PROSPECTUS September
26, 2025
|
COIA |
Ultra
COIN |
|
MSTA |
Ultra
MSTR
|
|
COND |
UltraShort
COIN
|
|
MSTD |
UltraShort
MSTR
|
ProShares
Ultra COIN is listed on NYSE Arca (“Exchange”). ProShares Ultra MSTR, ProShares
UltraShort COIN, and ProShares UltraShort MSTR are not yet available for sale.
These Funds are expected to be listed on the Exchange. Neither the Securities
and Exchange Commission nor any state securities commission has approved or
disapproved of these securities or passed upon the accuracy or adequacy of this
Prospectus. Any representation
to the contrary is a criminal offense.
PROSHARES
TRUSTDistributor:
SEI Investments Distribution Co.
4 :: Ultra
COIN 
PROSHARES.COM
|
|
|
|
|
|
Management
Fees |
|
|
Other
Expenses1
|
|
|
Total
Annual Fund Operating Expenses Before Fee
Waivers
and Expense Reimbursements |
|
|
Fee
Waiver/Reimbursement2
|
- |
|
Total
Annual Fund Operating Expenses After Fee
Waivers
and Expense Reimbursements |
|
1
2
|
1
Year |
3
Years |
|
|
|
Ultra
COIN :: 5PROSHARES.COM
6 :: Ultra
COIN
PROSHARES.COM
Ultra
COIN :: 7PROSHARES.COM
|
Estimated
Fund Returns | ||||||
|
COIN
Performance |
One
Year Volatility Rate | |||||
|
One
Year
COIN |
Two
times
(2x)
the
One
Year
COIN |
25% |
50% |
75% |
100% |
125% |
|
-60% |
-120% |
-85.0% |
-87.5% |
-90.9% |
-94.1% |
-96.6% |
|
-50% |
-100% |
-76.5% |
-80.5% |
-85.8% |
-90.8% |
-94.8% |
|
-40% |
-80% |
-66.2% |
-72.0% |
-79.5% |
-86.8% |
-92.5% |
|
-30% |
-60% |
-54.0% |
-61.8% |
-72.1% |
-82.0% |
-89.7% |
|
-20% |
-40% |
-39.9% |
-50.2% |
-63.5% |
-76.5% |
-86.6% |
|
-10% |
-20% |
-23.9% |
-36.9% |
-53.8% |
-70.2% |
-83.0% |
|
0% |
0% |
-6.1% |
-22.1% |
-43.0% |
-63.2% |
-79.0% |
|
10% |
20% |
13.7% |
-5.8% |
-31.1% |
-55.5% |
-74.6% |
|
20% |
40% |
35.3% |
12.1% |
-18.0% |
-47.0% |
-69.8% |
|
30% |
60% |
58.8% |
31.6% |
-3.7% |
-37.8% |
-64.6% |
|
40% |
80% |
84.1% |
52.6% |
11.7% |
-27.9% |
-58.9% |
|
50% |
100% |
111.4% |
75.2% |
28.2% |
-17.2% |
-52.8% |
|
60% |
120% |
140.5% |
99.4% |
45.9% |
-5.8% |
-46.3% |
8 :: Ultra
COIN
PROSHARES.COM
Please
see “Investment Objectives, Principal Investment Strategies and Related Risks”
in the Fund’s Prospectus for additional
details.
Management
The
Fund is advised by ProShare Advisors. Alexander Ilyasov , Senior Portfolio
Manager, and Eric Silverthorne, Portfolio Manager, have jointly and primarily
managed the Fund since
inception.
Ultra
COIN :: 9PROSHARES.COM
Purchase
and Sale of Fund Shares
The
Fund will issue and redeem shares only to Authorized Participants (typically
broker-dealers) in exchange for the deposit or delivery of a basket of assets
(securities and/or cash) in large blocks, known as Creation Units. Shares of the
Fund may only be purchased and sold by retail investors in secondary market
transactions through broker-dealers or other financial intermediaries. Shares of
the Fund are listed for trading on a national securities exchange and because
shares trade at market prices rather than NAV, shares of the Fund may trade at a
price greater than NAV (premium) or less than NAV (discount). In addition to
brokerage commissions, investors incur the costs of the difference between the
highest price a buyer is willing to pay to purchase shares of the Fund (bid) and
the lowest price a seller is willing to accept for shares of the Fund
(ask)
when buying or selling shares in the secondary market (the “bid-ask spread”).
The bid-ask spread varies over time for Fund shares based on trading volume and
market liquidity. Recent information, including information about the Fund’s
NAV, market price, premiums and discounts, and bid-ask spreads, is included on
the Fund’s website (www.proshares.com).
Tax
Information
Income
and capital gains distributions you receive from the Fund generally are subject
to federal income taxes and may also be subject to state and local taxes. The
Fund intends to distribute income, if any, quarterly, and capital gains, if any,
at least annually. Distributions for this Fund may be higher than those of most
ETFs.
10 :: Ultra
MSTR 
PROSHARES.COM
|
|
|
|
|
|
Management
Fees |
|
|
Other
Expenses1
|
|
|
Total
Annual Fund Operating Expenses Before Fee
Waivers
and Expense Reimbursements |
|
|
Fee
Waiver/Reimbursement2
|
- |
|
Total
Annual Fund Operating Expenses After Fee
Waivers
and Expense Reimbursements |
|
1
2
|
1
Year |
3
Years |
|
|
|
Ultra
MSTR :: 11PROSHARES.COM
12 :: Ultra
MSTR
PROSHARES.COM
Ultra
MSTR :: 13PROSHARES.COM
|
Estimated
Fund Returns | ||||||
|
MSTR
Performance |
One
Year Volatility Rate | |||||
|
One
Year
MSTR |
Two
times
(2x)
the
One
Year
MSTR |
25% |
50% |
75% |
100% |
125% |
|
-60% |
-120% |
-85.0% |
-87.5% |
-90.9% |
-94.1% |
-96.6% |
|
-50% |
-100% |
-76.5% |
-80.5% |
-85.8% |
-90.8% |
-94.8% |
|
-40% |
-80% |
-66.2% |
-72.0% |
-79.5% |
-86.8% |
-92.5% |
|
-30% |
-60% |
-54.0% |
-61.8% |
-72.1% |
-82.0% |
-89.7% |
|
-20% |
-40% |
-39.9% |
-50.2% |
-63.5% |
-76.5% |
-86.6% |
|
-10% |
-20% |
-23.9% |
-36.9% |
-53.8% |
-70.2% |
-83.0% |
|
0% |
0% |
-6.1% |
-22.1% |
-43.0% |
-63.2% |
-79.0% |
|
10% |
20% |
13.7% |
-5.8% |
-31.1% |
-55.5% |
-74.6% |
|
20% |
40% |
35.3% |
12.1% |
-18.0% |
-47.0% |
-69.8% |
|
30% |
60% |
58.8% |
31.6% |
-3.7% |
-37.8% |
-64.6% |
|
40% |
80% |
84.1% |
52.6% |
11.7% |
-27.9% |
-58.9% |
|
50% |
100% |
111.4% |
75.2% |
28.2% |
-17.2% |
-52.8% |
|
60% |
120% |
140.5% |
99.4% |
45.9% |
-5.8% |
-46.3% |
14 :: Ultra
MSTR
PROSHARES.COM
Please
see “Investment Objectives, Principal Investment Strategies and Related Risks”
in the Fund’s Prospectus for additional
details.
Management
The
Fund is advised by ProShare Advisors. Alexander Ilyasov , Senior Portfolio
Manager, and Eric Silverthorne, Portfolio Manager, have jointly and primarily
managed the Fund since
inception.
Purchase
and Sale of Fund Shares
The
Fund will issue and redeem shares only to Authorized Participants (typically
broker-dealers) in exchange for the deposit or delivery of a basket of assets
(securities and/or cash) in large blocks, known as Creation Units. Shares of the
Fund may only be purchased and sold by retail investors in secondary market
transactions through broker-dealers or other financial intermediaries. Shares of
the Fund are listed for trading
Ultra
MSTR :: 15PROSHARES.COM
on
a national securities exchange and because shares trade at market prices rather
than NAV, shares of the Fund may trade at a price greater than NAV (premium) or
less than NAV (discount). In addition to brokerage commissions, investors incur
the costs of the difference between the highest price a buyer is willing to pay
to purchase shares of the Fund (bid) and the lowest price a seller is willing to
accept for shares of the Fund (ask) when buying or selling shares in the
secondary market (the “bid-ask spread”). The bid-ask spread varies over time for
Fund shares based on trading volume and market liquidity. Recent information,
including information about the Fund’s
NAV,
market price, premiums and discounts, and bid-ask spreads, is included on the
Fund’s website (www.proshares.com).
Tax
Information
Income
and capital gains distributions you receive from the Fund generally are subject
to federal income taxes and may also be subject to state and local taxes. The
Fund intends to distribute income, if any, quarterly, and capital gains, if any,
at least annually. Distributions for this Fund may be higher than those of most
ETFs.
16 :: UltraShort
COIN 
PROSHARES.COM
|
|
|
|
|
|
Management
Fees |
|
|
Other
Expenses1
|
|
|
Total
Annual Fund Operating Expenses Before Fee
Waivers
and Expense Reimbursements |
|
|
Fee
Waiver/Reimbursement2
|
- |
|
Total
Annual Fund Operating Expenses After Fee
Waivers
and Expense Reimbursements |
|
1
2
|
1
Year |
3
Years |
|
|
|
UltraShort
COIN :: 17PROSHARES.COM
18 :: UltraShort
COIN
PROSHARES.COM
UltraShort
COIN :: 19PROSHARES.COM
|
Estimated
Fund Returns |
| |||||
|
COIN
Performance |
One
Year Volatility Rate |
| ||||
|
One
Year
COIN |
Two
times
the
inverse
(-2x)
of the
One
Year
COIN |
25% |
50% |
75% |
100% |
125% |
|
-60% |
120% |
418.1% |
195.2% |
15.6% |
-68.9% |
-94.2% |
|
-50% |
100% |
231.6% |
88.9% |
-26.0% |
-80.1% |
-96.3% |
|
-40% |
80% |
130.3% |
31.2% |
-48.6% |
-86.2% |
-97.4% |
|
-30% |
60% |
69.2% |
-3.6% |
-62.2% |
-89.8% |
-98.1% |
|
-20% |
40% |
29.5% |
-26.2% |
-71.1% |
-92.2% |
-98.6% |
|
-10% |
20% |
2.3% |
-41.7% |
-77.2% |
-93.9% |
-98.9% |
|
0% |
0% |
-17.1% |
-52.8% |
-81.5% |
-95.0% |
-99.1% |
|
10% |
-20% |
-31.5% |
-61.0% |
-84.7% |
-95.9% |
-99.2% |
|
20% |
-40% |
-42.4% |
-67.2% |
-87.2% |
-96.5% |
-99.4% |
|
30% |
-60% |
-50.9% |
-72.0% |
-89.1% |
-97.1% |
-99.5% |
|
40% |
-80% |
-57.7% |
-75.9% |
-90.6% |
-97.5% |
-99.5% |
|
50% |
-100% |
-63.2% |
-79.0% |
-91.8% |
-97.8% |
-99.6% |
|
60% |
-120% |
-67.6% |
-81.5% |
-92.8% |
-98.1% |
-99.6% |
20 :: UltraShort
COIN
PROSHARES.COM
Please
see “Investment Objectives, Principal Investment Strategies and Related Risks”
in the Fund’s Prospectus for additional
details.
Management
The
Fund is advised by ProShare Advisors. Alexander Ilyasov , Senior Portfolio
Manager, and Eric Silverthorne, Portfolio Manager, have jointly and primarily
managed the Fund since
inception.
UltraShort
COIN :: 21PROSHARES.COM
Purchase
and Sale of Fund Shares
The
Fund will issue and redeem shares only to Authorized Participants (typically
broker-dealers) in exchange for the deposit or delivery of a basket of assets
(securities and/or cash) in large blocks, known as Creation Units. Shares of the
Fund may only be purchased and sold by retail investors in secondary market
transactions through broker-dealers or other financial intermediaries. Shares of
the Fund are listed for trading on a national securities exchange and because
shares trade at market prices rather than NAV, shares of the Fund may trade at a
price greater than NAV (premium) or less than NAV (discount). In addition to
brokerage commissions, investors incur the costs of the difference between the
highest price a buyer is willing to pay to purchase shares of the Fund (bid) and
the lowest price a seller is willing to accept for shares of the Fund
(ask)
when buying or selling shares in the secondary market (the “bid-ask spread”).
The bid-ask spread varies over time for Fund shares based on trading volume and
market liquidity. Recent information, including information about the Fund’s
NAV, market price, premiums and discounts, and bid-ask spreads, is included on
the Fund’s website (www.proshares.com).
Tax
Information
Income
and capital gains distributions you receive from the Fund generally are subject
to federal income taxes and may also be subject to state and local taxes. The
Fund intends to distribute income, if any, quarterly, and capital gains, if any,
at least annually. Distributions for this Fund may be higher than those of most
ETFs.
22 :: UltraShort
MSTR 
PROSHARES.COM
|
|
|
|
|
|
Management
Fees |
|
|
Other
Expenses1
|
|
|
Total
Annual Fund Operating Expenses Before Fee
Waivers
and Expense Reimbursements |
|
|
Fee
Waiver/Reimbursement2
|
- |
|
Total
Annual Fund Operating Expenses After Fee
Waivers
and Expense Reimbursements |
|
1
2
|
1
Year |
3
Years |
|
|
|
UltraShort
MSTR :: 23PROSHARES.COM
24 :: UltraShort
MSTR
PROSHARES.COM
UltraShort
MSTR :: 25PROSHARES.COM
|
Estimated
Fund Returns |
| |||||
|
MSTR
Performance |
One
Year Volatility Rate |
| ||||
|
One
Year
MSTR |
Two
times
the
inverse
(-2x)
of the
One
Year
MSTR |
25% |
50% |
75% |
100% |
125% |
|
-60% |
120% |
418.1% |
195.2% |
15.6% |
-68.9% |
-94.2% |
|
-50% |
100% |
231.6% |
88.9% |
-26.0% |
-80.1% |
-96.3% |
|
-40% |
80% |
130.3% |
31.2% |
-48.6% |
-86.2% |
-97.4% |
|
-30% |
60% |
69.2% |
-3.6% |
-62.2% |
-89.8% |
-98.1% |
|
-20% |
40% |
29.5% |
-26.2% |
-71.1% |
-92.2% |
-98.6% |
|
-10% |
20% |
2.3% |
-41.7% |
-77.2% |
-93.9% |
-98.9% |
|
0% |
0% |
-17.1% |
-52.8% |
-81.5% |
-95.0% |
-99.1% |
|
10% |
-20% |
-31.5% |
-61.0% |
-84.7% |
-95.9% |
-99.2% |
|
20% |
-40% |
-42.4% |
-67.2% |
-87.2% |
-96.5% |
-99.4% |
|
30% |
-60% |
-50.9% |
-72.0% |
-89.1% |
-97.1% |
-99.5% |
|
40% |
-80% |
-57.7% |
-75.9% |
-90.6% |
-97.5% |
-99.5% |
|
50% |
-100% |
-63.2% |
-79.0% |
-91.8% |
-97.8% |
-99.6% |
|
60% |
-120% |
-67.6% |
-81.5% |
-92.8% |
-98.1% |
-99.6% |
26 :: UltraShort
MSTR
PROSHARES.COM
Please
see “Investment Objectives, Principal Investment Strategies and Related Risks”
in the Fund’s Prospectus for additional
details.
Management
The
Fund is advised by ProShare Advisors. Alexander Ilyasov, Senior Portfolio
Manager, and Eric Silverthorne, Portfolio Manager, have jointly and primarily
managed the Fund since
inception.
Purchase
and Sale of Fund Shares
The
Fund will issue and redeem shares only to Authorized Participants (typically
broker-dealers) in exchange for the deposit or delivery of a basket of assets
(securities and/or cash) in large blocks, known as Creation Units. Shares of the
Fund may
UltraShort
MSTR :: 27PROSHARES.COM
only
be purchased and sold by retail investors in secondary market transactions
through broker-dealers or other financial intermediaries. Shares of the Fund are
listed for trading on a national securities exchange and because shares trade at
market prices rather than NAV, shares of the Fund may trade at a price greater
than NAV (premium) or less than NAV (discount). In addition to brokerage
commissions, investors incur the costs of the difference between the highest
price a buyer is willing to pay to purchase shares of the Fund (bid) and the
lowest price a seller is willing to accept for shares of the Fund (ask) when
buying or selling shares in the secondary market (the “bid-ask spread”). The
bid-ask spread varies over time for Fund shares based on trading volume and
market liquidity.
Recent
information, including information about the Fund’s NAV, market price, premiums
and discounts, and bid-ask spreads, is included on the Fund’s website
(www.proshares.com).
Tax
Information
Income
and capital gains distributions you receive from the Fund generally are subject
to federal income taxes and may also be subject to state and local taxes. The
Fund intends to distribute income, if any, quarterly, and capital gains, if any,
at least annually. Distributions for this Fund may be higher than those of most
ETFs.
INVESTMENT
OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RELATED
RISKS :: 29
PROSHARES.COM
This
section contains additional details about each Fund’s investment objective,
principal investment strategies and related
risks.
Investment
Objectives
Each
Fund is a “Geared Fund” in the sense that it is designed to seek daily
investment results, before fees and expenses, that correspond to the daily
performance of an underlying security, like COIN or MSTR (“Underlying Security”)
such as a multiple (i.e., 2x), or inverse multiple (i.e., -2x) of the daily
performance of an Underlying Security (the “Daily Target”) for
a single
day,
not for any other period. The “Short Fund” (i.e., the Fund
that has the prefix “UltraShort”) is designed to correspond to an inverse
multiple of the daily performance of an Underlying Security. The “Ultra Fund”
(i.e., the Fund that has the prefix “Ultra”) is designed to correspond to a
multiple of the daily performance of an Underlying Security. The Funds do not
seek to achieve their stated investment objectives over a period of time greater
than a single day. A “single day” is measured from the time a Fund calculates
its net asset value (“NAV”) to the time
of the Fund’s next NAV calculation.
The
return of a Fund for periods longer than a day is the product of a series of
daily leveraged returns for each trading day during that period. If you hold
Fund shares for any period other than a day, it is important for you to
understand the risks and long-term performance of a daily objective fund. You
should
know that over your holding period:
●Your
return may be higher or lower than the Daily Target, and this difference
may be significant.
●Factors
that contribute to returns that are worse than the Daily Target include
smaller Underlying Security gains or losses and higher Underlying Security
volatility, as well as longer holding periods when these factors
apply.
●Factors
that contribute to returns that are better than the Daily Target include
larger Underlying Security gains or losses and lower Underlying Security
volatility, as well as longer holding periods when these factors
apply.
●The
more extreme these factors are, and the more they occur together, the
more your return will tend to deviate from the Daily Target.
For
periods longer than a day, you will lose money if the Underlying Security’s
performance is flat. It is possible that you will lose money invested in a Short
Fund even if the value of the Underlying Security falls during that period or
money invested in an Ultra Fund even if the value of the Underlying Security
rises during that period. Returns may move in the opposite direction of the
Underlying Security during periods of higher volatility, low returns, or both.
In addition, during periods of higher volatility, the volatility of the
Underlying Security may affect your return as much or more than the return of the
Underlying Security.
Investment
in a Fund involves risks that are different from and additional to the risks of
investments in other types of
funds.
An investor in a Fund could potentially lose the full value of their
investment within a single day.
Principal
Investment Strategies
In
seeking to achieve each Fund’s investment objective, ProShare Advisors follows a
passive approach to investing that is designed to correspond to the multiple
(i.e., 2x) or inverse multiple (i.e., -2x) of the daily performance of its
Underlying Security. Each Fund attempts to achieve its investment objective by
investing all, or substantially all, of its assets in financial instruments that
provide similar exposure to the Underlying
Security.
Each
Fund employs various investment techniques designed to achieve its investment
objective. These techniques are intended to enhance liquidity, maintain a
tax-efficient portfolio and reduce transaction costs to maintain a high
correlation with, and similar aggregate characteristics to, the Underlying
Security or inverse of the Underlying Security, or multiple thereof, as
applicable.
ProShare
Advisors does not invest the assets of a Fund in securities or financial
instruments based on ProShare Advisors’ view of the investment merit of a
particular security, instrument, or company, other than for cash management
purposes, nor does it conduct conventional investment research or analysis
(other than in determining counterparty creditworthiness), or forecast market
movement or trends, in managing the assets of a Fund. Each Fund generally seeks
to remain fully invested at all times in securities and/or financial instruments
that, in combination, provide exposure to its Underlying Security consistent
with its investment objective, without regard to market conditions, trends,
direction, or the financial condition
of a particular issuer.
The
Funds do not generally take temporary defensive positions, except ProShares
Ultra COIN may or may not enter into swap agreements that include provisions
designed to prevent the Fund from losing more than 90% of its net asset value
during a single trading day (as measured as 4:00 p.m. EST on one business day to
4:00 p.m. EST on the next business day the Exchange is open for business) if the
value of the Underlying Security moves more than 45% down during that period. In
order to obtain such provisions at a reasonable rate, these swap agreements may
or may not also include a provision that caps the Fund’s performance for the
same period to 90% if the value of the Underlying Security moves more than 45%
up during that period. There can be no assurance that such provisions will be
available or that the Fund will not lose more than 90% of its net assets in a
single trading day as measured
above.
On
a daily basis, each Fund will seek to position its portfolio so that such Fund’s
investment exposure is consistent with its investment objective. In general,
changes to the level of a Fund’s Underlying Security each day will determine
whether such Fund’s portfolio needs to be repositioned. For example, if a Short
Fund’s Underlying Security has risen on a given day,
30 :: INVESTMENT
OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RELATED
RISKS
PROSHARES.COM
net
assets of the Fund should fall (assuming there were no Creation Units issued).
As a result, the Fund’s short exposure will need to be decreased. Conversely, if
the Underlying Security has fallen on a given day, net assets of the Short Fund
should rise (assuming there were no Creation Unit redemptions). As a result, the
Fund’s short exposure will need to be increased. Similarly, if an Ultra Fund’s
Underlying Security has risen on a given day, net assets of the Fund should
rise. As a result, the Fund’s exposure will need to be increased. Conversely, if
the Underlying Security has fallen on a given day, net assets of the Ultra Fund
should fall. As a result, the Fund’s exposure will need
to be decreased.
The
time and manner in which a Fund rebalances its portfolio may vary from day to
day at the sole discretion of ProShare Advisors depending upon market conditions
and other circumstances. If for any reason a Fund is unable to rebalance all or
a portion of its portfolio, or if all or a portion of the portfolio is
rebalanced incorrectly, the Fund’s investment exposure may not be consistent
with the Fund’s investment objective. In these instances, a Fund may have
investment exposure to its Underlying Security that is significantly greater or
less than its stated multiple. As a result, a Fund may be more or less exposed
to leverage risk than if it had been properly rebalanced and may not achieve
its investment objective.
Additional
COIN-Related Investments
If,
for any reason, ProShares Ultra COIN is unable to obtain the desired exposure to
COIN including approaching counterparty capacity limits or because of liquidity
or other constraints, ProShare Advisors intends to take such action as it
believes appropriate and in the best interest of the Fund. This may include
reducing the Fund’s leveraged exposure to COIN by holding a larger portion of
the Fund’s assets in COIN shares or money market instruments. In that event, the
Fund will not meet its investment objective. This may also include, among other
things, investing in “COIN-related investments” or investing in other U.S.
investment companies that provide investment exposure to COIN or COIN-related
investments. For these purposes, COIN-related investments are investments listed
on a U.S. stock or commodity exchange that ProShare Advisors believes provide
returns that generally correspond, or are closely
related, to the performance of COIN.
Understanding
the Risks and Long-Term Performance of a Daily Objective Fund
The
Funds are designed to provide leveraged (i.e., 2x) or inverse leveraged (i.e.,
-2x) results on a daily basis. The Funds, however, are unlikely to provide a
simple multiple (i.e., 2x or -2x) of an Underlying Security’s performance over
periods longer than a single
day.
●Why? The hypothetical
example below illustrates how daily Geared Fund returns can behave for periods
longer than a single day.
○Take
a hypothetical fund XYZ that seeks to double the daily performance of
Underlying Security XYZ. On each
day,
fund XYZ performs in line with its objective (2x the Underlying Security’s daily
performance before fees and expenses). Notice that over the entire five-day
period, the fund’s total return is considerably less than two times that of the
period return of the Underlying Security. For the five-day period, Underlying
Security XYZ gained 5.1% while fund XYZ gained 9.8% (versus 2x 5.1% or 10.2%).
In other scenarios, the return of a daily rebalanced fund could be greater than
two times the Underlying Security’s
return.
|
|
Underlying
Security XYZ |
Fund
XYZ | ||
|
|
Level
|
Daily
Performance |
Daily
Performance |
Net
Asset
Value |
|
Start |
100.0 |
— |
— |
$100.00 |
|
Day
1 |
103.0 |
3.0% |
6.0% |
$106.00 |
|
Day
2 |
99.9 |
-3.0% |
-6.0% |
$99.64 |
|
Day
3 |
103.9 |
4.0% |
8.0% |
$107.61 |
|
Day
4 |
101.3 |
-2.5% |
-5.0% |
$102.23 |
|
Day
5 |
105.1 |
3.7% |
7.4% |
$109.80 |
|
Total
Return |
5.1% |
9.8% | ||
●Why
does this happen? This effect is
caused by compounding, which exists in all investments, but has a more
significant impact on a Geared Fund. The return of a Geared Fund for a period
longer than a single day is the result of its return for each day compounded
over the period and usually will differ in amount, and possibly even direction,
from the Geared Fund’s stated multiple times the return of the Geared Fund’s
underlying security for the same period. In general, during periods of higher
volatility, compounding will cause longer term results to be less than the
multiple (or inverse multiple) of the return of the underlying security. This
effect becomes more pronounced as volatility increases. Conversely, in periods
of lower underlying security volatility, fund returns over longer periods can be
higher than the multiple of the return of the underlying security. Actual
results for a particular period, before fees and expenses, are also dependent on
the following factors: a) the underlying security’s volatility; b) the
underlying security’s performance; c) period of time; d) financing rates
associated with derivatives; e) other Fund expenses; and f) dividends or
interest paid with respect to the securities in the underlying security. The
examples herein illustrate the impact of two principal factors — underlying
security volatility and underlying security performance — on Fund performance.
Similar effects exist for the Short ProShares Funds, and the significance of
this effect is even greater for such inverse funds. Please see the SAI for
additional details.
○The
graphs that follow illustrate this point. Each of the graphs shows a
simulated hypothetical one year performance of an underlying security compared
with the performance of a fund that perfectly achieves its investment
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objective.
The graphs demonstrate that, for periods longer than a single day, a Geared Fund
is likely to underperform or overperform (but not match) the underlying security
performance (or the inverse of the underlying security performance) times the
stated multiple in the fund’s investment objective. Investors should understand
the consequences of holding daily rebalanced funds for periods longer than a
single day, including the impact of compounding on fund performance. Investors
should actively manage and monitor their investments, as frequently as daily. A
one-year period is used for illustrative purposes only. Deviations from the
underlying security return times the fund multiple can occur over periods as
short as a single day (as measured from one day’s NAV to the next day’s NAV) and
may also occur in periods shorter than a single day (when measured intraday as
opposed to NAV to NAV). An investor in a Geared Fund could potentially lose the
full principal value
of his/her investment within a single day.
To
isolate the impact of leverage or inverse leveraged exposure, these graphs
assume: a) no dividends paid with respect to the underlying security; b) no Fund
expenses; and c) borrowing/lending rates (to obtain required leverage or inverse
leveraged exposure) of zero percent. If these were reflected, the Fund’s
performance would be different than that shown. Each of the graphs also assumes
a volatility rate of 95%, which is the five-year historical volatility rate of
MSTR. An underlying security’s volatility rate is a statistical measure of the
magnitude of fluctuations in the returns of an underlying
security.
One-Year
Simulation; Index Return 0%
(Annualized Index Volatility 95%)
(Annualized Index Volatility 95%)
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 (+2x) Fund and the UltraShort
(-2x) Fund are both down.
One-Year
Simulation; Index Return 76%
(Annualized Index Volatility 95%)
(Annualized Index Volatility 95%)
The
graph above shows a scenario where the index, which exhibits day-to-day
volatility, is up over the year, but the Ultra (+2x) Fund is up less than two
times the index and the UltraShort (-2x) Fund is down less than two times the
inverse of the
index.
One-Year
Simulation; Index Return –76%
(Annualized Index Volatility 95%)
(Annualized Index Volatility 95%)
The
graph above shows a scenario where the index, which exhibits day-to-day
volatility, is down over the year, but the Ultra (+2x) Fund is down less than
two times the index, and the UltraShort (-2x) Fund is up less than two times the
inverse of the
index.
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For
additional details about fund performance over periods longer than a single day
in both Ultra and Short Funds, please see the
SAI.
●What
it means to you. 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. Investors should understand the consequences of seeking daily
investment results, before fees and expenses, that correspond to the performance
of a daily benchmark such as the multiple (i.e., 2x) or inverse multiple (i.e.,
-2x) of the daily performance of an Underlying Security for a single day, not
for any other period
Additionally,
investors should recognize that the degree of volatility of a Fund’s Underlying
Security can have a dramatic effect on a Fund’s longer-term performance. The
more volatile an Underlying Security is, the more a Fund’s longer-term
performance will negatively deviate from a simple multiple (e.g., 2x, -2x) of
its Underlying Security’s longer-term return. The return of the Fund for a
period longer than a single day is the result of its return for each day
compounded over the period and usually will differ in amount, and possibly even
direction, from the Fund’s stated multiple times the return of the Fund’s
Underlying Security for the same period. For periods longer than a single day,
the Fund will lose money if its Underlying Security’s performance is flat over
time, and it is possible that the Fund will lose money over time regardless of
the performance of its Underlying Security. An investor in the Fund could
potentially lose the full value of their investment within a single
day.
Additional
Information Regarding Principal Risks
Like
all investments, investing in a Fund entails risks. The factors most likely to
have a significant impact on a Fund’s portfolio are called “principal risks.”
The principal risks for each Fund are described in each Fund’s Summary
Prospectus and additional information regarding certain of these risks, as well
as information related to other potential risks to which a Fund may be
subjected, is provided below and under the section titled “Other Risks.” The
principal risks are intended to provide information about the factors likely to
have a significant adverse impact on a Fund’s returns and consequently the value
of an investment in a Fund. The risks are presented in an order intended to
facilitate readability and their order does not imply that the realization of
one risk is more likely to occur than another risk or likely to have a
greater
adverse impact than another risk.
Some
of the risks described below apply to all Funds, while others are specific to
the investment strategies of certain Funds. Please see “Principal Investment
Risks” in each Fund’s Summary Prospectus for more detail about the principal
risks applicable to each Fund. The Statement of Additional Information (“SAI”)
contains additional information about each Fund,
investment
strategies and related risks. Each Fund may be subject to other risks in
addition to those identified as principal risks.
While
the realization of certain of these risks may benefit the UltraShort (-2x) Funds
because these Funds seek daily investment results, before fees and expenses,
that correspond to a multiple of the inverse of their respective Underlying
Security, such occurrences may introduce more volatility to these Funds and have a
negative impact on Fund performance.
●Risks
Associated with the Use of Derivatives — A Fund may obtain
exposure through derivatives (including investing in: swap agreements; futures
contracts; options on futures contracts, securities, and indexes; forward
contracts; and similar instruments). Investing in derivatives may be considered
aggressive and may expose a Fund to risks different from, or possibly greater
than, the risks associated with investing directly in the reference asset(s)
underlying the derivative (e.g., a Fund’s underlying security). The use of
derivatives may result in larger losses or smaller gains than directly investing
in securities. The risks of using derivatives include: 1) the risk that there
may be imperfect correlation between the price of the financial instruments and
movements in the prices of the reference asset(s); 2) the risk that an
instrument is mispriced; 3) credit or counterparty risk on the amount a Fund
expects to receive from a counterparty; 4) the risk that securities prices,
interest rates and currency markets will move adversely and a Fund will incur
significant losses; 5) the risk that the cost of holding a financial instrument
might exceed its total return; 6) the possible absence of a liquid secondary
market for a particular instrument and possible exchange imposed price
fluctuation limits, either of which may make it difficult or impossible to
adjust a Fund’s position in a particular instrument when desired; 7) risks
arising from margin requirements; 8) operational risk (such as documentation
issues, settlement issues and systems failures), and 9) legal risk (such as
insufficient documentation, insufficient capacity or authority of a
counterparty, and issues with the legality or enforceability of a contract).
Each of these factors may prevent a Fund from achieving its investment objective
and may increase the volatility (i.e., fluctuations) of the Fund’s returns.
Because derivatives often require limited initial investment, the use of
derivatives also may expose a Fund to losses in excess of those amounts
initially invested.
●Counterparty
Risk —
A Fund will be subject to credit risk (i.e., the risk that a counterparty is
unwilling or unable to make timely payments or otherwise meet its contractual
obligations) with respect to the amount the Fund expects to receive from
counterparties to financial instruments (including derivatives and repurchase
agreements) entered into by the Fund. A Fund generally structures the agreements
such that either party can terminate the contract at any time, including
intraday, without penalty prior to the termination date. If a counterparty
terminates a contract, a
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Fund
may not be able to invest in other derivatives to achieve the desired exposure,
or achieving such exposure may be more expensive. A Fund may be negatively
impacted if a counterparty becomes bankrupt or otherwise fails to perform its
obligations under such an agreement. A Fund may experience significant delays in
obtaining any recovery in a bankruptcy or other reorganization proceeding and a
Fund may obtain only limited recovery or may obtain no recovery in such
circumstances. In order to attempt to mitigate potential counterparty credit
risk, a Fund typically enters into transactions with major financial
institutions. A Fund also seeks to mitigate risks by generally requiring that
the counterparties 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. To the extent any such
collateral is insufficient or there are delays in accessing the collateral, a
Fund will be exposed to the risks described above, including possible delays in
recovering amounts
as a result of bankruptcy proceedings.
The
counterparty to a cleared swap agreement and/or exchange-traded futures contract
is subject to the credit risk of the clearing house and the futures commission
merchant (“FCM”) through which it holds its position. Specifically, the FCM or
the clearing house could fail to perform its obligations, causing significant
losses to a Fund. For example, a Fund could lose margin payments it has
deposited with an FCM as well as any gains owed but not paid to the Fund, if the
FCM or clearing house becomes insolvent or otherwise fails to perform its
obligations. Credit risk of market participants with respect to derivatives that
are centrally cleared is concentrated in a few clearing houses and it is not
clear how an insolvency proceeding of a clearing house would be conducted and
what impact an insolvency of a clearing house would have on the financial
system. Under current Commodity Futures Trading Commission (“CFTC”) regulations,
a FCM maintains customers’ assets in a bulk segregated account. If a FCM fails
to do so, or is unable to satisfy a substantial deficit in a customer account,
its other customers may be subject to risk of loss of their funds in the event
of that FCM’s bankruptcy. In that event, in the case of futures and options on
futures, the FCM’s customers are entitled to recover, even in respect of
property specifically traceable to them, only a proportional share of all
property available for distribution to all of that FCM’s customers. In addition,
if the FCM does not comply with the applicable regulations, or in the event of a
fraud or misappropriation of customer assets by the FCM, a Fund could have only
an unsecured creditor claim in an insolvency of the FCM with respect to the
margin held by the FCM. FCMs are also required to transfer to the clearing house
the amount of margin required by the clearing house, which amount is generally
held in an omnibus account at the clearing house for all customers of the FCM.
In certain cases with respect to cleared swaps, the FCM may also transfer any
excess initial margin posted by a Fund to the clearing house. Regulations
promulgated by
the
CFTC require that the FCM notify the clearing house of the excess initial margin
provided by the FCM to the clearing house that is attributable to each customer.
However, if the FCM does not accurately report a Fund’s initial margin, the Fund
is subject to the risk that a clearing house will use the assets attributable to
it in the clearing house’s omnibus account to satisfy payment obligations a
defaulting customer of the FCM has to
the clearing house.
In
addition, a Fund may enter into agreements with a limited number of
counterparties, which may increase the Fund’s exposure to counterparty credit
risk. A Fund does not specifically limit its counterparty risk with respect to
any single counterparty. Further, there is a risk that no suitable
counterparties are willing to enter into, or continue to enter into,
transactions with a Fund and, as a result, a Fund may not be able to achieve its
investment objective. Contractual provisions and applicable law may prevent or
delay a Fund from exercising its rights to terminate an investment or
transaction with a financial institution experiencing financial difficulties, or
to realize returns on collateral, and another institution may be substituted for
that financial institution without the consent of the Fund. If the credit rating
of a derivatives counterparty declines, a Fund may nonetheless choose or be
required to keep existing transactions in place with the counterparty, in which
event the Fund would be subject to any increased credit risk associated with
those transactions. Also, in the event of a counterparty’s (or its affiliate’s)
insolvency, the possibility exists that a Fund’s ability to exercise remedies,
such as the termination of transactions, netting of obligations and realization
of returns on collateral, could be stayed or eliminated under special resolution
regimes adopted in the United States, the European Union, United Kingdom and
various other jurisdictions. Such regimes provide government authorities with
broad authority to intervene when a financial institution is experiencing
financial difficulty. In particular, the regulatory authorities could reduce,
eliminate, or convert to equity the liabilities to a Fund of a counterparty who
is subject to such proceedings in the European Union or United
Kingdom
(sometimes referred to as a “bail in”).
Moreover,
with respect to the use of swap agreements, although the term of the agreement
may be for a specified period ranging from a day to more than one year, either
party may generally terminate the agreement without penalty prior to the
termination. As a result, if the underlying reference asset has a dramatic
intraday move that causes a material decline in a Fund’s net assets, the terms
of a swap agreement between the Fund and its counterparty may permit the
counterparty to immediately close out the transaction with the Fund. In that
event, the Fund may be unable to enter into another swap agreement or invest in
other derivatives to achieve the desired exposure consistent with the Fund’s
investment objective. This, in turn, may prevent the Fund from achieving its
investment objective, even if the reference asset reverses all or a portion of
its intraday
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move
by the end of the day. Any costs associated with using derivatives will also
have the effect of lowering the Fund’s
return.
●Correlation
Risk —
A number of factors may affect a Fund’s ability to achieve a high degree of
correlation with the Underlying Security, and there is no guarantee that a Fund
will achieve a high degree of correlation. Failure to achieve a high degree of
correlation may prevent a Fund from achieving its investment objective, and the
percentage change of a Fund’s NAV each day may differ, perhaps significantly in
amount, and possibly even direction, from the Daily Target.
In
order to achieve a high degree of correlation with the Underlying Security, each
Fund seeks to rebalance its portfolio daily to keep exposure consistent with its
investment objective. Being materially under- or overexposed to the Underlying
Security may prevent a Fund from achieving a high degree of correlation with the
Underlying Security and may expose the Fund to greater leverage risk. Market
disruptions or closures, regulatory restrictions, market volatility, illiquidity
in the markets for the financial instruments in which a Fund invests, and other
factors will adversely affect the Fund’s ability to adjust exposure to requisite
levels. The target amount of portfolio exposure is impacted dynamically by the
Underlying Security’s movements, including intraday movements. Because of this,
it is unlikely that a Fund will have perfect exposure during the day or at the
end of each day and the likelihood of being materially under- or overexposed is
higher on days when the Underlying Security is volatile, particularly when the
Underlying Security is volatile at or near the close of the trading
day.
●Equity
and Market Risk — Equity markets
are volatile, and the value of securities, swaps, futures and other instruments
correlated with equity markets may fluctuate dramatically from day to day.
Equity markets are subject to corporate, political, regulatory, market and
economic developments, as well as developments that impact specific economic
sectors, industries or segments of the market. Further, the Underlying Security
may underperform other equity investments. Volatility in the markets and/or
market developments may cause the value of an investment in a Fund to decrease
over short or long periods of time.
○Large-Cap
Company Investment Risk — Although returns
on investments in large-cap companies are often perceived as being less volatile
than the returns of companies with smaller market capitalizations, the return on
large-cap securities could trail the returns on investments in smaller and
mid-sized companies for a number of reasons. For example, large-cap companies
may be unable to respond quickly to new competitive challenges, such as changes
in technology, or consumer tastes and also may
not
be able to attain the high growth rate of successful smaller
companies.
○Small-
and Mid-Cap Company Investment Risk — The risk of
equity investing may be particularly acute for securities of issuers with
smaller market capitalizations. Small- and mid-cap companies may have limited
product lines or resources, may be dependent upon a particular market niche and
may have greater fluctuations in price than the stocks of larger companies.
Small- and mid-cap companies may lack the financial and personnel resources to
handle economic or industry-wide setbacks and, as a result, such setbacks could
have a greater effect on small- and mid-cap security prices. Additionally,
small- and mid-cap company stocks may trade at greater spreads or lower trading
volumes, and may be less liquid than the stocks of larger companies. Further,
stocks of small- and mid-sized companies could be more difficult to liquidate
during market downturns compared to larger, more widely traded
companies.
●Money
Market Instruments Risk — Money market
instruments may be adversely affected by market and economic events. Adverse
economic, political or other developments affecting issuers of money market
instruments or defaults by transaction counterparties may also have a negative
impact on the performance and liquidity of such instruments. Each of these could
have a negative impact on the performance of a Fund. Money market instruments
may include money market funds. To the extent a Fund invests in a money market
fund, the Fund will indirectly bear a proportionate share of the money market
fund’s fees and expenses.
●Industry
Concentration Risk — A Fund may be
subject to greater market fluctuations than a fund that is more broadly invested
across industries. Financial, economic, business, regulatory conditions, and
other developments affecting issuers in a particular industry or group of
industries will have a greater effect on a Fund, and if securities of the
particular industry or group of industries fall out of favor, a Fund could
underperform, or its net asset value may be more volatile than, funds that have
greater industry diversification.
●Information
Technology Industry Risk — Securities of
information technology companies may be subject to greater volatility than
stocks of companies in other market sectors. Like other technology companies,
information technology companies may be affected by intense competition,
obsolescence of existing technology, general economic conditions and government
regulation and may have limited product lines, markets, financial resources or
personnel. Information technology companies may experience dramatic and often
unpredictable changes in growth rates and competition for qualified personnel.
These companies also are
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heavily
dependent on patent and intellectual property rights, the loss or impairment of
which may adversely affect profitability. A small number of companies represent
a large portion of the information technology industry as a
whole.
●Financials
Industry Risk — The risks of
investments in the industry include: extensive governmental regulation and/or
nationalization that affects the scope of their activities, the prices they can
charge and the amount of capital and liquid assets they must maintain; adverse
effects from increases in interest rates; adverse effects on profitability by
loan losses, which usually increase in economic downturns; the severe
competition to which banks, insurance, and financial services companies may be
subject; increased inter-sector consolidation and competition in the financials
industry; and volatility in the financial markets and changes in domestic and
foreign monetary policy; credit rating downgrades; adverse public perception;
exposure concentration and decreased liquidity in credit markets; counterparty
risk arising from issuers that serve as counterparties in derivatives or similar
contractual arrangements. The impact of more stringent capital requirements,
recent or future regulation on any individual financial company or recent or
future regulation on the financials industry as a whole cannot be
predicted.
●Market
Price Variance Risk — Individual shares
of a Fund can be bought and sold in the secondary market at market prices rather
than at NAV. There is no guarantee that an active secondary market will develop
for shares of a Fund, which may also cause NAV and market price to vary
significantly. The market price of a Fund’s shares will fluctuate in response to
changes in the value of the Fund’s holdings, supply and demand for shares and
other market factors. ProShare Advisors cannot predict whether shares will trade
above, below or at a price equal to the value of a Fund’s holdings. Differences
between secondary market prices and the value of a Fund’s holdings may be due
largely to supply and demand forces in the secondary market, which may not be
the same forces as those influencing prices for securities or financial
instruments held by a Fund at a particular time. In addition, there may be times
when the market price and the NAV of a Fund’s shares vary significantly, such as
during periods of market volatility or other market developments and
disruptions. Investors purchasing and selling shares in the secondary market may
trade shares at a premium or a discount to the Fund’s NAV and may receive less
than the value of a Fund’s holdings when they sell those
shares.
A
Fund may have a limited number of financial institutions that may act as
Authorized Participants or market markers. Only Authorized Participants who have
entered into agreements with a Fund’s distributor may engage in creation or
redemption transactions directly with the Fund. If some or all of these
Authorized Participants exit the business or are unable to process creation
and/or redemption
orders,
and no other Authorized Participant is willing or able to create and redeem Fund
shares, shares may trade at a discount to NAV (and may even face trading halts
or delisting). Similar effects may result if market makers exit the business or
are unable to continue making markets in the shares. Further, while the
creation/redemption feature is designed to make it likely that shares normally
will trade at prices correlated to the price of a Fund’s portfolio holdings,
disruptions to creations and redemptions, including disruptions at market
makers, Authorized Participants or market participants, or during periods of
significant market volatility, among other factors, may result in market prices
that differ significantly from NAV. Investors purchasing and selling shares in
the secondary market may not experience investment results consistent with those
experienced by Authorized Participants creating and redeeming directly with a
Fund. The market price of shares, like the price of any exchange-traded
security, includes a “bid-ask spread” charged by the exchange specialist, market
makers or other participants that trade the particular security. In times of
severe market disruption or during after-hours trading, the bid-ask spread often
increases significantly. This means that shares may trade at a discount to the
value of a Fund’s holdings, and the discount is likely to be greatest when the
price of shares is falling fastest, which may be the time that a shareholder
most wants to sell their shares. A Fund’s investment results are measured
based
upon the daily NAV of the Fund.
●Early
Close/Late Close/Trading Halt Risk — An exchange or
market may close early, close late or issue trading halts on specific
securities, including Underlying Security. A halt in trading of Underlying
Security is expected to result in a halt in the trading of a Fund’s shares. In
any of these events. As a result, the ability to trade certain securities or
financial instruments may be restricted, which may disrupt a Fund’s creation and
redemption process, potentially affect the price at which a Fund’s shares trade
in the secondary market, and/or result in a Fund being unable to trade certain
securities or financial instruments at all. In these circumstances, a Fund may
be unable to rebalance its portfolio, may be unable to accurately price its
investments and/or may incur substantial trading losses. If trading in a Fund’s
shares are halted, investors may be temporarily unable to trade shares of the
Fund.
●Short
Sale Exposure Risk — A Fund may seek
inverse or “short” exposure through financial instruments, which would cause the
Fund to be exposed to certain risks associated with selling short. These risks
include, under certain market conditions, an increase in the volatility and
decrease in the liquidity of securities or financial instruments or credits
underlying the short position, which may lower a Fund’s return, result in a
loss, have the effect of limiting the Fund’s ability to obtain inverse exposure
through financial instruments, or requiring the Fund to seek inverse exposure
through alternative investment strategies that may be
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less
desirable or more costly to implement. To the extent that, at any particular
point in time, the securities or financial instruments or credits underlying the
short position may be thinly-traded or have a limited market, including due to
regulatory action, a Fund may be unable to meet its investment objective (e.g.,
due to a lack of available securities or financial instruments or
counterparties). During such periods, the Fund’s ability to issue additional
Creation Units may be adversely affected. Obtaining inverse exposure may be
considered an aggressive investment technique. Any income, dividends or payments
by the assets underlying a Fund’s short positions will negatively impact
the
Fund.
●U.S.
Treasury Markets — U.S. Treasury
markets can be volatile, and the value of instruments correlated with these
markets may fluctuate dramatically from day-to-day. Fixed income markets are
subject to adverse issuer, political, regulatory, market and economic
developments, as well as developments that impact specific economic sectors,
industries or segments of the market. These factors may also lead to increased
volatility and reduced liquidity in the fixed-income markets. Equity securities
generally have greater price volatility than fixed income securities, although
under certain market conditions fixed income securities may have comparable or
greater price volatility. All U.S. government securities are subject to credit
risk. It is possible that the U.S. government may not be able to meet its
financial obligations or that securities issued by the U.S. government may
experience credit downgrades. Any credit event may also adversely affect the
financial markets.
●Liquidity
Risk —
In certain circumstances, such as the disruption of the orderly markets for the
financial instruments in which a Fund invests, the Fund might not be able to
acquire or dispose of certain holdings quickly or at prices that represent true
market value in the judgment of ProShare Advisors. Markets for the financial
instruments in which a Fund invests may be disrupted by a number of events,
including but not limited to economic crises, political crises, health crises,
natural disasters, excessive volatility, new legislation, or regulatory changes
inside or outside of the U.S. For example, regulation limiting the ability of
certain financial institutions to invest in certain financial instruments would
likely reduce the liquidity of those instruments. These situations may prevent a
Fund from limiting losses or realizing gains.
●Tax
Risk —
The Fund intends to qualify annually and to elect to be treated as a regulated
investment company (“RIC”) under the Internal Revenue Code of 1986, as amended
(the “Code”). To qualify for the favorable U.S. federal income tax treatment
generally accorded to RICs, the Fund must, among other things, (i) derive in
each taxable year at least 90% of its gross income from dividends, interest,
payments with respect to securities loans and gains from the sale or other
disposition of stock, securities or foreign currencies or other income derived
with respect to its business of
investing
in such stock, securities or currencies, or net income derived from interests in
certain publicly traded partnerships; (ii) diversify its holdings so that, at
the end of each quarter of the taxable year, (a) at least 50% of the market
value of the Fund’s assets is represented by cash and cash items (including
receivables), U.S. government securities, the securities of other RICs and other
securities, with such other securities of any one issuer generally limited for
the purposes of this calculation to an amount not greater than 5% of the value
of the Fund’s total assets and not greater than 10% of the outstanding voting
securities of such issuer, and (b) not more than 25% of the value of its total
assets is invested in the securities (other than U.S. government securities or
the securities of other RICs) of any one issuer, or two or more issuers which
the Fund controls which are engaged in the same, similar or related trades or
businesses, or the securities of one or more of certain publicly traded
partnerships; and (iii) distribute at least 90% of its investment company
taxable income (which includes, among other items, dividends, interest and net
short-term capital gains in excess of net long-term capital losses) and at least
90% of its net tax-exempt interest income each taxable year. There are certain
exceptions for failure to qualify if the failure is for reasonable cause or is
de minimis, and certain corrective action is taken and certain
tax payments are made by the Fund.
The
authority with regard to swaps entered into by RICs is unclear both as to the
qualification under the income test and the identification of the issuer under
the diversification test. The Fund intends to take the position that because the
swaps held by the Fund reference securities that the income on the swaps are
“other income” from the Fund’s business of investing in stocks and securities.
In addition, the Fund intends to manage its investments in the swaps so that
neither the exposure to issuer of the referenced security nor the exposure to
any one counterparty of the swaps will exceed 25% of the gross value of the
Fund’s portfolio at the end of any quarter. If the Fund were to fail to meet the
qualifying income test or asset diversification test and fail to qualify as a
RIC, it would be taxed in the same manner as an ordinary corporation, and
distributions to its shareholders would not be deductible by the Fund in
computing its taxable income, which would adversely affect the
Fund’s performance.
Other
Risks
In
addition to the risks noted above, many other factors may also affect the value
of an investment in a Fund, such as market conditions, interest rates and other
economic, political or financial developments. The impact of these developments
on a Fund will depend upon the types of investments in which the Fund invests,
the Fund’s level of investment in particular issuers and other factors,
including the financial condition, industry, economic sector and location of
such issuers. The SAI contains additional information about each Fund, its
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investment
strategies and related risks. Each Fund may be subject to other risks in
addition to those identified as principal risks.
●Cybersecurity
Risk —
With the increased use of technologies such as the Internet and the dependence
on computer systems to perform necessary business functions, each Fund,
Authorized Participants, service providers and the relevant listing exchange are
susceptible to operational, information security and related “cyber” risks. In
general, cyber incidents can result from deliberate attacks or unintentional
events. Cyber attacks include, but are not limited to gaining unauthorized
access to digital systems for purposes of misappropriating assets or sensitive
information, corrupting data, or causing operational disruption. Cyber attacks
may also be carried out in a manner that does not require gaining unauthorized
access, for example, stealing or corrupting data maintained digitally and denial
of service attacks on websites. Cybersecurity failures or breaches of a Fund’s
third party service providers (including, but not limited to, index providers,
the custodian, administrator and transfer agent) or the issuers of securities
and/or financial instruments in which the Fund invests, 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. For instance, cyber attacks may
interfere with the processing of shareholder transactions, impact a Fund’s
ability to calculate its NAV, cause the release of private shareholder
information or confidential Fund information, impede trading, cause reputational
damage, and subject the Fund to regulatory fines, penalties or financial losses,
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. A Fund and its shareholders could be negatively
impacted as a result. While a Fund or its service providers may have established
business continuity plans and systems designed to guard against such cyber
attacks or adverse effects of such attacks, there are inherent limitations in
such plans and systems including the possibility that certain risks have not
been identified, in large part because different unknown threats may emerge in
the future. Similar types of cybersecurity risks also are present for issuers of
securities in which a Fund invests, which could result in material adverse
consequences for such issuers, and may cause the Fund’s investments in such
securities to lose value. In addition, cyber attacks involving a counterparty to
a Fund could affect such a counterparty’s ability to meets it obligations to the
Fund, which may result in losses to the Fund and its shareholders. ProShare
Advisors and the Trust do not control the cybersecurity plans and systems put in
place by third party service providers, and such third party service
providers
may have no or limited indemnification obligations
to ProShare Advisors or a Fund.
●Risk
of Global Economic Shock — Economic,
financial, public health, labor and other global market developments and
disruptions, including public health emergencies (such as the spread of
infectious diseases, pandemics and epidemics, natural or environmental
disasters, war, terrorism, social unrest, recessions, inflation, rapid interest
rate changes, supply chain disruptions, governmental or quasi-governmental
actions (including sanctions and other similar measures) and other circumstances
in one country or region have been and may continue to be highly disruptive to
economies and markets. Health crises could exacerbate political, social, and
economic risks, and result in breakdowns, delays, shutdowns, social isolation,
civil unrest, periods of high unemployment, shortages in and disruptions to the
medical care and consumer goods and services industries, and other disruptions
to important global, local and regional supply chains, with potential
corresponding results on the performance of a Fund and its
investments.
Additionally,
wars, military conflicts, sanctions, acts of terrorism, sustained elevated
inflation, supply chain issues, the institution of tariffs or other trade
barriers, or other events could have a significant negative impact on global
financial markets and economies. Russia’s military incursions in Ukraine have
led to, and may lead to additional sanctions being levied by the United States,
European Union and other countries against Russia. The ongoing hostilities
between the two countries could result in additional widespread conflict and
could have a severe adverse effect on the region and certain markets. Sanctions
on Russian exports could have a significant adverse impact on the Russian
economy and related markets and could affect the value of a Fund’s investments,
even beyond any direct exposure a Fund may have to the region or to adjoining
geographic regions. The extent and duration of the military action, sanctions
and resulting market disruptions are impossible to predict, but could have a
severe adverse effect on the region, including significant negative impacts on
the economy and the markets for certain securities and commodities, such as oil
and natural gas. Furthermore, the possibility of a prolonged conflict between
Hamas and Israel, and the potential expansion of the conflict in the surrounding
areas and the involvement of other nations in such conflict, such as the Houthi
movement’s attacks on marine vessels in the Red Sea, could further destabilize
the Middle East region and introduce new uncertainties in global markets,
including the oil and natural gas markets. How long such tensions and related
events will last cannot be predicted. These tensions and any related events
could have significant impact on a Fund performance and the value of an
investment in a Fund.
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●Natural
Disaster/Epidemic Risk — Natural or
environmental disasters, such as earthquakes, fires, floods, hurricanes,
tsunamis and other severe weather-related phenomena generally, and widespread
disease, including pandemics and epidemics (for example, COVID-19), have been
and can be highly disruptive to economies and markets and have recently led, and
may continue to lead, to increased market volatility and significant market
losses. Such natural disaster and health crises could exacerbate political,
social, and economic risks, and result in significant breakdowns, delays,
shutdowns, social isolation, and other disruptions to important global, local
and regional supply chains affected, with potential corresponding results on the
operating performance of each Fund and its investments. A climate of uncertainty
and panic, including the contagion of infectious viruses or diseases, may
adversely affect global, regional, and local economies and reduce the
availability of potential investment opportunities, and increases the difficulty
of performing due diligence and modeling market conditions, potentially reducing
the accuracy of financial projections. Under these circumstances, each Fund may
have difficulty achieving its investment objectives which may adversely impact
Fund performance. Further, such events can be highly disruptive to economies and
markets, significantly disrupt the operations of individual companies
(including, but not limited to, each Fund’s investment advisor, third party
service providers, and counterparties), sectors, industries, markets, securities
and commodity exchanges, currencies, interest and inflation rates, credit
ratings, investor sentiment, and other factors affecting the value of each
Fund’s investments. These factors can cause substantial market volatility,
exchange trading suspensions and closures, changes in the availability of and
the margin requirements for certain instruments, and can impact the ability of
each Fund to complete redemptions and otherwise affect Fund performance and Fund
trading in the secondary market. A widespread crisis would also affect the
global economy in ways that cannot necessarily be foreseen. How long such events
will last and whether they will continue or recur cannot be predicted. Impacts
from these events could have a significant impact on each Fund’s performance,
resulting in losses to your investment.
●Operational
Risk —
A Fund, its service providers, Authorized Participants, and the relevant listing
exchange are subject to operational risks arising from, among other things,
human error, systems and technology errors and disruptions, failed or inadequate
controls, and fraud. These errors may adversely affect a Fund’s operations,
including its ability to execute its investment process, calculate or
disseminate its NAV or intraday indicative optimized portfolio value in a timely
manner, and process creations or redemptions. While a Fund seeks to minimize
such events through controls and oversight, there may still be failures and a
Fund may be unable to recover any damages associated with such failures. These
failures may have a material adverse effect on a Fund’s
returns.
●Portfolio
Turnover Risk — A Fund may incur
high portfolio turnover to manage the Fund’s investment exposure. Additionally,
active market trading of a Fund’s shares may cause more frequent creation or
redemption activities that could, in certain circumstances, increase the number
of portfolio transactions. High levels of portfolio transactions increase
brokerage and other transaction costs and may result in increased taxable
capital gains. Each of these factors could have a negative impact on the
performance of a Fund.
●Securities
Lending Risk — A Fund may engage
in securities lending. Securities lending involves the risk, as with other
extensions of credit, that a Fund may lose money because (a) the borrower of the
loaned securities fails to return the securities in a timely manner or at all or
(b) it loses its rights in the collateral should the borrower fail financially.
A Fund could also lose money in the event of a decline in the value of
collateral provided for loaned securities or a decline in the value of any
investments made with cash collateral. These events could also trigger adverse
tax consequences for a Fund. In determining whether to lend securities, ProShare
Advisors or the Fund’s securities lending agent will consider relevant facts and
circumstances, including the creditworthiness of the
borrower.
●Trading
Risks —
The shares of each Fund are listed for trading on the listing exchange
identified on the cover of this Prospectus, may be listed or traded on U.S. and
non-U.S. stock exchanges other than such exchange, and may trade on an
electronic communications network. Nevertheless, there can be no assurance that
an active trading market for such shares will develop or be maintained. Trading
in shares of a Fund on an exchange may be halted due to market conditions or for
reasons that, in the view of an exchange, make trading in shares inadvisable. In
addition, trading in shares of a Fund on an exchange is subject to trading halts
caused by extraordinary market volatility pursuant to exchange “circuit breaker”
rules. There can be no assurance that the requirements of the exchange necessary
to maintain the listing of a Fund will continue to be met or will remain
unchanged or that the shares of a Fund will trade with any volume, or at all, on
any stock exchange or other venue.
●Valuation
Risk —
In certain circumstances (e.g., if ProShare Advisors believes market quotations
are not reliable, or a trading halt closes an exchange or market early),
ProShare Advisors may, pursuant to procedures approved by the Board of Trustees
of a Fund, choose to determine a fair value price as the basis for determining
the value of such investment for such day. The fair value of an investment
determined by ProShare Advisors may be different from other value determinations
of the same investment. Portfolio investments that are valued using techniques
other than market quotations, including “fair valued” investments, may be
subject to greater fluctuation in their value from one day to the next than
would be the case if market quotations were used. In addition, there is no
assurance that a Fund could sell a portfolio investment for the value
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established
for it at any time, and it is possible that a Fund would incur a loss because a
portfolio investment is sold at a
discount to its established value.
●Risks
of Government Regulation —The Financial
Industry Regulatory Authority (“FINRA”) issued a notice on March 8, 2022 seeking
comment on measures that could prevent or restrict investors from buying a broad
range of public securities designated as “complex products” — which could
include the leveraged and inverse funds offered by ProShare Advisors. The
ultimate impact, if any, of these measures remains unclear. However, if
regulations are adopted, they could, among other things, prevent or restrict
investors’ ability to buy the funds.
Additional
Securities, Instruments and Strategies
This
section describes additional securities, instruments and strategies that may be
utilized by a Fund that are not principal investment strategies of a Fund unless
otherwise noted in the Fund’s description of principal strategies in the Fund’s
Summary Prospectus. Additional Information about the types of investments that
a Fund may make is set forth in the SAI.
●Securities
Lending
— A Fund may lend securities to brokers, dealers and financial organizations
under guidelines adopted by the Board. A Fund may loan up to one-third of the
value of the Fund’s total assets (including the value of any collateral
received). Each loan may be secured by collateral in the form of cash, Money
Market Instruments or U.S. Government securities.
Precautionary
Notes
A
Precautionary Note to Retail Investors — The Depository
Trust Company
(“DTC”), a limited trust company and securities depositary that serves as a
national clearinghouse for the settlement of trades for its participating banks
and broker-dealers, or its nominee will be the registered owner of all
outstanding shares of each Fund. Your ownership of shares will be shown on the
records of DTC and the DTC Participant broker through whom you hold the shares.
PROSHARES TRUST WILL NOT HAVE ANY RECORD OF YOUR OWNERSHIP. Your account
information will be maintained by your broker, who will provide you with account
statements, confirmations of your purchases and sales of shares, and tax
information. Your broker also will be responsible for furnishing certain cost
basis information and ensuring that you receive shareholder reports and other
communications from the Fund whose shares you own. Typically, you will receive
other services (e.g., average cost information) only if your broker offers these
services.
A
Precautionary Note to Purchasers of Creation Units — You should be
aware
of certain legal risks unique to investors purchasing Creation Units directly
from the issuing Fund. Because new shares from a Fund may be issued on an
ongoing basis, a “distribution” of that Fund’s shares could be occurring at any
time. As a dealer, certain activities on your part could, depending on the
circumstances, result in your being deemed a participant in the distribution, in
a manner that could render you
a
statutory underwriter and subject you to the prospectus delivery and liability
provisions of the Securities Act of 1933. For example, you could be deemed a
statutory underwriter if you purchase Creation Units from an issuing Fund, break
them down into the constituent shares, and sell those shares directly to
customers, or if you choose to couple the creation of a supply of new shares
with an active selling effort involving solicitation of secondary market demand
for shares. Whether a person is an underwriter depends upon all of the facts and
circumstances pertaining to that person’s activities, and the examples mentioned
here should not be considered a complete description of all the activities that
could cause you to be deemed an underwriter. Dealers who are not “underwriters,”
but are participating in a distribution (as opposed to engaging in ordinary
secondary market transactions), and thus dealing with shares as part of an
“unsold allotment” within the meaning of Section 4(3)(C) of the Securities Act,
will be unable to take advantage of the prospectus delivery exemption provided
by Section 4(3) of the Securities Act.
A
Precautionary Note to Investment Companies — For purposes of
the 1940
Act, each Fund is a registered investment company, and the acquisition of a
Fund’s shares by other investment companies is subject to the restrictions of
Section 12(d)(1) thereof. Any investment company considering purchasing shares
of a Fund in amounts that would cause it to exceed the restrictions of Section
12(d)(1) should contact the Trust. Rule 12d1-4 under the 1940 Act permits
investments in acquired funds in excess of the limits of Section 12(d)(1)
subject to certain conditions. Among these conditions, prior to a fund acquiring
securities of another fund exceeding the limits of Section 12(d)(1), the
acquiring fund must enter into a “Fund of Funds Investment Agreement” with the
acquired fund setting forth the material terms of
the arrangement.
A
Precautionary Note Regarding Unusual Circumstances — ProShares
Trust
can, in its discretion, postpone payment of redemption proceeds for any period
during which: (1) the applicable Exchange is closed other than customary weekend
and holiday closings; (2) trading on the applicable Exchange is restricted; (3)
any emergency circumstances exist, as determined by the SEC; (4) the SEC by
order permits for the protection of shareholders of a Fund; and (5) for up to 14
calendar days for any Fund holding non-U.S. investments during a period of an
international local holiday, as further described in the
SAI.
A
Precautionary Note Regarding Regulation of Derivatives — Current
global
regulation of and future changes with respect to derivatives may alter, perhaps
to a material extent, the nature of an investment in a Fund or the ability of a
Fund to continue to implement its
investment strategies.
The
derivatives markets are subject to comprehensive statutes and regulations,
including margin requirements. In addition, certain regulators including the
CFTC and the exchanges on which certain derivatives trade are authorized to take
extraordinary actions in the event of a market emergency, including, for
example, in respect of the futures markets, the