

Interest

   $ 1,570     $ 1,493  
  

 

 

   

 

 

 

Expenses

    

Management fee

     14,696       —     

Brokerage commissions

     1,545       932  

Offering costs

     47,870       18,871  

Limitation by Sponsor

     (27,636 )     (1,012 )
  

 

 

   

 

 

 

Total expenses

     36,475       18,791  
  

 

 

   

 

 

 

Net investment income (loss)

     (34,905 )     (17,298 )
  

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

    

Net realized gain (loss) on

    

Futures contracts

     (928,022 )     265,990  

Short-term U.S. government and agency obligations

     8       (1 )
  

 

 

   

 

 

 

Net realized gain (loss)

     (928,014 )     265,989  
  

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

    

Futures contracts

     (19,190 )     (99,030 )

Short-term U.S. government and agency obligations

     206       207  
  

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     (18,984 )     (98,823 )
  

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     (946,998 )     167,166  
  

 

 

   

 

 

 

Net income (loss)

   $ (981,903 )   $ 149,868  
  

 

 

   

 

 

 

Net income (loss) per weighted-average share

   $ (9.82 )   $ 1.51  
  

 

 

   

 

 

 

Weighted-average shares outstanding

     100,005       99,410  
  

 

 

   

 

 

 

 

* Since the Fund commenced investment operations on July 17, 2012, the Statement of Operations for the year ended December 31, 2011 has not been provided.

See accompanying notes to financial statements.

 

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PROSHARES ULTRA AUSTRALIAN DOLLAR*

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEAR ENDED DECEMBER 31, 2013 AND FOR THE PERIOD FROM JULY 17, 2012 (COMMENCEMENT OF INVESTMENT OPERATIONS) THROUGH DECEMBER 31, 2012

 

     Year ended
December 31, 2013
    July 17, 2012
(Commencement of
Investment Operations)
through
December 31, 2012
 

Shareholders’ equity, beginning of period

   $ 4,150,068     $ 200  

Addition of 0 and 100,000 shares, respectively

     —          4,000,000  

Net investment income (loss)

     (34,905 )     (17,298 )

Net realized gain (loss)

     (928,014 )     265,989  

Change in net unrealized appreciation/depreciation

     (18,984 )     (98,823 )
  

 

 

   

 

 

 

Net income (loss)

     (981,903 )     149,868  
  

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 3,168,165     $ 4,150,068  
  

 

 

   

 

 

 

 

* Since the Fund commenced investment operations on July 17, 2012, the only activity for the year ended December 31, 2011 was the initial seeding of the Fund, as such the Statement of Changes in Shareholders’ Equity for the year ended December 31, 2011 has not been provided.

See accompanying notes to financial statements.

 

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PROSHARES ULTRA AUSTRALIAN DOLLAR*

STATEMENTS OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 2013 AND FOR THE PERIOD FROM JULY 17, 2012 (COMMENCEMENT OF INVESTMENT OPERATIONS) THROUGH DECEMBER 31, 2012

 

     Year ended
December 31, 2013
    July 17, 2012
(Commencement of
Investment Operations)
through
December 31, 2012
 

Cash flow from operating activities

    

Net income (loss)

   $ (981,903 )   $ 149,868  

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

     29,535       (158,400 )

Net sale (purchase) of short-term U.S. government and agency obligations

     854,661       (3,570,687 )

Change in unrealized appreciation/depreciation on investments

     (206 )     (207 )

Decrease (Increase) in receivable on futures contracts

     1,350       (12,000 )

Decrease (Increase) in Limitation by Sponsor

     1,012       (1,012 )

Change in offering cost

     22,128       18,872  

Increase (Decrease) in management fee payable

     2,585       —     

Increase (Decrease) in payable for offering costs

     (41,000 )     —     
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (111,838 )     (3,573,566 )
  

 

 

   

 

 

 

Cash flow from financing activities

    

Proceeds from addition of shares

     —          4,000,000  

Net cash provided by (used in) financing activities

     —          4,000,000  
  

 

 

   

 

 

 

Net increase (decrease) in cash

     (111,838 )     426,434  

Cash, beginning of period

     426,634       200  
  

 

 

   

 

 

 

Cash, end of period

   $ 314,796     $ 426,634  
  

 

 

   

 

 

 

 

* Since the Fund commenced investment operations on July 17, 2012, the only activity for the year ended December 31, 2011 was the initial seeding of the Fund, as such the Statement of Cash Flows for the year ended December 31, 2011 has not been provided.

See accompanying notes to financial statements.

 

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PROSHARES ULTRA EURO

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2013      December 31, 2012  

Assets

     

Cash

   $ 49,723      $ 240,086  

Short-term U.S. government and agency obligations (Note 3) (cost $2,455,715 and $4,546,872, respectively)

     2,455,863        4,546,944  

Unrealized appreciation on foreign currency forward contracts

     120,908        89,473  
  

 

 

    

 

 

 

Total assets

     2,626,494        4,876,503  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Management fee payable

     2,721        3,873  

Unrealized depreciation on foreign currency forward contracts

     19,946        2,314  
  

 

 

    

 

 

 

Total liabilities

     22,667        6,187  
  

 

 

    

 

 

 

Shareholders’ equity

     

Shareholders’ equity

     2,603,827        4,870,316  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 2,626,494      $ 4,876,503  
  

 

 

    

 

 

 

Shares outstanding

     100,014        200,014  
  

 

 

    

 

 

 

Net asset value per share

   $ 26.03      $ 24.35  
  

 

 

    

 

 

 

Market value per share (Note 2)

   $ 25.98      $ 24.32  
  

 

 

    

 

 

 

See accompanying notes to financial statements.

 

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PROSHARES ULTRA EURO

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2013

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(94% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.011% due 02/06/14†

   $ 431,000      $ 430,994  

0.100% due 02/13/14

     1,236,000        1,235,985  

0.053% due 02/27/14

     115,000        114,995  

0.021% due 03/06/14†

     208,000        207,982  

0.040% due 03/20/14

     151,000        150,981  

0.076% due 06/05/14

     315,000        314,926  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $2,455,715)

      $ 2,455,863  
     

 

 

 

Foreign Currency Forward Contracts^

 

     Settlement Date    Local Currency     Notional Amount
at Value (USD)
    Unrealized
Appreciation
(Depreciation)
 

Contracts to Purchase

         

Euro with Goldman Sachs International

   01/10/14      2,652,025     $ 3,648,635     $ 56,991  

Euro with UBS AG

   01/10/14      3,078,100       4,234,826       63,917  
         

 

 

 
          $ 120,908  
         

 

 

 

Contracts to Sell

         

Euro with Goldman Sachs International

   01/10/14      (1,918,800   $ (2,639,870   $ (19,770

Euro with UBS AG

   01/10/14      (26,300     (36,184     (176
         

 

 

 
          $ (19,946
         

 

 

 

 

All or partial amount pledged as collateral for foreign currency forward contracts.
^ The positions and counterparties herein are as of December 31, 2013. 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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Table of Contents

PROSHARES ULTRA EURO

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2012

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(93% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.096% due 01/10/13†

   $ 4,432,000      $ 4,431,971  

0.060% due 04/25/13

     115,000        114,973  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $4,546,872)

      $ 4,546,944  
     

 

 

 

Foreign Currency Forward Contracts^

 

     Settlement Date    Local Currency     Notional Amount
at Value (USD)
    Unrealized
Appreciation
(Depreciation)
 

Contracts to Purchase

         

Euro with Goldman Sachs International

   01/04/13      3,207,025     $ 4,231,708     $ 38,327  

Euro with UBS AG

   01/04/13      4,319,600       5,699,764       51,146  
         

 

 

 
          $ 89,473  
         

 

 

 

Contracts to Sell

         

Euro with Goldman Sachs International

   01/04/13      (23,900   $ (31,536   $ (635

Euro with UBS AG

   01/04/13      (100,900     (133,139     (1,679
         

 

 

 
          $ (2,314
         

 

 

 

 

All or partial amount pledged as collateral for foreign currency forward contracts.
^ The positions and counterparties herein are as of December 31, 2012. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.

See accompanying notes to financial statements.

 

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Table of Contents

PROSHARES ULTRA EURO

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Investment Income

      

Interest

   $ 1,901     $ 3,690     $ 4,536  
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     36,925       63,816       79,638  
  

 

 

   

 

 

   

 

 

 

Total expenses

     36,925       63,816       79,638  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (35,024 )     (60,126 )     (75,102 )
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Foreign currency forward contracts

     210,150       (398,504 )     354,369  

Short-term U.S. government and agency obligations

     55       78       36  
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     210,205       (398,426 )     354,405  
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Foreign currency forward contracts

     13,803       605,371       (866,391 )

Short-term U.S. government and agency obligations

     76       334       (509 )
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     13,879       605,705       (866,900 )
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     224,084       207,279       (512,495 )
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 189,060     $ 147,153     $ (587,597 )
  

 

 

   

 

 

   

 

 

 

Net income (loss) per weighted-average share

   $ 1.19     $ 0.52     $ (1.95 )
  

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding

     159,192       285,533       300,973  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

-236-


Table of Contents

PROSHARES ULTRA EURO

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Shareholders’ equity, beginning of period

   $ 4,870,316     $ 9,554,748     $ 7,729,684  

Addition of 50,000, 50,000 and 100,000 shares, respectively

     1,261,329       1,209,580       2,412,661  

Redemption of 150,000, 250,000 and 0 shares, respectively

     (3,716,878 )     (6,041,165 )     —     
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of (100,000), (200,000) and 100,000 shares, respectively

     (2,455,549 )     (4,831,585 )     2,412,661  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (35,024 )     (60,126 )     (75,102 )

Net realized gain (loss)

     210,205       (398,426 )     354,405  

Change in net unrealized appreciation/depreciation

     13,879       605,705       (866,900 )
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     189,060       147,153       (587,597 )
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 2,603,827     $ 4,870,316     $ 9,554,748  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

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Table of Contents

PROSHARES ULTRA EURO

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Cash flow from operating activities

      

Net income (loss)

   $ 189,060     $ 147,153     $ (587,597 )

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

     2,091,157       5,522,097       (2,695,059 )

Change in unrealized appreciation/depreciation on investments

     (13,879 )     (605,705 )     866,900  

Increase (Decrease) in management fee payable

     (1,152 )     (2,343 )     117  
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     2,265,186       5,061,202       (2,415,639 )
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     1,261,329       1,209,580       2,412,661  

Payment on shares redeemed

     (3,716,878 )     (6,041,165 )     —     
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (2,455,549 )     (4,831,585 )     2,412,661  
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     (190,363 )     229,617       (2,978 )

Cash, beginning of period

     240,086       10,469       13,447  
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 49,723     $ 240,086     $ 10,469  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

-238-


Table of Contents

PROSHARES ULTRA YEN

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2013      December 31, 2012  

Assets

     

Cash

   $ 28,116      $ 138,033  

Short-term U.S. government and agency obligations (Note 3) (cost $2,928,242 and $4,587,701, respectively)

     2,928,556        4,587,918  

Unrealized appreciation on foreign currency forward contracts

     4,052        13,523  
  

 

 

    

 

 

 

Total assets

     2,960,724        4,739,474  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Management fee payable

     2,337        3,660  

Unrealized depreciation on foreign currency forward contracts

     163,361        507,819  
  

 

 

    

 

 

 

Total liabilities

     165,698        511,479  
  

 

 

    

 

 

 

Shareholders’ equity

     

Shareholders’ equity

     2,795,026        4,227,995  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 2,960,724      $ 4,739,474  
  

 

 

    

 

 

 

Shares outstanding

     150,014        150,014  
  

 

 

    

 

 

 

Net asset value per share

   $ 18.63      $ 28.18  
  

 

 

    

 

 

 

Market value per share (Note 2)

   $ 18.61      $ 28.28  
  

 

 

    

 

 

 

See accompanying notes to financial statements.

 

-239-


Table of Contents

PROSHARES ULTRA YEN

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2013

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(105% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.031% due 02/06/14†

   $ 813,000      $ 812,988  

0.053% due 02/27/14

     117,000        116,996  

0.021% due 03/06/14†

     144,000        143,987  

0.086% due 06/12/14

     1,855,000        1,854,585  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $2,928,242)

      $ 2,928,556  
     

 

 

 

Foreign Currency Forward Contracts^

 

     Settlement Date    Local Currency     Notional Amount
at Value (USD)
    Unrealized
Appreciation
(Depreciation)
 

Contracts to Purchase

         

Yen with Goldman Sachs International

   01/10/14      296,968,900     $ 2,820,656     $ (78,309

Yen with UBS AG

   01/10/14      321,381,200       3,052,527       (85,052
         

 

 

 
          $ (163,361
         

 

 

 

Contracts to Sell

         

Yen with Goldman Sachs International

   01/10/14      (11,926,300   $ (113,278   $ 2,462  

Yen with UBS AG

   01/10/14      (17,263,400     (163,970     1,590  
         

 

 

 
          $ 4,052  
         

 

 

 

 

All or partial amount pledged as collateral for foreign currency forward contracts.
^ The positions and counterparties herein are as of December 31, 2013. 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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Table of Contents

PROSHARES ULTRA YEN

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2012

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(109% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.098% due 01/10/13†

   $ 2,974,000      $ 2,973,980  

0.125% due 02/14/13

     951,000        950,966  

0.086% due 02/21/13

     663,000        662,972  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $4,587,701)

      $ 4,587,918  
     

 

 

 

Foreign Currency Forward Contracts^

 

     Settlement Date    Local Currency     Notional Amount
at Value (USD)
    Unrealized
Appreciation
(Depreciation)
 

Contracts to Purchase

         

Yen with Goldman Sachs International

   01/04/13      353,636,200     $ 4,077,072     $ (231,047

Yen with UBS AG

   01/04/13      424,732,500       4,896,741       (276,772
         

 

 

 
          $ (507,819
         

 

 

 

Contracts to Sell

         

Yen with Goldman Sachs International

   01/04/13      (19,923,300   $ (229,696   $ 7,325  

Yen with UBS AG

   01/04/13      (25,219,500     (290,756     6,198  
         

 

 

 
          $ 13,523  
         

 

 

 

 

All or partial amount pledged as collateral for foreign currency forward contracts.
^ The positions and counterparties herein are as of December 31, 2012. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.

See accompanying notes to financial statements.

 

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Table of Contents

PROSHARES ULTRA YEN

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Investment Income

      

Interest

   $ 1,795     $ 3,524     $ 1,871  
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     33,569       47,964       41,443  
  

 

 

   

 

 

   

 

 

 

Total expenses

     33,569       47,964       41,443  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (31,774 )     (44,440 )     (39,572 )
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Foreign currency forward contracts

     (1,879,169 )     (601,937 )     564,813  

Short-term U.S. government and agency obligations

     68       27       19  
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     (1,879,101 )     (601,910 )     564,832  
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Foreign currency forward contracts

     334,987       (597,023 )     (180,776 )

Short-term U.S. government and agency obligations

     97       293       (207 )
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     335,084       (596,730 )     (180,983 )
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     (1,544,017 )     (1,198,640 )     383,849  
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (1,575,791 )   $ (1,243,080 )   $ 344,277  
  

 

 

   

 

 

   

 

 

 

Net income (loss) per weighted-average share

   $ (9.90 )   $ (8.29 )   $ 2.75  
  

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding

     159,192       150,014       125,219  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

-242-


Table of Contents

PROSHARES ULTRA YEN

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Shareholders’ equity, beginning of period

   $ 4,227,995     $ 5,471,075     $ 5,024,240  

Addition of 50,000, 0 and 50,000 shares, respectively

     1,323,474       —          1,696,147  

Redemption of 50,000, 0 and 50,000 shares, respectively

     (1,180,652 )     —          (1,593,589 )
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of 0, 0 and 0 shares, respectively

     142,822       —          102,558  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (31,774 )     (44,440 )     (39,572 )

Net realized gain (loss)

     (1,879,101 )     (601,910 )     564,832  

Change in net unrealized appreciation/depreciation

     335,084       (596,730 )     (180,983 )
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     (1,575,791 )     (1,243,080 )     344,277  
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 2,795,026     $ 4,227,995     $ 5,471,075  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

-243-


Table of Contents

PROSHARES ULTRA YEN

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Cash flow from operating activities

      

Net income (loss)

   $ (1,575,791 )   $ (1,243,080 )   $ 344,277  

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

     1,659,459       779,250       (633,379 )

Change in unrealized appreciation/depreciation on investments

     (335,084 )     596,730       180,983  

Increase (Decrease) in management fee payable

     (1,323 )     (665 )     722  
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (252,739 )     132,235       (107,397 )
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     1,323,474       —          1,696,147  

Payment on shares redeemed

     (1,180,652 )     —          (1,593,589 )
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     142,822       —          102,558  
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     (109,917 )     132,235       (4,839 )

Cash, beginning of period

     138,033       5,798       10,637  
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 28,116     $ 138,033     $ 5,798  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

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Table of Contents

PROSHARES VIX SHORT-TERM FUTURES ETF

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2013      December 31, 2012  

Assets

     

Cash

   $ 4,333,752      $ 2,989,958  

Segregated cash balances with brokers for futures contracts

     64,020,350        34,109,998  

Short-term U.S. government and agency obligations (Note 3) (cost $207,628,319 and $144,057,296, respectively)

     207,636,383        144,060,921  

Receivable from capital shares sold

     —           2,518,068  

Receivable on open futures contracts

     3,179,017        —     
  

 

 

    

 

 

 

Total assets

     279,169,502        183,678,945  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Payable for capital shares redeemed

     8,562,195        14,374,851  

Payable on open futures contracts

     —           31,540,181  

Management fee payable

     208,753        106,449  
  

 

 

    

 

 

 

Total liabilities

     8,770,948        46,021,481  
  

 

 

    

 

 

 

Shareholders’ equity

     

Shareholders’ equity

     270,398,554        137,657,464  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 279,169,502      $ 183,678,945  
  

 

 

    

 

 

 

Shares outstanding (Note 1)

     9,474,812        1,640,001  
  

 

 

    

 

 

 

Net asset value per share (Note 1)

   $ 28.54      $ 83.94  
  

 

 

    

 

 

 

Market value per share (Note 1) (Note 2)

   $ 28.53      $ 85.05  
  

 

 

    

 

 

 

See accompanying notes to financial statements.

 

-245-


Table of Contents

PROSHARES VIX SHORT-TERM FUTURES ETF

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2013

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(77% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.017% due 02/06/14

   $ 2,615,000      $ 2,614,962  

0.053% due 02/27/14

     2,692,000        2,691,895  

0.017% due 03/06/14

     6,069,000        6,068,469  

0.059% due 03/13/14

     12,085,000        12,084,060  

0.023% due 03/20/14

     15,212,000        15,210,048  

0.059% due 04/03/14

     44,723,000        44,715,087  

0.067% due 04/10/14

     10,572,000        10,570,705  

0.065% due 04/17/14

     13,137,000        13,135,659  

0.082% due 04/24/14

     4,895,000        4,894,086  

0.086% due 05/01/14

     46,609,000        46,601,297  

0.087% due 05/08/14

     20,030,000        20,026,144  

0.078% due 05/22/14

     14,365,000        14,361,648  

0.064% due 06/19/14

     9,631,000        9,627,404  

0.078% due 06/26/14

     5,037,000        5,034,919  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $207,628,319)

      $ 207,636,383  
     

 

 

 

Futures Contracts Purchased††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

VIX Futures - CBOE, expires January 2014

     11,195      $ 156,170,250      $ (14,731,214

VIX Futures - CBOE, expires February 2014

     7,748        114,283,000        (1,921,472
        

 

 

 
         $ (16,652,686
        

 

 

 

 

†† Cash collateral in the amount of $64,020,350 was pledged to cover margin requirements for open futures contracts as of December 31, 2013.

See accompanying notes to financial statements.

 

-246-


Table of Contents

PROSHARES VIX SHORT-TERM FUTURES ETF

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2012

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(105% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.090% due 01/10/13

   $ 1,444,000      $ 1,443,990  

0.105% due 02/07/13

     22,447,000        22,446,328  

0.097% due 02/14/13

     41,769,000        41,767,504  

0.054% due 02/21/13

     15,723,000        15,722,345  

0.077% due 03/28/13

     9,903,000        9,902,182  

0.055% due 04/25/13

     52,791,000        52,778,572  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $144,057,296)

      $ 144,060,921  
     

 

 

 

Futures Contracts Purchased††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

VIX Futures - CBOE, expires January 2013

     4,208      $ 74,481,600      $ 2,368,824  

VIX Futures - CBOE, expires February 2013

     3,372        62,382,000        (2,590,243
        

 

 

 
         $ (221,419
        

 

 

 

 

†† Cash collateral in the amount of $34,109,998 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.

See accompanying notes to financial statements.

 

-247-


Table of Contents

PROSHARES VIX SHORT-TERM FUTURES ETF

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Investment Income

      

Interest

   $ 77,010     $ 77,462     $ 12,243  
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     1,661,129       1,129,484       96,904  

Offering costs

     —          1,090       197,908  
  

 

 

   

 

 

   

 

 

 

Total expenses

     1,661,129       1,130,574       294,812  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (1,584,119 )     (1,053,112 )     (282,569 )
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Futures contracts

     (144,618,136 )     (160,953,587 )     3,732,227  

Short-term U.S. government and agency obligations

     (6,516 )     5,730       2,218  
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     (144,624,652 )     (160,947,857 )     3,734,445  
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Futures contracts

     (16,431,267 )     1,354,551       (1,575,970 )

Short-term U.S. government and agency obligations

     4,439       4,586       (961 )
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     (16,426,828 )     1,359,137       (1,576,931 )
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     (161,051,480 )     (159,588,720 )     2,157,514  
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (162,635,599 )   $ (160,641,832 )   $ 1,874,945  
  

 

 

   

 

 

   

 

 

 

Net income (loss) per weighted-average share (Note 1)

   $ (36.12 )   $ (156.90 )   $ 17.22  
  

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding (Note 1)

     4,503,256       1,023,881       108,855  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

-248-


Table of Contents

PROSHARES VIX SHORT-TERM FUTURES ETF

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Shareholders’ equity, beginning of period

   $ 137,657,464     $ 30,549,903     $ 400  

Addition of 16,095,000, 5,585,000 and 945,000 shares, respectively (Note 1)

     688,146,488       801,055,108       297,178,431  

Redemption of 8,260,189, 4,025,000 and 865,000 shares, respectively (Note 1)

     (392,769,799 )     (533,305,715 )     (268,503,873 )
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of 7,834,811, 1,560,000 and 80,000 shares, respectively (Note 1)

     295,376,689       267,749,393       28,674,558  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (1,584,119 )     (1,053,112 )     (282,569 )

Net realized gain (loss)

     (144,624,652 )     (160,947,857 )     3,734,445  

Change in net unrealized appreciation/depreciation

     (16,426,828 )     1,359,137       (1,576,931 )
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     (162,635,599 )     (160,641,832 )     1,874,945  
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 270,398,554     $ 137,657,464     $ 30,549,903  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

-249-


Table of Contents

PROSHARES VIX SHORT-TERM FUTURES ETF

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Cash flow from operating activities

      

Net income (loss)

   $ (162,635,599 )   $ (160,641,832 )   $ 1,874,945  

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

     (29,910,352 )     (34,109,998 )     —     

Net sale (purchase) of short-term U.S. government and agency obligations

     (63,571,023 )     (116,698,511 )     (27,358,785 )

Change in unrealized appreciation/depreciation on investments

     (4,439 )     (4,586 )     961  

Decrease (Increase) in receivable on futures contracts

     (3,179,017 )     742,451       (742,451 )

Change in offering cost

     —          1,090       197,908  

Increase (Decrease) in management fee payable

     102,304       82,174       24,275  

Increase (Decrease) in payable on futures contracts

     (31,540,181 )     31,540,181       —     

Increase (Decrease) in payable for offering costs

     —          —          (198,998 )
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (290,738,307 )     (279,089,031 )     (26,202,145 )
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     690,664,556       800,446,503       295,268,968  

Payment on shares redeemed

     (398,582,455 )     (518,930,864 )     (268,503,873 )
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     292,082,101       281,515,639       26,765,095  
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     1,343,794       2,426,608       562,950  

Cash, beginning of period

     2,989,958       563,350       400  
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 4,333,752     $ 2,989,958     $ 563,350  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

-250-


Table of Contents

PROSHARES VIX MID-TERM FUTURES ETF

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2013      December 31, 2012  

Assets

     

Cash

   $ 1,906,397      $ 2,063,715  

Segregated cash balances with brokers for futures contracts

     8,454,390        7,830,000  

Short-term U.S. government and agency obligations (Note 3) (cost $46,039,268 and $79,927,870, respectively)

     46,040,233        79,930,866  

Receivable on open futures contracts

     100,734        —     
  

 

 

    

 

 

 

Total assets

     56,501,754        89,824,581  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Payable for capital shares redeemed

     5,321,983        50,571,549  

Payable on open futures contracts

     —           1,890,675  

Management fee payable

     45,448        59,365  
  

 

 

    

 

 

 

Total liabilities

     5,367,431        52,521,589  
  

 

 

    

 

 

 

Shareholders’ equity

     

Shareholders’ equity

     51,134,323        37,302,992  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 56,501,754      $ 89,824,581  
  

 

 

    

 

 

 

Shares outstanding

     2,650,005        1,075,005  
  

 

 

    

 

 

 

Net asset value per share

   $ 19.30      $ 34.70  
  

 

 

    

 

 

 

Market value per share (Note 2)

   $ 19.29      $ 34.22  
  

 

 

    

 

 

 

See accompanying notes to financial statements.

 

-251-


Table of Contents

PROSHARES VIX MID-TERM FUTURES ETF

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2013

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

  

(90% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.011% due 02/06/14

   $ 19,317,000      $ 19,316,718  

0.051% due 03/06/14

     2,946,000        2,945,742  

0.056% due 03/13/14

     2,264,000        2,263,824  

0.046% due 03/20/14

     3,121,000        3,120,599  

0.071% due 04/10/14

     3,040,000        3,039,628  

0.066% due 04/17/14

     164,000        163,983  

0.083% due 05/01/14

     3,432,000        3,431,433  

0.086% due 05/08/14

     1,000,000        999,808  

0.066% due 05/22/14

     9,827,000        9,824,707  

0.065% due 06/12/14

     934,000        933,791  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $46,039,268)

      $ 46,040,233  
     

 

 

 

Futures Contracts Purchased††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

VIX Futures - CBOE, expires April 2014

     594      $ 9,652,500      $ (1,429,410

VIX Futures - CBOE, expires May 2014

     1,005        16,884,000        (2,133,680

VIX Futures - CBOE, expires June 2014

     1,005        17,336,250        (1,205,329

VIX Futures - CBOE, expires July 2014

     411        7,274,700        (128,270
        

 

 

 
         $ (4,896,689
        

 

 

 

 

†† Cash collateral in the amount of $8,454,390 was pledged to cover margin requirements for open futures contracts as of December 31, 2013.

See accompanying notes to financial statements.

 

-252-


Table of Contents

PROSHARES VIX MID-TERM FUTURES ETF

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2012

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(214% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.090% due 01/10/13

   $ 1,475,000      $ 1,474,990  

0.100% due 01/31/13

     40,751,000        40,749,851  

0.102% due 02/07/13

     1,558,000        1,557,953  

0.095% due 02/14/13

     5,987,000        5,986,785  

0.064% due 02/21/13

     9,153,000        9,152,619  

0.077% due 03/28/13

     4,023,000        4,022,668  

0.061% due 04/25/13

     16,990,000        16,986,000  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $79,927,870)

      $ 79,930,866  
     

 

 

 

Futures Contracts Purchased††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

VIX Futures - CBOE, expires April 2013

     322      $ 6,568,800      $ (673,760

VIX Futures - CBOE, expires May 2013

     580        12,180,000        (991,470

VIX Futures - CBOE, expires June 2013

     580        12,702,000        233,160  

VIX Futures - CBOE, expires July 2013

     258        5,869,500        (38,340
        

 

 

 
         $ (1,470,410
        

 

 

 

 

†† Cash collateral in the amount of $7,830,000 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.

See accompanying notes to financial statements.

 

-253-


Table of Contents

PROSHARES VIX MID-TERM FUTURES ETF

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Investment Income

      

Interest

   $ 25,811     $ 49,908     $ 4,090  
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     572,377       835,393       —     

Offering costs

     —          682       123,692  

Limitation by Sponsor

     —          —          (2,481 )
  

 

 

   

 

 

   

 

 

 

Total expenses

     572,377       836,075       121,211  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (546,566 )     (786,167 )     (117,121 )
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Futures contracts

     (28,219,863 )     (75,241,919 )     (514,060 )

Short-term U.S. government and agency obligations

     (78 )     47       333  
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     (28,219,941 )     (75,241,872 )     (513,727 )
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Futures contracts

     (3,426,279 )     4,642,340       (6,112,750 )

Short-term U.S. government and agency obligations

     (2,031 )     8,950       (5,954 )
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     (3,428,310 )     4,651,290       (6,118,704 )
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     (31,648,251 )     (70,590,582 )     (6,632,431 )
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (32,194,817 )   $ (71,376,749 )   $ (6,749,552 )
  

 

 

   

 

 

   

 

 

 

Net income (loss) per weighted-average share

   $ (11.62 )   $ (36.77 )   $ (34.29 )
  

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding

     2,770,279       1,941,194       196,828  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

-254-


Table of Contents

PROSHARES VIX MID-TERM FUTURES ETF

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Shareholders’ equity, beginning of period

   $ 37,302,992     $ 90,821,428     $ 400  

Addition of 6,050,000, 2,425,000 and 1,600,000 shares, respectively

     151,394,850       127,092,035       123,191,472  

Redemption of 4,475,000, 2,575,000 and 375,000 shares, respectively

     (105,368,702 )     (109,233,722 )     (25,620,892 )
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of 1,575,000, (150,000) and 1,225,000 shares, respectively

     46,026,148       17,858,313       97,570,580  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (546,566 )     (786,167 )     (117,121 )

Net realized gain (loss)

     (28,219,941 )     (75,241,872 )     (513,727 )

Change in net unrealized appreciation/depreciation

     (3,428,310 )     4,651,290       (6,118,704 )
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     (32,194,817 )     (71,376,749 )     (6,749,552 )
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 51,134,323     $ 37,302,992     $ 90,821,428  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

-255-


Table of Contents

PROSHARES VIX MID-TERM FUTURES ETF

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Cash flow from operating activities

      

Net income (loss)

   $ (32,194,817 )   $ (71,376,749 )   $ (6,749,552 )

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

     (624,390 )     (7,830,000 )     —     

Net sale (purchase) of short-term U.S. government and agency obligations

     33,888,602       9,470,473       (89,398,343 )

Change in unrealized appreciation/depreciation on investments

     2,031       (8,950 )     5,954  

Decrease (Increase) in receivable on futures contracts

     (100,734 )     798,319       (798,319 )

Decrease (Increase) in Limitation by Sponsor

     —          2,481       (2,481 )

Change in offering cost

     —          682       123,692  

Increase (Decrease) in management fee payable

     (13,917 )     59,365       —     

Increase (Decrease) in payable on futures contracts

     (1,890,675 )     1,890,675       —     

Increase (Decrease) in payable for offering costs

     —          —          (124,374 )
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (933,900 )     (66,993,704 )     (96,943,423 )
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     151,394,850       127,092,035       123,191,472  

Payment on shares redeemed

     (150,618,268 )     (58,662,173 )     (25,620,892 )
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     776,582       68,429,862       97,570,580  
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     (157,318 )     1,436,158       627,157  

Cash, beginning of period

     2,063,715       627,557       400  
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 1,906,397     $ 2,063,715     $ 627,557  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

-256-


Table of Contents

PROSHARES ULTRA VIX SHORT-TERM FUTURES ETF

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2013      December 31, 2012  

Assets

     

Cash

   $ 2,240,977      $ 1,790,825  

Segregated cash balances with brokers for futures contracts

     107,101,750        38,727,007  

Short-term U.S. government and agency obligations (Note 3) (cost $109,530,861 and $97,445,279, respectively)

     109,533,487        97,440,843  

Unrealized appreciation on swap agreements

     —           301,351  

Receivable from capital shares sold

     10,903,664        18,127,289  
  

 

 

    

 

 

 

Total assets

     229,779,878        156,387,315  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Payable for capital shares redeemed

     —           35,907,787  

Payable on open futures contracts

     3,356,803        35,666,735  

Management fee payable

     189,491        96,661  
  

 

 

    

 

 

 

Total liabilities

     3,546,294        71,671,183  
  

 

 

    

 

 

 

Shareholders’ equity

     

Shareholders’ equity

     226,233,584        84,716,132  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 229,779,878      $ 156,387,315  
  

 

 

    

 

 

 

Shares outstanding (Note 1) (Note 9)

     3,372,389        105,202  
  

 

 

    

 

 

 

Net asset value per share (Note 1) (Note 9)

   $ 67.08      $ 805.27  
  

 

 

    

 

 

 

Market value per share (Note 1) (Note 2) (Note 9)

   $ 67.12      $ 836.00  
  

 

 

    

 

 

 

See accompanying notes to financial statements.

 

-257-


Table of Contents

PROSHARES ULTRA VIX SHORT-TERM FUTURES ETF

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2013

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

  

(48% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.100% due 02/13/14

   $ 1,326,000      $ 1,325,985  

0.051% due 03/06/14

     4,280,000        4,279,625  

0.054% due 03/13/14

     7,790,000        7,789,394  

0.056% due 04/03/14

     18,200,000        18,196,780  

0.068% due 04/10/14

     5,109,000        5,108,374  

0.087% due 04/17/14

     6,764,000        6,763,310  

0.083% due 04/24/14

     9,924,000        9,922,147  

0.071% due 05/01/14

     5,689,000        5,688,060  

0.089% due 05/08/14

     4,169,000        4,168,197  

0.071% due 05/22/14

     23,839,000        23,833,438  

0.064% due 06/19/14

     11,560,000        11,555,684  

0.078% due 06/26/14

     10,907,000        10,902,493  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $109,530,861)

      $ 109,533,487  
     

 

 

 

Futures Contracts Purchased††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

VIX Futures - CBOE, expires January 2014

     18,727      $ 261,241,650      $ (21,472,637

VIX Futures - CBOE, expires February 2014

     12,964        191,219,000        (2,537,274
        

 

 

 
         $ (24,009,911
        

 

 

 

 

†† Cash collateral in the amount of $107,101,750 was pledged to cover margin requirements for open futures contracts as of December 31, 2013.

See accompanying notes to financial statements.

 

-258-


Table of Contents

PROSHARES ULTRA VIX SHORT-TERM FUTURES ETF

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2012

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

  

(115% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.086% due 01/10/13

   $ 2,053,000      $ 2,052,986  

0.103% due 02/07/13

     485,000        484,986  

0.080% due 02/14/13

     5,349,000        5,348,808  

0.007% due 02/21/13†

     21,419,000        21,418,107  

0.055% due 04/25/13

     68,152,000        68,135,956  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $97,445,279)

      $ 97,440,843  
     

 

 

 

Futures Contracts Purchased††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

VIX Futures - CBOE, expires January 2013

     4,779      $ 84,588,300      $ 3,733,522  

VIX Futures - CBOE, expires February 2013

     3,827        70,799,500        (1,676,460
        

 

 

 
         $ 2,057,062  
        

 

 

 

Swap Agreements^

 

    Rate
Received (Paid)
   Termination Date    Notional Amount
at Value*
     Unrealized
Appreciation
(Depreciation)
 

Swap agreement with Societe Generale S.A. based on S&P 500 VIX Short-Term Futures Index

  (0.25)%    01/07/13    $ 13,570,122      $ 301,351  
          

 

 

 
           $ 301,351  
          

 

 

 

 

All or partial amount pledged as collateral for swap agreements.
†† Cash collateral in the amount of $38,727,007 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.
^ The positions and counterparties herein are as of December 31, 2012. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
* 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.

 

-259-


Table of Contents

PROSHARES ULTRA VIX SHORT-TERM FUTURES ETF

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

AND THE PERIOD FROM APRIL 5, 2011 (INCEPTION) TO DECEMBER 31, 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    April 5, 2011
(Inception)
through
December 31, 2011
 

Investment Income

      

Interest

   $ 70,016     $ 61,217     $ —    
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     2,555,345       1,579,190       4,264  

Brokerage commissions

     2,343,432       1,413,912       5,441  

Offering costs

     —          69,761       7,073  
  

 

 

   

 

 

   

 

 

 

Total expenses

     4,898,777       3,062,863       16,778  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (4,828,761 )     (3,001,646 )     (16,778 )
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Futures contracts

     (401,363,569 )     (488,564,265 )     (3,524,662 )

Swap agreements

     (4,453,107 )     (20,857,599 )     —     

Short-term U.S. government and agency obligations

     18,730       20,334       (91 )
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     (405,797,946 )     (509,401,530 )     (3,524,753 )
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Futures contracts

     (26,066,973 )     2,819,852       (762,790 )

Swap agreements

     (301,351 )     301,351       —     

Short-term U.S. government and agency obligations

     7,062       (4,436 )     —     
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     (26,361,262 )     3,116,767       (762,790 )
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     (432,159,208 )     (506,284,763 )     (4,287,543 )
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (436,987,969 )   $ (509,286,409 )   $ (4,304,321 )
  

 

 

   

 

 

   

 

 

 

Net income (loss) per weighted-average share (Note 1) (Note 9)

   $ (271.58 )   $ (6,520.87 )   $ (36,477.30 )
  

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding (Note 1) (Note 9)

     1,609,086       78,101       118  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

-260-


Table of Contents

PROSHARES ULTRA VIX SHORT-TERM FUTURES ETF

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

AND THE PERIOD FROM APRIL 5, 2011 (INCEPTION) TO DECEMBER 31, 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    April 5, 2011
(Inception) through
December 31, 2011
 

Shareholders’ equity, beginning of period

   $ 84,716,132     $ 9,881,113     $ —    

Addition of 9,900,000, 663,438 and 333 shares, respectively (Note 1) (Note 9)

     1,958,417,114       1,600,919,494       14,185,434  

Redemption of 6,632,813, 558,569 and 0 shares, respectively (Note 1) (Note 9)

     (1,379,911,693 )     (1,016,798,066 )     —     
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of 3,267,187, 104,869 and 333 shares, respectively (Note 1) (Note 9)

     578,505,421       584,121,428       14,185,434  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (4,828,761 )     (3,001,646 )     (16,778 )

Net realized gain (loss)

     (405,797,946 )     (509,401,530 )     (3,524,753 )

Change in net unrealized appreciation/depreciation

     (26,361,262 )     3,116,767       (762,790 )
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     (436,987,969 )     (509,286,409 )     (4,304,321 )
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 226,233,584     $ 84,716,132     $ 9,881,113  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

-261-


Table of Contents

PROSHARES ULTRA VIX SHORT-TERM FUTURES ETF

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

AND THE PERIOD FROM APRIL 5, 2011 (INCEPTION) TO DECEMBER 31, 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    April 5, 2011
(Inception) through
December 31, 2011
 

Cash flow from operating activities

      

Net income (loss)

   $ (436,987,969 )   $ (509,286,409 )   $ (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

     (68,374,743 )     (32,423,207 )     (6,303,800 )

Net sale (purchase) of short-term U.S. government and agency obligations

     (12,085,582 )     (97,445,279 )     —     

Change in unrealized appreciation/depreciation on investments

     294,289       (296,915 )     —     

Change in offering cost

     —          21,691       (21,691 )

Increase (Decrease) in management fee payable

     92,830       92,397       4,264  

Increase (Decrease) in payable on futures contracts

     (32,309,932 )     33,813,769       1,852,966  

Increase (Decrease) in payable for offering costs

     —          (28,764 )     28,764  
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (549,371,107 )     (605,552,717 )     (8,743,818 )
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     1,965,640,739       1,585,261,789       11,715,850  

Payment on shares redeemed

     (1,415,819,480 )     (980,890,279 )     —     
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     549,821,259       604,371,510       11,715,850  
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     450,152       (1,181,207 )     2,972,032  

Cash, beginning of period

     1,790,825       2,972,032       —     
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 2,240,977     $ 1,790,825     $ 2,972,032  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

-262-


Table of Contents

PROSHARES SHORT VIX SHORT-TERM FUTURES ETF

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2013      December 31, 2012  

Assets

     

Cash

   $ 2,153,370      $ 2,236,726  

Segregated cash balances with brokers for futures contracts

     33,552,650        20,731,497  

Short-term U.S. government and agency obligations (Note 3) (cost $105,554,675 and $53,683,800, respectively)

     105,559,022        53,686,352  

Receivable from capital shares sold

     —           13,232,678  

Receivable on open futures contracts

     603,833        5,524,721  
  

 

 

    

 

 

 

Total assets

     141,868,875        95,411,974  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Payable for capital shares redeemed

     —           12,699,384  

Management fee payable

     117,673        48,957  
  

 

 

    

 

 

 

Total liabilities

     117,673        12,748,341  
  

 

 

    

 

 

 

Shareholders’ equity

     

Shareholders’ equity

     141,751,202        82,663,633  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 141,868,875      $ 95,411,974  
  

 

 

    

 

 

 

Shares outstanding (Note 1) (Note 9)

     2,100,040        2,500,040  
  

 

 

    

 

 

 

Net asset value per share (Note 1) (Note 9)

   $ 67.50      $ 33.06  
  

 

 

    

 

 

 

Market value per share (Note 1) (Note 2) (Note 9)

   $ 67.47      $ 32.73  
  

 

 

    

 

 

 

See accompanying notes to financial statements.

 

-263-


Table of Contents

PROSHARES SHORT VIX SHORT-TERM FUTURES ETF

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2013

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

  

(74% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.050% due 02/06/14

   $ 8,766,000      $ 8,765,872  

0.100% due 02/13/14

     8,128,000        8,127,905  

0.053% due 02/27/14

     1,793,000        1,792,930  

0.013% due 03/06/14

     1,232,000        1,231,892  

0.039% due 03/13/14

     4,585,000        4,584,644  

0.029% due 03/20/14

     6,029,000        6,028,226  

0.066% due 04/03/14

     17,343,000        17,339,931  

0.068% due 04/10/14

     6,065,000        6,064,257  

0.070% due 04/17/14

     12,309,000        12,307,744  

0.084% due 04/24/14

     6,658,000        6,656,757  

0.081% due 05/01/14

     4,968,000        4,967,179  

0.088% due 05/08/14

     645,000        644,876  

0.061% due 05/22/14

     14,609,000        14,605,591  

0.065% due 06/12/14

     12,444,000        12,441,218  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $105,554,675)

      $ 105,559,022  
     

 

 

 

Futures Contracts Sold††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

VIX Futures - CBOE, expires January 2014

     5,867      $ 81,844,650      $ 7,103,655  

VIX Futures - CBOE, expires February 2014

     4,061        59,899,750        1,013,300  
        

 

 

 
         $ 8,116,955  
        

 

 

 

 

†† Cash collateral in the amount of $33,552,650 was pledged to cover margin requirements for open futures contracts as of December 31, 2013.

See accompanying notes to financial statements.

 

-264-


Table of Contents

PROSHARES SHORT VIX SHORT-TERM FUTURES ETF

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2012

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

  

(65% of shareholders’ equity)

     

U.S. Treasury Bills:

     

0.086% due 01/10/13

   $ 4,756,000      $ 4,755,968  

0.104% due 02/07/13

     8,617,000        8,616,742  

0.102% due 02/14/13

     13,626,000        13,625,512  

0.071% due 02/21/13

     6,902,000        6,901,712  

0.077% due 03/28/13

     5,388,000        5,387,555  

0.066% due 04/18/13

     8,636,000        8,634,220  

0.061% due 04/25/13

     5,766,000        5,764,643  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $53,683,800)

      $ 53,686,352  
     

 

 

 

Futures Contracts Sold††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

VIX Futures - CBOE, expires January 2013

     2,556      $ 45,241,200      $ (2,014,234

VIX Futures - CBOE, expires February 2013

     2,051        37,943,500        627,059  
        

 

 

 
         $ (1,387,175
        

 

 

 

 

†† Cash collateral in the amount of $20,731,497 was pledged to cover margin requirements for open futures contracts as of December 31, 2012.

See accompanying notes to financial statements.

 

-265-


Table of Contents

PROSHARES SHORT VIX SHORT-TERM FUTURES ETF

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

AND THE PERIOD FROM APRIL 5, 2011 (INCEPTION) TO DECEMBER 31, 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    April 5, 2011
(Inception)
through
December 31, 2011
 

Investment Income

      

Interest

   $ 36,503     $ 18,261     $ 1  
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     845,479       196,650       5,916  

Brokerage commissions

     519,393       189,549       3,345  

Offering costs

     —          69,761       7,073  
  

 

 

   

 

 

   

 

 

 

Total expenses

     1,364,872       455,960       16,334  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (1,328,369 )     (437,699 )     (16,333 )
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Futures contracts

     87,175,105       13,203,419       1,355,975  

Short-term U.S. government and agency obligations

     6,005       2,652       (138 )
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     87,181,110       13,206,071       1,355,837  
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Futures contracts

     9,504,130       (1,477,355 )     90,180  

Short-term U.S. government and agency obligations

     1,795       2,552       —     
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     9,505,925       (1,474,803 )     90,180  
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     96,687,035       11,731,268       1,446,017  
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 95,358,666     $ 11,293,569     $ 1,429,684  
  

 

 

   

 

 

   

 

 

 

Net income (loss) per weighted-average share (Note 1) (Note 9)

   $ 53.11     $ 10.81     $ 3.06  
  

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding (Note 1) (Note 9)

     1,795,656       1,044,576       467,456  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

-266-


Table of Contents

PROSHARES SHORT VIX SHORT-TERM FUTURES ETF

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

AND THE PERIOD FROM APRIL 5, 2011 (INCEPTION) TO DECEMBER 31, 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    April 5, 2011
(Inception) through
December 31, 2011
 

Shareholders’ equity, beginning of period

   $ 82,663,633     $ 7,760,424     $ —    

Addition of 11,500,000, 20,900,000 and 600,040 shares, respectively (Note 1) (Note 9)

     529,295,847       536,782,526       6,330,740  

Redemption of 11,900,000, 19,000,000 and 0 shares, respectively (Note 1) (Note 9)

     (565,566,944 )     (473,172,886 )     —     
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of (400,000), 1,900,000 and 600,040 shares, respectively (Note 1) (Note 9)

     (36,271,097 )     63,609,640       6,330,740  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (1,328,369 )     (437,699 )     (16,333 )

Net realized gain (loss)

     87,181,110       13,206,071       1,355,837  

Change in net unrealized appreciation/depreciation

     9,505,925       (1,474,803 )     90,180  
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     95,358,666       11,293,569       1,429,684  
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 141,751,202     $ 82,663,633     $ 7,760,424  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

-267-


Table of Contents

PROSHARES SHORT VIX SHORT-TERM FUTURES ETF

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

AND THE PERIOD FROM APRIL 5, 2011 (INCEPTION) TO DECEMBER 31, 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    April 5, 2011
(Inception)
through
December 31, 2011
 

Cash flow from operating activities

      

Net income (loss)

   $ 95,358,666     $ 11,293,569     $ 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

     (12,821,153 )     (18,479,139 )     (2,252,358 )

Net sale (purchase) of short-term U.S. government and agency obligations

     (51,870,875 )     (53,683,800 )     —     

Change in unrealized appreciation/depreciation on investments

     (1,795 )     (2,552 )     —     

Decrease (Increase) in receivable on futures contracts

     4,920,888       (5,524,721 )     —     

Change in offering cost

     —          21,691       (21,691 )

Increase (Decrease) in management fee payable

     68,716       43,041       5,916  

Increase (Decrease) in payable for offering costs

     —          (28,764 )     28,764  
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     35,654,447       (66,360,675 )     (809,685 )
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     542,528,525       523,549,848       6,330,740  

Payment on shares redeemed

     (578,266,328 )     (460,473,502 )     —     
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (35,737,803 )     63,076,346       6,330,740  
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     (83,356 )     (3,284,329 )     5,521,055  

Cash, beginning of period

     2,236,726       5,521,055       —     
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 2,153,370     $ 2,236,726     $ 5,521,055  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

-268-


Table of Contents

PROSHARES TRUST II

COMBINED STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2013      December 31, 2012  

Assets

     

Cash

   $ 23,390,732      $ 19,959,356  

Segregated cash balances with brokers for futures contracts

     235,046,530        141,659,913  

Short-term U.S. government and agency obligations (Note 3) (cost $2,846,340,077 and $3,335,156,145, respectively)

     2,846,465,825        3,335,285,580  

Unrealized appreciation on swap agreements

     1,972,971        33,783,473  

Unrealized appreciation on forward agreements

     5,633,053        23,037,541  

Unrealized appreciation on foreign currency forward contracts

     31,593,879        38,700,860  

Receivable from capital shares sold

     10,903,664        47,672,102  

Receivable on open futures contracts

     6,930,575        9,613,025  

Offering costs (Note 5)

     —           257,927  

Limitation by Sponsor

     —           5,373  
  

 

 

    

 

 

 

Total assets

     3,161,937,229        3,649,975,150  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Payable for capital shares redeemed

     37,227,491        148,045,139  

Payable on open futures contracts

     10,071,461        74,986,160  

Management fee payable

     2,522,868        2,729,857  

Payable for offering costs

     —           316,900  

Unrealized depreciation on swap agreements

     2,360,565        5,913,328  

Unrealized depreciation on forward agreements

     11,533,711        161,392,764  

Unrealized depreciation on foreign currency forward contracts

     16,014,049        14,141,394  
  

 

 

    

 

 

 

Total liabilities

     79,730,145        407,525,542  
  

 

 

    

 

 

 

Shareholders’ equity

     

Shareholders’ equity

     3,082,207,084        3,242,449,608  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 3,161,937,229      $ 3,649,975,150  
  

 

 

    

 

 

 

Shares outstanding

     79,426,103        74,449,176  
  

 

 

    

 

 

 

See accompanying notes to financial statements.

 

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PROSHARES TRUST II

COMBINED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Investment Income

      

Interest

   $ 1,552,350     $ 2,215,112     $ 1,488,418  
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     30,836,871       32,848,387       30,117,213  

Brokerage commissions

     3,202,862       1,918,624       188,289  

Offering costs

     141,251       328,105       348,694  

Limitation by Sponsor

     (57,127 )     (5,373 )     (2,481 )
  

 

 

   

 

 

   

 

 

 

Total expenses

     34,123,857       35,089,743       30,651,715  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (32,571,507 )     (32,874,631 )     (29,163,297 )
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Futures contracts

     (398,397,208 )     (725,476,541 )     56,934,780  

Swap agreements

     55,106,405       (45,027,781 )     83,959,005  

Forward agreements

     (692,584,048 )     (138,196,778 )     (333,939,804 )

Foreign currency forward contracts

     114,287,543       73,287,609       (54,519,334 )

Short-term U.S. government and agency obligations

     79,408       76,646       86,757  
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     (921,507,900 )     (835,336,845 )     (247,478,596 )
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Futures contracts

     (53,329,004 )     22,356,416       (14,502,350 )

Swap agreements

     (28,257,739 )     35,368,727       (10,628,218 )

Forward agreements

     132,454,565       45,390,749       (225,660,391 )

Foreign currency forward contracts

     (8,979,636 )     (38,091,857 )     101,351,372  

Short-term U.S. government and agency obligations

     (3,687 )     198,708       (141,848 )
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     41,884,499       65,222,743       (149,581,435 )
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     (879,623,401 )     (770,114,102 )     (397,060,031 )
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (912,194,908 )   $ (802,988,733 )   $ (426,223,328 )
  

 

 

   

 

 

   

 

 

 

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, 2013, 2012 AND 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Shareholders’ equity, beginning of period

   $ 3,242,449,608     $ 3,278,846,852     $ 2,028,159,279  

Addition of 107,695,000, 95,788,453 and 126,593,731 shares, respectively

     6,061,413,770       5,711,597,237       6,261,642,221  

Redemption of 102,718,073*, 107,217,012** and 81,856,731 shares, respectively

     (5,309,461,386 )     (4,945,005,748 )     (4,584,731,320 )
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of 4,976,927, (11,428,559) and 44,737,000 shares, respectively

     751,952,384       766,591,489       1,676,910,901  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (32,571,507 )     (32,874,631 )     (29,163,297 )

Net realized gain (loss)

     (921,507,900 )     (835,336,845 )     (247,478,596 )

Change in net unrealized appreciation/depreciation

     41,884,499       65,222,743       (149,581,435 )
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     (912,194,908 )     (802,988,733 )     (426,223,328 )
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 3,082,207,084     $ 3,242,449,608     $ 3,278,846,852  
  

 

 

   

 

 

   

 

 

 

 

* Amount includes $600 of redemptions related to the termination of offerings of the New Funds.
** Amount includes $6,600 of redemptions related to de-registration of certain Funds.

See accompanying notes to financial statements.

 

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PROSHARES TRUST II

COMBINED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

 

     Year ended
December 31, 2013
    Year ended
December 31, 2012
    Year ended
December 31, 2011
 

Cash flow from operating activities

      

Net income (loss)

   $ (912,194,908 )   $ (802,988,733 )   $ (426,223,328 )

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

     (93,386,617 )     (107,523,285 )     (15,512,027 )

Net sale (purchase) of short-term U.S. government and agency obligations

     488,816,068       (20,329,180 )     (1,278,435,361 )

Change in unrealized appreciation/depreciation on investments

     (95,213,503 )     (42,866,327 )     135,079,085  

Decrease (Increase) in receivable on futures contracts

     2,682,450       (7,365,990 )     1,240,366  

Increase (Decrease) in Limitation by Sponsor

     5,373       (2,892 )     (2,481 )

Change in offering cost

     64,027       1,223,953 *     (1,084,596 )

Increase (Decrease) in management fee payable

     (206,989 )     132,412       964,090  

Increase (Decrease) in payable on futures contracts

     (64,914,699 )     73,133,194       390,599  

Increase (Decrease) in payable for offering costs

     (123,000 )     (1,190,302 )*     1,109,918  
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (674,471,798 )     (907,777,150 )     (1,582,473,735 )
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     6,098,182,208       5,726,055,194       6,199,512,162  

Payment on shares redeemed

     (5,420,279,034 )***     (4,817,463,733 )**     (4,610,918,074 )
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     677,903,174       908,591,461       1,588,594,088  
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     3,431,376       814,311       6,120,353  

Cash, beginning of period

     19,959,356       19,145,045       13,024,692  
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 23,390,732     $ 19,959,356     $ 19,145,045  
  

 

 

   

 

 

   

 

 

 

 

* Amount includes $1,079,526 of offering cost related to de-registration of certain Funds.
** Amount includes $6,600 of redemption related to de-registration of certain Funds.
*** Amount includes $600 of redemptions related to the termination of offerings of the New Funds.

See accompanying notes to financial statements.

 

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PROSHARES TRUST II

NOTES TO FINANCIAL STATEMENTS

December 31, 2013

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 is currently organized into separate series (each, a “Fund” and collectively, the “Funds”). As of December 31, 2013, the following twenty-one series of the Trust have commenced investment operations: (i) ProShares UltraShort DJ-UBS Commodity, ProShares UltraShort DJ-UBS Crude Oil, ProShares UltraShort DJ-UBS Natural Gas, ProShares UltraShort Gold, ProShares UltraShort Silver, ProShares UltraShort Australian Dollar, ProShares UltraShort Euro, ProShares UltraShort Yen, ProShares Ultra DJ-UBS Commodity, ProShares Ultra DJ-UBS Crude Oil, ProShares Ultra DJ-UBS Natural Gas, ProShares Ultra Gold, ProShares Ultra Silver, ProShares Ultra Australian Dollar, ProShares Ultra Euro and ProShares Ultra Yen (each, a “Leveraged Fund” and collectively, the “Leveraged Funds”); (ii) ProShares Short Euro (the “Short Euro Fund”); (iii) 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 (iv) ProShares VIX Short-Term Futures ETF and ProShares VIX Mid-Term Futures ETF (each, a “Matching VIX Fund” and collectively, the “Matching VIX Funds”). Each of the Funds listed above issues common units of beneficial interest (“Shares”), which represent units of fractional undivided beneficial interest in and ownership of only that Leveraged Fund, Short Euro Fund, Geared VIX Fund or Matching VIX Fund. The Shares of each Leveraged Fund, the Short Euro Fund, each Geared VIX Fund and each Matching VIX Fund are listed on the New York Stock Exchange Archipelago (“NYSE Arca”). The Leveraged Funds, the Short Euro Fund and the Geared VIX Funds, are collectively referred to as the “Geared Funds” in these Notes to Financial Statements. The Geared VIX Funds and the Matching VIX Funds are collectively referred to as the “VIX Funds” in these Notes to Financial Statements.

The Trust registered shares for thirty-two additional series: (i) ProShares Short DJ-UBS Natural Gas and ProShares Short Gold (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 (collectively, the “New Geared VIX Funds”); (iii) ProShares Managed Futures Strategy and ProShares Commodity Managed Futures Strategy (each, a “Managed Futures Fund” and collectively, the “Managed Futures Funds”); (iv) ProShares Financial Managed Futures Strategy; (v) ProShares UltraPro Australian Dollar, ProShares Short 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 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; and (vi) 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 (collectively, the “Currency Index Funds”). ProShares UltraPro Short Euro and the Managed Futures Funds are collectively referred to as the “New Funds” in these Notes to Financial Statements. The thirty-two additional series were never publicly offered and their registration has subsequently been terminated. Thus, as of December 31, 2013, the only Funds that have registered amounts are the twenty-one series of the Trust that have commenced investment operations.

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 UltraShort DJ-UBS Commodity, ProShares UltraShort DJ-UBS Crude Oil, ProShares UltraShort Gold, ProShares UltraShort Silver, ProShares UltraShort Euro, ProShares UltraShort Yen, ProShares Ultra DJ-UBS Commodity, ProShares Ultra DJ-UBS Crude Oil, ProShares Ultra Gold, ProShares Ultra Silver, ProShares Ultra Euro and ProShares Ultra Yen.

Groups of Funds are collectively referred to in several different ways. References to “Short Funds,” “UltraShort Funds,” or “Ultra 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” 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.

Each “Short” Fund seeks 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 daily investment results (before fees and expenses) that correspond to two times the inverse (-2x) of the daily performance of its corresponding benchmark. Each “Ultra” Fund seeks daily investment results (before fees and expenses) that correspond to two times (2x) the daily performance of its corresponding benchmark. Each Matching VIX Fund seeks investment results (before fees and expenses), both over a single day and over time, that match the performance of its corresponding benchmark. Daily performance is measured from the calculation of one NAV to the next.

 

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Each of the Funds generally invests in Financial Instruments (i.e., instruments whose value is derived from the value of an underlying asset, rate or index, including futures contracts, swap agreements, forward contracts and other instruments) as a substitute for investing directly in commodities, currencies, or spot volatility products in order to gain exposure to the commodity futures index, commodity, currency or exchange rate, equity volatility index or applicable commodity or financial futures contracts. Financial Instruments also are used to produce economically “inverse”, “inverse leveraged” or “leveraged” investment results for the Geared Funds.

The Geared Funds do not seek to achieve their stated investment objective over a period of time greater than a single day because mathematical compounding prevents the Geared Funds from achieving such results. Accordingly, results over periods of time greater than a single day should not be expected to be a simple multiple (e.g., -1x, -2x or 2x) 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.

Renaming of Index

Effective as of January 2, 2012, the official name for the Dow Jones-UBS Crude Oil SubindexSM (Ticker: DJUBSCL) changed to the Dow Jones-UBS WTI Crude Oil SubindexSM. The ticker did not change as a result of the name change.

Share Splits and Reverse Share Splits

The table below includes Share splits and reverse Share splits for the Funds during the years ended December 31, 2011, 2012 and 2013. The ticker symbols for these Funds did not change, and each Fund continues to trade on the NYSE Arca.

 

Fund   

Execution Date

(Prior to Opening
of Trading)

   Type of Split   

Date Trading

Resumed at Post-
Split Price

ProShares UltraShort DJ-UBS Commodity    February 25, 2011    1-for-5 reverse Share split    February 25, 2011
ProShares UltraShort DJ-UBS Crude Oil    February 25, 2011    1-for-5 reverse Share split    February 25, 2011
ProShares UltraShort DJ-UBS Natural Gas    May 11, 2012    3-for-1 Share split    May 11, 2012
ProShares UltraShort DJ-UBS Natural Gas    June 10, 2013    1-for-4 reverse Share split    June 10, 2013
ProShares UltraShort Gold    October 5, 2012    1-for-4 reverse Share split    October 5, 2012
ProShares UltraShort Silver    February 25, 2011    1-for-4 reverse Share split    February 25, 2011
ProShares UltraShort Silver    May 11, 2012    1-for-5 reverse Share split    May 11, 2012
ProShares UltraShort Yen    October 13, 2011    1-for-3 reverse Share split    October 13, 2011
ProShares Ultra DJ-UBS Crude Oil    February 25, 2011    1-for-4 reverse Share split    February 25, 2011
ProShares Ultra DJ-UBS Natural Gas    May 11, 2012    1-for-5 reverse Share split    May 11, 2012
ProShares Ultra Silver    October 13, 2011    2-for-1 Share split    October 13, 2011
ProShares VIX Short-Term Futures ETF    June 10, 2013    1-for-5 reverse Share split    June 10, 2013
ProShares Ultra VIX Short-Term Futures ETF    March 8, 2012    1-for-6 reverse Share split    March 8, 2012
ProShares Ultra VIX Short-Term Futures ETF    September 7, 2012    1-for-10 reverse Share split    September 7, 2012
ProShares Ultra VIX Short-Term Futures ETF    June 10, 2013    1-for-10 reverse Share split    June 10, 2013
ProShares Short VIX Short-Term Futures ETF    October 5, 2012    2-for-1 Share split    October 5, 2012

 

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The reverse splits were applied retroactively for all periods presented, reducing the number of Shares outstanding for each of ProShares UltraShort DJ-UBS Commodity, ProShares UltraShort DJ-UBS Crude Oil, ProShares UltraShort DJ-UBS Natural Gas, ProShares UltraShort Gold, ProShares UltraShort Silver, ProShares UltraShort Yen, ProShares Ultra DJ-UBS Crude Oil, ProShares Ultra DJ-UBS Natural Gas, ProShares VIX Short-Term Futures ETF and ProShares Ultra VIX Short-Term Futures ETF, 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 reverse split.

The splits were applied retroactively for all periods presented, increasing the number of Shares outstanding for ProShares UltraShort DJ-UBS Natural Gas, ProShares Ultra Silver and ProShares Short VIX Short-Term Futures ETF, and resulted in a proportionate decrease in the price per Share and per Share information of each such Fund. Therefore, the splits 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”). Certain prior year amounts have been reclassified to conform to the current year presentation.

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 Shares 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, 2013 and 2012, and represents non-segregated cash with the custodian and does not include short-term investments.

 

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Final Net Asset Value for Fiscal Period

The times of the calculation of the Leveraged Funds’, the Short Euro Fund’s, 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, 2013 were as follows. All times are Eastern Standard Time:

 

    

NAV Calculation Time

  

NAV Calculation Date

UltraShort Silver, Ultra Silver    7:00 a.m.    December 31
UltraShort Gold, Ultra Gold    10:00 a.m.    December 30
UltraShort DJ-UBS Crude Oil, Ultra DJ-UBS Crude Oil    2:30 p.m.    December 31
UltraShort DJ-UBS Natural Gas, Ultra DJ-UBS Natural Gas    2:30 p.m.    December 31
UltraShort DJ-UBS Commodity, Ultra DJ-UBS Commodity    3:00 p.m.    December 31
UltraShort Australian Dollar, Ultra Australian Dollar    4:00 p.m.    December 31
Short Euro, UltraShort Euro, Ultra Euro    4:00 p.m.    December 31
UltraShort Yen, Ultra Yen    4:00 p.m.    December 31
VIX Short-Term Futures ETF, Ultra VIX Short-Term Futures ETF, Short VIX Short-Term Futures ETF    4:15 p.m.    December 31
VIX Mid-Term Futures ETF    4:15 p.m.    December 31

Although the Leveraged Funds’, the Short Euro Fund’s and the 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 year ended December 31, 2013.

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.

For financial reporting purposes, the Leveraged Funds, the Short Euro Fund, the VIX Funds value transactions based upon the final closing price in their primary markets. Accordingly, the investment valuations in these financial statements may differ from those used in the calculation of certain Leveraged Funds’, the Short Euro Fund’s and VIX Funds’ final creation/redemption NAV for the year ended December 31, 2013.

Investment Valuation

Short-term investments are valued at amortized cost which approximates fair value for daily NAV purposes. For financial reporting purposes, short-term investments are valued at their market price using information provided by a third-party pricing service or market quotations. In each of these situations, valuations are typically categorized as Level I in the fair value hierarchy.

Derivatives (e.g., futures contracts, swap agreements, forward agreements and foreign currency forward contracts) 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, Silver, Australian Dollar and Short Euro 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, Silver, Australian Dollar and Short Euro Funds are valued at the last sales price prior to the time at which the NAV per Share of a Fund is determined. For financial reporting purposes, all futures contracts are valued at the last settled price. Futures contracts valuations are typically categorized as Level I in the fair value hierarchy. Swap agreements, forward agreements and foreign currency forward contracts valuations are typically categorized as Level II 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 the Leveraged Funds’, the Short Euro Fund’s and the VIX Funds’ policies are intended to result in a calculation of a Leveraged Fund’s, the Short

 

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Euro Fund’s or a VIX Fund’s NAV that fairly reflects investment values as of the time of pricing, a Leveraged Fund, the Short Euro Fund or a 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, the Short Euro 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.

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.

 

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The following table summarizes the valuation of investments at December 31, 2013 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  

UltraShort DJ-UBS Commodity

   $ 3,453,890      $ —       $ —       $ —       $ (27,665 )   $ 3,426,225  

UltraShort DJ-UBS Crude Oil

     247,584,623        (1,232,773 )     —          —          (2,332,900 )     244,018,950  

UltraShort DJ-UBS Natural Gas

     18,274,713        1,042,300       —          —          —          19,317,013  

UltraShort Gold

     148,988,329        14,520       5,633,053       —          —          154,635,902  

UltraShort Silver

     114,826,066        14,200       (2,227,857 )     —          —          112,612,409  

Short Euro

     7,902,056        (33,231 )     —          —          —          7,868,825  

UltraShort Australian Dollar

     24,198,507        917,605       —          —          —          25,116,112  

UltraShort Euro

     437,847,159        —          —          (13,748,507 )     —          424,098,652  

UltraShort Yen

     558,597,264        —          —          29,386,684       —          587,983,948  

Ultra DJ-UBS Commodity

     2,816,688        —          —          —          15,078       2,831,766  

Ultra DJ-UBS Crude Oil

     137,435,610        626,661       —          —          1,957,893       140,020,164  

Ultra DJ-UBS Natural Gas

     58,921,011        (3,656,539 )     —          —          —          55,264,472  

Ultra Gold

     140,880,950        (14,560 )     (6,812,974 )     —          —          134,053,416  

Ultra Silver

     467,868,976        (14,200 )     (2,492,880 )     —          —          465,361,896  

Ultra Australian Dollar

     2,716,439        (118,220 )     —          —          —          2,598,219  

Ultra Euro

     2,455,863        —          —          100,962       —          2,556,825  

Ultra Yen

     2,928,556        —          —          (159,309 )     —          2,769,247  

VIX Short-Term Futures ETF

     207,636,383        (16,652,686 )     —          —          —          190,983,697  

VIX Mid-Term Futures ETF

     46,040,233        (4,896,689 )     —          —          —          41,143,544  

Ultra VIX Short-Term Futures ETF

     109,533,487        (24,009,911 )     —          —          —          85,523,576  

Short VIX Short-Term Futures ETF

     105,559,022        8,116,955       —          —          —          113,675,977  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Trust

   $ 2,846,465,825      $ (39,896,568 )   $ (5,900,658 )   $ 15,579,830     $ (387,594 )   $ 2,815,860,835  

 

* 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.

At December 31, 2013, there were no Level III portfolio investments for which significant unobservable inputs were used to determine fair value.

The inputs or methodology used for valuing investments are not necessarily an indication of the risk associated with investing in those securities.

 

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The following table summarizes the valuation of investments at December 31, 2012 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  

UltraShort DJ-UBS Commodity

   $ 2,803,904       $ —        $ —        $ —        $ 148,502      $ 2,952,406   

UltraShort DJ-UBS Crude Oil

     87,046,389         (4,029,721 )     —         —         (5,607,060 )     77,409,608   

UltraShort DJ-UBS Natural Gas

     10,042,731         409,135        —         —         —         10,451,866   

UltraShort Gold

     88,575,398         15,240        3,729,856        —         —         92,320,494   

UltraShort Silver

     86,206,701         40,020        19,307,685        —         —         105,554,406   

Short Euro

     3,409,904         (55,056 )     —         —         —         3,354,848   

UltraShort Australian Dollar

     3,302,907         85,590        —         —         —         3,388,497   

UltraShort Euro

     553,430,562         —         —         (13,147,572 )     —         540,282,990   

UltraShort Yen

     362,743,231         —         —         38,114,175        —         400,857,406   

Ultra DJ-UBS Commodity

     6,240,951         —         —         —         (306,268 )     5,934,683   

Ultra DJ-UBS Crude Oil

     437,662,650         21,960,410        —         —         33,333,620        492,956,680   

Ultra DJ-UBS Natural Gas

     64,313,224         (3,816,950 )     —         —         —         60,496,274   

Ultra Gold

     350,624,904         (15,240 )     (15,652,058 )     —         —         334,957,606   

Ultra Silver

     891,057,386         (40,020 )     (145,740,706 )     —         —         745,276,660   

Ultra Australian Dollar

     3,570,894         (99,030 )     —         —         —         3,471,864   

Ultra Euro

     4,546,944         —         —         87,159        —         4,634,103   

Ultra Yen

     4,587,918         —         —         (494,296 )     —         4,093,622   

VIX Short-Term Futures ETF

     144,060,921         (221,419 )     —         —         —         143,839,502   

VIX Mid-Term Futures ETF

     79,930,866         (1,470,410 )     —         —         —         78,460,456   

Ultra VIX Short-Term Futures ETF

     97,440,843         2,057,062        —         —         301,351        99,799,256   

Short VIX Short-Term Futures ETF

     53,686,352         (1,387,175     —         —         —         52,299,177   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Trust

   $ 3,335,285,580       $ 13,432,436      $ (138,355,223 )   $ 24,559,466      $ 27,870,145      $ 3,262,792,404   

 

* 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.

At December 31, 2012, there were no Level III portfolio investments for which significant unobservable inputs were used to determine fair value.

The inputs or methodology used for valuing investments are not necessarily an indication of the risk associated with investing in those securities.

 

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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 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 (e.g., the first half is recognized when the contract is purchased (opened) and the second half is recognized when the transaction is closed). For the year ended December 31, 2013, the Sponsor paid and is currently paying brokerage commissions on VIX futures contracts for the Matching VIX Funds.

Federal Income Tax

Each Fund is registered as a series of a Delaware statutory trust and is 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 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 (i.e., the last four tax year ends and the interim tax period since then, as applicable) 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.

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, including derivative positions, which the Sponsor believes in combination, should produce returns consistent with a Fund’s objective.

All open derivative positions at period end are reflected on each respective Fund’s Schedule of Investments. Certain Funds utilized a varying level of derivative instruments in conjunction with investment securities in seeking to meet their investment objective during the period. While the volume of open positions may vary on a daily basis as each Fund transacts derivatives contracts in order to achieve the appropriate exposure to meet its investment objective the volume of these open positions relative to the net assets of each respective Fund at the date of this report is generally representative of open positions throughout the reporting period.

 

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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, or as a substitute for investing directly in (or shorting), an underlying index, currency 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 asset 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 affected. 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 cash. Pursuant to the futures contract, each Fund generally agrees to receive from or pay to the broker(s) 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 but some counterparty risk to the Funds since futures contracts are exchange-traded and the exchange’s clearinghouse, as counterparty to all exchange-traded futures contracts, guarantees the futures contracts against default. Many futures exchanges and boards of trade limit the amount of fluctuation permitted in futures contract prices during a single trading day. Once the daily limit has been reached in a particular contract, no trades may be made that day at a price beyond that limit or trading may be suspended for specified times during the trading day. Futures contracts prices could move to the limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of futures positions and potentially subjecting a Fund to substantial losses. If trading is not possible, or if a Fund determines not to close a futures position in anticipation of adverse price movements, the Fund will be required to make daily cash payments of variation margin. The risk the Fund will be unable to close out a futures position will be minimized by entering into such transactions on a national exchange with an active and liquid secondary market.

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) an underlying index, currency or commodity, or to create an economic hedge against a position. Swap agreements are two-party contracts that have traditionally been entered into primarily with institutional investors in over-the-counter (“OTC”) markets for a specified period, ranging from a day to more than one year. However, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) provides for significant reforms of the OTC derivative markets, including a requirement to execute certain swap and forward transactions on a CFTC-regulated market and/or to clear such transactions through a CFTC-regulated central clearing organization. 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. Transaction or commission costs are reflected in the benchmark level at which the transaction is entered into. The gross returns to be exchanged are calculated with respect to a notional amount and the benchmark returns to which the swap is linked. Swap agreements do not involve the delivery of underlying instruments.

 

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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 a Matching VIX Fund or an Ultra Fund, the Matching VIX 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 a Short Fund or an UltraShort Fund, the Short Fund or UltraShort 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 uncleared swap agreement is accrued on a daily basis and an amount of cash and/or securities having an aggregate value at least equal to such accrued excess is maintained for the benefit of the counterparty in a segregated account by the Funds’ Custodian. The net amount of the excess, if any, of each Fund’s entitlements over its obligations with respect to each uncleared swap agreement is accrued on a daily basis and an amount of cash and/or securities having an aggregate value at least equal to such accrued excess is maintained for the benefit of the Fund in a segregated account by the Fund’s 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 asset.

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 correlations 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 typically enter into swap agreements only with major global 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, 2013 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. As noted above, collateral posted in connection with uncleared derivative transactions 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.

 

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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 in connection with uncleared swaps 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, subject to certain minimum thresholds. 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, 2013, the collateral posted by counterparties consisted of cash and U.S. Treasury securities.

The counterparty/credit risk for cleared derivative transactions is generally lower than for uncleared OTC derivatives since generally a clearing organization becomes substituted for each counterparty to a cleared derivative contract and, in effect, guarantees the parties’ performance under the contract as each party to a trade looks only to the clearing organization for performance of financial obligations. In addition, cleared derivative transactions benefit from daily marking-to-market and settlement, and segregation and minimum capital requirements applicable to intermediaries.

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 an asset at or before a specified date in the future at a specified price. Forward contracts are typically traded in 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 have traditionally not been cleared or guaranteed by a third party. However, the Dodd-Frank Act provides for significant reforms of the OTC derivatives markets, including a requirement to execute most forward contracts on a CFTC-regulated market and/or to clear such transactions through a CFTC-regulated central clearing organization. The Funds may collateralize uncleared 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. 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, subject to minimum thresholds. 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 Fund 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, 2013, the collateral posted by counterparties consisted of cash and U.S. Treasury securities.

 

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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. In recent years, however, many OTC market participants in foreign exchange trading have begun to require their counterparties to post margin.

A Fund will typically enter into forward contracts only with major global financial institutions. The creditworthiness of each of the firms that is a party to a forward contract is monitored by the Sponsor.

The counterparty/credit risk for cleared derivative transactions is generally lower than for uncleared OTC derivatives since generally a clearing organization becomes substituted for each counterparty to a cleared derivative contract and, in effect, guarantees the parties’ performance under the contract as each party to a trade looks only to the clearing organization for performance of financial obligations. In addition, cleared derivative transactions benefit from daily marking-to-market and settlement, and segregation and minimum capital requirements applicable to intermediaries.

 

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Fair Value of Derivative Instruments

as of December 31, 2013

 

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 Natural Gas

  $ 1,042,300  

Payable on open futures contracts, unrealized depreciation on swap and/or forward agreements

 

ProShares UltraShort DJ-UBS Commodity

  $ 27,665   
   

ProShares UltraShort Gold

    5,647,573    

ProShares UltraShort DJ-UBS Crude Oil

    3,565,673
   

ProShares UltraShort Silver

    14,200    

ProShares UltraShort Silver

    2,227,857   
   

ProShares Ultra DJ-UBS Commodity

    15,078       

ProShares Ultra DJ-UBS Natural Gas

    3,656,539
   

ProShares Ultra DJ-UBS Crude Oil

    2,584,554    

ProShares Ultra Gold

    6,827,534
         

ProShares Ultra Silver

    2,507,080

Foreign Exchange Contracts

 

Unrealized appreciation on foreign currency forward contracts and receivables on open futures contracts

 

ProShares UltraShort Australian Dollar

    917,605  

Unrealized depreciation on foreign currency forward contracts and payable on open futures contracts

 

ProShares Short Euro

    33,231
   

ProShares UltraShort Euro

    151,351       

ProShares UltraShort Euro

    13,899,858   
   

ProShares UltraShort Yen

    31,317,568       

ProShares UltraShort Yen

    1,930,884   
   

ProShares Ultra Euro

    120,908       

ProShares Ultra Australian Dollar

    118,220
   

ProShares Ultra Yen

    4,052       

ProShares Ultra Euro

    19,946   
         

ProShares Ultra Yen

    163,361   

VIX Futures Contracts

 

Receivables on open futures contracts

 

ProShares Short VIX Short-Term Futures ETF

    8,116,955  

Payable on open futures contracts

 

ProShares VIX Short-Term Futures ETF

    16,652,686
         

ProShares VIX Mid-Term Futures ETF

    4,896,689
         

ProShares Ultra VIX Short-Term Futures ETF

    24,009,911
     

 

 

       

 

 

 
   

Total Trust

  $ 49,932,144    

Total Trust

  $ 80,537,134

 

* 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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Fair Value of Derivative Instruments

as of December 31, 2012

 

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

  $ 148,502     

Payable on open futures contracts, unrealized depreciation on swap and/or forward agreements

 

ProShares UltraShort DJ-UBS Crude Oil

  $ 9,636,781
   

ProShares UltraShort DJ-UBS Natural Gas

    409,135    

ProShares Ultra DJ-UBS Commodity

    306,268   
   

ProShares UltraShort Gold

    3,745,096    

ProShares Ultra DJ-UBS Natural Gas

    3,816,950
   

ProShares UltraShort Silver

    19,347,705 *    

ProShares Ultra Gold

    15,667,298 *
   

ProShares Ultra DJ-UBS Crude Oil

    55,294,030 *    

ProShares Ultra Silver

    145,780,726 *

Foreign Exchange Contracts

 

Unrealized appreciation on foreign currency forward contracts and receivables on open futures contracts

 

ProShares UltraShort Australian Dollar

    85,590 *  

Unrealized depreciation on foreign currency forward contracts and payable on open futures contracts

 

ProShares Short Euro

    55,056 *
   

ProShares UltraShort Euro

    251,047       

ProShares UltraShort Euro

    13,398,619   
   

ProShares UltraShort Yen

    38,346,817       

ProShares UltraShort Yen

    232,642   
   

ProShares Ultra Euro

    89,473       

ProShares Ultra Australian Dollar

    99,030
   

ProShares Ultra Yen

    13,523       

ProShares Ultra Euro

    2,314   
         

ProShares Ultra Yen

    507,819   

VIX Futures Contracts

 

Receivables on open futures contracts, unrealized appreciation on swap and/or forward agreements

 

ProShares VIX Short-Term Futures ETF

    2,368,824  

Payable on open futures contracts, unrealized depreciation on swap and/or forward agreements

 

ProShares VIX Short-Term Futures ETF

    2,590,243
   

ProShares VIX Mid-Term Futures ETF

    233,160    

ProShares VIX Mid-Term Futures ETF

    1,703,570
   

ProShares Ultra VIX Short-Term Futures ETF

    4,034,873    

ProShares Ultra VIX Short-Term Futures ETF

    1,676,460
   

ProShares Short VIX Short-Term Futures ETF

    627,059    

ProShares Short VIX Short-Term Futures ETF

    2,014,234
     

 

 

       

 

 

 
   

Total Trust

  $ 124,994,834 *    

Total Trust

  $ 197,488,010 *

 

-286-


Table of Contents

The Effect of Derivative Instruments on the Statements of Operations

For the year ended December 31, 2013

 

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 UltraShort DJ-UBS Commodity

   $ 760,002      $ (176,167
     

ProShares UltraShort DJ-UBS Crude Oil

     (12,304,999     6,071,108   
     

ProShares UltraShort DJ-UBS Natural Gas

     (2,585,514     633,165   
     

ProShares UltraShort Gold

     61,124,409        1,902,477   
     

ProShares UltraShort Silver

     113,456,404        (21,561,362
     

ProShares Ultra DJ-UBS Commodity

     (1,254,251     321,346   
     

ProShares Ultra DJ-UBS Crude Oil

     120,745,948        (52,709,476
     

ProShares Ultra DJ-UBS Natural Gas

     41,418,165        160,411   
     

ProShares Ultra Gold

     (165,632,786     8,839,764   
     

ProShares Ultra Silver

     (701,532,729     143,273,646   

Foreign Exchange 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 Short Euro

     (381,987     21,825   
     

ProShares UltraShort Australian Dollar

     2,720,079        832,015   
     

ProShares UltraShort Euro

     (48,063,036     (600,935
     

ProShares UltraShort Yen

     164,019,598        (8,727,491
     

ProShares Ultra Australian Dollar

     (928,022     (19,190
     

ProShares Ultra Euro

     210,150        13,803   
     

ProShares Ultra Yen

     (1,879,169     334,987   

VIX Futures Contracts

  

Net realized gain (loss) on futures contracts and/or swap agreements /changes in unrealized appreciation/ depreciation on futures contracts and/or swap agreements

  

ProShares VIX Short-Term Futures ETF

     (144,618,136     (16,431,267
     

ProShares VIX Mid-Term Futures ETF

     (28,219,863     (3,426,279
     

ProShares Ultra VIX Short-Term Futures ETF

     (405,816,676     (26,368,324
     

ProShares Short VIX Short-Term Futures ETF

     87,175,105        9,504,130   
        

 

 

   

 

 

 
     

Total Trust

   $ (921,587,308   $ 41,888,186   

 

-287-


Table of Contents

The Effect of Derivative Instruments on the Statements of Operations

For the year ended December 31, 2012

 

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 UltraShort DJ-UBS Commodity

   $ 761,879      $ (422,249 )
     

ProShares UltraShort DJ-UBS Crude Oil

     47,564,763        (12,529,061
     

ProShares UltraShort DJ-UBS Natural Gas

     1,212,600        (971,875
     

ProShares UltraShort Gold

     (10,067,498     (29,698,062
     

ProShares UltraShort Silver

     (28,114,972     (23,728,868
     

ProShares Ultra DJ-UBS Commodity

     (536,107     400,909   
     

ProShares Ultra DJ UBS Crude Oil

     (84,061,967     66,666,756   
     

ProShares Ultra DJ-UBS Natural Gas

     (2,839,309     (2,991,440
     

ProShares Ultra Gold

     (33,592,896 )     65,210,642   
     

ProShares Ultra Silver

     (66,426,492 )     33,606,897   

Foreign Exchange 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 Short Euro

     (164,400 )     (55,056 )
     

ProShares UltraShort Australian Dollar

     (288,740     85,590   
     

ProShares UltraShort Euro

     46,946,419        (80,578,526
     

ProShares UltraShort Yen

     27,341,631        42,478,321   
     

ProShares Ultra Australian Dollar

     265,990        (99,030
     

ProShares Ultra Euro

     (398,504 )     605,371   
     

ProShares Ultra Yen

     (601,937 )     (597,023 )

VIX Futures 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 VIX Short-Term Futures ETF

     (160,953,587 )     1,354,551   
     

ProShares VIX Mid-Term Futures ETF

     (75,241,919 )     4,642,340   
     

ProShares Ultra VIX Short-Term Futures ETF

     (509,421,864 )     3,121,203   
     

ProShares Short VIX Short-Term Futures ETF

     13,203,419        (1,477,355 )
        

 

 

   

 

 

 
     

Total Trust

   $ (835,413,491 )   $ 65,024,035   

 

-288-


Table of Contents

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 UltraShort DJ-UBS Commodity

   $ (3,511,808   $ 734,901   
     

ProShares UltraShort DJ-UBS Crude Oil

     26,720,866        9,388,308   
     

ProShares UltraShort DJ-UBS Natural Gas

     1,776,461        1,381,010   
     

ProShares UltraShort Gold

     (45,179,461     36,727,299   
     

ProShares UltraShort Silver

     (171,361,321     53,606,338   
     

ProShares Ultra DJ-UBS Commodity

     (2,051,498     (2,462,927 )
     

ProShares Ultra DJ-UBS Crude Oil

     110,381,975        (22,435,130 )
     

ProShares Ultra DJ-UBS Natural Gas

     (1,481,685     (825,510 )
     

ProShares Ultra Gold

     100,088,064        (89,908,507 )
     

ProShares Ultra Silver

     (209,477,092     (228,635,411 )

Foreign Exchange Contracts

  

Net realized gain (loss) on foreign currency forward contracts/ changes in unrealized appreciation/ depreciation on foreign currency forward contracts

  

ProShares UltraShort Euro

     (5,409,463     90,625,031   
     

ProShares UltraShort Yen

     (50,029,053     11,773,508   
     

ProShares Ultra Euro

     354,369        (866,391
     

ProShares Ultra Yen

     564,813        (180,776

VIX Futures Contracts

  

Net realized gain (loss) on futures contracts/ changes in unrealized appreciation/ depreciation on futures contracts

  

ProShares VIX Short-Term Futures ETF

     3,732,227        (1,575,970
     

ProShares VIX Mid-Term Futures ETF

     (514,060     (6,112,750
     

ProShares Ultra VIX Short-Term Futures ETF

     (3,524,662     (762,790
     

ProShares Short VIX Short-Term Futures ETF

     1,355,975        90,180   
        

 

 

   

 

 

 
     

Total Trust

   $ (247,565,353 )   $ (149,439,587 )
        

 

 

   

 

 

 

 

-289-


Table of Contents

Offsetting Assets and Liabilities

Effective January 1, 2013, the Funds adopted Financial Accounting Standards Update (“ASU”) No. 2011-11 “Disclosures about Offsetting Assets and Liabilities” which was subsequently clarified in ASU 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities.” The amended standard requires an entity to disclose information about offsetting and related arrangements to enable users of that entity’s financial statements to understand the effect of those arrangements on its financial position. The Funds are subject to master netting agreements or similar arrangements that allow for amounts owed between the Funds and the counterparty to be netted upon an early termination. The party that has the larger payable pays the excess of the larger amount over the smaller amount to the other party. The master netting agreements or similar arrangements do not apply to amounts owed to/from different counterparties. As described above, the Funds utilize derivative instruments to achieve their investment objective during the year. The amounts shown in the Statement of Financial Condition do not take into consideration the effects of legally enforceable master netting agreements or similar arrangements. Information concerning the value of and amounts due under Repurchase Agreement transactions may be found on each Fund’s Schedule of Investments.

 

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Table of Contents

For financial reporting purposes, the Funds do not offset derivative assets and derivative liabilities that are subject to netting arrangements in the Statement of Financial Condition. The following table presents each Fund’s derivatives by investment type and by counterparty net of amounts available for offset under a master netting agreement and the related collateral received or pledged by the Funds as of December 31, 2013 and December 31, 2012:

 

Fair Values of Derivative Instruments as of December 31, 2013

 
     Assets      Liabilities  
     Gross
Amounts of
Recognized
Assets
presented in
the Statement

of Financial
Conditions
     Gross
Amounts
Offset in the

Statement of
Financial
Conditions
     Net Amounts of
Assets
presented in
the Statement
of Financial
Conditions
     Gross
Amounts of
Recognized
Liabilities
presented in
the Statement

of Financial
Conditions
     Gross
Amounts
Offset in the
Statement
of Financial
Conditions
     Net Amounts of 
Liabilities
presented in
the Statement
of Financial
Conditions
 

ProShares UltraShort DJ-UBS Commodity Swap agreements

   $ —         $ —         $ —         $ 27,665       $ —         $ 27,665   

ProShares UltraShort DJ-UBS Crude Oil

                 

Futures contracts*

     1,503,943         —           1,503,943         —              —     

Swap agreements

     —           —           —           2,332,900            2,332,900   

ProShares UltraShort DJ-UBS Natural Gas Futures contracts*

     1,520,548         —           1,520,548         —           —           —     

ProShares UltraShort Gold

                 

Forward agreements

     5,633,053         —           5,633,053         —           —           —     

Futures contracts*

     300         —           300         —           —           —     

ProShares UltraShort Silver

                 

Forward agreements

     —           —           —           2,227,857         —           2,227,857   

Futures contracts*

     2,450         —           2,450         —           —           —     

ProShares Short Euro Futures contracts*

     9,100         —           9,100         —           —           —     

ProShares UltraShort Australian Dollar Futures contracts*

     —           —           —           86,166         —           86,166   

ProShares UltraShort Euro

                 

Foreign currency forward contracts

     151,351         —           151,351         13,899,858         —           13,899,858   

ProShares UltraShort Yen

                 

Foreign currency forward contracts

     31,317,568         —           31,317,568         1,930,884         —           1,930,884   

ProShares Ultra DJ-UBS Commodity Swap agreements

     15,078         —           15,078         —           —           —     

ProShares Ultra DJ-UBS Crude Oil

                 

Futures contracts*

     —           —           —           997,210         —           997,210   

Swap agreements

     1,957,893         —           1,957,893         —           —           —     

ProShares Ultra DJ-UBS Natural Gas Futures contracts*

     —           —           —           5,628,532         —           5,628,532   

ProShares Ultra Gold

                 

Forward agreements

     —           —           —           6,812,974         —           6,812,974   

Futures contracts*

     —           —           —           300         —           300   

ProShares Ultra Silver

                 

Forward agreements

     —           —           —           2,492,880         —           2,492,880   

Futures contracts*

     —           —           —           2,450         —           2,450   

ProShares Ultra Australian Dollar Futures contracts*

     10,650         —           10,650         —           —           —     

ProShares Ultra Euro

                 

Foreign currency forward contracts

     120,908         —           120,908         19,946         —           19,946   

ProShares Ultra Yen

                 

Foreign currency forward contracts

     4,052         —           4,052         163,361         —           163,361   

ProShares VIX Short-Term Futures ETF Futures contracts*

     3,179,017         —           3,179,017         —           —           —     

ProShares VIX Mid-Term Futures ETF Futures contracts*

     100,734         —           100,734         —           —           —     

ProShares Ultra VIX Short-Term Futures ETF Futures contracts*

     —           —           —           3,356,803         —           3,356,803   

ProShares Short VIX Short-Term Futures ETF Futures contracts*

     603,833         —           603,833         —           —           —     

 

* Current day’s variation margin is reported within the Statements of Financial Condition in receivable/payable on open futures contracts; Cumulative appreciation/depreciation is reported in the Schedule of Investments.

 

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Table of Contents

Asset (Liability) amounts shown in the table below represent amounts owed to (by) the Funds for the deriviative-related investments at December 31, 2013. These amounts may be collateralized by cash or financial instruments, segregated for the benefit of the Funds or the counterparties, depending on whether the related contracts are in an appreciated or depreciated position at period end. Amounts shown in the column labeled “Net Amount” represent the un-collateralized portions of these amounts at period end. These amounts may be un-collateralized due to timing differences related to market movements or due to minimum thresholds for collateral movement, as further described above under the caption “Account for Derivative Instruments”.

 

Gross Amounts Not Offset in the Statement of Financial Condition

 
     Amounts of
Recognized
Assets /
(Liabilities)
presented in the
Statement of
Financial
Condition
    Financial
Instruments for
the Benefit of
(the Funds) / the
Counterparties
    Cash Collateral
for the Benefit of
(the Funds) / the
Counterparties
    Net Amount  

ProShares UltraShort DJ-UBS Commodity

        

Deutsche Bank AG

   $ (11,710   $ 11,710      $ —        $ —     

Goldman Sachs International

     (12,945     12,945        —          —     

UBS AG

     (3,010     3,010        —          —     

ProShares UltraShort DJ-UBS Crude Oil Deutsche Bank AG

     (570,114     570,114        —          —     

Goldman Sachs & Co.

     1,503,943        —          —          1,503,943   

Goldman Sachs International

     (632,990     632,990        —          —     

Societe Generale S.A.

     (402,586     402,586        —          —     

UBS AG

     (727,210     727,210        —          —     

ProShares UltraShort DJ-UBS Natural Gas Goldman Sachs & Co.

     1,520,548        —          —          1,520,548   

ProShares UltraShort Gold

        

DeutscheBankAG

     2,258,281        —          (2,258,281     —     

Goldman Sachs & Co.

     300        —          —          300   

Goldman Sachs International

     1,411,290        (1,411,290     —          —     

Societe Generale S.A.

     665,044        (665,044     —          —     

UBS AG

     1,298,438        (1,298,438     —          —     

ProShares UltraShort Silver

        

Deutsche Bank AG

     (445,752     445,752        —          —     

Goldman Sachs & Co.

     2,450        —          —          2,450   

Goldman Sachs International

     (1,257,636     1,257,636        —          —     

Societe Generale S.A.

     (7,359     7,359        —          —     

UBS AG

     (517,110     517,110        —          —     

ProShares Short Euro RBC Capital Markets

     9,100        —          —          9,100   

ProShares UltraShort Australian Dollar RBC Capital Markets

     (86,166     —          86,166        —     

ProShares UltraShort Euro

        

Goldman Sachs International

     64,104        —          —          64,104   

Goldman Sachs International

     (6,820,802     6,820,802          —     

UBS AG

     87,247        —          —          87,247   

UBS AG

     (7,079,056     7,079,056          —     

 

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Table of Contents

ProShares UltraShort Yen Goldman Sachs International

     15,716,318        (13,635,426     —          2,080,892   

Goldman Sachs International

     (884,849     884,849          —     

UBS AG

     15,601,250        (14,004,926     —          1,596,324   

UBS AG

     (1,046,035     1,046,035          —     

ProShares Ultra DJ-UBS Commodity

        

Deutsche Bank AG

     6,454        —          —          6,454   

Goldman Sachs International

     4,974        —          —          4,974   

UBS AG

     3,650        —          —          3,650   

ProShares Ultra DJ-UBS Crude Oil Deutsche Bank AG

     622,117        —          (622,117     —     

Goldman Sachs & Co.

     (997,210     —          997,210        —     

Goldman Sachs International

     576,723        (576,723     —          —     

Societe Generale S.A.

     275,816        (275,816     —          —     

UBS AG

     483,237        (483,237     —          —     

ProShares Ultra DJ-UBS Natural Gas Goldman Sachs & Co.

     (5,628,532     —          4,630,277        (998,255

ProShares Ultra Gold

        

Deutsche Bank AG

     (3,543,937     3,543,937        —          —     

Goldman Sachs & Co.

     (300     —          300        —     

Goldman Sachs International

     (1,327,335     1,327,335        —          —     

Societe Generale S.A.

     (785,038     785,038        —          —     

UBS AG

     (1,156,664     1,156,664        —          —     

ProShares Ultra Silver Deutsche Bank AG

     (350,663     350,663        —          —     

Goldman Sachs & Co.

     (2,450     —          2,450        —     

Goldman Sachs International

     (1,345,433     1,345,433        —          —     

Societe Generale S.A.

     (28,581     28,581        —          —     

UBS AG

     (768,203     768,203        —          —     

ProShares Ultra Australian Dollar RBC Capital Markets

     10,650        —          —          10,650   

ProShares Ultra Euro

        

Goldman Sachs International

     56,991        —          —          56,991   

Goldman Sachs International

     (19,770     19,770        —          —     

UBS AG

     63,917        —          —          63,917   

UBS AG

     (176     176        —          —     

ProShares Ultra Yen

        

Goldman Sachs International

     2,462        —          —          2,462   

Goldman Sachs International

     (78,309     78,309        —          —     

UBS AG

     1,590        —          —          1,590   

UBS AG

     (85,052     85,052        —          —     

ProShares VIX Short-Term Futures ETF RBC Capital Markets

     3,179,017        —          —          3,179,017   

ProShares VIX Mid-Term Futures ETF RBC Capital Markets

     100,734        —          —          100,734   

ProShares Ultra VIX Short-Term Futures ETF RBC Capital Markets

     (3,356,803     —          3,356,803        —     

ProShares Short VIX Short-Term Futures ETF RBC Capital Markets

     603,833        —          —          603,833   

 

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Table of Contents

Fair Values of Derivative Instruments as of December 31, 2012

 
     Assets      Liabilities  
     Gross
Amounts of
Recognized
Assets
presented in
the Statement

of Financial
Conditions
     Gross
Amounts
Offset in the

Statement of
Financial
Conditions
     Net Amounts of
Assets
presented in
the Statement
of Financial
Conditions
     Gross
Amounts of
Recognized
Liabilities
presented in
the Statement
of Financial
Conditions
     Gross
Amounts
Offset in the
Statement
of Financial
Conditions
     Net Amounts of
Liabilities
presented in
the Statement
of Financial
Conditions
 

ProShares UltraShort DJ-UBS Commodity Swap agreements

   $ 148,502       $ —         $ 148,502       $ —         $ —         $ —     

ProShares UltraShort DJ-UBS Crude Oil

                 

Futures contracts*

     —           —           —           979,336         —           979,336   

Swap agreements

     —           —           —           5,607,060         —           5,607,060   

ProShares UltraShort DJ-UBS Natural Gas Futures contracts*

     632,777         —           632,777         —           —           —     

ProShares UltraShort Gold

                 

Forward agreements

     3,729,856         —           3,729,856         —           —           —     

Futures contracts*

     —           —           —           3,980         —           3,980   

ProShares UltraShort Silver

                 

Forward agreements

     19,307,685         —           19,307,685         —           —           —     

Futures contracts*

     —           —           —           2,520         —           2,520   

ProShares Short Euro Futures contracts*

     6,612         —           6,612         —           —           —     

ProShares UltraShort Australian Dollar Futures contracts*

     —           —           —           10,950         —           10,950   

ProShares UltraShort Euro

                 

Foreign currency forward contracts

     251,047         —           251,047         13,398,619         —           13,398,619   

ProShares UltraShort Yen

                 

Foreign currency forward contracts

     38,346,817         —           38,346,817         232,642         —           232,642   

ProShares Ultra DJ-UBS Commodity Swap agreements

     —           —           —           306,268         —           306,268   

ProShares Ultra DJ-UBS Crude Oil

                 

Futures contracts*

     3,430,415         —           3,430,415         —           —           —     

Swap agreements

     33,333,620         —           33,333,620         —           —           —     

ProShares Ultra DJ-UBS Natural Gas Futures contracts*

     —           —           —           4,891,783         —           4,891,783   

ProShares Ultra Gold

                 

Forward agreements

     —           —           —           15,652,058         —           15,652,058   

Futures contracts*

     3,980         —           3,980         —           —           —     

ProShares Ultra Silver

                 

Forward agreements

     —           —           —           145,740,706         —           145,740,706   

Futures contracts*

     2,520         —           2,520         —           —           —     

ProShares Ultra Australian Dollar Futures contracts*

     12,000         —           12,000         —           —           —     

ProShares Ultra Euro

                 

Foreign currency forward contracts

     89,473         —           89,473         2,314         —           2,314   

ProShares Ultra Yen

                 

Foreign currency forward contracts

     13,523         —           13,523         507,819         —           507,819   

ProShares VIX Short-Term Futures ETF Futures contracts*

     —           —           —           31,540,181         —           31,540,181   

ProShares VIX Mid-Term Futures ETF Futures contracts*

     —           —           —           1,890,675         —           1,890,675   

ProShares Ultra VIX Short-Term Futures ETF

                 

Futures contracts*

     —           —           —           35,666,735         —           35,666,735   

Swap agreements

     301,351         —           301,351         —           —           —     

ProShares Short VIX Short-Term Futures ETF Futures contracts*

     5,524,721         —           5,524,721         —           —           —     

 

* Current day’s variation margin is reported within the Statements of Financial Condition in receivable/payable on open futures contracts; Cumulative appreciation/depreciation is reported in the Schedule of Investments.

 

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Asset (Liability) amounts shown in the table below represent amounts owed to (by) the Funds for the deriviative-related investments at December 31, 2012. These amounts may be collateralized by cash or financial instruments, segregated for the benefit of the Funds or the counterparties, depending on whether the related contracts are in an appreciated or depreciated position at period end. Amounts shown in the column labeled “Net Amount” represent the un-collateralized portions of these amounts at period end. These amounts may be un-collateralized due to timing differences related to market movements or due to minimum thresholds for collateral movement, as further described above under the caption “Account for Derivative Instruments”.

 

Gross Amounts Not Offset in the Statement of Financial Condition

 
     Amounts of
Recognized
Assets /
(Liabilities)
presented in the
Statement of
Financial
Condition
    Financial
Instruments for
the Benefit of
(the Funds) / the
Counterparties
    Cash Collateral
for the Benefit of
(the Funds) / the
Counterparties
    Net Amount  

ProShares UltraShort DJ-UBS Commodity

        

Goldman Sachs International

   $ 104,181      $ —        $ —        $ 104,181   

UBS AG

     44,321        —          —          44,321   

ProShares UltraShort DJ-UBS Crude Oil

        

Goldman Sachs & Co.

     (979,336     —          979,336        —     

Goldman Sachs International

     (1,880,292     1,880,292        —          —     

Societe Generale S.A.

     (1,730,366     1,730,366        —          —     

UBS AG

     (1,996,402     1,996,402        —          —     

ProShares UltraShort DJ-UBS Natural Gas Goldman Sachs & Co.

     632,777        —          —          632,777   

ProShares UltraShort Gold

        

Deutsche Bank AG

     2,389,236        —          (2,389,236     —     

Goldman Sachs & Co.

     (3,980     —          3,980        —     

Goldman Sachs International

     452,059        (452,059     —          —     

Societe Generale S.A.

     499,264        —          (499,264     —     

UBS AG

     389,297        (347,541     —          41,756   

ProShares UltraShort Silver

        

Deutsche Bank AG

     10,786,801        —          (10,300,000     486,801   

Goldman Sachs & Co.

     (2,520     —          2,520        —     

Goldman Sachs International

     3,141,119        (3,141,119     —          —     

Societe Generale S.A.

     3,255,649        —          (3,255,649     —     

UBS AG

     2,124,116        (2,065,937     —          58,179   

ProShares Short Euro RBC Capital Markets

     6,612        —          —          6,612   

ProShares UltraShort Australian Dollar RBC Capital Markets

     (10,950     —          10,950        —     

ProShares UltraShort Euro

        

Goldman Sachs International

     251,047        —          —          251,047   

Goldman Sachs International

     (6,048,832     6,048,832          —     

UBS AG

     (7,349,787     7,349,787        —          —     

ProShares UltraShort Yen

        

Goldman Sachs International

     18,518,532        (14,958,352     —          3,560,180   

UBS AG

     19,828,285        (17,590,896       2,237,389   

UBS AG

     (232,642     232,642        —          —     

 

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ProShares Ultra DJ-UBS Commodity

        

Goldman Sachs International

     (198,117     198,117        —          —     

UBS AG

     (108,151     108,151        —          —     

ProShares Ultra DJ-UBS Crude Oil

        

Goldman Sachs & Co.

     3,430,415        —          —          3,430,415   

Goldman Sachs International

     14,334,730        (11,924,574     —          2,410,156   

Societe Generale S.A.

     8,989,866        —          (8,989,866     —     

UBS AG

     10,009,024        (8,589,406     —          1,419,618   

ProShares Ultra DJ-UBS Natural Gas Goldman Sachs & Co.

     (4,891,783     —          4,891,783        —     

ProShares Ultra Gold

        

Deutsche Bank AG

     (4,622,873     4,622,873        —          —     

Goldman Sachs & Co.

     3,980        —          —          3,980   

Goldman Sachs International

     (3,678,367     3,678,367        —          —     

Societe Generale S.A.

     (3,715,989     3,715,989        —          —     

UBS AG

     (3,634,829     3,634,829        —          —     

ProShares Ultra Silver Deutsche Bank AG

     (44,873,116     42,756,218        —          (2,116,898

Goldman Sachs & Co.

     2,520        —          —          2,520   

Goldman Sachs International

     (34,491,042     34,491,042        —          —     

Societe Generale S.A.

     (34,802,217     34,802,217        —          —     

UBS AG

     (31,574,331     31,574,331        —          —     

ProShares Ultra Australian Dollar RBC Capital Markets

     12,000        —          —          12,000   

ProShares Ultra Euro

        

Goldman Sachs International

     38,327        —          —          38,327   

Goldman Sachs International

     (635     635        —          —     

UBS AG

     51,146        —          —          51,146   

UBS AG

     (1,679     1,679        —          —     

ProShares Ultra Yen

        

Goldman Sachs International

     7,325        —          —          7,325   

Goldman Sachs International

     (231,047     231,047        —          —     

UBS AG

     6,198        —          —          6,198   

UBS AG

     (276,772     178,999        —          (97,773

ProShares VIX Short-Term Futures ETF RBC Capital Markets

     (31,540,181     —          31,540,181        —     

ProShares VIX Mid-Term Futures ETF RBC Capital Markets

     (1,890,675     —          1,890,675        —     

ProShares Ultra VIX Short-Term Futures ETF

        

RBC Capital Markets

     (35,666,735     —          35,666,735        —     

Societe Generale S.A.

     301,351        —          (301,351     —     

ProShares Short VIX Short-Term Futures ETF RBC Capital Markets

     5,524,721        —          —          5,524,721   

 

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NOTE 4 – AGREEMENTS

Management Fee

Each Leveraged Fund, the Short Euro Fund and each Geared VIX Fund pays 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 of such Fund. The Sponsor did not and will not charge its fee in the first year of operation of each Fund in an amount equal to the offering costs. The Sponsor reimbursed each Fund to the extent that its offering costs exceed the Management Fee for the first year of operations. The Management Fee is paid in consideration of the Sponsor’s services as commodity pool operator, and for managing the business and affairs of the Funds. From the Management Fee, the Sponsor pays the fees and expenses of the Administrator, Custodian, Distributor, ProFunds Distributors, Inc. (“PDI”), an affiliated broker-dealer of the Sponsor, Transfer Agent and any index licensors for the Funds , 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 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 and Financial Industry Regulatory Authority (“FINRA”) filing fees, individual K-1 preparation and mailing fees not exceeding 0.10% per annum of the net assets of a Fund, and report preparation and mailing expenses. For the year ended December 31, 2013, the Sponsor paid and is currently paying brokerage commissions on VIX futures contracts for the Matching VIX Funds. Each Fund incurs and pays 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, and 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 paid on behalf of the Funds by the Sponsor.

The Custodian

BBH&Co. serves as the 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 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.

Routine Operational, Administrative and Other Ordinary Expenses

The Sponsor pays 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, PDI, Transfer Agent,

 

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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 Schedule 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 all 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, 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 – OFFERING COSTS

Offering costs will be amortized by the Funds over a twelve month period on a straight-line basis beginning once the fund commences operations. The Sponsor did not charge its Management Fee in the first year of operations of the UltraShort DJ-UBS Natural Gas Fund, Ultra DJ-UBS Natural Gas Fund, Ultra Australian Dollar Fund, UltraShort Australian Dollar Fund, Short Euro Fund, each Geared VIX Fund and each Matching VIX Fund in an amount equal to the offering costs. The Sponsor reimbursed each Fund, with the exception of each Matching VIX Fund, to the extent that its 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 its offering costs exceeded 0.85% of its average daily NAV for the first year of operations.

NOTE 6 – CREATION AND REDEMPTION OF CREATION UNITS

Each Fund issues and redeems shares from time to time, but only in one or more Creation Units. A Creation Unit is a block of 50,000 Shares of a Geared 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 Share splits and 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, enter into or arrange for an exchange of futures contract for related position or block trade whereby the Authorized Participant would also transfer to such Fund a number and type of exchange-traded futures contracts at or near the closing settlement price for such contracts on the purchase order date.

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 and to offset the costs of increasing or decreasing derivative positions. 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.

 

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Transaction fees for the years ended December 31, 2013, 2012 and 2011, 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, 2013
     Year Ended
December 31, 2012
     Year Ended
December 31, 2011
 

UltraShort DJ-UBS Commodity

   $ —        $ 1,344      $ 34,814  

UltraShort DJ-UBS Crude Oil

     298,261        120,983        244,564  

UltraShort DJ-UBS Natural Gas

     7,434        6,200        400  

UltraShort Gold

     105,508        15,695        57,263  

UltraShort Silver

     128,850        148,662        457,001  

Short Euro*

     —           —           —     

UltraShort Australian Dollar**

     —           —           —     

UltraShort Euro

     —           —           —     

UltraShort Yen

     —           —           —     

Ultra DJ-UBS Commodity

     487        603        1,754  

Ultra DJ-UBS Crude Oil

     236,956        317,803        532,022  

Ultra DJ-UBS Natural Gas

     42,172        19,179        641  

Ultra Gold

     23,035        26,057        43,207  

Ultra Silver

     107,285        164,212        454,059  

Ultra Australian Dollar**

     —           —           —     

Ultra Euro

     —           —           —     

Ultra Yen

     —           —           —     

VIX Short-Term Futures ETF

     —           —           —     

VIX Mid-Term Futures ETF

     —           —           —     

Ultra VIX Short-Term Futures ETF

     814,195        639,726        3,421  

Short VIX Short-Term Futures ETF

     130,779        119,942        754  
  

 

 

    

 

 

    

 

 

 

Total Trust

   $ 1,894,962      $ 1,580,406      $ 1,829,900  

 

* Fund commenced investment operations on June 26, 2012.
** Fund commenced investment operations on July 17, 2012.

 

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NOTE 7 – FINANCIAL HIGHLIGHTS

Selected data for a Share outstanding throughout the year ended December 31, 2013:

For the Year Ended December 31, 2013

 

Per Share Operating Performance

   UltraShort
DJ-UBS
Commodity
    UltraShort
DJ-UBS
Crude Oil
    UltraShort DJ-
UBS Natural
Gas*
    UltraShort
Gold
    UltraShort
Silver
    Short Euro     UltraShort
Australian
Dollar
 

Net asset value, at December 31, 2012

   $ 54.1021      $ 40.3079      $ 102.1402      $ 63.8688      $ 51.3951      $ 37.6285      $ 37.8081   

Net investment income (loss)

     (0.5355     (0.3033     (0.9217     (0.7561     (0.6223     (0.3430     (0.4325

Net realized and unrealized gain (loss)#

     9.7270        (8.2745     (31.2550     40.4053        39.0092        (1.6988     9.2628   

Change in net asset value from operations

     9.1915        (8.5778     (32.1767     39.6492        38.3869        (2.0418     8.8303   

Net asset value, at December 31, 2013

   $ 63.2936      $ 31.7301      $ 69.9635      $ 103.5180      $ 89.7820      $ 35.5867      $ 46.6384   

Market value per share, at December 31, 2012†

   $ 51.64      $ 40.44      $ 101.64      $ 62.60      $ 50.07      $ 37.64      $ 37.74   

Market value per share, at December 31, 2013†

   $ 58.41      $ 31.58      $ 69.36      $ 103.53      $ 90.19      $ 35.66      $ 46.66   

Total Return, at net asset value

     17.0     (21.3 )%      (31.5 )%      62.1     74.7     (5.4 )%      23.4

Total Return, at market value

     13.1     (21.9 )%      (31.8 )%      65.4     80.1     (5.3 )%      23.6

Ratios to Average Net Assets

              

Expense ratio

     (0.95 )%      (0.98 )%      (1.20 )%      (0.95 )%      (0.95 )%      (0.96 )%      (1.02 )% 

Expense ratio, excluding brokerage commissions

     (0.95 )%      (0.95 )%      (0.95 )%      (0.95 )%      (0.95 )%      (0.95 )%      (0.95 )% 

Net investment income (loss)

     (0.90 )%      (0.94 )%      (1.15 )%      (0.90 )%      (0.89 )%      (0.93 )%      (0.99 )% 

 

* 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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For the Year Ended December 31, 2013

 

Per Share Operating Performance

  UltraShort
Euro
    UltraShort
Yen
    Ultra DJ-UBS
Commodity
    Ultra DJ-UBS
Crude Oil
    Ultra DJ-UBS
Natural Gas
    Ultra Gold     Ultra Silver*  

Net asset value, at December 31, 2012

  $ 19.0172      $ 50.7577      $ 24.3875      $ 29.3941      $ 39.0490      $ 83.7634      $ 171.8906   

Net investment income (loss)

    (0.1677     (0.5662     (0.1945     (0.2849     (0.4054     (0.5404     (0.8789

Net realized and unrealized gain (loss)#

    (1.7882     20.6725        (4.7613     2.9807        0.1947        (41.9677     (107.6812

Change in net asset value from operations

    (1.9559     20.1063        (4.9558     2.6958        (0.2107     (42.5081     (108.5601

Net asset value, at December 31, 2013

  $ 17.0613      $ 70.8640      $ 19.4317      $ 32.0899      $ 38.8383      $ 41.2553      $ 63.3305   

Market value per share, at December 31, 2012†

  $ 19.01      $ 50.77      $ 23.93      $ 29.32      $ 39.24      $ 85.34      $ 176.40   

Market value per share, at December 31, 2013†

  $ 17.06      $ 70.91      $ 19.13      $ 32.22      $ 39.28      $ 41.26      $ 63.04   

Total Return, at net asset value

    (10.3 )%      39.6     (20.3 )%      9.2     (0.5 )%      (50.7 )%      (63.2 )% 

Total Return, at market value

    (10.3 )%      39.7     (20.1 )%      9.9     0.1     (51.7 )%      (64.3 )% 

Ratios to Average Net Assets

             

Expense ratio

    (0.95 )%      (0.95 )%      (0.95 )%      (0.97 )%      (1.15 )%      (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)

    (0.90 )%      (0.91 )%      (0.90 )%      (0.92 )%      (1.10 )%      (0.89 )%      (0.89 )% 

 

* See Note 9 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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For the Year Ended December 31, 2013

 

Per Share Operating Performance

   Ultra
Australian
Dollar
    Ultra Euro     Ultra Yen     VIX Short-
Term Futures

ETF*
    VIX Mid-
Term Futures

ETF
    Ultra VIX
Short-Term

Futures
ETF*^
    Short VIX
Short-Term

Futures ETF^
 

Net asset value, at December 31, 2012

   $ 41.4986      $ 24.3499      $ 28.1840      $ 83.9374      $ 34.7003      $ 805.2711      $ 33.0649   

Net investment income (loss)

     (0.3490     (0.2200     (0.1996     (0.3518     (0.1973     (3.0009     (0.7398

Net realized and unrealized gain (loss)#

     (9.4695     1.9047        (9.3526     (55.0469     (15.2071     (735.1861     35.1742   

Change in net asset value from operations

     (9.8185     1.6847        (9.5522     (55.3987     (15.4044     (738.1870     34.4344   

Net asset value, at December 31, 2013

   $ 31.6801      $ 26.0346      $ 18.6318      $ 28.5387      $ 19.2959      $ 67.0841      $ 67.4993   

Market value per share, at December 31, 2012†

   $ 41.45      $ 24.32      $ 28.28      $ 85.05      $ 34.22      $ 836.00      $ 32.73   

Market value per share, at December 31, 2013†

   $ 31.61      $ 25.98      $ 18.61      $ 28.53      $ 19.29      $ 67.12      $ 67.47   

Total Return, at net asset value

     (23.7 )%      6.9     (33.9 )%      (66.0 )%      (44.4 )%      (91.7 )%      104.1

Total Return, at market value

     (23.7 )%      6.8     (34.2 )%      (66.5 )%      (43.6 )%      (92.0 )%      106.2

Ratios to Average Net Assets

              

Expense ratio

     (0.99 )%      (0.95 )%      (0.95 )%      (0.85 )%      (0.85 )%      (1.82 )%      (1.53 )% 

Expense ratio, excluding brokerage commissions

     (0.95 )%      (0.95 )%      (0.95 )%      (0.85 )%      (0.85 )%      (0.95 )%      (0.95 )% 

Net investment income (loss)

     (0.95 )%      (0.90 )%      (0.90 )%      (0.81 )%      (0.81 )%      (1.80 )%      (1.49 )% 

 

* See Note 1 of these Notes to Financial Statements.
^ See Note 9 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, 2012:

For the Period December 31, 2012

 

Per Share Operating Performance

  UltraShort
DJ-UBS
Commodity+
    UltraShort
DJ-UBS
Crude Oil+
    UltraShort DJ-
UBS Natural
Gas*+
    UltraShort
Gold+
    UltraShort
Silver*+
    Short
Euro++
    UltraShort
Australian
Dollar+++
 

Net asset value, beginning of period

  $ 56.9207      $ 38.8151      $ 95.2206      $ 82.7114      $ 76.6771      $ 40.0000      $ 40.0000   

Net investment income (loss)

    (0.4894     (0.3595     (1.5571     (0.5901     (0.4806     (0.1799     (0.1633

Net realized and unrealized gain (loss)#

    (2.3292     1.8523        8.4767        (18.2525     (24.8014     (2.1916     (2.0286

Change in net asset value from operations

    (2.8186     1.4928        6.9196        (18.8426     (25.2820     (2.3715     (2.1919

Net asset value, at December 31, 2012

  $ 54.1021      $ 40.3079      $ 102.1402      $ 63.8688      $ 51.3951      $ 37.6285      $ 37.8081   

Market value per share, at December 31, 2011†

  $ 56.19      $ 38.69      $ 95.84      $ 79.24      $ 79.35      $ 40.00      $ 40.00   

Market value per share, at December 31, 2012†

  $ 51.64      $ 40.44      $ 101.64      $ 62.60      $ 50.07      $ 37.64      $ 37.74   

Total Return, at net asset value

    (5.0 )%      3.8     7.3     (22.8 )%      (33.0 )%      (5.9 )%^      (5.5 )%^ 

Total Return, at market value

    (8.1 )%      4.5     6.1     (21.0 )%      (36.9 )%      (5.9 )%^      (5.7 )%^ 

Ratios to Average Net Assets

             

Expense ratio

    (0.95 )%      (0.98 )%      (1.39 )%      (0.95 )%      (0.95 )%      (0.96 )%**      (1.00 )%** 

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 )%      (0.91 )%      (1.33 )%      (0.89 )%      (0.89 )%      (0.89 )%**      (0.92 )%** 

 

* See Note 1 of these Notes to Financial Statements.
+ For the year ended December 31, 2012.
++ From commencement of operations, June 26, 2012, through December 31, 2012.
+++ From commencement of operations, July 17, 2012, through December 31, 2012.
# 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, 2012.

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 Short Euro and UltraShort Australian Dollar.

 

** Percentages are annualized.

 

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Table of Contents

For the Year Ended December 31, 2012

 

Per Share Operating Performance

   UltraShort
Euro
    UltraShort
Yen
    Ultra DJ-UBS
Commodity
    Ultra DJ-UBS
Crude Oil
    Ultra DJ-UBS
Natural Gas*
    Ultra Gold     Ultra Silver^  

Net asset value, at December 31, 2011

   $ 20.3357      $ 40.9557      $ 25.8805      $ 40.8828      $ 101.9786      $ 75.9066      $ 172.7611   

Net investment income (loss)

     (0.1804     (0.3847     (0.2291     (0.2904     (0.5205     (0.7680     (1.7289

Net realized and unrealized gain (loss)#

     (1.1381     10.1867        (1.2639     (11.1983     (62.4091     8.6248        0.8584   

Change in net asset value from operations

     (1.3185     9.8020        (1.4930     (11.4887     (62.9296     7.8568        (0.8705

Net asset value, at December 31, 2012

   $ 19.0172      $ 50.7577      $ 24.3875      $ 29.3941      $ 39.0490      $ 83.7634      $ 171.8906   

Market value per share, at December 31, 2011†

   $ 20.35      $ 40.95      $ 25.64      $ 40.94      $ 101.35      $ 79.01      $ 166.60   

Market value per share, at December 31, 2012†

   $ 19.01      $ 50.77      $ 23.93      $ 29.32      $ 39.24      $ 85.34      $ 176.40   

Total Return, at net asset value

     (6.5 )%      23.9     (5.8 )%      (28.1 )%      (61.7 )%      10.4     (0.5 )% 

Total Return, at market value

     (6.6 )%      24.0     (6.7 )%      (28.4 )%      (61.3 )%      8.0     5.9

Ratios to Average Net Assets

              

Expense ratio

     (0.95 )%      (0.95 )%      (0.95 )%      (0.97 )%      (1.21 )%      (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 )%      (0.88 )%      (0.89 )%      (0.91 )%      (1.15 )%      (0.88 )%      (0.88 )% 

 

* See Note 1 of these Notes to Financial Statements.
^ See Note 9 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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For the Period Ended December 31, 2012

 

Per Share Operating Performance

   Ultra
Australian
Dollar+
    Ultra Euro++     Ultra Yen++     VIX Short-
Term Futures
ETF*++
    VIX Mid-
Term Futures
ETF++
    Ultra VIX Short-
Term Futures
ETF*^++
    Short VIX
Short-Term
Futures
ETF*^++
 

Net asset value, beginning of period

   $ 40.0000      $ 23.8860      $ 36.4704      $ 381.8690      $ 74.1396      $ 29,673.0120      $ 12.9332   

Net investment income (loss)

     (0.1740     (0.2106     (0.2962     (1.0285     (0.4050     (38.4329     (0.4190

Net realized and unrealized gain (loss) #

     1.6726        0.6745        (7.9902     (296.9031     (39.0343     (28,829.3080     20.5507   

Change in net asset value from operations

     1.4986        0.4639        (8.2864     (297.9316     (39.4393     (28,867.7409     20.1317   

Net asset value, at December 31, 2012

   $ 41.4986      $ 24.3499      $ 28.1840      $ 83.9374      $ 34.7003      $ 805.2711      $ 33.0649   

Market value per share, at December 31, 2011†

   $ 40.00      $ 23.87      $ 36.50      $ 378.70      $ 74.13      $ 29,184.00      $ 13.07   

Market value per share, at December 31, 2012†

   $ 41.45      $ 24.32      $ 28.28      $ 85.05      $ 34.22      $ 836.00      $ 32.73   

Total Return, at net asset value

     3.7 %**      1.9     (22.7 )%      (78.0 )%      (53.2 )%      (97.3 )%      155.7

Total Return, at market value

     3.6 %**      1.9     (22.5 )%      (77.5 )%      (53.8 )%      (97.1 )%      150.4

Ratios to Average Net Assets

              

Expense ratio

     (1.00 )%***      (0.95 )%      (0.95 )%      (0.85 )%      (0.85 )%      (1.77 )%      (1.63 )% 

Expense ratio, excluding brokerage commissions

     (0.95 )%***      (0.95 )%      (0.95 )%      (0.85 )%      (0.85 )%      (0.95 )%      (0.95 )% 

Net investment income (loss)

     (0.92 )%***      (0.90 )%      (0.88 )%      (0.79 )%      (0.80 )%      (1.73 )%      (1.56 )% 

 

* See Note 1 of these Notes to Financial Statements.
^ See Note 9 of these Notes to Financial Statements.
+ From commencement of operations, July 17, 2012, through December 31, 2012.
++ For the year ended December 31, 2012.
# 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, 2012.

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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Table of Contents

Selected data for a Share outstanding throughout the period ended December 31, 2011

For the Year 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      $ 53.3332      $ 113.4823      $ 199.4634      $ 20.2928      $ 47.0232   

Net investment income (loss)

     (0.4380     (0.4253     (0.2081     (0.7368     (0.7285     (0.1657     (0.3964

Net realized and unrealized gain (loss)#

     9.3611        (11.6112     42.0955        (30.0341     (122.0578     0.2086        (5.6711

Change in net asset value from operations

     8.9231        (12.0365     41.8874        (30.7709     (122.7863     0.0429        (6.0675

Net asset value, at December 31, 2011

   $ 56.9207      $ 38.8151      $ 95.2206      $ 82.7114      $ 76.6771      $ 20.3357      $ 40.9557   

Market value per share, at December 31, 2010†

   $ 48.30      $ 50.85      $ 53.32      $ 111.20      $ 196.40      $ 20.31      $ 47.01   

Market value per share, at December 31, 2011†

   $ 56.19      $ 38.69      $ 95.84      $ 79.24      $ 79.35      $ 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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Table of Contents

For the Year 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      $ 200.0000      $ 69.2163      $ 312.5724      $ 25.7644      $ 33.4918   

Net investment income (loss)

     (0.3045     (0.3807     (0.4556     (0.7724     (3.0862     (0.2495     (0.3160

Net realized and unrealized gain (loss)#

     (10.1873     (8.7382     (97.5658     7.4627        (136.7251     (1.6289     3.2946   

Change in net asset value from operations

     (10.4918     (9.1189     (98.0214     6.6903        (139.8113     (1.8784     2.9786   

Net asset value, at December 31, 2011

   $ 25.8805      $ 40.8828      $ 101.9786      $ 75.9066      $ 172.7611      $ 23.8860      $ 36.4704   

Market value per share, at December 31, 2010†

   $ 36.27      $ 49.98      $ 200.00      $ 70.72      $ 317.20      $ 25.86      $ 33.29   

Market value per share, at December 31, 2011†

   $ 25.64      $ 40.94      $ 101.35      $ 79.01      $ 166.60      $ 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.
^ See Note 9 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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Table of Contents

For the Year Ended December 31, 2011

 

Per Share Operating Performance

   VIX Short-
Term Futures
ETF*+
    VIX Mid-
Term Futures
ETF+
    Ultra VIX Short-
Term Futures
ETF*^++
    Short VIX
Short-Term
Futures
ETF*^++
 

Net asset value, beginning of period

   $ 400.0000      $ 80.0000      $ 96,000.0000      $ 10.0000   

Net investment income (loss)

     (2.5958     (0.5950     (142.1864     (0.0349

Net realized and unrealized gain (loss) #

     (15.5352     (5.2654     (66,184.8016     2.9681   

Change in net asset value from operations

     (18.1310     (5.8604     (66,326.9880     2.9332   

Net asset value, at December 31, 2011

   $ 381.8690      $ 74.1396      $ 29,673.0120      $ 12.9332   

Market value per share, at December 31, 2010†

   $ 400.00      $ 80.00      $ 96,000.00      $ 10.00   

Market value per share, at December 31, 2011†

   $ 378.70      $ 74.13      $ 29,184.00      $ 13.07   

Total Return, at net asset value

     (4.5 )%**      (7.3 )%**      (69.1 )%**      29.3 %** 

Total Return, at market value

     (5.3 )%**      (7.3 )%**      (69.6 )%**      30.7 %** 

Ratios to Average Net Assets

        

Expense ratio

     (0.85 )%***      (0.85 )%***      (1.41 )%***      (1.19 )%*** 

Expense ratio, excluding brokerage commissions

     (0.85 )%***      (0.85 )%***      (0.95 )%***      (0.95 )%*** 

Net investment income (loss)

     (0.81 )%***      (0.82 )%***      (1.41 )%***      (1.19 )%*** 

 

* See Note 1 of these Notes to Financial Statements.
^ See Note 9 of these Notes to Financial Statements.
+ From commencement of operations, January 3, 2011, through December 31, 2011.
++ From commencement of operations, October 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 $80.0000 for ProShares VIX Short-Term Futures ETF and ProShares VIX Mid-Term Futures ETF and $40.0000 for ProShares Ultra VIX Short-Term Futures ETF and ProShares Short VIX Short-Term Futures ETF.

 

*** Percentages are annualized.

 

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Table of Contents

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 a single day (as measured from NAV calculation time to NAV calculation time). The return of a Geared Fund for a period longer than a single day is the result of its return for each day compounded over the period and usually will differ from the inverse (-1x), two times the inverse (-2x), or two times (2x) of the return of the Geared Fund’s benchmark for the period. A Fund will lose money if its benchmark performance is flat over time, and it is possible for a Geared Fund to lose money over time even if the performance of its benchmark increases (or decreases in the case of Short and UltraShort Funds), as a result of daily rebalancing, the benchmark’s volatility and compounding. Longer holding periods, higher benchmark volatility, inverse exposure 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. The Matching VIX Funds seek to achieve their stated investment objective both over a single day and over time.

Each Ultra and UltraShort 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 two times as volatile on a daily basis as is the return of a fund with an objective of matching the same benchmark. The daily return of a Short or UltraShort Fund is designed to return the inverse (-1x) or two times the inverse (-2x) 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 Leveraged Funds use leverage and are riskier than similarly benchmarked exchange-traded funds that do not use leverage. An investor should only consider an investment in a Geared Fund if he or she understands the consequences of seeking daily leveraged, daily inverse or daily inverse leveraged investment results. Daily objective geared funds, if used properly and in conjunction with the investor’s view on the future direction and 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 Funds should actively manage and monitor their investments, as frequently as daily.

While the Funds expect to meet their investment objectives, several factors may affect their ability to do so. Among these factors are: (1) the Sponsor’s ability to purchase and sell Financial Instruments in a manner that correlates to a Fund’s objective; (2) an imperfect correlation between the performance of Financial Instruments held by a Fund and the performance of the applicable benchmarks; (3) bid-ask spreads on such Financial Instruments; (4) fees, expenses, transaction costs, financing costs associated with the use of Financial Instruments and 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 and/or valuation methodology; (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; and (10) accounting standards.

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. In order to achieve a high degree of correlation with their underlying benchmarks, the Geared Funds seek to rebalance their portfolios daily to keep exposure consistent with their investment objectives. Being materially under- or over-exposed to the benchmark may prevent such Geared Funds from achieving a high degree of correlation with such benchmark. Market disruptions or closure, large amounts of assets into or out of the Geared 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., -1x, -2x or 2x, as applicable) to its benchmark 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. In addition, unlike other funds that do not rebalance their portfolios as frequently, each Geared Fund may be subject to increased trading costs associated with daily portfolio rebalancing in order to maintain appropriate exposure to the underlying benchmarks.

 

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Counterparty Risk

Certain of the Funds will use swap agreements and/or forward contracts as a means to achieve their respective investment objectives. Such Funds will use either swap agreements and/or forward contracts referencing their respective benchmarks. These Funds may also invest in other swap agreements or forward contracts if such instruments tend to exhibit trading prices or returns that correlate with the benchmark or a component of the benchmark and will further the investment objective of the Fund. Certain Funds may invest in swap agreements or forward contracts if position accountability rules or position limits are reached with respect to specific futures contracts or the market for a specific futures contract experiences emergencies (e.g., natural disaster, terrorist attack or an act of God) or disruptions (e.g., a trading halt or a flash crash) that prevent the Funds from obtaining the appropriate amount of investment exposure to the affected futures contract or certain other futures contracts. Although unlikely, those Funds, under these circumstances, could have 100% exposure to swap agreements or forward contracts.

Swap agreements and forward contracts are generally traded in OTC markets and have only recently become subject to regulation by the CFTC. CFTC rules, however, do not cover all types of swap agreements and forward contracts. Investors, therefore, may not receive the protection of CFTC regulation or the statutory scheme of the Commodity Exchange Act (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.

The Funds will be subject to credit risk with respect to the counterparties to the derivatives contracts (whether a clearing corporation in the case of cleared instruments or another third party in the case of OTC uncleared instruments). Unlike in futures contracts, the counterparty to uncleared 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 uncleared 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, subject to certain minimum thresholds; however there are no limitations on the percentage of its assets each Fund may invest in swap agreements or forward contracts with a particular counterparty. To the extent any such collateral is insufficient or there are delays in accessing the collateral, the Funds will be exposed to counterparty risk as described above, including possible delays in recovering amounts as a result of bankruptcy proceedings. The Funds typically enter into transactions only with major global financial institutions.

OTC swaps or forward contracts are less liquid than futures contracts because they are not traded on an exchange, do not have uniform terms and conditions, and are generally entered into based upon the creditworthiness of the parties and the availability of credit support, such as collateral, and in general, are not transferable without the consent of the counterparty. If the level of the Fund’s benchmark has a dramatic intraday move that would cause a material decline in the Fund’s NAV, the terms of the swap may permit the counterparty to immediately close out the transaction with the Fund. In that event, it may not be possible for the Fund to enter into another swap 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, particularly if the level of the Fund’s benchmark reverses all or part of its intraday move by the end of the day. In addition, cleared derivative transactions benefit from daily marking-to-market and settlement, and segregation and minimum capital requirements applicable to intermediaries. Transactions entered into directly between two counterparties generally do not benefit from such protections. This exposes the Funds to the risk that a counterparty will not settle a transaction in accordance with its terms and conditions because of a dispute over the terms of the contract (whether or not bona fide) or because of a credit or liquidity problem, thus causing the Funds to suffer a loss.

Each counterparty and/or any of its affiliates may be an Authorized Participant or shareholder of a Fund.

The counterparty risk for cleared derivative transactions is generally lower than for uncleared OTC derivatives since generally a clearing organization becomes substituted for each counterparty to a cleared derivative contract and, in effect, guarantees the parties’ performance under the contract as each party to a trade looks only to the clearing house for performance of financial obligations. However, there can be no assurance that the clearing house, or its members, will satisfy its obligations to the Fund.

 

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Leverage Risk

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

For example, because the UltraShort Funds and Ultra Funds include a two times the inverse (-2x), or a two times (2x) multiplier, a single-day movement in the relevant benchmark approaching 50% at any point in the day (for an UltraShort Fund or an UltraShort Fund) 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 an Ultra Fund or upward single-day or intraday movements in the benchmark of an UltraShort Fund, even if the underlying benchmark maintains a level greater than zero at all times.

Liquidity Risk

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.

“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 August 2013 may specify an October 2013 expiration. For an Ultra Fund and a Matching VIX Fund, as that contract nears expiration, it may be replaced by selling the October 2013 contract and purchasing the contract expiring in December 2013. 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 October 2013 contract would take place at a price that is higher than the price at which the December 2013 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 Ultra Fund or a Matching VIX Fund that invests in such futures, and positively affect a Short Fund or an UltraShort 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 and UltraShort Funds, and positively affect the Ultra Funds and Matching 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 S&P 500 VIX Short-Term Futures Index or the S&P 500 VIX Mid-Term Futures Index (each a “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, accordingly, decrease the return of the Ultra VIX Short-Term Futures ETF and the Matching VIX Funds.

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.

 

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NOTE 9 – 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:

On January 10, 2014, the Trust announced a 2-for-1 split of the shares of beneficial interest of ProShares Short VIX Short-Term Futures ETF (NYSE Arca symbol “SVXY”). The split was effective prior to the opening of trading on NYSE Arca on January 24, 2014.

The split was effective for shareholders of record after the close of the markets on January 21, 2014 and payable after the close of the markets on January 23, 2014. The Fund traded at its post-split price on January 24, 2014. The ticker symbol for the Fund did not change, and the Fund continues to trade on NYSE Arca.

The split was applied retroactively for all periods presented, increasing the number of shares outstanding for ProShares Short VIX Short-Term Futures ETF, and resulted in a proportionate decrease in the price per share and per share information of Short VIX Short-Term Futures ETF. Therefore, the split did not change the aggregate net asset value of a shareholder’s investment at the time of the split.

On January 10, 2014, the Trust announced a 1-for-4 reverse split of the shares of beneficial interest of ProShares Ultra Silver (NYSE Arca symbol “AGQ”) and ProShares Ultra VIX Short-Term Futures ETF (NYSE Arca symbol “UVXY”). The reverse splits were effective prior to the opening of trading on NYSE Arca on January 24, 2014.

The reverse splits were effective for shareholders of record after the close of the markets on January 21, 2014. The Funds traded at their post-split prices on January 24, 2014. The ticker symbols for the Funds did not change, and each Fund continues to trade on NYSE Arca.

The reverse splits were applied retroactively for all periods presented, reducing the number of shares outstanding for ProShares Ultra Silver and ProShares Ultra VIX Short-Term Futures ETF, and resulted in a proportionate increase in the price per share and per share information of ProShares Ultra Silver and ProShares Ultra VIX Short-Term Futures ETF. Therefore, the reverse splits did not change the aggregate net asset value of a shareholder’s investment at the time of the reverse splits.

 

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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/ Todd Johnson

By:   Todd Johnson
Principal Executive Officer
Date: March 3, 2014

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/ Todd Johnson

By:   Todd Johnson
Principal Executive Officer
Date: March 3, 2014

/s/ Edward Karpowicz

By:   Edward Karpowicz
Principal Financial Officer
Date: March 3, 2014

 

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