Annual Statements Open main menu

ProShares Trust II - Annual Report: 2017 (Form 10-K)

10-K
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-K

 

 

 

Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2017.

or

 

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from                 to                 .

Commission file number: 001-34200

 

 

PROSHARES TRUST II

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   87-6284802

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

c/o ProShare Capital Management LLC

7501 Wisconsin Avenue, Suite 1000

Bethesda, Maryland 20814

(Address of principal executive offices) (Zip Code)

(240) 497-6400

(Registrant’s telephone number, including area code)

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

 

Common Units of Beneficial Interest

 

NYSE Arca, Inc.

(Title of each class)   (Name of exchange on which registered)

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

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


Table of Contents

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).    ☒  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.  ☒

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      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    ☒  No

The aggregate market value of each Fund’s units held by non-affiliates as of June 30, 2017 and the number of outstanding units for each Fund as of February 26, 2018 are included in the table below.

 

     Aggregate Market Value of
the Fund’s Units Held by
Non-Affiliates
as of
June 30, 2017
     Number of
Outstanding Units
as of
February 26,
2018
 

ProShares Short Euro

   $ 10,427,500        200,000  

ProShares Short VIX Short-Term Futures ETF

     798,336,000        58,100,000  

ProShares Ultra Bloomberg Crude Oil

     962,353,171        16,611,317  

ProShares Ultra Bloomberg Natural Gas

     43,753,726        8,192,169  

ProShares Ultra Euro

     12,936,000        550,000  

ProShares Ultra Gold

     88,548,000        2,200,000  

ProShares Ultra Silver

     250,150,509        7,096,526  

ProShares Ultra VIX Short-Term Futures ETF

     375,260,850        23,327,238  

ProShares Ultra Yen

     5,866,240        49,970  

ProShares UltraPro 3x Crude Oil ETF

     20,664,157        300,008  

ProShares UltraPro 3x Short Crude Oil ETF

     5,248,210        2,450,008  

ProShares UltraShort Australian Dollar

     11,950,000        150,000  

ProShares UltraShort Bloomberg Crude Oil

     120,550,888        9,389,884  

ProShares UltraShort Bloomberg Natural Gas

     7,493,651        124,832  

ProShares UltraShort Euro

     236,980,000        9,350,000  

ProShares UltraShort Gold

     37,954,210        446,977  

ProShares UltraShort Silver

     22,737,212        566,976  

ProShares UltraShort Yen

     170,262,425        1,299,290  

ProShares VIX Mid-Term Futures ETF

     30,513,214        937,403  

ProShares VIX Short-Term Futures ETF

     161,410,725        2,926,317  

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

     4  

Item 1A. Risk Factors

     27  

Item 1B. Unresolved Staff Comments

     59  

Item 2. Properties

     59  

Item 3. Legal Proceedings

     59  

Item 4. Mine Safety Disclosures

     59  

Part II

  

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

     60  

Item 6. Selected Financial Data

     71  

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

     77  

Item  7A. Quantitative and Qualitative Disclosures About Market Risk

     112  

Item 8. Financial Statements and Supplementary Data

     131  

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

     139  

Item 9A. Controls and Procedures

     139  

Item 9B. Other Information

     140  

Part III

  

Item 10. Directors, Executive Officers  and Corporate Governance

     141  

Item 11. Executive Compensation

     144  

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

     146  

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

     146  

Item 14. Principal Accounting Fees and Services

     146  

Part IV

  

Item 15. Exhibits and Financial Statement Schedules

     147  

Item 16. Form 10-K Summary

     147  

Exhibit Index

     147  

Signatures

     309  


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, 2017, the following twenty series of the Trust have commenced investment operations: (i) ProShares VIX Short-Term Futures ETF and ProShares VIX Mid-Term Futures ETF (each, a “Matching VIX Fund” and collectively, the “Matching VIX Funds”); (ii) ProShares Short VIX Short-Term Futures ETF and ProShares Ultra VIX Short-Term Futures ETF (each, a “Geared VIX Fund” and collectively, the “Geared VIX Funds”); and (iii) ProShares UltraShort Bloomberg Crude Oil ETF, ProShares UltraPro 3x Short Crude Oil ETF, ProShares UltraShort Bloomberg Natural Gas, ProShares UltraShort Gold, ProShares UltraShort Silver, ProShares UltraShort Australian Dollar, ProShares UltraShort Euro, ProShares UltraShort Yen, ProShares Ultra Bloomberg Crude Oil ETF, ProShares UltraPro 3x Crude Oil ETF, ProShares Ultra Bloomberg Natural Gas, ProShares Ultra Gold, ProShares Ultra Silver, ProShares Ultra Euro and ProShares Ultra Yen (each, a “Leveraged Fund” and collectively, the “Leveraged Funds”); and (iv) ProShares Short Euro (the “Short Euro Fund”). 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 Fund. The Shares of each Fund are listed on the New York Stock Exchange Archipelago (“NYSE Arca”), as further described below. The Matching VIX Funds are collectively referred to as the “Matching Funds” in this Annual Report on Form 10-K. 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 Leveraged Funds, the Short Euro Fund and the Geared VIX Funds, are collectively referred to as the “Geared Funds” in this Annual Report on Form 10-K.

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 Bloomberg Crude Oil, ProShares UltraShort Gold, ProShares UltraShort Silver, ProShares UltraShort Euro, ProShares UltraShort Yen, ProShares Ultra Bloomberg 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” 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 of the Funds generally invest 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 its applicable commodity futures index, commodity, currency exchange rate or equity volatility index. Financial Instruments also are used to produce economically “inverse,” “inverse leveraged” or “leveraged” investment results for the Geared Funds.

As further described below, each “Short” Fund seeks daily investment results (before fees and expenses) that correspond to either the inverse (-1x) or the one-half inverse (-0.5x) 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 either two times (2x) or one and one-half times (1.5x) the daily performance of its corresponding benchmark. The “UltraPro” Fund seeks results for a single day that corresponds (before fees and expenses) to three times (3x) the performance of its benchmark. The UltraPro Short Fund seeks results for a single day that corresponds (before fees and expenses) to three times the inverse (-3x) of the performance of its benchmark. Each Matching VIX Fund seek 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.

 

4


Table of Contents

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 -0.5x, -1x, -2x, 1.5x, 2x, -3x or 3x 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.

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 any fees or compensation in connection with their sale of Shares to the public from any Fund, the Sponsor, or any of their affiliates. 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, 2017, 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.

 

5


Table of Contents

Investment Objectives and Principal Investment Strategies

Investment Objectives

The Matching Funds

Investment Objectives of the “Matching VIX” Funds

Each “Matching VIX” Fund seeks results, both over a single day and over time, that match (before fees and expenses) 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 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 Geared Funds

Investment Objectives of the “Short” Funds

Each “Short” Fund, other than the ProShares Short VIX Short-Term Futures ETF, 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, other than the ProShares Short VIX Short-Term Futures ETF, 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 declines. 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, other than the ProShares Short VIX Short-Term Futures ETF, has exposure intended to approximate the inverse (-1x) of its corresponding benchmark at the time of its NAV calculation.

The ProShares Short VIX Short-Term Futures ETF seeks daily investment results (before fees and expenses) that correspond to one-half the inverse (-0.5x) of the daily performance, whether positive or negative, of the corresponding benchmark shown below. If the ProShares Short VIX Short-Term Futures ETF is successful in meeting its objective, its value on a given day (before fees and expenses) should gain approximately one-half as much on a percentage basis as its corresponding benchmark when the benchmark declines. Conversely, its value on a given day (before fees and expenses) should lose approximately one-half as much on a percentage basis as the corresponding benchmark when the benchmark rises. The ProShares Short VIX Short-Term Futures ETF will acquire short exposure through any one of or combinations of Financial Instruments, including Financial Instruments with respect to the ProShares Short VIX Short-Term Futures ETF benchmark, such that the Fund has exposure intended to approximate the one-half inverse (-0.5x) of its corresponding benchmark at the time of its NAV calculation. The Fund is benchmarked to the S&P VIX Short-Term Futures Index, an investable index of VIX futures contracts. The Fund is not benchmarked to the VIX.

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 declines. Conversely, its value on a given day (before fees and expenses) should lose approximately two times as much on a percentage basis as the 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.

 

6


Table of Contents

Investment Objectives of the “Ultra” Funds

Each “Ultra” Fund, other than the ProShares Ultra VIX Short-Term Futures ETF, 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, other than the ProShares Ultra VIX Short-Term Futures ETF, 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, other than the ProShares Ultra VIX Short-Term Futures ETF, 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, other than the ProShares Ultra VIX Short-Term Futures ETF, has exposure intended to approximate two times (2x) its corresponding benchmark at the time of its NAV calculation.

The ProShares Ultra VIX Short-Term Futures ETF seeks daily investment results (before fees and expenses) that correspond to one and one-half times (1.5x) the daily performance, whether positive or negative, of the corresponding benchmark shown below. If the ProShares Ultra VIX Short-Term Futures ETF is successful in meeting its objective, its value on a given day (before fees and expenses) should gain approximately one and one-half 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 one and one-half times as much on a percentage basis as the corresponding benchmark when the benchmark declines. The ProShares Ultra VIX Short-Term Futures ETF acquires long exposure through any one of or combinations of Financial Instruments, including Financial Instruments with respect to the ProShares Ultra VIX Short-Term Futures ETF benchmark such that the Fund has exposure intended to approximate one and one-half times (1.5x) its corresponding benchmark at the time of its NAV calculation. The Fund is benchmarked to the S&P VIX Short-Term Futures Index, an investable index of VIX futures contracts. The Fund is not benchmarked to the VIX.

Investment Objectives of the “UltraPro” Funds

The UltraPro Fund seeks results for a single day that correspond (before fees and expenses) to three times (3x) the performance of the Benchmark. The Fund does not seek to achieve its stated objective over a period greater than a single day. A “single day” is measured from the time the Fund calculates its NAV to the time of the Fund’s next NAV calculation. If the Fund is successful in meeting its objective, its value on a given day (before fees and expenses) should gain approximately three times as much on a percentage basis as the level of the Benchmark when the Benchmark rises. Conversely, its value on a given day (before fees and expenses) should lose approximately three times as much on a percentage basis as the level of the Benchmark when the Benchmark declines. The Fund acquires long exposure through its holdings of Futures Contracts and, from time to time, investments in Financial Instruments, such that the Fund has exposure intended to approximate three times (3x) the Benchmark at the time of its NAV calculation.

The UltraPro Short Fund seeks results for a single day that correspond (before fees and expenses) to three times the inverse (-3x) of the performance of the Benchmark. The Fund does not seek to achieve its stated objectives over a period greater than a single day. A “single day” is measured from the time the Fund calculates its NAV to the time of the Fund’s next NAV calculation. If the Fund is successful in meeting its objective, its value on a given day (before fees and expenses) should gain approximately three times as much on a percentage basis as the level of the Benchmark when the Benchmark declines. Conversely, its value on a given day (before fees and expenses) should lose approximately three times as much on a percentage basis as the level of the Benchmark when the Benchmark rises. The Fund acquires inverse exposure through its short positions in the Futures Contracts and, from time to time, investments in Financial Instruments, such that the Fund has exposure intended to approximate three times the inverse (-3x) of the Benchmark at the time of its NAV calculation.

The corresponding benchmark for each Fund is listed below:

ProShares VIX Short-Term Futures, ProShares Short VIX Short-Term Futures and ProShares Ultra 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.

ProShares UltraShort Bloomberg Crude Oil, ProShares Ultra Bloomberg Crude Oil, ProShares UltraPro 3x Crude Oil and ProShares UltraPro 3x Short Crude Oil: The Bloomberg WTI Crude Oil SubindexSM. The Bloomberg WTI Crude Oil Subindex is designed to track crude oil futures prices.

ProShares UltraShort Bloomberg Natural Gas and ProShares Ultra Bloomberg Natural Gas: The Bloomberg Natural Gas SubindexSM. The Bloomberg Natural Gas Subindex is designed to track natural gas futures prices traded on the NYMEX.

ProShares UltraShort Gold and ProShares Ultra Gold: The daily performance of gold bullion as measured by the U.S. dollar p.m. LBMA Gold Price.

ProShares UltraShort Silver and ProShares Ultra Silver: The daily performance of silver bullion as measured by the London Silver Price.

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 as provided by Bloomberg, expressed in terms of U.S. dollars per unit of foreign currency.

 

7


Table of Contents

ProShares Short Euro, ProShares UltraShort Euro and ProShares Ultra Euro: The 4:00 p.m. (Eastern Time) spot price of the euro versus the U.S. dollar, using euro/U.S. dollar exchange rate as provided by Bloomberg, expressed in terms of U.S. dollars per unit of foreign currency.

ProShares UltraShort Yen and ProShares Ultra Yen: The 4:00 p.m. (Eastern Time) spot price of the Japanese yen versus the U.S. dollar using the Japanese yen/U.S. dollar exchange rate as provided by Bloomberg, expressed in terms of U.S. dollars per unit of foreign currency.

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 Fund invests principally in any one of or combinations of Financial Instruments, including swap agreements, futures contracts, forward contracts and other instruments 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 Index Fund or Currency Fund invests may vary daily. The Funds do 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 volatility, commodity or currency research or analysis, or forecast market movement or trends, in managing the assets of the Funds. Each Fund seeks to remain fully invested at all times in Financial Instruments and money market instruments that, in combination, provide exposure to its underlying benchmark consistent with its investment objective without regard to market conditions, trends or direction.

Certain of the Funds 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, the Funds may obtain exposure to components not included in the underlying index, invest in assets that are not included in the underlying index or may overweight or underweight certain components contained in the underlying index. For further discussion of the Financial Instruments, see “Information About Financial Instruments and Commodities Markets” below.

 

8


Table of Contents

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 over the counter (“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 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 or an UltraPro Fund, absent fees, transaction costs and interest, the Ultra Fund or UltraPro 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 associated with the use of swap agreements arise from 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 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.

 

9


Table of Contents

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.

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. As a result of the Dodd-Frank Act, the CFTC now regulates non-deliverable forwards (including deliverable forwards where the parties do not take delivery). Certain non-deliverable forward contracts, such as non-deliverable foreign exchange forwards, may be subject to regulation as swap agreements, including mandatory clearing. All foreign exchange forwards, including non-deliverable foreign exchange forwards as well as physically settled foreign exchange forwards, are subject to new reporting requirements. Changes in the forward markets may entail increased costs and result in burdensome reporting requirements.

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

 

10


Table of Contents

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, 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 any) as such registration were to be reinstated, from managing, and might result in the termination of the Funds. If the Sponsor were unable to provide services and/or advice to the Funds, the Funds would be unable to pursue their investment objectives unless and until the Sponsor’s ability to provide services and advice to the Funds was reinstated or a replacement for the Sponsor as commodity pool operator could be found. Such an event could result in termination of the Funds.

The CEA requires all FCMs to meet and maintain specified fitness and financial requirements, segregate customer funds from proprietary funds and account separately for all customers’ funds and positions, and to maintain specified books and records open to inspection by the staff of the CFTC. See “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

 

11


Table of Contents

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 Bloomberg Commodity Index SM and its Sub-Indexes

Overview of the Bloomberg Family of Indices

Bloomberg WTI Crude Oil SubindexSM

ProShares UltraShort Bloomberg Crude Oil and ProShares Ultra Bloomberg Crude Oil 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 Bloomberg WTI Crude Oil SubindexSM, a sub-index of the Bloomberg Commodity Index. ProShares UltraPro Short 3x Crude Oil ETF and ProShares UltraPro 3x Crude Oil ETF are designed to correspond (before fees and expenses) to three times the inverse (-3x) or three times (3x), respectively, of the daily performance of the Bloomberg WTl Crude Oil SubindexSM, a sub-index of the Bloomberg Commodity Index. The Bloomberg 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 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” in this Annual Report on Form 10-K.

The Bloomberg WTI Crude Oil SubindexSM is based on the Crude Oil component of the Bloomberg Commodity Index, which is described above under “Bloomberg Commodity IndexSM,” and tracks what is known as a rolling futures position. The roll occurs over a period of five Bloomberg 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 Bloomberg WTI Crude Oil SubindexSM 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.

Bloomberg Natural Gas SubindexSM

ProShares UltraShort Bloomberg Natural Gas and ProShares Ultra Bloomberg Natural Gas are designed to correspond (before fees and expenses) to two times the inverse (-2x) or two times (2x) of the daily performance of the Bloomberg Natural Gas SubindexSM, respectively. The Bloomberg 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 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.

 

12


Table of Contents

The Bloomberg Natural Gas SubindexSM is based on the Natural Gas component of the Bloomberg Commodity Index, which is described above under “Bloomberg Commodity IndexSM,” and tracks what is known as a rolling futures position. The roll occurs over a period of five Bloomberg Commodity Index 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

“BLOOMBERG®”, “BLOOMBERG WTI CRUDE OIL SUBINDEXSM” and “BLOOMBERG NATURAL GAS SUBINDEXSM” ARE SERVICE MARKS OF BLOOMBERG FINANCE L.P. AND ITS AFFILIATES (COLLECTIVELY, “BLOOMBERG”) AND HAVE BEEN LICENSED FOR USE FOR CERTAIN PURPOSES BY PROSHARES TRUST II (“LICENSEE”).

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

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 Bloomberg Commodity IndexSM, the Bloomberg WTI Crude Oil SubindexSM or the Bloomberg Natural Gas SubindexSM components. Purchasers of the Shares should not conclude that the inclusion of a futures contract in the Bloomberg Commodity IndexSM, the Bloomberg WTI Crude Oil SubindexSM or the Bloomberg Natural Gas SubindexSM is any form of investment recommendation of the futures contract or the underlying exchange-traded physical commodity by Bloomberg, UBS AG, UBS Securities or any of their subsidiaries or affiliates. The information in this Annual Report on Form 10-K regarding the components of the Bloomberg Commodity IndexSM, the Bloomberg WTI Crude Oil SubindexSM and the Bloomberg Natural Gas SubindexSM has been derived solely from publicly available documents. None of Bloomberg, UBS AG, UBS Securities or any of their subsidiaries or affiliates has made any due diligence inquiries with respect to the

 

13


Table of Contents

Bloomberg Commodity IndexSM, the Bloomberg WTI Crude Oil SubindexSM or the Bloomberg Natural Gas SubindexSM components in connection with the Funds. None of Bloomberg, UBS AG, UBS Securities or any of their subsidiaries or affiliates makes any representation that these publicly available documents or any other publicly available information regarding the Bloomberg Commodity IndexSM, the Bloomberg WTI Crude Oil SubindexSM or the Bloomberg Natural Gas SubindexSM components, including without limitation a description of factors that affect the prices of such components, are accurate or complete.

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

Description of the 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. LBMA Gold Price. 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 LBMA authorized to affect such delivery. On March 19, 2015, the company that ran the London U.S. dollar gold fixing, ceased calculating the price of gold for the LBMA. The LBMA selected ICE Benchmark Administration to calculate the price, which was renamed the LBMA Gold Price, and is based on an electronic, physically settled auction-based methodology, beginning on March 20, 2015.

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.

 

14


Table of Contents

The LBMA Gold Price is determined 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 LBMA Gold Price and market participants will usually refer to the LBMA Gold Price 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 London Silver Price. The Funds do not directly or physically hold the underlying silver, but instead seek exposure to silver through the use of Financial Instruments whose value is based on the underlying price of silver to pursue their investment objective. The benchmark price of silver is the daily performance silver bullion as measured by the London Silver Price.

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.

The London Silver Price is determined 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 Price and market participants will usually refer to the London Silver Price 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 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 is designed to correspond (before fees and expenses) to two times the inverse (-2x) of the daily performance of the Australian dollar spot price versus the U.S. dollar, respectively. This Fund uses the 4:00 p.m. (Eastern Time) Australian dollar/U.S. dollar exchange rate as provided by Bloomberg, expressed in terms of U.S. dollars per unit of 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 (www.rba.gov.au).

 

15


Table of Contents

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. 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 twelve European countries (the eleven countries mentioned above, in addition to Greece). As of December 31, 2017, 23 countries used the euro, including Andorra, Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Monaco, the Netherlands, Portugal, San Marino, Slovakia, Slovenia, Spain and the Vatican City.

Although the European countries that have adopted the euro are members of the European Union (“EU”), the United Kingdom, Denmark and Sweden 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,

 

16


Table of Contents

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

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 contracts, will increase may buy VIX futures contracts. Conversely, investors that believe that the forward implied market volatility of the S&P 500, as represented by VIX futures contracts, will decline may sell VIX futures contracts. VIX futures contracts are reported by Bloomberg 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 contracts generally behave quite differently. To illustrate, on November 30, 2017, the VIX was 16.13 and the price of the December 2017 VIX futures contracts expiring on December 16, 2017 was 16.98. In this example, the price of the VIX represented the 30-day implied, or “spot,” volatility (the volatility expected for the period from November 30, 2017 to December 1, 2017) of the S&P 500 and the February VIX futures contracts represented forward implied volatility (the volatility expected for the period from December 16, 2017 to January 15, 2018 of the S&P 500. The spot/forward relationship between the VIX and VIX futures contracts 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 under the ticker symbol “VIX.”

 

17


Table of Contents

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.

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, 2017, the S&P 500 included companies with capitalizations between $2.7 billion and $869 billion. The average capitalization of the companies comprising the Index was approximately $47.4 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.

 

18


Table of Contents

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.

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 affect 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 pay a fixed transaction fee of up to $250 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 Funds of up to 0.10% (and a variable transaction fee to the Matching VIX Funds of 0.05%) of the value of the Creation Unit that is purchased or redeemed unless the

 

19


Table of Contents

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 affect 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.

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” for each Fund 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.

 

20


Table of Contents

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)*

S&P 500 VIX Short-Term Futures Index

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

S&P 500 VIX Mid-Term Futures Index

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

Bloomberg WTI Crude Oil SubindexSM

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

Bloomberg 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.

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 second Business Day following the purchase order date (T+2). 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+2. 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 second Business Day following the purchase order date (T+2); 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+2. The Creation Unit will be delivered to the Authorized Participant upon the Custodian’s receipt of the cash purchase amount and the futures contracts.

 

21


Table of Contents

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 Creation Units. If a redemption order is received prior to the applicable cut-off time, or earlier if the Exchange, or other exchange material to the valuation or operation of such Fund, 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 second Business Day following the redemption order date (T+2). 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+2. 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, as described in “Creation and Redemption of Shares” above. 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.

 

22


Table of Contents

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 second 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, or other exchange material to the valuation or operation of the Fund, 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 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 $250 per order to create or redeem Creation Units and may pay a variable transaction fee to a Fund of up to 0.10% (and a variable transaction fee to the Matching VIX Funds of 0.05%) 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.

 

23


Table of Contents

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, 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 Exchange 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 Exchange or other exchange material to the valuation or operation of such Fund closing early. Each Fund’s NAV is calculated only once each trading day.

 

Fund

   NAV Calculation Time  

UltraShort Silver, Ultra Silver

     7:00 a.m. (Eastern Time)

UltraShort Gold, Ultra Gold

     10:00 a.m. (Eastern Time)

UltraShort Bloomberg Crude Oil,

Ultra Bloomberg Crude Oil

     2:30 p.m. (Eastern Time)  

UltraPro 3x Crude Oil ETF,

UltraPro 3x Short Crude Oil ETF

     2:30 p.m. (Eastern Time)  

UltraShort Bloomberg Natural Gas,

Ultra Bloomberg Natural Gas

     2:30 p.m. (Eastern Time)  

Short Euro,

UltraShort Euro,

Ultra Euro

     4:00 p.m. (Eastern Time)  

UltraShort Australian Dollar

     4:00 p.m. (Eastern Time)  

UltraShort Yen,

Ultra Yen

     4:00 p.m. (Eastern Time)  

VIX Short-Term Futures ETF,

Ultra VIX Short-Term Futures ETF,

Short VIX Short-Term Futures ETF

     4:15 p.m. (Eastern Time)  

VIX Mid-Term Futures ETF

     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.

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 corresponding 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 Fund’s non-exchange traded Financial Instruments for purposes of the NAV calculation. 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.

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 VIX Funds and the Commodity Index Funds) or the last traded price before the NAV time (for 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.

In addition, the Sponsor may, in its sole discretion, choose to fair value a Fund’s Financial Instruments for purposes of the NAV calculation for (1) any period for which, in the Sponsor’s sole discretion, market quotations or settlement prices do not accurately reflect the fair value of a Financial Instrument, (2) any period during which the Exchange 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 (3) such other period as the Sponsor determines, in its sole discretion, to be necessary for the protection of the Shareholders of the Funds.

 

24


Table of Contents

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. Money Market instruments used in this capacity are valued at amortized cost which approximates fair value for daily NAV purposes.

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 Bloomberg WTI Crude Oil SubindexSM and the Bloomberg 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 Bloomberg 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 Finance L.P. and/or Reuters.

Purchases and Sales in the Secondary Market on the NYSE Arca

The Shares of each Fund are listed on the NYSE Arca. The Shares of each Fund that has commenced investment operations, began trading on the NYSE Arca on the respective dates below under the following symbols:

 

Fund

   Commencement of Operations    Ticker Symbol

ProShares Short Euro

   June 26, 2012    EUFX

ProShares Short VIX Short-Term Futures ETF

   October 3, 2011    SVXY

ProShares Ultra Bloomberg Crude Oil

   November 25, 2008    UCO

ProShares Ultra Bloomberg Natural Gas

   October 4, 2011    BOIL

ProShares Ultra Euro

   November 25, 2008    ULE

ProShares Ultra Gold

   December 3, 2008    UGL

ProShares Ultra Silver

   December 3, 2008    AGQ

ProShares Ultra VIX Short-Term Futures ETF

   October 3, 2011    UVXY

ProShares Ultra Yen

   November 25, 2008    YCL

UltraPro 3x Crude Oil ETF

   March 24, 2017    OILU

UltraPro 3x Short Crude Oil ETF

   March 24, 2017    OILD

ProShares UltraShort Australian Dollar

   July 17, 2012    CROC

ProShares UltraShort Bloomberg Crude Oil

   November 25, 2008    SCO

ProShares UltraShort Bloomberg Natural Gas

   October 4, 2011    KOLD

ProShares UltraShort Euro

   November 25, 2008    EUO

ProShares UltraShort Gold

   December 3, 2008    GLL

ProShares UltraShort Silver

   December 3, 2008    ZSL

 

25


Table of Contents

Fund

   Commencement of Operations    Ticker Symbol

ProShares UltraShort Yen

   November 25, 2008    YCS

ProShares VIX Mid-Term Futures ETF

   January 3, 2011    VIXM

ProShares VIX Short-Term Futures ETF

   January 3, 2011    VIXY

Fees and Expenses

Offering Expenses

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 will not charge its Management Fee in the first year of operations of a Fund in an amount equal to the offering costs. Normal and expected expenses incurred in connection with the continuous offering of Shares of a Fund after the commencement of its trading operations will be paid by the Sponsor. The Sponsor will reimburse ProShares UltraPro 3x Crude Oil and ProShares UltraPro 3x Short Crude Oil to the extent their respective offering costs exceeds 0.95% of their average daily NAV for the first year of operations.

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 S&P a licensing fee for use of the VIX Futures Indexes as the benchmarks for the VIX Funds. The Sponsor pays Bloomberg a licensing fee for the Bloomberg Commodity IndexSM, as well as each subindex that serves as a benchmark for a Commodity Index Fund.

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

 

26


Table of Contents

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, Financial Industry Regulatory Authority (“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 that 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. Routine operational, administrative and other ordinary expenses are not deemed extraordinary expenses.

Selling Commission

Retail investors may purchase and sell Shares through traditional brokerage accounts. Investors are expected to be charged a customary commission by their brokers in connection with purchases of Shares that will vary from investor to investor. Investors are encouraged to review the terms of their brokerage accounts for applicable charges. 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 in amounts that exceed variable create/redeem fees collected by more than 0.02% of the Matching VIX Fund’s average net assets annually.

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.

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

 

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

 

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

 

    The term “Geared Fund” refers to ProShares UltraShort Bloomberg Crude Oil, ProShares UltraPro Short 3x Crude Oil, ProShares UltraShort Bloomberg Natural Gas, ProShares UltraShort Gold, ProShares UltraShort Silver, ProShares Short Euro, ProShares UltraShort Australian Dollar, ProShares UltraShort

 

27


Table of Contents
 

Euro, ProShares UltraShort Yen, ProShares Ultra Bloomberg Crude Oil, ProShares UltraPro 3x Crude Oil, ProShares Ultra Bloomberg Natural Gas, ProShares Ultra Gold, ProShares Ultra Silver, ProShares Ultra Euro and ProShares Ultra Yen, and each Geared VIX Fund;

 

    The term “Commodity Index Fund” refers to ProShares UltraShort Bloomberg Crude Oil, ProShares UltraShort Bloomberg Natural Gas, ProShares UltraPro 3x Crude Oil, ProShares UltraPro 3x Short Crude Oil ProShares Ultra Bloomberg Crude Oil and ProShares Ultra Bloomberg Natural Gas;

 

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

 

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

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 Geared Fund multiple times the benchmark return for the period.

Each of the Geared Funds is “geared” in the sense that each has an investment objective to correspond (before fees and expenses) to the one-half inverse (e.g., -0.5x), inverse (e.g., -1x), an inverse multiple (e.g., -2x, 3x), or a multiple (e.g., 1.5x, 2x, 3x), of the performance of a benchmark on a given day. Each Geared Fund seeks investment results for a single day only, as measured from its NAV calculation time to its next NAV calculation time, and not for any other period. The return of a Geared Fund for a period longer than a single day is the result of its return for each day compounded over the period and usually will differ from one-half inverse (e.g., -0.5x), the inverse (-1x), one and one-half times (1.5x), two times the inverse (-2x), two times (2x), three times the inverse (-3x) or three times (3x) 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 regardless of the performance of an underlying benchmark, 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.

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 an Ultra Fund with a 1.5x multiple should be approximately one and one-half 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 Fund is designed to return either the inverse (-1x) or one-half the inverse (-0.5x) of the return, that would be expected of a fund with an objective of matching the same benchmark. Each UltraPro or UltraPro Short Fund uses leverage and should produce daily returns that are more volatile than that of its benchmark. For example, the daily return of an Ultrapro Fund with a 3x multiple should be approximately three 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 an UltraPro Short Fund is designed to return the inverse (-3x) or three times the inverse (-3x) of the return, respectively, 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 daily return of an UltraShort or UltraPro Short Fund is designed to return two times the inverse (-2x) or three times the inverse (-3x) of the return, respectively, that would be expected of a fund with an objective of matching the same benchmark. The daily return of an UltraPro Fund is designed to return three times (3x) the return that would be expected of a fund with an objective of matching the same benchmark. 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%).

 

28


Table of Contents
     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 the compounding, which exists in all investments, but has a more significant impact in geared funds. In general, during periods of higher benchmark volatility, compounding will cause an Ultra Fund’s results for periods longer than a single day to be less than two times (2x) (or less than one and one-half times (1.5x) with respect to the ProShares Ultra VIX Short-Term Futures ETF) the return of the benchmark. Compounding will cause a Short Fund’s results for periods longer than a single day to be less than the inverse (-1x) (or less than one-half the inverse (-0.5x) with respect to the ProShares Short VIX Short-Term Futures ETF) of the return of the benchmark. Additionally, compounding will cause an UltraShort Fund’s results for periods longer than a single day to be less than two times the inverse (-2x) of the return of the benchmark or less than three times the inverse (-3x) or three times (3x) the return of the benchmark for the UltraPro Short Fund and the UltraPro Fund, respectively. This effect becomes more pronounced as volatility increases. Conversely, in periods of lower benchmark volatility (particularly when combined with higher benchmark returns), an Ultra Fund’s returns over longer periods can be higher than two times (2x) (or higher than one and one-half times (1.5x) with respect to the ProShares Ultra VIX Short-Term Futures ETF) 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, UltraShort Funds, UltraPro Funds, and UltraPro Short Funds and the significance of these effects may be even greater with such inverse or inverse leveraged funds.

The graphs that follow illustrate this point. Each of the graphs shows a simulated hypothetical one-year performance of a benchmark compared with the performance of a geared fund that perfectly achieves its geared daily investment objective. The graphs demonstrate that, for periods greater than a single day, a geared fund is likely to underperform or overperform (but not match) the benchmark performance (or the inverse of the benchmark performance) times the multiple stated as the daily fund objective. Investors should understand the consequences of holding daily rebalanced funds for periods longer than a single day and should actively manage and monitor their investments, as frequently as daily. A one-year period is used solely for illustrative purposes. Deviations from the benchmark return (or the inverse of the benchmark return) times the fund multiple can occur over periods as short as two days (each day as measured from NAV to NAV) and may also occur in periods 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 inverse, inverse leveraged or leveraged

 

29


Table of Contents

exposure) and cash reinvestment rates of zero percent; and c) the fund consistently maintaining perfect exposure (-0.5x, -1x, -2x, 1.5x, 2x, -3x or 3x) as of the fund’s NAV time each day. If these assumptions were different, the fund’s performance would be different than that shown. If fund expenses, transaction costs and financing expenses greater than zero percent were included, the fund’s performance would also be different than that shown. Each of the graphs also assumes a volatility rate of 64%, which is an approximate average of the five-year historical volatility rate of the most volatile benchmark referenced herein (the S&P 500 VIX Short-Term Futures Index). A benchmark’s volatility rate is a statistical measure of the magnitude of fluctuations in its returns.

 

LOGO

The graph above shows a scenario where the index, which exhibits day-to-day volatility, is flat or trendless over the year (i.e., begins and ends the year at 0%), but the Short Fund (-0.5x) is down.

 

LOGO

The graph above shows a scenario where the index, which exhibits day-to-day volatility, is down over the year, but the Short Fund (-0.5x) is up less than one-half the inverse of the index.

 

LOGO

The graph above shows a scenario where the index, which exhibits day-to-day volatility, is up over the year, but the Short Fund (-0.5x) is down more than one-half the inverse of the index.

 

LOGO

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

 

30


Table of Contents

LOGO

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

 

31


Table of Contents

LOGO

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

 

LOGO

The graph above shows a scenario where the index, which exhibits day-to-day volatility, is flat or trendless over the year (i.e., begins and ends the year at 0%), but the Ultra Fund (1.5x) is down.

 

LOGO

The graph above shows a scenario where the index, which exhibits day-to-day volatility, is down over the year, but the Ultra Fund (1.5x) is down less than one and one-half times the index.

 

LOGO

The graph above shows a scenario where the index, which exhibits day-to-day volatility, is up over the year, but the Ultra Fund (1.5x) is up less than one and one-half times the index.

 

32


Table of Contents

LOGO

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

 

33


Table of Contents

LOGO

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

 

34


Table of Contents

LOGO

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

 

35


Table of Contents

LOGO

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

 

36


Table of Contents

LOGO

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

 

37


Table of Contents

LOGO

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

 

38


Table of Contents

The historical five year average volatility of the benchmarks utilized by the Funds ranges from 8.42% to 63.69%, as set forth in the table below.

 

Index

  

Identifier

  

Historical Five-Year
Average Volatility Rate

As of December 31, 2017

S&P 500 VIX Short-Term Futures Index

   SPVXSPID    63.69%

S&P 500 VIX Mid-Term Futures Index

   SPVXMPID    29.94%

Bloomberg WTI Crude Oil SubindexSM

   BCOMCL    33.28%

Bloomberg Natural Gas SubindexSM

   BCOMNG    37.90%

The daily performance of gold bullion as measured by the US dollar LBMA Gold Price

   GOLDLNPM    15.81%

The daily performance of silver bullion as measured by the London Silver Price

   SLVRLN    25.41%

The US dollar price of the euro

   USDEUR    8.42%

The US dollar price of the Japanese yen

   USDJPY    9.95%

The US dollar price of the Australian dollar

   USDAUD    9.88%

The tables below illustrate the impact of two factors that affect a Geared Fund’s performance, benchmark volatility and benchmark return. Benchmark volatility is a statistical measure of the magnitude of fluctuations in the returns of a benchmark and is calculated as the standard deviation of the natural logarithms of one plus the benchmark return (calculated daily), multiplied by the square root of the number of trading days per year (assumed to be 252). The tables show estimated fund returns for a number of combinations of benchmark volatility and benchmark return over a one-year period. To isolate the impact of daily leveraged, inverse or inverse leveraged exposure, these graphs assume: a) no fund expenses or transaction costs; b) borrowing/lending rates of zero percent (to obtain required inverse, inverse leveraged or leveraged exposure) and cash reinvestment rates of zero percent; and c) the fund consistently maintaining perfect exposure (-0.5x, -1x, -2x, 1.5x, 2x, -3x or 3x) as of the fund’s NAV time each day. If these assumptions were different, the fund’s performance would be different than that shown. If fund expenses, transaction costs and financing expenses were included, the fund’s performance would be different than that shown. The tables below

 

39


Table of Contents

show examples in which a Geared Fund has an investment objective to correspond (before fees and expenses) to one-half the inverse (-0.5x), the inverse (-1), two times the inverse (-2x), two times (2x), one and one-half times (1.5x), three times the inverse (-3x) or three times (3x) 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 Investment Results For a single day, Before Fees and Expenses, that Correspond to One-Half the Inverse (-0.5x) of the Daily Performance of an Index.

 

One Year

Index

Performance

   One-Half the
Inverse (-0.5x)
One Year
Index
Performance
    Index Volatility  
     0%     5%     10%     15%     20%     25%     30%     35%     40%     45%     50%     55%     60%     65%     70%  

-60%

     30     58.1     58.0     57.5     56.8     55.8     54.5     52.9     51.0     48.9     46.6     44.0     41.2     38.1     34.9     31.6

-55%

     28     49.1     48.9     48.5     47.8     46.9     45.6     44.1     42.4     40.4     38.2     35.7     33.1     30.2     27.2     24.0

-50%

     25     41.4     41.3     40.9     40.2     39.3     38.1     36.7     35.1     33.2     31.1     28.8     26.3     23.6     20.7     17.7

-45%

     23     34.8     34.7     34.3     33.7     32.8     31.7     30.4     28.8     27.0     25.0     22.8     20.4     17.8     15.1     12.2

-40%

     20     29.1     29.0     28.6     28.0     27.2     26.1     24.8     23.3     21.6     19.7     17.5     15.3     12.8     10.2     7.4

-35%

     18     24.0     23.9     23.6     23.0     22.2     21.2     19.9     18.5     16.8     15.0     12.9     10.7     8.4     5.9     3.2

-30%

     15     19.5     19.4     19.1     18.5     17.7     16.8     15.6     14.2     12.6     10.8     8.8     6.7     4.4     2.0     -0.5

-25%

     13     15.5     15.4     15.0     14.5     13.8     12.8     11.6     10.3     8.7     7.0     5.1     3.1     0.9     -1.4     -3.9

-20%

     10     11.8     11.7     11.4     10.9     10.1     9.2     8.1     6.8     5.3     3.6     1.8     -0.2     -2.3     -4.6     -7.0

-15%

     8     8.5     8.4     8.1     7.6     6.9     6.0     4.9     3.6     2.1     0.5     -1.2     -3.2     -5.2     -7.4     -9.7

-10%

     5     5.4     5.3     5.0     4.5     3.8     3.0     1.9     0.7     -0.7     -2.3     -4.0     -5.9     -7.9     -10.0     -12.3

-5%

     3     2.6     2.5     2.2     1.7     1.1     0.2     -0.8     -2.0     -3.4     -4.9     -6.6     -8.4     -10.4     -12.4     -14.6

0%

     0     0.0     -0.1     -0.4     -0.8     -1.5     -2.3     -3.3     -4.5     -5.8     -7.3     -8.9     -10.7     -12.6     -14.7     -16.8

5%

     -3     -2.4     -2.5     -2.8     -3.2     -3.9     -4.7     -5.6     -6.8     -8.1     -9.5     -11.1     -12.9     -14.7     -16.7     -18.8

10%

     -5     -4.7     -4.7     -5.0     -5.5     -6.1     -6.9     -7.8     -8.9     -10.2     -11.6     -13.2     -14.9     -16.7     -18.6     -20.7

15%

     -8     -6.7     -6.8     -7.1     -7.5     -8.1     -8.9     -9.8     -10.9     -12.2     -13.6     -15.1     -16.7     -18.5     -20.4     -22.4

20%

     -10     -8.7     -8.8     -9.1     -9.5     -10.1     -10.8     -11.7     -12.8     -14.0     -15.4     -16.9     -18.5     -20.2     -22.1     -24.0

25%

     -13     -10.6     -10.6     -10.9     -11.3     -11.9     -12.6     -13.5     -14.6     -15.8     -17.1     -18.6     -20.1     -21.9     -23.7     -25.6

30%

     -15     -12.3     -12.4     -12.6     -13.0     -13.6     -14.3     -15.2     -16.2     -17.4     -18.7     -20.1     -21.7     -23.4     -25.1     -27.0

35%

     -18     -13.9     -14.0     -14.3     -14.7     -15.2     -15.9     -16.8     -17.8     -18.9     -20.2     -21.6     -23.2     -24.8     -26.5     -28.4

40%

     -20     -15.5     -15.6     -15.8     -16.2     -16.7     -17.4     -18.3     -19.3     -20.4     -21.7     -23.0     -24.5     -26.2     -27.9     -29.7

45%

     -23     -17.0     -17.0     -17.3     -17.7     -18.2     -18.9     -19.7     -20.7     -21.8     -23.0     -24.4     -25.9     -27.4     -29.1     -30.9

50%

     -25     -18.4     -18.4     -18.7     -19.0     -19.6     -20.2     -21.1     -22.0     -23.1     -24.3     -25.7     -27.1     -28.7     -30.3     -32.1

55%

     -28     -19.7     -19.8     -20.0     -20.4     -20.9     -21.5     -22.3     -23.3     -24.4     -25.6     -26.9     -28.3     -29.8     -31.4     -33.2

60%

     -30     -20.9     -21.0     -21.2     -21.6     -22.1     -22.8     -23.6     -24.5     -25.5     -26.7     -28.0     -29.4     -30.9     -32.5     -34.2

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

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
Inverse
(-2x) of
One  Year
Benchmark
Performance
              Benchmark Volatility  
    0%     5%     10%     15%     20%     25%     30%     35%     40%     45%     50%     55%     60%     65%     70%  

-60%

  120%     525.0%     520.3%     506.5%     484.2%     454.3%     418.1%     377.1%     332.8%     286.7%     240.4%     195.2%     152.2%     112.2%     76.0%     43.7%

-55%

  110%     393.8%     390.1%     379.2%     361.6%     338.0%     309.4%     277.0%     242.0%     205.6%     169.0%     133.3%     99.3%     67.7%     39.0%     13.5%

-50%

  100%     300.0%     297.0%     288.2%     273.9%     254.8%     231.6%     205.4%     177.0%     147.5%     117.9%     88.9%     61.4%     35.8%     12.6%     -8.0%

-45%

  90%     230.6%     228.1%     220.8%     209.0%     193.2%     174.1%     152.4%     128.9%     104.6%     80.1%     56.2%     33.4%     12.3%     -6.9%     -24.0%

-40%

  80%     177.8%     175.7%     169.6%     159.6%     146.4%     130.3%     112.0%     92.4%     71.9%     51.3%     31.2%     12.1%     -5.7%     -21.8%     -36.1%

-35%

  70%     136.7%     134.9%     129.7%     121.2%     109.9%     96.2%     80.7%     63.9%     46.5%     28.9%     11.8%     -4.5%     -19.6%     -33.4%     -45.6%

-30%

  60%     104.1%     102.6%     98.1%     90.8%     81.0%     69.2%     55.8%     41.3%     26.3%     11.2%     -3.6%     -17.6%     -30.7%     -42.5%     -53.1%

-25%

  50%     77.8%     76.4%     72.5%     66.2%     57.7%     47.4%     35.7%     23.1%     10.0%     -3.2%     -16.0%     -28.3%     -39.6%     -49.9%     -59.1%

-20%

  40%     56.3%     55.1%     51.6%     46.1%     38.6%     29.5%     19.3%     8.2%     -3.3%     -14.9%     -26.2%     -36.9%     -46.9%     -56.0%     -64.1%

-15%

  30%     38.4%     37.4%     34.3%     29.4%     22.8%     14.7%     5.7%     -4.2%     -14.4%     -24.6%     -34.6%     -44.1%     -53.0%     -61.0%     -68.2%

-10%

  20%     23.5%     22.5%     19.8%     15.4%     9.5%     2.3%     -5.8%     -14.5%     -23.6%     -32.8%     -41.7%     -50.2%     -58.1%     -65.2%     -71.6%

-5%

  10%     10.8%     10.0%     7.5%     3.6%     -1.7%     -8.1%     -15.4%     -23.3%     -31.4%     -39.6%     -47.7%     -55.3%     -62.4%     -68.8%     -74.5%

0%

  0%     0.0%     -0.7%     -3.0%     -6.5%     -11.3%     -17.1%     -23.7%     -30.8%     -38.1%     -45.5%     -52.8%     -59.6%     -66.0%     -71.8%     -77.0%

5%

  -10%     -9.3%     -10.0%     -12.0%     -15.2%     -19.6%     -24.8%     -30.8%     -37.2%     -43.9%     -50.6%     -57.2%     -63.4%     -69.2%     -74.5%     -79.1%

10%

  -20%     -17.4%     -18.0%     -19.8%     -22.7%     -26.7%     -31.5%     -36.9%     -42.8%     -48.9%     -55.0%     -61.0%     -66.7%     -71.9%     -76.7%     -81.0%

15%

  -30%     -24.4%     -25.0%     -26.6%     -29.3%     -32.9%     -37.3%     -42.3%     -47.6%     -53.2%     -58.8%     -64.3%     -69.5%     -74.3%     -78.7%     -82.6%

20%

  -40%     -30.6%     -31.1%     -32.6%     -35.1%     -38.4%     -42.4%     -47.0%     -51.9%     -57.0%     -62.2%     -67.2%     -72.0%     -76.4%     -80.4%     -84.0%

25%

  -50%     -36.0%     -36.5%     -37.9%     -40.2%     -43.2%     -46.9%     -51.1%     -55.7%     -60.4%     -65.1%     -69.8%     -74.2%     -78.3%     -82.0%     -85.3%

30%

  -60%     -40.8%     -41.3%     -42.6%     -44.7%     -47.5%     -50.9%     -54.8%     -59.0%     -63.4%     -67.8%     -72.0%     -76.1%     -79.9%     -83.3%     -86.4%

35%

  -70%     -45.1%     -45.5%     -46.8%     -48.7%     -51.3%     -54.5%     -58.1%     -62.0%     -66.0%     -70.1%     -74.1%     -77.9%     -81.4%     -84.6%     -87.4%

40%

  -80%     -49.0%     -49.4%     -50.5%     -52.3%     -54.7%     -57.7%     -61.1%     -64.7%     -68.4%     -72.2%     -75.9%     -79.4%     -82.7%     -85.6%     -88.3%

45%

  -90%     -52.4%     -52.8%     -53.8%     -55.5%     -57.8%     -60.6%     -63.7%     -67.1%     -70.6%     -74.1%     -77.5%     -80.8%     -83.8%     -86.6%     -89.1%

50%

  -100%     -55.6%     -55.9%     -56.9%     -58.5%     -60.6%     -63.2%     -66.1%     -69.2%     -72.5%     -75.8%     -79.0%     -82.1%     -84.9%     -87.5%     -89.8%

55%

  -110%     -58.4%     -58.7%     -59.6%     -61.1%     -63.1%     -65.5%     -68.2%     -71.2%     -74.2%     -77.3%     -80.3%     -83.2%     -85.9%     -88.3%     -90.4%

60%

  -120%     -60.9%     -61.2%     -62.1%     -63.5%     -65.4%     -67.6%     -70.2%     -73.0%     -75.8%     -78.7%     -81.5%     -84.2%     -86.7%     -89.0%     -91.0%

Estimated Fund Return Over One Year When the Fund Objective is to Seek Investment Results For a single day, Before Fees and Expenses, that Correspond to One and One-Half Times (1.5x) the Daily Performance of an Index.

 

One Year

Index

Performance

   One and
One-Half
Times (1.5x)
One Year
    Index Volatility  
   Index
Performance
    0%     5%     10%     15%     20%     25%     30%     35%     40%     45%     50%     55%     60%     65%     70%  

-60%

     -90     -74.7     -74.7     -74.8     -74.9     -75.1     -75.3     -75.5     -75.8     -76.2     -76.6     -77.0     -77.4     -77.9     -78.4     -78.9

-55%

     -83     -69.8     -69.8     -69.9     -70.1     -70.3     -70.5     -70.8     -71.2     -71.6     -72.0     -72.5     -73.1     -73.6     -74.2     -74.9

-50%

     -75     -64.6     -64.7     -64.8     -64.9     -65.2     -65.5     -65.8     -66.2     -66.7     -67.2     -67.8     -68.4     -69.1     -69.8     -70.6

-45%

     -68     -59.2     -59.2     -59.4     -59.6     -59.8     -60.2     -60.6     -61.0     -61.6     -62.2     -62.9     -63.6     -64.4     -65.2     -66.1

-40%

     -60     -53.5     -53.6     -53.7     -53.9     -54.2     -54.6     -55.1     -55.6     -56.2     -56.9     -57.7     -58.5     -59.4     -60.3     -61.3

-35%

     -53     -47.6     -47.6     -47.8     -48.0     -48.4     -48.8     -49.3     -49.9     -50.6     -51.4     -52.3     -53.2     -54.2     -55.3     -56.4

-30%

     -45     -41.4     -41.5     -41.7     -41.9     -42.3     -42.8     -43.4     -44.1     -44.8     -45.7     -46.7     -47.7     -48.8     -50.0     -51.3

-25%

     -38     -35.0     -35.1     -35.3     -35.6     -36.0     -36.6     -37.2     -38.0     -38.8     -39.8     -40.9     -42.0     -43.3     -44.6     -46.0

-20%

     -30     -28.4     -28.5     -28.7     -29.0     -29.5     -30.1     -30.8     -31.7     -32.6     -33.7     -34.8     -36.1     -37.5     -38.9     -40.5

-15%

     -23     -21.6     -21.7     -21.9     -22.3     -22.8     -23.4     -24.2     -25.2     -26.2     -27.4     -28.6     -30.0     -31.5     -33.1     -34.8

-10%

     -15     -14.6     -14.7     -14.9     -15.3     -15.9     -16.6     -17.5     -18.5     -19.6     -20.9     -22.3     -23.8     -25.4     -27.1     -29.0

-5%

     -8     -7.4     -7.5     -7.8     -8.2     -8.8     -9.6     -10.5     -11.6     -12.8     -14.2     -15.7     -17.3     -19.1     -21.0     -22.9

0%

     0     0.0     -0.1     -0.4     -0.8     -1.5     -2.3     -3.3     -4.5     -5.8     -7.3     -8.9     -10.7     -12.6     -14.7     -16.8

5%

     8     7.6     7.5     7.2     6.7     6.0     5.1     4.0     2.8     1.3     -0.3     -2.0     -3.9     -6.0     -8.2     -10.5

10%

     15     15.4     15.3     14.9     14.4     13.7     12.7     11.5     10.2     8.7     6.9     5.0     3.0     0.8     -1.5     -4.0

15%

     23     23.3     23.2     22.9     22.3     21.5     20.5     19.2     17.8     16.1     14.3     12.3     10.1     7.7     5.3     2.6

20%

     30     31.5     31.3     31.0     30.3     29.5     28.4     27.1     25.6     23.8     21.8     19.7     17.4     14.9     12.2     9.4

25%

     38     39.8     39.6     39.2     38.6     37.7     36.5     35.1     33.5     31.6     29.5     27.2     24.8     22.1     19.3     16.3

30%

     45     48.2     48.1     47.7     47.0     46.0     44.8     43.3     41.6     39.6     37.4     35.0     32.3     29.5     26.5     23.3

35%

     53     56.9     56.7     56.3     55.5     54.5     53.2     51.7     49.8     47.7     45.4     42.8     40.0     37.0     33.9     30.5

40%

     60     65.7     65.5     65.0     64.3     63.2     61.8     60.2     58.2     56.0     53.5     50.8     47.9     44.7     41.4     37.8

45%

     68     74.6     74.4     73.9     73.1     72.0     70.6     68.8     66.8     64.4     61.8     59.0     55.9     52.6     49.0     45.3

50%

     75     83.7     83.5     83.0     82.2     81.0     79.5     77.6     75.5     73.0     70.3     67.3     64.0     60.5     56.8     52.9

55%

     83     93.0     92.8     92.3     91.4     90.1     88.5     86.6     84.3     81.7     78.9     75.7     72.3     68.6     64.7     60.6

60%

     90     102.4     102.2     101.6     100.7     99.4     97.7     95.7     93.3     90.6     87.6     84.3     80.7     76.8     72.7     68.4

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 closures, large movements 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., -0.5x, -1x, -2x, 2x, 1.5x, -3x or 3x, as applicable) at the end of each day, and the likelihood of being materially under- or overexposed is higher on days when the benchmark levels are volatile 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. Such costs include commissions paid to the FCMs, and may vary by FCM.

These risks are particularly acute for the Geared VIX Funds due to 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.

 

40


Table of Contents

Intraday Price Performance Risk.

Each Geared Fund is typically 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 (i.e., -0.5x, -1x, -2x, 2x, 1.5x, -3x or 3x). When Shares are bought intraday, the performance of a Geared Fund’s Shares until the Fund’s next NAV calculation will generally be greater than or less than the 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, respectively, 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 two times the inverse (-2x) or two times (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 the total loss of an investor’s investment. 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 Index Funds, the Commodity Funds, the Currency Funds and the VIX Funds.

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

 

    Significant increases or decreases in the available supply of a physical commodity due to natural or technological factors. Natural factors would include depletion of known cost-effective sources for 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.

 

    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.

 

41


Table of Contents
    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, the equity securities included in the S&P 500 and prevailing market prices of options on the S&P 500, the VIX, options on the VIX, the relevant VIX futures contracts, or any other financial instruments related to the S&P 500 and the VIX or VIX futures contracts;

 

    Interest rates;

 

    Inflation rates and investor’s expectations concerning inflation rates;

 

    Economic, financial, political, regulatory, geographical, biological or judicial events that affect the level of the Index or the market price or forward volatility of the U.S. stock markets, the equity securities included in the S&P 500, the S&P 500, the VIX or the relevant futures or option contracts on the VIX;

 

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

 

42


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

 

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

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 level of a commodity index or the value of a commodity or currency will affect investors differently depending upon Commodity Index Fund, Commodity Fund, Currency Fund or VIX Fund in which an investor invests. Daily increases in the level of a commodity index or a VIX futures index or the value of a commodity or currency will negatively impact the daily performance of Shares of the Short and UltraShort Commodity Index, Commodity, Currency or VIX Funds.

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

Each Commodity Index Fund are designed to correspond (before fees and expenses) to the performance of, or a multiple or an inverse 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 and/or financial assets. 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 an underlying cash market, they are not perfectly correlated and often can perform very differently. It is possible that during certain time periods, the performance of different derivatives contracts may be substantially lower or higher than cash market prices for the underlying commodity or financial asset due to differences in derivatives contract terms or as supply, demand or other economic or regulatory factors become more pronounced in either the cash or derivatives markets. Depending upon the direction and level of the benchmark changes, the Funds may underperform or outperform a portfolio of cash market commodities or financial assets.

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

The European financial markets and the value of the euro have experienced significant volatility, in part related to unemployment, budget deficits and economic downturns. In addition, several member countries of the Economic and Monetary Union 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 UltraShort Euro, ProShares Short 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.

 

43


Table of Contents

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.

The level of each VIX Futures Index is based on the value of the relevant VIX futures contracts based on the Chicago Board Options Exchange, Incorporated Volatility Index (the “VIX”) comprising the applicable VIX Futures Index. Each VIX Fund is benchmarked to its respective VIX Futures Index. The VIX Funds are not linked to the VIX (which is a measure of implied volatility of the S&P 500 over the next 30 days derived from option prices), to realized volatility of the S&P 500 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.

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 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. As such, the potential upside of long or short exposure to VIX futures contracts may be limited, and any gains may be subject to sharp reversals during such reversions to the mean.

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.

The value of the Shares of the VIX Futures 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 such Fund’s Shares.

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

 

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

 

    Interest rates;

 

    Inflation rates and investors’ expectations concerning inflation rates;

 

    Economic, financial, political, regulatory, geographical, biological or judicial events that affect the level of the Mid-Term VIX Index or the market price or forward volatility of the U.S. stock markets, the equity securities included in the S&P 500, the S&P 500, the VIX or the relevant futures or option contracts on the VIX;

 

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

 

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

 

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

 

    The position limits imposed by FCMs; and

 

    The level of margin requirements.

 

44


Table of Contents

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

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

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

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

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 and margin requirements 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; (10) accounting standards; and (11) differences caused by a Fund obtaining exposure to only a representative sample of the components of a benchmark, overweighting or underweighting certain components of a benchmark or obtaining exposure to assets that are not included in a benchmark.

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 closures, large movements of assets

 

45


Table of Contents

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. The number of components included in the applicable benchmark index across which a Fund needs to allocate, and the frequency at which it rebalances its portfolio (and related costs), may also impact correlation.

Each Fund seeks to provide investment results that correspond (before fees and expenses) to the performance of, or a multiple of, the inverse or an inverse multiple 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, the Sponsor seeks to cause the NAV to track the daily performance of a benchmark in accordance with each Fund’s investment objective, even during periods in which the benchmark is flat or moving in a manner which causes the NAV of a Fund to decline. It is possible to lose money over time regardless of the performance of an underlying benchmark, due to the effects of daily rebalancing, volatility and compounding, as applicable (see “Correlation Risks Specific to the Geared Funds” in this Annual Report on Form 10-K for additional details).

The assets that the Funds invest in can be highly volatile and the Funds may experience large losses when buying, selling or holding such instruments.

Investments linked to volatility, commodity, currency or fixed income markets can be highly volatile compared to investments in traditional securities and the Funds may experience large losses. The value of these investments may be affected by changes in overall market movements, commodity or currency benchmarks (as the case may be), volatility, changes in interest rates, changes in inflation rates and investors’ expectations concerning inflation rates or factors affecting a particular industry, commodity or currency. For example, commodity futures contracts (as may be held by the Commodity Index Funds) may be affected by numerous factors, including drought, floods, fires, weather, livestock diseases, pipeline ruptures or spills, embargoes, tariffs and international, economic, political or regulatory developments. In particular, trading in VIX futures contracts and trading in natural gas futures contracts (or other Financial Instruments linked to natural gas) 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.

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 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 settlement. 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 hold futures contracts through expiration, 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 for shorter expiration futures contracts is referred to as “backwardation.”

The presence of contango in certain futures contracts at the time of rolling would be expected to adversely affect the relevant Funds with long positions, and positively affect the Funds with short positions. Similarly, the presence of backwardation in certain futures contracts at the time of rolling such contracts would be expected to adversely affect the Funds with short positions and positively affect the Funds with long positions.

 

46


Table of Contents

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. These extended periods have in the past and can in the future cause significant losses for the Funds, and the periods can have as much or more impact over time than movements in the level of a Fund’s benchmark.

The Commodity Funds do not invest in bullion itself as certain other exchange-traded products do. Rather, the Commodity Funds use Financial Instruments to gain exposure to these precious metals. 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 impact the Ultra Funds. Alternatively, the existence of historically prevalent backwardated markets would be expected to adversely impact the Ultra Funds.

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

 

47


Table of Contents

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

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

The Funds are subject to the fees and expenses described herein which are payable irrespective of a Fund’s returns, as well as the effects of commissions, trading spreads, and embedded financing, borrowing costs and fees associated with 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.

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.

The VIX Fund and the Commodity Index Funds are linked to indexes maintained by an index provider, either Standard & Poor’s (“S&P”) or Bloomberg, as applicable, each of which is unaffiliated with the Funds or the Sponsor. The policies implemented by each index provider concerning the calculation of the level of an index or the composition of an index could affect the level of an index and, therefore, the value of the corresponding Fund’s Shares. An index provider may change the composition of the indexes, or make other methodological changes that could change the level of an index. Additionally, an index provider may alter, discontinue or suspend calculation or dissemination of an index. Any of these actions could adversely affect the value of Shares of a Fund using that index as a benchmark. An index provider has no obligation to consider Fund shareholder interests in calculating or revising an index. In addition, for the VIX Fund, 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 Fund’s 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 Fund’s Shares. The CBOE may also alter, discontinue or suspend calculation or dissemination of the VIX and/or exercise settlement value. Any of these actions could adversely affect the value of such Fund’s Shares.

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.

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 or in other swap agreements or forward contracts if such instruments tend to exhibit trading prices or returns that correlate with its benchmark or a component of the benchmark and will further the investment objective of the Fund. Each of the other Funds may invest in swap agreements (for the VIX Funds and the Natural Gas Funds) or forward contracts (for the other Currency Funds: ProShares Short Euro, and ProShares UltraShort Australian Dollar) if position accountability rules or position limits or margin 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 such Fund from obtaining the appropriate amount of investment exposure to the affected futures contract or certain other futures contracts. Although unlikely, the Funds, under these circumstances, could have 100% exposure to swap agreements or forward contracts, as applicable.

 

48


Table of Contents

Swap agreements and forward contracts are generally traded in over-the–counter markets and have only recently become subject to regulation by the by the Commodity Futures Trading Commission (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 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 increased 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 and forward contracts of the type that may be utilized by the Funds 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. 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. For example, if the level of the Fund’s benchmark has a dramatic intraday move that would cause a material decline in the Fund’s NAV, the terms of the swap may permit the counterparty to immediately close out the transaction with the Fund. In that event, it may not be possible for the Fund to enter into another swap 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 derivatives 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, 2017, the Funds’ approved counterparties for swap agreements and forward contracts are: Deutsche Bank AG, Citibank N.A., 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.

 

49


Table of Contents

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 Citibank N.A., including its current financial statements, may also be found on the SEC’s EDGAR website under CIK No. 0000036684 (for Citibank N.A.). 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.

The counterparty risk for cleared derivatives transactions is generally lower than for uncleared OTC derivatives since generally a clearing organization becomes substituted for each counterparty to a cleared derivatives 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 that Fund or its underlying benchmark and other asset classes, such historic correlation may not continue or may reverse itself. In this circumstance, the diversification or other benefits sought may be limited or nonexistent.

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 advice to the Funds. If the Sponsor were unable to provide services and/or advice to the Funds, the Funds would be unable to pursue their investment objectives unless and until the Sponsor’s ability to provide services and advice to the Funds was reinstated or a replacement for the Sponsor as commodity pool operator could be found. Such an event could result in termination of the Funds.

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

Although the Shares of the Funds are publicly listed and traded on the applicable Exchange, there can be no guarantee that an active trading market for the Shares of any Fund will develop or be maintained. In this regard, if a Fund is not able to meet the continued listing standards of NYSE Arca and is delisted, there will not be an active trading market for such Fund’s Shares. 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. In addition, if there is no active trading market for the Shares of a Fund for an extended period of time, the Fund would likely be forced to liquidate.

 

50


Table of Contents

A Fund may terminate and liquidate at a time that is disadvantageous to shareholders.

If a Fund lacks the demand necessary to remain open, then the Fund will likely be terminated and liquidated. For example, the ProShares Ultra Australian Dollar Fund was terminated and liquidated in June 2015 because it lacked the demand necessary to remain open. Termination and liquidation of a Fund could occur at a time that is disadvantageous to shareholders. When the Fund’s assets are sold as part of the Fund’s liquidation, the resulting proceeds distributed to shareholders may be less than those that may be realized in a sale outside of a liquidation context.

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 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 the public trading price per Share of a Fund may be different from the NAV per Share of the Fund (i.e., the secondary market price may trade at a premium or discount to NAV). Consequently, an Authorized Participant may be able to create or redeem a Creation Unit of a Fund at a discount or a premium to the public trading price per Share of that Fund.

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

The value of a Share 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 on the applicable Exchange, from 9:30 a.m. to 4:00 p.m. (Eastern Time). The Financial Instruments (and/or the related 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 of an underlying component, trading spreads and the resulting premium or discount on the Shares of a Fund may widen, and, therefore, may increase the difference between the price of the Shares of a Fund and the NAV of such Shares. Furthermore, the NAVs for certain Funds are determined prior to the close of the applicable Exchange, and the NAVs for certain Funds are determined at 4:15 p.m. (Eastern Time) 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 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 its NAV), there could be market developments or other events that cause or exacerbate the difference between the price of the Shares of such Funds and the NAV of such Shares.

 

51


Table of Contents

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.

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

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

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

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 the 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 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 an 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.

 

52


Table of Contents

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. Shares may trade at a premium or discount to NAV per Share.

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 the 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., the Dow Jones Industrial Average) or in the price of a Fund’s Shares. Additionally, the ability to short sell a Fund’s Shares may be restricted when there is a 10% or greater change from the previous day’s official closing price. There can be no assurance that the requirements necessary to maintain the listing of the Shares of a Fund will continue to be met or will remain unchanged.

Shareholders do not have the protections associated with ownership of shares in an investment company registered under the 1940 Act.

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

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

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

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

Under the Amended and Restated Trust Agreement of the Trust, as may be further amended and restated from time to time (the “Trust Agreement”), the Trustee has the right to be indemnified for any liability or expense incurred without gross negligence or willful misconduct. That means the Sponsor may require the assets of a Fund to be sold in order to cover losses or liability suffered by it or by the Trustee. Any sale of that kind would reduce the NAV of one or more of the Funds.

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

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

Failure of the FCMs 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, be the subject of certain regulatory and private causes of action.

 

53


Table of Contents

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.

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 may thereby potentially expose assets in a 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, as amended (the “DSTA”) provides that if certain provisions are in the formation and governing documents of a statutory trust organized in series, and if separate and distinct records are maintained for any series and the assets associated with that series are held in separate and distinct records (directly or indirectly, including through a nominee or otherwise) and accounted for in such separate and distinct records separately from the other assets of the statutory trust, or any series thereof, then the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to a particular series are enforceable against the assets of such series only, and not against the assets of the statutory trust generally or any other series thereof, and none of the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to the statutory trust generally or any other series thereof shall be enforceable against the assets of such series. The Sponsor is not aware of any court case that has interpreted Section 3804(a) of the DSTA or provided any guidance as to what is required for compliance. The Sponsor maintains separate and distinct records for each 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 a 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 Depository Trust Company (“DTC”), the National Securities Clearing Corporation (“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 objective and/or principal investment strategies.

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

With the increased use of technologies such as the Internet and the dependence on computer systems to perform necessary business functions, the Funds are susceptible to operational and information security risks. In general, cyber incidents can result from deliberate attacks or unintentional events. Cyber attacks include, but are not limited

 

54


Table of Contents

to gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. Cyber attacks may also be carried out in a manner that does not require gaining unauthorized access, such as causing denial-of-service attacks on websites. Cyber security failures or breaches of a Fund’s third party service provider (including, but not limited to, index providers, the administrator and transfer agent) or the issuers of securities in which the Funds invest, have the ability to cause disruptions and impact business operations, potentially resulting in financial losses, the inability of Fund shareholders to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. In addition, substantial costs may be incurred in order to prevent any cyber incidents in the future. The Funds and their shareholders could be negatively impacted as a result. While the Funds have established business continuity plans and systems to prevent such cyber attacks, there are inherent limitations in such plans and systems including the possibility that certain risks have not been identified. Furthermore, the Funds cannot control the cyber security plans and systems put in place by issuers in which the Funds invest.

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

Shareholders of each Fund are subject to U.S. federal income taxation and, in some cases, state, local, or foreign income taxation on their share of the Fund’s taxable income, whether or not they receive cash distributions from the Fund. Each Fund does not currently expect to make distributions with respect to capital gains or ordinary income.

Accordingly, shareholders of a Fund will not receive cash distributions equal to their share of the Fund’s taxable income or the tax liability that results from such income. A Fund’s income, gains, losses and deductions are allocated to shareholders on a monthly basis. If you own Shares in a Fund at the beginning of a month and sell them during the month, you are generally still considered a shareholder through the end of that month.

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

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

Shareholders 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.

 

55


Table of Contents

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

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

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

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

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

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

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

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

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

 

56


Table of Contents

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

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

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

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

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

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

 

57


Table of Contents

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 December 2016, the CFTC re-proposed rules on position limits with respect to the 25 physical delivery commodity futures and options contracts, as well as to swaps that are economically equivalent to such contracts. The re-proposed position limits would apply with respect to contracts traded on all U.S. and certain foreign exchanges on an aggregate basis. In addition, the CFTC proposed amendments to the requirement of U.S. commodities exchanges to establish corresponding speculative position limits (the “Position Limit Rules”). The re-proposed Position Limit Rules are based on the position limit rules previously proposed in 2013 by the CFTC. In December 2016, the CFTC also adopted final regulations requiring that all accounts owned or managed by an entity that is responsible for such accounts’ trading decisions, their principals and their affiliates would be aggregated for position limit purposes (the “Aggregation Rules”). The re-proposed Position Limit Rules were published in the Federal Register on December 30, 2016, and final Aggregation Rules were published in the Federal Register December 16, 2016 and became effective on February 14, 2017.

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

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

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

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

 

58


Table of Contents

Margin for Non-cleared Swap and Forward Transactions

In 2015, the regulators adopted, and in 2016 the CFTC adopted new mandatory margin requirements for non-cleared swap and foreign currency forward transactions and new requirements for the holding of collateral by derivative dealers. These requirements, which are still pending final adoption, may increase the amount of collateral a Fund is required to provide to derivative dealers for non-cleared swaps and foreign currency forwards.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

Not applicable.

Item 3. Legal Proceedings.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

 

59


Table of Contents

Part II

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

 

a) Six of the Funds, ProShares UltraShort Bloomberg Crude Oil, ProShares UltraShort Euro, ProShares UltraShort Yen, ProShares Ultra Bloomberg 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 Bloomberg Natural Gas and ProShares Ultra Bloomberg 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. One of the Funds, ProShares UltraShort Australian Dollar, commenced trading on the NYSE Arca on July 17, 2012. Two of the Funds, ProShares UltraPro 3x Crude Oil ETF and ProShares UltraPro 3x Short Crude Oil ETF, commenced trading on the NYSE Arca on March 24, 2017. 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 2017

 

Fund

   High      Low  

ProShares Short Euro

     

First Quarter

   $ 45.60      $ 43.72  

Second Quarter

     44.82        41.71  

Third Quarter

     42.03        39.75  

Fourth Quarter

     41.27        39.99  

ProShares Short VIX Short-Term Futures ETF*

     

First Quarter

   $ 72.23      $ 48.73  

Second Quarter

     84.03        60.66  

Third Quarter

     93.75        68.24  

Fourth Quarter

     130.48        95.52  

ProShares Ultra Bloomberg Crude Oil

     

First Quarter

   $ 23.22      $ 16.88  

Second Quarter

     20.91        12.57  

Third Quarter

     18.28        13.63  

Fourth Quarter

     23.44        16.27  

ProShares Ultra Bloomberg Natural Gas

     

First Quarter

   $ 15.59      $ 9.42  

Second Quarter

     13.24        9.04  

Third Quarter

     9.92        8.16  

Fourth Quarter

     8.63        5.13  

ProShares Ultra Euro

     

First Quarter

   $ 14.80      $ 13.85  

Second Quarter

     16.23        14.03  

Third Quarter

     17.76        15.93  

Fourth Quarter

     17.46        16.38  

ProShares Ultra Gold

     

First Quarter

   $ 39.08      $ 33.63  

Second Quarter

     41.09        36.62  

Third Quarter

     44.09        35.91  

Fourth Quarter

     41.05        37.00  

ProShares Ultra Silver

     

First Quarter

   $ 42.39      $ 33.66  

Second Quarter

     42.54        32.29  

Third Quarter

     39.29        29.72  

Fourth Quarter

     36.08        29.26  

 

60


Table of Contents

Fund

   High      Low  

ProShares Ultra VIX Short-Term Futures ETF*

     

First Quarter

   $ 150.00      $ 61.96  

Second Quarter

     85.84        36.12  

Third Quarter

     43.80        20.60  

Fourth Quarter

     19.78        9.85  

ProShares Ultra Yen

     

First Quarter

   $ 61.19      $ 54.12  

Second Quarter

     63.22        57.09  

Third Quarter

     63.56        56.91  

Fourth Quarter

     59.42        56.30  

ProShares UltraPro 3X Crude Oil ETF

     

First Quarter

   $ 29.42      $ 24.75  

Second Quarter

     33.84        15.30  

Third Quarter

     26.07        17.13  

Fourth Quarter

     37.23        21.83  

ProShares UltraPro 3X Short Crude Oil ETF

     

First Quarter

   $ 25.35      $ 21.07  

Second Quarter

     34.22        18.07  

Third Quarter

     29.36        17.02  

Fourth Quarter

     19.96        10.72  

ProShares UltraShort Australian Dollar

     

First Quarter

   $ 55.09      $ 47.69  

Second Quarter

     52.60        47.80  

Third Quarter

     49.00        43.18  

Fourth Quarter

     49.67        45.56  

ProShares UltraShort Bloomberg Crude Oil

     

First Quarter

   $ 39.50      $ 25.66  

Second Quarter

     36.10        25.98  

Third Quarter

     38.08        30.24  

Fourth Quarter

     51.36        33.16  

ProShares UltraShort Bloomberg Natural Gas

     

First Quarter

   $ 41.43      $ 31.67  

Second Quarter

     51.49        33.12  

Third Quarter

     46.65        32.95  

Fourth Quarter

     36.71        24.56  

ProShares UltraShort Euro

     

First Quarter

   $ 27.73      $ 25.43  

Second Quarter

     26.77        23.01  

Third Quarter

     23.45        20.93  

Fourth Quarter

     22.58        21.20  

ProShares UltraShort Gold

     

First Quarter

   $ 89.16      $ 75.12  

Second Quarter

     79.28        70.43  

Third Quarter

     80.01        64.58  

Fourth Quarter

     76.08        68.98  

ProShares UltraShort Silver

     

First Quarter

   $ 37.01      $ 28.64  

Second Quarter

     36.45        27.84  

Third Quarter

     38.60        27.86  

Fourth Quarter

     36.55        29.97  

ProShares UltraShort Yen

     

First Quarter

   $ 81.52      $ 71.48  

Second Quarter

     76.35        68.81  

Third Quarter

     76.18        68.10  

Fourth Quarter

     76.54        72.55  

 

61


Table of Contents

Fund

   High      Low  

ProShares VIX Mid-Term Futures ETF

     

First Quarter

   $ 41.00      $ 31.95  

Second Quarter

     32.80        27.24  

Third Quarter

     28.24        24.99  

Fourth Quarter

     25.12        21.14  

ProShares VIX Short-Term Futures ETF*

     

First Quarter

   $ 78.96      $ 51.56  

Second Quarter

     60.88        40.88  

Third Quarter

     45.53        32.53  

Fourth Quarter

     31.84        22.78  

Fiscal Year 2016

 

Fund

   High      Low  

ProShares Short Euro

     

First Quarter

   $ 44.26      $ 41.76  

Second Quarter

     43.79        41.03  

Third Quarter

     43.30        41.73  

Fourth Quarter

     45.75        42.22  

ProShares Short VIX Short-Term Futures ETF*

     

First Quarter

   $ 25.44      $ 15.62  

Second Quarter

     32.60        20.95  

Third Quarter

     39.54        24.82  

Fourth Quarter

     48.91        32.16  

ProShares Ultra Bloomberg Crude Oil

     

First Quarter

   $ 12.51      $ 6.41  

Second Quarter

     14.13        7.77  

Third Quarter

     12.59        7.84  

Fourth Quarter

     11.77        8.30  

ProShares Ultra Bloomberg Natural Gas

     

First Quarter

   $ 20.23      $ 8.84  

Second Quarter

     17.65        10.16  

Third Quarter

     18.54        13.33  

Fourth Quarter

     19.94        10.88  

ProShares Ultra Euro

     

First Quarter

   $ 16.94      $ 15.09  

Second Quarter

     17.33        15.58  

Third Quarter

     16.59        15.44  

Fourth Quarter

     16.08        13.54  

ProShares Ultra Gold

     

First Quarter

   $ 42.29      $ 30.56  

Second Quarter

     45.25        37.85  

Third Quarter

     47.79        43.64  

Fourth Quarter

     43.80        31.88  

ProShares Ultra Silver

     

First Quarter

   $ 35.05      $ 26.99  

Second Quarter

     47.67        30.79  

Third Quarter

     56.55        45.49  

Fourth Quarter

     46.34        31.36  

ProShares Ultra VIX Short-Term Futures ETF*

     

First Quarter

   $ 1,160.80      $ 382.20  

Second Quarter

     441.44        188.60  

Third Quarter

     183.20        64.12  

Fourth Quarter

     81.56        30.52  

 

62


Table of Contents

Fund

   High      Low  

ProShares Ultra Yen

     

First Quarter

   $ 63.49      $ 53.40  

Second Quarter

     69.89        60.92  

Third Quarter

     77.07        67.58  

Fourth Quarter

     76.15        54.00  

ProShares UltraShort Australian Dollar

     

First Quarter

   $ 65.86      $ 51.96  

Second Quarter

     58.30        49.29  

Third Quarter

     53.67        49.17  

Fourth Quarter

     56.16        48.06  

ProShares UltraShort Bloomberg Crude Oil

     

First Quarter

   $ 227.50      $ 110.68  

Second Quarter

     148.86        74.12  

Third Quarter

     119.82        78.98  

Fourth Quarter

     97.89        63.05  

ProShares UltraShort Bloomberg Natural Gas

     

First Quarter

   $ 84.81      $ 42.23  

Second Quarter

     70.63        34.06  

Third Quarter

     41.26        31.48  

Fourth Quarter

     45.35        21.90  

ProShares UltraShort Euro

     

First Quarter

   $ 26.26      $ 23.06  

Second Quarter

     24.84        22.46  

Third Quarter

     24.94        23.18  

Fourth Quarter

     27.87        23.79  

ProShares UltraShort Gold

     

First Quarter

   $ 112.34      $ 78.41  

Second Quarter

     84.95        69.72  

Third Quarter

     71.28        65.57  

Fourth Quarter

     94.48        70.55  

ProShares UltraShort Silver*

     

First Quarter

   $ 64.61      $ 46.77  

Second Quarter

     52.58        31.65  

Third Quarter

     31.01        25.41  

Fourth Quarter

     39.79        29.52  

ProShares UltraShort Yen

     

First Quarter

   $ 89.81      $ 74.50  

Second Quarter

     76.30        60.61  

Third Quarter

     67.94        58.96  

Fourth Quarter

     82.49        60.50  

ProShares VIX Mid-Term Futures ETF

     

First Quarter

   $ 66.66      $ 52.71  

Second Quarter

     56.59        50.57  

Third Quarter

     52.70        45.54  

Fourth Quarter

     46.69        41.16  

ProShares VIX Short-Term Futures ETF*

     

First Quarter

   $ 395.20      $ 231.80  

Second Quarter

     250.80        170.20  

Third Quarter

     181.00        111.00  

Fourth Quarter

     126.36        79.28  

 

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

 

63


Table of Contents

The approximate number of holders of the Shares of each Fund as of December 31, 2017 was as follows:

 

Fund

   Number of Holders  

ProShares Short Euro

     284  

ProShares Short VIX Short-Term Futures ETF

     10,062  

ProShares Ultra Bloomberg Crude Oil

     42,321  

ProShares Ultra Bloomberg Natural Gas

     4,786  

ProShares Ultra Euro

     1,266  

ProShares Ultra Gold

     6,520  

ProShares Ultra Silver

     22,077  

ProShares Ultra VIX Short-Term Futures ETF

     60,183  

ProShares Ultra Yen

     219  

ProShares UltraPro 3X Crude Oil ETF

     364  

ProShares UltraPro 3X Short Crude Oil ETF

     877  

ProShares UltraShort Australian Dollar

     1,090  

ProShares UltraShort Bloomberg Crude Oil

     7,405  

ProShares UltraShort Bloomberg Natural Gas

     246  

ProShares UltraShort Euro

     11,145  

ProShares UltraShort Gold

     2,063  

ProShares UltraShort Silver

     2,111  

ProShares UltraShort Yen

     101  

ProShares VIX Mid-Term Futures ETF

     2,781  

ProShares VIX Short-Term Futures ETF

     12,050  

Total:

     187,951  

The Funds made no distributions to Shareholders during the fiscal year ended December 31, 2017. 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 (File No. 333-146801), which was declared effective on November 21, 2008, and registered additional Shares on its Registration Statement on Form S-1 (File 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 (File 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 Registration Statement on Form S-1 (File 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 (File No. 333-163511) was declared effective, which registered additional Shares for ProShares Ultra Bloomberg 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 (File No. 333-176878), which was also declared effective on June 26, 2012. On September 24, 2012, a Registration Statement on Form S-1 (File 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 (File No. 333-183672) was a combined prospectus and acted as a post-effective amendment to the Form S-1 (File No. 333-176878). On September 27, 2012, a Registration Statement on Form S-3 (File No. 333-183674) was declared effective, which registered additional Shares for ProShares Ultra Bloomberg Crude Oil, ProShares UltraShort Bloomberg 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 (File No. 333-163511). On September 28, 2012, a post-effective amendment to a Registration Statement on Form S-1 (File No. 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 (File 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).

 

64


Table of Contents

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 Bloomberg 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 (File No. 333-193672) and Form S-3 Registration Statement (File No. 333-183674). On April 24, 2013, a post-effective amendment to the Form S-1 Registration Statement (File No. 333-185288) was declared effective, terminating the registered but unlaunched offerings related to: ProShares UltraPro Short Euro. On April 29, 2013, a Registration Statement on Form S-3 (File No. 333-187820) was declared effective, which registered additional Shares for ProShares Ultra Bloomberg Crude Oil, ProShares UltraShort Bloomberg 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 (File No. 333-185289). On May 21, 2013, a Registration Statement on Form S-1 (File 333-188215) was declared effective, which registered additional Shares for ProShares Ultra Bloomberg Natural Gas, ProShares UltraShort Bloomberg 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 (File No. 333-185288). On July 30, 2013, a Registration Statement on Form S-3 (File No. 333-189967) was declared effective, which registered additional Shares for ProShares Bloomberg Crude Oil and ProShares UltraShort Yen and partially terminated registered and unissued Shares of ProShares Ultra Bloomberg 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 (File No. 333-187820). On May 6, 2014, a post-effective amendment to the Form S-1 Registration Statement (File No. 333-188215) was declared effective, updating the Form S-1 Registration Statement by, among other things, incorporating by reference the audited financial statements for the fiscal year ended December 31, 2013. The post-effective amendment did not register any additional shares. On July 30, 2014, a Registration Statement on Form S-1 (File No. 333-196884) was declared effective, which partially terminated registered and unissued Shares of ProShares VIX Mid-Term Futures ETF, ProShares Ultra Euro and ProShares Ultra Yen. That registration statement was a combined prospectus and acted as a post-effective amendment to two Form S-1 registration statements (File Nos. 333-188215 and 333-185288). On July 30, 2014, a Registration Statement on Form S-3 (File No. 333-196885) was also declared effective, which registered additional Shares for ProShares Ultra Bloomberg Crude Oil, ProShares UltraShort Bloomberg Crude Oil and ProShares UltraShort Euro and partially terminated registered and unissued Shares of ProShares Ultra Gold, ProShares Ultra Silver and ProShares UltraShort Silver. That Registration Statement also was a combined prospectus and acted as a post-effective amendment to the Form S-3 (File No. 333-189967). Through the July 30, 2014 filings, ProShares Short VIX Short-Term Futures ETF was transferred from the Form S-1 to the Form S-3. On November 25, 2014, a Registration Statement on Form S-1 (File No. 333-199642) was declared effective, which registered additional Shares for ProShares Ultra Bloomberg Natural Gas, ProShares UltraShort Bloomberg Natural Gas and ProShares UltraShort Silver. That registration statement was a combined prospectus and acted as a post-effective amendment to the Form S-1 registration statement (File No. 333-198189) and the Form S-3 registration statement (333-196885). On November 25, 2014, a Registration Statement on Form S-3 (File No. 333-199641) was also declared effective, which registered additional Shares for ProShares Ultra Bloomberg Crude Oil, ProShares Ultra Gold, ProShares UltraShort Gold, ProShares Ultra Silver, ProShares UltraShort Euro, ProShares UltraShort Yen, ProShares Ultra VIX Short-Term Futures ETF, ProShares Short VIX Short-Term Futures ETF and ProShares VIX Short-Term Futures ETF. That Registration Statement also was a combined prospectus and acted as a post-effective amendment to the Form S-3 (File No. 333-196885). Through the November 25, 2014 filings, ProShares UltraShort Silver was transferred from the Form S-3 to the Form S-1. On March 31, 2015, a Registration Statement on Form S-1 (File No. 333-202724) was declared effective, which registered additional Shares for ProShares VIX Mid-Term Futures ETF, ProShares Managed Futures Strategy, ProShares Ultra Bloomberg Commodity, ProShares Ultra Bloomberg Natural Gas, ProShares UltraShort Bloomberg Natural Gas, ProShares UltraShort Silver, ProShares Ultra Australian Dollar, ProShares UltraShort Australian Dollar, ProShares Ultra Euro, ProShares Short Euro and ProShares Ultra Yen. That registration statement was a combined prospectus and acted as a post-effective amendment to the Form S-1 registration statement (File No. 333-199642). On March 31,

 

65


Table of Contents

2015, a Registration Statement on Form S-3 (File No. 333-202725) was also declared effective, which registered additional Shares for ProShares Ultra Bloomberg Crude Oil, ProShares UltraShort Bloomberg Crude Oil, ProShares Ultra Gold, ProShares UltraShort Gold, ProShares Ultra Silver, ProShares UltraShort Euro, ProShares UltraShort Yen, ProShares Ultra VIX Short-Term Futures ETF, ProShares Short VIX Short-Term Futures ETF and ProShares VIX Short-Term Futures ETF. That Registration Statement also was a combined prospectus and acted as a post-effective amendment to the Form S-3 (File No. 333-199641). On August 11, 2015, a Registration Statement on Form S-1 (File No. 333-202724) was declared effective which removed ProShares Ultra Australian Dollar from the Form S-1. No additional shares were registered. That registration statement was a combined prospectus and acted as a pre-effective amendment to post-effective amendment No. 1 of the Form S-1. Thus, as of December 31, 2015, the Trust continued to have two effective registration statements outstanding: 1) a Form S-1 Registration Statement (No. 333-202724); and 2) a Form S-3 Registration Statement (No. 333-199641).

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 in part be used for direct investment or deposited with the FCMs as margin in connection with futures contracts or in segregated accounts at the Funds’ custodian bank as collateral for swap agreements or forward contracts, as applicable. 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.

 

66


Table of Contents

Title of Securities

Registered

  Amount
Registered As
of December 31,
2017
    Shares Sold
For the Three Months
Ended December 31,

2017
    Sale Price of Shares
Sold For the Three
Months Ended
December 31,

2017
    Shares Sold
For the Year Ended
December 31,

2017
    Sale Price of Shares
Sold For the Year Ended
December 31,

2017
 

ProShares Short Euro Common Units of Beneficial Interest

  $ 153,418,934       —       $ —         —       $ —    

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

  $ 9,178,056,779       5,800,000     $ 655,412,337       52,550,000     $ 3,985,678,031  

ProShares Ultra Bloomberg Crude Oil Common Units of Beneficial Interest

  $ 5,508,543,310       2,900,000     $ 51,642,537       68,500,000     $ 1,156,816,574  

ProShares Ultra Bloomberg Natural Gas Common Units of Beneficial Interest

  $ 427,459,640       5,950,000     $ 39,395,864       12,550,000     $ 106,004,594  

ProShares Ultra Euro Common Units of Beneficial Interest

  $ 119,594,796       400,000     $ 6,750,814       1,600,000     $ 25,220,169  

ProShares Ultra Gold Common Units of Beneficial Interest

  $ 328,071,127       250,000     $ 9,514,458       650,000     $ 23,949,465  

ProShares Ultra Silver Common Units of Beneficial Interest

  $ 1,388,553,846       600,000     $ 18,873,000       1,550,000     $ 50,514,699  

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

  $ 10,862,875,118       34,400,000     $ 493,226,991       85,585,000     $ 2,602,989,881  

ProShares Ultra Yen Common Units of Beneficial Interest

  $ 138,726,333       —       $ —         —       $ —    

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

  $ 1,020,000,000       350,000     $ 11,053,119       1,750,008     $ 40,659,738  

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

  $ 1,020,000,000       1,250,000     $ 15,919,094       2,300,008     $ 38,429,372  

ProShares UltraShort Australian Dollar Common Units of Beneficial Interest

  $ 172,771,084       100,000     $ 4,801,797       100,000     $ 4,801,797  

ProShares UltraShort Bloomberg Crude Oil Common Units of Beneficial Interest

  $ 2,167,514,328       3,800,000     $ 112,846,007       14,500,000     $ 510,910,744  

ProShares UltraShort Bloomberg Natural Gas Common Units of Beneficial Interest

  $ 344,275,705       350,000     $ 13,898,582       650,000     $ 23,216,158  

 

67


Table of Contents

Title of Securities

Registered

  Amount
Registered As
of December 31,
2017
    Shares Sold
For the Three Months
Ended December 31,

2017
    Sale Price of Shares
Sold For the Three
Months Ended
December 31,

2017
    Shares Sold
For the Year Ended
December 31,

2017
    Sale Price of Shares
Sold For the Year Ended
December 31,

2017
 

ProShares UltraShort Euro Common Units of Beneficial Interest

  $ 1,916,296,347       600,000     $ 13,290,109       2,400,000     $ 54,352,755  

ProShares UltraShort Gold Common Units of Beneficial Interest

  $ 312,159,711       50,000     $ 3,802,700       350,000     $ 26,178,336  

ProShares UltraShort Silver Common Units of Beneficial Interest

  $ 1,950,297,178       150,000     $ 4,692,722       850,000     $ 26,717,920  

ProShares UltraShort Yen Common Units of Beneficial Interest

  $ 951,478,689       100,000     $ 7,541,354       1,000,000     $ 76,657,434  

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

  $ 555,231,376       100,000     $ 2,334,755       950,000     $ 26,311,779  

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

  $ 1,878,742,424       1,625,000     $ 44,343,586       7,750,000     $ 318,930,520  

Total:

      58,775,000     $ 1,509,339,826       255,585,016     $ 9,098,339,966  

 

  c) From October 1, 2017 through December 31, 2017, the number of Shares redeemed and average price per Share for each Fund were as follows:

 

68


Table of Contents

Fund

   Total Number of
Shares Redeemed
     Average Price
Per Share
 

ProShares Short Euro

     

10/01/17 to 10/31/17

     —        $ —    

11/01/17 to 11/30/17

     —        $ —    

12/01/17 to 12/31/17

     —        $ —    

ProShares Short VIX Short-Term Futures ETF*

     

10/01/17 to 10/31/17

     2,600,000      $ 99.55  

11/01/17 to 11/30/17

     4,100,000      $ 111.80  

12/01/17 to 12/31/17

     4,150,000      $ 133.84  

ProShares Ultra Bloomberg Crude Oil

     

10/01/17 to 10/31/17

     7,150,000      $ 18.43  

11/01/17 to 11/30/17

     5,550,000      $ 21.47  

12/01/17 to 12/31/17

     2,800,000      $ 22.74  

ProShares Ultra Bloomberg Natural Gas

     

10/01/17 to 10/31/17

     150,000      $ 8.39  

11/01/17 to 11/30/17

     1,100,000      $ 8.10  

12/01/17 to 12/31/17

     850,000      $ 6.37  

ProShares Ultra Euro

     

10/01/17 to 10/31/17

     —        $ —    

11/01/17 to 11/30/17

     550,000      $ 16.71  

12/01/17 to 12/31/17

     100,000      $ 16.92  

ProShares Ultra Gold

     

10/01/17 to 10/31/17

     —        $ —    

11/01/17 to 11/30/17

     50,000      $ 38.65  

12/01/17 to 12/31/17

     100,000      $ 36.91  

ProShares Ultra Silver

     

10/01/17 to 10/31/17

     —        $ —    

11/01/17 to 11/30/17

     —        $ —    

12/01/17 to 12/31/17

     100,000      $ 33.55  

ProShares Ultra VIX Short-Term Futures ETF*

     

10/01/17 to 10/31/17

     8,850,000      $ 16.84  

11/01/17 to 11/30/17

     5,500,000      $ 15.78  

12/01/17 to 12/31/17

     7,850,000      $ 11.47  

ProShares Ultra Yen

     

10/01/17 to 10/31/17

     50,000      $ 58.31  

11/01/17 to 11/30/17

     —        $ —    

12/01/17 to 12/31/17

     —        $ —    

ProShares UltraPro 3X Crude Oil ETF

     

10/01/17 to 10/31/17

     150,000      $ 27.83  

11/01/17 to 11/30/17

     150,000      $ 30.14  

12/01/17 to 12/31/17

     50,000      $ 32.18  

ProShares UltraPro 3X Short Crude Oil ETF

     

10/01/17 to 10/31/17

     100,000      $ 19.98  

11/01/17 to 11/30/17

     —        $ —    

12/01/17 to 12/31/17

     50,000      $ 12.68  

ProShares UltraShort Australian Dollar

     

10/01/17 to 10/31/17

     —        $ —    

11/01/17 to 11/30/17

     —        $ —    

12/01/17 to 12/31/17

     —        $ —    

ProShares UltraShort Bloomberg Crude Oil

     

10/01/17 to 10/31/17

     900,000      $ 36.21  

11/01/17 to 11/30/17

     350,000      $ 29.29  

12/01/17 to 12/31/17

     350,000      $ 30.29  

ProShares UltraShort Bloomberg Natural Gas

     

10/01/17 to 10/31/17

     50,000      $ 39.96  

11/01/17 to 11/30/17

     200,000      $ 39.49  

12/01/17 to 12/31/17

     100,000      $ 45.72  

 

69


Table of Contents

Fund

   Total Number of
Shares Redeemed
     Average Price
Per Share
 

ProShares UltraShort Euro

     

10/01/17 to 10/31/17

     500,000      $ 22.06  

11/01/17 to 11/30/17

     500,000      $ 21.79  

12/01/17 to 12/31/17

     500,000      $ 21.75  

ProShares UltraShort Gold

     

10/01/17 to 10/31/17

     —        $ —    

11/01/17 to 11/30/17

     100,000      $ 72.34  

12/01/17 to 12/31/17

     —        $ —    

ProShares UltraShort Silver

     

10/01/17 to 10/31/17

     100,000      $ 29.92  

11/01/17 to 11/30/17

     100,000      $ 31.04  

12/01/17 to 12/31/17

     200,000      $ 33.47  

ProShares UltraShort Yen

     

10/01/17 to 10/31/17

     100,000      $ 73.96  

11/01/17 to 11/30/17

     50,000      $ 72.60  

12/01/17 to 12/31/17

     200,000      $ 75.00  

ProShares VIX Mid-Term Futures ETF

     

10/01/17 to 10/31/17

     75,000      $ 24.67  

11/01/17 to 11/30/17

     200,000      $ 23.25  

12/01/17 to 12/31/17

     375,000      $ 21.65  

ProShares VIX Short-Term Futures ETF*

     

10/01/17 to 10/31/17

     300,000      $ 29.63  

11/01/17 to 11/30/17

     600,000      $ 27.58  

12/01/17 to 12/31/17

     700,000      $ 26.20  

 

* 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 ProShares VIX Short-Term Futures ETF, ProShares Ultra VIX Short-Term Futures ETF and the Share split for ProShares Short VIX Short-Term Futures ETF.

 

70


Table of Contents

Item 6. Selected Financial Data.

Financial Highlights for the years ended December 31, 2017, 2016, 2015, 2014 and 2013 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 SHORT EURO

 

     Year Ended
December 31,
2017
    Year Ended
December 31,
2016
    Year Ended
December 31,
2015
    Year Ended
December 31,
2014
    Year Ended
December 31,
2013
 

Total assets

   $ 8,041,728     $ 15,859,440     $ 17,524,993     $ 14,032,932     $ 8,903,836  

Total shareholders’ equity at end of period

     7,991,880       15,770,088       17,510,898       14,021,804       8,896,842  

Net investment income (loss)

     (37,627     (122,728     (178,761     (118,247     (51,170

Net realized and unrealized gain (loss)

     (1,461,940     553,281       1,417,580       2,011,540       (359,542

Net income (loss)

     (1,499,567     430,553       1,238,819       1,893,293       (410,712

Net increase (decrease) in net asset value per share

     (5.10     1.28       3.72       4.48       (2.04

PROSHARES SHORT VIX SHORT-TERM FUTURES ETF*

 

     Year Ended
December 31,
2017
    Year Ended
December 31,
2016
    Year Ended
December 31,
2015
    Year Ended
December 31,
2014
    Year Ended
December 31,
2013
 

Total assets

   $ 816,337,770     $ 228,630,598     $ 674,236,256     $ 541,342,389     $ 141,868,875  

Total shareholders’ equity at end of period

     770,163,871       228,075,387       642,811,361       506,556,124       141,751,202  

Net investment income (loss)

     (5,373,544     (5,396,850     (5,798,200     (4,285,469     (1,328,369

Net realized and unrealized gain (loss)

     924,694,573       419,316,869       96,936,157       52,474,493       96,687,035  

Net income (loss)

     919,321,029       413,920,019       91,137,957       48,189,024       95,358,666  

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

     81.68       20.21       (5.29     (3.05     17.22  

PROSHARES ULTRA BLOOMBERG CRUDE OIL

 

     Year Ended
December 31,
2017
    Year Ended
December 31,
2016
    Year Ended
December 31,
2015
    Year Ended
December 31,
2014
    Year Ended
December 31,
2013
 

Total assets

   $ 534,325,767     $ 962,419,733     $ 859,276,004     $ 532,881,413     $ 143,904,994  

Total shareholders’ equity at end of period

     524,445,526       933,731,860       783,922,475       450,562,988       142,773,429  

Net investment income (loss)

     (1,379,461     (6,631,380     (8,473,155     (1,766,364     (2,196,281

Net realized and unrealized gain (loss)

     35,389,465       225,050,768       (863,611,244     (368,561,922     68,042,170  

Net income (loss)

     34,010,004       218,419,388       (872,084,399     (370,328,286     65,845,889  

Net increase (decrease) in net asset value per share

     0.32       (1.81     (76.33     (219.42     26.96  

 

71


Table of Contents

PROSHARES ULTRA BLOOMBERG NATURAL GAS

 

     Year Ended
December 31,
2017
    Year Ended
December 31,
2016
    Year Ended
December 31,
2015
    Year Ended
December 31,
2014
    Year Ended
December 31,
2013
 

Total assets

   $ 67,524,849     $ 44,767,860     $ 38,879,917     $ 80,051,311     $ 68,626,038  

Total shareholders’ equity at end of period

     63,268,950       43,203,386       38,851,184       70,433,207       62,915,779  

Net investment income (loss)

     (233,762     (384,486     (761,335     (528,581     (821,690

Net realized and unrealized gain (loss)

     (36,107,690     13,794,133       (59,570,610     (37,694,009     41,585,400  

Net income (loss)

     (36,341,452     13,409,647       (60,331,945     (38,222,590     40,763,710  

Net increase (decrease) in net asset value per share

     (12.32     0.28       (43.08     (93.70     (0.84

PROSHARES ULTRA EURO

 

     Year Ended
December 31,
2017
    Year Ended
December 31,
2016
    Year Ended
December 31,
2015
    Year Ended
December 31,
2014
    Year Ended
December 31,
2013
 

Total assets

   $ 9,656,271     $ 12,500,772     $ 12,437,492     $ 3,089,736     $ 2,626,494  

Total shareholders’ equity at end of period

     9,591,516       11,914,585       10,857,730       2,981,441       2,603,827  

Net investment income (loss)

     (29,782     (74,522     (104,071     (22,247     (35,024

Net realized and unrealized gain (loss)

     3,049,926       (1,039,312     (1,274,395     (625,043     224,084  

Net income (loss)

     3,020,144       (1,113,834     (1,378,466     (647,290     189,060  

Net increase (decrease) in net asset value per share

     3.42       (1.49     (4.36     (6.16     1.68  

PROSHARES ULTRA GOLD

 

     Year Ended
December 31,
2017
    Year Ended
December 31,
2016
    Year Ended
December 31,
2015
    Year Ended
December 31,
2014
    Year Ended
December 31,
2013
 

Total assets

   $ 93,779,522     $ 96,632,172     $ 72,172,441     $ 104,091,956     $ 141,039,466  

Total shareholders’ equity at end of period

     93,708,748       92,127,200       69,864,815       102,003,345       132,017,405  

Net investment income (loss)

     (136,329     (650,951     (796,424     (1,157,348     (1,925,215

Net realized and unrealized gain (loss)

     19,581,562       3,617,098       (22,915,651     (784,329     (156,804,545

Net income (loss)

     19,445,233       2,966,147       (23,712,075     (1,941,677     (158,729,760

Net increase (decrease) in net asset value per share

     6.98       3.17       (10.27     (1.25     (42.51

 

72


Table of Contents

PROSHARES ULTRA SILVER

 

     Year Ended
December 31,
2017
    Year Ended
December 31,
2016
    Year Ended
December 31,
2015
    Year Ended
December 31,
2014
    Year Ended
December 31,
2013
 

Total assets

   $ 261,786,204     $ 296,979,700     $ 239,160,686     $ 305,793,515     $ 468,353,977  

Total shareholders’ equity at end of period

     258,244,696       275,779,940       216,416,642       291,169,743       465,479,519  

Net investment income (loss)

     (409,752     (2,179,392     (2,507,859     (3,968,608     (5,280,707

Net realized and unrealized gain (loss)

     10,949,744       63,914,077       (88,492,326     (165,444,157     (558,275,777

Net income (loss)

     10,539,992       61,734,685       (91,000,185     (169,412,765     (563,556,484

Net increase (decrease) in net asset value per share

     0.11       6.38       (12.31     (23.96     (108.56

PROSHARES ULTRA VIX SHORT-TERM FUTURES ETF*

 

     Year Ended
December 31,

2017
    Year Ended
December 31,

2016
    Year Ended
December 31,
2015
    Year Ended
December 31,
2014
    Year Ended
December 31,
2013
 

Total assets

   $ 394,379,433     $ 552,972,566     $ 560,771,363     $ 358,364,869     $ 229,779,878  

Total shareholders’ equity at end of period

     394,035,141       515,758,754       547,708,740       351,789,953       226,233,584  

Net investment income (loss)

     (4,896,061     (8,936,777     (7,410,148     (5,359,486     (4,828,761

Net realized and unrealized gain (loss)

     (1,047,275,669     (1,587,220,286     (419,888,086     (75,812,141     (432,159,208

Net income (loss)

     (1,052,171,730     (1,596,157,063     (427,298,234     (81,171,627     (436,987,969

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

     (163.60     (2,634.47     (9,737.60     (20,994.93     (367,957.33

PROSHARES ULTRA YEN

 

     Year Ended
December 31,
2017
    Year Ended
December 31,
2016
    Year Ended
December 31,
2015
    Year Ended
December 31,
2014
    Year Ended
December 31,
2013
 

Total assets

   $ 2,901,405     $ 5,887,949     $ 5,483,876     $ 2,135,192     $ 2,960,724  

Total shareholders’ equity at end of period

     2,864,269       5,540,957       5,473,848       2,118,028       2,795,026  

Net investment income (loss)

     (21,882     (45,847     (44,423     (20,862     (31,774

Net realized and unrealized gain (loss)

     260,916       113,155       (196,091     (396,529     (1,544,017

Net income (loss)

     239,034       67,308       (240,514     (417,391     (1,575,791

Net increase (decrease) in net asset value per share

     1.89       0.68       (1.72     (18.05     (38.21

 

73


Table of Contents

PROSHARES ULTRAPRO 3x CRUDE OIL ETF

 

     January 13, 2017
(Inception) through
December 31, 2017
 

Total assets

   $ 11,335,483  

Total shareholders’ equity at end of period

     11,335,483  

Net investment income (loss)

     (119,518

Net realized and unrealized gain (loss)

     7,436,616  

Net income (loss)

     7,317,098  

Net increase (decrease) in net asset value per share

     12.78  

PROSHARES ULTRAPRO 3x SHORT CRUDE OIL ETF

 

     January 13, 2017
(Inception) through
December 31, 2017
 

Total assets

   $ 21,688,274  

Total shareholders’ equity at end of period

     21,161,176  

Net investment income (loss)

     (110,590

Net realized and unrealized gain (loss)

     (10,034,783

Net income (loss)

     (10,145,373

Net increase (decrease) in net asset value per share

     (14.42

PROSHARES ULTRASHORT AUSTRALIAN DOLLAR

 

     Year Ended
December 31,
2017
    Year Ended
December 31,
2016
    Year Ended
December 31,
2015
    Year Ended
December 31,
2014
    Year Ended
December 31,
2013
 

Total assets

   $ 13,766,301     $ 16,658,768     $ 20,477,446     $ 23,139,187     $ 28,091,462  

Total shareholders’ equity at end of period

     13,702,102       16,613,473       20,460,679       23,120,790       27,983,279  

Net investment income (loss)

     (46,774     (145,652     (209,987     (213,183     (159,424

Net realized and unrealized gain (loss)

     (2,943,227     (1,183,820     3,166,384       2,121,121       3,553,299  

Net income (loss)

     (2,990,001     (1,329,472     2,956,397       1,907,938       3,393,875  

Net increase (decrease) in net asset value per share

     (9.71     (3.08     7.08       4.74       8.83  

 

74


Table of Contents

PROSHARES ULTRASHORT BLOOMBERG CRUDE OIL

 

     Year Ended
December 31,
2017
    Year Ended
December 31,
2016
    Year Ended
December 31,
2015
    Year Ended
December 31,
2014
    Year Ended
December 31,
2013
 

Total assets

   $ 257,334,914     $ 213,341,677     $ 96,858,373     $ 173,193,149     $ 258,594,876  

Total shareholders’ equity at end of period

     225,843,284       200,958,303       95,897,894       169,210,110       256,060,149  

Net investment income (loss)

     (355,651     (1,408,964     (2,166,211     (2,415,841     (2,544,628

Net realized and unrealized gain (loss)

     (27,449,491     (90,265,381     57,732,875       145,729,447       (6,221,827

Net income (loss)

     (27,805,142     (91,674,345     55,566,664       143,313,606       (8,766,455

Net increase (decrease) in net asset value per share

     (7.39     (34.90     27.61       23.12       (4.28

PROSHARES ULTRASHORT BLOOMBERG NATURAL GAS

 

     Year Ended
December 31,
2017
    Year Ended
December 31,
2016
    Year Ended
December 31,
2015
    Year Ended
December 31,
2014
    Year Ended
December 31,
2013
 

Total assets

   $ 7,009,957     $ 4,042,309     $ 11,260,804     $ 14,698,814     $ 22,744,708  

Total shareholders’ equity at end of period

     6,902,743       4,038,794       10,462,856       14,688,564       22,734,767  

Net investment income (loss)

     (54,451     (122,172     (177,124     (460,907     (209,360

Net realized and unrealized gain (loss)

     4,146,852       2,578,744       8,800,372       11,696,119       (1,952,152

Net income (loss)

     4,092,401       2,456,572       8,623,248       11,235,212       (2,161,512

Net increase (decrease) in net asset value per share

     16.38       (23.43     18.54       4.67       (10.73

PROSHARES ULTRASHORT EURO

 

     Year Ended
December 31,
2017
    Year Ended
December 31,
2016
    Year Ended
December 31,
2015
    Year Ended
December 31,
2014
    Year Ended
December 31,
2013
 

Total assets

   $ 209,513,363     $ 356,811,359     $ 556,539,359     $ 519,833,940     $ 438,217,450  

Total shareholders’ equity at end of period

     202,548,197       349,392,650       522,306,518       517,191,349       418,001,115  

Net investment income (loss)

     (396,715     (2,764,657     (5,000,587     (3,994,145     (4,375,512

Net realized and unrealized gain (loss)

     (62,222,928     19,174,666       86,176,969       114,182,807       (48,644,550

Net income (loss)

     (62,619,643     16,410,009       81,176,382       110,188,662       (53,020,062

Net increase (decrease) in net asset value per share

     (5.87     1.54       3.95       4.53       (1.96

 

75


Table of Contents

PROSHARES ULTRASHORT GOLD

 

     Year Ended
December 31,
2017
    Year Ended
December 31,
2016
    Year Ended
December 31,
2015
    Year Ended
December 31,
2014
    Year Ended
December 31,
2013
 

Total assets

   $ 33,013,345     $ 63,709,441     $ 75,031,735     $ 84,214,601     $ 154,835,279  

Total shareholders’ equity at end of period

     31,497,410       63,653,647       74,971,764       81,861,762       139,436,456  

Net investment income (loss)

     (60,865     (461,423     (703,582     (857,817     (1,175,860

Net realized and unrealized gain (loss)

     (11,543,036     (11,000,717     16,807,446       (13,246,612     63,024,399  

Net income (loss)

     (11,603,901     (11,462,140     16,103,864       (14,104,429     61,848,539  

Net increase (decrease) in net asset value per share

     (20.86     (24.55     19.23       (6.87     39.65  

PROSHARES ULTRASHORT SILVER

 

     Year Ended
December 31,
2017
    Year Ended
December 31,
2016
    Year Ended
December 31,
2015
    Year Ended
December 31,
2014
    Year Ended
December 31,
2013
 

Total assets

   $ 19,713,505     $ 23,037,206     $ 56,035,123     $ 53,254,791     $ 115,311,683  

Total shareholders’ equity at end of period

     14,806,259       23,017,656       55,987,938       53,007,867       112,989,686  

Net investment income (loss)

     (36,600     (255,853     (516,464     (585,841     (973,304

Net realized and unrealized gain (loss)

     (1,980,408     (20,928,956     14,943,700       17,926,873       91,898,519  

Net income (loss)

     (2,017,008     (21,184,809     14,427,236       17,341,032       90,925,215  

Net increase (decrease) in net asset value per share

     (5.60     (27.27     6.77       12.92       19.19  

PROSHARES ULTRASHORT YEN

 

     Year Ended
December 31,
2017
    Year Ended
December 31,
2016
    Year Ended
December 31,
2015
    Year Ended
December 31,
2014
    Year Ended
December 31,
2013
 

Total assets

   $ 134,986,033     $ 277,139,658     $ 261,207,696     $ 534,061,601     $ 590,489,940  

Total shareholders’ equity at end of period

     131,077,453       276,781,747       237,372,900       531,471,873       588,121,516  

Net investment income (loss)

     (355,974     (1,609,562     (3,623,678     (3,741,601     (4,398,231

Net realized and unrealized gain (loss)

     (23,960,625     8,431,035       (3,541,134     96,873,706       155,319,469  

Net income (loss)

     (24,316,599     6,821,473       (7,164,812     93,132,105       150,921,238  

Net increase (decrease) in net asset value per share

     (5.31     (7.70     (1.39     18.47       20.11  

 

76


Table of Contents

PROSHARES VIX MID-TERM FUTURES ETF

 

     Year Ended
December 31,
2017
    Year Ended
December 31,
2016
    Year Ended
December 31,
2015
    Year Ended
December 31,
2014
    Year Ended
December 31,
2013
 

Total assets

   $ 27,429,888     $ 47,936,506     $ 27,671,016     $ 29,430,266     $ 56,501,754  

Total shareholders’ equity at end of period

     26,347,948       45,818,914       27,650,638       21,459,575       51,134,323  

Net investment income (loss)

     (81,807     (294,491     (240,600     (386,478     (546,566

Net realized and unrealized gain (loss)

     (26,246,741     (12,029,971     (3,939,933     (9,219,527     (31,648,251

Net income (loss)

     (26,328,548     (12,324,462     (4,180,533     (9,606,005     (32,194,817

Net increase (decrease) in net asset value per share

     (20.85     (11.82     (9.64     (13.58     (61.62

PROSHARES VIX SHORT-TERM FUTURES ETF*

 

     Year Ended
December 31,
2017
    Year Ended
December 31,
2016
    Year Ended
December 31,
2015
    Year Ended
December 31,
2014
    Year Ended
December 31,
2013
 

Total assets

   $ 141,228,210     $ 174,247,783     $ 105,350,240     $ 111,540,076     $ 279,169,502  

Total shareholders’ equity at end of period

     137,741,560       174,160,146       105,272,823       111,459,325       270,398,554  

Net investment income (loss)

     (293,186     (1,436,647     (1,150,794     (1,118,548     (1,584,119

Net realized and unrealized gain (loss)

     (198,310,919     (194,856,158     (26,753,742     22,228,972       (161,051,480

Net income (loss)

     (198,604,105     (196,292,805     (27,904,536     21,110,424       (162,635,599

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

     (61.52     (179.98     (153.80     (152.13     (7,822.98

 

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

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 either the inverse (-1x) or the one-half inverse (-0.5x) 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 either one and one-half times (1.5x) or two times (2x) the daily performance of its corresponding benchmark. The “UltraPro” Fund seeks results for a single day that correspond (before fees and expenses) to three times (3x) the performance of its benchmark. The “UltraPro Short” Fund seeks results for a single day that correspond (before fees and expenses) to three times the inverse (-3x) the performance of its 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.

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

 

77


Table of Contents

gain exposure to its applicable underlying commodity futures index, commodity, currency exchange rate or equity volatility index. 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 -0.5x, -1x, -2x, 1.5x, 2x, -3x or 3x, 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 results that, both over a single day and over time, match (before fees and expenses) the performance of its index. If the Matching VIX Fund is successful in meeting its objective, its value (before fees and expenses) should gain approximately as much on a percentage basis as the level of the applicable VIX Futures Index when the index rises. Conversely, its value (before fees and expenses) should lose approximately as much on a percentage basis as the level of the applicable VIX Futures Index when the index declines. The Matching VIX Funds seeks to obtain investment exposure to its benchmark through the relevant futures contracts.

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, 2017, 2016 and 2015, each of the Funds earned interest income as follows:

 

78


Table of Contents

Interest Income

 

Fund

   Interest Income
Year Ended
December 31,
2017
     Interest Income
Year Ended
December 31,
2016
     Interest Income
Year Ended
December 31,
2015
 

ProShares Short Euro

   $ 75,953      $ 32,959      $ 4,504  

ProShares Short VIX Short-Term Futures ETF

     6,001,679        1,126,057        180,686  

ProShares Ultra Bloomberg Crude Oil

     5,982,049        2,170,633        396,158  

ProShares Ultra Bloomberg Natural Gas

     339,079        72,943        20,167  

ProShares Ultra Euro

     94,761        25,015        2,797  

ProShares Ultra Gold

     766,560        249,319        42,700  

ProShares Ultra Silver

     2,142,183        842,215        156,353  

ProShares Ultra VIX Short-Term Futures ETF

     3,040,059        1,639,964        156,187  

ProShares Ultra Yen

     28,639        16,858        3,609  

ProShares UltraPro 3X Crude Oil ETF*

     9,696                

ProShares UltraPro 3X Short Crude Oil ETF*

     5,930                

ProShares UltraShort Australian Dollar

     85,306        43,459        5,998  

ProShares UltraShort Bloomberg Crude Oil

     1,661,295        500,160        60,884  

ProShares UltraShort Bloomberg Natural Gas

     38,651        19,053        5,830  

ProShares UltraShort Euro

     2,048,455        1,012,886        264,845  

ProShares UltraShort Gold

     283,917        164,570        31,999  

ProShares UltraShort Silver

     157,745        93,483        23,831  

ProShares UltraShort Yen

     1,446,842        531,771        135,814  

ProShares VIX Mid-Term Futures ETF

     256,920        107,409        8,293  

ProShares VIX Short-Term Futures ETF

     1,238,374        466,392        42,319  

 

* Fund commenced investment operations on March 24, 2017.

Each Fund’s underlying swaps, futures, forward contracts and foreign currency 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 derivatives 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 derivatives 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

 

79


Table of Contents

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.

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;

 

    requiring that the counterparty posts collateral in amounts approximately equal to that owed to the Funds, as marked to market daily, subject to certain minimum thresholds;

 

    limiting the amount of margin or premium posted at a futures commission merchant (“FCM”); and

 

    ensuring that deliverable contracts are not held to such a date when delivery of the underlying asset could be called for.

 

80


Table of Contents

Off-Balance Sheet Arrangements and Contractual Obligations

As of February 22, 2018, 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.

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.

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, forward contracts or foreign currency 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 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 Funds’ final creation/redemption NAV for the year ended December 31, 2017.

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 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 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.

 

81


Table of Contents

Fair value pricing may require subjective determinations about the value of an investment. While each Leveraged and VIX Fund’s policy is intended to result in a calculation of the Leveraged or the VIX Fund’s NAV that fairly reflects investment values as of the time of pricing, the Leveraged and the VIX Funds cannot ensure that fair values determined by the Sponsor or persons acting at their direction would accurately reflect the price that the Leveraged or the VIX Fund could obtain for an investment if it were to dispose of that investment as of the time of pricing (for instance, in a forced or distressed sale).

The prices used by the Leveraged or the VIX Fund may differ from the value that would be realized if the investments were sold and the differences could be material to the financial statements.

The Funds disclose the fair value of their investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. See Note 2 in the Financial Statements in this Annual Report on Form 10-K for further information.

Discounts on short-term securities purchased are amortized and reflected as Interest Income in the Statements of Operations.

Realized gains (losses) and changes in unrealized gain (loss) on open positions are determined on a specific identification basis and recognized in the Statements of Operations in the period in which the contract is closed or the changes occur, respectively.

Each Fund pays 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 brokerage commissions on VIX futures contracts for the Matching VIX Funds that exceed variable create/redeem fees collected by more than 0.02% of the Matching VIX Fund’s average net assets annually.

 

82


Table of Contents

Results of Operations for the Year Ended December 31, 2017 Compared to the Years Ended December 31, 2016 and 2015

ProShares Short Euro

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2017, 2016 and 2015:

 

     Year Ended
December 31,
2017
    Year Ended
December 31,
2016
    Year Ended
December 31,
2015
 

NAV beginning of period

   $ 15,770,088     $ 17,510,898     $ 14,021,804  

NAV end of period

   $ 7,991,880     $ 15,770,088     $ 17,510,898  

Percentage change in NAV

     (49.3 )%      (9.9 )%      24.9

Shares outstanding beginning of period

     350,000       400,005       350,005  

Shares outstanding end of period

     200,000       350,000       400,005  

Percentage change in shares outstanding

     (42.9 )%      (12.5 )%      14.3

Shares created

     —         50,000       550,000  

Shares redeemed

     150,000       100,005       500,000  

Per share NAV beginning of period

   $ 45.06     $ 43.78     $ 40.06  

Per share NAV end of period

   $ 39.96     $ 45.06     $ 43.78  

Percentage change in per share NAV

     (11.3 )%      2.9     9.3

Percentage change in benchmark

     15.3     (3.1 )%      (10.2 )% 

Benchmark annualized volatility

     7.2     8.3     12.1

During the year ended December 31, 2017, the decrease in the Fund’s NAV resulted primarily from a decrease from 350,000 outstanding Shares at December 31, 2016 to 200,000 outstanding Shares at December 31, 2017. 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 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, 2016, the decrease in the Fund’s NAV resulted from a decrease from 400,005 outstanding Shares at December 31, 2015 to 350,000 outstanding Shares at December 31, 2016. 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 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, 2015, the increase in the Fund’s NAV resulted primarily from an increase from 350,005 outstanding Shares at December 31, 2014 to 400,005 outstanding Shares at December 31, 2015. 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 spot price of the euro versus the U.S. dollar.

For the years ended December 31, 2017, 2016 and 2015, 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 11.3% for the year ended December 31, 2017, as compared to the Fund’s per Share NAV increase of 2.9% for the year ended December 31, 2016, was primarily due to a depreciation in the value of the assets held by the Fund during the year ended December 31, 2017. The Fund’s per Share NAV increase of 2.9% for the year ended December 31, 2016, as compared to the Fund’s per Share NAV increase of 9.3% for the year ended December 31, 2015, was primarily due to a lesser appreciation in the value of the assets held by the Fund during the year ended December 31, 2016.

During the year ended December 31, 2017, the Fund’s per Share NAV reached its high for the year on January 3, 2017 at $45.65 per Share and reached its low for the year on September 8, 2017 at $39.73 per Share. By comparison, during the year ended December 31, 2016, the Fund’s per Share NAV reached its high for the year on December 20, 2016 at $45.67 per Share and reached its low for the year on May 2, 2016 at $41.22 per Share. By comparison, during the year ended December 31, 2015, the Fund’s per Share NAV reached its high for the year on March 13, 2015 at $46.07 per Share and reached its low for the year on January 2, 2015 at $40.37 per Share.

 

83


Table of Contents

The benchmark’s rise of 15.3% for the year ended December 31, 2017, as compared to the benchmark’s decline of 3.1% for the year ended December 31, 2016, can be attributed to an increase in the value of the euro versus the U.S. dollar during the year ended December 31, 2017. The benchmark’s decline of 3.1% for the year ended December 31, 2016, as compared to the benchmark’s decline of 10.2% for the year ended December 31, 2015, can be attributed to a lesser decrease in the value of the euro versus the U.S. dollar during the year ended December 31, 2016.

Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2017, 2016 and 2015:

 

     Year Ended
December 31, 2017
     Year Ended
December 31, 2016
     Year Ended
December 31, 2015
 

Net investment income (loss)

   $ (37,627    $ (122,728    $ (178,761

Management fee

     111,736        153,021        179,286  

Brokerage commission

     1,844        2,666        3,979  

Net realized gain (loss)

     (1,162,371      663,807        1,559,643  

Change in net unrealized appreciation/depreciation

     (299,569      (110,526      (142,063

Net income (loss)

   $ (1,499,567    $ 430,553      $ 1,238,819  

The Fund’s net income decreased for the year ended December 31, 2017, as compared to the year ended December 31, 2016, primarily due to an increase in the value of the euro versus the U.S. dollar during the year ended December 31, 2017. By comparison, the Fund’s net income decreased for the year ended December 31, 2016, as compared to the year ended December 31, 2015, primarily due to a lesser decrease in the value of the euro versus the U.S. dollar during the year ended December 31, 2016.

ProShares Short VIX Short-Term Futures ETF*

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2017, 2016 and 2015:

 

     Year Ended
December 31,
2017
    Year Ended
December 31,
2016
    Year Ended
December 31,
2015
 

NAV beginning of period

   $ 228,075,387     $ 642,811,361     $ 506,556,124  

NAV end of period

   $ 770,163,871     $ 228,075,387     $ 642,811,361  

Percentage change in NAV

     237.7     (64.5 )%      26.9

Shares outstanding beginning of period

     5,000,000       25,300,080       16,500,080  

Shares outstanding end of period

     6,050,000       5,000,000       25,300,080  

Percentage change in shares outstanding

     21.0     (80.2 )%      53.3

Shares created

     52,550,000       105,900,000       48,200,000  

Shares redeemed

     51,500,000       126,200,080       39,400,000  

Per share NAV beginning of period

   $ 45.62     $ 25.41     $ 30.70  

Per share NAV end of period

   $ 127.30     $ 45.62     $ 25.41  

Percentage change in per share NAV

     179.0     79.5     (17.2 )% 

Percentage change in benchmark

     (72.1 )%      (67.8 )%      (36.1 )% 

Benchmark annualized volatility

     48.8     72.5     78.6

During the year ended December 31, 2017, the increase in the Fund’s NAV resulted primarily from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to the inverse of the daily performance of the S&P 500 VIX Short-Term Futures Index. The increase in the Fund’s NAV also resulted in part from an increase from 5,000,000 outstanding Shares at December 31, 2016 to 6,050,000 outstanding Shares at December 31, 2017. By comparison, during the year ended December 31, 2016, the decrease in the Fund’s NAV resulted primarily from a decrease from 25,300,080 outstanding Shares at December 31, 2015 to 5,000,000 outstanding Shares at December 31, 2016. The decrease in the Fund’s NAV also resulted in part from by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to the

 

84


Table of Contents

inverse of the daily performance of the S&P 500 VIX Short-Term Futures Index. By comparison, during the year ended December 31, 2015, the increase in the Fund’s NAV resulted from an increase from 16,500,080 outstanding Shares at December 31, 2014 to 25,300,080 outstanding Shares at December 31, 2015. The increase in the Fund’s NAV also 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.

For the years ended December 31, 2017, 2016 and 2015, 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 increase of 179.0% for the year ended December 31, 2017, as compared to the Fund’s per Share NAV increase of 79.5% for the year ended December 31, 2016 was primarily due to a greater appreciation in the value of the assets of the Fund during the year ended December 31, 2017. The Fund’s per Share NAV increase of 79.5% for the year ended December 31, 2016, as compared to the Fund’s per Share NAV decrease of 17.2% for the year ended December 31, 2015, was primarily due to a greater decline in prices of the first and second month VIX futures during the year ended December 31, 2016.

During the year ended December 31, 2017, the Fund’s per Share NAV reached its high for the year on December 21, 2017 at $130.27 per Share and reached its low for the year on January 3, 2017 at $49.10 per Share. By comparison, during the year ended December 31, 2016, the Fund’s per Share NAV reached its high for the year on December 21, 2016 at $49.05 per Share and reached its low for the year on February 11, 2016 at $15.75 per Share. By comparison, during the year ended December 31, 2015, the Fund’s per Share NAV reached its high for the year on June 23, 2015 at $48.86 per Share and reached its low for the year on September 1, 2015 at $21.79 per Share.

The benchmark’s decline of 72.1% for the year ended December 31, 2017, as compared to the benchmark’s decline of 67.8% for the year ended December 31, 2016, can be attributed to a greater decline in prices of the near-term futures contracts on the VIX futures curve during the year ended December 31, 2017. By comparison, the benchmark’s decline of 67.8% for the year ended December 31, 2016, as compared to the benchmark’s decline of 36.1% for the year ended December 31, 2015, can be attributed to a greater decline of the prices of the near-term futures contracts on the VIX futures curve during the year ended December 31, 2016.

Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2017, 2016 and 2015:

 

     Year Ended
December 31, 2017
     Year Ended
December 31, 2016
     Year Ended
December 31, 2015
 

Net investment income (loss)

   $ (5,373,544    $ (5,396,850    $ (5,798,200

Management fee

     7,147,223        4,448,808        4,043,491  

Brokerage commission

     4,226,442        2,074,099        1,935,395  

Net realized gain (loss)

     897,400,073        440,379,719        69,828,657  

Change in net unrealized appreciation/depreciation

     27,294,500        (21,062,850      27,107,500  

Net income (loss)

   $ 919,321,029      $ 413,920,019      $ 91,137,957  

The Fund’s net income increased for the year ended December 31, 2017, as compared to the year ended December 31, 2016, primarily due to a greater decline in futures prices during the year ended December 31, 2017. By comparison, the Fund’s net income increased for the year ended December 31, 2016, as compared to the year ended December 31, 2015, primarily due to a greater decline in futures prices during the year ended December 31, 2016.

 

* 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 Short VIX Short-Term Futures ETF.

 

85


Table of Contents

ProShares Ultra Bloomberg Crude Oil

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2017, 2016 and 2015:

 

     Year Ended
December 31,
2017
    Year Ended
December 31,
2016
    Year Ended
December 31,
2015
 

NAV beginning of period

   $ 933,731,860     $ 783,922,475     $ 450,562,988  

NAV end of period

   $ 524,445,526     $ 933,731,860     $ 783,922,475  

Percentage change in NAV

     (43.8 )%      19.1     74.0

Shares outstanding beginning of period

     40,013,933       31,163,934       4,439,917  

Shares outstanding end of period

     22,161,317       40,013,933       31,163,934  

Percentage change in shares outstanding

     (44.6 )%      28.4     601.9

Shares created

     68,500,000       62,875,000       43,415,000  

Shares redeemed

     86,352,616       54,025,001       16,690,983  

Per share NAV beginning of period

   $ 23.34     $ 25.15     $ 101.48  

Per share NAV end of period

   $ 23.66     $ 23.34     $ 25.15  

Percentage change in per share NAV

     1.4     (7.2 )%      (75.2 )% 

Percentage change in benchmark

     5.1     6.7     (44.4 )% 

Benchmark annualized volatility

     24.6     44.5     45.5

During the year ended December 31, 2017, the decrease in the Fund’s NAV resulted from a decrease from 40,013,933 outstanding Shares at December 31, 2016 to 22,161,317 outstanding Shares at December 31, 2017. 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 Bloomberg WTI Crude Oil SubindexSM. By comparison, during the year ended December 31, 2016, the increase in the Fund’s NAV resulted from an increase from 31,163,934 outstanding Shares at December 31, 2015 to 40,013,933 outstanding Shares at December 31, 2016. 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 Bloomberg WTI Crude Oil SubindexSM. By comparison, during the year ended December 31, 2015, the increase in the Fund’s NAV resulted from an increase from 4,439,917 outstanding Shares at December 31, 2014 to 31,163,934 outstanding Shares at December 31, 2015. 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 Bloomberg WTI Crude Oil SubindexSM.

For the years ended December 31, 2017, 2016 and 2015, 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 1.4% for the year ended December 31, 2017, as compared to the Fund’s per Share NAV decrease of 7.2% for the year ended December 31, 2016, was primarily due to an appreciation in the value of the assets of the Fund during the year ended December 31, 2017. The Fund’s per Share NAV decrease of 7.2% for the year ended December 31, 2016, as compared to the Fund’s per Share NAV decrease of 75.2% for the year ended December 31, 2015, was primarily due to a lesser depreciation in the value of the assets of the Fund during the year ended December 31, 2016.

During the year ended December 31, 2017, the Fund’s per Share NAV reached its high for the year on December 29, 2017 at $23.67 per Share and reached its low for the year on June 21, 2017 at $12.64 per Share. By comparison, during the year ended December 31, 2016, the Fund’s per Share NAV reached its high for the year on June 8, 2016 at $28.16 per Share and reached its low for the year on February 11, 2016 at $12.02 per Share. By comparison, during the year ended December 31, 2015, the Fund’s per Share NAV reached its high for the year on May 6, 2015 at $101.92 per Share and reached its low for the year on December 21, 2015 at $23.58 per Share.

The benchmark’s rise of 5.1% for the year ended December 31, 2017, as compared to the benchmark’s rise of 6.7% for the year ended December 31, 2016, can be attributed to a lesser increase in the price of WTI Crude Oil during the year ended December 31, 2017. By comparison, the benchmark’s rise of 6.7% for the year ended December 31, 2016, as compared to the benchmark’s decline of 44.4% for the year ended December 31, 2015, can be attributed to an increase in the price of WTI Crude Oil during the year ended December 31, 2016.

 

86


Table of Contents

Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2017, 2016 and 2015:

 

     Year Ended
December 31, 2017
     Year Ended
December 31, 2016
     Year Ended
December 31, 2015
 

Net investment income (loss)

   $ (1,379,461    $ (6,631,380    $ (8,473,155

Management fee

     7,120,247        8,263,078        8,230,180  

Brokerage commission

     241,263        538,935        639,133  

Net realized gain (loss)

     22,131,716        74,043,666        (896,154,368

Change in net unrealized appreciation/depreciation

     13,257,749        151,007,102        32,543,124  

Net income (loss)

   $ 34,010,004      $ 218,419,388      $ (872,084,399

The Fund’s net income decreased for the year ended December 31, 2017, as compared to the year ended December 31, 2016, primarily due to a lesser increase in the price of WTI Crude Oil during the year ended December 31, 2017. By comparison, the Fund’s net income increased for the year ended December 31, 2016, as compared to the year ended December 31, 2015, primarily due to an increase in the price of WTI Crude Oil during the year ended December 31, 2016.

ProShares Ultra Bloomberg Natural Gas

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2017, 2016 and 2015:

 

     Year Ended
December 31,
2017
    Year Ended
December 31,
2016
    Year Ended
December 31,
2015
 

NAV beginning of period

   $ 43,203,386     $ 38,851,184     $ 70,433,207  

NAV end of period

   $ 63,268,950     $ 43,203,386     $ 38,851,184  

Percentage change in NAV

     46.4     11.2     (44.8 )% 

Shares outstanding beginning of period

     2,292,169       2,092,170       1,142,485  

Shares outstanding end of period

     9,692,169       2,292,169       2,092,170  

Percentage change in shares outstanding

     322.8     9.6     83.1

Shares created

     12,550,000       3,450,000       2,137,500  

Shares redeemed

     5,150,000       3,250,001       1,187,815  

Per share NAV beginning of period

   $ 18.85     $ 18.57     $ 61.65  

Per share NAV end of period

   $ 6.53     $ 18.85     $ 18.57  

Percentage change in per share NAV

     (65.4 )%      1.5     (69.9 )% 

Percentage change in benchmark

     (36.4 )%      10.0     (40.0 )% 

Benchmark annualized volatility

     35.5     40.3     40.4

During the year ended December 31, 2017, the increase in the Fund’s NAV resulted from an increase from 2,292,169 outstanding Shares at December 31, 2016 to 9,692,169 outstanding Shares at December 31, 2017. 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 Bloomberg Natural Gas SubindexSM. By comparison, during the year ended December 31, 2016, the increase in the Fund’s NAV resulted primarily from an increase from 2,092,170 outstanding Shares at December 31, 2015 to 2,292,169 outstanding Shares at December 31, 2016. 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 Bloomberg Natural Gas SubindexSM. By comparison, during the year ended December 31, 2015, 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 Bloomberg Natural Gas SubindexSM. The decrease in the Fund’s NAV was offset by an increase from 1,142,485 outstanding Shares at December 31, 2014 to 2,092,170 outstanding Shares at December 31, 2015.

 

87


Table of Contents

For the years ended December 31, 2017, 2016 and 2015, 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 65.4% for the year ended December 31, 2017, as compared to the Fund’s per Share NAV increase of 1.5% for the year ended December 31, 2016, was primarily due to a depreciation in the value of the assets of the Fund during the year ended December 31, 2017. The Fund’s per Share NAV increase of 1.5% for the year ended December 31, 2016, as compared to the Fund’s per Share NAV decrease of 69.9% for the year ended December 31, 2015, was primarily due to an appreciation in the value of the assets of the Fund during the year ended December 31, 2016.

During the year ended December 31, 2017, the Fund’s per Share NAV reached its high for the year on January 17, 2017 at $15.76 per Share and reached its low for the year on December 21, 2017 at $5.09 per Share. By comparison, during the year ended December 31, 2016, the Fund’s per Share NAV reached its high for the year on December 28, 2016 at $20.33 per Share and reached its low for the year on March 3, 2016 at $8.89 per Share. By comparison, during the year ended December 31, 2015, the Fund’s per Share NAV reached its high for the year on January 14, 2015 at $74.33 per Share and reached its low for the year on December 16, 2015 at $12.83 per Share.

The benchmark’s decline of 36.4% for the year ended December 31, 2017, as compared to the benchmark’s rise of 10.0% for the year ended December 31, 2016, can be attributed to a decrease in the price of Henry Hub Natural Gas during the year ended December 31, 2017. By comparison, the benchmark’s rise of 10.0% for the year ended December 31, 2016, as compared to the benchmark’s decline of 40.0% for the year ended December 31, 2015, can be attributed to an increase in the price of Henry Hub Natural Gas during the year ended December 31, 2016.

Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2017, 2016 and 2015:

 

     Year Ended
December 31, 2017
     Year Ended
December 31, 2016
     Year Ended
December 31, 2015
 

Net investment income (loss)

   $ (233,762    $ (384,486    $ (761,335

Management fee

     446,589        325,435        574,158  

Brokerage commission

     126,252        131,994        207,344  

Net realized gain (loss)

     (40,794,286      17,571,111        (100,772,476

Change in net unrealized appreciation/depreciation

     4,686,596        (3,776,978      41,201,866  

Net income (loss)

   $ (36,341,452    $ 13,409,647      $ (60,331,945

The Fund’s net income decreased for the year ended December 31, 2017, as compared to the year ended December 31, 2016, primarily due to a decrease in the price of Henry Hub Natural Gas during the year ended December 31, 2017. By comparison, the Fund’s net income increased for the year ended December 31, 2016, as compared to the year ended December 31, 2015, primarily due to an increase in the price of Henry Hub Natural Gas during the year ended December 31, 2016.

 

88


Table of Contents

ProShares Ultra Euro

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2017, 2016 and 2015:

 

     Year Ended
December 31,
2017
    Year Ended
December 31,
2016
    Year Ended
December 31,
2015
 

NAV beginning of period

   $ 11,914,585     $ 10,857,730     $ 2,981,441  

NAV end of period

   $ 9,591,516     $ 11,914,585     $ 10,857,730  

Percentage change in NAV

     (19.5 )%      9.7     264.2

Shares outstanding beginning of period

     850,000       700,014       150,014  

Shares outstanding end of period

     550,000       850,000       700,014  

Percentage change in shares outstanding

     (35.3 )%      21.4     366.6

Shares created

     1,600,000       300,000       950,000  

Shares redeemed

     1,900,000       150,014       400,000  

Per share NAV beginning of period

   $ 14.02     $ 15.51     $ 19.87  

Per share NAV end of period

   $ 17.44     $ 14.02     $ 15.51  

Percentage change in per share NAV

     24.4     (9.6 )%      (21.9 )% 

Percentage change in benchmark

     15.3     (3.1 )%      (10.2 )% 

Benchmark annualized volatility

     7.2     8.3     12.1

During the year ended December 31, 2017, the decrease in the Fund’s NAV resulted from a decrease from 850,000 outstanding Shares at December 31, 2016 to 550,000 outstanding Shares at December 31, 2017. 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, 2016, the increase in the Fund’s NAV resulted from an increase from 700,014 outstanding Shares at December 31, 2015 to 850,000 outstanding Shares at December 31, 2016. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of the spot price of the euro versus the U.S. dollar. By comparison, during the year ended December 31, 2015, the increase in the Fund’s NAV resulted from an increase from 150,014 outstanding Shares at December 31, 2014 to 700,014 outstanding Shares at December 31, 2015. 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, 2017, 2016 and 2015, 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 24.4% for the year ended December 31, 2017, as compared to the Fund’s per Share NAV decrease of 9.6% for the year ended December 31, 2016, was primarily due to an appreciation in the value of the assets held by the Fund during the year ended December 31, 2017. The Fund’s per Share NAV decrease of 9.6% for the year ended December 31, 2016, as compared to the Fund’s per Share NAV decrease of 21.9% for the year ended December 31, 2015, was primarily due to a lesser depreciation in the value of the assets held by the Fund during the year ended December 31, 2016.

During the year ended December 31, 2017, the Fund’s per Share NAV reached its high for the year on September 8, 2017 at $17.79 per Share and reached its low for the year on January 3, 2017 at $13.68 per Share. By comparison, during the year ended December 31, 2016, the Fund’s per Share NAV reached its high for the year on April 1, 2016 at $17.23 per Share and reached its low for the year on December 20, 2016 at $13.68 per Share. By comparison, during the year ended December 31, 2015, the Fund’s per Share NAV reached its high for the year on January 2, 2015 at $19.55 per Share and reached its low for the year on November 30, 2015 at $14.73 per Share.

The benchmark’s rise of 15.3% for the year ended December 31, 2017, as compared to the benchmark’s decline of 3.1% for the year ended December 31, 2016, can be attributed to a rise in the value of the euro versus the U.S. dollar during the year ended December 31, 2017. By comparison, the benchmark’s decline of 3.1% for the year ended December 31, 2016, as compared to the benchmark’s decline of 10.2% for the year ended December 31, 2015, can be attributed to a lesser decline in the value of the euro versus the U.S. dollar during the year ended December 31, 2016.

 

89


Table of Contents

Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2017, 2016 and 2015:

 

     Year Ended
December 31, 2017
     Year Ended
December 31, 2016
     Year Ended
December 31, 2015
 

Net investment income (loss)

   $ (29,782    $ (74,522    $ (104,071

Management fee

     124,543        99,537        106,868  

Net realized gain (loss)

     2,212,226        139,113        (1,982,317

Change in net unrealized appreciation/depreciation

     837,700        (1,178,425      707,922  

Net income (loss)

   $ 3,020,144      $ (1,113,834    $ (1,378,466

The Fund’s net income increased for the year ended December 31, 2017, as compared to the year ended December 31, 2016, primarily due to an increase in the value of the euro versus the U.S. dollar during the year ended December 31, 2017. By comparison, the Fund’s net income increased for the year ended December 31, 2016, as compared to the year ended December 31, 2015, primarily due to a lesser decrease in the value of the euro versus the U.S. dollar during the year ended December 31, 2016.

ProShares Ultra Gold

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2017, 2016 and 2015:

 

     Year Ended
December 31,
2017
    Year Ended
December 31,
2016
    Year Ended
December 31,
2015
 

NAV beginning of period

   $ 92,127,200     $ 69,864,815     $ 102,003,345  

NAV end of period

   $ 93,708,748     $ 92,127,200     $ 69,864,815  

Percentage change in NAV

     1.7     31.9     (31.5 )% 

Shares outstanding beginning of period

     2,800,000       2,350,014       2,550,014  

Shares outstanding end of period

     2,350,000       2,800,000       2,350,014  

Percentage change in shares outstanding

     (16.1 )%      19.1     (7.8 )% 

Shares created

     650,000       1,050,000       150,000  

Shares redeemed

     1,100,000       600,014       350,000  

Per share NAV beginning of period

   $ 32.90     $ 29.73     $ 40.00  

Per share NAV end of period

   $ 39.88     $ 32.90     $ 29.73  

Percentage change in per share NAV

     21.2     10.7     (25.7 )% 

Percentage change in benchmark

     12.7     8.1     (12.1 )% 

Benchmark annualized volatility

     11.2     16.5     14.4

During the year ended December 31, 2017, 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. LBMA Gold Price. The increase in the Fund’s NAV was offset by a decrease from 2,800,000 outstanding Shares at December 31, 2016 to 2,350,000 outstanding Shares at December 31, 2017. By comparison, during the year ended December 31, 2016, the increase in the Fund’s NAV resulted primarily from an increase from 2,350,014 outstanding Shares at December 31, 2015 to 2,800,000 outstanding Shares at December 31, 2016. 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. LBMA Gold Price. By comparison, during the year ended December 31, 2015, the decrease in the Fund’s NAV resulted primarily from a decrease from 2,550,014 outstanding Shares at December 31, 2014 to 2,350,014 outstanding Shares at December 31, 2015. 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 gold bullion as measured by the U.S. dollar p.m. LBMA Gold Price†.

 

90


Table of Contents

For the years ended December 31, 2017, 2016 and 2015, 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 21.2% for the year ended December 31, 2017, as compared to the Fund’s per Share NAV increase of 10.7% for the year ended December 31, 2016 was primarily due to a greater appreciation in the value of the assets of the Fund during the year ended December 31, 2017. By comparison, the Fund’s per Share NAV increase of 10.7% for the year ended December 31, 2016, as compared to the Fund’s per Share NAV decrease of 25.7% for the year ended December 31, 2015, was primarily due to an appreciation in the value of the assets of the Fund during the year ended December 31, 2016.

During the year ended December 31, 2017, the Fund’s per Share NAV reached its high for the year on September 8, 2017 at $43.95 per Share and reached its low for the year on January 3, 2017 at $33.18 per Share. By comparison, during the year ended December 31, 2016, the Fund’s per Share NAV reached its high for the year on July 6, 2016 at $47.89 per Share and reached its low for the year on January 5, 2016 at $30.67 per Share. By comparison, during the year ended December 31, 2015, the Fund’s per Share NAV reached its high for the year on January 22, 2015 at $46.03 per Share and reached its low for the year on December 17, 2015 at $29.17 per Share.

The benchmark’s rise of 12.7% for the year ended December 31, 2017, as compared to the benchmark’s rise of 8.1% for the year ended December 31, 2016, can be attributed to a greater increase in the price of spot gold in U.S. dollar terms during the year ended December 31, 2017. By comparison, the benchmark’s rise of 8.1% for the year ended December 31, 2016, as compared to the benchmark’s decline of 12.1% for the year ended December 31, 2015, can be attributed to a decrease in the price of spot gold in U.S. dollar terms during the year ended December 31, 2016.

Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2017, 2016 and 2015:

 

     Year Ended
December 31, 2017
     Year Ended
December 31, 2016
     Year Ended
December 31, 2015
 

Net investment income (loss)

   $ (136,329    $ (650,951    $ (796,424

Management fee

     902,841        900,227        839,083  

Brokerage commission

     48        43        41  

Net realized gain (loss)

     11,485,101        5,815,759        (18,606,208

Change in net unrealized appreciation/depreciation

     8,096,461        (2,198,661      (4,309,443

Net income (loss)

   $ 19,445,233      $ 2,966,147      $ (23,712,075

The Fund’s net income increased for the year ended December 31, 2017, as compared to the year ended December 31, 2016, primarily due to greater increase in the price of spot gold in U.S. dollar terms in conjunction with share transactions during the year ended December 31, 2017. By comparison, the Fund’s net income increased for the year ended December 31, 2016, as compared to the year ended December 31, 2015, primarily due to an increase in the price of spot gold in U.S. dollar terms in conjunction with share transactions during the year ended December 31, 2016.

 

On March 19, 2015, the company that ran the London U.S. dollar gold fixing ceased calculating the price of gold for the LBMA. The LBMA selected ICE Benchmark Administration to calculate the price, which was renamed the LBMA Gold Price, and is based on an electronic, physically settled auction-based methodology, beginning on March 20, 2015.

 

91


Table of Contents

ProShares Ultra Silver

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2017, 2016 and 2015:

 

     Year Ended
December 31,
2017
    Year Ended
December 31,
2016
    Year Ended
December 31,
2015
 

NAV beginning of period

   $ 275,779,940     $ 216,416,642     $ 291,169,743  

NAV end of period

   $ 258,244,696     $ 275,779,940     $ 216,416,642  

Percentage change in NAV

     (6.4 )%      27.4     (25.7 )% 

Shares outstanding beginning of period

     8,246,526       7,996,533       7,396,533  

Shares outstanding end of period

     7,696,526       8,246,526       7,996,533  

Percentage change in shares outstanding

     (6.7 )%      3.1     8.1

Shares created

     1,550,000       2,800,000       2,700,000  

Shares redeemed

     2,100,000       2,550,007       2,100,000  

Per share NAV beginning of period

   $ 33.44     $ 27.06     $ 39.37  

Per share NAV end of period

   $ 33.55     $ 33.44     $ 27.06  

Percentage change in per share NAV

     0.3     23.6     (31.3 )% 

Percentage change in benchmark

     3.8     17.5     (13.5 )% 

Benchmark annualized volatility

     18.7     27.8     24.1

During the year ended December 31, 2017, the decrease in the Fund’s NAV resulted from a decrease from 8,246,526 outstanding Shares at December 31, 2016 to 7,696,526 outstanding Shares at December 31, 2017. 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 silver bullion as measured by the London Silver Price. By comparison, during the year ended December 31, 2016, the increase in the Fund’s NAV resulted primarily from the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of the silver bullion as measured by the London Silver Price. The increase in the Fund’s NAV also resulted in part from an increase from 7,996,533 outstanding Shares at December 31, 2015 to 8,246,526 outstanding Shares at December 31, 2016. By comparison, during the year ended December 31, 2015, 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 London Silver Price. The decrease in the Fund’s NAV was offset by an increase from 7,396,533 outstanding Shares at December 31, 2014 to 7,996,533 outstanding Shares at December 31, 2015.

For the years ended December 31, 2017, 2016 and 2015, 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 0.3% for the year ended December 31, 2017, as compared to the Fund’s per Share NAV increase of 23.6% for the year ended December 31, 2016, was primarily due to a lesser appreciation in the value of the assets of the Fund during the year ended December 31, 2017. By comparison, the Fund’s per Share NAV increase of 23.6% for the year ended December 31, 2016, as compared to the Fund’s per Share NAV decrease of 31.3% for the year ended December 31, 2015, was primarily due to an appreciation in the value of the assets of the Fund during the year ended December 31, 2016.

During the year ended December 31, 2017, the Fund’s per Share NAV reached its high for the year on April 13, 2017 at $42.76 per Share and reached its low for the year on July 10, 2017 at $28.26 per Share. By comparison, during the year ended December 31, 2016, the Fund’s per Share NAV reached its high for the year on August 2, 2016 at $57.12 per Share and reached its low for the year on January 28, 2016 at $25.96 per Share. By comparison, during the year ended December 31, 2015, the Fund’s per Share NAV reached its high for the year on January 23, 2015 at $50.86 per Share and reached its low for the year on December 14, 2015 at $26.73 per Share.

The benchmark’s rise of 3.8% for the year ended December 31, 2017, as compared to the benchmark’s rise of 17.5% for the year ended December 31, 2016, can be attributed to a lesser rise in the price of spot silver in U.S. dollar terms during the year ended December 31, 2017. By comparison, the benchmark’s rise of 17.5% for the year ended December 31, 2016, as compared to the benchmark’s decline of 13.5% for the year ended December 31, 2015, can be attributed to a rise in the price of spot silver in U.S. dollar terms during the year ended December 31, 2016.

 

92


Table of Contents

Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2017, 2016 and 2015:

 

     Year Ended
December 31, 2017
     Year Ended
December 31, 2016
     Year Ended
December 31, 2015
 

Net investment income (loss)

   $ (409,752    $ (2,179,392    $ (2,507,859

Management fee

     2,551,877        3,021,562        2,664,160  

Brokerage commission

     58        45        52  

Net realized gain (loss)

     (31,762,627      62,342,586        (78,309,750

Change in net unrealized appreciation/depreciation

     42,712,371        1,571,491        (10,182,576

Net income (loss)

   $ 10,539,992      $ 61,734,685      $ (91,000,185

The Fund’s net income decreased for the year ended December 31, 2017, as compared to the year ended December 31, 2016, primarily due to a lesser rise in the price of spot silver in U.S. dollar terms during the year ended December 31, 2017. By comparison, the Fund’s net income increased for the year ended December 31, 2016, as compared to the year ended December 31, 2015, primarily due to a rise in the price of spot silver in U.S. dollar terms during the year ended December 31, 2016.

ProShares Ultra VIX Short-Term Futures ETF*

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2017, 2016 and 2015:

 

     Year Ended
December 31, 2017
    Year Ended
December 31, 2016
    Year Ended
December 31, 2015
 

NAV beginning of period

   $ 515,758,754     $ 547,708,740     $ 351,789,953  

NAV end of period

   $ 394,035,141     $ 515,758,754     $ 547,708,740  

Percentage change in NAV

     (23.6 )%      (5.8 )%      55.7

Shares outstanding beginning of period

     2,965,383       195,025       28,040  

Shares outstanding end of period

     38,127,238       2,965,383       195,025  

Percentage change in shares outstanding

     1,185.7     1,420.5     595.5

Shares created

     85,585,000       7,239,500       721,800  

Shares redeemed

     50,423,145       4,469,142       554,815  

Per share NAV beginning of period

   $ 173.93     $ 2,808.40     $ 12,546.00  

Per share NAV end of period

   $ 10.33     $ 173.93     $ 2,808.40  

Percentage change in per share NAV

     (94.1 )%      (93.8 )%      (77.6 )% 

Percentage change in benchmark

     (72.1 )%      (67.8 )%      (36.1 )% 

Benchmark annualized volatility

     48.8     72.5     78.6

During the year ended December 31, 2017, 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 S&P 500 VIX Short-Term Futures Index. The decrease in the Fund’s NAV was offset by an increase from 2,965,383 outstanding Shares at December 31, 2016 to 38,127,238 outstanding Shares at December 31, 2017. By comparison, during the year ended December 31, 2016, 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 S&P 500 VIX Short-Term Futures Index. The decrease in the Fund’s NAV was offset by an increase from 195,025 outstanding Shares at December 31, 2015 to 2,965,383 outstanding Shares at December 31, 2016. By comparison, during the year ended December 31, 2015, the increase in the Fund’s NAV resulted from an increase from 28,040 outstanding Shares at December 31, 2014 to 195,025 outstanding Shares at December 31, 2015. 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.

 

93


Table of Contents

For the years ended December 31, 2017, 2016 and 2015, 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 94.1% for the year ended December 31, 2017, as compared to the Fund’s per Share NAV decrease of 93.8% for the year ended December 31, 2016, was primarily due to a greater decline in prices of the first and second month VIX futures during the year ended December 31, 2017. The Fund’s per Share NAV decrease of 93.8% for the year ended December 31, 2016, as compared to the Fund’s per Share NAV decrease of 77.6% for the year ended December 31, 2015, was primarily due to a greater decline in prices of the first and second month VIX futures during the year ended December 31, 2016.

During the year ended December 31, 2017, the Fund’s per Share NAV reached its high for the year on January 3, 2017 at $147.20 per Share and reached its low for the year on December 21, 2017 at $9.91 per Share. By comparison, during the year ended December 31, 2016, the Fund’s per Share NAV reached its high for the year on February 11, 2016 at $5,715.40 per Share and reached its low for the year on December 27, 2016 at $151.52 per Share. By comparison, during the year ended December 31, 2015, the Fund’s per Share NAV reached its high for the year on January 15, 2015 at $16,428.00 per Share and reached its low for the year on December 1, 2015 at $2,428.00 per Share.

The benchmark’s decline of 72.1% for the year ended December 31, 2017, as compared to the benchmark’s decline of 67.8% for the year ended December 31, 2016, can be attributed to a greater decline in prices of the near-term futures contracts on the VIX futures curve during the year ended December 31, 2017. The benchmark’s decline of 67.8% for the year ended December 31, 2016, as compared to the benchmark’s decline of 36.1% for the year ended December 31, 2015, can be attributed to a greater decline in prices of the near-term futures contracts on the VIX futures curve during the year ended December 31, 2016.

Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2017, 2016 and 2015:

 

     Year Ended
December 31, 2017
     Year Ended
December 31, 2016
     Year Ended
December 31, 2015
 

Net investment income (loss)

   $ (4,896,061    $ (8,936,777    $ (7,410,148

Management fee

     3,960,999        6,417,822        4,362,460  

Brokerage commission

     3,970,588        4,158,919        3,203,875  

Net realized gain (loss)

     (1,020,772,793      (1,567,324,739      (392,223,946

Change in net unrealized appreciation/depreciation

     (26,502,876      (19,895,547      (27,664,140

Net income (loss)

   $ (1,052,171,730    $ (1,596,157,063    $ (427,298,234

The Fund’s net income increased for the year ended December 31, 2017, as compared to the year ended December 31, 2016, primarily due to decline in futures prices in conjunction with a decrease in net asset value during the year ended December 31, 2017. By comparison, the Fund’s net income decreased for the year ended December 31, 2016, as compared to the year ended December 31, 2015, primarily due to a greater decline in futures prices during the year ended December 31, 2016.

 

* 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 Ultra VIX Short-Term Futures ETF.

 

94


Table of Contents

ProShares Ultra Yen

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2017, 2016 and 2015:

 

     Year Ended
December 31, 2017
    Year Ended
December 31, 2016
    Year Ended
December 31, 2015
 

NAV beginning of period

   $ 5,540,957     $ 5,473,848     $ 2,118,028  

NAV end of period

   $ 2,864,269     $ 5,540,957     $ 5,473,848  

Percentage change in NAV

     (48.3 )%      1.2     158.4

Shares outstanding beginning of period

     99,970       99,974       37,504  

Shares outstanding end of period

     49,970       99,970       99,974  

Percentage change in shares outstanding

     (50.0 )%      —^       166.6

Shares created

     —         —         75,000  

Shares redeemed

     50,000       4       12,530  

Per share NAV beginning of period

   $ 55.43     $ 54.75     $ 56.47  

Per share NAV end of period

   $ 57.32     $ 55.43     $ 54.75  

Percentage change in per share NAV

     3.4     1.2     (3.0 )% 

Percentage change in benchmark

     4.5     2.9     (0.4 )% 

Benchmark annualized volatility

     8.2     12.6     8.2

 

^ Amount represent less then 0.05%.

During the year ended December 31, 2017, the decrease in the Fund’s NAV resulted from a decrease from 99,970 outstanding Shares at December 31, 2016 to 49,970 outstanding Shares at December 31, 2017. 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 Japanese yen versus the U.S. dollar during the year ended December 31, 2017. By comparison, during the year ended December 31, 2016, 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, 2016. The increase in the Fund’s NAV was offset by a decrease from 99,974 outstanding Shares at December 31, 2015 to 99,970 outstanding Shares at December 31, 2016. By comparison, during the year ended December 31, 2015, the increase in the Fund’s NAV resulted from an increase from 37,504 outstanding Shares at December 31, 2014 to 99,974 outstanding Shares at December 31, 2015. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the daily performance of the spot price of the Japanese yen versus the U.S. dollar during the year ended December 31, 2015.

For the years ended December 31, 2017, 2016 and 2015, 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 3.4% for the year ended December 31, 2017, as compared to the Fund’s per Share NAV increase of 1.2% for the year ended December 31, 2016, was primarily due to a greater appreciation in the value of the assets held by the Fund during the year ended December 31, 2017. The Fund’s per Share NAV increase of 1.2% for the year ended December 31, 2016, as compared to the Fund’s per Share NAV decrease of 3.0% for the year ended December 31, 2015, was primarily due to an appreciation in the value of the assets held by the Fund during the year ended December 31, 2016.

During the year ended December 31, 2017, the Fund’s per Share NAV reached its high for the year on April 18, 2017 at $63.59 per Share and reached its low for the year on January 3, 2017 at $54.62 per Share. By comparison, during the year ended December 31, 2016, the Fund’s per Share NAV reached its high for the year on August 18, 2016 at $77.06 per Share and reached its low for the year on January 29, 2016 at $53.85 per Share. By comparison, during the year ended December 31, 2015, the Fund’s per Share NAV reached its high for the year on January 15, 2015 at $59.83 per Share and reached its low for the year on June 5, 2015 at $50.86 per Share.

 

95


Table of Contents

The benchmark’s rise of 4.5% for the year ended December 31, 2017, as compared to the benchmark’s rise of 2.9% for the year ended December 31, 2016, can be attributed to a greater rise in the value of the Japanese yen versus the U.S. dollar during the year ended December 31, 2017. By comparison, the benchmark’s rise of 2.9% for the year ended December 31, 2016, as compared to the benchmark’s decline of 0.4% for the year ended December 31, 2015, can be attributed to a rise in the value of the Japanese yen versus the U.S. dollar during the year ended December 31, 2016.

Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2017, 2016 and 2015:

 

     Year Ended
December 31, 2017
     Year Ended
December 31, 2016
     Year Ended
December 31, 2015
 

Net investment income (loss)

   $ (21,882    $ (45,847    $ (44,423

Management fee

     50,521        62,705        48,032  

Net realized gain (loss)

     (46,278      717,052        (472,907

Change in net unrealized appreciation/depreciation

     307,194        (603,897      276,816  

Net income (loss)

   $ 239,034      $ 67,308      $ (240,514

The Fund’s net income increased for the year ended December 31, 2017, as compared to the year ended December 31, 2016, primarily due to a greater rise in the value of the Japanese yen versus the U.S. dollar during the year ended December 31, 2017. By comparison, the Fund’s net income increased for the year ended December 31, 2016, as compared to the year ended December 31, 2015, primarily due to a rise in the value of the Japanese yen versus the U.S. dollar during the year ended December 31, 2016.

ProShares UltraPro 3x Crude Oil ETF

Fund Performance

Since the Fund commenced investment operations on March 24, 2017, comparisons of the Fund’s results of operations for the periods ended December 31, 2016 and December 31, 2015 have not been provided. In addition, since the Fund commenced operations on March 24, 2017, the Fund’s results of operations for the period ended December 31, 2017 may not be meaningful.

The following table provides summary performance information for the Fund for the period ended December 31, 2017:

 

     March 24, 2017
(Commencement of
Operations) through
December 31, 2017
 

NAV beginning of period

   $ 200  

NAV end of period

   $ 11,335,483  

Percentage change in NAV

     NM  

Shares outstanding beginning of period

     8  

Shares outstanding end of period

     300,008  

Percentage change in shares outstanding

     NM  

Shares created

     1,750,008  

Shares redeemed

     1,450,000  

Per share NAV beginning of period

   $ 25.00  

Per share NAV end of period

   $ 37.78  

Percentage change in per share NAV

     51.1

Percentage change in benchmark

     21.8

Benchmark annualized volatility

     24.7

NM – Not Meaningful

During the period ended December 31, 2017, the increase in the Fund’s NAV resulted primarily from an increase from 8 outstanding Shares at March 24, 2017 to 300,008 outstanding Shares at December 31, 2017. 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 3x of the daily performance of the Bloomberg WTI Crude Oil SubindexSM.

 

96


Table of Contents

For the period ended December 31, 2017, the Fund’s daily performance had a statistical correlation over 0.99 to 3x of the daily performance of its benchmark.

During the period ended December 31, 2017, the Fund’s per Share NAV reached its high for the period on December 29, 2017 at $37.79 per Share and reached its low for the period on June 21, 2017 at $15.44 per Share.

The benchmark’s rise of 21.8% for the period ended December 31, 2017, can be attributed to an increase in the price of WTI Crude Oil during the period ended December 31, 2017.

Net Income/Loss

The following table provides summary income information for the Fund for the period ended December 31, 2017:

 

     March 24, 2017
(Commencement of
Operations) through
December 31, 2017
 

Net investment income (loss)

   $ (119,518

Brokerage commission

     34,408  

Offering costs

     119,081  

Limitation by Sponsor

     (24,342

Net realized gain (loss)

     6,018,618  

Change in net unrealized appreciation/depreciation

     1,417,998  

Net income (loss)

   $ 7,317,098  

ProShares UltraPro 3x Short Crude Oil ETF

Fund Performance

Since the Fund commenced investment operations on March 24, 2017, comparisons of the Fund’s results of operations for the periods ended December 31, 2016 and December 31, 2015 have not been provided. In addition, since the Fund commenced operations on March 24, 2017, the Fund’s results of operations for the period ended December 31, 2017 may not be meaningful.

The following table provides summary performance information for the Fund for the period ended December 31, 2017:

 

     March 24, 2017
(Commencement of
Operations) through
December 31, 2017
 

NAV beginning of period

   $ 200  

NAV end of period

   $ 21,161,176  

Percentage change in NAV

     NM  

Shares outstanding beginning of period

     8  

Shares outstanding end of period

     2,000,008  

Percentage change in shares outstanding

     NM  

Shares created

     2,300,008  

Shares redeemed

     300,000  

Per share NAV beginning of period

   $ 25.00  

Per share NAV end of period

   $ 10.58  

Percentage change in per share NAV

     (57.7 )% 

Percentage change in benchmark

     21.8

Benchmark annualized volatility

     24.7

 

97


Table of Contents

NM – Not Meaningful

During the period ended December 31, 2017 the increase in the Fund’s NAV resulted primarily from an increase from 8 outstanding Shares at March 24, 2017 to 2,000,008 outstanding Shares at December 31, 2017. 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 3x of the inverse of the daily performance of the Bloomberg WTI Crude Oil SubindexSM.

For the period ended December 31, 2017, the Fund’s daily performance had a statistical correlation over 0.99 to 3x of the inverse of the daily performance of its benchmark.

During the period ended December 31, 2017, the Fund’s per Share NAV reached its high for the period on June 21, 2017 at $33.88 per Share and reached its low for the period on December 29, 2017 at $10.58 per Share.

The benchmark’s rise of 21.8% for the period ended December 31, 2017, can be attributed to an increase in the price of WTI Crude Oil during the period ended December 31, 2017.

Net Income/Loss

The following table provides summary income information for the Fund for the period ended December 31, 2017:

 

     March 24, 2017
(Commencement of
Operations) through
December 31, 2017
 

Net investment income (loss)

   $ (110,590

Brokerage commission

     32,624  

Offering costs

     119,070  

Limitation by Sponsor

     (35,309

Net realized gain (loss)

     (7,046,628

Change in net unrealized appreciation/depreciation

     (2,988,155

Net income (loss)

   $ (10,145,373

ProShares UltraShort Australian Dollar

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2017, 2016 and 2015:

 

     Year Ended
December 31, 2017
    Year Ended
December 31, 2016
    Year Ended
December 31, 2015
 

NAV beginning of period

   $ 16,613,473     $ 20,460,679     $ 23,120,790  

NAV end of period

   $ 13,702,102     $ 16,613,473     $ 20,460,679  

Percentage change in NAV

     (17.5 )%      (18.8 )%      (11.5 )% 

Shares outstanding beginning of period

     300,000       350,005       450,005  

Shares outstanding end of period

     300,000       300,000       350,005  

Percentage change in shares outstanding

     —         (14.3 )%      (22.2 )% 

Shares created

     100,000       —         50,000  

Shares redeemed

     100,000       50,005       150,000  

Per share NAV beginning of period

   $ 55.38     $ 58.46     $ 51.38  

Per share NAV end of period

   $ 45.67     $ 55.38     $ 58.46  

Percentage change in per share NAV

     (17.5 )%      (5.3 )%      13.8

Percentage change in benchmark

     8.0     (1.0 )%      (10.7 )% 

Benchmark annualized volatility

     7.5     11.5     11.9

During the year ended December 31, 2017, the decrease in the Fund’s NAV resulted in 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. There was no net change in the Fund’s

 

98


Table of Contents

outstanding Shares from December 31, 2016 to December 31, 2017. By comparison, during the year ended December 31, 2016, the decrease in the Fund’s NAV resulted primarily from a decrease from 350,005 outstanding Shares at December 31, 2015 to 300,000 outstanding Shares at December 31, 2016. 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 Australian dollar versus the U.S. dollar. By comparison, during the year ended December 31, 2015, the decrease in the Fund’s NAV resulted from a decrease from 450,005 outstanding Shares at December 31, 2014 to 350,005 outstanding Shares at December 31, 2015. 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 spot price of the Australian dollar versus the U.S. dollar.

For the years ended December 31, 2017, 2016 and 2015, 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 17.5% for the year ended December 31, 2017, as compared to the Fund’s per Share NAV decrease of 5.3% for the year ended December 31, 2016, was primarily due to a greater depreciation in the value of the assets held by the Fund during the year ended December 31, 2017. The Fund’s per Share NAV decrease of 5.3% for the year ended December 31, 2016, as compared to the Fund’s per Share NAV increase of 13.8% for the year ended December 31, 2015, was primarily due to a greater appreciation in the value of the assets held by the Fund during the year ended December 31, 2016.

During the year ended December 31, 2017, the Fund’s per Share NAV reached its high for the year on January 3, 2017 at $55.24 per Share and reached its low for the year on September 8, 2017 at $43.35 per Share. By comparison, during the year ended December 31, 2016, the Fund’s per Share NAV reached its high for the year on January 15, 2016 at $65.74 per Share and reached its low for the year on November 8, 2016 at $48.14 per Share. By comparison, during the year ended December 31, 2015, the Fund’s per Share NAV reached its high for the year on September 4, 2015 at $66.75 per Share and reached its low for the year on May 13, 2015 at $50.07 per Share.

The benchmark’s rise of 8.0% for the year ended December 31, 2017, as compared to the benchmark’s decline of 1.0% for the year ended December 31, 2016, can be attributed to a rise in the value of the Australian dollar versus the U.S. dollar during the period ended December 31, 2017. By comparison, the benchmark’s decline of 1.0% for the year ended December 31, 2016, as compared to the benchmark’s decline of 10.7% for the year ended December 31, 2015, can be attributed to a lesser decline in the value of the Australian dollar versus the U.S. dollar during the period ended December 31, 2016.

Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2017, 2016 and 2015:

 

     Year Ended
December 31, 2017
     Year Ended
December 31, 2016
     Year Ended
December 31, 2015
 

Net investment income (loss)

   $ (46,774    $ (145,652    $ (209,987

Management fee

     123,234        175,191        199,845  

Brokerage commission

     8,846        13,920        16,140  

Net realized gain (loss)

     (866,949      (2,786,709      4,330,688  

Change in net unrealized appreciation/depreciation

     (2,076,278      1,602,889        (1,164,304

Net income (loss)

   $ (2,990,001    $ (1,329,472    $ 2,956,397  

The Fund’s net income decreased for the year ended December 31, 2017, as compared to the year ended December 31, 2016, primarily due to a rise in the value of the Australian dollar versus the U.S. dollar during the year ended December 31, 2017. The Fund’s net income decreased for the year ended December 31, 2016, as compared to the year ended December 31, 2015, primarily due to a lesser decline in the value of the Australian dollar versus the U.S. dollar during the year ended December 31, 2016.

 

99


Table of Contents

ProShares UltraShort Bloomberg Crude Oil

The following table provides summary performance information for the Fund for the years ended December 31, 2017, 2016 and 2015:

 

     Year Ended
December 31, 2017
    Year Ended
December 31, 2016
    Year Ended
December 31, 2015
 

NAV beginning of period

   $ 200,958,303     $ 95,897,894     $ 169,210,110  

NAV end of period

   $ 225,843,284     $ 200,958,303     $ 95,897,894  

Percentage change in NAV

     12.4     109.6     (43.3 )% 

Shares outstanding beginning of period

     6,339,884       1,439,888       4,339,888  

Shares outstanding end of period

     9,289,884       6,339,884       1,439,888  

Percentage change in shares outstanding

     46.5     340.3     (66.8 )% 

Shares created

     14,500,000       18,500,000       21,600,000  

Shares redeemed

     11,550,000       13,600,004       24,500,000  

Per share NAV beginning of period

   $ 31.70     $ 66.60     $ 38.99  

Per share NAV end of period

   $ 24.31     $ 31.70     $ 66.60  

Percentage change in per share NAV

     (23.3 )%      (52.4 )%      70.8

Percentage change in benchmark

     5.1     6.7     (44.4 )% 

Benchmark annualized volatility

     24.6     44.5     45.5

During the year ended December 31, 2017, the increase in the Fund’s NAV resulted from an increase from 6,339,884 outstanding Shares at December 31, 2016 to 9,289,884 outstanding Shares at December 31, 2017. 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 Bloomberg WTI Crude Oil SubindexSM. By comparison, during the year ended December 31, 2016, the increase in the Fund’s NAV resulted from an increase from 1,439,888 outstanding Shares at December 31, 2015 to 6,339,884 outstanding Shares at December 31, 2016. 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 Bloomberg WTI Crude Oil SubindexSM. By comparison, during the year ended December 31, 2015, the decrease in the Fund’s NAV resulted from a decrease from 4,339,888 outstanding Shares at December 31, 2014 to 1,439,888 outstanding Shares at December 31, 2015. 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 Bloomberg WTI Crude Oil SubindexSM.

For the years ended December 31, 2017, 2016 and 2015, the Fund’s daily performance had a statistical correlation over 0.99 to 2x of the inverse of the daily performance of its benchmark. The Fund’s per Share NAV decrease of 23.3% for the year ended December 31, 2017, as compared to the Fund’s per Share NAV decrease of 52.4% for the year ended December 31, 2016, was primarily due to a lesser depreciation in the value of the assets of the Fund during the year ended December 31, 2017. The Fund’s per Share NAV decrease of 52.4% for the year ended December 31, 2016, as compared to the Fund’s per Share NAV increase of 70.8% for the year ended December 31, 2015, was primarily due to a depreciation in the value of the assets of the Fund during the year ended December 31, 2016.

During the year ended December 31, 2017, the Fund’s per Share NAV reached its high for the year on June 21, 2017 at $51.13 per Share and reached its low for the year on December 29, 2017 at $24.31 per Share. By comparison, during the year ended December 31, 2016, the Fund’s per Share NAV reached its high for the year on January 20, 2016 at $116.11 per Share and reached its low for the year on December 28, 2016 at $31.37 per Share. By comparison, during the year ended December 31, 2015, the Fund’s per Share NAV reached its high for the year on December 21, 2015 at $72.44 per Share and reached its low for the year on June 10, 2015 at $26.46 per Share.

The benchmark’s rise of 5.1% for the year ended December 31, 2017, as compared to the benchmark’s rise of 6.7% for the year ended December 31, 2016, can be attributed to a lesser increase in the price of WTI Crude Oil during the year ended December 31, 2017. By comparison, the benchmark’s rise of 6.7% for the year ended December 31, 2016, as compared to the benchmark’s decline of 44.4% for the year ended December 31, 2015, can be attributed to an increase in the price of WTI Crude Oil during the year ended December 31, 2016.

 

100


Table of Contents

Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2017, 2016 and 2015:

 

     Year Ended
December 31, 2017
     Year Ended
December 31, 2016
     Year Ended
December 31, 2015
 

Net investment income (loss)

   $ (355,651    $ (1,408,964    $ (2,166,211

Management fee

     1,934,688        1,755,696        1,978,613  

Brokerage commission

     82,258        153,428        248,482  

Net realized gain (loss)

     (6,491,508      (67,756,228      91,684,782  

Change in net unrealized appreciation/depreciation

     (20,957,983      (22,509,153      (33,951,907

Net income (loss)

   $ (27,805,142    $ (91,674,345    $ 55,566,664  

The Fund’s net income increased for the year ended December 31, 2017, as compared to the year ended December 31, 2016, primarily due to a lesser increase in the price of WTI Crude Oil during the year ended December 31, 2017. By comparison, the Fund’s net income decreased for the year ended December 31, 2016, as compared to the year ended December 31, 2015, primarily due to an increase in the price of WTI Crude Oil during the year ended December 31, 2016.

ProShares UltraShort Bloomberg Natural Gas

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2017, 2016 and 2015:

 

     Year Ended
December 31, 2017
    Year Ended
December 31, 2016
    Year Ended
December 31, 2015
 

NAV beginning of period

   $ 4,038,794     $ 10,462,856     $ 14,688,564  

NAV end of period

   $ 6,902,743     $ 4,038,794     $ 10,462,856  

Percentage change in NAV

     70.9     (61.4 )%      (28.8 )% 

Shares outstanding beginning of period

     174,832       224,856       524,856  

Shares outstanding end of period

     174,832       174,832       224,856  

Percentage change in shares outstanding

     —         (22.2 )%      (57.2 )% 

Shares created

     650,000       950,000       1,350,000  

Shares redeemed

     650,000       1,000,024       1,650,000  

Per share NAV beginning of period

   $ 23.10     $ 46.53     $ 27.99  

Per share NAV end of period

   $ 39.48     $ 23.10     $ 46.53  

Percentage change in per share NAV

     70.9     (50.4 )%      66.3

Percentage change in benchmark

     (36.4 )%      10.0     (40.0 )% 

Benchmark annualized volatility

     35.5     40.3     40.4

During the year ended December 31, 2017, 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 Bloomberg Natural Gas SubindexSM. There was no net change in the Fund’s outstanding Shares from December 31, 2016 to December 31, 2017. By comparison, during the year ended December 31, 2016, the decrease in the Fund’s NAV resulted primarily from a decrease from 224,856 outstanding Shares at December 31, 2015 to 174,832 outstanding Shares at December 31, 2016. 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 Bloomberg Natural Gas SubindexSM. By comparison, during the year ended December 31, 2015, the decrease in the Fund’s NAV resulted from a decrease from 524,856 outstanding Shares at December 31, 2014 to 224,856 outstanding Shares at December 31, 2015. 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 Bloomberg Natural Gas SubindexSM.

For the years ended December 31, 2017, 2016 and 2015, 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 70.9% for the year ended December 31, 2017, as compared to the Fund’s per Share NAV decrease of 50.4% for the

 

101


Table of Contents

year ended December 31, 2016, was primarily due to an appreciation in the value of the assets of the Fund during the year ended December 31, 2017. The Fund’s per Share NAV decrease of 50.4% for the year ended December 31, 2016, as compared to the Fund’s per Share NAV increase of 66.3% for the year ended December 31, 2015, was primarily due to a depreciation in the value of the assets of the Fund during the year ended December 31, 2016.

During the year ended December 31, 2017, the Fund’s per Share NAV reached its high for the year on December 21, 2017 at $51.85 per Share and reached its low for the year on January 26, 2017 at $25.38 per Share. By comparison, during the year ended December 31, 2016, the Fund’s per Share NAV reached its high for the year on March 3, 2016 at $84.20 per Share and reached its low for the year on December 28, 2016 at $21.47 per Share. By comparison, during the year ended December 31, 2015, the Fund’s per Share NAV reached its high for the year on December 16, 2015 at $72.21 per Share and reached its low for the year on January 14, 2015 at $21.53 per Share.

The benchmark’s decline of 36.4% for the year ended December 31, 2017, as compared to the benchmark’s rise of 10.0% for the year ended December 31, 2016, can be attributed to a decrease in the price of Henry Hub Natural Gas during the year ended December 31, 2017. The benchmark’s rise of 10.0% for the year ended December 31, 2016, as compared to the benchmark’s decline of 40.0% for the year ended December 31, 2015, can be attributed to an increase in the price of Henry Hub Natural Gas during the year ended December 31, 2016.

Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2017, 2016 and 2015:

 

     Year Ended
December 31, 2017
     Year Ended
December 31, 2016
     Year Ended
December 31, 2015
 

Net investment income (loss)

   $ (54,451    $ (122,172    $ (177,124

Management fee

     63,534        81,259        112,277  

Brokerage commission

     29,529        59,966        70,677  

Net realized gain (loss)

     4,761,749        589,999        15,212,833  

Change in net unrealized appreciation/depreciation

     (614,897      1,988,745        (6,412,461

Net income (loss)

   $ 4,092,401      $ 2,456,572      $ 8,623,248  

The Fund’s net income increased for the year ended December 31, 2017, as compared to the year ended December 31, 2016, primarily due to a decrease in the price of Henry Hub Natural Gas, during the year ended December 31, 2017. By comparison, the Fund’s net income decreased for the year ended December 31, 2016, as compared to the year ended December 31, 2015, primarily due to an increase in the price of Henry Hub Natural Gas, during the year ended December 31, 2016.

 

102


Table of Contents

ProShares UltraShort Euro

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2017, 2016 and 2015:

 

     Year Ended
December 31, 2017
    Year Ended
December 31, 2016
    Year Ended
December 31, 2015
 

NAV beginning of period

   $ 349,392,650     $ 522,306,518     $ 517,191,349  

NAV end of period

   $ 202,548,197     $ 349,392,650     $ 522,306,518  

Percentage change in NAV

     (42.0 )%      (33.1 )%      1.0

Shares outstanding beginning of period

     12,900,000       20,450,014       23,950,014  

Shares outstanding end of period

     9,550,000       12,900,000       20,450,014  

Percentage change in shares outstanding

     (26.0 )%      (36.9 )%      (14.6 )% 

Shares created

     2,400,000       650,000       12,600,000  

Shares redeemed

     5,750,000       8,200,014       16,100,000  

Per share NAV beginning of period

   $ 27.08     $ 25.54     $ 21.59  

Per share NAV end of period

   $ 21.21     $ 27.08     $ 25.54  

Percentage change in per share NAV

     (21.7 )%      6.0     18.3

Percentage change in benchmark

     15.3     (3.1 )%      (10.2 )% 

Benchmark annualized volatility

     7.2     8.3     12.1

During the year ended December 31, 2017, the decrease in the Fund’s NAV resulted from a decrease from 12,900,000 outstanding Shares at December 31, 2016 to 9,550,000 outstanding Shares at December 31, 2017. The decrease in the Fund’s NAV was 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, 2016, the decrease in the Fund’s NAV resulted from a decrease from 20,450,014 outstanding Shares at December 31, 2015 to 12,900,000 outstanding Shares at December 31, 2016. 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 spot price of the euro versus the U.S. dollar. By comparison, during the year ended December 31, 2015, 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 spot price of the euro versus the U.S. dollar. The increase in the Fund’s NAV was offset by a decrease from 23,950,014 outstanding Shares at December 31, 2014 to 20,450,014 outstanding Shares at December 31, 2015.

For the years ended December 31, 2017, 2016 and 2015, 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 21.7% for the year ended December 31, 2017, as compared to the Fund’s per Share NAV increase of 6.0% for the year ended December 31, 2016, was primarily due to a depreciation in the value of the assets held by the Fund during the year ended December 31, 2017. The Fund’s per Share NAV increase of 6.0% for the year ended December 31, 2016, as compared to the Fund’s per Share NAV increase of 18.3% for the year ended December 31, 2015, was primarily due to a lesser appreciation in the value of the assets held by the Fund during the year ended December 31, 2016.

During the year ended December 31, 2017, the Fund’s per Share NAV reached its high for the year on January 3, 2017 at $27.74 per Share and reached its low for the year on September 8, 2017 at $20.91 per Share. By comparison, during the year ended December 31, 2016, the Fund’s per Share NAV reached its high for the year on December 20, 2016 at $27.77 per Share and reached its low for the year on May 2, 2016 at $22.63 per Share. By comparison, during the year ended December 31, 2015, the Fund’s per Share NAV reached its high for the year on March 13, 2015 at $28.50 per Share and reached its low for the year on January 2, 2015 at $21.94 per Share.

The benchmark’s rise of 15.3% for the year ended December 31, 2017, as compared to the benchmark’s decline of 3.1% for the year ended December 31, 2016, can be attributed to a rise in the value of the euro versus the U.S. dollar during the year ended December 31, 2017. By comparison, the benchmark’s decline of 3.1% for the year ended December 31, 2016, as compared to the benchmark’s decline of 10.2% for the year ended December 31, 2015, can be attributed to a lesser decline in the value of the euro versus the U.S. dollar during the year ended December 31, 2016.

 

103


Table of Contents

Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2017, 2016 and 2015:

 

     Year Ended
December 31, 2017
     Year Ended
December 31, 2016
     Year Ended
December 31, 2015
 

Net investment income (loss)

   $ (396,715    $ (2,764,657    $ (5,000,587

Management fee

     2,445,170        3,777,543        5,265,432  

Net realized gain (loss)

     (39,695,465      (25,711,276      131,674,081  

Change in net unrealized appreciation/depreciation

     (22,527,463      44,885,942        (45,497,112

Net income (loss)

   $ (62,619,643    $ 16,410,009      $ 81,176,382  

The Fund’s net income decreased for the year ended December 31, 2017, as compared to the year ended December 31, 2016, primarily due to a rise in the value of the euro versus the U.S. dollar during the year ended December 31, 2017. By comparison, the Fund’s net income decreased for the year ended December 31, 2016, as compared to the year ended December 31, 2015, primarily due to a lesser decline in the value of the euro versus the U.S. dollar during the year ended December 31, 2016.

ProShares UltraShort Gold

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2017, 2016 and 2015:

 

     Year Ended
December 31, 2017
    Year Ended
December 31, 2016
    Year Ended
December 31, 2015
 

NAV beginning of period

   $ 63,653,647     $ 74,971,764     $ 81,861,762  

NAV end of period

   $ 31,497,410     $ 63,653,647     $ 74,971,764  

Percentage change in NAV

     (50.5 )%      (15.1 )%      (8.4 )% 

Shares outstanding beginning of period

     696,978       646,978       846,978  

Shares outstanding end of period

     446,978       696,978       646,978  

Percentage change in shares outstanding

     (35.9 )%      7.7     (23.6 )% 

Shares created

     350,000       1,050,000       150,000  

Shares redeemed

     600,000       1,000,000       350,000  

Per share NAV beginning of period

   $ 91.33     $ 115.88     $ 96.65  

Per share NAV end of period

   $ 70.47     $ 91.33     $ 115.88  

Percentage change in per share NAV

     (22.8 )%      (21.2 )%      19.9

Percentage change in benchmark

     12.7     8.1     (12.1 )% 

Benchmark annualized volatility

     11.2     16.5     14.4

During the year ended December 31, 2017, the decrease in the Fund’s NAV resulted primarily from a decrease from 696,978 outstanding Shares at December 31, 2016 to 446,978 outstanding Shares at December 31, 2017. 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. LBMA Gold Price. By comparison, during the year ended December 31, 2016, 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 inverse of the daily performance of gold bullion as measured by the U.S. dollar p.m. LBMA Gold Price. The decrease in the Fund’s NAV was offset by an increase from 646,978 outstanding Shares at December 31, 2015 to 696,978 outstanding Shares at December 31, 2016. By comparison, during the year ended December 31, 2015, the decrease in the Fund’s NAV resulted from a decrease from 846,978 outstanding Shares at December 31, 2014 to 646,978 outstanding Shares at December 31, 2015. 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 gold bullion as measured by the U.S. dollar p.m. LBMA Gold Price.

 

104


Table of Contents

For the years ended December 31, 2017, 2016 and 2015, 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 22.8% for the year ended December 31, 2017, as compared to the Fund’s per Share NAV decrease of 21.2% for the year ended December 31, 2016, was primarily due to a greater depreciation in the value of the assets of the Fund during the year ended December 31, 2017. The Fund’s per Share NAV decrease of 21.2% for the year ended December 31, 2016, as compared to the Fund’s per Share NAV increase of 19.9% for the year ended December 31, 2015, was primarily due to a depreciation in the value of the assets of the Fund during the year ended December 31, 2016.

During the year ended December 31, 2017, the Fund’s per Share NAV reached its high for the year on January 3, 2017 at $90.53 per Share and reached its low for the year on September 8, 2017 at $64.79 per Share. By comparison, during the year ended December 31, 2016, the Fund’s per Share NAV reached its high for the year on January 5, 2016 at $112.07 per Share and reached its low for the year on July 6, 2016 at $65.63 per Share. By comparison, during the year ended December 31, 2015, the Fund’s per Share NAV reached its high for the year on December 17, 2015 at $118.51 per Share and reached its low for the year on January 22, 2015 at $83.07 per Share.

The benchmark’s rise of 12.7% for the year ended December 31, 2017, as compared to the benchmark’s rise of 8.1% for the year ended December 31, 2016, can be attributed to a greater increase in the price of spot gold in U.S. dollar terms during the year ended December 31, 2017. By comparison, the benchmark’s rise of 8.1% for the year ended December 31, 2016, as compared to the benchmark’s decline of 12.1% for the year ended December 31, 2015, can be attributed to an increase in the price of spot gold in U.S. dollar terms during the year ended December 31, 2016.

Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2017, 2016 and 2015:

 

     Year Ended
December 31, 2017
     Year Ended
December 31, 2016
     Year Ended
December 31, 2015
 

Net investment income (loss)

   $ (60,865    $ (461,423    $ (703,582

Management fee

     344,734        625,950        735,540  

Brokerage commission

     48        43        41  

Net realized gain (loss)

     (6,994,765      (12,241,129      12,708,936  

Change in net unrealized appreciation/depreciation

     (4,548,271      1,240,412        4,098,510  

Net income (loss)

   $ (11,603,901    $ (11,445,140    $ 16,103,864  

The Fund’s net income decreased for the year ended December 31, 2017, as compared to the year ended December 31, 2016, primarily due to a greater increase in the price of spot gold in U.S. dollar terms during the year ended December 31, 2017. By comparison, the Fund’s net income decreased for the year ended December 31, 2016, as compared to the year ended December 31, 2015, primarily due to an increase in the price of spot gold in U.S. dollar terms during the year ended December 31, 2016.

On March 19, 2015, the company that ran the London U.S. dollar gold fixing ceased calculating the price of gold for the LBMA. The LBMA selected ICE Benchmark Administration to calculate the price, which was renamed the LBMA Gold Price, and is based on an electronic, physically settled auction-based methodology, beginning on March 20, 2015.

 

105


Table of Contents

ProShares UltraShort Silver

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2017, 2016 and 2015:

 

     Year Ended
December 31, 2017
    Year Ended
December 31, 2016
    Year Ended
December 31, 2015
 

NAV beginning of period

   $ 23,017,656     $ 55,987,938     $ 53,007,867  

NAV end of period

   $ 14,806,259     $ 23,017,656     $ 55,987,938  

Percentage change in NAV

     (35.7 )%      (58.9 )%      5.6

Shares outstanding beginning of period

     616,976       866,978       916,978  

Shares outstanding end of period

     466,976       616,976       866,978  

Percentage change in shares outstanding

     (24.3 )%      (28.8 )%      (5.5 )% 

Shares created

     850,000       1,650,000       1,650,000  

Shares redeemed

     1,000,000       1,900,000       1,700,000  

Per share NAV beginning of period

   $ 37.31     $ 64.58     $ 57.81  

Per share NAV end of period

   $ 31.71     $ 37.31     $ 64.58  

Percentage change in per share NAV

     (15.0 )%      (42.2 )%      11.7

Percentage change in benchmark

     3.8     17.5     (13.5 )% 

Benchmark annualized volatility

     18.7     27.8     24.1

During the year ended December 31, 2017, the decrease in the Fund’s NAV resulted primarily from a decrease from 616,976 outstanding Shares at December 31, 2016 to 466,976 outstanding Shares at December 31, 2017. 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 London Silver Price. By comparison, during the year ended December 31, 2016, the decrease in the Fund’s NAV resulted primarily from a decrease from 866,978 outstanding Shares at December 31, 2015 to 616,976 outstanding Shares at December 31, 2016. 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 London Silver Price. By comparison, during the year ended December 31, 2015, 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 London Silver Price†. The increase in the Fund’s NAV was offset by a decrease from 916,978 outstanding Shares at December 31, 2014 to 866,978 outstanding Shares at December 31, 2015.

For the years ended December 31, 2017, 2016 and 2015, 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 15.0% for the year ended December 31, 2017, as compared to the Fund’s per Share NAV decrease of 42.2% for the year ended December 31, 2016, was primarily due to a lesser depreciation in the value of the assets of the Fund during the year ended December 31, 2017. The Fund’s per Share NAV decrease of 42.2% for the year ended December 31, 2016, as compared to the Fund’s per Share NAV increase of 11.7% for the year ended December 31, 2015, was primarily due to a depreciation in the value of the assets of the Fund during the year ended December 31, 2016.

During the year ended December 31, 2017, the Fund’s per Share NAV reached its high for the year on July 10, 2017 at $40.39 per Share and reached its low for the year on September 8, 2017 at $27.55 per Share. By comparison, during the year ended December 31, 2016, the Fund’s per Share NAV reached its high for the year on January 28, 2016 at $66.01 per Share and reached its low for the year on August 2, 2016 at $25.21 per Share. By comparison, during the year ended December 31, 2015, the Fund’s per Share NAV reached its high for the year on December 14, 2015 at $66.08 per Share and reached its low for the year on January 23, 2015 at $43.39 per Share.

The benchmark’s rise of 3.8% for the year ended December 31, 2017, as compared to the benchmark’s rise of 17.5% for the year ended December 31, 2016, can be attributed to a lesser rise in the price of spot silver in U.S. dollar terms during the year ended December 31, 2017. The benchmark’s rise of 17.5% for the year ended December 31, 2016, as compared to the benchmark’s decline of 13.5% for the year ended December 31, 2015, can be attributed to an increase in the price of spot silver in U.S. dollar terms during the year ended December 31, 2016.

 

106


Table of Contents

Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2017, 2016 and 2015:

 

     Year Ended
December 31, 2017
     Year Ended
December 31, 2016
     Year Ended
December 31, 2015
 

Net investment income (loss)

   $ (36,600    $ (255,853    $ (516,464

Management fee

     194,297        349,293        540,253  

Brokerage commission

     48        43        42  

Net realized gain (loss)

     1,152,461        (17,556,630      10,756,758  

Change in net unrealized appreciation/depreciation

     (3,132,869      (3,372,326      4,186,942  

Net income (loss)

   $ (2,017,008    $ (21,184,809    $ 14,427,236  

The Fund’s net income increased for the year ended December 31, 2017, as compared to the year ended December 31, 2016, primarily due to a lesser rise in the price of spot silver in U.S. dollar terms during the year ended December 31, 2017. By comparison, the Fund’s net income decreased for the year ended December 31, 2016, as compared to the year ended December 31, 2015, primarily due to a rise in the price of spot silver in U.S. dollar terms during the year ended December 31, 2016.

ProShares UltraShort Yen

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2017, 2016 and 2015:

 

     Year Ended
December 31, 2017
    Year Ended
December 31, 2016
    Year Ended
December 31, 2015
 

NAV beginning of period

   $ 276,781,747     $ 237,372,900     $ 531,471,873  

NAV end of period

   $ 131,077,453     $ 276,781,747     $ 237,372,900  

Percentage change in NAV

     (52.6 )%      16.6     (55.3 )% 

Shares outstanding beginning of period

     3,449,290       2,699,294       5,949,294  

Shares outstanding end of period

     1,749,290       3,449,290       2,699,294  

Percentage change in shares outstanding

     (49.3 )%      27.8     (54.6 )% 

Shares created

     1,000,000       2,300,000       1,350,000  

Shares redeemed

     2,700,000       1,550,004       4,600,000  

Per share NAV beginning of period

   $ 80.24     $ 87.94     $ 89.33  

Per share NAV end of period

   $ 74.93     $ 80.24     $ 87.94  

Percentage change in per share NAV

     (6.6 )%      (8.8 )%      (1.6 )% 

Percentage change in benchmark

     4.5     2.9     (0.4 )% 

Benchmark annualized volatility

     8.2     12.6     8.2

During the year ended December 31, 2017, the decrease in the Fund’s NAV resulted primarily from a decrease from 3,449,290 outstanding Shares at December 31, 2016 to 1,749,290 outstanding Shares at December 31, 2017. 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 Japanese yen versus the U.S. dollar. By comparison, during the year ended December 31, 2016, the increase in the Fund’s NAV resulted from an increase from 2,699,294 outstanding Shares at December 31, 2015 to 3,449,290 outstanding Shares at December 31, 2016. The increase in the Fund’s NAV was offset by the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 2x of the inverse of the daily performance of the spot price of the Japanese yen versus the U.S. dollar. By comparison, during the year ended December 31, 2015, the decrease in the Fund’s NAV resulted primarily from a decrease from 5,949,294 outstanding Shares at December 31, 2014 to 2,699,294 outstanding Shares at December 31, 2015. 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 Japanese yen versus the U.S. dollar.

 

107


Table of Contents

For the years ended December 31, 2017, 2016 and 2015, 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 6.6% for the year ended December 31, 2017, as compared to the Fund’s per Share NAV decrease of 8.8% for the year ended December 31, 2016, was primarily due to a lesser depreciation in the value of the assets held by the Fund during the year ended December 31, 2017. The Fund’s per Share NAV decrease of 8.8% for the year ended December 31, 2016, as compared to the Fund’s per Share NAV decrease of 1.6% for the year ended December 31, 2015, was primarily due to a greater depreciation in the value of the assets held by the Fund during the year ended December 31, 2016.

During the year ended December 31, 2017, the Fund’s per Share NAV reached its high for the year on January 3, 2017 at $81.40 per Share and reached its low for the year on September 8, 2017 at $68.10 per Share. By comparison, during the year ended December 31, 2016, the Fund’s per Share NAV reached its high for the year on January 29, 2016 at $88.99 per Share and reached its low for the year on August 18, 2016 at $59.02 per Share. By comparison, during the year ended December 31, 2015, the Fund’s per Share NAV reached its high for the year on June 5, 2015 at $97.30 per Share and reached its low for the year on January 15, 2015 at $84.11 per Share.

The benchmark’s rise of 4.5% for the year ended December 31, 2017, as compared to the benchmark’s rise of 2.9% for the year ended December 31, 2016, can be attributed to a greater rise in the value of the Japanese yen versus the U.S. dollar during the year ended December 31, 2017. By comparison, the benchmark’s rise of 2.9% for the year ended December 31, 2016, as compared to the benchmark’s decline of 0.4% for the year ended December 31, 2015, can be attributed to a rise in the value of the Japanese yen versus the U.S. dollar during the year ended December 31, 2016.

Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2017, 2016 and 2015:

 

     Year Ended
December 31, 2017
     Year Ended
December 31, 2016
     Year Ended
December 31, 2015
 

Net investment income (loss)

   $ (355,974    $ (1,609,562    $ (3,623,678

Management fee

     1,802,816        2,141,333        3,759,492  

Net realized gain (loss)

     (8,733,473      (22,226,181      8,806,429  

Change in net unrealized appreciation/depreciation

     (15,227,152      30,657,216        (12,347,563

Net income (loss)

   $ (24,316,599    $ 6,821,473      $ (7,164,812

The Fund’s net income decreased for the year ended December 31, 2017, as compared to the year ended December 31, 2016, primarily due to a greater rise in the value of the Japanese yen versus the U.S. dollar during the year ended December 31, 2017. By comparison, the Fund’s net income increased for the year ended December 31, 2016, as compared to the year ended December 31, 2015, primarily due to a rise in the value of the Japanese yen versus the U.S. dollar during the year ended December 31, 2016.

 

108


Table of Contents

ProShares VIX Mid-Term Futures ETF

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2017, 2016 and 2015:

 

     Year Ended
December 31, 2017
    Year Ended
December 31, 2016
    Year Ended
December 31, 2015
 

NAV beginning of period

   $ 45,818,914     $ 27,650,638     $ 21,459,575  

NAV end of period

   $ 26,347,948     $ 45,818,914     $ 27,650,638  

Percentage change in NAV

     (42.5 )%      65.7     28.8

Shares outstanding beginning of period

     1,087,403       512,404       337,404  

Shares outstanding end of period

     1,237,403       1,087,403       512,404  

Percentage change in shares outstanding

     13.8     112.2     51.9

Shares created

     950,000       1,100,000       325,000  

Shares redeemed

     800,000       525,001       150,000  

Per share NAV beginning of period

   $ 42.14     $ 53.96     $ 63.60  

Per share NAV end of period

   $ 21.29     $ 42.14     $ 53.96  

Percentage change in per share NAV

     (49.5 )%      (21.9 )%      (15.2 )% 

Percentage change in benchmark

     (48.9 )%      (21.0 )%      (14.3 )% 

Benchmark annualized volatility

     20.2     33.4     38.8

During the year ended December 31, 2017, 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 the daily performance of the S&P 500 VIX Mid-Term Futures Index. The decrease in the Fund’s NAV was offset by an increase from 1,087,403 outstanding Shares at December 31, 2016 to 1,237,403 outstanding Shares at December 31, 2017. By comparison, during the year ended December 31, 2016, the increase in the Fund’s NAV resulted from an increase from 512,404 outstanding Shares at December 31, 2015 to 1,087,403 outstanding Shares at December 31, 2016. 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, 2015, the increase in the Fund’s NAV resulted from an increase from 337,404 outstanding Shares at December 31, 2014 to 512,404 outstanding Shares at December 31, 2015. 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, 2017, 2016 and 2015, 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 49.5% for the year ended December 31, 2017, as compared to the Fund’s per Share NAV decrease of 21.9% for the year ended December 31, 2016 was primarily due to a greater depreciation in the value of the assets of the Fund during the year ended December 31, 2017. The Fund’s per Share NAV decrease of 21.9% for the year ended December 31, 2016, as compared to the Fund’s per Share NAV decrease of 15.2% for the year ended December 31, 2015, was primarily due to a greater depreciation in the value of the assets of the Fund during the year ended December 31, 2016.

During the year ended December 31, 2017, the Fund’s per Share NAV reached its high for the year on January 3, 2017 at $40.96 per Share and reached its low for the year on December 28, 2017 at $21.17 per Share. By comparison, during the year ended December 31, 2016, the Fund’s per Share NAV reached its high for the year on February 11, 2016 at $66.85 per Share and reached its low for the year on December 21, 2016 at $41.09 per Share. By comparison, during the year ended December 31, 2015, the Fund’s per Share NAV reached its high for the year on September 1, 2015 at $69.30 per Share and reached its low for the year on August 10, 2015 at $49.68 per Share.

The benchmark’s decline of 48.9% for the year ended December 31, 2017, as compared to the benchmark’s decline of 21.0% for the year ended December 31, 2016, 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, 2017. By comparison, the benchmark’s decline of 21.0% for the year ended December 31, 2016, as compared to the benchmark’s decline of 14.3% for the year ended December 31, 2015, 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, 2016.

 

109


Table of Contents

Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2017, 2016 and 2015:

 

     Year Ended
December 31, 2017
     Year Ended
December 31, 2016
     Year Ended
December 31, 2015
 

Net investment income (loss)

   $ (81,807    $ (294,896    $ (240,600

Management fee

     317,739        369,016        233,390  

Brokerage commission

     20,988        32,884        15,503  

Net realized gain (loss)

     (25,320,147      (11,085,007      (3,334,581

Change in net unrealized appreciation/depreciation

     (926,594      (944,964      (605,352

Net income (loss)

   $ (26,328,548    $ (12,324,462    $ (4,180,533

The Fund’s net income decreased for the year ended December 31, 2017, as compared to the year ended December 31, 2016, primarily due to a greater decline in futures prices during the year ended December 31, 2017. By comparison, the Fund’s net income decreased for the year ended December 31, 2016, as compared to the year ended December 31, 2015, primarily due to a lesser decline in futures prices during the year ended December 31, 2016.

ProShares VIX Short-Term Futures ETF*

Fund Performance

The following table provides summary performance information for the Fund for the years ended December 31, 2017, 2016 and 2015:

 

     Year Ended
December 31, 2017
    Year Ended
December 31, 2016
    Year Ended
December 31, 2015
 

NAV beginning of period

   $ 174,160,146     $ 105,272,823     $ 111,459,325  

NAV end of period

   $ 137,741,560     $ 174,160,146     $ 105,272,823  

Percentage change in NAV

     (20.9 )%      65.4     (5.6 )% 

Shares outstanding beginning of period

     2,052,363       397,491       266,241  

Shares outstanding end of period

     5,901,317       2,052,363       397,491  

Percentage change in shares outstanding

     187.5     416.3     49.3

Shares created

     7,750,000       3,066,250       623,750  

Shares redeemed

     3,901,046       1,411,378       492,500  

Per share NAV beginning of period

   $ 84.86     $ 264.84     $ 418.64  

Per share NAV end of period

   $ 23.34     $ 84.86     $ 264.84  

Percentage change in per share NAV

     (72.5 )%      (68.0 )%      (36.7 )% 

Percentage change in benchmark

     (72.1 )%      (67.8 )%      (36.1 )% 

Benchmark annualized volatility

     48.8     72.5     78.6

During the year ended December 31, 2017, 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 the daily performance of the S&P 500 VIX Short-Term Futures Index. The decrease in the Fund’s NAV was offset by an increase from 2,052,363 outstanding Shares at December 31, 2016 to 5,901,317 outstanding Shares at December 31, 2017. By comparison, during the year ended December 31, 2016, the increase in the Fund’s NAV resulted primarily from an increase from 397,491 outstanding Shares at December 31, 2015 to 2,052,363 outstanding Shares at December 31, 2016. 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, 2015 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 the daily performance of the S&P 500 VIX Short-Term Futures Index. The decrease in the Fund’s NAV was offset by an increase from 266,241outstanding Shares at December 31, 2014 to 397,491 outstanding Shares at December 31, 2015.

 

110


Table of Contents

For the years ended December 31, 2017, 2016 and 2015, 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 72.5% for the year ended December 31, 2017, as compared to the Fund’s per Share NAV decrease of 68.0% for the year ended December 31, 2016 was primarily due to a greater depreciation in the value of the assets of the Fund during the year ended December 31, 2017. The Fund’s per Share NAV decrease of 68.0% for the year ended December 31, 2016, as compared to the Fund’s per Share NAV decrease of 36.7% for the year ended December 31, 2015, was primarily due to a greater decline in the value of the assets of the Fund during the year ended December 31, 2016.

During the year ended December 31, 2017, the Fund’s per Share NAV reached its high for the year on January 3, 2017 at $78.33 per Share and reached its low for the year on December 21, 2017 at $22.84 per Share. By comparison, during the year ended December 31, 2016, the Fund’s per Share NAV reached its high for the year on February 11, 2016 at $391.80 per Share and reached its low for the year on December 27, 2016 at $79.12 per Share. By comparison, during the year ended December 31, 2015, the Fund’s per Share NAV reached its high for the year on January 15, 2015 at $483.00 per Share and reached its low for the year on August 10, 2015 at $207.00 per Share.

The benchmark’s decline of 72.1% for the year ended December 31, 2017, as compared to the benchmark’s decline of 67.8% for the year ended December 31, 2016, can be attributed to a greater decline in prices to the near-term futures contracts on the VIX futures curve during the year ended December 31, 2017. By comparison, the benchmark’s decline of 67.8% for the year ended December 31, 2016, as compared to the benchmark’s decline of 36.1% for the year ended December 31, 2015, can be attributed to a greater decline in prices of the near-term futures contracts on the VIX futures curve during the year ended December 31, 2016.

Net Income/Loss

The following table provides summary income information for the Fund for the years ended December 31, 2017, 2016 and 2015:

 

     Year Ended
December 31, 2017
     Year Ended
December 31, 2016
     Year Ended
December 31, 2015
 

Net investment income (loss)

   $ (293,186    $ (1,436,647    $ (1,150,794

Management fee

     1,353,339        1,632,880        1,062,171  

Brokerage commission

     174,838        270,159        130,942  

Net realized gain (loss)

     (194,006,340      (195,469,141      (19,406,840

Change in net unrealized appreciation/depreciation

     (4,304,579      612,983        (7,346,902

Net income (loss)

   $ (198,604,105    $ (196,292,805    $ (27,904,536

The Fund’s net income decreased for the year ended December 31, 2017, as compared to the year ended December 31, 2016, primarily due to a greater decline in futures prices during the year ended December 31, 2017. By comparison, the Fund’s net income decreased for the year ended December 31, 2016, as compared to the year ended December 31, 2015, primarily due to a greater decline in futures prices during the year ended December 31, 2016.

 

* 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 VIX Short-Term Futures ETF.

 

111


Table of Contents

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

Quantitative Disclosure

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, 2017 and 2016, each of the Currency Fund’s positions were as follows:

ProShares Short Euro:

As of December 31, 2017 and 2016, 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, 2017 and 2016, which were sensitive to exchange rate price risk.

 

Futures Positions as of December 31, 2017  

Contract

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

Euro Fx Currency Futures (CME)

     Short        March 2018        53      $ 1.21        125,000      $ (8,000,019
Futures Positions as of December 31, 2016  

Contract

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

Euro Fx Currency Futures (CME)

     Short        March 2017        120      $ 1.06        125,000      $ (15,861,000

The December 31, 2017 and 2016 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 this Annual Report on Form 10-K for additional information regarding performance for periods longer than a single day.

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, 2017 and 2016, each of the VIX Funds’ positions were as follows:

 

112


Table of Contents

ProShares Short VIX Short-Term Futures ETF

As of December 31, 2017 and 2016, 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, 2017 and 2016, which were sensitive to equity market volatility risk.

 

Futures Positions as of December 31, 2017  

Contract

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

VIX Futures (CBOE)

     Short        January 2018        38,015      $ 11.48        1,000      $ (436,222,125

VIX Futures (CBOE)

     Short        February 2018        26,693        12.48        1,000        (332,995,175
Futures Positions as of December 31, 2016  

Contract

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

VIX Futures (CBOE)

     Short        January 2017        8,491      $ 15.13        1,000      $ (128,426,375

VIX Futures (CBOE)

     Short        February 2017        5,974        16.58        1,000        (99,019,050

The December 31, 2017 and 2016 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 this Annual Report on Form 10-K for additional information regarding performance for periods longer than a single day.

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, 2017 and 2016, each of the Commodity Funds and the Commodity Index Funds’ positions were as follows:

ProShares Ultra Bloomberg Crude Oil:

As of December 31, 2017 and 2016, the ProShares Ultra Bloomberg 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 Bloomberg WTI Crude Oil SubindexSM. The following tables provide information about the Fund’s positions in these Financial Instruments as of December 31, 2017 and 2016, which were sensitive to commodity price risk.

 

Futures Positions as of December 31, 2017  

Contract

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

WTI Crude Oil (NYMEX)

     Long        March 2018        3,854      $ 60.44        1,000      $ 232,935,760  

 

113


Table of Contents
Swap Agreements as of December 31, 2017  

Reference Index

   Counterparty    Long or
Short
     Index
Close
     Notional
Amount at
Value
 

Bloomberg WTI Crude Oil Subindex

   Citibank, N.A.      Long      $ 88.0543      $ 268,156,276  

Bloomberg WTI Crude Oil Subindex

   Goldman Sachs International      Long        88.0543        213,961,079  

Bloomberg WTI Crude Oil Subindex

   Societe Generale S.A.      Long        88.0543        122,285,969  

Bloomberg WTI Crude Oil Subindex

   UBS AG      Long        88.0543        211,563,368  

 

Futures Positions as of December 31, 2016  

Contract

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

WTI Crude Oil (NYMEX)

     Long        March 2017        5,855      $ 54.66        1,000      $ 320,034,300  

 

Swap Agreements as of December 31, 2016  

Reference Index

   Counterparty    Long or
Short
     Index
Close
     Notional
Amount at
Value
 

Bloomberg WTI Crude Oil Subindex

   Citibank N.A.      Long      $ 84.5784      $ 545,083,669  

Bloomberg WTI Crude Oil Subindex

   Goldman Sachs International      Long        84.5784        379,451,639  

Bloomberg WTI Crude Oil Subindex

   Societe Generale S.A.      Long        84.5784        259,616,766  

Bloomberg WTI Crude Oil Subindex

   UBS AG      Long        84.5784        363,331,028  

The December 31, 2017 and 2016 long futures notional values are calculated by multiplying the number of contracts held times the valuation price times the contract multiplier. The December 31, 2017 and 2016 long swap notional values are calculated by multiplying the number of units times the closing level of the Index. These long 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 long 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.

 

114


Table of Contents

ProShares Ultra Bloomberg Natural Gas:

As of December 31, 2017 and 2016, the ProShares Ultra Bloomberg 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, 2017 and 2016, which were sensitive to commodity price risk.

 

Futures Positions as of December 31, 2017  

Contract

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

Natural Gas (NYMEX)

     Long        March 2018        4,355      $ 2.91        10,000      $ 126,556,300  
Futures Positions as of December 31, 2016  

Contract

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

Natural Gas (NYMEX)

     Long        March 2017        2,346      $ 3.68        10,000      $ 86,426,640  

The December 31, 2017 and 2016 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 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.

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, 2017 and 2016, each of the Currency Fund’s positions were as follows:

ProShares Ultra Euro:

As of December 31, 2017 and 2016, the ProShares Ultra Euro Fund was exposed to exchange rate price risk through its holdings of EUR/USD foreign currency forward contracts. The following table provides information about the Fund’s positions in these Financial Instruments as of December 31, 2017 and 2016, which were sensitive to exchange rate price risk.

 

Foreign Currency Forward Contracts as of December 31, 2017  

Reference

Currency

   Counterparty    Long or
Short
     Settlement
Date
     Euro     Forward
Rate
     Market Value
USD
 

Euro

   Goldman Sachs International      Long        01/12/18        8,921,525       1.2004      $ 10,709,638  

Euro

   UBS AG      Long        01/12/18        10,174,300       1.2004        12,213,503  

Euro

   Goldman Sachs International      Short        01/12/18        (3,071,600     1.2004        (3,687,231

Euro

   UBS AG      Short        01/12/18        (37,900     1.2004        (45,496

 

115


Table of Contents
Foreign Currency Forward Contracts as of December 31, 2016  

Reference

Currency

   Counterparty    Long or
Short
     Settlement
Date
     Euro     Forward
Rate
     Market Value
USD
 

Euro

   Goldman Sachs International      Long        01/13/17        9,841,725       1.0535      $ 10,368,169  

Euro

   UBS AG      Long        01/13/17        13,774,600       1.0535        14,511,417  

Euro

   Goldman Sachs International      Short        01/13/17        (717,800     1.0535        (756,196

Euro

   UBS AG      Short        01/13/17        (264,000     1.0535        (278,122

The December 31, 2017 and 2016 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.

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, 2017 and 2016, each of the Commodity Funds and the Commodity Index Funds’ positions were as follows:

ProShares Ultra Gold:

As of December 31, 2017 and 2016, 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, 2017 and 2016, which were sensitive to commodity price risk.

 

Futures Positions as of December 31, 2017  

Contract

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

Gold Futures (COMEX)

     Long        February 2018        2      $ 1,309.30        100      $ 261,860  

 

116


Table of Contents
Forward Agreements as of December 31, 2017  

Reference Index

  

Counterparty

   Long or
Short
     Valuation
Price
     Notional Amount
at Value
 

0.995 Fine Troy Ounce Gold

   Citibank N.A.      Long      $ 1,291.72      $ 69,494,536  

0.995 Fine Troy Ounce Gold

   Goldman Sachs International      Long        1,291.66        49,625,577  

0.995 Fine Troy Ounce Gold

   Societe Generale S.A.      Long        1,291.62        16,791,060  

0.995 Fine Troy Ounce Gold

   UBS AG      Long        1,291.70        51,280,490  

 

Futures Positions as of December 31, 2016  

Contract

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

Gold Futures (COMEX)

     Long        February 2017        2      $ 1,151.70        100      $ 230,340  

 

Forward Agreements as of December 31, 2016  

Reference Index

  

Counterparty

   Long or
Short
     Valuation
Price
     Notional Amount
at Value
 

0.995 Fine Troy Ounce Gold

   Citibank N.A.      Long      $ 1,146.25      $ 63,158,375  

0.995 Fine Troy Ounce Gold

   Goldman Sachs International      Long        1,146.25        48,509,300  

0.995 Fine Troy Ounce Gold

   Societe Generale S.A.      Long        1,146.25        26,707,625  

0.995 Fine Troy Ounce Gold

   UBS AG      Long        1,146.26        45,621,148  

The December 31, 2017 and 2016 long futures notional values are calculated by multiplying the number of contracts held times the valuation price times the contract multiplier. The December 31, 2017 and 2016 long forward notional values equal units multiplied by the forward price. These long 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, 2017 and 2016, 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, 2017 and 2016, which were sensitive to commodity price risk.

 

Futures Positions as of December 31, 2017  

Contract

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

Silver Futures (COMEX)

     Long        March 2018        2      $ 17.15        5,000      $ 171,450  

 

117


Table of Contents
Forward Agreements as of December 31, 2017  

Reference Index

  

Counterparty

   Long or
Short
   Valuation
Price
     Notional Amount
at Value
 

0.999 Fine Troy Ounce Silver

   Citibank, N.A.    Long    $ 16.8748      $ 175,548,544  

0.999 Fine Troy Ounce Silver

   Goldman Sachs International    Long      16.8740        137,013,505  

0.999 Fine Troy Ounce Silver

   Societe Generale S.A.    Long      16.8739        63,850,838  

0.999 Fine Troy Ounce Silver

   UBS AG    Long      16.8746        139,941,058  

 

Futures Positions as of December 31, 2016  

Contract

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

Silver Futures (COMEX)

     Long        March 2017        2      $ 15.99        5,000      $ 159,890  

 

Forward Agreements as of December 31, 2016  

Reference Index

  

Counterparty

   Long or
Short
   Valuation
Price
     Notional Amount
at Value
 

0.999 Fine Troy Ounce Silver

   Citibank, N.A.    Long    $ 16.2459      $ 200,263,209  

0.999 Fine Troy Ounce Silver

   Goldman Sachs International    Long      16.2454        138,066,406  

0.999 Fine Troy Ounce Silver

   Societe Generale S.A.    Long      16.2456        72,845,270  

0.999 Fine Troy Ounce Silver

   UBS AG    Long      16.2457        140,232,882  

The December 31, 2017 and 2016 futures notional values are calculated by multiplying the number of contracts held times the valuation price times the contract multiplier. The December 31, 2017 and 2016 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.

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, 2017 and 2016, each of the VIX Funds’ positions were as follows:

 

118


Table of Contents

ProShares Ultra VIX Short-Term Futures ETF

As of December 31, 2017 and 2016, the ProShares Ultra VIX Short-Term Futures ETF Fund was exposed to equity market volatility risk through its holding of VIX futures contracts. The following table provides information about the Fund’s positions in VIX futures contracts as of December 31, 2017 and 2016, which were sensitive to equity market volatility risk.

 

Futures Positions as of December 31, 2017  

Contract

  

Long or
Short

   Expiration      Contracts      Valuation
Price
     Contract
Multiplier
     Notional Amount
at Value
 

VIX Futures (CBOE)

   Long      January 2018        39,057      $ 11.48        1,000      $ 448,179,075  

VIX Futures (CBOE)

   Long      February 2018        27,298        12.48        1,000        340,542,550  

 

Futures Positions as of December 31, 2016  

Contract

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

VIX Futures (CBOE)

   Long      January 2017        38,688      $ 15.13        1,000      $ 585,156,000  

VIX Futures (CBOE)

   Long      February 2017        27,012        16.58        1,000        447,723,900  

The December 31, 2017 and 2016 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 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 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 this Annual Report on Form 10-K for additional information regarding performance for periods longer than a single day.

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, 2017 and 2016, each of the Currency Fund’s positions were as follows:

ProShares Ultra Yen:

As of December 31, 2017 and 2016, the ProShares Ultra Yen Fund was exposed to 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, 2017 and 2016, which were sensitive to exchange rate price risk.

 

Foreign Currency Forward Contracts as of December 31, 2017  

Reference

Currency

  

Counterparty

   Long or
Short
   Settlement
Date
     Yen     Forward Rate      Market Value
USD
 

Yen

   Goldman Sachs International    Long      01/12/18        325,511,500       0.008878      $ 2,889,941  

Yen

   UBS AG    Long      01/12/18        331,666,700       0.008878        2,944,587  

Yen

   Goldman Sachs International    Short      01/12/18        (8,564,800     0.008878        (76,040

Yen

   UBS AG    Short      01/12/18        (3,336,100     0.008878        (29,618

 

119


Table of Contents
Foreign Currency Forward Contracts as of December 31, 2016  

Reference Currency

  

Counterparty

  

Long or
Short

   Settlement
Date
     Yen     Forward Rate      Market Value
USD
 

Yen

   Goldman Sachs International    Long      01/13/17        884,408,200       0.008562      $ 7,572,024  

Yen

   UBS AG    Long      01/13/17        470,179,000       0.008562        4,025,524  

Yen

   Goldman Sachs International    Short      01/13/17        (57,041,600     0.008562        (488,372

The December 31, 2017 and 2016 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.

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, 2017 and 2016, each of the Commodity Funds and the Commodity Index Funds’ positions were as follows:

ProShares UltraPro 3x Crude Oil ETF

As of December 31, 2017, the ProShares UltraPro 3x Crude Oil Fund was exposed to commodity price risk through its holding of Crude Oil futures contracts. The following table provides information about the Fund’s positions in these Financial Instruments as of December 31, 2017, which were sensitive to commodity price risk.

 

Futures Positions as of December 31, 2017  

Contract

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

WTI Crude Oil (NYMEX)

   Long      March 2018        563      $ 60.44        1,000      $ 34,027,720  

The December 31, 2017 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 $3.00 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 three. 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 UltraPro 3x Short Crude Oil ETF

As of December 31, 2017, the ProShares UltraPro 3x Short Crude Oil Fund was exposed to commodity price risk through its holding of Crude Oil futures contracts. The following table provides information about the Fund’s positions in these Financial Instruments as of December 31, 2017, which were sensitive to commodity price risk.

 

Futures Positions as of December 31, 2017  

Contract

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

WTI Crude Oil (NYMEX)

   Short      March 2018        1,050      $ 60.44        1,000      $ (63,462,000

The December 31, 2017 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, as applicable. Additional gains (losses) associated with these contracts will be equal to any such subsequent decreases (increases) short 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 $3.00 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 three. 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.

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, 2017 and 2016, each of the Currency Fund’s positions were as follows:

 

120


Table of Contents

ProShares UltraShort Australian Dollar:

As of December 31, 2017 and 2016, 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 tables provide information about the Fund’s positions in these Financial Instruments as of December 31, 2017 and 2016, which were sensitive to exchange rate price risk.

 

Futures Positions as of December 31, 2017  

Contract

  

Long or
Short

   Expiration      Contracts      Valuation
Price
     Contract
Multiplier
     Notional
Amount at
Value
 

Australian Dollar Fx Currency Futures (CME)

   Short      March 2018        353      $ 78.11        1,000      $ (27,572,830

 

Futures Positions as of December 31, 2016  

Contract

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

Australian Dollar Fx Currency Futures (CME)

   Short      March 2017        462      $ 72.02        1,000      $ (33,273,240

The December 31, 2017 and 2016 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 this Annual Report on Form 10-K for additional information regarding performance for periods longer than a single day.

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, 2017 and 2016, each of the Commodity Funds and the Commodity Index Funds’ positions were as follows:

ProShares UltraShort Bloomberg Crude Oil:

As of December 31, 2017 and 2016, the ProShares UltraShort Bloomberg 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 Bloomberg WTI Crude Oil SubindexSM. The following tables provide information about the Fund’s positions in these Financial Instruments as of December 31, 2017 and 2016, which were sensitive to commodity price risk.

 

Futures Positions as of December 31, 2017  

Contract

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

WTI Crude Oil (NYMEX)

   Short      March 2018        1,125      $ 60.44        1,000      $ (67,995,000

 

121


Table of Contents
Swap Agreements as of December 31, 2017  

Reference Index

  

Counterparty

   Long or
Short
   Index Close      Notional
Amount at
Value
 

Bloomberg WTI Crude Oil Subindex

   Citibank N.A.    Short    $ 88.0543      $ (135,972,863

Bloomberg WTI Crude Oil Subindex

   Goldman Sachs International    Short      88.0543        (105,656,763

Bloomberg WTI Crude Oil Subindex

   Societe Generale S.A.    Short      88.0543        (25,759,601

Bloomberg WTI Crude Oil Subindex

   UBS AG    Short      88.0543        (116,263,837

 

Futures Positions as of December 31, 2016  

Contract

  

Long or
Short

   Expiration      Contracts      Valuation
Price
     Contract
Multiplier
     Notional Amount
at Value
 

WTI Crude Oil (NYMEX)

   Short      March 2017        1,401      $ 54.66        1,000      $ (76,578,660

 

Swap Agreements as of December 31, 2016  

Reference Index

   Counterparty    Long or
Short
   Index Close      Notional
Amount at
Value
 

Bloomberg WTI Crude Oil Subindex

   Citibank N.A.    Short    $ 84.5784      $ (116,603,958

Bloomberg WTI Crude Oil Subindex

   Goldman Sachs International    Short      84.5784        (87,898,388

Bloomberg WTI Crude Oil Subindex

   Societe Generale S.A.    Short      84.5783        (31,195,025

Bloomberg WTI Crude Oil Subindex

   UBS AG    Short      84.5784        (89,698,517

The December 31, 2017 and 2016 short futures notional values are calculated by multiplying the number of contracts held times the valuation price times the contract multiplier. The December 31, 2017 and 2016 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 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 Bloomberg Natural Gas:

As of December 31, 2017 and 2016, the ProShares UltraShort Bloomberg 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, 2017 and 2016, which were sensitive to commodity price risk.

 

Futures Positions as of December 31, 2017  

Contract

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

Natural Gas (NYMEX)

   Short      March 2018        475      $ 2.91        10,000      $ (13,803,500

 

122


Table of Contents
Futures Positions as of December 31, 2016  

Contract

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

Natural Gas (NYMEX)

     Short        March 2017        219      $ 3.68        10,000      $ (8,067,960

The December 31, 2017 and 2016 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, as applicable. Additional gains (losses) associated with these contracts will be equal to any such subsequent decrease (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.

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, 2017 and 2016, each of the Currency Fund’s positions were as follows:

ProShares UltraShort Euro:

As of December 31, 2017 and 2016, 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, 2017 and 2016, which were sensitive to exchange rate price risk.

 

Foreign Currency Forward Contracts as of December 31, 2017  

Reference Currency

  

Counterparty

   Long
or
Short
   Settlement
Date
     Euro     Forward
Rate
     Market Value
USD
 

Euro

   Goldman Sachs International    Long      01/12/18        15,379,400       1.2004      $ 18,461,845  

Euro

   UBS AG    Long      01/12/18        24,804,600       1.2004        29,776,108  

Euro

   Goldman Sachs International    Short      01/12/18        (191,822,225     1.2004      $ (230,268,554

Euro

   UBS AG    Short      01/12/18        (185,510,600     1.2004        (222,691,909

 

Foreign Currency Forward Contracts as of December 31, 2016  

Reference Currency

   Counterparty    Long
or
Short
   Settlement
Date
     Euro     Forward
Rate
     Market Value
USD
 

Euro

   Goldman Sachs International    Long      01/13/17        65,899,000       1.0535      $ 69,424,004  

Euro

   UBS AG    Long      01/13/17        22,361,500       1.0535        23,557,639  

Euro

   Goldman Sachs International    Short      01/13/17        (393,278,725     1.0535        (414,315,600

Euro

   UBS AG    Short      01/13/17        (356,977,300     1.0535        (376,072,375

The December 31, 2017 and 2016 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)

 

123


Table of Contents

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.

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, 2017 and 2016, each of the Commodity Funds and the Commodity Index Funds’ positions were as follows:

ProShares UltraShort Gold:

As of December 31, 2017 and 2016, 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, 2017 and 2016, which were sensitive to commodity price risk.

 

Futures Positions as of December 31, 2017  

Contract

  

Long or
Short

   Expiration      Contracts      Valuation
Price
     Contract
Multiplier
     Notional Amount
at Value
 

Gold Futures (COMEX)

   Short      February 2018        2      $ 1,309.30        100      $ (261,860

 

Forward Agreements as of December 31, 2017  

Reference Index

  

Counterparty

   Long or
Short
   Valuation
Price
     Notional Amount
at Value
 

0.995 Fine Troy Ounce Gold

   Citibank N.A.    Short    $ 1,291.72      $ (24,413,508

0.995 Fine Troy Ounce Gold

   Goldman Sachs International    Short      1,291.66        (16,530,665

0.995 Fine Troy Ounce Gold

   Societe Generale S.A.    Short      1,291.62        (6,199,776

0.995 Fine Troy Ounce Gold

   UBS AG    Short      1,291.70        (15,564,985

 

Futures Positions as of December 31, 2016  

Contract

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

Gold Futures (COMEX)

   Short      February 2017        2      $ 1,151.70        100      $ (230,340

 

Forward Agreements as of December 31, 2016  

Reference Index

   Counterparty    Long or
Short
   Valuation
Price
     Notional
Amount at
Value
 

0.995 Fine Troy Ounce Gold

   Citibank N.A.    Short    $ 1,146.25      $ (51,008,125

0.995 Fine Troy Ounce Gold

   Goldman Sachs International    Short      1,146.25        (29,227,083

0.995 Fine Troy Ounce Gold

   Societe Generale S.A.    Short      1,146.25        (16,735,250

0.995 Fine Troy Ounce Gold

   UBS AG    Short      1,146.26        (30,089,325

 

124


Table of Contents

The December 31, 2017 and 2016 short futures notional values are calculated by multiplying the number of contracts held times the valuation price times the contract multiplier. The December 31, 2017 and 2016 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.

ProShares UltraShort Silver:

As of December 31, 2017 and 2016, 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, 2017 and 2016, which were sensitive to commodity price risk.

 

Futures Positions as of December 31, 2017  

Contract

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

Silver Futures (COMEX)

   Short      March 2018        2      $ 17.15        5,000      $ (171,450

 

Forward Agreements as of December 31, 2017  

Reference Index

   Counterparty    Long or
Short
   Valuation
Price
     Notional Amount
at Value
 

0.999 Fine Troy Ounce Silver

   Citibank, N.A.    Short    $ 16.8748      $ (8,926,769

0.999 Fine Troy Ounce Silver

   Goldman Sachs International    Short      16.8740        (7,061,769

0.999 Fine Troy Ounce Silver

   Societe Generale S.A.    Short      16.8739        (2,632,328

0.999 Fine Troy Ounce Silver

   UBS AG    Short      16.8746        (10,833,493

 

Futures Positions as of December 31, 2016  

Contract

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

Silver Futures (COMEX)

   Short      March 2017        2      $ 15.99        5,000      $ (159,890

 

Forward Agreements as of December 31, 2016  

Reference Index

   Counterparty    Long or
Short
   Valuation Price      Notional Amount
at Value
 

0.999 Fine Troy Ounce Silver

   Citibank, N.A.    Short    $ 16.2459      $ (17,480,588

0.999 Fine Troy Ounce Silver

   Goldman Sachs International    Short      16.2454        (15,181,326

0.999 Fine Troy Ounce Silver

   Societe Generale S.A.    Short      16.2456        (2,534,314

0.999 Fine Troy Ounce Silver

   UBS AG    Short      16.2457        (10,673,425

The December 31, 2017 and 2016 short futures notional values are calculated by multiplying the number of contracts held times the valuation price times the contract multiplier. The December 31, 2017 and 2016 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

 

125


Table of Contents

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.

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, 2017 and 2016, each of the Currency Fund’s positions were as follows:

ProShares UltraShort Yen:

As of December 31, 2017 and 2016, 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 table provides information about the Fund’s positions in these Financial Instruments as of December 31, 2017 and 2016, which were sensitive to exchange rate price risk.

 

Foreign Currency Forward Contracts as of December 31, 2017  

Reference Currency

  

Counterparty

   Long
or
Short
   Settlement
Date
     Yen     Forward
Rate
     Market Value
USD
 

Yen

   Goldman Sachs International    Long      01/12/18        1,557,430,400       0.008878      $ 13,827,104  

Yen

   UBS AG    Long      01/12/18        2,779,401,900       0.008878        24,675,953  

Yen

   Goldman Sachs International    Short      01/12/18        (16,323,923,000     0.008878        (144,926,270

Yen

   UBS AG    Short      01/12/18        (17,545,808,000     0.008878        (155,774,351

 

Foreign Currency Forward Contracts as of December 31, 2016  

Reference Currency

   Counterparty    Long
or
Short
   Settlement
Date
     Yen     Forward
Rate
     Market Value
USD
 

Yen

   Goldman Sachs International    Long      01/13/17        9,411,824,400       0.008562      $ 80,581,067  

Yen

   UBS AG    Long      01/13/17        675,533,300       0.008562        5,783,703  

Yen

   Goldman Sachs International    Short      01/13/17        (41,411,055,600     0.008562        (354,548,372

Yen

   UBS AG    Short      01/13/17        (33,192,173,500     0.008562        (284,180,901

The December 31, 2017 and 2016 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.

 

126


Table of Contents

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, 2017 and 2016, each of the VIX Funds’ positions were as follows:

ProShares VIX Mid-Term Futures ETF

As of December 31, 2017 and 2016, 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, 2017 and 2016, which were sensitive to equity market volatility risk.

 

Futures Positions as of December 31, 2017  

Contract

  

Long or
Short

   Expiration      Contracts      Valuation
Price
     Contract
Multiplier
     Notional Amount
at Value
 

VIX Futures (CBOE)

   Long      April 2018        354      $ 13.88        1,000      $ 4,911,750  

VIX Futures (CBOE)

   Long      May 2018        603        14.38        1,000        8,668,125  

VIX Futures (CBOE)

   Long      June 2018        603        14.83        1,000        8,939,475  

VIX Futures (CBOE)

   Long      July 2018        248        15.43        1,000        3,825,400  

 

Futures Positions as of December 31, 2016  

Contract

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

VIX Futures (CBOE)

   Long      April 2017        474      $ 18.43        1,000      $ 8,733,450  

VIX Futures (CBOE)

   Long      May 2017        806        18.83        1,000        15,172,950  

VIX Futures (CBOE)

   Long      June 2017        807        19.08        1,000        15,393,525  

VIX Futures (CBOE)

   Long      July 2017        332        19.65        1,000        6,523,800  

The December 31, 2017 and 2016 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 this Annual Report on Form 10-K for additional information regarding performance for periods longer than a single day.

ProShares VIX Short-Term Futures ETF

As of December 31, 2017 and 2016, the ProShares 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 these VIX futures contracts as of December 31, 2017 and 2016, which were sensitive to equity market volatility risk.

 

127


Table of Contents
Futures Positions as of December 31, 2017  

Contract

  

Long or
Short

   Expiration      Contracts      Valuation
Price
     Contract
Multiplier
     Notional Amount
at Value
 

VIX Futures (CBOE)

   Long      January 2018        6,836      $ 11.48        1,000      $ 78,443,100  

VIX Futures (CBOE)

   Long      February 2018        4,770        12.48        1,000        59,505,750  

 

Futures Positions as of December 31, 2016  

Contract

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

VIX Futures (CBOE)

   Long      January 2017        6,549      $ 15.13        1,000      $ 99,053,625  

VIX Futures (CBOE)

   Long      February 2017        4,560        16.58        1,000        75,582,000  

The December 31, 2017 and 2016 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 this Annual Report on 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 UltraPro Short Fund seeks daily investment results (before fees and expenses) that correspond to three times the inverse (-3x) of the daily performance of its corresponding benchmark. Each UltraPro Fund seeks daily investment results (before fees and expenses) that correspond to three times (3x) 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. Each Matching VIX Fund seek investment results (before fees and expenses), both over a single day and over time, that match the performance of a benchmark. 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 objectives both over a single day and over time.

 

128


Table of Contents

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 Bloomberg Crude Oil and the ProShares Ultra Bloomberg 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 Bloomberg 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.

Commodity Price Sensitivity

As further described above “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 “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).

 

129


Table of Contents

Equity Market Volatility Sensitivity

As further described above “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, 2x, -3x or 3x), regardless of market direction or sentiment. At the close of the relevant markets each trading day (see NAV calculation times), each Fund will seek to position its portfolio so that its exposure to its benchmark is consistent with its investment objective. As described above in Item 7 of this Annual Report on Form 10-K, these adjustments are done through the use of various Financial Instruments. No attempt is made to adjust market exposure in order to avoid changes to the benchmark that would cause the Funds to lose value. Factors common to all Funds that may require portfolio re-positioning are create/redeem activity and index rebalances.

For Geared Funds, the impact of the index’s movements during the day also affects whether the Fund’s portfolio needs to be re-positioned. For example, if the index for an 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 Funds or an UltraShort Funds 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).

 

130


Table of Contents

Item 8. Financial Statements and Supplementary Data.

Statement of Operations for the three month periods ended March 31, 2017 and 2016, June 30, 2017 and 2016, September 30, 2017 and 2016, and December 31, 2017 and 2016 and the years ended December 31, 2017 and 2016 for each Fund, as applicable.

PROSHARES SHORT EURO

 

     Three months ended (unaudited)     Year ended
December 31, 2017
 
     March 31, 2017     June 30, 2017     September 30, 2017     December 31, 2017    

Net investment income (loss)

   $ (21,521   $ (11,755   $ (3,071   $ (1,280   $ (37,627
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (170,097   $ (884,089   $ (307,476   $ (100,278   $ (1,461,940

Net income (loss)

   $ (191,618   $ (895,844   $ (310,547   $ (101,558   $ (1,499,567

Net increase (decrease) in net asset value per share

   $ (0.55   $ (2.77   $ (1.27   $ (0.51   $ (5.10

 

     Three months ended (unaudited)     Year ended
December 31, 2016
 
     March 31, 2016     June 30, 2016     September 30, 2016     December 31, 2016    

Net investment income (loss)

   $ (35,145   $ (31,107   $ (29,155   $ (27,321   $ (122,728
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (761,194   $ 452,845     $ (160,000   $ 1,021,630     $ 553,281  

Net income (loss)

   $ (796,339   $ 421,738     $ (189,155   $ 994,309     $ 430,553  

Net increase (decrease) in net asset value per share

   $ (2.08   $ 1.11     $ (0.59   $ 2.84     $ 1.28  

PROSHARES SHORT VIX SHORT-TERM FUTURES ETF*

 

     Three months ended (unaudited)     Year ended
December 31, 2017
 
     March 31, 2017     June 30, 2017     September 30, 2017     December 31, 2017    

Net investment income (loss)

   $ (906,192   $ (1,366,200   $ (1,640,811   $ (1,460,341   $ (5,373,544
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ 129,026,068     $ 158,309,295     $ 288,397,978     $ 348,961,232     $ 924,694,573  

Net income (loss)

   $ 128,119,876     $ 156,943,095     $ 286,757,167     $ 347,500,891     $ 919,321,029  

Net increase (decrease) in net asset value per share

   $ 24.92     $ 9.57     $ 13.57     $ 33.62     $ 81.68  

 

     Three months ended (unaudited)     Year ended
December 31, 2016
 
     March 31, 2016     June 30, 2016     September 30, 2016     December 31, 2016    

Net investment income (loss)

   $ (1,554,854   $ (1,510,189   $ (1,171,428   $ (1,160,379   $ (5,396,850
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (38,162,938   $ 92,425,137     $ 225,454,227     $ 139,600,443     $ 419,316,869  

Net income (loss)

   $ (39,717,792   $ 90,914,948     $ 224,282,799     $ 138,440,064     $ 413,920,019  

Net increase (decrease) in net asset value per share

   $ (0.09   $ (0.40   $ 11.40     $ 9.30     $ 20.21  

 

131


Table of Contents

PROSHARES ULTRA BLOOMBERG CRUDE OIL

 

     Three months ended (unaudited)      Year ended
December 31, 2017
 
     March 31, 2017     June 30, 2017     September 30, 2017     December 31, 2017     

Net investment income (loss)

   $ (954,505   $ (509,922   $ (19,527   $ 104,493      $ (1,379,461
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net realized and unrealized gain (loss)

   $ (148,281,338   $ (139,809,044   $ 158,317,992     $ 165,161,855      $ 35,389,465  

Net income (loss)

   $ (149,235,843   $ (140,318,966   $ 158,298,465     $ 165,266,348      $ 34,010,004  

Net increase (decrease) in net asset value per share

   $ (4.38   $ (4.16   $ 3.10     $ 5.76      $ 0.32  

 

     Three months ended (unaudited)     Year ended
December 31, 2016
 
     March 31, 2016     June 30, 2016     September 30, 2016     December 31, 2016    

Net investment income (loss)

   $ (1,525,927   $ (1,768,802   $ (1,683,430   $ (1,653,221   $ (6,631,380
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (158,102,104   $ 296,192,078     $ (80,625,440   $ 167,586,234     $ 225,050,768  

Net income (loss)

   $ (159,628,031   $ 294,423,276     $ (82,308,870   $ 165,933,013     $ 218,419,388  

Net increase (decrease) in net asset value per share

   $ (7.16   $ 6.34     $ (3.31   $ 2.32     $ (1.81

PROSHARES ULTRA BLOOMBERG NATURAL GAS

 

     Three months ended (unaudited)     Year ended
December 31, 2017
 
     March 31, 2017     June 30, 2017     September 30, 2017     December 31, 2017    

Net investment income (loss)

   $ (86,507   $ (61,668   $ (42,774   $ (42,813   $ (233,762
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (13,477,218   $ (7,979,526   $ (3,091,821   $ (11,559,125   $ (36,107,690

Net income (loss)

   $ (13,563,725   $ (8,041,194   $ (3,134,595   $ (11,601,938   $ (36,341,452

Net increase (decrease) in net asset value per share

   $ (6.58   $ (2.50   $ (1.03   $ (2.21   $ (12.32

 

     Three months ended (unaudited)     Year ended
December 31, 2016
 
     March 31, 2016     June 30, 2016     September 30, 2016     December 31, 2016    

Net investment income (loss)

   $ (88,761   $ (100,326   $ (93,432   $ (101,967   $ (384,486
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (13,053,665   $ 18,337,272     $ (6,443,095   $ 14,953,621     $ 13,794,133  

Net income (loss)

   $ (13,142,426   $ 18,236,946     $ (6,536,527   $ 14,851,654     $ 13,409,647  

Net increase (decrease) in net asset value per share

   $ (7.74   $ 6.92     $ (3.27   $ 4.37     $ 0.28  

PROSHARES ULTRA EURO

 

     Three months ended (unaudited)     Year ended
December 31, 2017
 
     March 31, 2017     June 30, 2017     September 30, 2017     December 31, 2017    

Net investment income (loss)

   $ (15,287   $ (9,508   $ (1,256   $ (3,731   $ (29,782
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ 265,851     $ 2,025,264     $ 740,046     $ 18,765     $ 3,049,926  

Net income (loss)

   $ 250,564     $ 2,015,756     $ 738,790     $ 15,034     $ 3,020,144  

Net increase (decrease) in net asset value per share

   $ 0.22     $ 1.92     $ 0.97     $ 0.31     $ 3.42  

 

132


Table of Contents
     Three months ended (unaudited)     Year ended
December 31, 2016
 
     March 31, 2016     June 30, 2016     September 30, 2016     December 31, 2016    

Net investment income (loss)

   $ (20,743   $ (16,403   $ (16,659   $ (20,717   $ (74,522
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ 896,550     $ (557,861   $ 162,469     $ (1,540,470   $ (1,039,312

Net income (loss)

   $ 875,807     $ (574,264   $ 145,810     $ (1,561,187   $ (1,113,834

Net increase (decrease) in net asset value per share

   $ 1.35     $ (0.97   $ 0.24     $ (2.11   $ (1.49

PROSHARES ULTRA GOLD

 

     Three months ended (unaudited)      Year ended
December 31, 2017
 
     March 31, 2017     June 30, 2017     September 30, 2017      December 31, 2017     

Net investment income (loss)

   $ (120,985   $ (46,666   $ 7,054      $ 24,268      $ (136,329
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Net realized and unrealized gain (loss)

   $ 15,847,919     $ (1,388,144   $ 4,916,536      $ 205,251      $ 19,581,562  

Net income (loss)

   $ 15,726,934     $ (1,434,810   $ 4,923,590      $ 229,519      $ 19,445,233  

Net increase (decrease) in net asset value per share

   $ 5.43     $ (0.58   $ 2.07      $ 0.06      $ 6.98  

 

     Three months ended (unaudited)     Year ended
December 31, 2016
 
     March 31, 2016     June 30, 2016     September 30, 2016     December 31, 2016    

Net investment income (loss)

   $ (152,453   $ (161,625   $ (172,490   $ (164,383   $ (650,951
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ 23,076,136     $ 11,212,784     $ (792,881   $ (29,878,941   $ 3,617,098  

Net income (loss)

   $ 22,923,683     $ 11,051,159     $ (965,371   $ (30,043,324   $ 2,966,147  

Net increase (decrease) in net asset value per share

   $ 10.15     $ 4.92     $ (0.38   $ (11.52   $ 3.17  

PROSHARES ULTRA SILVER

 

     Three months ended (unaudited)     Year ended
December 31, 2017
 
     March 31, 2017     June 30, 2017     September 30, 2017      December 31, 2017    

Net investment income (loss)

   $ (342,224   $ (132,432   $ 543      $ 64,361     $ (409,752
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ 57,477,740     $ (52,612,922   $ 8,227,922      $ (2,142,996   $ 10,949,744  

Net income (loss)

   $ 57,135,516     $ (52,745,354   $ 8,228,465      $ (2,078,635   $ 10,539,992  

Net increase (decrease) in net asset value per share

   $ 7.16     $ (7.37   $ 0.79      $ (0.47   $ 0.11  

 

     Three months ended (unaudited)     Year ended
December 31, 2016
 
     March 31, 2016     June 30, 2016     September 30, 2016     December 31, 2016    

Net investment income (loss)

   $ (458,870   $ (553,155   $ (701,202   $ (466,165   $ (2,179,392
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ 45,578,002     $ 108,003,006     $ 31,136,300     $ (120,803,231   $ 63,914,077  

Net income (loss)

   $ 45,119,132     $ 107,449,851     $ 30,435,098     $ (121,269,396   $ 61,734,685  

Net increase (decrease) in net asset value per share

   $ 5.67     $ 12.80     $ 3.47     $ (15.56   $ 6.38  

 

133


Table of Contents

PROSHARES ULTRA VIX SHORT-TERM FUTURES ETF*

 

     Three months ended (unaudited)     Year ended
December 31, 2017
 
     March 31, 2017     June 30, 2017     September 30, 2017     December 31, 2017    

Net investment income (loss)

   $ (1,317,510   $ (1,224,224   $ (1,324,516   $ (1,029,811   $ (4,896,061
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (394,130,275   $ (123,657,363   $ (222,032,721   $ (307,455,310   $ (1,047,275,669

Net income (loss)

   $ (395,447,785   $ (124,881,587   $ (223,357,237   $ (308,485,121   $ (1,052,171,730

Net increase (decrease) in net asset value per share

   $ (109.16   $ (25.45   $ (18.68   $ (10.31   $ (163.60

 

     Three months ended (unaudited)     Year ended
December 31, 2016
 
     March 31, 2016     June 30, 2016     September 30, 2016     December 31, 2016    

Net investment income (loss)

   $ (1,649,007   $ (3,032,293   $ (2,326,627   $ (1,928,850   $ (8,936,777
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (212,026,452   $ (502,252,751   $ (606,084,450   $ (266,856,633   $ (1,587,220,286

Net income (loss)

   $ (213,675,459   $ (505,285,044   $ (608,411,077   $ (268,785,483   $ (1,596,157,063

Net increase (decrease) in net asset value per share

   $ (883.08   $ (1,012.72   $ (574.56   $ (164.11   $ (2,634.47

PROSHARES ULTRA YEN

 

     Three months ended (unaudited)     Year ended
December 31, 2017
 
     March 31, 2017     June 30, 2017     September 30, 2017     December 31, 2017    

Net investment income (loss)

   $ (9,333   $ (7,450   $ (4,166   $ (933   $ (21,882
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ 508,099     $ (165,870   $ (57,317   $ (23,996   $ 260,916  

Net income (loss)

   $ 498,766     $ (173,320   $ (61,483   $ (24,929   $ 239,034  

Net increase (decrease) in net asset value per share

   $ 4.99     $ (1.74   $ (0.61   $ (0.75   $ 1.89  

 

     Three months ended (unaudited)     Year ended
December 31, 2016
 
     March 31, 2016     June 30, 2016     September 30, 2016     December 31, 2016    

Net investment income (loss)

   $ (11,106   $ (11,556   $ (12,886   $ (10,299   $ (45,847
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ 731,464     $ 1,082,813     $ 191,351     $ (1,892,473   $ 113,155  

Net income (loss)

   $ 720,358     $ 1,071,257     $ 178,465     $ (1,902,772   $ 67,308  

Net increase (decrease) in net asset value per share

   $ 7.21     $ 10.71     $ 1.79     $ (19.03   $ 0.68  

PROSHARES ULTRA PRO 3X CRUDE OIL ETF

 

     Three months ended (unaudited)     March 24, 2017
(Commencement of
Operations) through
December 31, 2017
 
     March 24, 2017
(Commencement of
Operations) through
March 31, 2017
    June 30, 2017     September 30, 2017     December 31, 2017    

Net investment income (loss)

   $ (1,818   $ (40,999   $ (56,323   $ (20,378   $ (119,518
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ 849,623     $ (2,105,005   $ 5,666,068     $ 3,025,930     $ 7,436,616  

Net income (loss)

   $ 847,805     $ (2,146,004   $ 5,609,745     $ 3,005,552     $ 7,317,098  

Net increase (decrease) in net asset value per share

   $ 4.24     $ (9.72   $ 5.75     $ 12.51     $ 12.78  

 

134


Table of Contents

PROSHARES ULTRAPRO 3X SHORT CRUDE OIL ETF

 

     Three months ended (unaudited)     March 24, 2017
(Commencement of
Operations) through
December 31, 2017
 
     March 24, 2017
(Commencement of
Operations) through
March 31, 2017
    June 30, 2017     September 30, 2017     December 31, 2017    

Net investment income (loss)

   $ (1,831   $ (23,799   $ (34,013   $ (50,947   $ (110,590
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (767,272   $ 2,294,341     $ (3,718,433   $ (7,843,419   $ (10,034,783

Net income (loss)

   $ (769,103   $ 2,270,542     $ (3,752,446   $ (7,894,366   $ (10,145,373

Net increase (decrease) in net asset value per share

   $ (3.84   $ 5.30     $ (8.94   $ (6.94   $ (14.42

PROSHARES ULTRASHORT AUSTRALIAN DOLLAR

 

     Three months ended (unaudited)     Year ended
December 31, 2017
 
     March 31, 2017     June 30, 2017     September 30, 2017     December 31, 2017    

Net investment income (loss)

   $ (23,329   $ (15,526   $ (3,456   $ (4,463   $ (46,774
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (1,964,554   $ (142,645   $ (615,591   $ (220,437   $ (2,943,227

Net income (loss)

   $ (1,987,883   $ (158,171   $ (619,047   $ (224,900   $ (2,990,001

Net increase (decrease) in net asset value per share

   $ (6.63   $ (0.85   $ (2.27   $ 0.04     $ (9.71

 

     Three months ended (unaudited)     Year ended
December 31, 2016
 
     March 31, 2016     June 30, 2016     September 30, 2016     December 31, 2016    

Net investment income (loss)

   $ (45,029   $ (36,158   $ (33,889   $ (30,576   $ (145,652
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (2,387,137   $ 721,364     $ (1,289,967   $ 1,771,920     $ (1,183,820

Net income (loss)

   $ (2,432,166   $ 685,206     $ (1,323,856   $ 1,741,344     $ (1,329,472

Net increase (decrease) in net asset value per share

   $ (6.95   $ 1.96     $ (3.79   $ 5.70     $ (3.08

PROSHARES ULTRASHORT BLOOMBERG CRUDE OIL

 

     Three months ended (unaudited)     Year ended
December 31, 2017
 
     March 31, 2017     June 30, 2017     September 30, 2017     December 31, 2017    

Net investment income (loss)

   $ (290,700   $ (120,394   $ (15,678   $ 71,121     $ (355,651
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ 38,779,779     $ 45,493,259     $ (39,865,590   $ (71,856,939   $ (27,449,491

Net income (loss)

   $ 38,489,079     $ 45,372,865     $ (39,881,268   $ (71,785,818   $ (27,805,142

Net increase (decrease) in net asset value per share

   $ 5.00     $ 6.73     $ (9.83   $ (9.29   $ (7.39

 

135


Table of Contents
     Three months ended (unaudited)     Year ended
December 31, 2016
 
     March 31, 2016     June 30, 2016     September 30, 2016     December 31, 2016    

Net investment income (loss)

   $ (337,002   $ (412,454   $ (321,432   $ (338,076   $ (1,408,964
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ 5,569,806     $ (89,589,990   $ 17,321,489     $ (23,566,686   $ (90,265,381

Net income (loss)

   $ 5,232,804     $ (90,002,444   $ 17,000,057     $ (23,904,762   $ (91,674,345

Net increase (decrease) in net asset value per share

   $ (1.71   $ (23.92   $ (0.97   $ (8.30   $ (34.90

PROSHARES ULTRASHORT BLOOMBERG NATURAL GAS

 

     Three months ended (unaudited)     Year ended
December 31, 2017
 
     March 31, 2017     June 30, 2017     September 30, 2017     December 31, 2017    

Net investment income (loss)

   $ (15,816   $ (15,159   $ (13,899   $ (9,577   $ (54,451
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ 1,192,243     $ 930,163     $ 464,313     $ 1,560,133     $ 4,146,852  

Net income (loss)

   $ 1,176,427     $ 915,004     $ 450,414     $ 1,550,556     $ 4,092,401  

Net increase (decrease) in net asset value per share

   $ 6.14     $ 3.92     $ 0.71     $ 5.61     $ 16.38  

 

     Three months ended (unaudited)     Year ended
December 31, 2016
 
     March 31, 2016     June 30, 2016     September 30, 2016     December 31, 2016    

Net investment income (loss)

   $ (56,298   $ (31,909   $ (19,256   $ (14,709   $ (122,172
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ 6,220,334     $ (3,569,149   $ 611,260     $ (683,701   $ 2,578,744  

Net income (loss)

   $ 6,164,036     $ (3,601,058   $ 592,004     $ (698,410   $ 2,456,572  

Net increase (decrease) in net asset value per share

   $ 20.20     $ (32.64   $ 2.23     $ (13.22   $ (23.43

PROSHARES ULTRASHORT EURO

 

     Three months ended (unaudited)     Year ended
December 31, 2017
 
     March 31, 2017     June 30, 2017     September 30, 2017     December 31, 2017    

Net investment income (loss)

   $ (359,021   $ (125,473   $ 22,669     $ 65,110     $ (396,715
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (8,389,520   $ (34,805,151   $ (14,398,822   $ (4,629,435   $ (62,222,928

Net income (loss)

   $ (8,748,541   $ (34,930,624   $ (14,376,153   $ (4,564,325   $ (62,619,643

Net increase (decrease) in net asset value per share

   $ (0.66   $ (3.30   $ (1.43   $ (0.48   $ (5.87

 

     Three months ended (unaudited)     Year ended
December 31, 2016
 
     March 31, 2016     June 30, 2016     September 30, 2016     December 31, 2016    

Net investment income (loss)

   $ (804,953   $ (666,494   $ (657,657   $ (635,553   $ (2,764,657
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (41,031,168   $ 18,960,086     $ (8,051,669   $ 49,297,417     $ 19,174,666  

Net income (loss)

   $ (41,836,121   $ 18,293,592     $ (8,709,326   $ 48,661,864     $ 16,410,009  

Net increase (decrease) in net asset value per share

   $ (2.35   $ 1.13     $ (0.54   $ 3.30     $ 1.54  

 

136


Table of Contents

PROSHARES ULTRASHORT GOLD

 

     Three months ended (unaudited)     Year ended
December 31, 2017
 
     March 31, 2017     June 30, 2017     September 30, 2017     December 31, 2017    

Net investment income (loss)

   $ (46,877   $ (18,164   $ (974   $ 5,150     $ (60,865
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (9,082,640   $ 386,449     $ (2,343,917   $ (502,928   $ (11,543,036

Net income (loss)

   $ (9,129,517   $ 368,285     $ (2,344,891   $ (497,778   $ (11,603,901

Net increase (decrease) in net asset value per share

   $ (14.93   $ (0.10   $ (5.02   $ (0.81   $ (20.86

 

     Three months ended (unaudited)     Year ended
December 31, 2016
 
     March 31, 2016     June 30, 2016     September 30, 2016     December 31, 2016    

Net investment income (loss)

   $ (116,940   $ (114,810   $ (119,115   $ (110,558   $ (461,423
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (19,481,223   $ (10,186,660   $ (523,114   $ 19,190,280     $ (11,000,717

Net income (loss)

   $ (19,598,163   $ (10,301,470   $ (642,229   $ 19,079,722     $ (11,462,140

Net increase (decrease) in net asset value per share

   $ (33.80   $ (11.77   $ (0.70   $ 21.72     $ (24.55

PROSHARES ULTRASHORT SILVER

 

     Three months ended (unaudited)     Year ended
December 31, 2017
 
     March 31, 2017     June 30, 2017     September 30, 2017     December 31, 2017    

Net investment income (loss)

   $ (23,560   $ (14,368   $ (2,336   $ 3,664     $ (36,600
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (4,740,632   $ 3,653,850     $ (860,944   $ (32,682   $ (1,980,408

Net income (loss)

   $ (4,764,192   $ 3,639,482     $ (863,280   $ (29,018   $ (2,017,008

Net increase (decrease) in net asset value per share

   $ (7.93   $ 5.37     $ (2.76   $ (0.28   $ (5.60

 

     Three months ended (unaudited)     Year ended
December 31, 2016
 
     March 31, 2016     June 30, 2016     September 30, 2016     December 31, 2016    

Net investment income (loss)

   $ (75,735   $ (70,289   $ (64,078   $ (45,751   $ (255,853
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (9,579,793   $ (15,984,890   $ (5,356,501   $ 9,992,228     $ (20,928,956

Net income (loss)

   $ (9,655,528   $ (16,055,179   $ (5,420,579   $ 9,946,477     $ (21,184,809

Net increase (decrease) in net asset value per share

   $ (14.94   $ (16.48   $ (5.22   $ 9.37     $ (27.27

PROSHARES ULTRASHORT YEN

 

     Three months ended (unaudited)      Year ended
December 31, 2017
 
     March 31, 2017     June 30, 2017     September 30, 2017     December 31, 2017     

Net investment income (loss)

   $ (311,744   $ (97,161   $ 12,821     $ 40,110      $ (355,974
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net realized and unrealized gain (loss)

   $ (26,914,503   $ 3,039,471     $ (1,148,866   $ 1,063,273      $ (23,960,625

Net income (loss)

   $ (27,226,247   $ 2,942,310     $ (1,136,045   $ 1,103,383      $ (24,316,599

Net increase (decrease) in net asset value per share

   $ (7.69   $ 1.52     $ 0.19     $ 0.67      $ (5.31

 

137


Table of Contents
     Three months ended (unaudited)     Year ended
December 31, 2016
 
     March 31, 2016     June 30, 2016     September 30, 2016     December 31, 2016    

Net investment income (loss)

   $ (400,797   $ (324,778   $ (408,214   $ (475,773   $ (1,609,562
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (28,677,455   $ (33,065,456   $ (10,390,487   $ 80,564,433     $ 8,431,035  

Net income (loss)

   $ (29,078,252   $ (33,390,234   $ (10,798,701   $ 80,088,660     $ 6,821,473  

Net increase (decrease) in net asset value per share

   $ (11.43   $ (12.98   $ (2.85   $ 19.56     $ (7.70

PROSHARES VIX MID-TERM FUTURES ETF

 

     Three months ended (unaudited)     Year ended
December 31, 2017
 
     March 31, 2017     June 30, 2017     September 30, 2017     December 31, 2017    

Net investment income (loss)

   $ (44,567   $ (23,141   $ (15,787   $ 1,688     $ (81,807
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (11,431,860   $ (4,800,903   $ (3,599,127   $ (6,414,851   $ (26,246,741

Net income (loss)

   $ (11,476,427   $ (4,824,044   $ (3,614,914   $ (6,413,163   $ (26,328,548

Net increase (decrease) in net asset value per share

   $ (10.24   $ (4.44   $ (2.26   $ (3.91   $ (20.85

 

     Three months ended (unaudited)     Year ended
December 31, 2016
 
     March 31, 2016     June 30, 2016     September 30, 2016     December 31, 2016    

Net investment income (loss)

   $ (51,495   $ (69,741   $ (89,667   $ (83,588   $ (294,491
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (216,839   $ (899,031   $ (6,040,771   $ (4,873,330   $ (12,029,971

Net income (loss)

   $ (268,334   $ (968,772   $ (6,130,438   $ (4,956,918   $ (12,324,462

Net increase (decrease) in net asset value per share

   $ (1.24   $ (0.74   $ (6.23   $ (3.61   $ (11.82

PROSHARES VIX SHORT-TERM FUTURES ETF*

 

     Three months ended (unaudited)     Year ended
December 31, 2017
 
     March 31, 2017     June 30, 2017     September 30, 2017     December 31, 2017    

Net investment income (loss)

   $ (184,221   $ (110,768   $ (61,284   $ 63,087     $ (293,186
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (72,088,449   $ (27,306,331   $ (44,663,153   $ (54,252,986   $ (198,310,919

Net income (loss)

   $ (72,272,670   $ (27,417,099   $ (44,724,437   $ (54,189,899   $ (198,604,105

Net increase (decrease) in net asset value per share

   $ (32.15   $ (10.02   $ (10.12   $ (9.23   $ (61.52

 

     Three months ended (unaudited)     Year ended
December 31, 2016
 
     March 31, 2016     June 30, 2016     September 30, 2016     December 31, 2016    

Net investment income (loss)

   $ (221,289   $ (487,032   $ (407,697   $ (320,629   $ (1,436,647
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

   $ (8,586,170   $ (39,223,810   $ (94,969,520   $ (52,076,658   $ (194,856,158

Net income (loss)

   $ (8,807,459   $ (39,710,842   $ (95,377,217   $ (52,397,287   $ (196,292,805

Net increase (decrease) in net asset value per share

   $ (32.18   $ (52.09   $ (66.44   $ (29.27   $ (179.98

 

138


Table of Contents

See the Index to Financial Statements on Page 137 for a list of the financial statements being filed as part of this Annual Report on Form 10-K. Those Financial Statements, and the notes and schedules related thereto, are incorporated by reference into this Item 8.

 

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

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

Not applicable.

Item 9A. Controls and Procedures.

Disclosure Controls and Procedures

Under the supervision and with the participation of the principal executive officer and principal financial officer of the Trust, Trust management has evaluated the effectiveness of the Trust’s and the Funds’ disclosure controls and procedures, and have concluded that the disclosure controls and procedures of the Trust and the Funds (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “1934 Act”)) were effective, as of December 31, 2016, 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, 2017. 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 (2013). 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, 2017.

 

139


Table of Contents

The effectiveness of the Trust’s and the Funds’ internal control over financial reporting as of December 31, 2017 has been audited by PricewaterhouseCoopers LLP, the independent registered public accounting firm, as stated in their report which is included herein.

Changes in Internal Control over Financial Reporting

There were no changes in the Trust’s or the Funds’ internal control over financial reporting that occurred during the quarter ended December 31, 2017 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.

 

140


Table of Contents

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, 2017, the Sponsor serves 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, 2017, 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 31, 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 NFA approved the Sponsor as a Swaps Firm on January 4, 2013. 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.

 

141


Table of Contents

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
Timothy N. Coakley    Chief Financial Officer and 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
Alexander Ilyasov    Senior Portfolio Manager of the Sponsor
Jeffrey Ploshnick    Senior Portfolio Manager and Associated Person of the Sponsor
Ryan Dofflemeyer    Portfolio Manager and Associated Person of the Sponsor
Benjamin McAbee    Portfolio Manager 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 and Chief Executive Officer and a listed Principal of the Sponsor since August 14, 2008; Chairman and Chief Executive Officer and a member of PFA since April 1997, and a listed Principal of PFA since November 26, 2012; and Chairman and 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 of the Sponsor 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 8, 2013; 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.

Timothy N. Coakley, Chief Financial Officer and a listed Principal of the Sponsor since March 7, 2014; Chief Financial Officer and a listed Principal of PFA since March 11, 2014; and Chief Financial Officer and a listed Principal of PSA since March 11, 2014. As Chief Financial Officer of the Sponsor, Mr. Coakley’s responsibilities include oversight of the financial matters of the Sponsor.

 

142


Table of Contents

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 54 years old.

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, Mr. Johnson’s 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 and associated person 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 54 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 oversight of the investment management activities of the Sponsor. 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 and associated person 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.

Benjamin McAbee, Portfolio Manager of the Sponsor since August 22, 2016, a registered associated person and an NFA associate member of the Sponsor since December 29, 2010. In these roles, Mr. McAbee’s responsibilities include day-to-day portfolio management of the Currency Funds and certain other series of the Trust. Mr. McAbee has been registered as an associated person of PFA since December 5, 2012. Mr. McAbee also serves as a Portfolio Manager of PFA since August 2016 and has served as an Associate Portfolio Manager from December 2011 to August 2016. In addition, Mr. McAbee serves as a Portfolio Manager of PSA since August 2016.

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. In addition, Mr. Ploshnick also serves as a Senior Portfolio Manager of PSA since March 2011.

Alexander Ilyasov, Senior Portfolio Manager of the Sponsor since August 22, 2016. In this role, Mr. Ilyasov’s responsibilities include oversight of the investment management activities of the VIX Futures Funds and certain other series of the Trust. Mr. Ilyasov also serves as a Senior Portfolio Manager of PFA since October 2013 and has served as Portfolio Manager of PSA since October 2013.

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 VIX Funds, the Commodity Index Funds, the Commodity Funds and certain other series of the Trust. 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 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.

 

143


Table of Contents

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.

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, 2017, the following represents Management Fees earned by the Sponsor:

 

144


Table of Contents

Fund

      

ProShares Short Euro

   $ 111,736  

ProShares Short VIX Short-Term Futures ETF

     7,147,223  

ProShares Ultra Bloomberg Crude Oil

     7,120,247  

ProShares Ultra Bloomberg Natural Gas

     446,589  

ProShares Ultra Euro

     124,543  

ProShares Ultra Gold

     902,841  

ProShares Ultra Silver

     2,551,877  

ProShares Ultra VIX Short-Term Futures ETF

     3,960,999  

ProShares Ultra Yen

     50,521  

ProShares UltraPro 3x Crude Oil ETF

     0  

ProShares UltraPro 3x Short Crude Oil ETF

     0  

ProShares UltraShort Australian Dollar

     123,234  

ProShares UltraShort Bloomberg Crude Oil

     1,934,688  

ProShares UltraShort Bloomberg Natural Gas

     63,534  

ProShares UltraShort Euro

     2,445,170  

ProShares UltraShort Gold

     344,734  

ProShares UltraShort Silver

     194,297  

ProShares UltraShort Yen

     1,802,816  

ProShares VIX Mid-Term Futures ETF

     317,739  

ProShares VIX Short-Term Futures ETF

     1,353,339  

 

145


Table of Contents

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, 2017 and 2016 were as follows:

 

    

Year Ended

December 31, 2017

    

Year Ended

December 31, 2016

 

Audit Fees

   $ 744,400      $ 742,060  

Audit-Related Fees

     97,500        33,000  

Tax Fees

     3,294,470        3,243,200  

All Other Fees

     —          —    
  

 

 

    

 

 

 

Total

   $ 4,136,370      $ 4,018,260  

Audit fees for the year ended December 31, 2017 consist of fees paid to PwC for the audit of the Funds’ December 31, 2017 annual financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2017, for the review of the financial statements included in each Form 10-Q, and for the audits of financial statements included with registration statements. Audit fees for the year ended December 31, 2016 consist of fees paid to PwC for the audit of the Funds’ December 31, 2016 annual financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2016, for the review of the financial statements included in each Form 10-Q, and for the audits of financial statements included with registration statements. Tax fees include certain tax compliance and reporting services provided by PwC to the Trust, including processing beneficial ownership information as it relates to the preparation of tax reporting packages and the subsequent delivery of related information to the IRS. Services also include assistance with tax reporting and related information using a web-based tax package product developed by PwC and a toll-free tax package support help line.

(5) The Sponsor approved all of the services provided by PwC described above. The Sponsor pre-approves all audit and allowed non-audit services of the Trust’s independent registered public accounting firm, including all engagement fees and terms.

(6) None of the hours expended on PwC’s engagement to audit each Fund’s financial statements for the years ended December 31, 2017 or 2016 were attributable to work performed by persons other than the principal accountant’s full-time, permanent employees.

 

146


Table of Contents

PART IV

Item 15. Exhibits and Financial Statement Schedules.

Financial Statement Schedules

See the Index to Financial Statements 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    Form of 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 (6)
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 (6)
101.INS    XBRL Instance Document (6)
101.SCH    XBRL Taxonomy Extension Schema (6)
101.CAL    XBRL Taxonomy Extension Calculation Linkbase (6)
101.DEF    XBRL Taxonomy Extension Definition Linkbase (6)
101.LAB    XBRL Taxonomy Extension Label Linkbase (6)
101.PRE    XBRL Taxonomy Extension Presentation Linkbase (6)

 

(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.

Item 16. Form 10-K Summary.

Not applicable.

 

147


Table of Contents

ProShares Trust II

Financial Statements as of December 31, 2017

Index

 

Documents

   Page  

Report of Independent Registered Public Accounting Firm

     149  

Statements of Financial Condition, Schedules of Investments, Statements of Operations, Statements of Changes in Shareholders’ Equity and Statements of Cash Flows:

     151  

ProShares Short Euro

     151  

ProShares Short VIX Short-Term Futures ETF

     157  

ProShares Ultra Bloomberg Crude Oil

     163  

ProShares Ultra Bloomberg Natural Gas

     169  

ProShares Ultra Euro

     175  

ProShares Ultra Gold

     181  

ProShares Ultra Silver

     187  

ProShares Ultra VIX Short-Term Futures ETF

     193  

ProShares Ultra Yen

     199  

ProShares UltraPro 3x Crude Oil ETF

     205  

ProShares UltraPro 3x Short Crude Oil ETF

     210  

ProShares UltraShort Australian Dollar

     215  

ProShares UltraShort Bloomberg Crude Oil

     221  

ProShares UltraShort Bloomberg Natural Gas

     227  

ProShares UltraShort Euro

     233  

ProShares UltraShort Gold

     239  

ProShares UltraShort Silver

     245  

ProShares UltraShort Yen

     251  

ProShares VIX Mid-Term Futures ETF

     257  

ProShares VIX Short-Term Futures ETF

     263  

ProShares Trust II

     269  

Notes to Financial Statements

     273  

 

148


Table of Contents

Report of Independent Registered Public Accounting Firm

To the Sponsor of ProShares Trust II and the Shareholders of each of the twenty funds listed below, comprising ProShares Trust II

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying combined and individual statements of financial condition, including the individual schedules of investments of ProShares Trust II and each of the individual twenty funds listed below comprising the ProShares Trust II (collectively, the “Trust”), as of the dates listed below, and the related combined and individual statements of operations, of changes in shareholders’ equity and of cash flows for each of the periods listed below, including the related notes (collectively referred to as the “financial statements”). We also have audited the combined Trust’s and each of the individual fund’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the combined and individual financial statements referred to above present fairly, in all material respects, the combined financial position of Proshares Trust II and the individual financial positions of each of the twenty funds as of the dates listed below, and the combined and individual results of their operations and their cash flows for the respective periods described in (a), (b) and (c) below 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, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

 

ProShares Short Euro (a)
ProShares Short VIX Short-Term Futures ETF (a)
ProShares Ultra Bloomberg Crude Oil (a)
ProShares Ultra Bloomberg Natural Gas (a)
ProShares Ultra Euro (a)
ProShares Ultra Gold (a)
ProShares Ultra Silver (a)
ProShares Ultra VIX Short-Term Futures ETF (a)
ProShares Ultra Yen (a)
ProShares UltraPro 3x Crude Oil ETF (b)
ProShares UltraPro 3x Short Crude Oil ETF (b)
ProShares UltraShort Australian Dollar (a)
ProShares UltraShort Bloomberg Crude Oil (a)
ProShares UltraShort Bloomberg Natural Gas (a)
ProShares UltraShort Euro (a)
ProShares UltraShort Gold (a)
ProShares UltraShort Silver (a)
ProShares UltraShort Yen (a)
ProShares VIX Mid-Term Futures ETF (a)
ProShares VIX Short-Term Futures ETF (a)

 

ProShares Trust II (“combined”) (c)

 

  (a) Statements of financial condition, including the schedule of investments, as of December 31, 2017 and 2016, and the related statements of operations, of changes in shareholders’ equity and of cash flows for each of the three years in the period ended December 31, 2017
  (b) Statements of financial condition, including the schedule of investments, as of December 31, 2017, and the related statements of operations, of changes in shareholders’ equity and of cash flows for the period January 13, 2017 (inception) through December 31, 2017

 

149


Table of Contents
  (c) Statements of financial condition as of December 31, 2017 and 2016, and the related statements of operations, of changes in shareholders’ equity and of cash flows for each of the three years in the period ended December 31, 2017

Basis for Opinions

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’s and each of the individual fund’s financial statements and on the combined Trust’s and each of the individual fund’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Trust and each of the funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. 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.

Definition and Limitations of Internal Control over Financial Reporting

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 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

March 1, 2018

We have served as the auditor of ProShares Ultra Bloomberg Crude Oil, ProShares Ultra Euro, ProShares Ultra Gold, ProShares Ultra Silver, ProShares Ultra Yen, ProShares UltraShort Bloomberg Crude Oil, ProShares UltraShort Euro, ProShares UltraShort Gold, ProShares UltraShort Silver, and ProShares UltraShort Yen since 2008.

We have served as the auditor of the combined ProShares Trust II, ProShares VIX Mid-Term Futures ETF, and ProShares VIX Short-Term Futures ETF since 2010.

We have served as the auditor of ProShares Short Euro, ProShares Short VIX Short-Term Futures ETF, ProShares Ultra Bloomberg Natural Gas, ProShares Ultra VIX Short-Term Futures ETF, ProShares UltraShort Australian Dollar, and ProShares UltraShort Bloomberg Natural Gas since 2011.

We have served as auditor of ProShares UltraPro 3x Crude Oil ETF and ProShares UltraPro 3x Short Crude Oil ETF since 2017.

 

150


Table of Contents

PROSHARES SHORT EURO

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2017      December 31, 2016  

Assets

     

Cash

   $ 923,063      $ 2,292,012  

Segregated cash balances with brokers for futures contracts

     122,430        402,600  

Short-term U.S. government and agency obligations (Note 3)
(cost $6,996,595 and $13,164,807, respectively)

     6,996,235        13,164,828  
  

 

 

    

 

 

 

Total assets

     8,041,728        15,859,440  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Payable on open futures contracts

     43,311        76,666  

Payable to Sponsor

     6,537        12,686  
  

 

 

    

 

 

 

Total liabilities

     49,848        89,352  
  

 

 

    

 

 

 

Commitments and Contingencies (Note 2)

     

Shareholders’ equity

     

Shareholders’ equity

     7,991,880        15,770,088  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 8,041,728      $ 15,859,440  
  

 

 

    

 

 

 

Shares outstanding

     200,000        350,000  
  

 

 

    

 

 

 

Net asset value per share

   $ 39.96      $ 45.06  
  

 

 

    

 

 

 

Market value per share (Note 2)

   $ 39.99      $ 45.12  
  

 

 

    

 

 

 

See accompanying notes to financial statements.

 

151


Table of Contents

PROSHARES SHORT EURO

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2017

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

 

  

(88% of shareholders’ equity)

 

  

U.S. Treasury Bills^^:

     

1.033% due 01/18/18

   $ 7,000,000      $ 6,996,235  
     

 

 

 

Total short-term U.S. government and agency obligations

(cost $6,996,595)

      $ 6,996,235  
     

 

 

 

Futures Contracts Sold

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)/Value
 

Euro Fx Currency Futures—CME, expires March 2018

     53      $ 8,000,019      $ (166,288

 

^^ Rates shown represents discount rate at the time of purchase.

See accompanying notes to financial statements.

 

152


Table of Contents

PROSHARES SHORT EURO

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2016

 

     Principal
Amount
     Value  

Short-term U.S. government and agency obligations

 

  

(83% of shareholders’ equity)

 

  

U.S. Treasury Bills^^:

     

0.270% due 01/12/17

   $ 8,168,000      $ 8,167,194  

0.355% due 01/19/17

     2,000,000        1,999,631  

0.491% due 02/23/17

     3,000,000        2,998,003  
     

 

 

 

Total short-term U.S. government and agency obligations

(cost $13,164,807)

      $ 13,164,828  
     

 

 

 

Futures Contracts Sold††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Euro Fx Currency Futures—CME, expires March 2017

     120      $ 15,861,000      $ 132,900  

 

^^ Rates shown represents discount rate at the time of purchase.
†† Cash collateral in the amount of $402,600 was pledged to cover margin requirements for open futures contracts as of December 31, 2016.

See accompanying notes to financial statements.

 

153


Table of Contents

PROSHARES SHORT EURO

STATEMENTS OF OPERATIONS

 

     Year Ended December 31,  
   2017     2016     2015  

Investment Income

      

Interest

   $ 75,953     $ 32,959     $ 4,504  
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     111,736       153,021       179,286  

Brokerage commissions

     1,844       2,666       3,979  
  

 

 

   

 

 

   

 

 

 

Total expenses

     113,580       155,687       183,265  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (37,627     (122,728     (178,761
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Futures contracts

     (1,161,987     663,774       1,559,425  

Short-term U.S. government and agency obligations

     (384     33       218  
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     (1,162,371     663,807       1,559,643  
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Futures contracts

     (299,188     (110,538     (141,893

Short-term U.S. government and agency obligations

     (381     12       (170
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     (299,569     (110,526     (142,063
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     (1,461,940     553,281       1,417,580  
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (1,499,567   $ 430,553     $ 1,238,819  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

154


Table of Contents

PROSHARES SHORT EURO

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

 

     Year Ended December 31,  
   2017     2016     2015  

Shareholders’ equity, beginning of period

   $ 15,770,088     $ 17,510,898     $ 14,021,804  

Addition of 0, 50,000 and 550,000 shares, respectively

     —         2,109,382       23,563,492  

Redemption of 150,000, 100,005 and 500,000 shares, respectively

     (6,278,641     (4,280,745     (21,313,217
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of (150,000), (50,005) and 50,000 shares, respectively

     (6,278,641     (2,171,363     2,250,275  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (37,627     (122,728     (178,761

Net realized gain (loss)

     (1,162,371     663,807       1,559,643  

Change in net unrealized appreciation/depreciation

     (299,569     (110,526     (142,063
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     (1,499,567     430,553       1,238,819  
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 7,991,880     $ 15,770,088     $ 17,510,898  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

155


Table of Contents

PROSHARES SHORT EURO

STATEMENTS OF CASH FLOWS

 

     Year Ended December 31,  
   2017     2016     2015  

Cash flow from operating activities

      

Net income (loss)

   $ (1,499,567   $ 430,553     $ 1,238,819  

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

     280,170       101,145       (260,865

Purchases of short-term U.S. government and agency obligations

     (52,920,382     (53,315,548     (56,503,913

Proceeds from sales or maturities of short-term U.S government and agency obligations

     59,163,769       55,336,935       53,441,831  

Net amortization and accretion on short-term U.S government and agency obligations

     (75,559     (32,959     (4,504

Net realized gain (loss) on investments

     384       (33     (218

Change in unrealized appreciation/depreciation on investments

     381       (12     170  

Decrease (Increase) in receivable on futures contracts

     —         84,235       (20,985

Increase (Decrease) in payable to Sponsor

     (6,149     (1,409     2,967  

Increase (Decrease) in payable on futures contracts

     (33,355     76,666       —    
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     4,909,692       2,679,573       (2,106,698
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     —         2,109,382       23,563,492  

Payment on shares redeemed

     (6,278,641     (4,280,745     (21,313,217
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (6,278,641     (2,171,363     2,250,275  
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     (1,368,949     508,210       143,577  

Cash, beginning of period

     2,292,012       1,783,802       1,640,225  
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 923,063     $ 2,292,012     $ 1,783,802  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

156


Table of Contents

PROSHARES SHORT VIX SHORT-TERM FUTURES ETF

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2017      December 31, 2016  

Assets

     

Cash

   $ 1,468,000      $ 1,850,760  

Segregated cash balances with brokers for futures contracts

     299,200,276        55,323,984  

Short-term U.S. government and agency obligations (Note 3) (cost $494,962,509 and $170,391,741, respectively)

     494,910,644        170,396,436  

Receivable on open futures contracts

     20,758,850        1,059,418  
  

 

 

    

 

 

 

Total assets

     816,337,770        228,630,598  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Payable for capital shares redeemed

     44,817,710        —    

Payable on open futures contracts

     528,750        325,000  

Payable to Sponsor

     827,439        230,211  
  

 

 

    

 

 

 

Total liabilities

     46,173,899        555,211  
  

 

 

    

 

 

 

Commitments and Contingencies (Note 2)

     

Shareholders’ equity

     

Shareholders’ equity

     770,163,871        228,075,387  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 816,337,770      $ 228,630,598  
  

 

 

    

 

 

 

Shares outstanding (Note 1)

     6,050,000        5,000,000  
  

 

 

    

 

 

 

Net asset value per share (Note 1)

   $ 127.30      $ 45.62  
  

 

 

    

 

 

 

Market value per share (Note 1) (Note 2)

   $ 128.21      $ 45.49  
  

 

 

    

 

 

 

See accompanying notes to financial statements.

 

157


Table of Contents

PROSHARES SHORT VIX SHORT-TERM FUTURES ETF

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2017

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

 

  

(64% of shareholders’ equity)

 

  

U.S. Treasury Bills^^:

     

1.209% due 02/08/18†

   $ 36,000,000      $ 35,954,122  

1.080% due 02/15/18

     70,000,000        69,893,908  

1.145% due 02/22/18†

     87,000,000        86,846,558  

1.155% due 03/01/18

     60,000,000        59,876,748  

1.256% due 03/08/18

     70,000,000        69,835,696  

1.271% due 03/15/18

     63,000,000        62,837,460  

1.277% due 03/22/18

     75,000,000        74,780,280  

1.267% due 03/29/18

     35,000,000        34,885,872  
     

 

 

 

Total short-term U.S. government and agency obligations

(cost $494,962,509)

      $ 494,910,644  
     

 

 

 

Futures Contracts Sold

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)/Value
 

VIX Futures—CBOE, expires January 2018

     38,015      $ 436,222,125      $ 21,493,549  

VIX Futures—CBOE, expires February 2018

     26,693        332,995,175        (4,452,100
        

 

 

 
         $ 17,041,449  
        

 

 

 

 

^^ Rates shown represents discount rate at the time of purchase.
All or partial amount pledged as collateral for futures contracts.

See accompanying notes to financial statements.

 

158


Table of Contents

PROSHARES SHORT VIX SHORT-TERM FUTURES ETF

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2016

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

 

  

(75% of shareholders’ equity)

 

  

U.S. Treasury Bills^^:

     

0.471% due 02/09/17

   $ 47,500,000      $ 47,478,520  

0.437% due 02/16/17†

     95,000,000        94,948,330  

0.493% due 03/23/17

     28,000,000        27,969,586  
     

 

 

 

Total short-term U.S. government and agency obligations

(cost $170,391,741)

      $ 170,396,436  
     

 

 

 

Futures Contracts Sold††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

VIX Futures—CBOE, expires January 2017

     8,491      $ 128,426,375      $ (7,027,685

VIX Futures—CBOE, expires February 2017

     5,974        99,019,050        (3,281,926
        

 

 

 
                   $(10,309,611)  
        

 

 

 

 

^^ Rates shown represents discount rate at the time of purchase.
All or partial amount pledged as collateral for futures contracts.
†† Cash collateral in the amount of $55,323,984 was pledged to cover margin requirements for open futures contracts as of December 31, 2016.

See accompanying notes to financial statements.

 

159


Table of Contents

PROSHARES SHORT VIX SHORT-TERM FUTURES ETF

STATEMENTS OF OPERATIONS

 

     Year Ended December 31,  
   2017     2016     2015  

Investment Income

      

Interest

   $ 6,001,679     $ 1,126,057     $ 180,686  
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     7,147,223       4,448,808       4,043,491  

Brokerage commissions

     4,226,442       2,074,099       1,935,395  

Brokerage fees

     1,558       —         —    
  

 

 

   

 

 

   

 

 

 

Total expenses

     11,375,223       6,522,907       5,978,886  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (5,373,544     (5,396,850     (5,798,200
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Futures contracts

     897,400,516       440,391,389       69,793,028  

Short-term U.S. government and agency obligations

     (443     (11,670     35,629  
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     897,400,073       440,379,719       69,828,657  
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Futures contracts

     27,351,060       (21,056,026     27,098,564  

Short-term U.S. government and agency obligations

     (56,560     (6,824     8,936  
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     27,294,500       (21,062,850     27,107,500  
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     924,694,573       419,316,869       96,936,157  
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 919,321,029     $ 413,920,019     $ 91,137,957  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

160


Table of Contents

PROSHARES SHORT VIX SHORT-TERM FUTURES ETF

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

 

     Year Ended December 31,  
   2017     2016     2015  

Shareholders’ equity, beginning of period

   $ 228,075,387     $ 642,811,361     $ 506,556,124  

Addition of 52,550,000, 105,900,000 and 48,200,000 shares, respectively (Note 1)

     3,985,678,031       2,867,628,691       1,403,231,166  

Redemption of 51,500,000, 126,200,080 and 39,400,000 shares, respectively (Note 1)

     (4,362,910,576     (3,696,284,684     (1,358,113,886
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of 1,050,000, (20,300,080) and 8,800,000 shares, respectively (Note 1)

     (377,232,545     (828,655,993     45,117,280  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (5,373,544     (5,396,850     (5,798,200

Net realized gain (loss)

     897,400,073       440,379,719       69,828,657  

Change in net unrealized appreciation/depreciation

     27,294,500       (21,062,850     27,107,500  
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     919,321,029       413,920,019       91,137,957  
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 770,163,871     $ 228,075,387     $ 642,811,361  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

161


Table of Contents

PROSHARES SHORT VIX SHORT-TERM FUTURES ETF

STATEMENTS OF CASH FLOWS

 

     Year Ended December 31,  
   2017     2016     2015  

Cash flow from operating activities

      

Net income (loss)

   $ 919,321,029     $ 413,920,019     $ 91,137,957  

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

     (243,876,292     68,204,421       (38,283,455

Purchases of short-term U.S. government and agency obligations

     (7,250,717,757     (2,915,165,614     (2,104,319,382

Proceeds from sales or maturities of short-term U.S government and agency obligations

     6,931,640,345       3,281,269,459       2,016,127,119  

Net amortization and accretion on short-term U.S government and agency obligations

     (5,493,799     (1,126,057     (180,670

Net realized gain (loss) on investments

     443       11,670       (35,629

Change in unrealized appreciation/depreciation on investments

     56,560       6,824       (8,936

Decrease (Increase) in receivable on futures contracts

     (19,699,432     (1,059,418     —    

Increase (Decrease) in payable to Sponsor

     597,228       (277,306     100,052  

Increase (Decrease) in payable on futures contracts

     203,750       (1,095,271     (29,599,748
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     332,032,075       844,688,727       (65,062,692
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     3,985,678,031       2,877,792,848       1,393,067,009  

Payment on shares redeemed

     (4,318,092,866     (3,725,781,791     (1,331,975,560
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (332,414,835     (847,988,943     61,091,449  
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     (382,760     (3,300,216     (3,971,243

Cash, beginning of period

     1,850,760       5,150,976       9,122,219  
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 1,468,000     $ 1,850,760     $ 5,150,976  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

162


Table of Contents

PROSHARES ULTRA BLOOMBERG CRUDE OIL

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2017      December 31, 2016  

Assets

     

Cash

   $ 1,532,748      $ 1,401,555  

Segregated cash balances with brokers for futures contracts

     8,796,755        20,609,600  

Short-term U.S. government and agency obligations (Note 3)
(cost $459,543,053 and $885,046,303, respectively)

     459,515,902        885,050,007  

Unrealized appreciation on swap agreements

     62,238,361        55,358,571  

Receivable on open futures contracts

     2,242,001        —    
  

 

 

    

 

 

 

Total assets

     534,325,767        962,419,733  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Payable for capital shares redeemed

     9,464,420        25,879,004  

Payable on open futures contracts

     —          1,993,438  

Brokerage commissions and fees payable

     —          2,332  

Payable to Sponsor

     415,821        813,099  
  

 

 

    

 

 

 

Total liabilities

     9,880,241        28,687,873  
  

 

 

    

 

 

 

Commitments and Contingencies (Note 2)

     

Shareholders’ equity

     

Shareholders’ equity

     524,445,526        933,731,860  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 534,325,767      $ 962,419,733  
  

 

 

    

 

 

 

Shares outstanding

     22,161,317        40,013,933  
  

 

 

    

 

 

 

Net asset value per share

   $ 23.66      $ 23.34  
  

 

 

    

 

 

 

Market value per share (Note 2)

   $ 23.44      $ 23.36  
  

 

 

    

 

 

 

 

See accompanying notes to financial statements.

 

163


Table of Contents

PROSHARES ULTRA BLOOMBERG CRUDE OIL

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2017

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

     

(88% of shareholders’ equity)

     

U.S. Treasury Bills^^:

     

1.001% due 01/04/18†

   $ 63,000,000      $ 62,996,081  

1.022% due 01/11/18†

     63,000,000        62,982,203  

1.033% due 01/18/18†

     38,000,000        37,979,564  

1.082% due 01/25/18†

     47,000,000        46,962,616  

1.146% due 02/01/18†

     41,000,000        40,957,635  

1.118% due 02/08/18†

     61,000,000        60,922,262  

1.080% due 02/15/18†

     50,000,000        49,924,220  

1.145% due 02/22/18†

     18,000,000        17,968,253  

1.223% due 03/01/18†

     29,000,000        28,940,428  

1.256% due 03/08/18†

     50,000,000        49,882,640  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $459,543,053)

      $ 459,515,902  
     

 

 

 

Futures Contracts Purchased

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)/Value
 

WTI Crude Oil—NYMEX, expires March 2018

     3,854      $ 232,935,760      $ 11,945,979  

Total Return Swap Agreements^

 

     Rate Paid
(Received)*
    Termination Date      Notional Amount
at Value**
     Unrealized
Appreciation
(Depreciation)/Value
 

Swap agreement with Citibank, N.A. based on Bloomberg Crude Oil Sub-Index

     0.18     01/08/18      $ 268,156,276      $ 19,815,892  

Swap agreement with Goldman Sachs International based on Bloomberg Crude Oil Sub-Index

     0.25       01/08/18        213,961,079        16,654,031  

Swap agreement with Societe Generale based on Bloomberg Crude Oil Sub-Index

     0.25       01/08/18        122,285,969        9,003,519  

Swap agreement with UBS AG based on Bloomberg Crude Oil Sub-Index

     0.25       01/08/18        211,563,368        16,764,919  
          

 

 

 
         
Total Unrealized
Appreciation
 
 
   $ 62,238,361  
          

 

 

 

 

All or partial amount pledged as collateral for swap agreements.
^ The positions and counterparties herein are as of December 31, 2017. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
^^ Rates shown represents discount rate at the time of purchase.
* Reflects the floating financing rate, as of December 31, 2017, on the notional amount of the swap agreement paid to the counterparty or received from the counterparty, excluding any commissions. Total Return Swap Agreements payment is due at termination/maturity.
** 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.

 

164


Table of Contents

PROSHARES ULTRA BLOOMBERG CRUDE OIL

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2016

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

 

  

(95% of shareholders’ equity)

 

  

U.S. Treasury Bills^^:

     

0.289% due 01/05/17†

   $ 144,500,000      $ 144,496,908  

0.270% due 01/12/17†

     113,636,000        113,624,784  

0.371% due 01/19/17†

     48,500,000        48,491,057  

0.362% due 01/26/17†

     106,000,000        105,971,899  

0.418% due 02/02/17†

     105,749,000        105,712,432  

0.400% due 02/09/17†

     108,000,000        107,951,162  

0.420% due 02/16/17†

     77,000,000        76,958,120  

0.491% due 02/23/17†

     20,000,000        19,986,684  

0.481% due 03/09/17†

     150,000,000        149,869,995  

0.493% due 03/23/17

     12,000,000        11,986,966  
     

 

 

 

Total short-term U.S. government and agency obligations (cost $885,046,303)

      $ 885,050,007  
     

 

 

 

Futures Contracts Purchased††

 

     Number of
Contracts
     Notional
Amount

at Value
     Unrealized
Appreciation
(Depreciation)
 

WTI Crude Oil—NYMEX, expires March 2017

     5,855      $ 320,034,300      $ 5,537,165  

Swap Agreements^

 

     Rate Paid
(Received)*
    Termination Date      Notional Amount
at Value**
     Unrealized
Appreciation
(Depreciation)
 

Swap agreement with Citibank, N.A. based on Bloomberg Crude Oil Sub-Index

     0.18     01/10/17      $ 545,083,669      $ 18,427,009  

Swap agreement with Goldman Sachs International based on Bloomberg Crude Oil Sub-Index

     0.25       01/10/17        379,451,639        14,016,906  

Swap agreement with Societe Generale based on Bloomberg Crude Oil Sub-Index

     0.25       01/10/17        259,616,766        8,661,821  

Swap agreement with UBS AG based on Bloomberg Crude Oil Sub-Index

     0.25       01/10/17        363,331,028        14,252,835  
          

 

 

 
           $ 55,358,571  
          

 

 

 

 

All or partial amount pledged as collateral for swap agreements and/or futures contracts.
†† Cash collateral in the amount of $20,609,600 was pledged to cover margin requirements for open futures contracts as of December 31, 2016.
^ The positions and counterparties herein are as of December 31, 2016. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
^^ Rates shown represents discount rate at the time of purchase.
* Reflects the floating financing rate, as of December 31, 2016, on the notional amount of the swap agreement paid to the counterparty or received from the counterparty, excluding any commissions.
** 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.

 

165


Table of Contents

PROSHARES ULTRA BLOOMBERG CRUDE OIL

STATEMENTS OF OPERATIONS

 

     Year Ended December 31,  
   2017     2016     2015  

Investment Income

      

Interest

   $ 5,982,049     $ 2,170,633     $ 396,158  
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     7,120,247       8,263,078       8,230,180  

Brokerage commissions

     241,263       538,935       639,133  
  

 

 

   

 

 

   

 

 

 

Total expenses

     7,361,510       8,802,013       8,869,313  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (1,379,461     (6,631,380     (8,473,155
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Futures contracts

     28,048,922       43,093,616       (297,227,106

Swap agreements

     (5,902,710     30,967,424       (598,949,990

Short-term U.S. government and agency obligations

     (14,496     (17,374     22,728  
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     22,131,716       74,043,666       (896,154,368
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Futures contracts

     6,408,814       23,466,479       28,545,473  

Swap agreements

     6,879,790       127,535,160       4,004,508  

Short-term U.S. government and agency obligations

     (30,855     5,463       (6,857
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     13,257,749       151,007,102       32,543,124  
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     35,389,465       225,050,768       (863,611,244
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 34,010,004     $ 218,419,388     $ (872,084,399
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

166


Table of Contents

PROSHARES ULTRA BLOOMBERG CRUDE OIL

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

 

     Year Ended December 31,  
   2017     2016     2015  

Shareholders’ equity, beginning of period

   $ 933,731,860     $ 783,922,475     $ 450,562,988  

Addition of 68,500,000, 62,875,000 and 43,415,000 shares, respectively

     1,156,816,574       1,094,604,444       2,505,616,928  

Redemption of 86,352,616, 54,025,001 and 16,690,983 shares, respectively

     (1,600,112,912     (1,163,214,447     (1,300,173,042
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of (17,852,616), 8,849,999 and 26,724,017 shares, respectively

     (443,296,338     (68,610,003     1,205,443,886  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (1,379,461     (6,631,380     (8,473,155

Net realized gain (loss)

     22,131,716       74,043,666       (896,154,368

Change in net unrealized appreciation/depreciation

     13,257,749       151,007,102       32,543,124  
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     34,010,004       218,419,388       (872,084,399
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 524,445,526     $ 933,731,860     $ 783,922,475  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

167


Table of Contents

PROSHARES ULTRA BLOOMBERG CRUDE OIL

STATEMENTS OF CASH FLOWS

 

     Year Ended December 31,  
   2017     2016     2015  

Cash flow from operating activities

      

Net income (loss)

   $ 34,010,004     $ 218,419,388     $ (872,084,399

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

     11,812,845       26,962,210       (12,966,690

Purchases of short-term U.S. government and agency obligations

     (6,401,999,444     (3,746,504,691     (4,300,690,737

Proceeds from sales or maturities of short-term U.S government and agency obligations

     6,833,376,973       3,661,263,949       3,970,639,458  

Net amortization and accretion on short-term U.S government and agency obligations

     (5,888,775     (2,170,633     (382,657

Net realized gain (loss) on investments

     14,496       17,374       (22,728

Change in unrealized appreciation/depreciation on investments

     (6,848,935     (127,540,623     (3,997,651

Decrease (Increase) in receivable on futures contracts

     (2,242,001     5,150,763       (5,150,763

Increase (Decrease) in payable to Sponsor

     (397,278     176,115       316,922  

Increase (Decrease) in brokerage commissions and fees payable

     (2,332     (22,668     25,000  

Increase (Decrease) in payable on futures contracts

     (1,993,438     1,993,438       (5,817,266
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     459,842,115       37,744,622       (1,230,131,511
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     1,156,816,574       1,099,498,953       2,529,448,592  

Payment on shares redeemed

     (1,616,527,496     (1,139,850,399     (1,297,658,086
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (459,710,922     (40,351,446     1,231,790,506  
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     131,193       (2,606,824     1,658,995  

Cash, beginning of period

     1,401,555       4,008,379       2,349,384  
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 1,532,748     $ 1,401,555     $ 4,008,379  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

168


Table of Contents

PROSHARES ULTRA BLOOMBERG NATURAL GAS

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2017      December 31, 2016  

Assets

     

Cash

   $ 4,417,324      $ 971,442  

Segregated cash balances with brokers for futures contracts

     10,299,573        7,612,770  

Short-term U.S. government and agency obligations (Note 3)
(cost $50,963,586 and $36,183,384, respectively)

     50,961,356        36,183,648  

Receivable from capital shares sold

     326,440        —    

Receivable on open futures contracts

     1,520,156        —    
  

 

 

    

 

 

 

Total assets

     67,524,849        44,767,860  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Payable for capital shares redeemed

     4,211,794        —    

Payable on open futures contracts

     —          1,528,005  

Brokerage commissions and fees payable

     —          433  

Payable to Sponsor

     44,105        36,036  
  

 

 

    

 

 

 

Total liabilities

     4,255,899        1,564,474  
  

 

 

    

 

 

 

Commitments and Contingencies (Note 2)

     

Shareholders’ equity

     

Shareholders’ equity

     63,268,950        43,203,386  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 67,524,849      $ 44,767,860  
  

 

 

    

 

 

 

Shares outstanding

     9,692,169        2,292,169  
  

 

 

    

 

 

 

Net asset value per share

   $ 6.53      $ 18.85  
  

 

 

    

 

 

 

Market value per share (Note 2)

   $ 6.50      $ 18.96  
  

 

 

    

 

 

 

 

See accompanying notes to financial statements.

 

169


Table of Contents

PROSHARES ULTRA BLOOMBERG NATURAL GAS

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2017

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

 

  

(81% of shareholders’ equity)

 

  

U.S. Treasury Bills^^:

     

1.000% due 01/04/18

   $ 16,000,000      $ 15,999,005  

1.001% due 01/11/18

     9,000,000        8,997,457  

1.033% due 01/18/18

     6,000,000        5,996,773  

1.040% due 02/01/18

     8,000,000        7,991,734  

1.145% due 02/22/18

     9,000,000        8,984,127  

1.271% due 03/15/18

     3,000,000        2,992,260  
     

 

 

 

Total short-term U.S. government and agency obligations
(cost $50,963,586)

      $ 50,961,356  
     

 

 

 

Futures Contracts Purchased

 

     Number of
Contracts
     Notional Amount at
Value
     Unrealized
Appreciation
(Depreciation)/Value
 

Natural Gas—NYMEX, expires March 2018

     4,355      $ 126,556,300      $ 7,225,810  

 

^^ Rates shown represents discount rate at the time of purchase.

See accompanying notes to financial statements.

 

170


Table of Contents

PROSHARES ULTRA BLOOMBERG NATURAL GAS

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2016

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

 

  

(84% of shareholders’ equity)

 

  

U.S. Treasury Bills^^:

     

0.435% due 01/12/17

   $ 1,200,000      $ 1,199,882  

0.345% due 01/19/17

     8,000,000        7,998,525  

0.311% due 01/26/17

     3,000,000        2,999,205  

0.403% due 02/02/17

     3,000,000        2,998,963  

0.425% due 02/09/17

     4,000,000        3,998,191  

0.440% due 02/16/17

     12,000,000        11,993,473  

0.491% due 02/23/17

     2,000,000        1,998,668  

0.493% due 03/23/17

     3,000,000        2,996,741  
     

 

 

 

Total short-term U.S. government and agency obligations
(cost $36,183,384)

      $ 36,183,648  
     

 

 

 

Futures Contracts Purchased††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Natural Gas—NYMEX, expires March 2017

     2,346      $ 86,426,640      $ 2,536,720  

 

^^ Rates shown represents discount rate at the time of purchase.
†† Cash collateral in the amount of $7,612,770 was pledged to cover margin requirements for open futures contracts as of December 31, 2016.

See accompanying notes to financial statements.

 

171


Table of Contents

PROSHARES ULTRA BLOOMBERG NATURAL GAS

STATEMENTS OF OPERATIONS

 

     Year Ended December 31,  
   2017     2016     2015  

Investment Income

      

Interest

   $ 339,079     $ 72,943     $ 20,167  
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     446,589       325,435       574,158  

Brokerage commissions

     126,252       131,994       207,344  
  

 

 

   

 

 

   

 

 

 

Total expenses

     572,841       457,429       781,502  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (233,762     (384,486     (761,335
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Futures contracts

     (40,793,265     17,571,809       (100,776,817

Short-term U.S. government and agency obligations

     (1,021     (698     4,341  
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     (40,794,286     17,571,111       (100,772,476
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Futures contracts

     4,689,090       (3,776,159     41,202,162  

Short-term U.S. government and agency obligations

     (2,494     (819     (296
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     4,686,596       (3,776,978     41,201,866  
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     (36,107,690     13,794,133       (59,570,610
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (36,341,452   $ 13,409,647     $ (60,331,945
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

172


Table of Contents

PROSHARES ULTRA BLOOMBERG NATURAL GAS

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

 

     Year Ended December 31,  
   2017     2016     2015  

Shareholders’ equity, beginning of period

   $ 43,203,386     $ 38,851,184     $ 70,433,207  

Addition of 12,550,000, 3,450,000 and 2,137,500 shares, respectively

     106,004,594       40,783,818       83,526,876  

Redemption of 5,150,000, 3,250,001 and 1,187,815 shares, respectively

     (49,597,578     (49,841,263     (54,776,954
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of 7,400,000, 199,999 and 949,685 shares, respectively

     56,407,016       (9,057,445     28,749,922  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (233,762     (384,486     (761,335

Net realized gain (loss)

     (40,794,286     17,571,111       (100,772,476

Change in net unrealized appreciation/depreciation

     4,686,596       (3,776,978     41,201,866  
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     (36,341,452     13,409,647       (60,331,945
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 63,268,950     $ 43,203,386     $ 38,851,184  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

173


Table of Contents

PROSHARES ULTRA BLOOMBERG NATURAL GAS

STATEMENTS OF CASH FLOWS

 

     Year Ended December 31,  
   2017     2016     2015  

Cash flow from operating activities

      

Net income (loss)

   $ (36,341,452   $ 13,409,647     $ (60,331,945

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

     (2,686,803     (17,490     13,538,800  

Purchases of short-term U.S. government and agency obligations

     (400,640,972     (136,277,314     (262,203,648

Proceeds from sales or maturities of short-term U.S government and agency obligations

     386,173,028       126,972,823       288,829,035  

Net amortization and accretion on short-term U.S government and agency obligations

     (313,279     (72,943     (18,846

Net realized gain (loss) on investments

     1,021       698       (4,341

Change in unrealized appreciation/depreciation on investments

     2,494       819       296  

Decrease (Increase) in receivable on futures contracts

     (1,520,156     3,065,769       (3,065,769

Increase (Decrease) in payable to Sponsor

     8,069       10,926       (40,680

Increase (Decrease) in brokerage commissions and fees payable

     (433     (3,190     3,623  

Increase (Decrease) in payable on futures contracts

     (1,528,005     1,528,005       (9,552,314
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (56,846,488     8,617,750       (32,845,789
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     105,678,154       40,783,818       87,380,298  

Payment on shares redeemed

     (45,385,784     (49,841,263     (54,776,954
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     60,292,370       (9,057,445     32,603,344  
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     3,445,882       (439,695     (242,445

Cash, beginning of period

     971,442       1,411,137       1,653,582  
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 4,417,324     $ 971,442     $ 1,411,137  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

174


Table of Contents

PROSHARES ULTRA EURO

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2017      December 31, 2016  

Assets

     

Cash

   $ 1,416,427      $ 606,393  

Segregated cash balances with brokers for foreign currency forward contracts

     922,000        —    

Short-term U.S. government and agency obligations (Note 3)
(cost $6,996,595 and $11,891,729, respectively)

     6,996,235        11,891,831  

Unrealized appreciation on foreign currency forward contracts

     321,609        2,548  
  

 

 

    

 

 

 

Total assets

     9,656,271        12,500,772  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Payable to Sponsor

     7,298        9,629  

Unrealized depreciation on foreign currency forward contracts

     57,457        576,558  
  

 

 

    

 

 

 

Total liabilities

     64,755        586,187  
  

 

 

    

 

 

 

Commitments and Contingencies (Note 2)

     

Shareholders’ equity

     

Shareholders’ equity

     9,591,516        11,914,585  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 9,656,271      $ 12,500,772  
  

 

 

    

 

 

 

Shares outstanding

     550,000        850,000  
  

 

 

    

 

 

 

Net asset value per share

   $ 17.44      $ 14.02  
  

 

 

    

 

 

 

Market value per share (Note 2)

   $ 17.46      $ 14.09  
  

 

 

    

 

 

 

 

See accompanying notes to financial statements.

 

175


Table of Contents

PROSHARES ULTRA EURO

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2017

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations
(73% of shareholders’ equity)

 

  

U.S. Treasury Bills^^:

     

1.033% due 01/18/18†

   $ 7,000,000      $ 6,996,235  
     

 

 

 

Total short-term U.S. government and agency obligations
(cost $6,996,595)

      $ 6,996,235  
     

 

 

 

Foreign Currency Forward Contracts^

 

     Settlement Date      Contract
Amount in
Local Currency
    Contract
Amount in
U.S. Dollars
    Unrealized
Appreciation
(Depreciation)/Value
 

Contracts to Purchase

         

Euro with Goldman Sachs International

     01/12/18        8,921,525     $ 10,550,545     $ 159,093  

Euro with UBS AG

     01/12/18        10,174,300       12,050,988       162,516  
         

 

 

 

Total Unrealized Appreciation

          $ 321,609  
         

 

 

 

Contracts to Sell

         

Euro with Goldman Sachs International

     01/12/18        (3,071,600   $ (3,630,563   $ (56,669

Euro with UBS AG

     01/12/18        (37,900     (44,709     (788
         

 

 

 

Total Unrealized Depreciation

          $ (57,457
         

 

 

 

 

All or partial amount pledged as collateral for foreign currency forward contracts.
^ The positions and counterparties herein are as of December 31, 2017. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
^^ Rates shown represents discount rate at the time of purchase.

 

See accompanying notes to financial statements.

 

176


Table of Contents

PROSHARES ULTRA EURO

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2016

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations
(100% of shareholders’ equity)

 

  

U.S. Treasury Bills^^:

     

0.295% due 01/05/17†

   $ 1,000,000      $ 999,979  

0.270% due 01/12/17

     901,000        900,911  

0.299% due 01/19/17†

     2,000,000        1,999,631  

0.493% due 03/23/17

     8,000,000        7,991,310  
     

 

 

 

Total short-term U.S. government and agency obligations
(cost $11,891,729)

      $ 11,891,831  
     

 

 

 

Foreign Currency Forward Contracts^

 

     Settlement Date      Local Currency     Notional Amount at
Value (USD)
    Unrealized
Appreciation
(Depreciation)
 

Contracts to Purchase

         

Euro with Goldman Sachs International

     01/13/17        9,841,725     $ 10,368,169     $ (236,099

Euro with UBS AG

     01/13/17        13,774,600       14,511,417       (337,302
         

 

 

 
          $ (573,401
         

 

 

 

Contracts to Sell

         

Euro with Goldman Sachs International

     01/13/17        (717,800   $ (756,196   $ (3,157

Euro with UBS AG

     01/13/17        (264,000     (278,121     2,548  
         

 

 

 
          $ (609
         

 

 

 

 

All or partial amount pledged as collateral for foreign currency forward contracts.
^ The positions and counterparties herein are as of December 31, 2016. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
^^ Rates shown represents discount rate at the time of purchase.

 

See accompanying notes to financial statements.

 

177


Table of Contents

PROSHARES ULTRA EURO

STATEMENTS OF OPERATIONS

 

     Year Ended December 31,  
   2017     2016     2015  

Investment Income

      

Interest

   $ 94,761     $ 25,015     $ 2,797  
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     124,543       99,537       106,868  
  

 

 

   

 

 

   

 

 

 

Total expenses

     124,543       99,537       106,868  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (29,782     (74,522     (104,071
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Foreign currency forward contracts

     2,212,313       138,959       (1,982,208

Short-term U.S. government and agency obligations

     (87     154       (109
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     2,212,226       139,113       (1,982,317
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Foreign currency forward contracts

     838,162       (1,178,930     708,291  

Short-term U.S. government and agency obligations

     (462     505       (369
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     837,700       (1,178,425     707,922  
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     3,049,926       (1,039,312     (1,274,395
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 3,020,144     $ (1,113,834   $ (1,378,466
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

178


Table of Contents

PROSHARES ULTRA EURO

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

 

     Year Ended December 31,  
   2017     2016     2015  

Shareholders’ equity, beginning of period

   $ 11,914,585     $ 10,857,730     $ 2,981,441  

Addition of 1,600,000, 300,000 and 950,000 shares, respectively

     25,220,169       4,628,749       15,916,613  

Redemption of 1,900,000, 150,014 and 400,000 shares, respectively

     (30,563,382     (2,458,060     (6,661,858
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of (300,000), 149,986 and 550,000 shares, respectively

     (5,343,213     2,170,689       9,254,755  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (29,782     (74,522     (104,071

Net realized gain (loss)

     2,212,226       139,113       (1,982,317

Change in net unrealized appreciation/depreciation

     837,700       (1,178,425     707,922  
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     3,020,144       (1,113,834     (1,378,466
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 9,591,516     $ 11,914,585     $ 10,857,730  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

179


Table of Contents

PROSHARES ULTRA EURO

STATEMENTS OF CASH FLOWS

 

     Year Ended December 31,  
   2017     2016     2015  

Cash flow from operating activities

      

Net income (loss)

   $ 3,020,144     $ (1,113,834   $ (1,378,466

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

      

Decrease (Increase) in segregated cash balances with brokers for foreign currency forward contracts

     (922,000     —         —    

Purchases of short-term U.S. government and agency obligations

     (57,793,329     (48,066,675     (42,137,395

Proceeds from sales or maturities of short-term U.S government and agency obligations

     62,783,137       47,805,780       32,950,150  

Net amortization and accretion on short-term U.S government and agency obligations

     (94,761     (25,015     (2,797

Net realized gain (loss) on investments

     87       (154     109  

Change in unrealized appreciation/depreciation on investments

     (837,700     1,178,425       (707,922

Increase (Decrease) in payable to Sponsor

     (2,331     (415     8,041  
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     6,153,247       (221,888     (11,268,280
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     25,220,169       4,628,749       15,916,613  

Payment on shares redeemed

     (30,563,382     (4,027,778     (5,092,140
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (5,343,213     600,971       10,824,473  
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     810,034       379,083       (443,807

Cash, beginning of period

     606,393       227,310       671,117  
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 1,416,427     $ 606,393     $ 227,310  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

180


Table of Contents

PROSHARES ULTRA GOLD

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2017      December 31, 2016  

Assets

     

Cash

   $ 1,237,103      $ 1,262,351  

Segregated cash balances with brokers for futures contracts

     8,800        13,200  

Short-term U.S. government and agency obligations (Note 3)
(cost $88,890,367 and $95,356,703, respectively)

     88,884,844        95,356,621  

Unrealized appreciation on forward agreements

     3,646,355        —    

Receivable on open futures contracts

     2,420        —    
  

 

 

    

 

 

 

Total assets

     93,779,522        96,632,172  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Payable on open futures contracts

     —          1,280  

Payable to Sponsor

     70,774        72,585  

Unrealized depreciation on forward agreements

     —          4,431,107  
  

 

 

    

 

 

 

Total liabilities

     70,774        4,504,972  
  

 

 

    

 

 

 

Commitments and Contingencies (Note 2)

     

Shareholders’ equity

     

Shareholders’ equity

     93,708,748        92,127,200  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 93,779,522      $ 96,632,172  
  

 

 

    

 

 

 

Shares outstanding

     2,350,000        2,800,000  
  

 

 

    

 

 

 

Net asset value per share

   $ 39.88      $ 32.90  
  

 

 

    

 

 

 

Market value per share (Note 2)

   $ 40.67      $ 33.20  
  

 

 

    

 

 

 

 

See accompanying notes to financial statements.

 

181


Table of Contents

PROSHARES ULTRA GOLD

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2017

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations
(95% of shareholders’ equity)

 

  

U.S. Treasury Bills^^:

     

1.000% due 01/04/18

   $ 16,000,000      $ 15,999,005  

1.001% due 01/11/18†

     12,000,000        11,996,610  

1.033% due 01/18/18†

     10,000,000        9,994,622  

1.075% due 02/08/18†

     12,000,000        11,984,707  

1.080% due 02/15/18†

     15,000,000        14,977,266  

1.298% due 03/15/18†

     16,000,000        15,958,720  

1.267% due 03/29/18†

     8,000,000        7,973,914  
     

 

 

 

Total short-term U.S. government and agency obligations
(cost $88,890,367)

      $ 88,884,844  
     

 

 

 

Futures Contracts Purchased

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)/Value
 

Gold Futures - COMEX, expires February 2018

     2      $ 261,860      $ 5,480  

Forward Agreements^

 

     Rate Paid
(Received)*
    Settlement Date      Commitment to
(Deliver)/Receive
     Notional Amount
at Value**
     Unrealized
Appreciation
(Depreciation)/Value
 

Forward agreements with Citibank, N.A. based on 0.995 Fine Troy Ounce Gold

     2.25     01/08/18      $ 53,800      $ 69,494,536      $ 1,513,310  

Forward agreements with Goldman Sachs International based on 0.995 Fine Troy Ounce Gold

     2.30       01/08/18        38,420        49,625,577        969,501  

Forward agreements with Societe Generale based on 0.995 Fine Troy Ounce Gold

     2.18       01/08/18        13,000        16,791,060        218,319  

Forward agreements with UBS AG based on 0.995 Fine Troy Ounce Gold

     2.36       01/08/18        39,700        51,280,490        945,225  
             

 

 

 

Total Unrealized Appreciation

              $ 3,646,355  
             

 

 

 

 

All or partial amount pledged as collateral for forward agreements.
^ The positions and counterparties herein are as of December 31, 2017. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
^^ Rates shown represents discount rate at the time of purchase.
* Reflects the floating financing rate, as of December 31, 2017 on the notional amount of the forward agreement paid to the counterparty or received from the counterparty, excluding any commissions. Forward Agreements payment is due at termination/maturity.
** 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.

 

182


Table of Contents

PROSHARES ULTRA GOLD

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2016

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

 

  

(104% of shareholders’ equity)

 

  

U.S. Treasury Bills^^:

     

0.318% due 01/05/17†

   $ 5,340,000      $ 5,339,886  

0.276% due 01/12/17†

     15,564,000        15,562,464  

0.355% due 01/19/17†

     4,395,000        4,394,189  

0.360% due 01/26/17†

     22,000,000        21,994,168  

0.406% due 02/02/17†

     6,100,000        6,097,891  

0.393% due 02/16/17†

     11,006,000        11,000,014  

0.491% due 02/23/17†

     4,000,000        3,997,337  

0.493% due 03/23/17†

     27,000,000        26,970,672  
     

 

 

 

Total short-term U.S. government and agency obligations
(cost $95,356,703)

      $ 95,356,621  
     

 

 

 

Futures Contracts Purchased††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Gold Futures - COMEX, expires February 2017

     2      $ 230,340      $ (18,960
        

Forward Agreements^

 

     Rate Paid
(Received)*
    Settlement Date      Commitment to
(Deliver)/Receive
     Notional Amount
at Value**
     Unrealized
Appreciation
(Depreciation)
 

Forward agreements with Citibank, N.A. based on 0.995 Fine Troy Ounce Gold

     1.35     01/10/17      $ 55,100      $ 63,158,375      $ (1,464,982

Forward agreements with Goldman Sachs International based on 0.995 Fine Troy Ounce Gold

     1.55       01/10/17        42,320        48,509,300        (1,112,916

Forward agreements with Societe Generale based on 0.995 Fine Troy Ounce Gold

     1.55       01/10/17        23,300        26,707,625        (643,587

Forward agreements with UBS AG based on 0.995 Fine Troy Ounce Gold

     1.54       01/10/17        39,800        45,621,148        (1,209,622
             

 

 

 
              $ (4,431,107
             

 

 

 

 

All or partial amount pledged as collateral for forward agreements and/or futures contracts.
†† Cash collateral in the amount of $13,200 was pledged to cover margin requirements for open futures contracts as of December 31, 2016.
^ The positions and counterparties herein are as of December 31, 2016. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
^^ Rates shown represents discount rate at the time of purchase.
* Reflects the floating financing rate, as of December 31, 2016, on the notional amount of the forward agreement paid to the counterparty or received from the counterparty, excluding any commissions.
** 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.

 

183


Table of Contents

PROSHARES ULTRA GOLD

STATEMENTS OF OPERATIONS

 

     Year Ended December 31,  
   2017     2016     2015  

Investment Income

      

Interest

   $ 766,560     $ 249,319     $ 42,700  
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     902,841       900,227       839,083  

Brokerage commissions

     48       43       41  
  

 

 

   

 

 

   

 

 

 

Total expenses

     902,889       900,270       839,124  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (136,329     (650,951     (796,424
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Futures contracts

     2,839       29,500       (16,180

Forward agreements

     11,481,571       5,787,065       (18,589,635

Short-term U.S. government and agency obligations

     691       (806     (393
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     11,485,101       5,815,759       (18,606,208
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Futures contracts

     24,440       (13,760     (9,780

Forward agreements

     8,077,462       (2,180,512     (4,301,749

Short-term U.S. government and agency obligations

     (5,441     (4,389     2,086  
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     8,096,461       (2,198,661     (4,309,443
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     19,581,562       3,617,098       (22,915,651
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 19,445,233     $ 2,966,147     $ (23,712,075
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

184


Table of Contents

PROSHARES ULTRA GOLD

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

 

     Year Ended December 31,  
   2017     2016     2015  

Shareholders’ equity, beginning of period

   $ 92,127,200     $ 69,864,815     $ 102,003,345  

Addition of 650,000, 1,050,000 and 150,000 shares, respectively

     23,949,465       41,599,776       5,401,300  

Redemption of 1,100,000, 600,014 and 350,000 shares, respectively

     (41,813,150     (22,303,538     (13,827,755
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of (450,000), 449,986 and (200,000) shares, respectively

     (17,863,685     19,296,238       (8,426,455
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (136,329     (650,951     (796,424

Net realized gain (loss)

     11,485,101       5,815,759       (18,606,208

Change in net unrealized appreciation/depreciation

     8,096,461       (2,198,661     (4,309,443
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     19,445,233       2,966,147       (23,712,075
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 93,708,748     $ 92,127,200     $ 69,864,815  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

185


Table of Contents

PROSHARES ULTRA GOLD

STATEMENTS OF CASH FLOWS

 

     Year Ended December 31,  
   2017     2016     2015  

Cash flow from operating activities

      

Net income (loss)

   $ 19,445,233     $ 2,966,147     $ (23,712,075

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

      

Decrease (Increase) in segregated cash balances with brokers for futures contracts

     4,400       (4,950     550  

Purchases of short-term U.S. government and agency obligations

     (909,157,323     (406,481,915     (260,988,119

Proceeds from sales or maturities of short-term U.S government and agency obligations

     916,390,856       383,282,007       291,047,782  

Net amortization and accretion on short-term U.S government and agency obligations

     (766,506     (249,321     (42,700

Net realized gain (loss) on investments

     (691     806       393  

Change in unrealized appreciation/depreciation on investments

     (8,072,021     2,184,901       4,299,663  

Decrease (Increase) in receivable on futures contracts

     (2,420     80       (80

Increase (Decrease) in payable to Sponsor

     (1,811     15,554       (28,602

Increase (Decrease) in payable on futures contracts

     (1,280     1,280       (3,260
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     17,838,437       (18,285,411     10,573,552  
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     23,949,465       41,599,776       5,401,300  

Payment on shares redeemed

     (41,813,150     (22,303,538     (15,827,473
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (17,863,685     19,296,238       (10,426,173
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     (25,248     1,010,827       147,379  

Cash, beginning of period

     1,262,351       251,524       104,145  
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 1,237,103     $ 1,262,351     $ 251,524  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

186


Table of Contents

PROSHARES ULTRA SILVER

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2017      December 31, 2016  

Assets

     

Cash

   $ 1,113,594      $ 1,664,601  

Segregated cash balances with brokers for futures contracts

     10,340        14,300  

Segregated cash balances with brokers for forward agreements

     3,343,000        —    

Short-term U.S. government and agency obligations (Note 3)
(cost $235,605,469 and $295,296,440, respectively)

     235,581,716        295,300,799  

Unrealized appreciation on forward agreements

     21,735,334        —    

Receivable on open futures contracts

     2,220        —    
  

 

 

    

 

 

 

Total assets

     261,786,204        296,979,700  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Payable for capital shares redeemed

     3,354,851        —    

Payable on open futures contracts

     —          2,290  

Payable to Sponsor

     186,657        221,281  

Unrealized depreciation on forward agreements

     —          20,976,189  
  

 

 

    

 

 

 

Total liabilities

     3,541,508        21,199,760  
  

 

 

    

 

 

 

Commitments and Contingencies (Note 2)

     

Shareholders’ equity

     

Shareholders’ equity

     258,244,696        275,779,940  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 261,786,204      $ 296,979,700  
  

 

 

    

 

 

 

Shares outstanding

     7,696,526        8,246,526  
  

 

 

    

 

 

 

Net asset value per share

   $ 33.55      $ 33.44  
  

 

 

    

 

 

 

Market value per share (Note 2)

   $ 33.85      $ 32.09  
  

 

 

    

 

 

 

 

See accompanying notes to financial statements.

 

187


Table of Contents

PROSHARES ULTRA SILVER

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2017

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

 

  

(91% of shareholders’ equity)

 

  

U.S. Treasury Bills^^:

     

1.001% due 01/04/18†

   $ 39,000,000      $ 38,997,574  

1.001% due 01/11/18†

     15,000,000        14,995,763  

1.126% due 02/01/18†

     30,000,000        29,969,001  

1.075% due 02/08/18†

     25,000,000        24,968,140  

1.080% due 02/15/18†

     20,000,000        19,969,688  

1.145% due 02/22/18†

     9,000,000        8,984,127  

1.231% due 03/01/18†

     10,000,000        9,979,458  

1.256% due 03/08/18†

     15,000,000        14,964,792  

1.271% due 03/15/18†

     7,000,000        6,981,940  

1.277% due 03/22/18

     5,000,000        4,985,352  

1.267% due 03/29/18†

     11,000,000        10,964,131  

1.292% due 04/05/18

     50,000,000        49,821,750  
     

 

 

 

Total short-term U.S. government and agency obligations
(cost $235,605,469)

      $ 235,581,716  
     

 

 

 

Futures Contracts Purchased

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)/Value
 

Silver Futures - COMEX, expires March 2018

     2      $ 171,450      $ 1,600  

Forward Agreements^

 

     Rate Paid
(Received)*
    Settlement Date      Commitment to
(Deliver)/Receive
     Notional Amount
at Value**
     Unrealized
Appreciation
(Depreciation)/Value
 

Forward agreements with Citibank, N.A. based on 0.999 Fine Troy Ounce Silver

     2.35     01/08/18      $ 10,403,000      $ 175,548,544      $ 7,201,744  

Forward agreements with Goldman Sachs International based on 0.999 Fine Troy Ounce Silver

     2.37       01/08/18        8,119,800        137,013,505        5,873,080  

Forward agreements with Societe Generale based on 0.999 Fine Troy Ounce Silver

     2.35       01/08/18        3,784,000        63,850,838        2,761,817  

Forward agreements with UBS AG based on 0.999 Fine Troy Ounce Silver

     2.50       01/08/18        8,293,000        139,941,058        5,898,693  
             

 

 

 

Total Unrealized Appreciation

              $ 21,735,334  
             

 

 

 

 

All or partial amount pledged as collateral for forward agreements.
^ The positions and counterparties herein are as of December 31, 2017. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
^^ Rates shown represents discount rate at the time of purchase.
* Reflects the floating financing rate, as of December 31, 2017, on the notional amount of the forward agreement paid to the counterparty or received from the counterparty, excluding any commissions. Forward Agreements payment is due at termination/maturity.
** 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.

 

188


Table of Contents

PROSHARES ULTRA SILVER

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2016

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

 

  

(107% of shareholders’ equity)

 

  

U.S. Treasury Bills^^:

     

0.318% due 01/05/17†

   $ 52,000,000      $ 51,998,887  

0.354% due 01/12/17†

     68,895,000        68,888,200  

0.339% due 01/19/17†

     27,000,000        26,995,021  

0.371% due 01/26/17

     2,000,000        1,999,470  

0.394% due 02/02/17†

     9,500,000        9,496,715  

0.452% due 02/09/17†

     76,000,000        75,965,633  

0.423% due 02/16/17†

     36,000,000        35,980,420  

0.491% due 02/23/17†

     6,000,000        5,996,005  

0.493% due 03/23/17

     18,000,000        17,980,448  
     

 

 

 

Total short-term U.S. government and agency obligations
(cost $295,296,440)

      $ 295,300,799  
     

 

 

 

Futures Contracts Purchased††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Silver Futures - COMEX, expires March 2017

     2      $ 159,890      $ (27,360

Forward Agreements^

 

     Rate Paid
(Received)*
    Settlement Date      Commitment to
(Deliver)/Receive
     Notional Amount
at Value**
     Unrealized
Appreciation
(Depreciation)
 

Forward agreements with Citibank, N.A. based on 0.999 Fine Troy Ounce Silver

     1.55     01/10/17      $ 12,327,000      $ 200,263,209      $ (6,946,009

Forward agreements with Goldman Sachs International based on 0.999 Fine Troy Ounce Silver

     1.65       01/10/17        8,498,800        138,066,406        (5,869,092

Forward agreements with Societe Generale S.A. based on 0.999 Fine Troy Ounce Silver

     1.70       01/10/17        4,484,000        72,845,270        (2,532,729

Forward agreements with UBS AG based on 0.999 Fine Troy Ounce Silver

     1.72       01/10/17        8,632,000        140,232,882        (5,628,359
             

 

 

 
              $ (20,976,189
             

 

 

 

 

All or partial amount pledged as collateral for forward agreements and/or futures contracts.
†† Cash collateral in the amount of $14,300 was pledged to cover margin requirements for open futures contracts as of December 31, 2016.
^ The positions and counterparties herein are as of December 31, 2016. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
^^ Rates shown represents discount rate at the time of purchase.
* Reflects the floating financing rate, as of December 31, 2016, on the notional amount of the forward agreement paid to the
counterparty or received from the counterparty, excluding any commissions.
** 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.

 

189


Table of Contents

PROSHARES ULTRA SILVER

STATEMENTS OF OPERATIONS

 

     Year Ended December 31,  
   2017     2016     2015  

Investment Income

      

Interest

   $ 2,142,183     $ 842,215     $ 156,353  
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     2,551,877       3,021,562       2,664,160  

Brokerage commissions

     58       45       52  
  

 

 

   

 

 

   

 

 

 

Total expenses

     2,551,935       3,021,607       2,664,212  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (409,752     (2,179,392     (2,507,859
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Futures contracts

     (21,522     45,750       (19,600

Forward agreements

     (31,741,312     62,296,691       (78,289,709

Short-term U.S. government and agency obligations

     207       145       (441
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     (31,762,627     62,342,586       (78,309,750
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Futures contracts

     28,960       (18,330     (7,470

Forward agreements

     42,711,523       1,584,912       (10,165,981

Short-term U.S. government and agency obligations

     (28,112     4,909       (9,125
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     42,712,371       1,571,491       (10,182,576
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     10,949,744       63,914,077       (88,492,326
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 10,539,992     $ 61,734,685     $ (91,000,185
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

190


Table of Contents

PROSHARES ULTRA SILVER

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

 

     Year Ended December 31,  
   2017     2016     2015  

Shareholders’ equity, beginning of period

   $ 275,779,940     $ 216,416,642     $ 291,169,743  

Addition of 1,550,000, 2,800,000 and 2,700,000 shares, respectively

     50,514,699       104,165,405       96,078,803  

Redemption of 2,100,000, 2,550,007 and 2,100,000 shares, respectively

     (78,589,935     (106,536,792     (79,831,719
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of (550,000), 249,993 and 600,000 shares, respectively

     (28,075,236     (2,371,387     16,247,084  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (409,752     (2,179,392     (2,507,859

Net realized gain (loss)

     (31,762,627     62,342,586       (78,309,750

Change in net unrealized appreciation/depreciation

     42,712,371       1,571,491       (10,182,576
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     10,539,992       61,734,685       (91,000,185
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 258,244,696     $ 275,779,940     $ 216,416,642  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

191


Table of Contents

PROSHARES ULTRA SILVER

STATEMENTS OF CASH FLOWS

 

     Year Ended December 31,  
   2017     2016     2015  

Cash flow from operating activities

      

Net income (loss)

   $ 10,539,992     $ 61,734,685     $ (91,000,185

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

     3,960       2,860       (2,860

Decrease (Increase) in segregated cash balances with brokers for forward agreements

     (3,343,000     —         —    

Purchases of short-term U.S. government and agency obligations

     (2,227,503,877     (1,412,194,485     (835,846,036

Proceeds from sales or maturities of short-term U.S government and agency obligations

     2,289,337,181       1,356,640,583       902,567,408  

Net amortization and accretion on short-term U.S government and agency obligations

     (2,142,126     (842,217     (156,353

Net realized gain (loss) on investments

     (207     (145     441  

Change in unrealized appreciation/depreciation on investments

     (42,683,411     (1,589,821     10,175,106  

Decrease (Increase) in receivable on futures contracts

     (2,220     —         —    

Increase (Decrease) in payable to Sponsor

     (34,624     40,213       (72,982

Increase (Decrease) in payable on futures contracts

     (2,290     415       (4,895
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     24,169,378       3,792,088       (14,340,356
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     50,514,699       104,165,405       96,078,803  

Payment on shares redeemed

     (75,235,084     (106,536,792     (81,799,551
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (24,720,385     (2,371,387     14,279,252  
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     (551,007     1,420,701       (61,104

Cash, beginning of period

     1,664,601       243,900       305,004  
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 1,113,594     $ 1,664,601     $ 243,900  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

192


Table of Contents

PROSHARES ULTRA VIX SHORT-TERM FUTURES ETF

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2017      December 31, 2016  

Assets

     

Cash

   $ 1,539,237      $ 10,969,955  

Segregated cash balances with brokers for futures contracts

     87,211,683        71,363,625  

Short-term U.S. government and agency obligations (Note 3)
(cost $287,546,397 and $434,676,067, respectively)

     287,533,132        434,671,795  

Receivable from capital shares sold

     516,930        —    

Receivable on open futures contracts

     17,578,451        35,967,191  
  

 

 

    

 

 

 

Total assets

     394,379,433        552,972,566  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Payable for capital shares redeemed

     —          36,789,539  

Payable to Sponsor

     344,292        424,273  
  

 

 

    

 

 

 

Total liabilities

     344,292        37,213,812  
  

 

 

    

 

 

 

Commitments and Contingencies (Note 2)

     

Shareholders’ equity

     

Shareholders’ equity

     394,035,141        515,758,754  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 394,379,433      $ 552,972,566  
  

 

 

    

 

 

 

Shares outstanding (Note 1)

     38,127,238        2,965,383  
  

 

 

    

 

 

 

Net asset value per share (Note 1)

   $ 10.33      $ 173.93  
  

 

 

    

 

 

 

Market value per share (Note 1)(Note 2)

   $ 10.21      $ 175.00  
  

 

 

    

 

 

 

 

See accompanying notes to financial statements.

 

193


Table of Contents

PROSHARES ULTRA VIX SHORT-TERM FUTURES ETF

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2017

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations
(73% of shareholders’ equity)

 

  

U.S. Treasury Bills^^:

     

1.001% due 01/11/18†

   $ 48,000,000      $ 47,986,440  

1.174% due 01/25/18†

     34,000,000        33,972,956  

1.201% due 02/01/18†

     22,000,000        21,977,268  

1.075% due 02/08/18†

     45,000,000        44,942,652  

1.080% due 02/15/18†

     12,000,000        11,981,813  

1.264% due 03/01/18†

     40,000,000        39,917,832  

1.256% due 03/08/18†

     25,000,000        24,941,320  

1.319% due 03/15/18†

     31,000,000        30,920,020  

1.267% due 03/29/18†

     11,000,000        10,964,131  

1.292% due 04/05/18†

     20,000,000        19,928,700  
     

 

 

 

Total short-term U.S. government and agency obligations
(cost $287,546,397)

      $ 287,533,132  
     

 

 

 

Futures Contracts Purchased

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)/Value
 

VIX Futures - CBOE, expires January 2018

     39,057      $ 448,179,075      $ (38,440,762

VIX Futures - CBOE, expires February 2018

     27,298        340,542,550        3,974,642  
        

 

 

 
         $ (34,466,120
        

 

 

 

 

^^ Rates shown represents discount rate at the time of purchase.
All or partial amount pledged as collateral for futures contracts.

 

See accompanying notes to financial statements.

 

194


Table of Contents

PROSHARES ULTRA VIX SHORT-TERM FUTURES ETF

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2016

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations
(84% of shareholders’ equity)

 

  

U.S. Treasury Bills^^:

     

0.294% due 01/05/17

   $ 20,161,000      $ 20,160,569  

0.307% due 01/12/17

     68,063,000        68,056,282  

0.336% due 01/19/17†

     62,500,000        62,488,475  

0.319% due 01/26/17†

     66,000,000        65,982,504  

0.342% due 02/02/17†

     60,092,000        60,071,220  

0.442% due 02/09/17†

     14,000,000        13,993,669  

0.435% due 02/16/17†

     133,000,000        132,927,661  

0.491% due 02/23/17†

     8,000,000        7,994,674  

0.493% due 03/23/17

     3,000,000        2,996,741  
     

 

 

 

Total short-term U.S. government and agency obligations
(cost $434,676,067)

      $ 434,671,795  
     

 

 

 

Futures Contracts Purchased††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

VIX Futures - CBOE, expires January 2017

     38,688      $ 585,156,000      $ (21,567,112

VIX Futures - CBOE, expires February 2017

     27,012        447,723,900        13,594,875  
        

 

 

 
         $ (7,972,237
        

 

 

 

 

^^ Rates shown represents discount rate at the time of purchase.
All or partial amount pledged as collateral for futures contracts.
†† Cash collateral in the amount of $71,363,625 was pledged to cover margin requirements for open futures contracts as of December 31, 2016.

 

See accompanying notes to financial statements.

 

195


Table of Contents

PROSHARES ULTRA VIX SHORT-TERM FUTURES ETF

STATEMENTS OF OPERATIONS

 

     Year Ended December 31,  
   2017     2016     2015  

Investment Income

      

Interest

   $ 3,040,059     $ 1,639,964     $ 156,187  
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     3,960,999       6,417,822       4,362,460  

Brokerage commissions

     3,970,588       4,158,919       3,203,875  

Brokerage fees

    
4,533
 
    —         —    
  

 

 

   

 

 

   

 

 

 

Total expenses

     7,936,120       10,576,741       7,566,335  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (4,896,061     (8,936,777     (7,410,148
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Futures contracts

     (1,020,750,851     (1,567,340,688     (392,174,228

Short-term U.S. government and agency obligations

     (21,942     15,949       (49,718
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     (1,020,772,793     (1,567,324,739     (392,223,946
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Futures contracts

     (26,493,883     (19,866,703     (27,690,787

Short-term U.S. government and agency obligations

     (8,993     (28,844     26,647  
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     (26,502,876     (19,895,547     (27,664,140
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     (1,047,275,669     (1,587,220,286     (419,888,086
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (1,052,171,730   $ (1,596,157,063   $ (427,298,234
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

196


Table of Contents

PROSHARES ULTRA VIX SHORT-TERM FUTURES ETF

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

 

     Year Ended December 31,  
   2017     2016     2015  

Shareholders’ equity, beginning of period

   $ 515,758,754     $ 547,708,740     $ 351,789,953  

Addition of 85,585,000, 7,239,500 and 721,800 shares, respectively (Note 1)

     2,602,989,881       4,540,375,465       3,192,766,319  

Redemption of 50,423,145, 4,469,142 and 554,815 shares, respectively (Note 1)

     (1,672,541,764     (2,976,168,388     (2,569,549,298
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of 35,161,855, 2,770,358 and 166,985 shares, respectively (Note 1)

     930,448,117       1,564,207,077       623,217,021  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (4,896,061     (8,936,777     (7,410,148

Net realized gain (loss)

     (1,020,772,793     (1,567,324,739     (392,223,946

Change in net unrealized appreciation/depreciation

     (26,502,876     (19,895,547     (27,664,140
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     (1,052,171,730     (1,596,157,063     (427,298,234
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 394,035,141     $ 515,758,754     $ 547,708,740  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

197


Table of Contents

PROSHARES ULTRA VIX SHORT-TERM FUTURES ETF

STATEMENTS OF CASH FLOWS

 

     Year Ended December 31,  
   2017     2016     2015  

Cash flow from operating activities

      

Net income (loss)

   $ (1,052,171,730   $ (1,596,157,063   $ (427,298,234

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

     (15,848,058     (9,015,025     54,559,100  

Purchases of short-term U.S. government and agency obligations

     (4,416,383,420     (4,242,730,514     (3,411,109,730

Proceeds from sales or maturities of short-term U.S government and agency obligations

     4,566,387,313       4,248,037,733       3,155,524,185  

Net amortization and accretion on short-term U.S government and agency obligations

     (2,896,165     (1,634,060     (156,187

Net realized gain (loss) on investments

     21,942       (15,949     49,718  

Change in unrealized appreciation/depreciation on investments

     8,993       28,844       (26,647

Decrease (Increase) in receivable on futures contracts

     18,388,740       (17,971,713     24,535,963  

Increase (Decrease) in payable to Sponsor

     (79,981     (3,115     124,528  
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (902,572,366     (1,619,460,862     (603,797,304
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     2,602,472,951       4,573,362,937       3,172,328,095  

Payment on shares redeemed

     (1,709,331,303     (2,952,014,084     (2,563,186,119
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     893,141,648       1,621,348,853       609,141,976  
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     (9,430,718     1,887,991       5,344,672  

Cash, beginning of period

     10,969,955       9,081,964       3,737,292  
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 1,539,237     $ 10,969,955     $ 9,081,964  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

198


Table of Contents

PROSHARES ULTRA YEN

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2017      December 31, 2016  

Assets

     

Cash

   $ 903,472      $ 604,691  

Short-term U.S. government and agency obligations (Note 3) (cost $1,998,216 and $5,283,104, respectively)

     1,997,933        5,282,879  

Unrealized appreciation on foreign currency forward contracts

     —          379  
  

 

 

    

 

 

 

Total assets

     2,901,405        5,887,949  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Payable to Sponsor

     2,312        4,537  

Unrealized depreciation on foreign currency forward contracts

     34,824        342,455  
  

 

 

    

 

 

 

Total liabilities

     37,136        346,992  
  

 

 

    

 

 

 

Commitments and Contingencies (Note 2)

     

Shareholders’ equity

     

Shareholders’ equity

     2,864,269        5,540,957  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 2,901,405      $ 5,887,949  
  

 

 

    

 

 

 

Shares outstanding

     49,970        99,970  
  

 

 

    

 

 

 

Net asset value per share

   $ 57.32      $ 55.43  
  

 

 

    

 

 

 

Market value per share (Note 2)

   $ 57.45      $ 55.52  
  

 

 

    

 

 

 

 

See accompanying notes to financial statements.

 

199


Table of Contents

PROSHARES ULTRA YEN

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2017

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations
(70% of shareholders’ equity)

 

  

U.S. Treasury Bills^^:

     

1.040% due 02/01/18†

   $ 2,000,000      $ 1,997,933  
     

 

 

 

Total short-term U.S. government and agency obligations
(cost $1,998,216)

      $ 1,997,933  
     

 

 

 

Foreign Currency Forward Contracts^

 

     Settlement Date      Contract
Amount in
Local Currency
    Contract
Amount in
U.S.Dollars
    Unrealized
Appreciation
(Depreciation)/Value
 

Contracts to Purchase

         

Yen with Goldman Sachs International

     01/12/18        325,511,500     $ 2,907,183     $ (17,243

Yen with UBS AG

     01/12/18        331,666,700       2,961,858       (17,271
         

 

 

 
          $ (34,514
         

 

 

 

Contracts to Sell

         

Yen with Goldman Sachs International

     01/12/18        (8,564,800   $ (75,872   $ (167

Yen with UBS AG

     01/12/18        (3,336,100     (29,476     (143
         

 

 

 
          $ (310
         

 

 

 

Total Unrealized Depreciation

          $ (34,824
         

 

 

 

 

All or partial amount pledged as collateral for foreign currency forward contracts.
^ The positions and counterparties herein are as of December 31, 2017. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
^^ Rates shown represents discount rate at the time of purchase.

 

See accompanying notes to financial statements.

 

200


Table of Contents

PROSHARES ULTRA YEN

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2016

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations
(95% of shareholders’ equity)

 

  

U.S. Treasury Bills^^:

     

0.210% due 01/05/17†

   $ 150,000      $ 149,997  

0.270% due 01/12/17

     480,000        479,953  

0.311% due 01/26/17†

     1,655,000        1,654,561  

0.390% due 02/16/17

     3,000,000        2,998,368  
     

 

 

 

Total short-term U.S. government and agency obligations
(cost $5,283,104)

      $ 5,282,879  
     

 

 

 

 

Foreign Currency Forward Contracts^

 

     Settlement Date      Local Currency     Notional Amount
at Value (USD)
    Unrealized
Appreciation
(Depreciation)
 

Contracts to Purchase

         

Yen with Goldman Sachs International

     01/13/17        884,408,200     $ 7,572,024     $ (220,115

Yen with UBS AG

     01/13/17        470,179,000       4,025,524       (122,340
         

 

 

 
          $ (342,455
         

 

 

 

Contracts to Sell

         

Yen with Goldman Sachs International

     01/13/17        (57,041,600   $ (488,372   $ 379  
         

 

 

 
          $ 379  
         

 

 

 

 

All or partial amount pledged as collateral for foreign currency forward contracts.
^ The positions and counterparties herein are as of December 31, 2016. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
^^ Rates shown represents discount rate at the time of purchase.

 

See accompanying notes to financial statements.

 

201


Table of Contents

PROSHARES ULTRA YEN

STATEMENTS OF OPERATIONS

 

     Year Ended December 31,  
   2017     2016     2015  

Investment Income

      

Interest

   $ 28,639     $ 16,858     $ 3,609  
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     50,521       62,705       48,032  
  

 

 

   

 

 

   

 

 

 

Total expenses

     50,521       62,705       48,032  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (21,882     (45,847     (44,423
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Foreign currency forward contracts

     (46,195     717,086       (472,913

Short-term U.S. government and agency obligations

     (83     (34     6  
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     (46,278     717,052       (472,907
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Foreign currency forward contracts

     307,252       (603,387     276,556  

Short-term U.S. government and agency obligations

     (58     (510     260  
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     307,194       (603,897     276,816  
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     260,916       113,155       (196,091
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 239,034     $ 67,308     $ (240,514
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

202


Table of Contents

PROSHARES ULTRA YEN

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

 

     Year Ended December 31,  
   2017     2016     2015  

Shareholders’ equity, beginning of period

   $ 5,540,957     $ 5,473,848     $ 2,118,028  

Addition of 0, 0 and 75,000 shares, respectively

     —         —         4,285,016  

Redemption of 50,000, 4 and 12,530 shares, respectively

     (2,915,722     (199     (688,682
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of (50,000), (4) and 62,470 shares, respectively

     (2,915,722     (199     3,596,334  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (21,882     (45,847     (44,423

Net realized gain (loss)

     (46,278     717,052       (472,907

Change in net unrealized appreciation/depreciation

     307,194       (603,897     276,816  
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     239,034       67,308       (240,514
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 2,864,269     $ 5,540,957     $ 5,473,848  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

203


Table of Contents

PROSHARES ULTRA YEN

STATEMENTS OF CASH FLOWS

 

     Year Ended December 31,  
   2017     2016     2015  

Cash flow from operating activities

      

Net income (loss)

   $ 239,034     $ 67,308     $ (240,514

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

      

Purchases of short-term U.S. government and agency obligations

     (16,968,159     (28,924,289     (12,557,564

Proceeds from sales or maturities of short-term U.S government and agency obligations

     20,281,603       28,727,215       8,779,817  

Net amortization and accretion on short-term U.S government and agency obligations

     (28,639     (16,858     (3,609

Net realized gain (loss) on investments

     83       34       (6

Change in unrealized appreciation/depreciation on investments

     (307,194     603,897       (276,816

Increase (Decrease) in payable to Sponsor

     (2,225     212       2,810  
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     3,214,503       457,519       (4,295,882
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     —         —         4,285,016  

Payment on shares redeemed

     (2,915,722     (199     (688,682
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (2,915,722     (199     3,596,334  
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     298,781       457,320       (699,548

Cash, beginning of period

     604,691       147,371       846,919  
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 903,472     $ 604,691     $ 147,371  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

204


Table of Contents

PROSHARES ULTRAPRO 3X CRUDE OIL ETF*

STATEMENT OF FINANCIAL CONDITION

 

     December 31, 2017  

Assets

  

Cash

   $ 9,683,852  

Segregated cash balances with brokers for futures contracts

     1,285,048  

Receivable on open futures contracts

     289,395  

Offering costs (Note 5)

     52,846  

Limitation by Sponsor

     24,342  
  

 

 

 

Total assets

     11,335,483  
  

 

 

 

Liabilities and shareholders’ equity

  

Liabilities

  

Commitments and Contingencies (Note 2)

  

Shareholders’ equity

  

Shareholders’ equity

     11,335,483  
  

 

 

 

Total liabilities and shareholders’ equity

   $ 11,335,483  
  

 

 

 

Shares outstanding

     300,008  
  

 

 

 

Net asset value per share

   $ 37.78  
  

 

 

 

Market value per share (Note 2)

   $ 37.23  
  

 

 

 

 

* Since the Fund’s inception date was January 13, 2017, the Statement of Financial Condition as of December 31, 2016 has not been provided.

 

See accompanying notes to financial statements.

 

205


Table of Contents

PROSHARES ULTRAPRO 3X CRUDE OIL ETF

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2017

Futures Contracts Purchased

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)/Value
 

WTI Crude Oil - NYMEX, expires March 2018

     563      $ 34,027,720      $ 1,417,998  

 

See accompanying notes to financial statements.

 

206


Table of Contents

PROSHARES ULTRAPRO 3X CRUDE OIL ETF*

STATEMENT OF OPERATIONS

 

     January 13, 2017
(Inception) through
December 31, 2017
 

Investment Income

  

Interest

   $ 9,696  
  

 

 

 

Expenses

  

Brokerage commissions

     34,408  

Brokerage fees

     67  

Offering costs

     119,081  

Limitation by Sponsor

     (24,342
  

 

 

 

Total expenses

     129,214  
  

 

 

 

Net investment income (loss)

     (119,518
  

 

 

 

Realized and unrealized gain (loss) on investment activity

  

Net realized gain (loss) on

  

Futures contracts

     6,018,618  
  

 

 

 

Net realized gain (loss)

     6,018,618  
  

 

 

 

Change in net unrealized appreciation/depreciation on

  

Futures contracts

     1,417,998  
  

 

 

 

Change in net unrealized appreciation/depreciation

     1,417,998  
  

 

 

 

Net realized and unrealized gain (loss)

     7,436,616  
  

 

 

 

Net income (loss)

   $ 7,317,098  
  

 

 

 

 

* Since the Fund’s inception date was January 13, 2017, the Statements of Operations for the years ended December 31, 2016 and December 31, 2015 have not been provided.

 

See accompanying notes to financial statements.

 

207


Table of Contents

PROSHARES ULTRAPRO 3X CRUDE OIL ETF*

STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

 

     January 13, 2017
(Inception) through
December 31, 2017
 

Shareholders’ equity, at January 13, 2017 (Inception)

   $ —    

Addition of 1,750,008 shares

     40,659,738  

Redemption of 1,450,000 shares

     (36,641,353
  

 

 

 

Net addition (redemption) of 300,008 shares

     4,018,385  
  

 

 

 

Net investment income (loss)

     (119,518

Net realized gain (loss)

     6,018,618  

Change in net unrealized appreciation/depreciation

     1,417,998  
  

 

 

 

Net income (loss)

     7,317,098  
  

 

 

 

Shareholders’ equity, end of period

   $ 11,335,483  
  

 

 

 

 

* Since the Fund’s inception date was January 13, 2017, the Statements of Changes in Shareholders’ Equity for the years ended December 31, 2016 and December 31, 2015 have not been provided.

 

See accompanying notes to financial statements.

 

208


Table of Contents

PROSHARES ULTRAPRO 3X CRUDE OIL ETF*

STATEMENT OF CASH FLOWS

 

     January 13, 2017
(Inception) through
December 31, 2017
 

Cash flow from operating activities

  

Net income (loss)

   $ 7,317,098  

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

     (1,285,048

Decrease (Increase) in receivable on futures contracts

     (289,395

Decrease (Increase) in Limitation by Sponsor

     (24,342

Cash paid for offering costs

     (171,927

Amortization of offering costs

     119,081  
  

 

 

 

Net cash provided by (used in) operating activities

     5,665,467  
  

 

 

 

Cash flow from financing activities

  

Proceeds from addition of shares

     40,659,738  

Payment on shares redeemed

     (36,641,353
  

 

 

 

Net cash provided by (used in) financing activities

     4,018,385  
  

 

 

 

Net increase (decrease) in cash

     9,683,852  
  

 

 

 

Cash, beginning of period

     —    
  

 

 

 

Cash, end of period

   $ 9,683,852  
  

 

 

 

 

* Since the Fund’s inception date was January 13, 2017, the Statements of Cash Flows for the years ended December 31, 2016 and December 31, 2015 have not been provided.

 

See accompanying notes to financial statements.

 

209


Table of Contents

PROSHARES ULTRAPRO 3X SHORT CRUDE OIL ETF*

STATEMENT OF FINANCIAL CONDITION

 

     December 31, 2017  

Assets

  

Cash

   $ 19,203,543  

Segregated cash balances with brokers for futures contracts

     2,396,625  

Offering costs (Note 5)

     52,797  

Limitation by Sponsor

     35,309  
  

 

 

 

Total assets

     21,688,274  
  

 

 

 

Liabilities and shareholders’ equity

  

Liabilities

  

Payable on open futures contracts

     527,098  
  

 

 

 

Total liabilities

     527,098  
  

 

 

 

Commitments and Contingencies (Note 2)

  

Shareholders’ equity

  

Shareholders’ equity

     21,161,176  
  

 

 

 

Total liabilities and shareholders’ equity

   $ 21,688,274  
  

 

 

 

Shares outstanding

     2,000,008  
  

 

 

 

Net asset value per share

   $ 10.58  
  

 

 

 

Market value per share (Note 2)

   $ 10.72  
  

 

 

 

 

* Since the Fund’s inception date was January 13, 2017, the Statement of Financial Condition as of December 31, 2016 has not been provided.

 

See accompanying notes to financial statements.

 

210


Table of Contents

PROSHARES ULTRAPRO 3X SHORT CRUDE OIL ETF

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2017

Futures Contracts Sold

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)/Value
 

WTI Crude Oil - NYMEX, expires March 2018

     1,050      $ 63,462,000      $ (2,988,155

 

See accompanying notes to financial statements.

 

211


Table of Contents

PROSHARES ULTRAPRO 3X SHORT CRUDE OIL ETF*

STATEMENT OF OPERATIONS

 

     January 13, 2017
(Inception) through
December 31, 2017
 

Investment Income

  

Interest

   $ 5,930  
  

 

 

 

Expenses

  

Brokerage commissions

     32,624  

Brokerage fees

     135  

Offering costs

     119,070  

Limitation by Sponsor

     (35,309
  

 

 

 

Total expenses

     116,520  
  

 

 

 

Net investment income (loss)

     (110,590
  

 

 

 

Realized and unrealized gain (loss) on investment activity

  

Net realized gain (loss) on

  

Futures contracts

     (7,046,628
  

 

 

 

Net realized gain (loss)

     (7,046,628
  

 

 

 

Change in net unrealized appreciation/depreciation on

  

Futures contracts

     (2,988,155
  

 

 

 

Change in net unrealized appreciation/depreciation

     (2,988,155
  

 

 

 

Net realized and unrealized gain (loss)

     (10,034,783
  

 

 

 

Net income (loss)

   $ (10,145,373
  

 

 

 

 

* Since the Fund’s inception date was January 13, 2017, the Statements of Operations for the years ended December 31, 2016 and December 31, 2015 have not been provided.

 

See accompanying notes to financial statements.

 

212


Table of Contents

PROSHARES ULTRAPRO 3X SHORT CRUDE OIL ETF*

STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

 

     January 13, 2017
(Inception) through
December 31, 2017
 

Shareholders’ equity, at January 13, 2017 (Inception)

   $ —    

Addition of 2,300,008 shares

     38,429,372  

Redemption of 300,000 shares

     (7,122,823
  

 

 

 

Net addition (redemption) of 2,000,008 shares

     31,306,549  
  

 

 

 

Net investment income (loss)

     (110,590

Net realized gain (loss)

     (7,046,628

Change in net unrealized appreciation/depreciation

     (2,988,155
  

 

 

 

Net income (loss)

     (10,145,373
  

 

 

 

Shareholders’ equity, end of period

   $ 21,161,176  
  

 

 

 

 

* Since the Fund’s inception date was January 13, 2017, the Statements of Changes in Shareholders’ Equity for the years ended December 31, 2016 and December 31, 2015 have not been provided.

 

See accompanying notes to financial statements.

 

213


Table of Contents

PROSHARES ULTRAPRO 3X SHORT CRUDE OIL ETF*

STATEMENT OF CASH FLOWS

 

     January 13, 2017
(Inception) through
December 31, 2017
 

Cash flow from operating activities

  

Net income (loss)

   $ (10,145,373

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

     (2,396,625

Decrease (Increase) in Limitation by Sponsor

     (35,309

Cash paid for offering costs

     (171,867

Amortization of offering costs

     119,070  

Increase (Decrease) in payable on futures contracts

     527,098  
  

 

 

 

Net cash provided by (used in) operating activities

     (12,103,006
  

 

 

 

Cash flow from financing activities

  

Proceeds from addition of shares

     38,429,372  

Payment on shares redeemed

     (7,122,823
  

 

 

 

Net cash provided by (used in) financing activities

     31,306,549  
  

 

 

 

Net increase (decrease) in cash

     19,203,543  
  

 

 

 

Cash, beginning of period

     —    
  

 

 

 

Cash, end of period

   $ 19,203,543  
  

 

 

 

 

* Since the Fund’s inception date was January 13, 2017, the Statements of Cash Flows for the years ended December 31, 2016 and December 31, 2015 have not been provided.

 

See accompanying notes to financial statements.

 

214


Table of Contents

PROSHARES ULTRASHORT AUSTRALIAN DOLLAR

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2017      December 31, 2016  

Assets

     

Cash

   $ 1,297,022      $ 2,834,389  

Segregated cash balances with brokers for futures contracts

     485,375        914,760  

Short-term U.S. government and agency obligations (Note 3)
(cost $11,984,898 and $12,909,895, respectively)

     11,983,904        12,909,619  
  

 

 

    

 

 

 

Total assets

     13,766,301        16,658,768  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Payable on open futures contracts

     52,950        32,340  

Payable to Sponsor

     11,249        12,955  
  

 

 

    

 

 

 

Total liabilities

     64,199        45,295  
  

 

 

    

 

 

 

Commitments and Contingencies (Note 2)

     

Shareholders’ equity

     

Shareholders’ equity

     13,702,102        16,613,473  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 13,766,301      $ 16,658,768  
  

 

 

    

 

 

 

Shares outstanding

     300,000        300,000  
  

 

 

    

 

 

 

Net asset value per share

   $ 45.67      $ 55.38  
  

 

 

    

 

 

 

Market value per share (Note 2)

   $ 45.72      $ 55.24  
  

 

 

    

 

 

 

 

See accompanying notes to financial statements.

 

215


Table of Contents

PROSHARES ULTRASHORT AUSTRALIAN DOLLAR

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2017

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations
    
(87% of shareholders’ equity)

 

  

U.S. Treasury Bills^^:

     

1.033% due 01/18/18

   $ 7,000,000      $ 6,996,235  

1.209% due 02/08/18

     2,000,000        1,997,451  

1.267% due 03/29/18

     3,000,000        2,990,218  
     

 

 

 

Total short-term U.S. government and agency obligations
    (cost $11,984,898)

      $ 11,983,904  
     

 

 

 

Futures Contracts Sold

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)/Value
 

Australian Dollar Fx Currency Futures - CME, expires March 2018

     353      $ 27,572,830      $ (893,220

 

^^ Rates shown represents discount rate at the time of purchase.

 

See accompanying notes to financial statements.

 

216


Table of Contents

PROSHARES ULTRASHORT AUSTRALIAN DOLLAR

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2016

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations

 

  

(78% of shareholders’ equity)

 

  

U.S. Treasury Bills^^:

     

0.326% due 01/19/17

   $ 12,912,000      $ 12,909,619  
     

 

 

 

Total short-term U.S. government and agency obligations
(cost $12,909,895)

      $ 12,909,619  
     

 

 

 

Futures Contracts Sold††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Australian Dollar Fx Currency Futures - CME expires March 2017

     462      $ 33,273,240      $ 1,182,340  

 

^^ Rates shown represents discount rate at the time of purchase.
†† Cash collateral in the amount of $914,760 was pledged to cover margin requirements for open futures contracts as of December 31, 2016.

 

See accompanying notes to financial statements.

 

217


Table of Contents

PROSHARES ULTRASHORT AUSTRALIAN DOLLAR

STATEMENTS OF OPERATIONS

 

     Year Ended December 31,  
   2017     2016     2015  

Investment Income

      

Interest

   $ 85,306     $ 43,459     $ 5,998  
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     123,234       175,191       199,845  

Brokerage commissions

     8,846       13,920       16,140  
  

 

 

   

 

 

   

 

 

 

Total expenses

     132,080       189,111       215,985  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (46,774     (145,652     (209,987
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Futures contracts

     (866,771     (2,787,204     4,330,463  

Short-term U.S. government and agency obligations

     (178     495       225  
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     (866,949     (2,786,709     4,330,688  
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Futures contracts

     (2,075,560     1,602,610       (1,163,751

Short-term U.S. government and agency obligations

     (718     279       (553
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     (2,076,278     1,602,889       (1,164,304
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     (2,943,227     (1,183,820     3,166,384  
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (2,990,001   $ (1,329,472   $ 2,956,397  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

218


Table of Contents

PROSHARES ULTRASHORT AUSTRALIAN DOLLAR

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

 

     Year Ended December 31,  
   2017     2016     2015  

Shareholders’ equity, beginning of period

   $ 16,613,473     $ 20,460,679     $ 23,120,790  

Addition of 100,000, 0 and 50,000 shares, respectively

     4,801,797       —         2,764,167  

Redemption of 100,000, 50,005 and 150,000 shares, respectively

     (4,723,167     (2,517,734     (8,380,675
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of 0, (50,005) and (100,000) shares, respectively

     78,630       (2,517,734     (5,616,508
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (46,774     (145,652     (209,987

Net realized gain (loss)

     (866,949     (2,786,709     4,330,688  

Change in net unrealized appreciation/depreciation

     (2,076,278     1,602,889       (1,164,304
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     (2,990,001     (1,329,472     2,956,397  
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 13,702,102     $ 16,613,473     $ 20,460,679  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

219


Table of Contents

PROSHARES ULTRASHORT AUSTRALIAN DOLLAR

STATEMENTS OF CASH FLOWS

 

     Year Ended December 31,  
   2017     2016     2015  

Cash flow from operating activities

      

Net income (loss)

   $ (2,990,001   $ (1,329,472   $ 2,956,397  

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

     429,385       (857,695     963,152  

Purchases of short-term U.S. government and agency obligations

     (88,399,815     (51,162,005     (61,647,966

Proceeds from sales or maturities of short-term U.S government and agency obligations

     89,408,839       56,705,513       63,512,421  

Net amortization and accretion on short-term U.S government and agency obligations

     (84,205     (43,459     (5,998

Net realized gain (loss) on investments

     178       (495     (225

Change in unrealized appreciation/depreciation on investments

     718       (279     553  

Decrease (Increase) in receivable on futures contracts

     —         52,491       10,043  

Increase (Decrease) in payable to Sponsor

     (1,706     (3,812     (1,630

Increase (Decrease) in payable on futures contracts

     20,610       32,340       —    
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (1,615,997     3,393,127       5,786,747  
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     4,801,797       —         2,764,167  

Payment on shares redeemed

     (4,723,167     (2,517,734     (8,380,675
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     78,630       (2,517,734     (5,616,508
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     (1,537,367     875,393       170,239  

Cash, beginning of period

     2,834,389       1,958,996       1,788,757  
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 1,297,022     $ 2,834,389     $ 1,958,996  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

220


Table of Contents

PROSHARES ULTRASHORT BLOOMBERG CRUDE OIL

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2017      December 31, 2016  

Assets

     

Cash

   $ 1,120,278      $ 2,715,772  

Segregated cash balances with brokers for futures contracts

     2,567,813        4,931,520  

Short-term U.S. government and agency obligations (Note 3)
(cost $253,669,155 and $205,694,828, respectively)

     253,646,823        205,694,385  
  

 

 

    

 

 

 

Total assets

     257,334,914        213,341,677  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Payable on open futures contracts

     693,787        13,602  

Payable to Sponsor

     190,701        162,891  

Unrealized depreciation on swap agreements

     30,607,142        12,206,881  
  

 

 

    

 

 

 

Total liabilities

     31,491,630        12,383,374  
  

 

 

    

 

 

 

Commitments and Contingencies (Note 2)

     

Shareholders’ equity

     

Shareholders’ equity

     225,843,284        200,958,303  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 257,334,914      $ 213,341,677  
  

 

 

    

 

 

 

Shares outstanding

     9,289,884        6,339,884  
  

 

 

    

 

 

 

Net asset value per share

   $ 24.31      $ 31.70  
  

 

 

    

 

 

 

Market value per share (Note 2)

   $ 24.56      $ 31.65  
  

 

 

    

 

 

 

 

See accompanying notes to financial statements.

 

221


Table of Contents

PROSHARES ULTRASHORT BLOOMBERG CRUDE OIL

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2017

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations
    (112% of shareholders’ equity)

 

  

U.S. Treasury Bills^^:

     

1.001% due 01/04/18†

   $ 64,000,000      $ 63,996,019  

1.068% due 01/25/18†

     10,000,000        9,992,046  

1.040% due 02/01/18†

     28,000,000        27,971,068  

1.075% due 02/08/18†

     17,000,000        16,978,335  

1.080% due 02/15/18†

     28,000,000        27,957,563  

1.145% due 02/22/18†

     48,000,000        47,915,342  

1.264% due 03/01/18†

     16,000,000        15,967,133  

1.271% due 03/15/18†

     14,000,000        13,963,880  

1.267% due 03/29/18†

     29,000,000        28,905,437  
     

 

 

 

Total short-term U.S. government and agency obligations
    (cost $253,669,155)

      $ 253,646,823  
     

 

 

 

Futures Contracts Sold

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)/Value
 

WTI Crude Oil - NYMEX, expires March 2018

     1,125      $ 67,995,000      $ (3,962,648

 

Total Return Swap Agreements^

         
     Rate Paid
(Received)*
    Termination Date      Notional Amount
at Value**
    Unrealized
Appreciation
(Depreciation)/Value
 

Swap agreement with Citibank, N.A. based on Bloomberg Crude Oil Sub-Index

     0.18     01/08/18      $ (135,972,863   $ (10,173,164

Swap agreement with Goldman Sachs International based on Bloomberg Crude Oil Sub-Index

     0.25       01/08/18        (105,656,763     (9,242,398

Swap agreement with Societe Generale based on Bloomberg Crude Oil Sub-Index

     0.25       01/08/18        (25,759,601     (1,904,113

Swap agreement with UBS AG based on Bloomberg Crude Oil Sub-Index

     0.25       01/08/18        (116,263,837     (9,287,467
         

 

 

 

Total Unrealized Depreciation

          $ (30,607,142
         

 

 

 

 

All or partial amount pledged as collateral for swap agreements.
^ The positions and counterparties herein are as of December 31, 2017. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
^^ Rates shown represents discount rate at the time of purchase.
* Reflects the floating financing rate, as of December 31, 2017, on the notional amount of the swap agreement paid to the counterparty or received from the counterparty, excluding any commissions. Total Return Swap Agreements payment is due at termination/maturity.
** 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.

 

222


Table of Contents

PROSHARES ULTRASHORT BLOOMBERG CRUDE OIL

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2016

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations
    
(102% of shareholders’ equity)

 

  

U.S. Treasury Bills^^:

     

0.281% due 01/05/17†

   $ 14,476,000      $ 14,475,690  

0.353% due 01/12/17†

     56,495,000        56,489,424  

0.344% due 01/19/17†

     38,000,000        37,992,993  

0.395% due 01/26/17†

     13,300,000        13,296,474  

0.406% due 02/02/17

     5,500,000        5,498,098  

0.441% due 02/09/17†

     9,000,000        8,995,930  

0.390% due 02/16/17

     11,000,000        10,994,017  

0.458% due 03/02/17†

     50,000,000        49,960,930  

0.493% due 03/23/17†

     3,000,000        2,996,741  

0.516% due 03/30/17†

     5,000,000        4,994,088  
     

 

 

 

Total short-term U.S. government and agency obligations
    (cost $205,694,828)

      $ 205,694,385  
     

 

 

 

Futures Contracts Sold††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

WTI Crude Oil - NYMEX, expires March 2017

     1,401      $ 76,578,660      $ (1,426,815

Swap Agreements^

 

     Rate Paid
(Received)*
    Termination
Date
     Notional Amount
at Value**
    Unrealized
Appreciation
(Depreciation)
 

Swap agreement with Citibank, N.A. based on Bloomberg Crude Oil Sub-Index

     0.18     01/10/17      $ (116,603,958   $ (4,742,191

Swap agreement with Goldman Sachs International based on Bloomberg Crude Oil Sub-Index

     0.25       01/10/17        (87,898,388     (3,061,395

Swap agreement with Societe Generale based on Bloomberg Crude Oil Sub-Index

     0.25       01/10/17        (31,195,025     (1,050,699

Swap agreement with UBS AG based on Bloomberg Crude Oil Sub-Index

     0.25       01/10/17        (89,698,517     (3,352,596
         

 

 

 
          $ (12,206,881
         

 

 

 

 

All or partial amount pledged as collateral for swap agreements and/or futures contracts.
†† Cash collateral in the amount of $4,931,520 was pledged to cover margin requirements for open futures contracts as of December 31, 2016.
^ The positions and counterparties herein are as of December 31, 2016. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
^^ Rates shown represents discount rate at the time of purchase.
* Reflects the floating financing rate, as of December 31, 2016 on the notional amount of the swap agreement paid to the counterparty or received from the counterparty, excluding any commissions.
** 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.

 

223


Table of Contents

PROSHARES ULTRASHORT BLOOMBERG CRUDE OIL

STATEMENTS OF OPERATIONS

 

     Year Ended December 31,  
   2017     2016     2015  

Investment Income

      

Interest

   $ 1,661,295     $ 500,160     $ 60,884  
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     1,934,688       1,755,696       1,978,613  

Brokerage commissions

     82,258       153,428       248,482  
  

 

 

   

 

 

   

 

 

 

Total expenses

     2,016,946       1,909,124       2,227,095  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (355,651     (1,408,964     (2,166,211
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Futures contracts

     (599,457     (12,045,454     46,904,474  

Swap agreements

     (5,891,603     (55,706,710     44,765,850  

Short-term U.S. government and agency obligations

     (448     (4,064     14,458  
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     (6,491,508     (67,756,228     91,684,782  
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Futures contracts

     (2,535,833     (3,891,328     (13,342,090

Swap agreements

     (18,400,261     (18,619,537     (20,605,421

Short-term U.S. government and agency obligations

     (21,889     1,712       (4,396
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     (20,957,983     (22,509,153     (33,951,907
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     (27,449,491     (90,265,381     57,732,875  
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (27,805,142   $ (91,674,345   $ 55,566,664  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

224


Table of Contents

PROSHARES ULTRASHORT BLOOMBERG CRUDE OIL

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

 

     Year Ended December 31,  
   2017     2016     2015  

Shareholders’ equity, beginning of period

   $ 200,958,303     $ 95,897,894     $ 169,210,110  

Addition of 14,500,000, 18,500,000 and 21,600,000 shares, respectively

     510,910,744       1,002,034,810       796,070,368  

Redemption of 11,550,000, 13,600,004 and 24,500,000 shares, respectively

     (458,220,621     (805,300,056     (924,949,248
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of 2,950,000, 4,899,996 and (2,900,000) shares, respectively

     52,690,123       196,734,754       (128,878,880
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (355,651     (1,408,964     (2,166,211

Net realized gain (loss)

     (6,491,508     (67,756,228     91,684,782  

Change in net unrealized appreciation/depreciation

     (20,957,983     (22,509,153     (33,951,907
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     (27,805,142     (91,674,345     55,566,664  
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 225,843,284     $ 200,958,303     $ 95,897,894  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

225


Table of Contents

PROSHARES ULTRASHORT BLOOMBERG CRUDE OIL

STATEMENTS OF CASH FLOWS

 

     Year Ended December 31,  
   2017     2016     2015  

Cash flow from operating activities

      

Net income (loss)

   $ (27,805,142   $ (91,674,345   $ 55,566,664  

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

     2,363,707       5,222,910       2,138,235  

Purchases of short-term U.S. government and agency obligations

     (2,520,968,339     (1,099,847,442     (1,238,357,695

Proceeds from sales or maturities of short-term U.S government and agency obligations

     2,474,635,036       974,343,507       1,290,330,607  

Net amortization and accretion on short-term U.S government and agency obligations

     (1,641,472     (500,160     (60,884

Net realized gain (loss) on investments

     448       4,064       (14,458

Change in unrealized appreciation/depreciation on investments

     18,422,150       18,617,825       20,609,817  

Decrease (Increase) in receivable on futures contracts

     —         —         1,293,531  

Increase (Decrease) in payable to Sponsor

     27,810       61,748       (27,242

Increase (Decrease) in brokerage commissions and fees payable

     —         (8,453     8,453  

Increase (Decrease) in payable on futures contracts

     680,185       (837,281     850,883  
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (54,285,617     (194,617,627     132,337,911  
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     510,910,744       1,002,034,810       796,070,368  

Payment on shares redeemed

     (458,220,621     (805,300,056     (928,803,902
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     52,690,123       196,734,754       (132,733,534
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     (1,595,494     2,117,127       (395,623

Cash, beginning of period

     2,715,772       598,645       994,268  
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 1,120,278     $ 2,715,772     $ 598,645  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

226


Table of Contents

PROSHARES ULTRASHORT BLOOMBERG NATURAL GAS

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2017      December 31, 2016  

Assets

     

Cash

   $ 1,886,831      $ 326,631  

Segregated cash balances with brokers for futures contracts

     1,123,375        710,655  

Short-term U.S. government and agency obligations (Note 3)
(cost $3,999,667 and $2,899,188, respectively)

     3,999,751        2,899,151  

Receivable on open futures contracts

     —          105,872  
  

 

 

    

 

 

 

Total assets

     7,009,957        4,042,309  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Payable on open futures contracts

     104,104        —    

Brokerage commissions and fees payable

     —          144  

Payable to Sponsor

     3,110        3,371  
  

 

 

    

 

 

 

Total liabilities

     107,214        3,515  
  

 

 

    

 

 

 

Commitments and Contingencies (Note 2)

     

Shareholders’ equity

     

Shareholders’ equity

     6,902,743        4,038,794  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 7,009,957      $ 4,042,309  
  

 

 

    

 

 

 

Shares outstanding

     174,832        174,832  
  

 

 

    

 

 

 

Net asset value per share

   $ 39.48      $ 23.10  
  

 

 

    

 

 

 

Market value per share (Note 2)

   $ 39.65      $ 23.05  
  

 

 

    

 

 

 

 

See accompanying notes to financial statements.

 

227


Table of Contents

PROSHARES ULTRASHORT BLOOMBERG NATURAL GAS

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2017

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations
(58% of shareholders’ equity)

 

  

U.S. Treasury Bills^^:

     

1.000% due 01/04/18

   $ 4,000,000      $ 3,999,751  
     

 

 

 

Total short-term U.S. government and agency obligations
(cost $3,999,667)

      $ 3,999,751  
     

 

 

 

Futures Contracts Sold

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)/Value
 

Natural Gas - NYMEX, expires March 2018

     475      $ 13,803,500      $ (1,097,049

^^ Rates shown represents discount rate at the time of purchase.

 

See accompanying notes to financial statements.

 

228


Table of Contents

PROSHARES ULTRASHORT BLOOMBERG NATURAL GAS

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2016

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations (
72% of shareholders’ equity)

 

  

U.S. Treasury Bills^^:

     

0.343% due 01/26/17

   $ 1,900,000      $ 1,899,497  

0.406% due 02/02/17

     1,000,000        999,654  
     

 

 

 

Total short-term U.S. government and agency obligations
(cost $2,899,188)

      $ 2,899,151  
     

 

 

 

Futures Contracts Sold††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Natural Gas - NYMEX, expires March 2017

     219      $ 8,067,960      $ (482,031

 

^^ Rates shown represents discount rate at the time of purchase.
†† Cash collateral in the amount of $710,655 was pledged to cover margin requirements for open futures contracts as of December 31, 2016.

 

See accompanying notes to financial statements.

 

229


Table of Contents

PROSHARES ULTRASHORT BLOOMBERG NATURAL GAS

STATEMENTS OF OPERATIONS

 

     Year Ended December 31,  
   2017     2016     2015  

Investment Income

      

Interest

   $ 38,651     $ 19,053     $ 5,830  
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     63,534       81,259       112,277  

Brokerage commissions

     29,529       59,966       70,677  

Brokerage fees

     39       —         —    
  

 

 

   

 

 

   

 

 

 

Total expenses

     93,102       141,225       182,954  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (54,451     (122,172     (177,124
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Futures contracts

     4,762,532       586,860       15,212,804  

Short-term U.S. government and agency obligations

     (783     3,139       29  
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     4,761,749       589,999       15,212,833  
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Futures contracts

     (615,018     1,989,133       (6,412,629

Short-term U.S. government and agency obligations

     121       (388     168  
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     (614,897     1,988,745       (6,412,461
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     4,146,852       2,578,744       8,800,372  
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 4,092,401     $ 2,456,572     $ 8,623,248  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

230


Table of Contents

PROSHARES ULTRASHORT BLOOMBERG NATURAL GAS

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

 

     Year Ended December 31,  
   2017     2016     2015  

Shareholders’ equity, beginning of period

   $ 4,038,794     $ 10,462,856     $ 14,688,564  

Addition of 650,000, 950,000 and 1,350,000 shares, respectively

     23,216,158       40,020,426       37,204,187  

Redemption of 650,000, 1,000,024 and 1,650,000 shares, respectively

     (24,444,610     (48,901,060     (50,053,143
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of 0, (50,024) and (300,000) shares, respectively

     (1,228,452     (8,880,634     (12,848,956
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (54,451     (122,172     (177,124

Net realized gain (loss)

     4,761,749       589,999       15,212,833  

Change in net unrealized appreciation/depreciation

     (614,897     1,988,745       (6,412,461
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     4,092,401       2,456,572       8,623,248  
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 6,902,743     $ 4,038,794     $ 10,462,856  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

231


Table of Contents

PROSHARES ULTRASHORT BLOOMBERG NATURAL GAS

STATEMENTS OF CASH FLOWS

 

     Year Ended December 31,  
   2017     2016     2015  

Cash flow from operating activities

      

Net income (loss)

   $ 4,092,401     $ 2,456,572     $ 8,623,248  

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

     (412,720     1,336,005       2,359,170  

Purchases of short-term U.S. government and agency obligations

     (98,949,414     (46,397,398     (59,678,558

Proceeds from sales or maturities of short-term U.S government and agency obligations

     97,881,796       51,635,055       60,242,291  

Net amortization and accretion on short-term U.S government and agency obligations

     (33,644     (19,053     (5,830

Net realized gain (loss) on investments

     783       (3,139     (29

Change in unrealized appreciation/depreciation on investments

     (121     388       (168

Decrease (Increase) in receivable on futures contracts

     105,872       (105,872     923,531  

Increase (Decrease) in payable to Sponsor

     (261     (7,499     620  

Increase (Decrease) in brokerage commissions and fees payable

     (144     (1,764     1,908  

Increase (Decrease) in payable on futures contracts

     104,104       (785,170     785,170  
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     2,788,652       8,108,125       13,251,353  
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     23,216,158       40,020,426       37,204,187  

Payment on shares redeemed

     (24,444,610     (48,901,060     (50,053,143
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (1,228,452     (8,880,634     (12,848,956
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     1,560,200       (772,509     402,397  

Cash, beginning of period

     326,631       1,099,140       696,743  
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 1,886,831     $ 326,631     $ 1,099,140  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

232


Table of Contents

PROSHARES ULTRASHORT EURO

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2017      December 31, 2016  

Assets

     

Cash

   $ 1,255,895      $ 2,916,502  

Segregated cash balances with brokers for foreign currency forward contracts

     3,038,000        —    

Short-term U.S. government and agency obligations (Note 3)
(cost $204,788,208 and $337,373,566, respectively)

     204,770,166        337,375,787  

Unrealized appreciation on foreign currency forward contracts

     449,302        16,519,070  
  

 

 

    

 

 

 

Total assets

     209,513,363        356,811,359  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Payable for capital shares redeemed

     —          6,771,472  

Payable to Sponsor

     171,595        291,098  

Unrealized depreciation on foreign currency forward contracts

     6,793,571        356,139  
  

 

 

    

 

 

 

Total liabilities

     6,965,166        7,418,709  
  

 

 

    

 

 

 

Commitments and Contingencies (Note 2)

     

Shareholders’ equity

     

Shareholders’ equity

     202,548,197        349,392,650  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 209,513,363      $ 356,811,359  
  

 

 

    

 

 

 

Shares outstanding

     9,550,000        12,900,000  
  

 

 

    

 

 

 

Net asset value per share

   $ 21.21      $ 27.08  
  

 

 

    

 

 

 

Market value per share (Note 2)

   $ 21.20      $ 27.08  
  

 

 

    

 

 

 

 

See accompanying notes to financial statements.

 

233


Table of Contents

PROSHARES ULTRASHORT EURO

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2017

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations
    
(101% of shareholders’ equity)

 

  

U.S. Treasury Bills^^:

     

1.001% due 01/04/18

   $ 20,000,000      $ 19,998,756  

1.001% due 01/11/18†

     25,000,000        24,992,937  

1.081% due 01/18/18†

     29,000,000        28,984,404  

1.068% due 01/25/18†

     11,000,000        10,991,251  

1.040% due 02/01/18†

     30,000,000        29,969,001  

1.075% due 02/08/18†

     9,000,000        8,988,530  

1.080% due 02/15/18†

     25,000,000        24,962,110  

1.145% due 02/22/18

     12,000,000        11,978,836  

1.155% due 03/01/18†

     26,000,000        25,946,591  

1.256% due 03/08/18†

     18,000,000        17,957,750  
     

 

 

 

Total short-term U.S. government and agency obligations
    (cost $204,788,208)

      $ 204,770,166  
     

 

 

 

Foreign Currency Forward Contracts^

 

     Settlement Date      Contract
Amount in
Local Currency
    Contract
Amount in

U.S. Dollars
    Unrealized
Appreciation
(Depreciation)/Value
 

Contracts to Purchase

         

Euro with Goldman Sachs International

     01/12/18        15,379,400     $ 18,303,048     $ 158,796  

Euro with UBS AG

     01/12/18        24,804,600       29,485,603       290,506  
         

 

 

 

Total Unrealized Appreciation

          $ 449,302  
         

 

 

 

Contracts to Sell

         

Euro with Goldman Sachs International

     01/12/18        (191,822,225   $ (226,812,145   $ (3,456,408

Euro with UBS AG

     01/12/18        (185,510,600     (219,354,746     (3,337,163
         

 

 

 

Total Unrealized Depreciation

          $ (6,793,571
         

 

 

 

 

All or partial amount pledged as collateral for foreign currency forward contracts.
^ The positions and counterparties herein are as of December 31, 2017. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
^^ Rates shown represents discount rate at the time of purchase.

 

See accompanying notes to financial statements.

 

234


Table of Contents

PROSHARES ULTRASHORT EURO

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2016

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations
(97% of shareholders’ equity)

 

  

U.S. Treasury Bills^^:

     

0.286% due 01/05/17†

   $ 35,000,000      $ 34,999,251  

0.421% due 01/12/17†

     39,020,000        39,016,149  

0.342% due 01/19/17

     4,000,000        3,999,263  

0.350% due 01/26/17†

     68,000,000        67,981,973  

0.391% due 02/02/17†

     65,000,000        64,977,523  

0.471% due 02/09/17

     3,500,000        3,498,417  

0.390% due 02/16/17

     33,000,000        32,982,051  

0.491% due 02/23/17†

     45,000,000        44,970,039  

0.493% due 03/23/17†

     45,000,000        44,951,121  
     

 

 

 

Total short-term U.S. government and agency obligations
(cost $337,373,566)

      $ 337,375,787  
     

 

 

 

Foreign Currency Forward Contracts^

 

     Settlement Date      Local Currency     Notional Amount
at Value (USD)
    Unrealized
Appreciation
(Depreciation)
 

Contracts to Purchase

         

Euro with Goldman Sachs International

     01/13/17        65,899,000     $ 69,424,004     $ 295,605  

Euro with UBS AG

     01/13/17        22,361,500       23,557,639       (356,139
         

 

 

 
          $ (60,534
         

 

 

 

Contracts to Sell

         

Euro with Goldman Sachs International

     01/13/17        (393,278,725   $ (414,315,600   $ 7,813,462  

Euro with UBS AG

     01/13/17        (356,977,300     (376,072,375     8,410,003  
         

 

 

 
          $ 16,223,465  
         

 

 

 

 

All or partial amount pledged as collateral for foreign currency forward contracts.
^ The positions and counterparties herein are as of December 31, 2016. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
^^ Rates shown represents discount rate at the time of purchase.

 

See accompanying notes to financial statements.

 

235


Table of Contents

PROSHARES ULTRASHORT EURO

STATEMENTS OF OPERATIONS

 

     Year Ended December 31,  
   2017     2016     2015  

Investment Income

      

Interest

   $ 2,048,455     $ 1,012,886     $ 264,845  
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     2,445,170       3,777,543       5,265,432  
  

 

 

   

 

 

   

 

 

 

Total expenses

     2,445,170       3,777,543       5,265,432  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (396,715     (2,764,657     (5,000,587
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Foreign currency forward contracts

     (39,691,680     (25,711,518     131,651,572  

Short-term U.S. government and agency obligations

     (3,785     242       22,509  
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     (39,695,465     (25,711,276     131,674,081  
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Foreign currency forward contracts

     (22,507,200     44,873,267       (45,473,330

Short-term U.S. government and agency obligations

     (20,263     12,675       (23,782
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     (22,527,463     44,885,942       (45,497,112
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     (62,222,928     19,174,666       86,176,969  
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (62,619,643   $ 16,410,009     $ 81,176,382  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

236


Table of Contents

PROSHARES ULTRASHORT EURO

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

 

     Year Ended December 31,  
   2017     2016     2015  

Shareholders’ equity, beginning of period

   $ 349,392,650     $ 522,306,518     $ 517,191,349  

Addition of 2,400,000, 650,000 and 12,600,000 shares, respectively

     54,352,755       15,418,329       328,253,174  

Redemption of 5,750,000, 8,200,014 and 16,100,000 shares, respectively

     (138,577,565     (204,742,206     (404,314,387
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of (3,350,000), (7,550,014) and (3,500,000) shares, respectively

     (84,224,810     (189,323,877     (76,061,213
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (396,715     (2,764,657     (5,000,587

Net realized gain (loss)

     (39,695,465     (25,711,276     131,674,081  

Change in net unrealized appreciation/depreciation

     (22,527,463     44,885,942       (45,497,112
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     (62,619,643     16,410,009       81,176,382  
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 202,548,197     $ 349,392,650     $ 522,306,518  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

237


Table of Contents

PROSHARES ULTRASHORT EURO

STATEMENTS OF CASH FLOWS

 

     Year Ended December 31,  
   2017     2016     2015  

Cash flow from operating activities

      

Net income (loss)

   $ (62,619,643   $ 16,410,009     $ 81,176,382  

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

      

Decrease (Increase) in segregated cash balances with brokers for foreign currency forward contracts

     (3,038,000     —         —    

Purchases of short-term U.S. government and agency obligations

     (2,213,830,667     (1,535,809,146     (1,901,774,819

Proceeds from sales or maturities of short-term U.S government and agency obligations

     2,348,460,695       1,745,625,938       1,842,981,707  

Net amortization and accretion on short-term U.S government and agency obligations

     (2,048,455     (1,012,886     (263,820

Net realized gain (loss) on investments

     3,785       (242     (22,509

Change in unrealized appreciation/depreciation on investments

     22,527,463       (44,885,942     45,497,112  

Increase (Decrease) in payable to Sponsor

     (119,503     (123,177     28,455  
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     89,335,675       180,204,554       67,622,508  
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     54,352,755       15,418,329       341,209,778  

Payment on shares redeemed

     (145,349,037     (203,078,964     (399,206,157
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (90,996,282     (187,660,635     (57,996,379
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     (1,660,607     (7,456,081     9,626,129  

Cash, beginning of period

     2,916,502       10,372,583       746,454  
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 1,255,895     $ 2,916,502     $ 10,372,583  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

238


Table of Contents

PROSHARES ULTRASHORT GOLD

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2017      December 31, 2016  

Assets

     

Cash

   $ 1,026,645      $ 120,840  

Segregated cash balances with brokers for futures contracts

     8,800        13,200  

Short-term U.S. government and agency obligations (Note 3)
(cost $31,979,626 and $60,540,275, respectively)

     31,977,900        60,540,555  

Unrealized appreciation on forward agreements

     —          3,033,566  

Receivable on open futures contracts

     —          1,280  
  

 

 

    

 

 

 

Total assets

     33,013,345        63,709,441  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Payable on open futures contracts

     2,420        —    

Payable to Sponsor

     25,256        55,794  

Unrealized depreciation on forward agreements

     1,488,259        —    
  

 

 

    

 

 

 

Total liabilities

     1,515,935        55,794  
  

 

 

    

 

 

 

Commitments and Contingencies (Note 2)

     

Shareholders’ equity

     

Shareholders’ equity

     31,497,410        63,653,647  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 33,013,345      $ 63,709,441  
  

 

 

    

 

 

 

Shares outstanding

     446,978        696,978  
  

 

 

    

 

 

 

Net asset value per share

   $ 70.47      $ 91.33  
  

 

 

    

 

 

 

Market value per share (Note 2)

   $ 69.11      $ 90.54  
  

 

 

    

 

 

 

 

See accompanying notes to financial statements.

 

239


Table of Contents

PROSHARES ULTRASHORT GOLD

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2017

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations
(102% of shareholders’ equity)

 

  

U.S. Treasury Bills^^:

     

1.001% due 01/04/18†

   $ 14,000,000      $ 13,999,129  

1.001% due 01/11/18†

     5,000,000        4,998,588  

1.040% due 02/01/18†

     3,000,000        2,996,900  

1.075% due 02/08/18†

     8,000,000        7,989,805  

1.267% due 03/29/18†

     2,000,000        1,993,478  
     

 

 

 

Total short-term U.S. government and agency obligations
(cost $31,979,626)

      $ 31,977,900  
     

 

 

 

Futures Contracts Sold

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)/Value
 

Gold Futures - COMEX, expires February 2018

     2      $ 261,860      $ (5,460

Forward Agreements^

 

     Rate Paid
(Received)*
    Settlement
Date
     Commitment to
(Deliver)/Receive
    Notional Amount
at Value**
    Unrealized
Appreciation
(Depreciation)/Value
 

Forward agreements with Citibank, N.A. based on 0.995 Fine Troy Ounce Gold

     (1.75 )%      01/08/18      $ (18,900   $ (24,413,508   $ (554,559

Forward agreements with Goldman Sachs International based on 0.995 Fine Troy Ounce Gold

     (1.45     01/08/18        (12,798     (16,530,665     (428,358

Forward agreements with Societe Generale based on 0.995 Fine Troy Ounce Gold

     (1.28     01/08/18        (4,800     (6,199,776     (126,928

Forward agreements with UBS AG based on 0.995 Fine Troy Ounce Gold

     (1.56     01/08/18        (12,050     (15,564,985     (378,414
           

 

 

 

Total Unrealized Depreciation

            $ (1,488,259
           

 

 

 

 

All or partial amount pledged as collateral for forward agreements.
^ The positions and counterparties herein are as of December 31, 2017. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
^^ Rates shown represents discount rate at the time of purchase.
* Reflects the floating financing rate, as of December 31, 2017, on the notional amount of the forward agreement paid to the

counterparty or received from the counterparty, excluding any commissions. Forward Agreements payment is due at termination/maturity.

** 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.

 

240


Table of Contents

PROSHARES ULTRASHORT GOLD

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2016

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations
(95% of shareholders’ equity)

 

  

U.S. Treasury Bills^^:

     

0.435% due 01/12/17

   $ 1,572,000      $ 1,571,845  

0.308% due 01/19/17†

     1,000,000        999,815  

0.371% due 01/26/17

     10,000,000        9,997,349  

0.407% due 02/02/17

     13,000,000        12,995,504  

0.406% due 02/16/17†

     18,000,000        17,990,210  

0.491% due 02/23/17†

     5,000,000        4,996,671  

0.481% due 03/09/17†

     10,000,000        9,991,333  

0.493% due 03/23/17

     2,000,000        1,997,828  
     

 

 

 

Total short-term U.S. government and agency obligations
(cost $60,540,275)

      $ 60,540,555  
     

 

 

 

Futures Contracts Sold††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Gold Futures - COMEX, expires February 2017

     2      $ 230,340      $ 18,980  

Forward Agreements^

 

     Rate Paid (Received)*     Settlement Date      Commitment to
(Deliver)/Receive
    Notional Amount
at Value**
    Unrealized
Appreciation
(Depreciation)
 

Forward agreements with Citibank, N.A. based on 0.995 Fine Troy Ounce Gold

     (0.85 )%      01/10/17      $ (44,500   $ (51,008,125   $ 1,147,811  

Forward agreements with Goldman Sachs International based on 0.995 Fine Troy Ounce Gold

     (0.70     01/10/17        (25,498     (29,227,083     881,454  

Forward agreements with Societe Generale S.A. based on 0.995 Fine Troy Ounce Gold

     (0.65     01/10/17        (14,600     (16,735,250     393,006  

Forward agreements with UBS AG based on 0.995 Fine Troy Ounce Gold

     (0.74     01/10/17        (26,250     (30,089,325     611,295  
           

 

 

 
            $ 3,033,566  
           

 

 

 

 

All or partial amount pledged as collateral for forward agreements and/or futures contracts.
†† Cash collateral in the amount of $13,200 was pledged to cover margin requirements for open futures contracts as of December 31, 2016.
^ The positions and counterparties herein are as of December 31, 2016. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
^^ Rates shown represents discount rate at the time of purchase.
* Reflects the floating financing rate, as of December 31, 2016, on the notional amount of the forward agreement paid to the

counterparty or received from the counterparty, excluding any commissions.

** 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.

 

241


Table of Contents

PROSHARES ULTRASHORT GOLD

STATEMENTS OF OPERATIONS

 

     Year Ended December 31,  
   2017     2016     2015  

Investment Income

      

Interest

   $ 283,917     $ 164,570     $ 31,999  
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     344,734       625,950       735,540  

Brokerage commissions

     48       43       41  
  

 

 

   

 

 

   

 

 

 

Total expenses

     344,782       625,993       735,581  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (60,865     (461,423     (703,582
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Futures contracts

     (2,987     (29,440     15,950  

Forward agreements

     (6,990,570     (12,211,311     12,691,685  

Short-term U.S. government and agency obligations

     (1,208     (378     1,301  
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     (6,994,765     (12,241,129     12,708,936  
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Futures contracts

     (24,440     13,760       9,740  

Forward agreements

     (4,521,825     1,224,624       4,091,720  

Short-term U.S. government and agency obligations

     (2,006     2,028       (2,950
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     (4,548,271     1,240,412       4,098,510  
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     (11,543,036     (11,000,717     16,807,446  
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (11,603,901   $ (11,462,140   $ 16,103,864  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

242


Table of Contents

PROSHARES ULTRASHORT GOLD

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

 

     Year Ended December 31,  
   2017     2016     2015  

Shareholders’ equity, beginning of period

   $ 63,653,647     $ 74,971,764     $ 81,861,762  

Addition of 350,000, 1,050,000 and 150,000 shares, respectively

     26,178,336       83,353,994       13,383,255  

Redemption of 600,000, 1,000,000 and 350,000 shares, respectively

     (46,730,672     (83,209,971     (36,377,117
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of (250,000), 50,000 and (200,000) shares, respectively

     (20,552,336     144,023       (22,993,862
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (60,865     (461,423     (703,582

Net realized gain (loss)

     (6,994,765     (12,241,129     12,708,936  

Change in net unrealized appreciation/depreciation

     (4,548,271     1,240,412       4,098,510  
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     (11,603,901     (11,462,140     16,103,864  
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 31,497,410     $ 63,653,647     $ 74,971,764  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

243


Table of Contents

PROSHARES ULTRASHORT GOLD

STATEMENTS OF CASH FLOWS

 

     Year Ended December 31,  
   2017     2016     2015  

Cash flow from operating activities

      

Net income (loss)

   $ (11,603,901   $ (11,462,140   $ 16,103,864  

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

      

Decrease (Increase) in segregated cash balances with brokers for futures contracts

     4,400       78,050       (82,450

Purchases of short-term U.S. government and agency obligations

     (259,713,980     (320,273,448     (254,497,395

Proceeds from sales or maturities of short-term U.S government and agency obligations

     288,557,288       332,879,016       265,587,947  

Net amortization and accretion on short-term U.S government and agency obligations

     (283,867     (164,568     (31,999

Net realized gain (loss) on investments

     1,208       378       (1,301

Change in unrealized appreciation/depreciation on investments

     4,523,831       (1,226,652     (4,088,770

Decrease (Increase) in receivable on futures contracts

     1,280       (1,280     3,260  

Increase (Decrease) in payable to Sponsor

     (30,538     (4,097     (10,170

Increase (Decrease) in payable on futures contracts

     2,420       (80     80  
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     21,458,141       (174,821     22,983,066  
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     26,178,336       83,353,994       13,383,255  

Payment on shares redeemed

     (46,730,672     (83,209,971     (36,377,117
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (20,552,336     144,023       (22,993,862
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     905,805       (30,798     (10,796

Cash, beginning of period

     120,840       151,638       162,434  
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 1,026,645     $ 120,840     $ 151,638  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

244


Table of Contents

PROSHARES ULTRASHORT SILVER

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2017      December 31, 2016  

Assets

     

Cash

   $ 614,804      $ 86,051  

Segregated cash balances with brokers for futures contracts

     10,340        14,300  

Segregated cash balances with brokers for forward agreements

     738,500        —    

Short-term U.S. government and agency obligations (Note 3)
(cost $18,352,808 and $21,549,766, respectively)

     18,349,861        21,550,319  

Unrealized appreciation on forward agreements

     —          1,384,246  

Receivable on open futures contracts

     —          2,290  
  

 

 

    

 

 

 

Total assets

     19,713,505        23,037,206  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Payable for capital shares redeemed

     3,171,777        —    

Payable on open futures contracts

     2,220        —    

Payable to Sponsor

     17,086        19,550  

Unrealized depreciation on forward agreements

     1,716,163        —    
  

 

 

    

 

 

 

Total liabilities

     4,907,246        19,550  
  

 

 

    

 

 

 

Commitments and Contingencies (Note 2)

     

Shareholders’ equity

     

Shareholders’ equity

     14,806,259        23,017,656  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 19,713,505      $ 23,037,206  
  

 

 

    

 

 

 

Shares outstanding

     466,976        616,976  
  

 

 

    

 

 

 

Net asset value per share

   $ 31.71      $ 37.31  
  

 

 

    

 

 

 

Market value per share (Note 2)

   $ 31.40      $ 38.76  
  

 

 

    

 

 

 

 

See accompanying notes to financial statements.

 

245


Table of Contents

PROSHARES ULTRASHORT SILVER

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2017

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations
(124% of shareholders’ equity)

 

  

U.S. Treasury Bills^^:

     

1.033% due 01/18/18†

   $ 2,181,000      $ 2,179,827  

1.040% due 02/01/18†

     2,214,000        2,211,712  

1.209% due 02/08/18†

     2,000,000        1,997,451  

1.267% due 03/29/18†

     12,000,000        11,960,871  
     

 

 

 

Total short-term U.S. government and agency obligations
(cost $18,352,808)

      $ 18,349,861  
     

 

 

 

Futures Contracts Sold

 

     Number of
Contracts
     Notional Amount
at Value
    Unrealized
Appreciation
(Depreciation)/Value
 

Silver Futures - COMEX, expires March 2018

     2      $ (171,450   $ (1,650

Forward Agreements^

 

     Rate Paid
(Received)*
    Settlement Date      Commitment to
(Deliver)/Receive
    Notional Amount
at Value**
    Unrealized
Appreciation
(Depreciation)/Value
 

Forward agreements with Citibank, N.A. based on 0.999 Fine Troy Ounce Silver

     (1.85 )%      01/08/18      $ (529,000   $ (8,926,769   $ (632,593

Forward agreements with Goldman Sachs International based on 0.999 Fine Troy Ounce Silver

     (1.52     01/08/18        (418,500     (7,061,769     (486,240

Forward agreements with Societe Generale based on 0.999 Fine Troy Ounce Silver

     (1.45     01/08/18        (156,000     (2,632,328     (115,305

Forward agreements with UBS AG based on 0.999 Fine Troy Ounce Silver

     (1.60     01/08/18        (642,000     (10,833,493     (482,025
           

 

 

 

Total Unrealized Depreciation

            $ (1,716,163
           

 

 

 

 

All or partial amount pledged as collateral for forward agreements.
^ The positions and counterparties herein are as of December 31, 2017. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
^^ Rates shown represents discount rate at the time of purchase.
* Reflects the floating financing rate, as of December 31, 2017, on the notional amount of the forward agreement paid to the counterparty or received from the counterparty, excluding any commissions. Forward Agreements payment is due at termination/maturity.
** 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.

 

246


Table of Contents

PROSHARES ULTRASHORT SILVER

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2016

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations
(94% of shareholders’ equity)

 

  

U.S. Treasury Bills^^:

     

0.339% due 01/12/17†

   $ 5,759,000      $ 5,758,432  

0.455% due 01/19/17

     1,500,000        1,499,723  

0.371% due 01/26/17

     1,000,000        999,735  

0.409% due 02/02/17

     1,300,000        1,299,551  

0.452% due 02/09/17†

     8,000,000        7,996,382  

0.491% due 02/23/17†

     2,000,000        1,998,668  

0.493% due 03/23/17†

     2,000,000        1,997,828  
     

 

 

 

Total short-term U.S. government and agency obligations
(cost $21,549,766)

      $ 21,550,319  
     

 

 

 

Futures Contracts Sold††

 

     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

Silver Futures - COMEX, expires March 2017

     2      $ 159,890      $ 27,310  

Forward Agreements^

 

     Rate Paid
(Received)*
    Settlement Date      Commitment to
(Deliver)/Receive
    Notional Amount
at Value**
    Unrealized
Appreciation
(Depreciation)
 

Forward agreements with Citibank, N.A. based on 0.999 Fine Troy Ounce Silver

     (1.05 )%      01/10/17      $ (1,076,000   $ (17,480,588   $ 610,478  

Forward agreements with Goldman Sachs International based on 0.999 Fine Troy Ounce Silver

     (0.80     01/10/17        (934,500     (15,181,326     323,829  

Forward agreements with Societe Generale based on 0.999 Fine Troy Ounce Silver

     (0.80     01/10/17        (156,000     (2,534,314     86,543  

Forward agreements with UBS AG based on 0.999 Fine Troy Ounce Silver

     (0.82     01/10/17        (657,000     (10,673,425     363,396  
           

 

 

 
            $ 1,384,246  
           

 

 

 

 

All or partial amount pledged as collateral for forward agreements and/or futures contracts.
†† Cash collateral in the amount of $14,300 was pledged to cover margin requirements for open futures contracts as of December 31, 2016.
^ The positions and counterparties herein are as of December 31, 2016. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
^^ Rates shown represents discount rate at the time of purchase.
* Reflects the floating financing rate, as of December 31, 2016, on the notional amount of the forward agreement paid to the counterparty or received from the counterparty, excluding any commissions.
** 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.

 

247


Table of Contents

PROSHARES ULTRASHORT SILVER

STATEMENTS OF OPERATIONS

 

     Year Ended December 31,  
   2017     2016     2015  

Investment Income

      

Interest

   $ 157,745     $ 93,483     $ 23,831  
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     194,297       349,293       540,253  

Brokerage commissions

     48       43       42  
  

 

 

   

 

 

   

 

 

 

Total expenses

     194,345       349,336       540,295  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (36,600     (255,853     (516,464
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Futures contracts

     21,156       (40,250     15,575  

Forward agreements

     1,132,237       (17,514,464     10,743,970  

Short-term U.S. government and agency obligations

     (932     (1,916     (2,787
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     1,152,461       (17,556,630     10,756,758  
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Futures contracts

     (28,960     21,340       4,410  

Forward agreements

     (3,100,409     (3,394,033     4,183,326  

Short-term U.S. government and agency obligations

     (3,500     367       (794
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     (3,132,869     (3,372,326     4,186,942  
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     (1,980,408     (20,928,956     14,943,700  
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (2,017,008   $ (21,184,809   $ 14,427,236  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

248


Table of Contents

PROSHARES ULTRASHORT SILVER

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

 

     Year Ended December 31,  
   2017     2016     2015  

Shareholders’ equity, beginning of period

   $ 23,017,656     $ 55,987,938     $ 53,007,867  

Addition of 850,000, 1,650,000 and 1,650,000 shares, respectively

     26,717,920       69,113,968       84,272,164  

Redemption of 1,000,000, 1,900,002 and 1,700,000 shares, respectively

     (32,912,309     (80,899,441     (95,719,329
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of (150,000), (250,002) and (50,000) shares, respectively

     (6,194,389     (11,785,473     (11,447,165
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (36,600     (255,853     (516,464

Net realized gain (loss)

     1,152,461       (17,556,630     10,756,758  

Change in net unrealized appreciation/depreciation

     (3,132,869     (3,372,326     4,186,942  
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     (2,017,008     (21,184,809     14,427,236  
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 14,806,259     $ 23,017,656     $ 55,987,938  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

249


Table of Contents

PROSHARES ULTRASHORT SILVER

STATEMENTS OF CASH FLOWS

 

     Year Ended December 31,  
   2017     2016     2015  

Cash flow from operating activities

      

Net income (loss)

   $ (2,017,008   $ (21,184,809   $ 14,427,236  

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

     3,960       (2,860     2,860  

Decrease (Increase) in segregated cash balances with brokers for forward agreements

     (738,500     —         —    

Purchases of short-term U.S. government and agency obligations

     (205,796,774     (149,552,689     (220,073,123

Proceeds from sales or maturities of short-term U.S government and agency obligations

     209,150,487       178,824,533       221,589,835  

Net amortization and accretion on short-term U.S government and agency obligations

     (157,687     (93,482     (23,831

Net realized gain (loss) on investments

     932       1,916       2,787  

Change in unrealized appreciation/depreciation on investments

     3,103,909       3,393,666       (4,182,532

Decrease (Increase) in receivable on futures contracts

     2,290       (1,900     6,380  

Increase (Decrease) in payable to Sponsor

     (2,464     (27,635     4,831  

Increase (Decrease) in payable on futures contracts

     2,220       —         —    
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     3,551,365       11,356,740       11,754,443  
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     26,717,920       69,113,968       84,272,164  

Payment on shares redeemed

     (29,740,532     (80,899,441     (95,719,329
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (3,022,612     (11,785,473     (11,447,165
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     528,753       (428,733     307,278  

Cash, beginning of period

     86,051       514,784       207,506  
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 614,804     $ 86,051     $ 514,784  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

250


Table of Contents

PROSHARES ULTRASHORT YEN

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2017      December 31, 2016  

Assets

     

Cash

   $ 1,582,684      $ 3,166,988  

Short-term U.S. government and agency obligations (Note 3)
(cost $131,844,652 and $257,103,135, respectively)

     131,834,352        257,102,313  

Unrealized appreciation on foreign currency forward contracts

     1,568,997        16,870,357  
  

 

 

    

 

 

 

Total assets

     134,986,033        277,139,658  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Payable for capital shares redeemed

     3,759,983        —    

Payable to Sponsor

     106,863        232,491  

Unrealized depreciation on foreign currency forward contracts

     41,734        125,420  
  

 

 

    

 

 

 

Total liabilities

     3,908,580        357,911  
  

 

 

    

 

 

 

Commitments and Contingencies (Note 2)

     

Shareholders’ equity

     

Shareholders’ equity

     131,077,453        276,781,747  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 134,986,033      $ 277,139,658  
  

 

 

    

 

 

 

Shares outstanding

     1,749,290        3,449,290  
  

 

 

    

 

 

 

Net asset value per share

   $ 74.93      $ 80.24  
  

 

 

    

 

 

 

Market value per share (Note 2)

   $ 74.98      $ 80.25  
  

 

 

    

 

 

 

 

See accompanying notes to financial statements.

 

251


Table of Contents

PROSHARES ULTRASHORT YEN

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2017

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations
(101% of shareholders’ equity)

 

  

U.S. Treasury Bills^^:

     

1.000% due 01/04/18

   $ 7,000,000      $ 6,999,565  

1.001% due 01/11/18

     9,000,000        8,997,457  

1.033% due 01/18/18†

     19,000,000        18,989,782  

1.068% due 01/25/18†

     11,000,000        10,991,251  

1.040% due 02/01/18†

     24,000,000        23,975,201  

1.083% due 02/08/18†

     17,000,000        16,978,335  

1.080% due 02/15/18

     9,000,000        8,986,360  

1.264% due 03/01/18

     15,000,000        14,969,187  

1.256% due 03/08/18†

     15,000,000        14,964,792  

1.277% due 03/22/18

     6,000,000        5,982,422  
     

 

 

 

Total short-term U.S. government and agency obligations
(cost $131,844,652)

      $ 131,834,352  
     

 

 

 

Foreign Currency Forward Contracts^

 

     Settlement Date      Contract
Amount in

Local Currency
    Contract
Amount in

U.S. Dollars
    Unrealized
Appreciation
(Depreciation)/Value
 

Contracts to Purchase

         

Yen with Goldman Sachs International

     01/12/18        1,557,430,400     $ 13,828,233     $ (1,119

Yen with UBS AG

     01/12/18        2,779,401,900       24,716,567       (40,615
         

 

 

 

Total Unrealized Depreciation

          $ (41,734
         

 

 

 

Contracts to Sell

         

Yen with Goldman Sachs International

     01/12/18        (16,323,923,000   $ (145,748,706   $ 822,436  

Yen with UBS AG

     01/12/18        (17,545,808,000     (156,520,911     746,561  
         

 

 

 

Total Unrealized Appreciation

          $ 1,568,997  
         

 

 

 

 

All or partial amount pledged as collateral for foreign currency forward contracts.
^ The positions and counterparties herein are as of December 31, 2017. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
^^ Rates shown represents discount rate at the time of purchase.

 

See accompanying notes to financial statements.

 

252


Table of Contents

PROSHARES ULTRASHORT YEN

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2016

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations
(93% of shareholders’ equity)

     

U.S. Treasury Bills^^:

     

0.286% due 01/05/17†

   $ 21,383,000      $ 21,382,543  

0.343% due 01/12/17†

     32,400,000        32,396,802  

0.405% due 01/19/17†

     12,500,000        12,497,695  

0.346% due 01/26/17†

     57,000,000        56,984,889  

0.390% due 02/02/17†

     30,006,000        29,995,624  

0.452% due 02/09/17†

     35,000,000        34,984,173  

0.393% due 02/16/17

     53,000,000        52,971,173  

0.491% due 02/23/17†

     15,900,000        15,889,414  
     

 

 

 

Total short-term U.S. government and agency obligations
(cost $257,103,135)

      $ 257,102,313  
     

 

 

 

Foreign Currency Forward Contracts^

 

     Settlement Date      Local Currency     Notional Amount
at Value (USD)
    Unrealized
Appreciation
(Depreciation)
 

Contracts to Purchase

         

Yen with Goldman Sachs International

     01/13/17        9,411,824,400     $ 80,581,067     $ 215,477  

Yen with UBS AG

     01/13/17        675,533,300       5,783,703       (125,420
         

 

 

 
          $ 90,057  
         

 

 

 

Contracts to Sell

         

Yen with Goldman Sachs International

     01/13/17        (41,411,055,600   $ (354,548,372   $ 8,041,302  

Yen with UBS AG

     01/13/17        (33,192,173,500     (284,180,901     8,613,578  
         

 

 

 
          $ 16,654,880  
         

 

 

 

 

All or partial amount pledged as collateral for foreign currency forward contracts.
^ The positions and counterparties herein are as of December 31, 2016. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at any time.
^^ Rates shown represents discount rate at the time of purchase.

 

See accompanying notes to financial statements.

 

253


Table of Contents

PROSHARES ULTRASHORT YEN

STATEMENTS OF OPERATIONS

 

     Year Ended December 31,  
   2017     2016     2015  

Investment Income

      

Interest

   $ 1,446,842     $ 531,771     $ 135,814  
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     1,802,816       2,141,333       3,759,492  
  

 

 

   

 

 

   

 

 

 

Total expenses

     1,802,816       2,141,333       3,759,492  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (355,974     (1,609,562     (3,623,678
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Foreign currency forward contracts

     (8,729,472     (22,220,271     8,809,464  

Short-term U.S. government and agency obligations

     (4,001     (5,910     (3,035
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     (8,733,473     (22,226,181     8,806,429  
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Foreign currency forward contracts

     (15,217,674     30,640,389       (12,316,677

Short-term U.S. government and agency obligations

     (9,478     16,827       (30,886
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     (15,227,152     30,657,216       (12,347,563
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     (23,960,625     8,431,035       (3,541,134
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (24,316,599   $ 6,821,473     $ (7,164,812
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

254


Table of Contents

PROSHARES ULTRASHORT YEN

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

 

     Year Ended December 31,  
   2017     2016     2015  

Shareholders’ equity, beginning of period

   $ 276,781,747     $ 237,372,900     $ 531,471,873  

Addition of 1,000,000, 2,300,000 and 1,350,000 shares, respectively

     76,657,434       150,763,218       124,524,909  

Redemption of 2,700,000, 1,550,004 and 4,600,000 shares, respectively

     (198,045,129     (118,175,844     (411,459,070
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of (1,700,000), 749,996 and (3,250,000) shares, respectively

     (121,387,695     32,587,374       (286,934,161
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (355,974     (1,609,562     (3,623,678

Net realized gain (loss)

     (8,733,473     (22,226,181     8,806,429  

Change in net unrealized appreciation/depreciation

     (15,227,152     30,657,216       (12,347,563
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     (24,316,599     6,821,473       (7,164,812
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 131,077,453     $ 276,781,747     $ 237,372,900  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

255


Table of Contents

PROSHARES ULTRASHORT YEN

STATEMENTS OF CASH FLOWS

 

     Year Ended December 31,  
   2017     2016     2015  

Cash flow from operating activities

      

Net income (loss)

   $ (24,316,599   $ 6,821,473     $ (7,164,812

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

      

Purchases of short-term U.S. government and agency obligations

     (1,735,928,862     (1,044,852,917     (1,322,695,643

Proceeds from sales or maturities of short-term U.S government and agency obligations

     1,862,630,186       1,048,290,293       1,595,758,281  

Net amortization and accretion on short-term U.S government and agency obligations

     (1,446,842     (531,771     (135,814

Net realized gain (loss) on investments

     4,001       5,910       3,035  

Change in unrealized appreciation/depreciation on investments

     15,227,152       (30,657,216     12,347,563  

Increase (Decrease) in payable to Sponsor

     (125,628     21,603       (228,916
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     116,043,408       (20,902,625     277,883,694  
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     76,657,434       150,763,218       124,524,909  

Payment on shares redeemed

     (194,285,146     (126,970,573     (402,664,341
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (117,627,712     23,792,645       (278,139,432
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     (1,584,304     2,890,020       (255,738

Cash, beginning of period

     3,166,988       276,968       532,706  
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 1,582,684     $ 3,166,988     $ 276,968  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

256


Table of Contents

PROSHARES VIX MID-TERM FUTURES ETF

STATEMENTS OF FINANCIAL CONDITION

 

     December 31,
2017
     December 31,
2016
 

Assets

     

Cash

   $ 1,639,958      $ 1,155,115  

Segregated cash balances with brokers for futures contracts

     4,626,400        1,052,615  

Short-term U.S. government and agency obligations (Note 3)
(cost $20,993,328 and $45,486,489, respectively)

     20,993,515        45,486,235  

Receivable on open futures contracts

     170,015        242,541  
  

 

 

    

 

 

 

Total assets

     27,429,888        47,936,506  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Payable for capital shares redeemed

     1,058,309        2,085,020  

Payable to Sponsor

     23,631        32,572  
  

 

 

    

 

 

 

Total liabilities

     1,081,940        2,117,592  
  

 

 

    

 

 

 

Commitments and Contingencies (Note 2)

     

Shareholders’ equity

     

Shareholders’ equity

     26,347,948        45,818,914  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 27,429,888      $ 47,936,506  
  

 

 

    

 

 

 

Shares outstanding

     1,237,403        1,087,403  
  

 

 

    

 

 

 

Net asset value per share

   $ 21.29      $ 42.14  
  

 

 

    

 

 

 

Market value per share (Note 2)

   $ 21.15      $ 42.34  
  

 

 

    

 

 

 

 

See accompanying notes to financial statements.

 

257


Table of Contents

PROSHARES VIX MID-TERM FUTURES ETF

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2017

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations
(80% of shareholders’ equity)

     

U.S. Treasury Bills^^:

     

1.000% due 01/04/18

   $ 11,000,000      $ 10,999,316  

1.001% due 01/11/18

     7,000,000        6,998,022  

1.209% due 02/08/18

     3,000,000        2,996,177  
     

 

 

 

Total short-term U.S. government and agency obligations
(cost $20,993,328)

      $ 20,993,515  
     

 

 

 

 

Futures Contracts Purchased

        
     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)/Value
 

VIX Futures - CBOE, expires April 2018

     354      $ 4,911,750      $ (617,555

VIX Futures - CBOE, expires May 2018

     603        8,668,125        (910,645

VIX Futures - CBOE, expires June 2018

     603        8,939,475        (641,030

VIX Futures - CBOE, expires July 2018

     248        3,825,400        (46,050
        

 

 

 
         $ (2,215,280
        

 

 

 

 

^^ Rates shown represents discount rate at the time of purchase.

 

See accompanying notes to financial statements.

 

258


Table of Contents

PROSHARES VIX MID-TERM FUTURES ETF

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2016

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations
(99% of shareholders’ equity)

 

  

U.S. Treasury Bills^^:

     

0.281% due 01/05/17

   $ 1,500,000      $ 1,499,968  

0.390% due 01/12/17

     18,500,000        18,498,174  

0.299% due 01/19/17

     2,000,000        1,999,631  

0.311% due 01/26/17

     1,500,000        1,499,602  

0.411% due 02/02/17

     2,000,000        1,999,308  

0.372% due 02/09/17†

     10,000,000        9,995,478  

0.390% due 02/16/17

     6,000,000        5,996,737  

0.491% due 02/23/17†

     4,000,000        3,997,337  
     

 

 

 

Total short-term U.S. government and agency obligations
(cost $45,486,489)

      $ 45,486,235  
     

 

 

 

 

Futures Contracts Purchased††

        
     Number of
Contracts
     Notional Amount
at Value
     Unrealized
Appreciation
(Depreciation)
 

VIX Futures - CBOE, expires April 2017

     474      $ 8,733,450      $ (655,635

VIX Futures - CBOE, expires May 2017

     806        15,172,950        (628,070

VIX Futures - CBOE, expires June 2017

     807        15,393,525        (72,915

VIX Futures - CBOE, expires July 2017

     332        6,523,800        68,375  
        

 

 

 
         $ (1,288,245
        

 

 

 

 

^^ Rates shown represents discount rate at the time of purchase.
All or partial amount pledged as collateral for futures contracts.
†† Cash collateral in the amount of $1,052,615 was pledged to cover margin requirements for open futures contracts as of December 31, 2016.

 

See accompanying notes to financial statements.

 

259


Table of Contents

PROSHARES VIX MID-TERM FUTURES ETF

STATEMENTS OF OPERATIONS

 

     Year Ended December 31,  
   2017     2016     2015  

Investment Income

      

Interest

   $ 256,920     $ 107,409     $ 8,293  
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     317,739       369,016       233,390  

Brokerage commissions

     20,988       32,884       15,503  
  

 

 

   

 

 

   

 

 

 

Total expenses

     338,727       401,900       248,893  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (81,807     (294,491     (240,600
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Futures contracts

     (25,319,770     (11,085,506     (3,335,936

Short-term U.S. government and agency obligations

     (377     499       1,355  
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     (25,320,147     (11,085,007     (3,334,581
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Futures contracts

     (927,035     (943,885     (605,025

Short-term U.S. government and agency obligations

     441       (1,079     (327
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     (926,594     (944,964     (605,352
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     (26,246,741     (12,029,971     (3,939,933
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (26,328,548   $ (12,324,462   $ (4,180,533
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

260


Table of Contents

PROSHARES VIX MID-TERM FUTURES ETF

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

 

     Year Ended December 31,  
   2017     2016     2015  

Shareholders’ equity, beginning of period

   $ 45,818,914     $ 27,650,638     $ 21,459,575  

Addition of 950,000, 1,100,000 and 325,000 shares, respectively

     26,311,779       55,230,587       19,318,111  

Redemption of 800,000, 525,001 and 150,000 shares, respectively

     (19,454,197     (24,737,849     (8,946,515
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of 150,000, 574,999 and 175,000 shares, respectively

     6,857,582       30,492,738       10,371,596  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (81,807     (294,491     (240,600

Net realized gain (loss)

     (25,320,147     (11,085,007     (3,334,581

Change in net unrealized appreciation/depreciation

     (926,594     (944,964     (605,352
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     (26,328,548     (12,324,462     (4,180,533
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 26,347,948     $ 45,818,914     $ 27,650,638  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

261


Table of Contents

PROSHARES VIX MID-TERM FUTURES ETF

STATEMENTS OF CASH FLOWS

 

     Year Ended December 31,  
   2017     2016     2015  

Cash flow from operating activities

      

Net income (loss)

   $ (26,328,548   $ (12,324,462   $ (4,180,533

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

     (3,573,785     (71,865     926,200  

Purchases of short-term U.S. government and agency obligations

     (943,753,668     (175,738,460     (95,567,067

Proceeds from sales or maturities of short-term U.S government and agency obligations

     968,489,510       156,335,340       93,706,007  

Net amortization and accretion on short-term U.S government and agency obligations

     (243,058     (107,408     (8,293

Net realized gain (loss) on investments

     377       (499     (1,355

Change in unrealized appreciation/depreciation on investments

     (441     1,079       327  

Decrease (Increase) in receivable on futures contracts

     72,526       (200,353     1,741,140  

Increase (Decrease) in payable to Sponsor

     (8,941     12,194       (2,358
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (5,346,028     (32,094,434     (3,385,932
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     26,311,779       55,230,587       19,318,111  

Payment on shares redeemed

     (20,480,908     (22,652,829     (16,894,470
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     5,830,871       32,577,758       2,423,641  
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     484,843       483,324       (962,291

Cash, beginning of period

     1,155,115       671,791       1,634,082  
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 1,639,958     $ 1,155,115     $ 671,791  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

262


Table of Contents

PROSHARES VIX SHORT-TERM FUTURES ETF

STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2017      December 31, 2016  

Assets

     

Cash

   $ 1,850,632      $ 4,536,425  

Segregated cash balances with brokers for futures contracts

     1,864,500        17,235,855  

Short-term U.S. government and agency obligations (Note 3)
(cost $134,855,770 and $147,990,045, respectively)

     134,845,604        147,991,233  

Receivable on open futures contracts

     2,667,474        4,484,270  
  

 

 

    

 

 

 

Total assets

     141,228,210        174,247,783  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Payable for capital shares redeemed

     3,431,713        —    

Payable to Sponsor

     54,937        87,637  
  

 

 

    

 

 

 

Total liabilities

     3,486,650        87,637  
  

 

 

    

 

 

 

Commitments and Contingencies (Note 2)

     

Shareholders’ equity

     

Shareholders’ equity

     137,741,560        174,160,146  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 141,228,210      $ 174,247,783  
  

 

 

    

 

 

 

Shares outstanding (Note 1)

     5,901,317        2,052,363  
  

 

 

    

 

 

 

Net asset value per share (Note 1)

   $ 23.34      $ 84.86  
  

 

 

    

 

 

 

Market value per share (Note 1) (Note 2)

   $ 23.15      $ 85.04  
  

 

 

    

 

 

 

 

See accompanying notes to financial statements.

 

263


Table of Contents

PROSHARES VIX SHORT-TERM FUTURES ETF

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2017

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations
(98% of shareholders’ equity)

     

U.S. Treasury Bills^^:

     

1.000% due 01/04/18

   $ 31,000,000      $ 30,998,072  

1.001% due 01/11/18†

     12,000,000        11,996,610  

1.040% due 02/01/18†

     33,000,000        32,965,901  

1.080% due 02/15/18†

     34,000,000        33,948,470  

1.264% due 03/01/18†

     2,000,000        1,995,891  

1.271% due 03/15/18†

     23,000,000        22,940,660  
     

 

 

 

Total short-term U.S. government and agency obligations
(cost $134,855,770)

      $ 134,845,604  
     

 

 

 

Futures Contracts Purchased

 

     Number of
Contracts
     Notional
Amount at
Value
     Unrealized
Appreciation
(Depreciation)/Value
 

VIX Futures - CBOE, expires January 2018

     6,836      $ 78,443,100      $ (5,471,585

VIX Futures - CBOE, expires February 2018

     4,770        59,505,750        709,708  
        

 

 

 
         $ (4,761,877
        

 

 

 

 

^^ Rates shown represents discount rate at the time of purchase.
All or partial amount pledged as collateral for futures contracts.

 

See accompanying notes to financial statements.

 

264


Table of Contents

PROSHARES VIX SHORT-TERM FUTURES ETF

SCHEDULE OF INVESTMENTS

DECEMBER 31, 2016

 

     Principal Amount      Value  

Short-term U.S. government and agency obligations
(85% of shareholders’ equity)

 

  

U.S. Treasury Bills^^:

     

0.382% due 01/12/17†

   $ 39,000,000      $ 38,996,151  

0.330% due 01/19/17†

     9,000,000        8,998,340  

0.353% due 01/26/17†

     15,500,000        15,495,891  

0.409% due 02/02/17†

     32,560,000        32,548,741  

0.425% due 02/09/17†

     5,000,000        4,997,739  

0.390% due 02/16/17

     10,000,000        9,994,561  

0.493% due 03/23/17

     37,000,000        36,959,810  
     

 

 

 

Total short-term U.S. government and agency obligations
(cost $147,990,045)

      $ 147,991,233  
     

 

 

 

Futures Contracts Purchased††

 

     Number of
Contracts
     Notional
Amount at
Value
     Unrealized
Appreciation
(Depreciation)
 

VIX Futures - CBOE, expires January 2017

     6,549      $ 99,053,625      $ (2,742,526

VIX Futures - CBOE, expires February 2017

     4,560        75,582,000        2,273,874  
        

 

 

 
         $ (468,652
        

 

 

 

 

^^ Rates shown represents discount rate at the time of purchase.
All or partial amount pledged as collateral for futures contracts.
†† Cash collateral in the amount of $17,235,855 was pledged to cover margin requirements for open futures contracts as of December 31, 2016.

 

See accompanying notes to financial statements.

 

265


Table of Contents

PROSHARES VIX SHORT-TERM FUTURES ETF

STATEMENTS OF OPERATIONS

 

     Year Ended December 31,  
   2017     2016     2015  

Investment Income

      

Interest

   $ 1,238,374     $ 466,392     $ 42,319  
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     1,353,339       1,632,880       1,062,171  

Brokerage commissions

     174,838       270,159       130,942  

Brokerage fees

     3,383       —         —    
  

 

 

   

 

 

   

 

 

 

Total expenses

     1,531,560       1,903,039       1,193,113  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (293,186     (1,436,647     (1,150,794
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Futures contracts

     (194,005,568     (195,475,791     (19,408,543

Short-term U.S. government and agency obligations

     (772     6,650       1,703  
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     (194,006,340     (195,469,141     (19,406,840
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Futures contracts

     (4,293,225     609,973       (7,343,245

Short-term U.S. government and agency obligations

     (11,354     3,010       (3,657
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     (4,304,579     612,983       (7,346,902
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     (198,310,919     (194,856,158     (26,753,742
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (198,604,105   $ (196,292,805   $ (27,904,536
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

266


Table of Contents

PROSHARES VIX SHORT-TERM FUTURES ETF

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

 

     Year Ended December 31,  
   2017     2016     2015  

Shareholders’ equity, beginning of period

   $ 174,160,146     $ 105,272,823     $ 111,459,325  

Addition of 7,750,000, 3,066,250 and 623,750 shares, respectively (Note 1)

     318,930,520       515,131,303       187,659,682  

Redemption of 3,901,046, 1,411,378 and 492,500 shares, respectively (Note 1)

     (156,745,001     (249,951,175     (165,941,648
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of 3,848,954, 1,654,872 and 131,250 shares, respectively (Note 1)

     162,185,519       265,180,128       21,718,034  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (293,186     (1,436,647     (1,150,794

Net realized gain (loss)

     (194,006,340     (195,469,141     (19,406,840

Change in net unrealized appreciation/depreciation

     (4,304,579     612,983       (7,346,902
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     (198,604,105     (196,292,805     (27,904,536
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 137,741,560     $ 174,160,146     $ 105,272,823  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

267


Table of Contents

PROSHARES VIX SHORT-TERM FUTURES ETF

STATEMENTS OF CASH FLOWS

 

     Year Ended December 31,  
   2017     2016     2015  

Cash flow from operating activities

      

Net income (loss)

   $ (198,604,105   $ (196,292,805   $ (27,904,536

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

     15,371,355       (11,347,310     12,551,205  

Purchases of short-term U.S. government and agency obligations

     (1,819,678,736     (920,726,003     (599,166,468

Proceeds from sales or maturities of short-term U.S government and agency obligations

     1,834,013,986       869,284,481       585,220,876  

Net amortization and accretion on short-term U.S government and agency obligations

     (1,201,747     (466,392     (41,722

Net realized gain (loss) on investments

     772       (6,650     (1,703

Change in unrealized appreciation/depreciation on investments

     11,354       (3,010     3,657  

Decrease (Increase) in receivable on futures contracts

     1,816,796       (3,220,337     8,053,303  

Increase (Decrease) in payable to Sponsor

     (32,700     10,220       (3,334
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (168,303,025     (262,767,806     (21,288,722
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     318,930,520       515,131,303       187,659,682  

Payment on shares redeemed

     (153,313,288     (249,951,175     (165,941,648
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     165,617,232       265,180,128       21,718,034  
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     (2,685,793     2,412,322       429,312  

Cash, beginning of period

     4,536,425       2,124,103       1,694,791  
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 1,850,632     $ 4,536,425     $ 2,124,103  
  

 

 

   

 

 

   

 

 

 

 

See accompanying notes to financial statements.

 

268


Table of Contents

PROSHARES TRUST II

COMBINED STATEMENTS OF FINANCIAL CONDITION

 

     December 31, 2017      December 31, 2016  

Assets

     

Cash

   $ 55,713,112      $ 39,482,473  

Segregated cash balances with brokers for futures contracts

     420,018,133        180,212,984  

Segregated cash balances with brokers for forward agreements

     4,081,500        —    

Segregated cash balances with brokers for foreign currency forward contracts

     3,960,000        —    

Short-term U.S. government and agency obligations (Note 3)
(cost $2,445,970,899 and $3,038,837,465, respectively)

     2,445,779,873        3,038,848,441  

Unrealized appreciation on swap agreements

     62,238,361        55,358,571  

Unrealized appreciation on forward agreements

     25,381,689        4,417,812  

Unrealized appreciation on foreign currency forward contracts

     2,339,908        33,392,354  

Receivable from capital shares sold

     843,370        —    

Receivable on open futures contracts

     45,230,982        41,862,862  

Offering costs (Note 5)

     105,643        —    

Limitation by Sponsor

     59,651        —    
  

 

 

    

 

 

 

Total assets

     3,065,752,222        3,393,575,497  
  

 

 

    

 

 

 

Liabilities and shareholders’ equity

     

Liabilities

     

Payable for capital shares redeemed

     73,270,557        71,525,035  

Payable on open futures contracts

     1,954,640        3,972,621  

Brokerage commissions and fees payable

     —          2,909  

Payable to Sponsor

     2,509,663        2,722,696  

Unrealized depreciation on swap agreements

     30,607,142        12,206,881  

Unrealized depreciation on forward agreements

     3,204,422        25,407,296  

Unrealized depreciation on foreign currency forward contracts

     6,927,586        1,400,572  
  

 

 

    

 

 

 

Total liabilities

     118,474,010        117,238,010  
  

 

 

    

 

 

 

Commitments and Contingencies (Note 2)

     

Shareholders’ equity

     

Shareholders’ equity

     2,947,278,212        3,276,337,487  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 3,065,752,222      $ 3,393,575,497  
  

 

 

    

 

 

 

Shares outstanding

     118,293,916        90,235,707  
  

 

 

    

 

 

 

 

See accompanying notes to financial statements.

 

269


Table of Contents

PROSHARES TRUST II

COMBINED STATEMENTS OF OPERATIONS

 

     Year Ended December 31,  
   2017*     2016**     2015***  

Investment Income

      

Interest

   $ 25,704,093     $ 9,133,928     $ 1,546,729  
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     30,996,127       34,712,239       35,055,606  

Brokerage commissions

     8,950,082       7,438,871       6,480,284  

Brokerage fees

    
9,715
 
    —         —    

Offering costs

     238,151       —         59,479  

Limitation by Sponsor

     (59,651     —         (11,814
  

 

 

   

 

 

   

 

 

 

Total expenses

     40,134,424       42,151,110       41,583,555  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (14,430,331     (33,017,182     (40,036,826
  

 

 

   

 

 

   

 

 

 

Realized and unrealized gain (loss) on investment activity

      

Net realized gain (loss) on

      

Futures contracts

     (354,314,223     (1,286,470,453     (675,706,798

Swap agreements

     (11,794,313     (25,398,375     (553,434,721

Forward agreements

     (26,118,074     38,357,981       (73,443,689

Foreign currency forward contracts

     (46,255,034     (47,075,744     138,005,915  

Short-term U.S. government and agency obligations

     (50,042     (15,768     47,732  
  

 

 

   

 

 

   

 

 

 

Net realized gain (loss)

     (438,531,686     (1,320,602,359     (1,164,531,561
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation on

      

Futures contracts

     (360,935     (22,030,613     40,193,356  

Swap agreements

     (11,520,471     108,928,215       (16,849,426

Forward agreements

     43,166,751       (2,765,009     (6,192,684

Foreign currency forward contracts

     (36,579,460     73,731,339       (56,805,160

Short-term U.S. government and agency obligations

     (202,002     4,832       (46,135
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation

     (5,496,117     157,868,764       (39,700,049
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     (444,027,803     (1,162,733,595     (1,204,231,610
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (458,458,134   $ (1,195,750,777   $ (1,244,268,436
  

 

 

   

 

 

   

 

 

 

 

* The operations include the activity of ProShares UltraPro 3x Crude Oil ETF and ProShares UltraPro 3x Short Crude Oil ETF since January 13, 2017 (inception date).
** The operations include the activity of: ProShares Managed Futures Strategy through March 30, 2016, ProShares UltraShort Bloomberg Commodity and ProShares Ultra Bloomberg Commodity through September 1, 2016, the date of liquidation, respectively.
*** The operations include the activity of ProShares Ultra Australian Dollar through June 29, 2015, the date of liquidation.

 

See accompanying notes to financial statements.

 

270


Table of Contents

PROSHARES TRUST II

COMBINED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

 

     Year Ended December 31,  
   2017*     2016**     2015***  

Shareholders’ equity, beginning of period

   $ 3,276,337,487     $ 3,506,608,748     $ 3,332,060,486  

Addition of 255,585,016, 213,130,750 and 139,373,050 shares, respectively

     9,098,339,966       10,633,008,985       8,943,932,891  

Redemption of 227,526,807, 221,560,666 and 111,513,687 shares, respectively

     (8,968,941,107     (9,667,529,469     (7,525,116,193
  

 

 

   

 

 

   

 

 

 

Net addition (redemption) of 28,058,209, (8,429,916) and 27,859,363 shares, respectively

     129,398,859       965,479,516       1,418,816,698  
  

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (14,430,331     (33,017,182     (40,036,826

Net realized gain (loss)

     (438,531,686     (1,320,602,359     (1,164,531,561

Change in net unrealized appreciation/depreciation

     (5,496,117     157,868,764       (39,700,049
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     (458,458,134     (1,195,750,777     (1,244,268,436
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity, end of period

   $ 2,947,278,212     $ 3,276,337,487     $ 3,506,608,748  
  

 

 

   

 

 

   

 

 

 

 

* The operations include the activity of ProShares UltraPro 3x Crude Oil ETF and ProShares UltraPro 3x Short Crude Oil ETF since January 13, 2017 (inception date).
** The operations include the activity of: ProShares Managed Futures Strategy through March 30, 2016, ProShares UltraShort Bloomberg Commodity and ProShares Ultra Bloomberg Commodity through September 1, 2016, the date of liquidation, respectively.
*** The operations include the activity of ProShares Ultra Australian Dollar through June 29, 2015, the date of liquidation.

 

See accompanying notes to financial statements.

 

271


Table of Contents

PROSHARES TRUST II

COMBINED STATEMENTS OF CASH FLOWS

 

     Year Ended December 31,  
   2017*     2016**     2015***  

Cash flow from operating activities

      

Net income (loss)

   $ (458,458,134   $ (1,195,750,777   $ (1,244,268,436

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

     (239,805,149     80,870,728       35,477,903  

Decrease (Increase) in segregated cash balances with brokers for forward agreements

     (4,081,500     —         —    

Decrease (Increase) in segregated cash balances with brokers for foreign currency forward contracts

     (3,960,000     —         —    

Purchases of short-term U.S. government and agency obligations

     (31,621,104,918     (18,373,450,463     (17,070,603,480

Proceeds from sales or maturities of short-term U.S government and agency obligations

     32,238,762,028       18,657,310,693       16,764,420,326  

Net amortization and accretion on short-term U.S government and agency obligations

     (24,840,586     (9,128,007     (1,530,269

Net realized gain (loss) on investments

     50,042       15,768       (47,732

Change in unrealized appreciation/depreciation on investments

     5,135,182       (179,899,377     79,893,405  

Decrease (Increase) in receivable on futures contracts

     (3,368,120     (14,207,535     28,346,999  

Decrease (Increase) in Limitation by Sponsor

     (59,651     —         9,474  

Change in offering cost

     —         —         49,384  

Cash paid for offering cost

     (343,794     —         —    

Amortization of offering cost

     238,151       —         —    

Increase (Decrease) in payable to Sponsor

     (213,033     (116,609     181,800  

Increase (Decrease) in brokerage commissions and fees payable

     (2,909     (36,239     39,148  

Increase (Decrease) in payable on futures contracts

     (2,017,981     894,352       (43,327,729

Increase (Decrease) in payable for offering costs

     —         —         (65,785
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (114,070,372     (1,033,497,466     (1,451,424,992
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Proceeds from addition of shares

     9,097,496,596       10,681,055,123       8,953,972,200  

Payment on shares redeemed

     (8,967,195,585     (9,656,124,409     (7,490,397,088
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     130,301,011       1,024,930,714       1,463,575,112  
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     16,230,639       (8,566,752     12,150,120  

Cash, beginning of period

     39,482,599       48,049,351       35,899,231  
  

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 55,713,238     $ 39,482,599     $ 48,049,351  
  

 

 

   

 

 

   

 

 

 

 

* The operations include the activity of ProShares UltraPro 3x Crude Oil ETF and ProShares UltraPro 3x Short Crude Oil ETF since January 13, 2017 (inception date).
** The operations include the activity of: ProShares Managed Futures Strategy through March 30, 2016 and ProShares UltraShort Bloomberg Commodity and ProShares Ultra Bloomberg Commodity through September 1, 2016, the date of liquidation, respectively.
*** The operations include the activity of ProShares Ultra Australian Dollar through June 29, 2015, the date of liquidation.

 

See accompanying notes to financial statements.

 

272


Table of Contents

PROSHARES TRUST II

NOTES TO FINANCIAL STATEMENTS

December 31, 2017

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, 2017, the following twenty series of the Trust have commenced investment operations: (i) ProShares VIX Short-Term Futures ETF and ProShares VIX Mid-Term Futures ETF (each, a “Matching VIX Fund” and collectively, the “Matching VIX Funds”); (ii) ProShares Short VIX Short-Term Futures ETF and ProShares Ultra VIX Short-Term Futures ETF (each, a “Geared VIX Fund” and collectively, the “Geared VIX Funds”); (iii) ProShares UltraShort Bloomberg Crude Oil, ProShares UltraPro 3x Short Crude Oil, ProShares UltraShort Bloomberg Natural Gas, ProShares UltraShort Gold, ProShares UltraShort Silver, ProShares UltraShort Australian Dollar, ProShares UltraShort Euro, ProShares UltraShort Yen, ProShares Ultra Bloomberg Crude Oil, ProShares UltraPro 3x Crude Oil, ProShares Ultra Bloomberg Natural Gas, ProShares Ultra Gold, ProShares Ultra Silver, ProShares Ultra Euro and ProShares Ultra Yen (each, a “Leveraged Fund” and collectively, the “Leveraged Funds”); and (iv) ProShares Short Euro (the “Short Euro Fund”). 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 Fund. The Shares of each 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 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 Bloomberg Crude Oil, ProShares UltraShort Gold, ProShares UltraShort Silver, ProShares UltraShort Euro, ProShares UltraShort Yen, ProShares Ultra Bloomberg 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,” “Ultra Funds,” or “UltraPro 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 “UltraPro Short” Fund seeks daily investment results (before fees and expenses) that correspond to three times the inverse (-3x) 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 “UltraPro” Fund seeks daily investment results (before fees and expenses) that correspond to three times (3x) 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.

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, 2x, -3x or 3x) of the period return of the corresponding benchmark and will likely differ significantly.

 

273


Table of Contents

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 its applicable underlying commodity futures index, commodity, currency exchange rate or equity volatility index. Financial Instruments also are used to produce economically “inverse,” “inverse leveraged” or “leveraged” investment results for the Geared Funds.

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, 2015, 2016 and 2017. 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 Ultra VIX Short-Term Futures ETF

   May 20, 2015    1-for-5 reverse Share split    May 20, 2015

ProShares Ultra Bloomberg Crude Oil

   May 20, 2015    1-for-5 reverse Share split    May 20, 2015

ProShares Ultra Bloomberg Natural Gas

   May 20, 2015    1-for-4 reverse Share split    May 20, 2015

ProShares Ultra Yen

   May 20, 2015    1-for-4 reverse Share split    May 20, 2015

ProShares UltraShort Silver

   November 13, 2015    2-for-1 Share split    November 13, 2015

ProShares UltraShort Bloomberg Natural Gas

   July 20, 2016    3-for-1 Share split    July 25, 2016

ProShares VIX Short-Term Futures ETF

   July 25, 2016    1-for-5 reverse Share split    July 25, 2016

ProShares Ultra VIX Short-Term Futures ETF

   July 25, 2016    1-for-5 reverse Share split    July 25, 2016

ProShares UltraShort Bloomberg Crude Oil

   January 11, 2017    2-for-1 Share split    January 12, 2017

ProShares Ultra Bloomberg Crude Oil

   January 11, 2017    1-for-2 reverse Share split    January 12, 2017

ProShares Ultra VIX Short-Term Futures ETF

   January 11, 2017    1-for-5 reverse Share split    January 12, 2017

ProShares Short VIX Short-Term Futures ETF

   July 12, 2017    2-for-1 Share split    July 17, 2017

ProShares VIX Short-Term Futures ETF

   July 14, 2017    1-for-4 reverse Share split    July 17, 2017

ProShares Ultra VIX Short-Term Futures ETF

   July 14, 2017    1-for-4 reverse Share split    July 17, 2017

The reverse splits were applied retroactively for all periods presented, reducing the number of Shares outstanding for each of the Funds, 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 each of the Funds, 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

Each Fund is an investment company, as defined by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 “Financial Services — Investment Companies.” As such, the Funds follow the investment company accounting and reporting guidance. 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 of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

274


Table of Contents

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, 2017 and 2016, and represents non-segregated cash with the custodian and does not include short-term investments.

Final Net Asset Value for Fiscal Period

The cut-off times and the times of the calculation of the Funds’ final net asset value for creation and redemption of fund Shares for the year ended December 31, 2017 were as follows. All times are Eastern Standard Time:

 

     Create/Redeem
Cut-off*
     NAV Calculation
Time
     NAV
Calculation Date
 

UltraShort Silver, Ultra Silver

     6:30 a.m.        7:00 a.m.        December 29  

UltraShort Gold, Ultra Gold

     9:30 a.m.        10:00 a.m.        December 29  

UltraShort Bloomberg Crude Oil,

Ultra Bloomberg Crude Oil,

     2:00 p.m.        2:30 p.m.        December 29  

UltraPro 3x Short Crude Oil,

        

UltraPro 3x Crude Oil ETF

        

UltraShort Bloomberg Natural Gas,

Ultra Bloomberg Natural Gas

     2:00 p.m.      2:30 p.m.        December 29  

UltraShort Australian Dollar

     3:00 p.m.        4:00 p.m.        December 29  

Short Euro

UltraShort Euro,

Ultra Euro

     3:00 p.m.        4:00 p.m.        December 29  

UltraShort Yen,

Ultra Yen

     3:00 p.m.        4:00 p.m.        December 29  

VIX Short-Term Futures ETF,

Ultra VIX Short-Term Futures ETF,

Short VIX Short-Term Futures ETF

     2:00 p.m.        4:15 p.m.        December 29  

VIX Mid-Term Futures ETF

     2:00 p.m.        4:15 p.m.        December 29  

 

* Although the 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, 2017.

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 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 of the Funds’ final creation/redemption NAV for the year ended December 31, 2017.

 

275


Table of Contents

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 generally be 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 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 Funds’ policies are intended to result in a calculation of its respective Fund’s NAV that fairly reflects investment values as of the time of pricing, such 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 such 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.

 

276


Table of Contents

The following table summarizes the valuation of investments at December 31, 2017 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  

Short Euro

   $ 6,996,235      $ (166,288   $ —       $ —       $ —       $ 6,829,947  

Short VIX Short-Term Futures ETF

     494,910,644        17,041,449       —         —         —         511,952,093  

Ultra Bloomberg Crude Oil

     459,515,902        11,945,979       —         —         62,238,361       533,700,242  

Ultra Bloomberg Natural Gas

     50,961,356        7,225,810       —         —         —         58,187,166  

Ultra Euro

     6,996,235        —         —         264,152       —         7,260,387  

Ultra Gold

     88,884,844        5,480       3,646,355       —         —         92,536,679  

Ultra Silver

     235,581,716        1,600       21,735,334       —         —         257,318,650  

Ultra VIX Short-Term Futures ETF

     287,533,132        (34,466,120     —         —         —         253,067,012  

Ultra Yen

     1,997,933        —         —         (34,824     —         1,963,109  

UltraShort Australian Dollar

     11,983,904        (893,220     —         —         —         11,090,684  

UltraPro 3X Crude Oil ETF

     —          1,417,998       —         —         —         1,417,998  

UltraPro 3X Short Crude Oil ETF

     —          (2,988,155     —         —         —         (2,988,155

UltraShort Bloomberg Crude Oil

     253,646,823        (3,962,648     —         —         (30,607,142     219,077,033  

UltraShort Bloomberg Natural Gas

     3,999,751        (1,097,049     —         —         —         2,902,702  

UltraShort Euro

     204,770,166        —         —         (6,344,269     —         198,425,897  

UltraShort Gold

     31,977,900        (5,460     (1,488,259     —         —         30,484,181  

UltraShort Silver

     18,349,861        (1,650     (1,716,163     —         —         16,632,048  

UltraShort Yen

     131,834,352        —         —         1,527,263       —         133,361,615  

VIX Mid-Term Futures ETF

     20,993,515        (2,215,280     —         —         —         18,778,235  

VIX Short-Term Futures ETF

     134,845,604        (4,761,877     —         —         —         130,083,727  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Trust

   $ 2,445,779,873      $ (12,919,431   $ 22,177,267     $ (4,587,678   $ 31,631,219     $ 2,482,081,250  

 

* 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, 2017, there were no Level III portfolio investments for which significant unobservable inputs were used to determine fair value.

The Funds’ policy is to recognize transfers between valuation levels at the end of the reporting period.

At December 31, 2017, there were no significant transfers in or out of Level I and Level II fair value measurements.

The inputs or methodology used for valuing investments are not necessarily an indication of the risk associated with investing in those securities.

 

277


Table of Contents

The following table summarizes the valuation of investments at December 31, 2016 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  

Short Euro

   $ 13,164,828      $ 132,900     $ —       $ —       $ —       $ 13,297,728  

Short VIX Short-Term Futures ETF

     170,396,436        (10,309,611     —         —         —         160,086,825  

Ultra Bloomberg Crude Oil

     885,050,007        5,537,165       —         —         55,358,571       945,945,743  

Ultra Bloomberg Natural Gas

     36,183,648        2,536,720       —         —         —         38,720,368  

Ultra Euro

     11,891,831        —         —         (574,010     —         11,317,821  

Ultra Gold

     95,356,621        (18,960     (4,431,107     —         —         90,906,554  

Ultra Silver

     295,300,799        (27,360     (20,976,189     —         —         274,297,250  

Ultra VIX Short-Term Futures ETF

     434,671,795        (7,972,237     —         —         —         426,699,558  

Ultra Yen

     5,282,879        —         —         (342,076     —         4,940,803  

UltraShort Australian Dollar

     12,909,619        1,182,340       —         —         —         14,091,959  

UltraShort Bloomberg Crude Oil

     205,694,385        (1,426,815     —         —         (12,206,881     192,060,689  

UltraShort Bloomberg Natural Gas

     2,899,151        (482,031     —         —         —         2,417,120  

UltraShort Euro

     337,375,787        —         —         16,162,931       —         353,538,718  

UltraShort Gold

     60,540,555        18,980       3,033,566       —         —         63,593,101  

UltraShort Silver

     21,550,319        27,310       1,384,246       —         —         22,961,875  

UltraShort Yen

     257,102,313        —         —         16,744,937       —         273,847,250  

VIX Mid-Term Futures ETF

     45,486,235        (1,288,245     —         —         —         44,197,990  

VIX Short-Term Futures ETF

     147,991,233        (468,652     —         —         —         147,522,581  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Trust

   $ 3,038,848,441      $ (12,558,496   $ (20,989,484   $ 31,991,782     $ 43,151,690     $ 3,080,443,933  

 

* 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, 2016, there were no Level III portfolio investments for which significant unobservable inputs were used to determine fair value.

The Funds’ policy is to recognize transfers between valuation levels at the end of the reporting period.

At December 31, 2016, there were no significant transfers in or out of Level I and Level II fair value measurements.

The inputs or methodology used for valuing investments are not necessarily an indication of the risk associated with investing in those securities.

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 (“CFTC”) 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 would also be borne by the Funds. Brokerage commissions on futures contracts are

 

278


Table of Contents

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). The Sponsor is currently paying brokerage commissions on VIX futures contracts for the Matching VIX Funds that exceed variable create/redeem fees collected by more than 0.02% of the Matching VIX Fund’s average net assets annually.

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.

New Accounting Pronouncements

In November 2016, the FASB issued Accounting Standards Update No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” (“ASU 2016-18”), which amends ASC 230 to provide guidance on the classification and presentation of changes in restricted cash and restricted cash equivalents on the statement of cash flows. The ASU is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. At this time, management is evaluating the implications of these changes on the financial statements.

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.

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.

 

279


Table of Contents

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 and/or securities 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 and/or securities. 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 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.

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 level of the benchmark increases and would be required to make payments to the swap counterparties in the event the level of 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 level of the benchmark increases and would be entitled to settlement payments in the event the level of the benchmark decreases, adjusted for any transaction costs or trading spreads on the notional amount the Funds may pay.

 

280


Table of Contents

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 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, 2017 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.

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, 2017, the collateral posted by counterparties consisted of cash and/or U.S. Treasury securities.

 

281


Table of Contents

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. As a result of the Dodd-Frank Act, the CFTC now regulates non-deliverable forwards (including deliverable forwards where the parties do not take delivery). Certain non-deliverable forward contracts, such as non-deliverable foreign exchange forwards, may be subject to regulation as swap agreements, including mandatory clearing. Changes in the forward markets may entail increased costs and result in burdensome reporting requirements.

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, 2017, the collateral posted by counterparties consisted of cash and/or U.S. Treasury securities.

Participants in trading foreign exchange forward contracts often do not require margin deposits, but rely upon internal credit limitations and their judgments regarding the creditworthiness of their counterparties. 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.

 

282


Table of Contents

The following tables indicate the location of derivative related items on the Statement of Financial Condition as well as the effect of derivative instruments on the Statement of Operations during the reporting period.

Fair Value of Derivative Instruments

as of December 31, 2017

 

   

Assets 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
 

VIX Futures Contracts

 

Receivables on open futures contracts

 

ProShares Short VIX Short-Term Futures ETF

  $ 21,493,549  

Payable on open futures contracts

 

ProShares Short VIX Short-Term Futures ETF

  $ 4,452,100
   

ProShares Ultra VIX Short-Term Futures ETF

    3,974,642    

ProShares Ultra VIX Short-Term Futures ETF

    38,440,762
   

ProShares VIX Short-Term Futures ETF

    709,708    

ProShares VIX Mid-Term Futures ETF

    2,215,280
         

ProShares VIX Short-Term Futures ETF

    5,471,585

Commodities Contracts

 

Receivables on open futures contracts, unrealized appreciation on swap and/or forward agreements

 

ProShares Ultra Bloomberg Crude Oil

    74,184,340  

Payable on open futures contracts, unrealized depreciation on swap and/or forward agreements

 

ProShares UltraPro 3x Short Crude Oil ETF

    2,988,155
   

ProShares Ultra Bloomberg Natural Gas

    7,225,810    

ProShares UltraShort Bloomberg Crude Oil

    34,569,790
   

ProShares Ultra Gold

    3,651,835    

ProShares UltraShort Bloomberg Natural Gas

    1,097,049
   

ProShares Ultra Silver

    21,736,934    

ProShares UltraShort Gold

    1,493,719
   

ProShares UltraPro 3x Crude Oil ETF

    1,417,998    

ProShares UltraShort Silver

    1,717,813

Foreign Exchange Contracts

 

Unrealized appreciation on foreign currency forward contracts and receivables on open futures contracts

 

ProShares Ultra Euro

    321,609    

Unrealized depreciation on foreign currency forward contracts and payable on open futures contracts

 

ProShares Short Euro

    166,288
   

ProShares UltraShort Euro

    449,302      

ProShares Ultra Euro

    57,457  
   

ProShares UltraShort Yen

    1,568,997      

ProShares Ultra Yen

    34,824  
         

ProShares UltraShort Australian Dollar

    893,220
         

ProShares UltraShort Euro

    6,793,571  
         

ProShares UltraShort Yen

    41,734  
     

 

 

       

 

 

 
   

Total Trust

  $ 136,734,724    

Total Trust

  $ 100,433,347

 

* 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.

 

283


Table of Contents

Fair Value of Derivative Instruments

as of December 31, 2016

 

   

Assets 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
 

VIX Futures Contracts

 

Receivables on open futures contracts

 

ProShares VIX Short-Term Futures ETF

  $ 2,273,874  

Payable on open futures contracts

 

ProShares VIX Short-Term Futures ETF

  $ 2,742,526
   

ProShares VIX Mid-Term Futures ETF

    68,375    

ProShares VIX Mid-Term Futures ETF

    1,356,620
   

ProShares Ultra VIX Short-Term Futures ETF

    13,594,875    

ProShares Short VIX Short-Term Futures ETF

    10,309,611
         

ProShares Ultra VIX Short-Term Futures ETF

    21,567,112

Commodities Contracts

 

Receivables on open futures contracts, unrealized appreciation on swap and/or forward agreements

 

ProShares UltraShort Gold

    3,052,546  

Payable on open futures contracts, unrealized depreciation on swap and/or forward agreements

 

ProShares UltraShort Bloomberg Crude Oil

    13,633,696
   

ProShares UltraShort Silver

    1,411,556    

ProShares UltraShort Bloomberg Natural Gas

    482,031
   

ProShares Ultra Bloomberg Crude Oil

    60,895,736    

ProShares Ultra Gold

    4,450,067
   

ProShares Ultra Bloomberg Natural Gas

    2,536,720    

ProShares Ultra Silver

    21,003,549

Foreign Exchange Contracts

 

Unrealized appreciation on foreign currency forward contracts and receivables on open futures contracts

 

ProShares Short Euro

    132,900  

Unrealized depreciation on foreign currency forward contracts and payable on open futures contracts

 

ProShares UltraShort Euro

    356,139  
   

ProShares UltraShort Australian Dollar

    1,182,340    

ProShares UltraShort Yen

    125,420  
   

ProShares UltraShort Euro

    16,519,070      

ProShares Ultra Euro

    576,558  
   

ProShares UltraShort Yen

    16,870,357      

ProShares Ultra Yen

    342,455  
   

ProShares Ultra Euro

    2,548        
   

ProShares Ultra Yen

    379        
     

 

 

       

 

 

 
   

Total Trust

  $ 118,541,276    

Total Trust

  $ 76,945,784

 

* 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.

 

284


Table of Contents

The Effect of Derivative Instruments on the Statements of Operations

For the year ended December 31, 2017

 

Derivatives not accounted

for as hedging instruments

  

Location of Gain

(Loss) on Derivatives

Recognized in Income

  

Fund

   Realized Gain
(Loss) on
Derivatives

Recognized in
Income
    Change in
Unrealized
Appreciation/
Depreciation on
Derivatives
Recognized  in
Income
 

VIX Futures Contracts

  

Net realized gain (loss) on futures contracts/ changes in unrealized appreciation/ depreciation on futures contracts

  

ProShares Short VIX Short-Term Futures ETF

   $ 897,400,516     $ 27,351,060  
     

ProShares Ultra VIX Short-Term Futures ETF

     (1,020,750,851     (26,493,883
     

ProShares VIX Mid-Term Futures ETF

     (25,319,770     (927,035
     

ProShares VIX Short-Term Futures ETF

     (194,005,568     (4,293,225

Commodity Contracts

  

Net realized gain (loss) on futures contracts, swap and/or forward agreements/changes in unrealized appreciation/ depreciation on futures contracts, swap and/or forward agreements

  

ProShares Ultra Bloomberg Crude Oil

     22,146,212       13,288,604  
     

ProShares Ultra Bloomberg Natural Gas

     (40,793,265     4,689,090  
     

ProShares Ultra Gold

     11,484,410       8,101,902  
     

ProShares Ultra Silver

     (31,762,834     42,740,483  
     

ProShares UltraPro 3x Crude Oil ETF

     6,018,618       1,417,998  
     

ProShares UltraPro 3x Short Crude Oil ETF

     (7,046,628     (2,988,155
     

ProShares UltraShort Bloomberg Crude Oil

     (6,491,060     (20,936,094
     

ProShares UltraShort Bloomberg Natural Gas

     4,762,532       (615,018
     

ProShares UltraShort Gold

     (6,993,557     (4,546,265
     

ProShares UltraShort Silver

     1,153,393       (3,129,369

Foreign Exchange Contracts

  

Net realized gain (loss) on futures and/or foreign currency forward contracts/changes in unrealized appreciation/ depreciation on futures and/or foreign currency forward contracts

  

ProShares Short Euro

     (1,161,987     (299,188
     

ProShares Ultra Euro

     2,212,313       838,162  
     

ProShares Ultra Yen

     (46,195     307,252  
     

ProShares UltraShort Australian Dollar

     (866,771     (2,075,560
     

ProShares UltraShort Euro

     (39,691,680     (22,507,200
     

ProShares UltraShort Yen

     (8,729,472     (15,217,674
        

 

 

   

 

 

 
     

Total Trust

   $ (438,481,644   $ (5,294,115

 

285


Table of Contents

The Effect of Derivative Instruments on the Statements of Operations

For the year ended December 31, 2016

 

Derivatives not accounted for as

hedging instruments

  

Location of Gain (Loss) on
Derivatives Recognized in Income

  

Fund

   Realized Gain
(Loss) on
Derivatives

Recognized in
Income
    Change in
Unrealized
Appreciation/
Depreciation on
Derivatives
Recognized  in
Income
 

VIX Futures Contracts

  

Net realized gain (loss) on futures contracts/ changes in unrealized appreciation/ depreciation on futures contracts

  

ProShares VIX Short-Term Futures ETF

   $ (195,475,791     609,973  
     

ProShares VIX Mid-Term Futures ETF

     (11,085,506     (943,885
     

ProShares Short VIX

Short-Term Futures ETF

     440,391,389       (21,056,026
     

ProShares Ultra VIX

Short-Term Futures ETF

     (1,567,340,688     (19,866,703

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 Bloomberg Crude Oil

     (67,752,164     (22,510,865
     

ProShares UltraShort Bloomberg Natural Gas

     586,860       1,989,133  
     

ProShares UltraShort Gold

     (12,240,751     1,238,384  
     

ProShares UltraShort Silver

     (17,554,714     (3,372,693
     

ProShares Ultra Bloomberg Crude Oil

     74,061,040       151,001,639  
     

ProShares Ultra Bloomberg Natural Gas

     17,571,809       (3,776,159
     

ProShares Ultra Gold

     5,816,565       (2,194,272
     

ProShares Ultra Silver

     62,342,441       1,566,582  

Foreign Exchange Contracts

  

Net realized gain (loss) on futures and/or foreign currency forward contracts/changes in unrealized appreciation/ depreciation on futures and/or foreign currency forward contracts

  

ProShares Short Euro

     663,774       (110,538
     

ProShares UltraShort Australian Dollar

     (2,787,204     1,602,610  
     

ProShares UltraShort Euro

     (25,711,518     44,873,267  
     

ProShares UltraShort Yen

     (22,220,271     30,640,389  
     

ProShares Ultra Euro

     138,959       (1,178,930
     

ProShares Ultra Yen

     717,086       (603,387
        

 

 

   

 

 

 
     

Total Trust

   $ (1,319,878,684     157,908,519  

 

286


Table of Contents

The Effect of Derivative Instruments on the Statements of Operations

For the year ended December 31, 2015

 

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
 

VIX Futures Contracts

  

Net realized gain (loss) on futures contracts / changes in unrealized appreciation/ depreciation on futures contracts

  

ProShares VIX Short-Term Futures ETF

   $ (19,408,543   $ (7,343,245
     

ProShares VIX Mid-Term Futures ETF

     (3,335,936     (605,025
     

ProShares Short VIX

Short-Term Futures ETF

     69,793,028       27,098,564  
     

ProShares Ultra VIX

Short-Term Futures ETF

     (392,174,228     (27,690,787

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 Bloomberg Crude Oil

     91,670,324       (33,947,511
     

ProShares UltraShort Bloomberg Natural Gas

     15,212,804       (6,412,629
     

ProShares UltraShort Gold

     12,707,635       4,101,460  
     

ProShares UltraShort Silver

     10,759,545       4,187,736  
     

ProShares Ultra Bloomberg Crude Oil

     (896,177,096     32,549,981  
     

ProShares Ultra Bloomberg Natural Gas

     (100,776,817     41,202,162  
     

ProShares Ultra Gold

     (18,605,815     (4,311,529
     

ProShares Ultra Silver

     (78,309,309     (10,173,451

Foreign Exchange Contracts

  

Net realized gain (loss) on futures and/or foreign currency forward contracts/changes in unrealized appreciation/ depreciation on futures and/or foreign currency forward contracts

  

ProShares Short Euro

     1,559,425       (141,893
     

ProShares UltraShort Australian Dollar

     4,330,463       (1,163,751
     

ProShares UltraShort Euro

     131,651,572       (45,473,330
     

ProShares UltraShort Yen

     8,809,464       (12,316,677
     

ProShares Ultra Euro

     (1,982,208     708,291  
     

ProShares Ultra Yen

     (472,913     276,556  
        

 

 

   

 

 

 
     

Total Trust*

   $ (1,164,748,605   $ (39,455,078

 

* Amounts exclude the activity of: ProShares Managed Futures Strategy which liquidated on March 30, 2016, ProShares UltraShort Bloomberg Commodity and ProShares Ultra Bloomberg Commodity which liquidated on September 1, 2016.

 

287


Table of Contents

Offsetting Assets and Liabilities

Each Fund is subject to master netting agreements or similar arrangements that allow for amounts owed between each Fund 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 Statements of Financial Condition do not take into consideration the effects of legally enforceable master netting agreements or similar arrangements.

For financial reporting purposes, the Funds do not offset derivative assets and derivative liabilities that are subject to netting arrangements in the Statements 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, 2017:

 

Fair Values of Derivative Instruments as of December 31, 2017

 
     Assets      Liabilities  
     Gross
Amounts of
Recognized
Assets
presented in
the Statements
of Financial
Condition
     Gross
Amounts
Offset in
the the
Statements
of Financial
Condition
     Net Amounts
of Assets
presented in
the Statements
of Financial
Condition
     Gross
Amounts of
Recognized
Liabilities
presented in
the Statements
of Financial
Condition
     Gross
Amounts
Offset in
the Statements
of Financial
Condition
     Net Amounts
of Liabilities
presented in
the Statements
of Financial
Condition
 

ProShares Ultra Bloomberg Crude Oil

                 

Swap agreements

   $ 62,238,361      $ —        $ 62,238,361      $ —        $ —        $ —    

ProShares Ultra Euro

                 

Foreign currency forward contracts

     321,609        —          321,609        57,457        —          57,457  

ProShares Ultra Gold

                 

Forward agreements

     3,646,355        —          3,646,355        —          —          —    

ProShares Ultra Silver

                 

Forward agreements

     21,735,334        —          21,735,334        —          —          —    

ProShares UltraShort Bloomberg Crude Oil

                 

Swap agreements

     —          —          —          30,607,142        —          30,607,142  

ProShares UltraShort Euro

                 

Foreign currency forward contracts

     449,302        —          449,302        6,793,571        —          6,793,571  

ProShares UltraShort Gold

                 

Forward agreements

     —          —          —          1,488,259        —          1,488,259  

ProShares UltraShort Silver

                 

Forward agreements

     —          —          —          1,716,163        —          1,716,163  

ProShares UltraShort Yen

                 

Foreign currency forward contracts

     1,568,997        —          1,568,997        41,734        —          41,734  

ProShares Ultra Yen

                 

Foreign currency forward contracts

     —          —          —          34,824        —          34,824  

Asset (Liability) amounts shown in the table below represent amounts owed to (by) the Funds for the derivative-related investments at December 31, 2017. 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 uncollateralized 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 “Accounting for Derivative Instruments”.

 

288


Table of Contents

Gross Amounts Not Offset in the Statements of Financial Condition as of December 31, 2017

 

     Amounts of
Recognized
Assets /
(Liabilities)
presented in the
Statements  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 Ultra Bloomberg Crude Oil

        

Citibank N.A.

   $ 19,815,892     $ —       $ —       $ 19,815,892  

Goldman Sachs International

     16,654,031       (14,861,090     —         1,792,941  

Societe Generale S.A.

     9,003,519       (8,525,505     —         478,014  

UBS AG

     16,764,919       (15,477,566     —         1,287,353  

ProShares Ultra Euro

        

Goldman Sachs International

     102,424       —         —         102,424  

UBS AG

     161,728       —         —         161,728  

ProShares Ultra Gold

        

Citibank N.A.

     1,513,310       —         —         1,513,310  

Goldman Sachs International

     969,501       (967,678     (1,823     —    

Societe Generale S.A.

     218,319       —         —         218,319  

UBS AG

     945,225       (945,225     —         —    

ProShares Ultra Silver

        

Citibank N.A.

     7,201,744       —         —         7,201,744  

Goldman Sachs International

     5,873,080       (4,903,696     —         969,384  

Societe Generale S.A.

     2,761,817       (2,516,153     —         245,664  

UBS AG

     5,898,693       (4,930,596     —         968,097  

ProShares UltraShort Bloomberg Crude Oil

        

Citibank N.A.

     (10,173,164     10,173,164       —         —    

Goldman Sachs International

     (9,242,398     9,242,398       —         —    

Societe Generale S.A.

     (1,904,113     1,904,113       —         —    

UBS AG

     (9,287,467     9,287,467       —         —    

ProShares UltraShort Euro

        

Goldman Sachs International

     (3,297,612     259,612       3,038,000       —    

UBS AG

     (3,046,657     3,046,657       —         —    

ProShares UltraShort Gold

        

Citibank N.A.

     (554,559     554,559       —         —    

Goldman Sachs International

     (428,358     428,358       —         —    

Societe Generale S.A.

     (126,928     126,928       —         —    

UBS AG

     (378,414     378,414       —         —    

ProShares UltraShort Silver

        

Citibank N.A.

     (632,593     632,593       —         —    

Goldman Sachs International

     (486,240     —         486,240       —    

Societe Generale S.A.

     (115,305     115,305       —         —    

UBS AG

     (482,025     482,025       —         —    

ProShares UltraShort Yen

        

Goldman Sachs International

     821,317       (810,030     —         11,287  

UBS AG

     705,946       —         (705,946     —    

ProShares Ultra Yen

        

Goldman Sachs International

     (17,410     17,410       —         —    

UBS AG

     (17,414     17,414       —         —    

 

289


Table of Contents

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, 2016:

 

Fair Values of Derivative Instruments as of December 31, 2016

 
     Assets      Liabilities  
     Gross
Amounts of
Recognized
Assets
presented in
the Statements
of Financial
Condition
     Gross
Amounts
Offset in
the the
Statements
of Financial
Condition
     Net Amounts
of Assets
presented in
the Statements
of Financial
Condition
     Gross
Amounts of
Recognized
Liabilities
presented in
the Statements
of Financial
Condition
     Gross
Amounts
Offset in
the
Statements
of Financial
Condition
     Net Amounts
of Liabilities
presented in
the Statements
of Financial
Condition
 

ProShares Ultra Bloomberg Crude Oil

                 

Swap agreements

   $ 55,358,571      $ —        $ 55,358,571      $ —        $ —        $ —    

ProShares Ultra Euro

                 

Foreign currency forward contracts

     2,548        —          2,548        576,558        —          576,558  

ProShares Ultra Gold

                 

Forward agreements

     —          —          —          4,431,107        —          4,431,107  

ProShares Ultra Silver

                 

Forward agreements

     —          —          —          20,976,189        —          20,976,189  

ProShares UltraShort Bloomberg Crude Oil

                 

Swap agreements

     —          —          —          12,206,881        —          12,206,881  

ProShares UltraShort Euro

                 

Foreign currency forward contracts

     16,519,070        —          16,519,070        356,139        —          356,139  

ProShares UltraShort Gold

                 

Forward agreements

     3,033,566        —          3,033,566        —          —          —    

ProShares UltraShort Silver

                 

Forward agreements

     1,384,246        —          1,384,246        —          —          —    

ProShares UltraShort Yen

                 

Foreign currency forward contracts

     16,870,357        —          16,870,357        125,420        —          125,420  

ProShares Ultra Yen

                 

Foreign currency forward contracts

     379        —          379        342,455        —          342,455  

Asset (Liability) amounts shown in the table below represent amounts owed to (by) the Funds for the derivative-related investments at December 31, 2016. 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 uncollateralized 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 “Accounting for Derivative Instruments”.

 

290


Table of Contents

Gross Amounts Not Offset in the Statements of Financial Condition as of December 31, 2016

 

 

     Amounts of
Recognized
Assets /
(Liabilities)
presented in the
Statements  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 Ultra Bloomberg Crude Oil

        

Citibank N.A.

   $ 18,427,009     $ —       $ —       $ 18,427,009

Goldman Sachs International

     14,016,906       (14,016,906     —         —    

Societe Generale S.A.

     8,661,821       (8,661,821     —         —    

UBS AG

     14,252,835       —         (14,252,835     —    

ProShares Ultra Euro

        

Goldman Sachs International

     (239,256     239,256       —         —    

UBS AG

     (334,754     334,754       —         —    

ProShares Ultra Gold

        

Citibank N.A.

     (1,464,982     1,464,982       —         —    

Goldman Sachs International

     (1,112,916     1,112,916       —         —    

Societe Generale S.A.

     (643,587     643,587       —         —    

UBS AG

     (1,209,622     1,209,622       —         —    

ProShares Ultra Silver

        

Citibank N.A.

     (6,946,009     6,946,009       —         —    

Goldman Sachs International

     (5,869,092     5,869,092       —         —    

Societe Generale S.A.

     (2,532,729     2,532,729       —         —    

UBS AG

     (5,628,359     5,628,359       —         —    

ProShares UltraShort Bloomberg Crude Oil

        

Citibank N.A.

     (4,742,191     4,742,191     —         —    

Goldman Sachs International

     (3,061,395     3,061,395       —         —    

Societe Generale S.A.

     (1,050,699     1,050,699       —         —    

UBS AG

     (3,352,596     3,352,596       —         —    

ProShares UltraShort Euro

        

Goldman Sachs International

     8,109,067       (8,109,067     —         —    

UBS AG

     8,053,864       —         (8,053,864     —    

ProShares UltraShort Gold

        

Citibank N.A.

     1,147,811       —         —         1,147,811  

Goldman Sachs International

     881,454       (874,948     —         6,506  

Societe Generale S.A.

     393,006       (393,006     —         —    

UBS AG

     611,295       —         (611,295     —    

ProShares UltraShort Silver

        

Citibank N.A.

     610,478       —         —         610,478  

Goldman Sachs International

     323,829       (323,829     —         —    

Societe Generale S.A.

     86,543       (86,543     —         —    

UBS AG

     363,396       —         (363,396     —    

ProShares UltraShort Yen

        

Goldman Sachs International

     8,256,779       (7,771,819     —         484,960

UBS AG

     8,488,158       —         (7,980,000     508,158

ProShares Ultra Yen

        

Goldman Sachs International

     (219,736     219,736       —         —    

UBS AG

     (122,340     122,340       —         —    

 

291


Table of Contents

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 the Management Fee in the first year of operation of each Fund in an amount equal to the offering costs. The Sponsor reimbursed and will be reimburse 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 all of the routine operational, administrative and other ordinary expenses of each Fund, generally as determined by the Sponsor, including but not limited to the Administrator, Custodian, Distributor, ProFunds Distributors, Inc. (“PDI”), an affiliated broker-dealer of the Sponsor, Transfer Agent, accounting and auditing fees and expenses, any index licensors for the Funds, 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 Schedule 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.

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 that 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.

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.

 

292


Table of Contents

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. The Sponsor pays SEI for performing its duties on behalf of the Funds.

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 will not charge its Management Fee in the first year of operations of a Fund in an amount equal to the offering costs. Normal and expected expenses incurred in connection with the continuous offering of Shares of a Fund after the commencement of its trading operations will be paid by the Sponsor. The Sponsor will reimburse ProShares UltraPro 3x Crude Oil ETF and ProShares UltraPro 3x Short Crude Oil ETF to the extent their respective offering costs exceeds 0.95% of their 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 $250 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% (and a variable transaction fee to the Matching VIX Funds of 0.05%) 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.

 

293


Table of Contents

Transaction fees for the years ended December 31, 2017, 2016 and 2015 which are included in the Addition and/or Redemption of Shares on the Statements of Changes in Shareholders’ Equity, were as follows:

 

Fund    Year Ended
December 31, 2017
     Year Ended
December 31, 2016
     Year Ended
December 31, 2015
 

Short Euro

   $ —        $ —        $ —    

Short VIX Short-Term Futures ETF

     1,008,452        801,564        342, 734  

Ultra Bloomberg Crude Oil

     610,969        504,533        847,422  

Ultra Bloomberg Natural Gas

     15,937        9,175        13,939  

Ultra Euro

     —          —          —    

Ultra Gold

     14,460        14,138        4,218  

Ultra Silver

     28,622        47,414        38,848  

Ultra VIX Short-Term Futures ETF

     1,036,162        1,822,247        1,391,292  

Ultra Yen

     —          —          —    

UltraPro 3X Crude Oil ETF

     25,455        —          —    

UltraPro 3X Short Crude Oil ETF

     14,096        —          —    

UltraShort Australian Dollar

     —          —          —    

UltraShort Bloomberg Crude Oil

     207,707        398,027        382,054  

UltraShort Bloomberg Natural Gas

     4,713        8,989        8,853  

UltraShort Euro

     —          —          —    

UltraShort Gold

     15,945        29,854        11,024  

UltraShort Silver

     —          16,729        39,354  

UltraShort Yen

     —          —          —    

VIX Mid-Term Futures ETF

     13,605        24,056        8,521  

VIX Short-Term Futures ETF

     142,380        229,699        105,024  
  

 

 

    

 

 

    

 

 

 

Total Trust*

   $ 3,138,503      $ 3,906,425      $ 3,193,283  

 

* Amounts exclude the activity of ProShares Ultra Australian Dollar which liquidated on June 29, 2015, ProShares Managed Futures Strategy which liquidated on March 30, 2016, ProShares UltraShort Bloomberg Commodity and ProShares Ultra Bloomberg Commodity which liquidated on September 1, 2016.

 

294


Table of Contents

NOTE 7 – FINANCIAL HIGHLIGHTS

Selected data for a Share outstanding throughout the year ended December 31, 2017:

For the Year Ended December 31, 2017

 

Per Share Operating

Performance

   Short Euro     Short VIX
Short-Term
Futures ETF*
    Ultra Bloomberg
Crude Oil
    Ultra Bloomberg
Natural Gas
    Ultra Euro     Ultra Gold  

Net asset value, at December 31, 2016

   $ 45.06     $ 45.62     $ 23.34     $ 18.85     $ 14.02     $ 32.90  

Net investment income (loss)

     (0.14     (0.60     (0.03     (0.05     (0.04     (0.06

Net realized and unrealized gain (loss)#

     (4.96     82.28       0.35       (12.27     3.46       7.04  

Change in net asset value from operations

     (5.10     81.68       0.32       (12.32     3.42       6.98  

Net asset value, at December 31, 2017

   $ 39.96     $ 127.30     $ 23.66     $ 6.53     $ 17.44     $ 39.88  

Market value per share, at December 31, 2016†

   $ 45.12     $ 45.49     $ 23.36     $ 18.96     $ 14.09     $ 33.20  

Market value per share, at December 31, 2017†

   $ 39.99     $ 128.21     $ 23.44     $ 6.50     $ 17.46     $ 40.67  

Total Return, at net asset value

     (11.3 )%      179.0     1.4     (65.4 )%      24.4     21.2

Total Return, at market value

     (11.4 )%      181.8     0.3     (65.7 )%      23.9     22.5

Ratios to Average Net Assets

            

Expense ratio

     0.97     1.51     0.98     1.22     0.95     0.95

Expense ratio, excluding brokerage commissions and fees

     0.95     0.95     0.95     0.95     0.95     0.95

Net investment income (loss)

     (0.32 )%      (0.71 )%      (0.18 )%      (0.50 )%      (0.23 )%      (0.14 )% 

 

* 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.

 

295


Table of Contents

For the Year Ended December 31, 2017

 

Per Share Operating

Performance

   Ultra Silver     Ultra VIX
Short-Term
Futures ETF*
    Ultra Yen     UltraPro 3X Crude
Oil ETF+
    UltraPro 3X Short
Crude Oil ETF+
    UltraShort
Australian
Dollar
 

Net asset value, at

December 31, 2016

   $ 33.44     $ 173.93     $ 55.43     $ 25.00     $ 25.00     $ 55.38  

Net investment income (loss)

     (0.05     (0.33     (0.24     (0.21     (0.17     (0.17

Net realized and unrealized gain (loss)#

     0.16       (163.27     2.13       12.99       (14.25     (9.54

Change in net asset value from operations

     0.11       (163.60     1.89       12.78       (14.42     (9.71

Net asset value, at December 31, 2017

   $ 33.55     $ 10.33     $ 57.32     $ 37.78     $ 10.58     $ 45.67  

Market value per share, at December 31, 2016†

   $ 32.09     $ 175.00     $ 55.52     $ 25.00     $ 25.00     $ 55.24  

Market value per share, at December 31, 2017†

   $ 33.85     $ 10.21     $ 57.45     $ 37.23     $ 10.72     $ 45.72  

Total Return, at net asset value

     0.3     (94.1 )%      3.4     51.1 %^      (57.7 )%^      (17.5 )% 

Total Return, at market value

     5.5     (94.2 )%      3.5     48.9 %^      (57.1 )%^      (17.2 )% 

Ratios to Average Net Assets

            

Expense ratio

     0.95     1.90     0.95     1.30 %**      1.32 %**      1.02

Expense ratio, excluding brokerage commissions and fees

     0.95     0.95     0.95     0.95 %**      0.95 %**      0.95

Net investment income (loss)

     (0.15 )%      (1.17 )%      (0.41 )%      (1.20 )%**      (1.25 )%**      (0.36 )% 

 

* See Note 1 of these Notes to Financial Statements.
+ From commencement of operations, March 24, 2017 through December 31, 2017.
# 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. For ProShares UltraPro 3x Crude Oil ETF and ProShares UltraPro 3x Short Crude Oil ETF, the returns of shares outstanding for the period from commencement of operations through December 31, 2017 are calculated based on the initial offering price upon commencement of operations of $25.00.
^ Percentages are not annualized for the period ended December 31, 2017.
** Percentages are annualized.

 

296


Table of Contents

For the Year Ended December 31, 2017

 

Per Share Operating

Performance

   UltraShort
Bloomberg
Crude Oil
    UltraShort
Bloomberg
Natural Gas
    UltraShort Euro     UltraShort Gold     UltraShort
Silver
    UltraShort Yen  

Net asset value, at December 31, 2016

   $ 31.70     $ 23.10     $ 27.08     $ 91.33     $ 37.31     $ 80.24  

Net investment income (loss)

     (0.06     (0.27     (0.04     (0.13     (0.06     (0.14

Net realized and unrealized gain (loss)#

     (7.33     16.65       (5.83     (20.73     (5.54     (5.17

Change in net asset value from operations

     (7.39     16.38       (5.87     (20.86     (5.60     (5.31

Net asset value, at December 31, 2017

   $ 24.31     $ 39.48     $ 21.21     $ 70.47     $ 31.71     $ 74.93  

Market value per share, at December 31, 2016†

   $ 31.65     $ 23.05     $ 27.08     $ 90.54     $ 38.76     $ 80.25  

Market value per share, at December 31, 2017†

   $ 24.56     $ 39.65     $ 21.20     $ 69.11     $ 31.40     $ 74.98  

Total Return, at net asset value

     (23.3 )%      70.9     (21.7 )%      (22.8 )%      (15.0 )%      (6.6 )% 

Total Return, at market value

     (22.4 )%      72.0     (21.7 )%      (23.7 )%      (19.0 )%      (6.6 )% 

Ratios to Average Net Assets

            

Expense ratio

     0.99     1.39     0.95     0.95     0.95     0.95

Expense ratio, excluding brokerage commissions and fees

     0.95     0.95     0.95     0.95     0.95     0.95

Net investment income (loss)

     (0.17 )%      (0.81 )%      (0.15 )%      (0.17 )%      (0.18 )%      (0.19 )% 

 

# 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.

 

297


Table of Contents

For the Year Ended December 31, 2017

 

Per Share Operating

Performance

   VIX Mid-Term
Futures ETF
    VIX Short-Term
Futures ETF*
 

Net asset value, at December 31, 2016

   $ 42.14     $ 84.86  

Net investment income (loss)

     (0.06     (0.07

Net realized and unrealized gain (loss)#

     (20.79     (61.45

Change in net asset value from operations

     (20.85     (61.52

Net asset value, at December 31, 2017

   $ 21.29     $ 23.34  

Market value per share, at December 31, 2016†

   $ 42.34     $ 85.04  

Market value per share, at December 31, 2017†

   $ 21.15     $ 23.15  

Total Return, at net asset value

     (49.5 )%      (72.5 )% 

Total Return, at market value

     (50.0 )%      (72.8 )% 

Ratios to Average Net Assets

    

Expense ratio

     0.91     0.96

Expense ratio, excluding brokerage commissions and fees

     0.85     0.85

Net investment income (loss)

     (0.22 )%      (0.18 )% 

 

* 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.

 

298


Table of Contents

Selected data for a Share outstanding throughout the year ended December 31, 2016:

For the Year Ended December 31, 2016

 

Per Share Operating

Performance

   Short Euro     Short VIX
Short-Term
Futures ETF*
    Ultra Bloomberg
Crude Oil*
    Ultra Bloomberg
Natural Gas
    Ultra Euro     Ultra Gold  

Net asset value, at December 31, 2015

   $ 43.78     $ 25.41     $ 25.15     $ 18.57     $ 15.51     $ 29.73  

Net investment income (loss)

     (0.33     (0.30     (0.15     (0.16     (0.11     (0.28

Net realized and unrealized gain (loss)#

     1.61       20.51       (1.66     0.44       (1.38     3.45  

Change in net asset value from operations

     1.28       20.21       (1.81     0.28       (1.49     3.17  

Net asset value, at December 31, 2016

   $ 45.06     $ 45.62     $ 23.34     $ 18.85     $ 14.02     $ 32.90  

Market value per share, at December 31, 2015†

   $ 43.74     $ 25.23     $ 25.08     $ 18.48     $ 15.51     $ 29.73  

Market value per share, at December 31, 2016†

   $ 45.12     $ 45.49     $ 23.36     $ 18.96     $ 14.09     $ 33.20  

Total Return, at net asset value

     2.9     79.5     (7.2 )%      1.5     (9.6 )%      10.7

Total Return, at market value

     3.2     80.3     (6.9 )%      2.6     (9.2 )%      11.7

Ratios to Average Net Assets

            

Expense ratio

     0.97     1.39     1.01     1.34     0.95     0.95

Expense ratio, excluding brokerage commissions

     0.95     0.95     0.95     0.95     0.95     0.95

Net investment income (loss)

     (0.76 )%      (1.15 )%      (0.76 )%      (1.12 )%      (0.71 )%      (0.69 )% 

 

* 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.

 

299


Table of Contents

For the Year Ended December 31, 2016

 

Per Share Operating

Performance

   Ultra Silver     Ultra VIX
Short-Term
Futures ETF*
    Ultra Yen     UltraShort
Australian
Dollar
    UltraShort
Bloomberg
Crude Oil*
    UltraShort
Bloomberg
Natural Gas*
 

Net asset value, at December 31, 2015

   $ 27.06     $ 2,808.40     $ 54.75     $ 58.46     $ 66.60     $ 46.53  

Net investment income (loss)

     (0.27     (7.68     (0.45     (0.43     (0.36     (0.68

Net realized and unrealized gain (loss)#

     6.65       (2,626.79     1.13       (2.65     (34.54     (22.75

Change in net asset value from operations

     6.38       (2,634.47     0.68       (3.08     (34.90     (23.43

Net asset value, at December 31, 2016

   $ 33.44     $ 173.93     $ 55.43     $ 55.38     $ 31.70     $ 23.10  

Market value per share, at December 31, 2015†

   $ 27.08     $ 2,835.00     $ 54.70     $ 58.15     $ 66.82     $ 46.55  

Market value per share, at December 31, 2016†

   $ 32.09     $ 175.00     $ 55.52     $ 55.24     $ 31.65     $ 23.05  

Total Return, at net asset value

     23.6     (93.8 )%      1.2     (5.3 )%      (52.4 )%      (50.4 )% 

Total Return, at market value

     18.5     (93.8 )%      1.5     (5.0 )%      (52.6 )%      (50.5 )% 

Ratios to Average Net Assets

            

Expense ratio

     0.95     1.57     0.95     1.03     1.03     1.65

Expense ratio, excluding brokerage commissions

     0.95     0.85     0.95     0.95     0.95     0.95

Net investment income (loss)

     (0.69 )%      (1.32 )%      (0.69 )%      (0.79 )%      (0.76 )%      (1.43 )% 

 

* 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.

 

300


Table of Contents

For the Year Ended December 31, 2016

 

Per Share Operating

Performance

   UltraShort Euro     UltraShort Gold     UltraShort
Silver
    UltraShort Yen     VIX Mid-Term
Futures ETF
    VIX Short-Term
Futures ETF*
 

Net asset value, at December 31, 2015

   $ 25.54     $ 115.88     $ 64.58     $ 87.94     $ 53.96     $ 264.84  

Net investment income (loss)

     (0.17     (0.55     (0.26     (0.50     (0.33     (1.10

Net realized and unrealized gain (loss)#

     1.71       (24.00     (27.01     (7.20     (11.49     (178.88

Change in net asset value from operations

     1.54       (24.55     (27.27     (7.70     (11.82     (179.98

Net asset value, at December 31, 2016

   $ 27.08     $ 91.33     $ 37.31     $ 80.24     $ 42.14     $ 84.86  

Market value per share, at December 31, 2015†

   $ 25.53     $ 115.83     $ 64.55     $ 87.89     $ 53.99     $ 266.60  

Market value per share, at December 31, 2016†

   $ 27.08     $ 90.54     $ 38.76     $ 80.25     $ 42.34     $ 85.04  

Total Return, at net asset value

     6.0     (21.2 )%      (42.2 )%      (8.8 )%      (21.9 )%      (68.0 )% 

Total Return, at market value

     6.1     (21.8 )%      (40.0 )%      (8.7 )%      (21.6 )%      (68.1 )% 

Ratios to Average Net Assets

            

Expense ratio

     0.95     0.95     0.95     0.95     0.93     0.99

Expense ratio, excluding brokerage commissions

     0.95     0.95     0.95     0.95     0.85     0.85

Net investment income (loss)

     (0.70 )%      (0.70 )%      (0.70 )%      (0.71 )%      (0.68 )%      (0.75 )% 

 

* 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.

 

301


Table of Contents

Selected data for a Share outstanding throughout the year ended December 31, 2015

For the Year Ended December 31, 2015

 

Per Share Operating

Performance

   Short Euro     Short VIX
Short-Term
Futures ETF*
    Ultra Bloomberg
Crude Oil*
    Ultra Bloomberg
Natural Gas*
    Ultra Euro     Ultra Gold  

Net asset value, at December 31, 2014

   $ 40.06     $ 30.70     $ 101.48     $ 61.65     $ 19.87     $ 40.00  

Net investment income (loss)

     (0.40     (0.41     (0.56     (0.50     (0.15     (0.33

Net realized and unrealized gain (loss)#

     4.12       (4.88     (75.77     (42.58     (4.21     (9.94

Change in net asset value from operations

     3.72       (5.29     (76.33     (43.08     (4.36     (10.27

Net asset value, at December 31, 2015

   $ 43.78     $ 25.41     $ 25.15     $ 18.57     $ 15.51     $ 29.73  

Market value per share, at

December 31, 2014†

   $ 40.03     $ 30.58     $ 103.70     $ 63.12     $ 19.80     $ 38.41  

Market value per share, at

December 31, 2015†

   $ 43.74     $ 25.23     $ 25.08     $ 18.48     $ 15.51     $ 29.73  

Total Return, at net asset value

     9.3     (17.2 )%      (75.2 )%      (69.9 )%      (22.0 )%      (25.7 )% 

Total Return, at market value

     9.3     (17.5 )%      (75.8 )%      (70.7 )%      (21.7 )%      (22.6 )% 

Ratios to Average Net Assets

            

Expense ratio

     0.97     1.40     1.02     1.29     0.95     0.95

Expense ratio, excluding brokerage commissions

     0.95     0.95     0.95     0.95     0.95     0.95

Net investment income (loss)

     (0.95 )%      (1.36 )%      (0.98 )%      (1.26 )%      (0.93 )%      (0.90 )% 

 

* 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.

 

 

302


Table of Contents

For the Year Ended December 31, 2015

 

Per Share Operating

Performance

   Ultra Silver     Ultra VIX
Short-Term
Futures ETF*
    Ultra Yen*     UltraShort
Australian
Dollar
    UltraShort
Bloomberg
Crude Oil*
    UltraShort
Bloomberg
Natural Gas*
 

Net asset value, at December 31, 2014

   $ 39.37     $ 12,546.00     $ 56.47     $ 51.38     $ 38.99     $ 27.99  

Net investment income (loss)

     (0.33     (72.24     (0.48     (0.57     (0.39     (0.44

Net realized and unrealized gain (loss)#

     (11.98     (9,665.36     (1.24     7.65       28.00       18.98  

Change in net asset value from operations

     (12.31     (9,737.60     (1.72     7.08       27.61       18.54  

Net asset value, at December 31, 2015

   $ 27.06     $ 2,808.40     $ 54.75     $ 58.46     $ 66.60     $ 46.53  

Market value per share, at

December 31, 2014†

   $ 38.05     $ 12,575.00     $ 56.48     $ 51.37     $ 38.26     $ 27.34  

Market value per share, at December 31, 2015†

   $ 27.07     $ 2,835.00     $ 54.70     $ 58.15     $ 66.82     $ 46.53  

Total Return, at net asset value

     (31.3 )%      (77.6 )%      (3.0 )%      13.8     70.8     66.3

Total Return, at market value

     (28.8 )%      (77.5 )%      (3.2 )%      13.2     74.6     70.3

Ratios to Average Net Assets

            

Expense ratio

     0.95     1.65     0.95     1.03     1.07     1.55

Expense ratio, excluding brokerage commissions

     0.95     0.95     0.95     0.95     0.95     0.95

Net investment income (loss)

     (0.89 )%      (1.61 )%      (0.88 )%      (1.00 )%      (1.04 )%      (1.50 )% 

 

* See Note 1 of these Notes to Financial Statements.
# Percentages 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.

 

 

303


Table of Contents

For the Year Ended December 31, 2015

 

Per Share Operating

Performance

   UltraShort Euro     UltraShort Gold     UltraShort
Silver*
    UltraShort Yen     VIX Mid-Term
Futures ETF
    VIX Short-Term
Futures ETF*
 

Net asset value, at December 31, 2014

   $ 21.59     $ 96.65     $ 57.81     $ 89.33     $ 63.60     $ 418.64  

Net investment income (loss)

     (0.22     (0.91     (0.50     (0.82     (0.51     (2.65

Net realized and unrealized gain (loss)#

     4.17       20.14       7.27       (0.57     (9.13     (151.15

Change in net asset value from operations

     3.95       19.23       6.77       (1.39     (9.64     (153.80

Net asset value, at December 31, 2015

   $ 25.54     $ 115.88     $ 64.58     $ 87.94     $ 53.96     $ 264.84  

Market value per share, at

December 31, 2014†

   $ 21.61     $ 100.22     $ 59.70     $ 89.30     $ 63.89     $ 419.80  

Market value per share, at December 31, 2015†

   $ 25.53     $ 115.83     $ 64.55     $ 87.89     $ 53.99     $ 266.60  

Total Return, at net asset value

     18.3     19.9     11.7     (1.6 )%      (15.2 )%      (36.7 )% 

Total Return, at market value

     18.1     15.6     8.1     (1.6 )%      (15.5 )%      (36.5 )% 

Ratios to Average Net Assets

            

Expense ratio

     0.95     0.95     0.95     0.95     0.91     0.95

Expense ratio, excluding brokerage commissions

     0.95     0.95     0.95     0.95     0.85     0.85

Net investment income (loss)

     (0.90 )%      (0.91 )%      (0.91 )%      (0.92 )%      (0.88 )%      (0.92 )% 

 

* 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.

 

 

304


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), two times of the return (2x), three times the inverse (-3x), or three times of the return (3x) 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, UltraShort and UltraPro Short 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, UltraShort, UltraPro and UltraPro Short Fund uses leverage and should produce daily returns that are more volatile than that of its benchmark. For example, the daily return of an Ultra or UltraPro Fund with a 2x or 3x multiple should be approximately two or three 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, UltraShort or UltraPro Short Fund is designed to return the inverse (-1x), two times the inverse (-2x) or three times the inverse (-3x) 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 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 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; (10) accounting standards; and (11) differences caused by a Fund obtaining exposure to only a representative sample of the components of a benchmark, overweighting or underweighting certain components of a benchmark or obtaining exposure to assets that are not included in a benchmark.

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, 2x, -3x or 3x, 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.

 

 

305


Table of Contents

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.

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 or margin 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.

 

 

306


Table of Contents

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.

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 Ultra 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. For UltraPro Fund and UltraPro Short Fund, because the Funds include a three times (3x) or three times the inverse (-3x) multiplier, a single-day movement in the Benchmark approaching 33% 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 the 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 and UltraPro Fund or upward single-day or intraday movements in the benchmark of an UltraShort Fund and UltraPro Short 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 November 2016 may specify a January 2017 expiration. As that contract nears expiration, it may be replaced by selling the January 2017 contract and purchasing the contract expiring in March 2017. This process is referred to as “rolling.” Rolling may have a positive or negative impact on performance. For example, historically, the prices of certain types of futures contracts have frequently been higher for contracts with shorter-term expirations than for contracts with longer-term expirations, which is referred to as “backwardation.” In these circumstances, absent other factors, the sale of the January 2017 contract would take place at a price that is higher than the price at which the March 2017 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, an UltraPro Fund or a Matching VIX Fund that invests in such futures, and positively affect a Short Fund, an

 

 

307


Table of Contents

UltraShort Fund or an UltraPro Short Fund that invests in such futures. Similarly, the presence of backwardation in certain futures contracts at the time of rolling such contracts would be expected to adversely affect the Short Funds, UltraShort Funds, and UltraPro Short Funds, and positively affect the Ultra Funds, UltraPro 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 applicable 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.

NOTE 9 – SUBSEQUENT EVENTS

Effective as of close of business on February 27, 2018, the investment objective of ProShares Ultra VIX Short-Term Futures ETF and ProShares Short VIX Short-Term Futures ETF changed.

ProShares Ultra VIX Short-Term Futures ETF (NYSE Arca: UVXY) changed its investment objective to seek results (before fees and expenses) that correspond to one and one-half times (1.5x) the performance of the S&P 500 VIX Short-Term Futures Index (“Index”) for a single day. Previously, the Fund’s investment objective was to seek results (before fees and expenses) that correspond to two times (2x) the performance of the Index for a single day.

ProShares Short VIX Short-Term Futures ETF (NYSE Arca: SVXY) changed its investment objective to seek results (before fees and expenses) that correspond to one-half the inverse (-0.5x) of the Index for a single day. Previously, the Fund’s investment objective was to seek results (before fees and expenses) that correspond to the inverse (-1x) of the Index for a single day.

Certain regulatory approvals will be required for the Funds to permanently pursue these new investment objectives. In the event that such approvals are not obtained, the Funds will consider other courses of action.

 

 

308


Table of Contents

SIGNATURES

Pursuant to the requirements 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 1, 2018

/s/ Edward Karpowicz

By: Edward Karpowicz

Principal Financial Officer

Date: March 1, 2018

 

 

309