Item 1 of this Annual Report on Form 10-K, each “Ultra” Fund seeks daily investment results (before fees and expenses) that correspond to twice (200%) the daily performance of its corresponding benchmark. Each “Short” Fund will seek daily investment results (before fees and expenses) that correspond to the inverse (opposite) of the daily performance of its corresponding benchmark. Each “UltraShort” Fund seeks daily investment results (before fees and expenses) that correspond to twice (200%) the inverse (opposite) of the daily performance of its corresponding benchmark. The Short Funds, together with the Leveraged Funds are referred to as the “Geared Funds” in this Annual Report on Form 10-K. Each VIX Fund seeks daily investment results (before fees and expenses) that match the performance of a benchmark. Each VIX Fund intends to obtain exposure to its VIX Futures Index by investing in futures contracts. Each of the Geared Funds generally invests or will invest in Financial Instruments (i.e., commodity-based or currency-based instruments whose value is derived from the value of an underlying asset, rate or index) as a substitute for investing directly in a commodity or currency in order to gain exposure to the commodity index, commodity or currency. The Financial Instruments in which ProShares Short Natural Gas will invest are limited to futures contracts. Financial Instruments also are used to produce economically “leveraged” or “inverse” investment results and may include futures contracts and options on futures contracts, swap agreements, forward contracts and other commodity-based or currency-based options contracts.
Each Geared Fund seeks investment results for a single day only, not for longer periods. This is different from most exchange-traded funds and means that the return of such Fund for a period longer than a single trading day will be the result of each day’s returns compounded over the period, which will very likely differ from 200%, -100% or -200% of the return of the index to which such Fund is benchmarked for that period. In periods of higher market volatility, the volatility of the benchmark may be at least as important to a Geared Fund’s return for the period as the return of the benchmark. Geared Funds are riskier than similarly benchmarked exchange-traded funds that are not geared. Accordingly, these funds may not be suitable for all investors and should be used only by knowledgeable investors who understand the potential consequences of seeking daily inverse investment results. Shareholders should actively monitor their investments.
The VIX Funds will seek to achieve their stated investment objective both over a single day and over time.
Liquidity and Capital Resources
In order to collateralize derivatives positions in 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/or used as margin for 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 year ended December 31, 2010 and 2009 and the period ended December 31, 2008, each of the Leveraged Funds earned interest income as follows:
Each Fund’s underlying swaps, futures and forward contracts, as the case may be, are subject to periods of illiquidity because of market conditions, regulatory considerations and other reasons. For example, swaps and forward contracts are not traded on an exchange, do not have uniform terms and conditions, and in general are not transferable without the consent of the counterparty. In the case of futures contracts, commodity exchanges may limit fluctuations in certain futures contract prices during a single day by regulations referred to as “daily limits.” During a single day, no futures trades may be executed at prices beyond the daily limit. Once the price of a futures contract has increased or decreased by an amount equal to the daily limit, positions in such futures contracts can neither be taken nor liquidated unless the traders are willing to effect trades at or within the limit. Futures contract prices have occasionally moved the daily limit for several consecutive days with little or no trading. Such market conditions could prevent a Fund from promptly liquidating its futures positions.
Entry into swap agreements or forward contracts may further impact liquidity because these contractual agreements are executed “off-exchange” between private parties and, therefore, the time required to offset or “unwind” these positions may be greater than that for exchange-traded instruments. This potential delay could be exacerbated to the extent a counterparty is not a United States person.
The Trust is unaware of any other trends, demands, conditions or events that are reasonably likely to result in material changes to the Trust’s liquidity needs.
Because each Fund may enter into swaps and may trade futures and forward contracts, its capital is at risk due to changes in the value of these contracts (market risk) or the inability of counterparties to perform under the terms of the contracts (credit risk).
Results of Operations for the Year Ended December 31, 2010 Compared to the Year Ended December 31, 2009 and the Period Ended December 31, 2008
Since the Leveraged Funds were conducting operations for only a portion of the year ended December 31, 2008, the comparison of the results of operations of each Leveraged Fund for the period ended December 31, 2008 to the years ended December 31, 2009 and 2010 may not be meaningful.
NAV of ProShares Ultra DJ-UBS Commodity
Fund Performance
During the year ended December 31, 2010, the Fund’s NAV decreased from $19,743,932 at December 31, 2009 to $18,186,658 at December 31, 2010. The decrease in the Fund’s NAV resulted from a decrease in outstanding Shares, which decreased from 700,014 Shares at December 31, 2009 to 500,014 Shares at December 31, 2010 due to 400,000 Shares (8 Creation Units) being created and 600,000 Shares (12 Creation Units) being redeemed during the period. 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 200% of the daily performance of the Dow Jones-UBS Commodity Index. By comparison, during the year ended December 31, 2009, the Fund’s NAV increased from $3,325,011 at December 31, 2008 to $19,743,932 at December 31, 2009. The increase in the Fund’s NAV resulted primarily from an increase in outstanding Shares, which increased from 150,014 Shares at December 31, 2008 to 700,014 Shares at December 31, 2009 due to 1,200,000 Shares (24 Creation Units) being created and 650,000 Shares (13 Creation Units) being redeemed during the period. 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 200% of the daily performance of the Dow Jones-UBS Commodity Index. By comparison, during the period ended December 31, 2008, the Fund’s NAV increased from $350 at November 24, 2008 to $3,325,011 at December 31, 2008. The increase in the Fund’s NAV resulted primarily from an increase in outstanding Shares, which increased from 14 Shares at November 24, 2008 to 150,014 Shares at December 31, 2008 due to 150,000 Shares (3 Creation Units) being created and no Shares being redeemed during the period. 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 200% of the daily performance of the Dow Jones-UBS Commodity Index.
For the year ended December 31, 2010, the year ended December 31, 2009 and the period ended December 31, 2008, over which the Fund’s daily performance had a statistical correlation over 0.99 to 200% of the daily performance of its benchmark, the Fund’s per Share NAV increased by 29.0%, increased by 27.3% and decreased by 11.3%, respectively. The increase of 29.0% for the year ended December 31, 2010, as compared to the increase of 27.3% for the year ended December 31, 2009, was primarily due to a relatively higher appreciation in the value of the assets of the Fund during the year ended December 31, 2010. The increase of 27.3% for the year ended December 31, 2009, as compared to the decrease of 11.3% for the period ended December 31, 2008, was primarily due to an appreciation in the value of the assets of the Fund during the year ended December 31, 2009.
During the year ended December 31, 2010, the Fund’s NAV reached its high for the year on December 31, 2010 at $36.37 per share and reached its low for the year on June 4, 2010 at $21.14 per share. By comparison, during the year ended December 31, 2009, the Fund’s NAV reached its high for the year on December 28, 2009 at $28.56 per share and reached its low for the year on March 2, 2009 at $16.43 per share. By comparison, during the period ended December 31, 2008, the Fund’s NAV reached its high for the period on November 26, 2008 at $25.14 per share and reached its low for the period on December 5, 2008 at $18.27 per share.
During the year ended December 31, 2010, the benchmark index rose by a cumulative 16.8% and had an annualized volatility of 17%. By comparison, during the year ended December 31, 2009 and the period ended December 31, 2008, the benchmark index rose by a cumulative 18.9% and declined by a cumulative 5.2%, respectively, and had an annualized volatility of 25% and 33%, respectively. The benchmark’s rise of 16.8% for the year ended December 31, 2010, as compared to the benchmark’s rise of 18.9% for the year ended December 31, 2009, can be attributed to a relatively lower appreciation of the underlying components of the index, namely Crude Oil, during the year ended December 31, 2010. The benchmark’s rise of 18.9% for the year ended December 31, 2009, as compared to the benchmark’s decline of 5.2% for the period ended December 31, 2008, can be attributed to the general appreciation of the underlying components of the index, namely Crude Oil and Gold, during the year ended December 21, 2009.
Net Income/Loss
For the year ended December 31, 2010, the Fund’s net income was $2,862,515, resulting from a net investment loss of $101,507, inclusive of management fees of $123,162 (.95% of the Fund’s average weighted assets of
$12,964,435), a net realized gain of $2,384,616 and a change in net unrealized appreciation/depreciation of $579,406. By comparison, for the year ended December 31, 2009, the Fund’s net income was $5,112,634, resulting from a net investment loss of $159,995, inclusive of management fees of $95,273 (.95% of the Fund’s average weighted assets of $17,359,241) and offering costs of $69,640, a net realized gain of $4,280,412 and a change in net unrealized appreciation/depreciation of $992,217. The Fund’s net income decreased for the year ended December 31, 2010, as compared to the year ended December 31, 2009 primarily due to a relatively lower appreciation of the underlying components of the index, notably Crude Oil. By comparison, for the period ended December 31, 2008, the Fund’s net loss was $226,064, resulting from a net investment loss of $2,396, inclusive of , organization costs of $27,952, offering costs of $7,855 and offset by limitation by Sponsor of $33,411, a net realized loss of $408,251 and a change in net unrealized appreciation/depreciation of $184,583. The Fund’s net income increased for the year ended December 31, 2009, as compared to the period ended December 31, 2008 primarily due to a significant appreciation of the underlying components of the index, notably Crude Oil and Gold.
NAV of ProShares UltraShort DJ-UBS Commodity
Fund Performance
During the year ended December 31, 2010, the Fund’s NAV decreased from $2,924,426 at December 31, 2009 to $1,440,073 at December 31, 2010. The decrease in the Fund’s NAV resulted primarily from a decrease in outstanding Shares, which decreased from 40,003 Shares at December 31, 2009 to 30,003 Shares at December 31, 2010 due to 50,000 Shares (5 Creation Units) being created and 60,000 Shares (6 Creation Units) being redeemed during the period. 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 200% of the inverse of the daily performance of the Dow Jones-UBS Commodity Index. By comparison, during the year ended December 31, 2009, the Fund’s NAV increased from $2,679,883 at December 31, 2008 to $2,924,426 at December 31, 2009. The increase in the Fund’s NAV resulted primarily from an increase in outstanding Shares, which increased from 20,003 Shares at December 31, 2008 to 40,003 Shares at December 31, 2009 due to 40,000 Shares (4 Creation Units) being created and 20,000 Shares (2 Creation Units) being redeemed during the period. 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 200% of the inverse of the daily performance of the Dow Jones-UBS Commodity Index. By comparison, during the period ended December 31, 2008, the Fund’s NAV increased from $350 at November 24, 2008 to $2,679,883 at December 31, 2008. The increase in the Fund’s NAV resulted primarily from an increase in outstanding Shares, which increased from 3 Shares at November 24, 2008 to 20,003 Shares at December 31, 2008 due to 20,000 Shares (2 Creation Units) being created and no Shares being redeemed during the period. 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 200% of the inverse of the daily performance of the Dow Jones-UBS Commodity Index.
For the year ended December 31, 2010, the year ended December 31, 2009 and the period ended December 31, 2008, over which the Fund’s daily performance had a statistical correlation over 0.99 to 200% of the inverse of the daily performance of its benchmark, the Fund’s per Share NAV decreased by 34.3%, decreased by 45.4% and increased by 7.2%, respectively. The decrease of 34.3% for the year ended December 31, 2010, as compared to the decrease of 45.4% for the year ended December 31, 2009, was primarily due to a relatively lower depreciation in the value of the assets of the Fund during the year ended December 31, 2010. The decrease of 45.4% for the year ended December 31, 2009, as compared to the increase of 7.2% for the period ended December 31, 2008, was primarily due to a depreciation in the value of the assets of the Fund during the year ended December 31, 2009.
During the year ended December 31, 2010, the Fund’s NAV reached its high for the year on June 4, 2010 at $90.42 per share and reached its low for the year on December 31, 2010 at $48.00 per share. By comparison, during the year ended December 31, 2009, the Fund’s NAV reached its high for the year on March 2, 2009 at $167.56 per share and reached its low for the year on December 28, 2009 at $72.23 per share. By comparison, during the period ended December 31, 2008, the Fund’s NAV reached its high for the period on December 5, 2008 at $166.86 per share and reached its low for the period on November 26, 2008 at $123.82 per share.
During the year ended December 31, 2010, the benchmark index rose by a cumulative 16.8% and had an annualized volatility of 17%. By comparison, during the year ended December 31, 2009 and the period ended December 31, 2008, the benchmark index rose by a cumulative 18.9% and declined by a cumulative 5.2%, respectively, and had an annualized volatility of 25% and 33%, respectively. The benchmark’s rise of 16.8% for the year ended December 31, 2010, as compared to the benchmark’s rise of 18.9% for the year ended December 31, 2009, can be attributed to a relatively lower appreciation of the underlying components of the index, namely Crude Oil, during the year ended December 31, 2010. The benchmark’s rise of 18.9% for the year ended December 31, 2009, as compared to the benchmark’s decline of 5.2% for the period ended December 31, 2008, can be attributed to the general appreciation of the underlying components of the index, namely Crude Oil and Gold, during the year ended December 31, 2009.
Net Income/Loss
For the year ended December 31, 2010, the Fund’s net loss was $662,871, resulting from a net investment loss of $24,504, inclusive of management fees of $28,279 (.95% of the Fund’s average weighted assets of $2,976,770), a net realized loss of $691,027 and a change in net unrealized appreciation/depreciation of $52,660. By comparison, for the year ended December 31, 2009, the Fund’s net loss was $2,304,400, resulting from a net investment loss of $34,690, inclusive of management fees of $3,100 (.95% of the Fund’s average weighted assets of $3,738,109), offering costs of $278,414 and offset by limitation by Sponsor of $246,002, a net realized loss of $2,479,160 and a change in net unrealized appreciation/depreciation of $209,450. The Fund’s net income increased for the year ended December 31, 2010, as compared to the year ended December 31, 2009 primarily due to a relatively lower appreciation of the underlying components of the index, notably Crude Oil. By comparison, for the period ended December 31, 2008, the Fund’s net income was $178,983, resulting from a net investment loss of $2,783, inclusive of organization costs of $27,953, offering costs of $31,406 and offset by limitation by Sponsor of $56,576, a net realized gain of $607,967 and a change in net unrealized appreciation/depreciation of $426,201. The Fund’s net income decreased for the year ended December 31, 2009, as compared to the period ended December 31, 2008 primarily due to a significant appreciation of the underlying components of the index, notably Crude Oil and Gold.
 See Note 10 of the Notes to Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K.
NAV of ProShares Ultra DJ-UBS Crude Oil
Fund Performance
During the year ended December 31, 2010, the Fund’s NAV decreased from $323,819,670 at December 31, 2009 to $228,133,077 at December 31, 2010. The decrease in the Fund’s NAV resulted primarily from a decrease in outstanding Shares, which decreased from 6,412,504 Shares at December 31, 2009 to 4,562,504 Shares at December 31, 2010 due to 29,262,500 Shares (2,341 Creation Units) being created and 31,112,500 Shares (2,489 Creation Units) being redeemed during the period. 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 200% of the daily performance of the Dow-Jones-UBS Crude Oil Sub-Index. By comparison, during the year ended December 31, 2009, the Fund’s NAV increased from $99,772,943 at December 31, 2008 to $323,819,670 at December 31, 2009. The increase in the Fund’s NAV resulted primarily from an increase in outstanding Shares, which increased from 1,687,504 Shares at December 31, 2008 to 6,412,504 Shares at December 31, 2009 due to 31,787,500 Shares (2,543 Creation Units) being created and 27,062,500 Shares (2,165 Creation Units) being redeemed during the period. 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 200% of the daily performance of the Dow-Jones-UBS Crude Oil Sub-Index. By comparison, during the period ended December 31, 2008, the Fund’s NAV increased from $350 at November 24, 2008 to $99,772,943 at December 31, 2008. The increase in the Fund’s NAV resulted primarily from an increase in outstanding Shares, which increased from 4 Shares at November 24, 2008 to 1,687,504 Shares at December 31, 2008 due to 1,812,500 Shares (145 Creation Units) being created and 125,000 Shares (10 Creation Units) being redeemed during the period. 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 200% of the daily performance of the Dow-Jones-UBS Crude Oil Sub-Index.
For the year ended December 31, 2010, the year ended December 31, 2009 and the period ended December 31, 2008, over which the Fund’s daily performance had a statistical correlation over 0.99 to 200% of the daily performance of its benchmark, the Fund’s per Share NAV decreased by 1.0%, decreased by 14.6%, and decreased by 40.9%, respectively. The decrease of 1.0% for the year ended December 31, 2010, as compared to the decrease of 14.6% for the year ended December 31, 2009, was primarily due to a relatively lower depreciation in the value of the assets of the Fund during the year ended December 31, 2010. The decrease of 14.6% for the year ended December 31, 2009, as compared to the decrease of 40.9% for the period ended December 31, 2008, was primarily due to a relatively lower depreciation in the value of the assets of the Fund during the year ended December 31, 2009.
During the year ended December 31, 2010, the Fund’s NAV reached its high for the year on May 3, 2010 at $57.29 per share and reached its low for the year on August 24, 2010 at $33.45 per share. By comparison, during the year
ended December 31, 2009, the Fund’s NAV reached its high for the year on January 6, 2009 at $70.45 per share and reached its low for the year on February 18, 2009 at $23.42 per share. By comparison, during the period ended December 31, 2008, the Fund’s NAV reached its high for the period on November 24, 2008 at $100.00 per share and reached its low for the period on December 24, 2008 at $37.34 per share.
During the year ended December 31, 2010, the benchmark index rose by a cumulative 3.8% and had an annualized volatility of 27%. By comparison, during the year ended December 31, 2009 and the period ended December 31, 2008, the benchmark index rose by a cumulative 4.4% and declined by a cumulative 19.4%, respectively, and had an annualized volatility of 47% and 98%, respectively. The benchmark’s rise of 3.8% for the year ended December 31, 2010, as compared to the benchmark’s rise of 4.4% for the year ended December 31, 2009, can be attributed to a relatively lower increase in the price of WTI Crude Oil during the year ended December 31, 2010. The benchmark’s rise of 4.4% for the year ended December 31, 2009, as compared to the benchmark’s decline of 19.4% for the period ended December 31, 2008, can be attributed to an increase in the price of WTI Crude Oil during the year ended December 31, 2009.
Net Income/Loss
For the year ended December 31, 2010, the Fund’s net income was $121,542,109, resulting from a net investment loss of $2,867,437, inclusive of management fees of $3,172,821 (.95% of the Fund’s average weighted assets of $333,981,174) and brokerage commissions of $146,782, a net realized gain of $151,325,176 and a change in net unrealized appreciation/depreciation of $26,915,630. By comparison, for the year ended December 31, 2009, the Fund’s net income was $123,348,807, resulting from a net investment loss of $2,745,473, inclusive of management fees of $2,460,980 (.95% of the Fund’s average weighted assets of $273,705,841), brokerage commissions of $255,521 and offering costs of $139,226, a net realized gain of $100,784,061 and a change in net unrealized appreciation/depreciation of $25,310,219. The Fund’s net income decreased for the year ended December 31, 2010, as compared to the year ended December 31, 2009 primarily due to a relatively lower increase in the price of WTI Crude Oil. By comparison, for the period ended December 31, 2008, the Fund’s net income was $9,916,323, resulting from a net investment loss of $40,674, inclusive of brokerage commissions of $13,208, organization costs of $27,953, offering costs of $15,705 and offset by limitation by Sponsor of $16,192, a net realized loss of $2,721,403 and a change in net unrealized appreciation/depreciation of $12,678,400. The Fund’s net income increased for the year ended December 31, 2009, as compared to the period ended December 31, 2008 primarily due to a significant increase in the price of WTI Crude Oil.
 See Note 10 of the Notes to Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K.
NAV of ProShares UltraShort DJ-UBS Crude Oil
Fund Performance
During the year ended December 31, 2010, the Fund’s NAV increased from $76,656,626 at December 31, 2009 to $132,214,257 at December 31, 2010. The increase in the Fund’s NAV resulted from an increase in outstanding Shares, which increased from 1,120,003 Shares at December 31, 2009 to 2,600,003 Shares at December 31, 2010 due to 9,150,000 Shares (915 Creation Units) being created and 7,670,000 Shares (767 Creation Units) being redeemed during the period. 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 200% of the inverse of the daily performance of the Dow-Jones-UBS Crude Oil Sub-Index. By comparison, during the year ended December 31, 2009, the Fund’s NAV increased from $14,502,399 at December 31, 2008 to $76,656,626 at December 31, 2009. The increase in the Fund’s NAV resulted primarily from an increase in outstanding Shares, which increased from 100,003 Shares at December 31, 2008 to 1,120,003 Shares at December 31, 2009 due to 4,400,000 Shares (440 Creation Units) being created and 3,380,000 Shares (338 Creation Units) being redeemed during the period. 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 200% of the inverse of the daily performance of the Dow-Jones-UBS Crude Oil Sub-Index. By comparison, during the period ended December 31, 2008, the Fund’s NAV increased from $350 at November 24, 2008 to $14,502,399 at December 31, 2008. The increase in the Fund’s NAV resulted primarily from an increase in outstanding Shares, which increased from 3 Shares at November 24, 2008 to 100,003 Shares at December 31, 2008 due to 120,000 Shares (12 Creation Units) being created and 20,000 Shares (2 Creation Units) being redeemed during the period. 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 200% of the inverse of the daily performance of the Dow Jones-UBS Crude Oil Sub-Index.
For the year ended December 31, 2010, the year ended December 31, 2009 and the period ended December 31, 2008, over which the Fund’s daily performance had a statistical correlation over 0.99 to 200% of the inverse of the daily performance of its benchmark, the Fund’s per Share NAV decreased by 25.7%, decreased by 52.8% and increased by 16.0%, respectively. The decrease of 25.7% for the year ended December 31, 2010, as compared to the decrease of 52.8% for the year ended December 31, 2009, was primarily due to relatively lower depreciation in the value of the assets of the Fund during the year ended December 31, 2010. The decrease of 52.8% for the year ended December 31, 2009, as compared to the increase of 16.0% for the period ended December 31, 2008 was primarily due to a depreciation in the value of the assets of the Fund during the year ended December 31, 2009.
During the year ended December 31, 2010, the Fund’s NAV reached its high for the year on May 25, 2010 at $90.21 per share and reached its low for the year on December 31, 2010 at $50.85 per share. By comparison, during the year ended December 31, 2009, the Fund’s NAV reached its high for the year on February 18, 2009 at $294.60 per share and reached its low for the year on October 21, 2009 at $62.21 per share. By comparison, during the period ended December 31, 2008, the Fund’s NAV reached its high for the period on December 24, 2008 at $255.57 per share and reached its low for the period on November 26, 2008 at $121.71 per share.
During the year ended December 31, 2010, the benchmark rose by a cumulative 3.8% and had an annualized volatility of 27%. By comparison, during the year ended December 31, 2009 and the period ended December 31, 2008, the benchmark rose by a cumulative 4.4% and declined by a cumulative 19.4%, respectively, and had an annualized volatility of 47% and 98%, respectively. The benchmark’s rise of 3.8% for the year ended December 31, 2010, as compared to the benchmark’s rise of 4.4% for the year ended December 31, 2009, can be attributed to a relatively lower increase in the price of WTI Crude Oil during the year ended December 31, 2010. The benchmark’s rise of 4.4% for the year ended December 31, 2009, as compared to the benchmark’s decline of 19.4% for the period ended December 31, 2008, can be attributed to an increase in the price of WTI Crude Oil during the year ended December 31, 2009.
Net Income/Loss
For the year ended December 31, 2010, the Fund’s net income was $11,806,158, resulting from a net investment loss of $784,150, inclusive of management fees of $842,206 (.95% of the Fund’s average weighted assets of $88,653,234) and brokerage commissions of $57,316, a net realized gain of $15,031,019 and a change in net unrealized appreciation/depreciation of $2,440,711. By comparison, for the year ended December 31, 2009, the Fund’s net loss was $17,053,361, resulting from a net investment loss of $785,316, inclusive of management fees of $442,423 (.95% of the Fund’s average weighted assets of $75,877,524), brokerage commissions of $88,885 and offering costs of $278,414, a net realized loss of $15,768,595 and a change in net unrealized appreciation/depreciation of $499,450. The Fund’s net income increased for the year ended December 31, 2010, as compared to the year ended December 31, 2009 primarily due to a relatively lower increase in the price of WTI Crude Oil. By comparison, for the period ended December 31, 2008, the Fund’s net loss was $728,960, resulting from a net investment loss of $11,201, inclusive of brokerage commissions of $4,985, organization costs of $27,953, offering costs of $31,406, and offset by limitation by Sponsor of $53,143, a net realized gain of $2,832,831 and a change in net unrealized appreciation/depreciation of $3,550,590. The Fund’s net income decreased for the year ended December 31, 2009, as compared to the period ended December 31, 2008 primarily due to a significant increase in the price of WTI Crude Oil.
 See Note 10 of the Notes to Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K.
NAV of ProShares Ultra Gold
Fund Performance
During the year ended December 31, 2010, the Fund’s NAV increased from $156,476,709 at December 31, 2009 to $259,562,075 at December 31, 2010. The increase in the Fund’s NAV resulted in part from an increase in outstanding Shares, which increased from 3,550,014 Shares at December 31, 2009 to 3,750,014 Shares at December 31, 2010 due to 1,800,000 Shares (36 Creation Units) being created and 1,600,000 Shares (32 Creation Units) being redeemed during the period. 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 200% of the daily performance of gold bullion as measured by the U.S. Dollar p.m. fixing price for delivery in London. By comparison, during the year ended December 31, 2009, the Fund’s NAV increased from $27,736,722 at December 31, 2008 to $156,476,709 at December 31, 2009. The increase in the Fund’s NAV resulted primarily from an increase in outstanding Shares, which increased from 900,014 Shares at December 31, 2008 to 3,550,014 Shares at December 31, 2009 due to 5,250,000 Shares (105 Creation Units) being created and 2,600,000 Shares (52 Creation Units)
being redeemed during the period. 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 200% of the daily performance of gold bullion as measured by the U.S. Dollar p.m. fixing price for delivery in London. By comparison, during the period ended December 31, 2008, the Fund’s NAV increased from $350 at December 1, 2008 to $27,736,722 at December 31, 2008. The increase in the Fund’s NAV resulted primarily from an increase in outstanding Shares, which increased from 14 Shares at December 1, 2008 to 900,014 Shares at December 31, 2008 due to 900,000 Shares (18 Creation Units) being created and no Shares being redeemed during the period. 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 200% of the daily performance of gold bullion as measured by the U.S. Dollar p.m. fixing price for delivery in London.
For the year ended December 31, 2010, the year ended December 31, 2009 and the period ended December 31, 2008, over which the Fund’s daily performance had a statistical correlation over 0.99 to 200% of the daily performance of its benchmark, the Fund’s per Share NAV increased by 57.0%, increased by 43.0% and increased by 23.3%, respectively. The increase of 57.0% for the year ended December 31, 2010, as compared to the increase of 43.0% for the year ended December 31, 2009, was primarily due to a relatively higher appreciation in the value of the assets of the Fund during the year ended December 31, 2010. The increase of 43.0% for the year ended December 31, 2009, as compared to the increase of 23.3% for the period ended December 31, 2008, was primarily due to a relatively higher appreciation in the value of the assets of the Fund during the year ended December 31, 2009.
During the year ended December 31, 2010, the Fund’s NAV reached its high for the year on November 9, 2010 at $71.39 per share and reached its low for the year on February 5, 2010 at $41.35 per share. By comparison, during the year ended December 31, 2009, the Fund’s NAV reached its high for the year on December 2, 2009 at $55.13 per share and reached its low for the year on January 15, 2009 at $26.63 per share. By comparison, during the period ended December 31, 2008, the Fund’s NAV reached its high for the period on December 29, 2008 at $31.57 per share and reached its low for the period on December 5, 2008 at $23.10 per share.
During the year ended December 31, 2010, the benchmark index rose by a cumulative 29.2% and had an annualized volatility of 16%. By comparison, during the year ended December 31, 2009 and the period ended December 31, 2008, the benchmark index rose by a cumulative 25.0% and 11.8%, respectively, and had an annualized volatility of 22% and 37%, respectively. The benchmark’s rise of 29.2% for the year ended December 31, 2010, as compared to the benchmark’s rise of 25.0% for the year ended December 31, 2009, can be attributed to a relatively higher increase in the price of spot gold in U.S. dollar terms during the year ended December 31, 2010. The benchmark’s rise of 25.0% for the year ended December 31, 2009, as compared to the benchmark’s rise of 11.8% the period ended December 31, 2008, can be attributed to a relatively higher increase in the price of spot gold in U.S. dollar terms during the year ended December 31, 2009.
Net Income/Loss
For the year ended December 31, 2010, the Fund’s net income was $89,318,801, resulting from a net investment loss of $1,595,925, inclusive of management fees of $1,863,659 (.95% of the Fund’s average weighted assets of $196,174,618) and brokerage commissions of $3,806, a net realized gain of $76,444,701 and a change in net unrealized appreciation/depreciation of $14,470,025. By comparison, for the year ended December 31, 2009, the Fund’s net income was $33,794,007, resulting from a net investment loss of $1,247,200, inclusive of management fees of $1,014,224 (.95% of the Fund’s average weighted assets of $136,692,543), brokerage commissions of $4,213 and offering costs of $284,355, a net realized gain of $39,926,104 and a change in net unrealized appreciation/depreciation of $4,884,897. The Fund’s net income increased for the year ended December 31, 2010, as compared to the year ended December 31, 2009 primarily due to an increase in the price of spot gold in U.S. Dollar terms. By comparison, for the period ended December 31, 2008, the Fund’s net income was $1,710,804, resulting from a net investment loss of $10,430, inclusive of brokerage commissions of $110, organization costs of $27,953, offering costs of $25,465 and offset by limitation by Sponsor of $43,098, a net realized gain of $2,267,718 and a change in net unrealized appreciation/depreciation of $546,484. The Fund’s net income increased for the year ended December 31, 2009, as compared to the period ended December 31, 2008 primarily due to an increase in the price of spot gold in U.S. Dollar terms.
NAV of ProShares UltraShort Gold*
Fund Performance
During the year ended December 31, 2010, the Fund’s NAV increased from $67,602,811 at December 31, 2009 to $77,732,507 at December 31, 2010. The increase in the Fund’s NAV resulted from an increase in outstanding Shares, which increased from 1,290,003 Shares at December 31, 2009 to 2,739,901 Shares at December 31, 2010 due to 2,100,000 Shares (42 Creation Units) being created and 650,102 Shares (13 Creation Units) being redeemed during the period. 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 200% of the inverse of the daily performance of gold bullion as measured by the U.S. Dollar p.m. fixing price for delivery in London. By comparison, during the year ended December 31, 2009, the Fund’s NAV increased from $3,875,093 at December 31, 2008 to $67,602,811 at December 31, 2009. The increase in the Fund’s NAV resulted primarily from an increase in outstanding Shares, which increased from 40,003 Shares at December 31, 2008 to 1,290,003 Shares at December 31, 2009 due to 1,970,000 Shares (197 Creation Units) being created and 720,000 Shares (72 Creation Units) being redeemed during the period. 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 200% of the inverse of the daily performance of gold bullion as measured by the U.S. Dollar p.m. fixing price for delivery in London. By comparison, during the period ended December 31, 2008, the Fund’s NAV increased from $350 at December 1, 2008 to $3,875,093 at December 31, 2008. The increase in the Fund’s NAV resulted primarily from an increase in outstanding Shares, which increased from 3 Shares at December 1, 2008 to 40,003 Shares at December 31, 2008 due to 40,000 Shares (4 Creation Units) being created and no Shares being redeemed during the period. 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 200% of the inverse of the daily performance of gold bullion as measured by the U.S. Dollar P.M. fixing price for delivery in London.
For the year ended December 31, 2010, the year ended December 31, 2009 and the period ended December 31, 2008, over which the Fund’s daily performance had a statistical correlation over 0.99 to 200% of the inverse of the daily performance of its benchmark, the Fund’s per Share NAV decreased by 45.9%, decreased by 45.9% and decreased by 22.5%, respectively. The decrease of 45.9% for the year ended December 31, 2010, as compared to the decrease of 45.9% for the year ended December 31, 2009, was primarily due to relatively stable value of the assets of the Fund. The decrease of 45.9% for the year ended December 31, 2009, as compared to the decrease of 22.5% for the period ended December 31, 2008, was primarily due to a relatively higher depreciation in the value of the assets of the Fund during the year ended December 31, 2009.
During the year ended December 31, 2010, the Fund’s NAV reached its high for the year on February 5, 2010 at $54.47 per share and reached its low for the year on December 7, 2010 at $28.07 per share. By comparison, during the year ended December 31, 2009, the Fund’s NAV reached its high for the year on January 15, 2009 at $111.08 per share and reached its low for the year on December 2, 2009 at $42.70 per share. By comparison, during the period ended December 31, 2008, the Fund’s NAV reached its high for the period on December 5, 2008 at $134.25 per share and reached its low for the period on December 29, 2008 at $94.70 per share.
During the year ended December 31, 2010, the benchmark index rose by a cumulative 29.2% and had an annualized volatility of 16%. By comparison, during the year ended December 31, 2009 and the period ended December 31, 2008, the benchmark index rose by a cumulative 25.0% and 11.8%, respectively, and had an annualized volatility of 22% and 37%, respectively. The benchmark’s rise of 29.2% for the year ended December 31, 2010, as compared to the benchmark’s rise of 25.0% for the year ended December 31, 2009, can be attributed to a relatively higher increase in the price of spot gold in U.S. dollar terms during the year ended December 31, 2010. The benchmark’s rise of 25.0% for the year ended December 31, 2009, as compared to the benchmark’s rise of 11.8% for the period ended December 31, 2008, can be attributed to a relatively higher increase in the price of spot gold in U.S. dollar terms during the year ended December 31, 2009.
Net Income /Loss
For the year ended December 31, 2010, the Fund’s net loss was $43,822,332, resulting from a net investment loss of $592,970, inclusive of management fees of $693,428 (.95% of the Fund’s average weighted assets of $72,992,464) and brokerage commissions of $3,103, a net realized loss of $37,767,467 and a change in net unrealized appreciation/depreciation of $5,461,895. By comparison, for the year ended December 31, 2009, the Fund’s net loss was $17,915,613, resulting from a net investment loss of $402,783, inclusive of management fees of $131,683 (.95% of the Fund’s average weighted assets of $43,793,476), brokerage commissions of $3,532 and offering costs of $284,355, a net realized loss of $19,629,874 and a change in net unrealized appreciation/depreciation of $2,117,044. The Fund’s net income decreased for the year ended December 31, 2010, as compared to the year ended December 31, 2009 primarily due to an increase in the price of spot gold in U.S. Dollar terms. By comparison, for the period ended December 31, 2008, the Fund’s net loss was $661,977, resulting from a net
investment loss of $2,370, inclusive of brokerage commissions of $40, organization costs of $27,953, offering costs of $25,465 and offset by limitation by Sponsor of $51,088, a net realized loss of $723,574 and a change in net unrealized appreciation/depreciation of $63,967. The Fund’s net income decreased for the year ended December 31, 2009, as compared to the period ended December 31, 2008 primarily due to an increase in the price of spot gold in U.S. Dollar terms.
* See Note 1 of the Notes to Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K.
NAV of ProShares Ultra Silver
Fund Performance
During the year ended December 31, 2010, the Fund’s NAV increased from $145,416,382 at December 31, 2009 to $547,003,919 at December 31, 2010. The increase in the Fund’s NAV resulted in part from an increase in outstanding Shares, which increased from 2,550,014 Shares at December 31, 2009 to 3,500,014 Shares at December 31, 2010 due to 2,700,000 Shares (54 Creation Units) being created and 1,750,000 Shares (35 Creation Units) being redeemed during the period. 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 200% of the daily performance of silver bullion as measured by the U.S. Dollar p.m. fixing price for delivery in London. By comparison, during the year ended December 31, 2009, the Fund’s NAV increased from $10,011,149 at December 31, 2008 to $145,416,382 at December 31, 2009. The increase in the Fund’s NAV resulted primarily from an increase in outstanding Shares, which increased from 350,014 Shares at December 31, 2008 to 2,550,014 Shares at December 31, 2009 due to 3,500,000 Shares (70 Creation Units) being created and 1,300,000 Shares (26 Creation Units) being redeemed during the period. 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 200% of the daily performance of silver bullion as measured by the U.S. Dollar p.m. fixing price for delivery in London. By comparison, during the period ended December 31, 2008, the Fund’s NAV increased from $350 at December 1, 2008 to $10,011,149 at December 31, 2008. The increase in the Fund’s NAV resulted primarily from an increase in outstanding Shares, which increased from 14 Shares at December 1, 2008 to 350,014 Shares at December 31, 2008 due to 350,000 Shares (7 Creation Units) being created and no Shares being redeemed during the period. 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 200% of the daily performance of silver bullion as measured by the U.S. Dollar p.m. fixing price for delivery in London.
For the year ended December 31, 2010, the year ended December 31, 2009 and the period ended December 31, 2008, over which the Fund’s daily performance had a statistical correlation over 0.99 to 200% of the daily performance of its benchmark, the Fund’s per Share NAV increased by 174.1%, increased by 99.4% and increased by 14.4%, respectively. The increase of 174.1% for the year ended December 31, 2010, as compared to the increase of 99.4% for the year ended December 31, 2009, was primarily due to a relatively higher appreciation in the value of the assets of the Fund during the year ended December 31, 2010. The increase of 99.4% for the year ended December 31, 2009, as compared to the increase of 14.4% for the period ended December 31, 2008, was primarily due to a relatively higher appreciation in the value of the assets of the Fund during the year ended December 31, 2009.
During the year ended December 31, 2010, the Fund’s NAV reached its high for the year on December 30, 2010 at $156.93 per share and reached its low for the year on February 8, 2010 at $44.40 per share. By comparison, during the year ended December 31, 2009, the Fund’s NAV reached its high for the year on December 2, 2009 at $73.53 per share and reached its low for the year on January 15, 2009 at $26.77 per share. By comparison, during the period ended December 31, 2008, the Fund’s NAV reached its high for the period on December 18, 2008 at $31.80 per share and reached its low for the period on December 2, 2008 at $22.44 per share.
During the year ended December 31, 2010, the benchmark index rose by a cumulative 80.3% and had an annualized volatility of 33%. By comparison, during the year ended December 31, 2009 and the period ended December 31, 2008, the benchmark index rose by a cumulative 57.5% and 8.9%, respectively, and had an annualized volatility of 38% and 53%, respectively. The benchmark’s rise of 80.3% for the year ended December 31, 2010, as compared to the benchmark’s rise of 57.5% for the year ended December 31, 2009 can be attributed to a relatively higher increase in the price of spot silver in U.S. dollar terms during the year ended December 31, 2010. The benchmark’s rise of 57.5% for the year ended December 31, 2009, as compared to the benchmark’s rise of 8.9% for the period ended December 31, 2008, can be attributed to a relatively higher increase in the price of spot silver in U.S. dollar terms during the year ended December 31, 2009.
Net Income/Loss
For the year ended December 31, 2010, the Fund’s net income was $271,610,912, resulting from a net investment loss of $1,723,966, inclusive of management fees of $2,027,722 (.95% of the Fund’s average weighted assets of $213,444,443) and brokerage commissions of $6,268, a net realized gain of $216,265,541 and a change in net unrealized appreciation/depreciation of $57,069,337. By comparison, for the year ended December 31, 2009, the Fund’s net income was $35,416,898, resulting from a net investment loss of $758,694, inclusive of management fees of $710,900 (.95% of the Fund’s average weighted assets of $82,318,604), brokerage commissions of $5,134 and offering costs of $71,126, a net realized gain of $43,715,010 and a change in net unrealized appreciation/ depreciation of $7,539,418. The Fund’s net income increased for the year ended December 31, 2010, as compared to the year ended December 31, 2009 primarily due to an increase in the price of spot silver in U.S. Dollar terms. By comparison, for the period ended December 31, 2008, the Fund’s net income was $129,736, resulting from a net investment loss of $3,611, inclusive of brokerage commissions of $65, organization costs of $27,952, offering costs of $6,370 and offset by limitation by Sponsor of $30,776, a net realized gain of $398,219 and a change in net unrealized appreciation/depreciation of $264,872. The Fund’s net income increased for the year ended December 31, 2009, as compared to the period ended December 31, 2008 primarily due to an increase in the price of spot silver in U.S. Dollar terms.
NAV of ProShares UltraShort Silver*
Fund Performance
During the year ended December 31, 2010, the Fund’s NAV increased from $64,516,145 at December 31, 2009 to $99,032,781 at December 31, 2010. The increase in the Fund’s NAV resulted from an increase in outstanding Shares, which increased from 342,500 Shares at December 31, 2009 to 2,482,479 Shares at December 31, 2010 due to 2,667,500 Shares (213 Creation Units) being created and 527,521 Shares (42 Creation Units) being redeemed during the period. 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 200% of the inverse of the daily performance of silver bullion as measured by the U.S. Dollar p.m. fixing price for delivery in London. By comparison, during the year ended December 31, 2009, the Fund’s NAV increased from $1,960,071 at December 31, 2008 to $64,516,145 at December 31, 2009. The increase in the Fund’s NAV resulted primarily from an increase in outstanding Shares, which increased from 2,500 Shares at December 31, 2008 to 342,500 Shares at December 31, 2009 due to 581,250 Shares (465 Creation Units) being created and 241,250 Shares (193 Creation Units) being redeemed during the period. 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 200% of them inverse of the daily performance of silver bullion as measured by the U.S. Dollar p.m. fixing price for delivery in London. By comparison, during the period ended December 31, 2008, the Fund’s NAV increased from $350 at December 1, 2008 to $1,960,071 at December 31, 2008. The increase in the Fund’s NAV resulted primarily from an increase in outstanding Shares, which increased from 0 Shares at December 1, 2008 to 2,500 Shares at December 31, 2008 due to 2,500 Shares (2 Creation Units) being created and no Shares being redeemed during the period. 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 200% of the inverse of the daily performance of silver bullion as measured by the U.S. Dollar p.m. fixing price for delivery in London.
For the year ended December 31, 2010, the year ended December 31, 2009 and the period ended December 31, 2008, over which the Fund’s daily performance had a statistical correlation over 0.99 to 200% of the inverse of the daily performance of its benchmark, the Fund’s per Share NAV decreased by 78.8%, decreased by 76.0% and decreased by 21.6%, respectively. The decrease of 78.8% for the year ended December 31, 2010, as compared to the decrease of 76.0% for the year ended December 31, 2009 was primarily due to a relatively higher depreciation in the value of the assets of the Fund during the year ended December 31, 2010. The decrease of 76.0% for the year ended December 31, 2009, as compared to the decrease of 21.6% for the period ended December 31, 2008, was primarily due to a relatively higher depreciation in the value of the assets of the Fund during the year ended December 31, 2009.
During the year ended December 31, 2010, the Fund’s NAV reached its high for the year on February 8, 2010 at $227.03 per share and reached its low for the year on December 30, 2010 at $39.74 per share. By comparison, during the year ended December 31, 2009, the Fund’s NAV reached its high for the year on January 15, 2009 at $799.76 per share and reached its low for the year on December 2, 2009 at $150.66 per share. By comparison, during the
period ended December 31, 2008, the Fund’s NAV reached its high for the period on December 2, 2008 at $1,101.50 per share and reached its low for the period on December 18, 2008 at $741.73 per share.
During the year ended December 31, 2010, the benchmark index rose by a cumulative 80.3% and had an annualized volatility of 33%. By comparison, during the year ended December 31, 2009 and the period ended December 31, 2008, the benchmark index rose by a cumulative 57.5% and 8.9%, respectively, and had an annualized volatility of 38% and 53%, respectively. The benchmark’s rise of 80.3% for the year ended December 31, 2010, as compared to the benchmark’s rise of 57.5% for the year ended December 31, 2009 can be attributed to a relatively higher increase in the price of spot silver in U.S. dollar terms during the year ended December 31, 2010. The benchmark’s rise of 57.5% for the year ended December 31, 2009, as compared to the benchmark’s rise of 8.9% for the period ended December 31, 2008, can be attributed to a relatively higher increase in the price of spot silver in U.S. dollar terms during the year ended December 31, 2009.
Net Income/Loss
For the year ended December 31, 2010, the Fund’s net loss was $103,155,876, resulting from a net investment income loss of $538,873, inclusive of management fees of $631,456 (.95% of the Fund’s average weighted assets of $66,469,047) and brokerage commissions of $3,090, a net realized loss of $89,049,763 and a change in net unrealized appreciation/depreciation of $13,567,240. By comparison, for the year ended December 31, 2009, the Fund’s net loss was $38,180,089, resulting from a net investment loss of $388,903, inclusive of management fees of $257,865 (.95% of the Fund’s average weighted assets of $42,111,733), brokerage commissions of $4,382 and offering costs of $142,197, a net realized loss of $40,785,230 and a change in net unrealized appreciation/ depreciation of $2,994,044. The Fund’s net income decreased for the year ended December 31, 2010, as compared to the year ended December 31, 2009 primarily due to an increase in the price of spot silver in U.S. Dollar terms. By comparison, for the period ended December 31, 2008, the Fund’s net loss was $540,829, resulting from a net investment loss of $1,870, inclusive of brokerage commissions of $85, organization costs of $27,953, offering costs of $12,734 and offset by limitation by Sponsor of $38,902, a net realized loss of $585,793 and a change in net unrealized appreciation/depreciation of $46,834. The Fund’s net income decreased for the year ended December 31, 2009, as compared to the period ended December 31, 2008 primarily due to an increase in the price of spot silver in U.S. Dollar terms.
* See Note 1 of the Notes to Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K.
 See Note 10 of the Notes to Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K.
NAV of ProShares Ultra Euro
Fund Performance
During the year ended December 31, 2010, the Fund’s NAV increased from $7,531,857 at December 31, 2009 to $7,729,684 at December 31, 2010. The increase in the Fund’s NAV resulted primarily from an increase in outstanding Shares, which increased from 250,014 Shares at December 31, 2009 to 300,014 Shares at December 31, 2010 due to 850,000 Shares (17 Creation Units) being created and 800,000 Shares (16 Creation Units) being redeemed during the period. 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 200% of the daily performance of the spot price of the Euro versus the U.S. Dollar. By comparison, during the year ended December 31, 2009, the Fund’s NAV increased from $4,386,411 at December 31, 2008 to $7,531,857 at December 31, 2009. The increase in the Fund’s NAV resulted primarily from an increase in outstanding Shares, which increased from 150,014 Shares at December 31, 2008 to 250,014 Shares at December 31, 2009 due to 150,000 Shares (3 Creation Units) being created and 50,000 Shares (1 Creation Unit) being redeemed during the period. 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 200% of the daily performance of the spot price of the Euro versus the U.S. Dollar. By comparison, during the period ended December 31, 2008, the Fund’s NAV increased from $350 at November 24, 2008 to $4,386,411 at December 31, 2008. The increase in the Fund’s NAV resulted primarily from an increase in outstanding Shares, which increased from 14 Shares at November 24, 2008 to 150,014 Shares at December 31, 2008 due to 150,000 Shares (3 Creation Units) being created and no Shares being redeemed during the period. Further adding to the NAV increase was the cumulative effect of the Fund seeking daily investment results (before fees and expenses) that correspond to 200% of the daily performance of the spot price of the Euro versus the U.S. Dollar.
For the year ended December 31, 2010, the year ended December 31, 2009 and the period ended December 31, 2008, over which the Fund’s daily performance had a statistical correlation over 0.99 to 200% of the daily performance of its benchmark, the Fund’s per Share NAV decreased by 14.5%, increased by 3.0% and increased by 17.0%, respectively. The decrease of 14.5% for the year ended December 31, 2010, as compared to the increase of 3.0% for the year ended December 31, 2009, was primarily due to a depreciation in the value of the assets held by the Fund during the year ended December 31, 2010. The increase of 3.0% for the year ended December 31, 2009, as compared to the increase of 17.0% for the period ended December 31, 2008, was primarily due to a relatively lower appreciation in the value of the assets held by the Fund during the year ended December 31, 2009.
During the year ended December 31, 2010, the Fund’s NAV reached its high for the year on January 11, 2010 at $30.98 per share and reached its low for the year on June 7, 2010 at $20.70 per share. By comparison, during the year ended December 31, 2009, the Fund’s NAV reached its high for the year on November 25, 2009 at $33.75 per share and reached its low for the year on February 18, 2009 at $23.55 per share. By comparison, during the period ended December 31, 2008, the Fund’s NAV reached its high for the period on December 17, 2008 at $31.03 per share and reached its low for the period on December 1, 2008 at $23.81 per share.
During the year ended December 31, 2010, the benchmark index declined by a cumulative 6.6% and had an annualized volatility of 12%. By comparison, during the year ended December 31, 2009 and the period ended December 31, 2008, the benchmark index rose by a cumulative 2.5% and 8.3%, respectively, and had an annualized volatility of 13% and 21%, respectively. The benchmark’s decline of 6.6% for the year ended December 31, 2010, as compared to the benchmark’s rise of 2.5% for the year ended
December 31, 2009, can be attributed to a decrease in the value of the Euro versus the U.S. Dollar during the year ended December 31, 2010. The benchmark’s rise of 2.5% for the year ended December 31, 2009, as compared to the benchmark’s rise of 8.3% for the period ended December 31, 2008, can be attributed to a relatively lower increase in the value of the Euro versus the U.S. Dollar during the year ended December 31, 2009.
Net Income/Loss
For the year ended December 31, 2010, the Fund’s net loss was $67,762, resulting from a net investment loss of $92,663, inclusive of management fees of $108,841 (.95% of the Fund’s average weighted assets of $11,456,997), a net realized loss of $601,075 and a change in net unrealized appreciation/depreciation of $625,976. By comparison, for the year ended December 31, 2009, the Fund’s net income was $501,308, resulting from a net investment loss of $60,716, inclusive of management fees of $7,827 (.95% of the Fund’s average weighted assets of $6,702,354), offering costs of $69,640 and offset by limitation by Sponsor of $13,795, a net realized gain of $699,029 and a change in net unrealized appreciation/depreciation of $137,005. The Fund’s net income decreased for the year ended December 31, 2010, as compared to the year ended December 31, 2009 primarily due to a decrease in the value of the Euro versus the U.S. Dollar. By comparison, for the period ended December 31, 2008, the Fund’s net income was $427,741, resulting from a net investment loss of $2,894, inclusive of organization costs of $27,952, offering costs of $7,855 and offset by limitation by Sponsor of $32,913, a net realized gain of $571,180 and a change in net unrealized appreciation/depreciation of $140,545. The Fund’s net income increased for the year ended December 31, 2009, as compared to the period ended December 31, 2008 primarily due to an increase in the value of the Euro versus the U.S. Dollar in conjunction with cash flow from net purchases of Fund shares by shareholders.
NAV of ProShares UltraShort Euro
Fund Performance
During the year ended December 31, 2010, the Fund’s NAV increased from $100,847,786 at December 31, 2009 to $444,412,995 at December 31, 2010. The increase in the Fund’s NAV resulted primarily from an increase in outstanding Shares, which increased from 5,400,014 Shares at December 31, 2009 to 21,900,014 Shares at December 31, 2010 due to 35,700,000 Shares (714 Creation Units) being created and 19,200,000 Shares (384 Creation Units) being redeemed during the period. 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 200% of the inverse of the daily performance of the spot price of the Euro versus the U.S. Dollar. By comparison, during the year ended December 31, 2009, the Fund’s NAV increased from $7,331,163 at December 31, 2008 to $100,847,786 at December 31, 2009. The increase in the Fund’s NAV resulted primarily from an increase in outstanding Shares, which increased from 350,014 Shares at December 31, 2008 to 5,400,014 Shares at December 31, 2009 due to 6,050,000 Shares (121 Creation Units) being created and 1,000,000 Shares (20 Creation Units) being redeemed during the period. 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 200% of the inverse of the daily performance of the spot price of the Euro versus the U.S. Dollar. By comparison, during the period ended December 31, 2008, the Fund’s NAV increased from $350 at November 24, 2008 to $7,331,163 at December 31, 2008. The increase in the Fund’s NAV resulted primarily from an increase in outstanding Shares, which increased from 14 Shares at November 24, 2008 to 350,014 Shares at December 31, 2008 due to 350,000 Shares (7 Creation Units) being created and no Shares being redeemed during the period. 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 200% of the inverse of the daily performance of the spot price of the Euro versus the U.S. Dollar.
For the year ended December 31, 2010, the year ended December 31, 2009 and the period ended December 31, 2008, over which the Fund’s daily performance had a statistical correlation over 0.99 to 200% of the inverse of the daily performance of its benchmark, the Fund’s per Share NAV increased by 8.7%, decreased by 10.8% and decreased by 16.2%, respectively. The increase of 8.7% for the year ended December 31, 2010, as compared to the decrease of 10.8% for the year ended December 31, 2009, was primarily due to an appreciation in the value of the assets held by the Fund during the year ended December 31, 2010. The decrease of 10.8% for the year ended December 31, 2009, as compared to the decrease of 16.2% for the period ended December 31, 2008, was primarily due to a relatively lower depreciation in the value of the assets held by the Fund during the year ended December 31, 2009.
During the year ended December 31, 2010, the Fund’s NAV reached its high for the year on June 7, 2010 at $26.39 per share and reached its low for the year on January 11, 2010 at $18.14 per share. By comparison, during the year ended December 31, 2009, the Fund’s NAV reached its high for the year on February 18, 2009 at $25.50 per share and reached its low for the year on November 25, 2009 at $16.76 per share. By comparison, during the period ended December 31, 2008, the Fund’s NAV reached its high for the period on December 1, 2008 at $26.17 per share and reached its low for the period on December 17, 2008 at $19.82 per share.
During the year ended December 31, 2010, the benchmark index declined by a cumulative 6.6% and had an annualized volatility of 12%. By comparison, during the year ended December 31, 2009 and the period ended December 31, 2008, the benchmark index rose by a cumulative 2.5% and 8.3%, respectively, and had an annualized volatility of 13% and 21%, respectively. The benchmark’s decline of 6.6% for the year ended December 31, 2010, as compared to the benchmark’s rise of 2.5% for the year ended December 31, 2009, can be attributed to a decrease in the value of the Euro verses the U.S. Dollar during the year ended December 31, 2010. The benchmark’s rise of 2.5% for the year ended December 31, 2009, as compared to the benchmark’s rise of 8.3% for the period ended December 31, 2008, can be attributed to a relatively lower increase in the value of the Euro verses the U.S. Dollar during the year ended December 31, 2009.
Net Income/Loss
For the year ended December 31, 2010, the Fund’s net income was $20,644,955, resulting from a net investment loss of $2,805,812, inclusive of management fees of $3,379,964 (.95% of the Fund’s average weighted assets of $355,785,711), a net realized gain of $48,577,957 and a change in net unrealized appreciation/depreciation of $25,127,190. By comparison, for the year ended December 31, 2009, the Fund’s net loss was $8,855,936, resulting from a net investment loss of $349,729, inclusive of management fees of $303,788 (.95% of the Fund’s average weighted assets of $39,308,303) and offering costs of $69,641, a net realized loss of $10,304,179 and a change in net unrealized appreciation/depreciation of $1,797,972, The Fund’s net income increased for the year ended December 31, 2010, as compared to the year ended December 31, 2009 primarily due to a decrease in the value of the Euro versus the U.S. Dollar. By comparison, for the period ended December 31, 2008, the Fund’s net loss was $345,727, resulting from a net investment loss of $3,574, inclusive of organization costs of $27,952, offering costs of $7,856 and offset by limitation by Sponsor of $32,234, a net realized loss of $493,306 and a change in net unrealized appreciation/depreciation of $151,153. The Fund’s net income decreased for the year ended December 31, 2009, as compared to the period ended December 31, 2008 primarily due to an increase in the value of the Euro versus the U.S. Dollar in conjunction with cash flow from net purchases of Fund shares by shareholders.
NAV of ProShares Ultra Yen
Fund Performance
During the year ended December 31, 2010, the Fund’s NAV increased from $3,921,267 at December 31, 2009 to $5,024,240 at December 31, 2010. There was no net change in the Fund’s outstanding Shares from December 31, 2009 to December 31,2010 due to 100,000 Shares (2 Creation Units) being created and 100,000 Shares (2 Creation
Units) being redeemed during the period. 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 200% of the daily performance of the spot price of the Japanese Yen versus the U.S. Dollar. By comparison, during the year ended December 31, 2009, the Fund’s NAV increased from $2,845,053 at December 31, 2008 to $3,921,267 at December 31, 2009. The increase in the Fund’s NAV resulted primarily from an increase in outstanding Shares, which increased from 100,014 Shares at December 31, 2008 to 150,014 Shares at December 31, 2009 due to 100,000 Shares (2 Creation Units) being created and 50,000 Shares (1 Creation Unit) being redeemed during the period. 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 200% of the daily performance of the spot price of the Japanese Yen versus the U.S. Dollar. By comparison, during the period ended December 31, 2008, the Fund’s NAV increased from $350 at November 24, 2008 to $2,845,053 at December 31, 2008. The increase in the Fund’s NAV resulted primarily from an increase in outstanding Shares, which increased from 14 Shares at November 24, 2008 to 100,014 Shares at December 31, 2008 due to 100,000 Shares (2 Creation Units) being created and no Shares being redeemed during the period. 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 200% of the daily performance of the spot price of the Japanese Yen versus the U.S. Dollar.
For the year ended December 31, 2010, the year ended December 31, 2009 and the period ended December 31, 2008, over which the Fund’s daily performance had a statistical correlation over 0.99 to 200% of the daily performance of its benchmark, the Fund’s per Share NAV increased by 28.1%, decreased by 8.1% and increased by 13.8%, respectively. The increase of 28.1% for the year ended December 31, 2010, as compared to the decrease of 8.1% for the year ended December 31, 2009, was primarily due to an appreciation in the value of the assets held by the Fund during the year ended December 31, 2010. The decrease of 8.1% for the year ended December 31, 2009, as compared to the increase of 13.8% for the period ended December 31, 2008 was primarily due to a depreciation in the value of the assets held by the Fund during the year ended December 31, 2009.
During the year ended December 31, 2010, the Fund’s NAV reached its high for the year on October 29, 2010 at $34.24 per share and reached its low for the year on May 3, 2010 at $25.14 per share. By comparison, during the year ended December 31, 2009, the Fund’s NAV reached its high for the year on November 30, 2009 at $30.41 per share and reached its low for the year on April 6, 2009 at $22.67 per share. By comparison, during the period ended December 31, 2008, the Fund’s NAV reached its high for the period on December 17, 2008 at $30.70 per share and reached its low for the period on November 24, 2008 at $25.00 per share.
During the year ended December 31, 2010, the benchmark index rose by a cumulative 14.6% and had an annualized volatility of 11%. By comparison, during the year ended December 31, 2009 and the period ended December 31, 2008, the benchmark index declined by a cumulative 2.5% and rose by a cumulative 6.9%, respectively, and had an annualized volatility of 13% and 17%, respectively. The benchmark’s rise of 14.6% for the year ended December 31, 2010, as compared to the benchmark’s decline of 2.5% for the year ended December 31, 2009, can be attributed to an increase in the value of the Japanese Yen versus the U.S. Dollar during the year ended December 31, 2010. The benchmark’s decline of 2.5% for the year ended December 31, 2009, as compared to the benchmark’s rise of 6.9% for the period ended December 31, 2008, can be attributed to a decrease in the value of the Japanese Yen versus the U.S. Dollar during the year ended December 31, 2009.
Net Income/Loss
For the year ended December 31, 2010, the Fund’s net income was $1,388,260, resulting from a net investment loss of $38,091, inclusive of management fees of $44,676 (.95% of the Fund’s average weighted assets of $4,702,775), a net realized gain of $826,758 and a change in net unrealized appreciation/depreciation of $599,593. By comparison, for the year ended December 31, 2009, the Fund’s net loss was $393,053, resulting from a net investment loss of $36,723, inclusive of management fees of $4,210 (.95% of the Fund’s average weighted assets of $4,045,429), offering costs of $69,639 and offset by limitation by Sponsor of $35,417, a net realized loss of $241,945 and a change in net unrealized appreciation/depreciation of $114,385. The Fund’s net income increased for the year ended December 31, 2010, as compared to the year ended December 31, 2009 primarily due to an increase in the value of the Japanese Yen versus the U.S. Dollar. By comparison, for the period ended December 31, 2008, the Fund’s net income was $344,703, resulting from a net investment loss of $2,671, inclusive of organization costs of $27,952, offering costs of $7,856 and offset by limitation by Sponsor of $33,137, a net realized gain of $548,948 and a change in net unrealized appreciation/depreciation of $201,574. The Fund’s net income decreased for the year ended December 31, 2009, as compared to the period ended December 31, 2008 primarily due to decreases in the value of the Japanese Yen versus the U.S. Dollar.
NAV of ProShares UltraShort Yen
Fund Performance
During the year ended December 31, 2010, the Fund’s NAV increased from $67,487,917 at December 31, 2009 to $207,685,813 at December 31, 2010. The increase in the Fund’s NAV resulted from an increase in outstanding Shares, which increased from 3,150,014 Shares at December 31, 2009 to 13,250,014 Shares at December 31, 2010 due to 14,050,000 Shares (281 Creation Units) being created and 3,950,000 Shares (79 Creation Units) being redeemed during the period. 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 200% of the inverse of the daily performance of the spot price of the Japanese Yen versus the U.S. Dollar. By comparison, during the year ended December 31, 2009, the Fund’s NAV increased from $2,166,617 at December 31, 2008 to $67,487,917 at December 31, 2009. The increase in the Fund’s NAV resulted primarily from an increase in outstanding Shares, which increased from 100,014 Shares at December 31, 2008 to 3,150,014 Shares at December 31, 2009 due to 4,950,000 Shares (99 Creation Units) being created and 1,900,000 Shares (38 Creation Units) being redeemed during the period. 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 200% of the inverse of the daily performance of the spot price of the Japanese Yen versus the U.S. Dollar. By comparison, during the period ended December 31, 2008, the Fund’s NAV increased from $350 at November 24, 2008 to $2,166,617 at December 31, 2008. The increase in the Fund’s NAV resulted primarily from an increase in outstanding Shares, which increased from 14 Shares at November 24, 2008 to 100,014 Shares at December 31, 2008 due to 100,000 Shares (2 Creation Units) being created and no Shares being redeemed during the period. 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 200% of the inverse of the daily performance of the spot price of the Japanese Yen versus the U.S. Dollar.
For the year ended December 31, 2010, the year ended December 31, 2009 and the period ended December 31, 2008, over which the Fund’s daily performance had a statistical correlation over 0.99 to 200% of the inverse of the daily performance of its benchmark, the Fund’s per Share NAV decreased by 26.8%, decreased by 1.1% and decreased by 13.3%, respectively. The decrease of 26.8%, for the year ended December 31, 2010, as compared to the decrease of 1.1% for the year ended December 31, 2009, was primarily due to a relatively higher depreciation in the value of the assets held by the Fund during the year ended December 31, 2010. The decrease of 1.1% for the year ended December 31, 2009, as compared to the decrease of 13.3% for the period ended December 31, 2008, was primarily due to relatively lower depreciation in the value of the assets held by the Fund during the year ended December 31, 2009.
During the year ended December 31, 2010, the Fund’s NAV reached its high for the year on May 3, 2010 at $21.85 per share and reached its low for the year on October 29, 2010 at $15.46 per share. By comparison, during the year ended December 31, 2009, the Fund’s NAV reached its high for the year on April 6, 2009 at $26.27 per share and reached its low for the year on November 30, 2009 at $18.57 per share. By comparison, during the period ended December 31, 2008, the Fund’s NAV reached its high for the period on November 24, 2008 at $25.00 per share and reached its low for the period on December 17, 2008 at $20.15 per share.
During the year ended December 31, 2010, the benchmark index rose by a cumulative 14.6% and had an annualized volatility of 11%. By comparison, during the year ended December 31, 2009 and the period ended December 31, 2008, the benchmark index declined by a cumulative 2.5% and rose by a cumulative 6.9%, respectively, and had an annualized volatility of 13% and 17%, respectively. The benchmark’s rise of 14.6% for the year ended December 31, 2010, as compared to the benchmark’s decline of 2.5% for the year ended December 31, 2009, can be attributed to an increase in the value of the Japanese Yen versus the U.S. Dollar during the year ended December 31, 2010. The benchmark’s decline of 2.5% for the year ended December 31, 2009, as compared to the benchmark’s rise of 6.9% for the period ended December 31, 2008, can be attributed to a decrease in the value of the Japanese Yen versus the U.S. Dollar during the year ended December 31, 2009.
Net Income/Loss
For the year ended December 31, 2010, the Fund’s net loss was $44,315,489, resulting from a net investment loss of $1,213,282, inclusive of management fees of $1,447,095 (.95% of the Fund’s average weighted assets of $152,325,854), a net realized loss of $22,109,488 and a change in net unrealized appreciation/depreciation of $20,992,719. By comparison, for the year ended December 31, 2009, the Fund’s net loss was $1,661,279, resulting from a net investment loss of $348,942, inclusive of management fees of $304,905 (.95% of the Fund’s average weighted assets of $39,425,884) and offering costs of $69,641, a net realized loss of $6,039,297 and a change in net unrealized appreciation/depreciation of $4,726,960. The Fund’s net income decreased for the year ended December 31,
2010, as compared to the year ended December 31, 2009 primarily due to an increase in the value of the Japanese Yen versus the U.S. Dollar. By comparison, for the period ended December 31, 2008, the Fund’s net loss was $333,733, resulting from a net investment loss of $2,148, inclusive of organization costs of $27,952, offering costs of $7,856 and offset by limitation by Sponsor of $33,660, a net realized loss of $467,502 and a change in net unrealized appreciation/depreciation of $135,917. The Fund’s net income decreased for the year ended December 31, 2009, as compared to the period ended December 31, 2008 primarily due to decreases in the value of the Japanese Yen versus the U.S. Dollar, during the first six months of 2009.
Off-Balance Sheet Arrangements and Contractual Obligations
As of February 25, 2011, 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. One officer of the Trust also serves as an officer and owner of the Sponsor.
Market Risk
Trading in futures contracts involves each Fund entering into contractual commitments to purchase or sell a commodity underlying the Fund’s benchmark at a specified date and price, should it hold such futures contract into the deliverable period. Should a Fund enter into a contractual commitment to sell a physical commodity, it would be required to make delivery of that commodity at the contract price and then repurchase the contract at prevailing market prices or settle in cash. Since the repurchase price to which the value of a commodity can rise is unlimited, entering into commitments to sell commodities would expose a Fund to theoretically unlimited risk.
Each Fund’s exposure to market risk is influenced by a number of factors, including the liquidity of the markets in which the contracts are traded and the relationships among the contracts held. The inherent uncertainty of each Fund’s trading as well as the development of drastic market occurrences could ultimately lead to a loss of all or substantially all of investors’ capital.
For more information, see “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” of this Annual Report on Form 10-K.
Credit Risk
When a Fund enters into swap agreements, futures contracts or forward contracts, the Fund is exposed to credit risk that the counterparty to the contract will not meet its obligations.
The counterparty for futures contracts traded on United States and most foreign futures exchanges is the clearing house associated with the particular exchange. In general, clearing houses are backed by their corporate members who may be required to share in the financial burden resulting from the nonperformance by one of their members and, as such, should significantly reduce this credit risk. In cases where the clearing house is not backed by the clearing members (i.e., some foreign exchanges, which may become applicable in the future), it may be backed by a consortium of banks or other financial institutions.
Swap and forward agreements are contracted for directly with counterparties. There can be no assurance that any counterparty, clearing member or clearing house will meet its obligations to a Fund.
Swap agreements do not generally involve the delivery of securities or other underlying assets either at the outset of a transaction or upon settlement. Accordingly, if the counterparty to a swap agreement defaults, the Fund’s risk of loss consists of the net amount of payments that the Fund is contractually entitled to receive, if any. Swap counterparty risk is generally limited to the amount of any unrealized gains, although in the event of a counterparty bankruptcy, there could be delays and costs associated with recovery collateral posted in segregated tri-party accounts at the Fund’s custodian bank.
Forward agreements do not involve the delivery of securities at the onset of a transaction, but may be settled physically in the underlying asset if such contracts are held to expiration, particularly in the case of currency forwards. Thus, prior to settlement, if the counterparty to a forward contract defaults, a Fund’s risk of loss consists of the net amount of payments that the Fund is contractually entitled to receive, if any. However, if physically settled forwards are held until expiration (presently, there is no plan to do this), at the time of settlement, a Fund may be at risk for the full notional value of the forward contracts depending on the type of settlement procedures used.
The Sponsor attempts to minimize certain of these market and credit risks by normally:
•
executing and clearing trades with creditworthy counterparties, as determined by the Sponsor;
•
limiting the outstanding amounts due from counterparties to the Funds;
•
not posting margin directly with a counterparty;
•
limiting the amount of margin or premium posted at a FCM; and
•
ensuring that deliverable contracts are not held to such a date when delivery of the underlying asset could be called for.
The FCM for each Fund, in accepting orders for the purchase or sale of domestic futures contracts, is required by CFTC regulations to separately account for and segregate as belonging to the Fund, all assets of the Fund relating to domestic futures trading, and the FCM is not allowed to commingle such assets with other assets of the FCM. In addition, CFTC regulations also require the FCM to hold in a secure account assets of each Fund related to foreign futures trading.
The Funds could lose money if the issuer of a debt security is unable to meet its financial obligations or goes bankrupt. The Funds could also lose money if the issuer of a debt security in which it has a short position is upgraded or generally improves its standing. Changes in an issuer’s financial strength or in an issuer’s or debt security’s credit rating also may affect a security’s value and thus have an impact on a Fund’s performance. Credit risk usually applies to most debt securities, but generally is not a factor for U.S. government obligations.
Critical Accounting Policies
The 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 Funds’ application of these policies involves judgments and actual results may differ from the estimates used.
Each Fund has significant exposure to Financial Instruments. The Funds hold a significant portion of their assets in swaps, futures or forward contracts, all of which are recorded on a trade date basis and at fair value in the financial statements, with changes in fair value reported in the Statements of Operations.
The use of fair value to measure Financial Instruments, with related unrealized gains or losses recognized in earnings in each period, is fundamental to the Funds’ financial statements. The fair value of a Financial Instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price).
For financial reporting purposes, the Leveraged Funds value transactions based upon the final closing price in their primary markets. Accordingly, the investment valuations in these financial statements differ from those used in the calculation of some Leveraged Funds’ final creation/redemption NAV for the year ended December 31, 2010.
Short-term investments are valued at market price.
Derivatives (e.g., futures, swaps and forward agreements) are generally valued using independent sources and/or agreements with counterparties or other procedures as determined by the Sponsor. Futures contracts, except for those entered into by the Gold and Silver Funds, are generally valued at the last settled price on the applicable exchange on which that future trades. Futures contracts entered into by the Gold and Silver Funds are valued at the last sales price prior to the time at which the NAV per Share of a Fund is determined. If there was no sale on that day, and for non-exchange-traded derivatives, the Sponsor may in its sole discretion choose to determine a fair value price as the basis for determining the market value of such position for such day. Such fair value prices would be generally determined based on available inputs about the current value of the underlying financial instrument or commodity and would be based on principles that the Sponsor deems fair and equitable so long as such principles are consistent with normal industry standards. When market closing prices are not available, the Sponsor may value an asset of a Fund pursuant to the policies the Sponsor has adopted, which are consistent with normal industry standards.
Fair value pricing may require subjective determinations about the value of an investment. While each Leveraged Fund’s policy is intended to result in a calculation of the Leveraged Fund’s NAV that fairly reflects investment values as of the time of pricing, the Leveraged Fund cannot ensure that fair values determined by the Sponsor or persons acting at their direction would accurately reflect the price that the Leveraged 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 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 of 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 Geared 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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Quantitative Disclosure
Commodity Price Sensitivity
Each of the Commodity Funds and the Commodity Index Funds is exposed to commodity price risk through its holdings of Financial Instruments. The following tables provide information about each of the Commodity Funds’ and the Commodity Index Funds’ Financial Instruments, which are sensitive to commodity price risk. As of December 31, 2010 and 2009, each of the Commodity Funds and the Commodity Index Funds’ positions were as follows:
ProShares Ultra DJ-UBS Commodity:
As of December 31, 2010, the ProShares Ultra DJ-UBS Commodity Fund was exposed to commodity price risk through its holding of swap agreements linked to the Dow Jones-UBS Commodity Index. The following table provides information about the Fund’s swap positions as of December 31, 2010, which are sensitive to commodity price risk.
Swap Agreements
The December 31, 2010 swap notional amount is calculated by multiplying units times the closing level of the Index. The notional amount will increase (decrease) proportionally with increases (decreases) in the level of the Index. Additional gains (losses) associated with these contracts will be equal to any such subsequent increases (decreases) in notional amount, before accounting for spreads or financing costs associated with the swaps. The Fund will generally attempt to adjust its positions in Financial Instruments each day to have $2.00 of exposure to the Index for every $1.00 of net assets. While the above information properly represents the then current commodity price risk and is adequate for estimating the following day’s gains or losses, estimates of future values over longer periods should take the Fund’s daily rebalancing efforts, which are aimed at keeping exposure in-line with its single day investment objective, 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.
Item 8. Financial Statements and Supplementary Data.
Statement of Operations for three month periods ended March 31, 2010, June 30, 2010, September 30, 2010, December 31, 2010, the year ended December 31, 2010, the three month periods ended March 31, 2009, June 30, 2009, September 30, 2009, December 31, 2009 and the year ended December 31, 2009 for each Fund.
PROSHARES ULTRA DJ-UBS COMMODITY
PROSHARES ULTRASHORT DJ-UBS COMMODITY
PROSHARES ULTRA DJ-UBS CRUDE OIL
PROSHARES ULTRASHORT DJ-UBS CRUDE OIL
PROSHARES ULTRASHORT YEN
* See Note 10 of the Notes to Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K.
See the Index to Financial Statements on Page 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.
Item 9.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
Not applicable.
Item 9A.
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 Funds’ disclosure controls and procedures, and have concluded that the disclosure controls and procedures of the Funds (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective, as of December 31, 2010, to provide 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 Funds is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it 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 Funds, as defined in 1934 Act Rules 13a-15(f) and 15d-15(f). 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 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 Funds’ receipts and expenditures are being made only in accordance with appropriate authorizations of management of the Trust on behalf of the Funds; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Funds’ assets that could have a material effect on 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 Funds’ internal control over financial reporting as of December 31, 2010. Their assessment included an evaluation of the design of the Funds’ internal control over financial reporting and testing of the operational effectiveness of their internal control over financial reporting. In making its assessment, the Trust’s management has utilized the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in its report entitled Internal Control - Integrated Framework. Based on their assessment and those criteria, the principal executive officer and principal financial officer of the Trust concluded that the Funds’ internal control over financial reporting was effective as of December 31, 2010.
The effectiveness of the Funds’ internal control over financial reporting as of December 31, 2010 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 Funds’ internal control over financial reporting that occurred during the quarter ended December 31, 2010 that have materially affected, or are reasonably likely to materially affect, the Funds’ internal control over financial reporting.
Item 9B.
Item 9B. Other Information.
Not applicable.
Part III
Item 10.
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 each Fund. The Trustee has no duty or liability to supervise the performance of the Sponsor, nor will the Trustee have any liability for the acts or omissions of the Sponsor. The Sponsor serves as the Trust’s commodity pool operator and commodity trading advisor.
Specifically, with respect to the Trust, the Sponsor:
•
selects the Funds’ service providers;
•
negotiates various agreements and fees;
•
performs such other services as the Sponsor believes that the Trust may require from time-to-time;
•
selects the FCM and Financial Instrument counterparties;
•
manages each Fund’s portfolio of other assets, including cash equivalents; and
•
manages the Funds with a view toward achieving the Funds’ investment objectives.
Background and Principals
The Sponsor serves as both commodity pool operator and commodity trading advisor of the Trust and each Fund. The Sponsor is registered as a commodity pool operator and commodity trading advisor with the CFTC and is a member of the NFA and is a member in good standing of the NFA. The Sponsor’s membership with the NFA was originally approved on June 11, 1999. It withdrew its registration with the NFA on August 31, 2000 but later re-applied and had its registration subsequently approved on January 8, 2001. Its membership with the NFA is currently effective. The Sponsor’s registration as a commodity trading advisor was approved on June 11, 1999 and is currently effective. The Sponsor’s registration as a commodity pool operator was originally approved on June 11, 1999. It withdrew its registration as a commodity pool operator on August 30, 2000 but later re-applied and had its registration subsequently approved on November 28, 2007. Its registration as a commodity pool operator is currently effective. Its principal place of business is 7501 Wisconsin Avenue, Suite 1000, Bethesda, Maryland 20814, telephone number (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 each Fund.
In its capacity as a commodity pool operator, the Sponsor is an organization which operates or solicits funds for commodity pools; that is, an enterprise in which funds contributed by a number of persons are combined for the purpose of trading futures contracts. In its capacity as a commodity trading advisor, the Sponsor is an organization which, for compensation or profit, advises others as to the value of or the advisability of buying or selling futures contracts.
Executive Officers of the Trust and Principals and Significant Employees of the Sponsor
Name
Position
Michael L. Sapir
Chief Executive Officer and Principal of the Sponsor
Louis M. Mayberg
Principal Executive Officer of the Trust; Chief Financial Officer and Principal of the Sponsor
William E. Seale
Principal of the Sponsor
Sapir Family Trust
Principal of the Sponsor
Northstar Trust
Principal of the Sponsor
Edward J. Karpowicz
Principal Financial Officer of the Trust
Todd B. Johnson*
Chief Investment Officer and Principal of the Sponsor
Howard S. Rubin
Director, Portfolio Management and Associated Person of the Sponsor
Steven Schoffstall
Portfolio Manager and Associated Person of the Sponsor
Michelle Liu
Portfolio Manager and Associated Person of the Sponsor
Ryan Dofflemeyer
Portfolio Manager and Associated Person of the Sponsor
Lisa P. Johnson
Principal of the Sponsor
Victor M. Frye
Principal of the Sponsor
* Denotes principal of the Sponsor who participates in making trading decisions for the Funds.
The following is a biographical summary of the business experience of the executive officers of the Trust and the principals and significant employees of the Sponsor.
ProFund Advisors LLC (“PFA”) and ProShare Advisors LLC (“PSA”) are investment advisers registered under the Investment Advisers Act of 1940.
Michael L. Sapir, Chairman, Chief Executive Officer and a listed principal of the Sponsor since August 14, 2008; Chairman, Chief Executive Officer and a member of PFA since April 1997; and Chairman, Chief Executive Officer and a member of PSA since January 2005. As Chairman and Chief Executive Officer of the Sponsor, PSA and PFA, Mr. Sapir’s responsibilities include oversight of all aspects of the Sponsor, PSA and PFA, respectively.
Louis M. Mayberg, Chief Financial Officer, a member and a listed principal of the Sponsor since June 9, 2008; a member of PFA since April 1997; and a member of PSA, since January 2005. Principal Executive Officer of the Trust since June 2008. As Chief Financial Officer of the Sponsor, Mr. Mayberg’s responsibilities include oversight of the financial matters of the Sponsor. As Principal Executive Officer of the Trust, his responsibilities include oversight of operations of the Trust. Mr. Mayberg is 47 years old.
William E. Seale, Ph.D., a member of the Sponsor and a listed principal of the Sponsor since June 11, 1999; a member of PFA since April 1997 and a member of PSA since April 2005. Dr. Seale served as Chief Investment Officer of PFA from January 2003 to July 2005 and from October 2006 to June 2008 and Director of Portfolio from January 1997 to January 2003. He served as Chief Investment Officer of PSA from October 2006 to June 2008. In these roles, Dr. Seale’s responsibilities included oversight of the investment management activities of the respective entities. Dr. Seale is a former commissioner of the CFTC.
Sapir Family Trust, a listed principal of the Sponsor. The Sapir Family Trust has ownership interest in the Sponsor and PSA. The Sapir Family Trust has passive ownership interest in the Sponsor and exercises no management authority over the Funds.
Northstar Trust, a listed principal of the Sponsor. Northstar Trust has ownership interest in the Sponsor and PFA. Northstar Trust has passive ownership interest in the Sponsor and exercises no management authority over the Funds.
Edward J. Karpowicz, Principal Financial Officer of the Trust since July 2008. Mr. Karpowicz has been employed by PFA since July 2002 as Vice President of Financial Administration. Mr. Karpowicz is 47 years old.
Todd B. Johnson, a registered associated person since January 29, 2010, a listed principal of the Sponsor since January 16, 2009 and Chief Investment Officer of the Sponsor since February 27, 2009. In this role, Mr. Johnson’s responsibilities include oversight of the investment management activities of the Sponsor. Mr. Johnson has served as Chief Investment Officer of PSA and PFA since December 2008. Prior to December 2008, Mr. Johnson served at World Asset Management (a financial services firm) - President and Chief Investment Officer, January 2006 to December 2008; Managing Director and Chief Investment Officer, Quantitative Investments, January 2002 to December 2005.
Howard Rubin, CFA, a registered associated person and an NFA associate member of the Sponsor since July 14, 2008 and Director, Portfolio Management of the Sponsor since December 1, 2009. In these roles, Mr. Rubin’s responsibilities include day-to-day portfolio management of the Funds. Mr. Rubin has served as Senior Portfolio Manager of PSA since December 2007 and Senior Portfolio Manager of the Sponsor from November 27, 2008 through November 30, 2009. Mr. Rubin has also served as Senior Portfolio Manager of PFA since November 2004
and Portfolio Manager of PFA from April 2000 through November 2004. Mr. Rubin holds the Chartered Financial Analyst (CFA) designation.
Steve Schoffstall, a registered associated person and an NFA associate member of the Sponsor since June 9, 2008, and June 2, 2008, respectively, and Portfolio Manager of the Sponsor since December 1, 2009. In these roles, Mr. Schoffstall’s responsibilities include day-to-day portfolio management of the Commodity Index Funds and Commodity Funds. Mr. Schoffstall has served as Associate Portfolio Manager of PSA since September 2007; Associate Portfolio Manager of the Sponsor from July 1, 2008 through November 30, 2009; Portfolio Analyst of PSA from May 2007 to September 2007; Junior Portfolio Analyst of PSA from December 2006 to May 2007; Portfolio Operations Specialist of PSA from June 2006 to December 2006. Mr. Schoffstall has also served as Portfolio Group Team Member and ETF Portfolio Operations Specialist of PFA from February 2005 to June 2006. Prior to February 2005, Mr. Schoffstall was not employed in the financial services industry.
Michelle Liu, a registered associated person and an NFA associate member of the Sponsor since June 12, 2009 and Portfolio Manager of the Sponsor since December 1, 2009. In these roles, Ms. Liu’s responsibilities include day-to-day portfolio management of the Currency Funds. Ms. Liu serves as a Portfolio Manager of PSA and PFA since December 2009 and served as Associate Portfolio Manager of PSA from November 2007 to November 2009. Ms. Liu has also served at FINRA as a Senior Market Operations Analyst from July 2006 through November 2007 and as a Fixed Income Domain Lead/Specialist from March 2004 through July 2006.
Ryan Dofflemeyer, a registered associated person and an NFA associate member of the Sponsor since October 26, 2010 and Portfolio Manager of the Sponsor since January 3, 2011. In these roles, Mr. Dofflemeyer’s responsibilities include day-to-day portfolio management of the VIX Funds. Mr. Dofflemeyer serves as a Portfolio Manager of PFA since August of 2007 and Junior Portfolio Analyst since October of 2003 to August of 2007. Mr. Dofflemeyer also serves as Portfolio Manager for Horizon BetaPro Funds since May of 2008 and Portfolio Manager for PSA since March 2010. Mr. Dofflemeyer worked as a Research Assistant for the Investment Company Institute from September 2001 to August 2003.
Lisa P. Johnson, a listed principal of the Sponsor since November 11, 2008. Ms. Johnson’s responsibilities include the review and approval of advertising material of the Sponsor. Ms. Johnson has been employed with ProFunds Distributors Inc. (“PDI”) since April 2008 as Head of Compliance. Prior to her employment with PDI, Ms. Johnson was the Senior Corporate Compliance Officer for ICMA Retirement Corporation (a financial services company) where she was employed from February 2005 to April 2008. She served as Senior Compliance Officer for Delaware Investments (a financial services firm) from January 2001 to February 2005. Ms. Johnson is FINRA registered and holds Series 7, 24 and 63 licenses. She also possesses a Certified Regulatory and Compliance Professional designation, from the NASD Institute at Wharton.
Victor Frye, a listed principal of the Sponsor since December 2, 2008. Mr. Frye’s responsibilities include the review and approval of advertising material of the Sponsor. Mr. Frye has been employed by PFA since October 2002 as Counsel and Chief Compliance Officer.
Indemnification
The Trust Agreement provides that the Sponsor and its affiliates shall have no liability to the Trust or to any shareholder for any loss suffered by the Trust arising out of any action or inaction of the Sponsor or its affiliates or their respective directors, officers, shareholders, partners, members, managers or employees (the “Sponsor Related Parties”), if the Sponsor Related Parties, in good faith, determined that such course of conduct was in the best interests of the Funds and such course of conduct did not constitute gross negligence or willful misconduct by the Sponsor Related Parties. The Trust has agreed to indemnify the Sponsor Related Parties against claims, losses or 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.
Item 11. Executive Compensation.
The Funds have no employees or directors and are managed by the Sponsor. None of the officers of the Trust, nor the members or officers of the Sponsor receive compensation from the Funds.
The Sponsor receives or will receive a monthly Management Fee from each Geared Fund equal to 0.95% annually of the average daily net asset value per share at the end of each month. The Sponsor will receive a monthly Management Fee from each VIX Fund equal to 0.85% annually of the average daily net asset value per share at the end of each month to the extent that such amounts cumulatively exceed the offering costs incurred by each VIX Fund. For the year ended December 31, 2010, the following represents Management Fees earned by the Sponsor:
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Not applicable.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
See “Item 11. Executive Compensation” of this Annual Report on Form 10-K.
Item 14.
Item 14. Principal Accounting Fees and Services.
(1) to (4). Fees for services performed by PricewaterhouseCoopers LLP (“PwC”) for the years ended December 31, 2010 and December 31, 2009 were as follows:
Audit fees for the year ended December 31, 2010 consist of fees paid to PwC for the audit of the Funds’ December 31, 2010 annual financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2010. Audit fees for the year ended December 31, 2009 consist of fees paid to PwC for the audits of the Funds’ December 31, 2000 financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2009.
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, 2010 or December 31, 2009 were attributable to work performed by persons other than the principal accountant’s full-time, permanent employees.
Part IV
Item 15.
Item 15. Exhibits and Financial Statement Schedules.
Financial Statement Schedules
See the Index to Financial Statements on Page 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.
(1) Incorporated by reference to the Trust’s Registration Statement, filed on October 18, 2007.
(2) Incorporated by reference to the Trust’s Registration Statement, filed on August 15, 2008.
(3) Incorporated by reference to the Trust’s Registration Statement, filed on September 18, 2008.
(4) Incorporated by reference to the Trust’s Registration Statement, filed on November 17, 2008.
(5) Incorporated by reference to the Trust’s Registration Statement, filed on October 22, 2008.
(6) Filed herewith.
(7) Furnished herewith.
(8) In accordance with Rule 406T of Regulation S-T, the information in these exhibits is furnished and deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 and 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.
ProShares Trust II
Financial Statements as of December 31, 2010
Index
Reports of Independent Registered Public Accounting Firm
To the Shareholders of ProShares Trust II:
In our opinion, the accompanying statements of financial condition and the related statements of operations, of changes in shareholder’s equity and of cash flows present fairly, in all material respects, the financial position of the ProShares Trust II, comprising the following sixteen funds:
1. ProShares Ultra DJ-UBS Commodity
2. ProShares UltraShort DJ-UBS Commodity
3. ProShares Ultra DJ-UBS Crude Oil
4. ProShares UltraShort DJ-UBS Crude Oil
5. ProShares Short DJ-UBS Natural Gas
6. ProShares Ultra Gold
7. ProShares Short Gold
8. ProShares UltraShort Gold
9. ProShares Ultra Silver
10. ProShares UltraShort Silver
11. ProShares Ultra Euro
12. ProShares UltraShort Euro
13. ProShares Ultra Yen
14. ProShares UltraShort Yen
15. ProShares VIX Short-Term Futures ETF
16. ProShares VIX Mid-Term Futures ETF
(collectively, the “Trust”) at December 31, 2010 and December 31, 2009, and the results of each of their operations, changes in each of their shareholders’ equity and each of their cash flows for the years ended December 31, 2010 and December 31, 2009 and the period August 6, 2008 (Inception) through December 31, 2008 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Trust maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Trust’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting under Item 9A. Our responsibility is to express opinions on these financial statements and on the Trust’s internal control over financial reporting based on our audits (which were integrated audits in 2010 and 2009). We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A Trust’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A Trust’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Trust; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Trust are being made only in accordance with authorizations of management and directors of the Trust; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Trust’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Columbus, Ohio
February 28, 2011
PROSHARES ULTRA DJ-UBS COMMODITY
STATEMENTS OF FINANCIAL CONDITION
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS COMMODITY
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2010
Swap Agreements^
 All or partial amount segregated as collateral for swap agreements.
^ The positions and counterparties herein are as of December 31, 2010. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.
* For swap agreements, a positive amount represents “long” exposure to the benchmark Index. A negative amount represents “short” exposure to the benchmark Index.
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS COMMODITY
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2009
Swap Agreements^
 All or partial amount segregated as collateral for swap agreements.
^ The positions and counterparties herein are as of December 31, 2009. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.
* For swap agreements, a positive amount represents “long” exposure to the benchmark Index. A negative amount represents “short” exposure to the benchmark Index.
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS COMMODITY
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND THE PERIOD FROM
AUGUST 6, 2008 (INCEPTION) TO DECEMBER 31, 2008
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS COMMODITY
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND THE PERIOD FROM
AUGUST 6, 2008 (INCEPTION) TO DECEMBER 31, 2008
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS COMMODITY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND THE PERIOD FROM
AUGUST 6, 2008 (INCEPTION) TO DECEMBER 31, 2008
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS COMMODITY*
STATEMENTS OF FINANCIAL CONDITION
* See Note 10.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS COMMODITY
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2010
Swap Agreements^
 All or partial amount segregated as collateral for swap agreements.
^ The positions and counterparties herein are as of December 31, 2010. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.
* For swap agreements, a positive amount represents “long” exposure to the benchmark Index. A negative amount represents “short” exposure to the benchmark Index.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS COMMODITY
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2009
Swap Agreements^
 All or partial amount segregated as collateral for swap agreements.
^ The positions and counterparties herein are as of December 31, 2009. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.
* For swap agreements, a positive amount represents “long” exposure to the benchmark Index. A negative amount represents “short” exposure to the benchmark Index.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS COMMODITY*
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND THE PERIOD FROM
AUGUST 6, 2008 (INCEPTION) TO DECEMBER 31, 2008
* See Note 10.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS COMMODITY*
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND THE PERIOD FROM
AUGUST 6, 2008 (INCEPTION) TO DECEMBER 31, 2008
* See Note 10.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS COMMODITY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND THE PERIOD FROM
AUGUST 6, 2008 (INCEPTION) TO DECEMBER 31, 2008
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS CRUDE OIL*
STATEMENTS OF FINANCIAL CONDITION
* See Note 10.
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS CRUDE OIL
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2010
Futures Contracts Purchased
Swap Agreements^
 All or partial amount segregated as collateral for swap agreements.
^ The positions and counterparties herein are as of December 31, 2010. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.
* For swap agreements, a positive amount represents “long” exposure to the benchmark Index. A negative amount represents “short” exposure to the benchmark Index.
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS CRUDE OIL
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2009
Futures Contracts Purchased
Swap Agreements^
 All or partial amount segregated as collateral for swap agreements.
^ The positions and counterparties herein are as of December 31, 2009. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.
* For swap agreements, a positive amount represents “long” exposure to the benchmark Index. A negative amount represents “short” exposure to the benchmark Index.
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS CRUDE OIL*
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND THE PERIOD FROM
AUGUST 6, 2008 (INCEPTION) TO DECEMBER 31, 2008
* See Note 10.
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS CRUDE OIL*
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND THE PERIOD FROM
AUGUST 6, 2008 (INCEPTION) TO DECEMBER 31, 2008
* See Note 10.
See accompanying notes to financial statements.
PROSHARES ULTRA DJ-UBS CRUDE OIL
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND THE PERIOD FROM
AUGUST 6, 2008 (INCEPTION) TO DECEMBER 31, 2008
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS CRUDE OIL*
STATEMENTS OF FINANCIAL CONDITION
* See Note 10.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS CRUDE OIL
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2010
Futures Contracts Sold
Swap Agreements^
 All or partial amount segregated as collateral for swap agreements.
^ The positions and counterparties herein are as of December 31, 2010. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.
* For swap agreements, a positive amount represents “long” exposure to the benchmark Index. A negative amount represents “short” exposure to the benchmark Index.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS CRUDE OIL
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2009
Futures Contracts Sold
Swap Agreements^
 All or partial amount segregated as collateral for swap agreements.
^ The positions and counterparties herein are as of December 31, 2009. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.
* For swap agreements, a positive amount represents “long” exposure to the benchmark Index. A negative amount represents “short” exposure to the benchmark Index.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS CRUDE OIL*
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND THE PERIOD FROM
AUGUST 6, 2008 (INCEPTION) TO DECEMBER 31, 2008
* See Note 10.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS CRUDE OIL*
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND THE PERIOD FROM
AUGUST 6, 2008 (INCEPTION) TO DECEMBER 31, 2008
* See Note 10.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT DJ-UBS CRUDE OIL
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND THE PERIOD FROM
AUGUST 6, 2008 (INCEPTION) TO DECEMBER 31, 2008
See accompanying notes to financial statements.
PROSHARES SHORT DJ-UBS NATURAL GAS*
STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 2010
* See Note 1.
See accompanying notes to financial statements.
PROSHARES ULTRA GOLD
STATEMENTS OF FINANCIAL CONDITION
See accompanying notes to financial statements.
PROSHARES ULTRA GOLD
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2010
Futures Contracts Purchased
Forward Agreements^
 All or partial amount segregated as collateral for forward agreements.
^ The positions and counterparties herein are as of December 31, 2010. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.
* For 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.
PROSHARES ULTRA GOLD
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2009
Futures Contracts Purchased
Forward Agreements^
 All or partial amount segregated as collateral for forward agreements.
^ The positions and counterparties herein are as of December 31, 2009. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.
* For forward agreements, a positive amount represents “long” exposure to the underlying commodity. A negative amount represents “short” exposure to the underlying commodity.
See accompanying notes to financial statements.
PROSHARES ULTRA GOLD
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND THE PERIOD FROM
AUGUST 6, 2008 (INCEPTION) TO DECEMBER 31, 2008
See accompanying notes to financial statements.
PROSHARES ULTRA GOLD
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND THE PERIOD FROM
AUGUST 6, 2008 (INCEPTION) TO DECEMBER 31, 2008
See accompanying notes to financial statements.
PROSHARES ULTRA GOLD
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND THE PERIOD FROM
AUGUST 6, 2008 (INCEPTION) TO DECEMBER 31, 2008
See accompanying notes to financial statements.
PROSHARES SHORT GOLD*
STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 2010
* See Note 1.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT GOLD
STATEMENTS OF FINANCIAL CONDITION
See accompanying notes to financial statements.
PROSHARES ULTRASHORT GOLD
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2010
Futures Contracts Sold
Forward Agreements^
 All or partial amount segregated as collateral for forward agreements.
^ The positions and counterparties herein are as of December 31, 2010. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.
* For 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.
PROSHARES ULTRASHORT GOLD
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2009
Futures Contracts Sold
Forward Agreements^
 All or partial amount segregated as collateral for forward agreements.
^ The positions and counterparties herein are as of December 31, 2009. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.
* For forward agreements, a positive amount represents “long” exposure to the underlying commodity. A negative amount represents “short” exposure to the underlying commodity.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT GOLD
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND THE PERIOD FROM
AUGUST 6, 2008 (INCEPTION) TO DECEMBER 31, 2008
See accompanying notes to financial statements.
PROSHARES ULTRASHORT GOLD
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND THE PERIOD FROM
AUGUST 6, 2008 (INCEPTION) TO DECEMBER 31, 2008
See accompanying notes to financial statements.
PROSHARES ULTRASHORT GOLD
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND THE PERIOD FROM
AUGUST 6, 2008 (INCEPTION) TO DECEMBER 31, 2008
See accompanying notes to financial statements.
PROSHARES ULTRA SILVER
STATEMENTS OF FINANCIAL CONDITION
See accompanying notes to financial statements.
PROSHARES ULTRA SILVER
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2010
Futures Contracts Purchased
Forward Agreements^
 All or partial amount segregated as collateral for forward agreements.
^ The positions and counterparties herein are as of December 31, 2010. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.
* For 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.
PROSHARES ULTRA SILVER
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2009
Futures Contracts Purchased
Forward Agreements^
 All or partial amount segregated as collateral for forward agreements.
^ The positions and counterparties herein are as of December 31, 2009. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.
* For forward agreements, a positive amount represents “long” exposure to the underlying commodity. A negative amount represents “short” exposure to the underlying commodity.
See accompanying notes to financial statements.
PROSHARES ULTRA SILVER
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND THE PERIOD FROM
AUGUST 6, 2008 (INCEPTION) TO DECEMBER 31, 2008
See accompanying notes to financial statements.
PROSHARES ULTRA SILVER
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND THE PERIOD FROM
AUGUST 6, 2008 (INCEPTION) TO DECEMBER 31, 2008
See accompanying notes to financial statements.
PROSHARES ULTRA SILVER
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND THE PERIOD FROM
AUGUST 6, 2008 (INCEPTION) TO DECEMBER 31, 2008
See accompanying notes to financial statements.
PROSHARES ULTRASHORT SILVER*
STATEMENTS OF FINANCIAL CONDITION
* See Note 10.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT SILVER
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2010
Futures Contracts Sold
Forward Agreements^
 All or partial amount segregated as collateral for forward agreements.
^ The positions and counterparties herein are as of December 31, 2010. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.
* For 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.
PROSHARES ULTRASHORT SILVER
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2009
Futures Contracts Sold
Forward Agreements^
 All or partial amount segregated as collateral for forward agreements.
^ The positions and counterparties herein are as of December 31, 2009. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.
* For forward agreements, a positive amount represents “long” exposure to the underlying commodity. A negative amount represents “short” exposure to the underlying commodity.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT SILVER*
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND THE PERIOD FROM
AUGUST 6, 2008 (INCEPTION) TO DECEMBER 31, 2008
* See Note 10.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT SILVER*
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND THE PERIOD FROM
AUGUST 6, 2008 (INCEPTION) TO DECEMBER 31, 2008
* See Note 10.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT SILVER
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND THE PERIOD FROM
AUGUST 6, 2008 (INCEPTION) TO DECEMBER 31, 2008
See accompanying notes to financial statements.
PROSHARES ULTRA EURO
STATEMENTS OF FINANCIAL CONDITION
See accompanying notes to financial statements.
PROSHARES ULTRA EURO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2010
Foreign Currency Forward Contracts^
 All or partial amount segregated as collateral for foreign currency forward contracts.
^ The positions and counterparties herein are as of December 31, 2010. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.
See accompanying notes to financial statements.
PROSHARES ULTRA EURO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2009
Foreign Currency Forward Contracts^
 All or partial amount segregated as collateral for foreign currency forward contracts.
^ The positions and counterparties herein are as of December 31, 2009. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.
See accompanying notes to financial statements.
PROSHARES ULTRA EURO
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND THE PERIOD FROM
AUGUST 6, 2008 (INCEPTION) TO DECEMBER 31, 2008
See accompanying notes to financial statements.
PROSHARES ULTRA EURO
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND THE PERIOD FROM
AUGUST 6, 2008 (INCEPTION) TO DECEMBER 31, 2008
See accompanying notes to financial statements.
PROSHARES ULTRA EURO
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND THE PERIOD FROM
AUGUST 6, 2008 (INCEPTION) TO DECEMBER 31, 2008
See accompanying notes to financial statements.
PROSHARES ULTRASHORT EURO
STATEMENTS OF FINANCIAL CONDITION
See accompanying notes to financial statements.
PROSHARES ULTRASHORT EURO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2010
Foreign Currency Forward Contracts^
 All or partial amount segregated as collateral for foreign currency forward contracts.
^ The positions and counterparties herein are as of December 31, 2010. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT EURO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2009
Foreign Currency Forward Contracts^
 All or partial amount segregated as collateral for foreign currency forward contracts.
^ The positions and counterparties herein are as of December 31, 2009. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT EURO
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND THE PERIOD FROM
AUGUST 6, 2008 (INCEPTION) TO DECEMBER 31, 2008
See accompanying notes to financial statements.
PROSHARES ULTRASHORT EURO
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND THE PERIOD FROM
AUGUST 6, 2008 (INCEPTION) TO DECEMBER 31, 2008
See accompanying notes to financial statements.
PROSHARES ULTRASHORT EURO
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND THE PERIOD FROM
AUGUST 6, 2008 (INCEPTION) TO DECEMBER 31, 2008
See accompanying notes to financial statements.
PROSHARES ULTRA YEN
STATEMENTS OF FINANCIAL CONDITION
See accompanying notes to financial statements.
PROSHARES ULTRA YEN
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2010
Foreign Currency Forward Contracts^
 All or partial amount segregated as collateral for foreign currency forward contracts.
^ The positions and counterparties herein are as of December 31, 2010. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.
See accompanying notes to financial statements.
PROSHARES ULTRA YEN
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2009
Foreign Currency Forward Contracts^
 All or partial amount segregated as collateral for foreign currency forward contracts.
^ The positions and counterparties herein are as of December 31, 2009. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.
See accompanying notes to financial statements.
PROSHARES ULTRA YEN
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND THE PERIOD FROM
AUGUST 6, 2008 (INCEPTION) TO DECEMBER 31, 2008
See accompanying notes to financial statements.
PROSHARES ULTRA YEN
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND THE PERIOD FROM
AUGUST 6, 2008 (INCEPTION) TO DECEMBER 31, 2008
See accompanying notes to financial statements.
PROSHARES ULTRA YEN
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND THE PERIOD FROM
AUGUST 6, 2008 (INCEPTION) TO DECEMBER 31, 2008
See accompanying notes to financial statements.
PROSHARES ULTRASHORT YEN
STATEMENTS OF FINANCIAL CONDITION
See accompanying notes to financial statements.
PROSHARES ULTRASHORT YEN
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2010
Foreign Currency Forward Contracts^
 All or partial amount segregated as collateral for foreign currency forward contracts.
^ The positions and counterparties herein are as of December 31, 2010. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT YEN
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2009
Foreign Currency Forward Contracts^
 All or partial amount segregated as collateral for foreign currency forward contracts.
^ The positions and counterparties herein are as of December 31, 2009. The Funds continually evaluate different counterparties for their transactions and counterparties are subject to change. New counterparties can be added at anytime.
See accompanying notes to financial statements.
PROSHARES ULTRASHORT YEN
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND THE PERIOD FROM
AUGUST 6, 2008 (INCEPTION) TO DECEMBER 31, 2008
See accompanying notes to financial statements.
PROSHARES ULTRASHORT YEN
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND THE PERIOD FROM
AUGUST 6, 2008 (INCEPTION) TO DECEMBER 31, 2008
See accompanying notes to financial statements.
PROSHARES ULTRASHORT YEN
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND THE PERIOD FROM
AUGUST 6, 2008 (INCEPTION) TO DECEMBER 31, 2008
See accompanying notes to financial statements.
PROSHARES VIX SHORT-TERM FUTURES ETF*
STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 2010
* See Note 1.
See accompanying notes to financial statements.
PROSHARES VIX MID-TERM FUTURES ETF*
STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 2010
* See Note 1.
See accompanying notes to financial statements.
PROSHARES TRUST II
COMBINED STATEMENTS OF FINANCIAL CONDITION
See accompanying notes to financial statements.
PROSHARES TRUST II
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND THE PERIOD FROM
AUGUST 6, 2008 (INCEPTION) TO DECEMBER 31, 2008
See accompanying notes to financial statements.
PROSHARES TRUST II
COMBINED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND THE PERIOD FROM
AUGUST 6, 2008 (INCEPTION) TO DECEMBER 31, 2008
See accompanying notes to financial statements.
PROSHARES TRUST II
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND THE PERIOD FROM
AUGUST 6, 2008 (INCEPTION) TO DECEMBER 31, 2008
See accompanying notes to financial statements.
PROSHARES TRUST II
NOTES TO FINANCIAL STATEMENTS
December 31, 2010
NOTE 1 - ORGANIZATION
ProShares Trust II (formerly known as the Commodities and Currencies Trust) (the “Trust”) is a Delaware statutory trust formed on October 9, 2007 and currently organized into separate series (each, a “Fund” and collectively, the “Funds”). The following twelve series of the Trust, ProShares Ultra DJ-UBS Commodity, ProShares UltraShort DJ-UBS Commodity, ProShares Ultra DJ-UBS Crude Oil, ProShares UltraShort DJ-UBS Crude Oil, ProShares Ultra Gold, ProShares UltraShort Gold, ProShares Ultra Silver, ProShares UltraShort Silver, ProShares Ultra Euro, ProShares UltraShort Euro, ProShares Ultra Yen and ProShares UltraShort Yen (each, a “Leveraged Fund” and collectively, the “Leveraged Funds”) issue common units of beneficial interest (“Shares”), which represent units of fractional undivided beneficial interest in and ownership of only that Leveraged Fund. The Shares of each Leveraged Fund are listed on the New York Stock Exchange Archipelago (“NYSE Arca”). The Trust has also registered shares for four additional series: ProShares Short DJ-UBS Natural Gas and ProShares Short Gold (each, a “Short Fund” and collectively, the “Short Funds”), ProShares VIX Short-Term Futures ETF and ProShares VIX Mid-Term Futures ETF (each, a VIX Fund and collectively, the “VIX Funds”). As of December 31, 2010, each of the Short Funds had seed capital of $200 and each of the VIX Funds had seed capital of $400 but none of these Funds had commenced investment operations; therefore, these Financial Statements do not include Schedules of Investments, Statements of Operations, Statements of Changes in Shareholders’ Equity or Statements of Cash Flows for the Short Funds or the VIX Funds.
The Trust had no operations prior to November 24, 2008 other than matters relating to its organization, the registration of each series under the Securities Act of 1933, as amended, and the sale and issuance to ProShare Capital Management LLC (the “Sponsor”) of fourteen Shares of each Leveraged Fund at an aggregate purchase price of $350 in each of the Funds.
Eight of the Funds, ProShares Ultra DJ-UBS Commodity, ProShares UltraShort DJ-UBS Commodity, ProShares Ultra DJ-UBS Crude Oil, ProShares UltraShort DJ-UBS Crude Oil, ProShares Ultra Euro, ProShares UltraShort Euro, ProShares Ultra Yen and ProShares UltraShort Yen, commenced trading on the NYSE Arca on November 25, 2008. Four of the Funds, ProShares Ultra Silver, ProShares UltraShort Silver, ProShares Ultra Gold and ProShares UltraShort Gold, commenced trading on the NYSE Arca on December 3, 2008. As of December 31, 2010, ProShares Short DJ-UBS Natural Gas, ProShares Short Gold, ProShares VIX Short-Term Futures ETF and ProShares VIX Mid-Term Futures ETF had not yet commenced investment operations.
Each “Ultra” Fund seeks daily investment results (before fees and expenses) that correspond to twice (200%) the daily performance of its corresponding benchmark. Each “Short” Fund seeks daily investment results (before fees and expenses) that correspond to the inverse (opposite) of the daily performance of its corresponding benchmark. Each “UltraShort” Fund seeks daily investment results (before fees and expenses) that correspond to twice (200%) the inverse (opposite) of the daily performance of its corresponding benchmark. The Short Funds, together with the Leveraged Funds are referred to as the “Geared Funds” in these Notes to Financial Statements. Each “VIX” Fund seeks daily investment results (before fees and expenses) that match the performance of a benchmark. Each VIX Fund intends to obtain exposure to its VIX Index by investing in futures contracts (“VIX futures contracts”) based on the Chicago Board Options Exchange (“CBOE”) Volatility Index (the “VIX”). Each of the Geared Funds generally invests or will invest in Financial Instruments (i.e., commodity-based or currency-based instruments whose value is derived from the value of an underlying asset, rate or index, including futures contracts and options on futures contracts, swap agreements, forward contracts and other commodity-based or currency-based options contracts) as a substitute for investing directly in a commodity or currency in order to gain exposure to the commodity index, commodity or currency. The Financial Instruments in which ProShares Short DJ-UBS Natural Gas will invest are limited to futures contracts. Financial Instruments also are used to produce economically “leveraged” or “inverse” investment results for the Funds.
The Geared Funds do not seek to achieve their stated investment objective over a period of time greater than one day because mathematical compounding prevents the Geared Funds from achieving such results. Accordingly, results over periods of time greater than one day should not be expected to be a simple multiple (+200 or -200%) of the period return of the corresponding benchmark and will likely differ significantly. The VIX Funds seek to achieve their stated investment objective both over a single day and over time.
ProShares Ultra DJ-UBS Commodity, ProShares UltraShort DJ-UBS Commodity, ProShares Ultra DJ-UBS Crude Oil and ProShares UltraShort DJ-UBS Crude Oil each have a benchmark designed to track the performance of commodity
futures contracts. The daily performance of these indexes and the corresponding funds will likely be very different from the daily performance of the price of the related physical commodities.
On May 6, 2009, UBS Securities LLC acquired the commodity business of AIG Financial Products Corp. Effective May 7, 2009, the Dow Jones-AIG Commodity Indexes were re-branded as the Dow Jones-UBS Commodity Indexes. The Dow Jones-UBS Commodity Indexes have an identical methodology to the Dow Jones-AIG Commodity Indexes and take the identical form and format of the Dow Jones-AIG Commodity Indexes. In connection therewith:
The following Indexes were renamed:
Former Index Name
New Index Name
Dow Jones-AIG Commodity Index
Dow Jones-UBS Commodity Index
Dow Jones-AIG Crude Oil Sub-Index
Dow Jones-UBS Crude Oil Sub-Index
The following Funds were renamed:
Former Fund Name
New Fund Name
ProShares Ultra DJ-AIG Commodity
ProShares Ultra DJ-UBS Commodity
ProShares UltraShort DJ-AIG Commodity
ProShares UltraShort DJ-UBS Commodity
ProShares Ultra DJ-AIG Crude Oil
ProShares Ultra DJ-UBS Crude Oil
ProShares UltraShort DJ-AIG Crude Oil
ProShares UltraShort DJ-UBS Crude Oil
Prior to the opening of trading on the NYSE Arca on April 15, 2010, ProShares UltraShort Gold executed a 1-for-5 reverse split of shares, and ProShares UltraShort Silver executed a 1-for-10 reverse split of shares. The funds traded at their post-split prices on April 15, 2010. The ticker symbols for the funds did not change, and they continue to trade on the NYSE Arca.
The reverse splits were applied retroactively for all periods presented, reducing the number of shares outstanding for each of the ProShares UltraShort Gold Fund and ProShares UltraShort Silver Fund, and resulted in a proportionate increase in the price per share and per share information of each of the ProShares UltraShort Gold Fund and ProShares UltraShort Silver Fund. Therefore, the reverse splits did not change the aggregate net asset value of a shareholder’s investment at the time of the split.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by each Geared Fund and each VIX 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”).
Use of Estimates & Indemnifications
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in these financial statements. Actual results could differ from those estimates.
In the normal course of business the Trust enters into contracts that contain a variety of representations which provide general indemnifications. The Trust’s maximum exposure under these arrangements cannot be known; however, the Trust expects any risk of loss to be remote.
Basis of Presentation
Pursuant to rules and regulations of the U.S. Securities and Exchange Commission (“SEC”), audited financial statements are presented for the Trust as a whole, as the SEC registrant, and for each Fund individually. The debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to a particular Fund shall be enforceable only against the assets of such Fund and not against the assets of the Trust generally or any other Fund. Accordingly, the assets of one Fund of the Trust include only those funds and other assets that are paid to, held by or distributed to the Trust on account of and for the benefit of that Fund, including, without limitation, funds delivered to the Trust for the purchase of Units in that Fund.
Statement of Cash Flows
The cash amount shown in the Statements of Cash Flows is the amount reported as cash in the Statement of Financial Condition dated December 31, 2010, and represents non-segregated cash with the custodian and does not include short-term investments.
Final Net Asset Value for Fiscal Period
The times of the calculation of the Leveraged Funds’ final net asset value for creation and redemption of fund shares for the year ended December 31, 2010 were as follows. All times are Eastern Time:
Although the Leveraged 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, 2010.
Market value per share is determined at the close of the NYSE Arca and may be later than when the Funds’ NAV per share is calculated.
For financial reporting purposes, the Leveraged Funds value transactions based upon the final closing price in their primary markets. Accordingly, the investment valuations in these financial statements differ from those used in the calculation of some Leveraged Funds’ final creation/redemption NAV for the year ended December 31, 2010.
Investment Valuation
Short-term investments are valued at market price. Treasury securities having a maturity of greater than sixty days are valued at market price.
Derivatives (e.g., futures, swaps and forward agreements) are generally valued using independent sources and/or agreements with counterparties or other procedures as determined by the Sponsor. Futures contracts, except for those entered into by the Gold and Silver Funds, are generally valued at the last settled price on the applicable exchange on which that future trades. Futures contracts entered into by the Gold and Silver Funds are valued at the last sales price prior to the time at which the NAV per Share of a Fund is determined. If there was no sale on that day, and for non-exchange-traded derivatives, the Sponsor may in its sole discretion choose to determine a fair value price as the basis for determining the market value of such position for such day. Such fair value prices would be generally determined based on available inputs about the current value of the underlying financial instrument or commodity and would be based on principles that the Sponsor deems fair and equitable so long as such principles are consistent with normal industry standards. When market closing prices are not available, the Sponsor may value an asset of a Fund pursuant to the policies the Sponsor has adopted, which are consistent with normal industry standards.
Fair value pricing may require subjective determinations about the value of an investment. While the Leveraged Funds’ policy is intended to result in a calculation of a Leveraged Fund’s NAV that fairly reflects investment values as of the time of pricing, the Leveraged Fund cannot ensure that fair values determined by the Sponsor or persons acting at their direction would accurately reflect the price that a Fund could obtain for an investment if it were to dispose of that investment as of the time of pricing (for instance, in a forced or distressed sale). The prices used by a Leveraged Fund 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 shall be determined based on the lowest input level that is significant to the fair value measurement in its entirety.
Fair value measurements also require additional disclosure when the volume and level of activity for the asset or liability have significantly decreased, as well as when circumstances indicate that a transaction is not orderly.
The following table summarizes the valuation of investments at December 31, 2010 using the fair value hierarchy:
At December 31, 2010, there were no Level III portfolio investments for which significant unobservable inputs were used to determine fair value.
At December 31, 2010, there were no significant transfers in or out of Level I or Level II fair value measurements.
The following table summarizes the valuation of investments at December 31, 2009 using the fair value hierarchy:
At December 31, 2009, there were no Level III portfolio investments for which significant unobservable inputs were used to determine fair value.
At December 31, 2009, there were no significant transfers in or out of Level I or Level II fair value measurements.
The inputs or methodology used for valuing investments are not necessarily an indication of the risk associated with investing in those securities.
Investment Transactions and Related Income
Investment transactions are recorded on the trade date. All such transactions are recorded on the identified cost basis and marked to market daily. Unrealized appreciation/depreciation on open contracts are reflected in the Statements of Financial Condition and changes in the unrealized appreciation/depreciation between periods are reflected in the Statements of Operations. Discounts on short-term securities purchased are amortized and reflected as Interest Income in the Statements of Operations.
Brokerage Commissions and Fees
Each Geared Fund pays its respective brokerage commissions, including applicable exchange fees, National Futures Association (“NFA”) fees, give-up fees, pit brokerage fees and other transaction related fees and expenses charged in connection with trading activities for each Fund’s investment in U.S. Commodity Futures Trading Commission regulated investments. Brokerage commissions on futures contracts are recognized on a half-turn basis. The Sponsor will pay brokerage commissions on futures contracts for the VIX Funds.
Federal Income Tax
Each Geared Fund and each VIX Fund is registered as a series of a Delaware statutory trust and is or will be treated as a partnership for U.S. federal income tax purposes. Accordingly, no Fund expects to incur U.S. federal income tax liability; rather, each beneficial owner of a Geared Fund’s or a VIX Fund’s Shares is or will be required to take into account its allocable share of its Geared Fund’s or VIX Fund’s income, gain, loss, deductions and other items for its Fund’s taxable year ending with or within the beneficial owner’s taxable year.
Management of the Funds has reviewed all open tax years and major jurisdictions and concluded that there is no tax liability resulting from unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken in future tax returns. The Funds are also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. On an ongoing basis, management will monitor its tax positions taken under the interpretation to determine if adjustments to conclusions are necessary based on factors including, but not limited to, further implementation of guidance expected from the Financial Accounting Standards Board and on-going analysis of tax law, regulation, and interpretations thereof.
NOTE 3 - INVESTMENTS
Short-Term Investments
The Leveraged 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 margin for a Leveraged Fund’s trading in futures and forward contracts.
Accounting for Derivative Instruments
In seeking to achieve each Leveraged Fund’s investment objective, the Sponsor uses a mathematical approach to investing. Using this approach, the Sponsor determines the type, quantity and mix of investment positions that the Sponsor believes in combination should produce daily returns consistent with a Leveraged Fund’s objective.
All open derivative positions at period-end for each Leveraged Fund are disclosed in the Schedule of Investments and the notional value of these open positions relative to the shareholders’ equity of each Leveraged Fund is generally representative of the notional value of open positions to shareholders’ equity throughout the reporting period for each respective Leveraged Fund. The volume associated with derivative positions varies on a daily basis as each Leveraged Fund transacts derivative contracts in order to achieve the appropriate exposure, as expressed in notional value, in comparison to shareholders’ equity consistent with each Leveraged Fund’s investment objective.
Following is a description of the derivative instruments used by the Leveraged Funds during the reporting period, including the primary underlying risk exposures related to each instrument type.
Futures Contracts
The Leveraged Funds enter into futures contracts to gain exposure to changes in the value of an underlying commodity. A futures contract obligates the seller to deliver (and the purchaser to accept) the future delivery of a specified quantity and type of a commodity at a specified time and place. The contractual obligations of a buyer or seller may generally be satisfied by taking or making physical delivery of the underlying commodity 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.
Upon entering into a futures contract, each Leveraged Fund is required to deposit and maintain as collateral at least such initial margin as required by the exchange on which the transaction is effected. The initial margin is segregated as cash balances with brokers for futures contracts, as disclosed in the Statements of Financial Condition, and is restricted as to its use. Pursuant to the futures contract, each Leveraged Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the futures contract. Such receipts or payments are known as variation margin and are recorded by each Leveraged Fund as unrealized gains or losses. Each Leveraged 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) 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 Leveraged 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 securities or commodity and the possibility of an illiquid market for a futures contract. With futures contracts, there is minimal counterparty risk to the Leveraged Funds since futures contracts are exchange-traded and the exchange’s clearinghouse, as counterparty to all exchange-traded futures contracts, guarantees the futures contracts against default.
Swap Agreements
The Leveraged Funds enter into swap agreements for purposes of pursuing their investment objectives or as a substitute for investing directly in (or shorting) commodities, or to create an economic hedge against a position. Swap agreements are two-party contracts entered into primarily with institutional investors for a specified period, ranging from a day to more than one year. In a standard swap transaction, two parties agree to exchange the returns earned or realized on a particular predetermined investment, instrument or index in exchange for a fixed or floating rate of return in respect of a
predetermined notional amount. In the case of futures contracts based indices, such as those used by the Commodity Index Funds, the reference interest rate is zero. The gross returns to be exchanged are calculated with respect to a notional amount and the benchmark returns to which the swap is linked. Swap agreements do not involve the delivery of securities or other underlying instruments.
Generally, swap agreements entered into by the Leveraged Funds calculate and settle the obligations of the parties to the agreement on a “net basis” with a single payment. Consequently, each Fund’s current obligations (or rights) under a swap agreement will generally be equal only to the net amount to be paid or received under the agreement based on the relative values of such obligations (or rights) (the “net amount”). In a typical swap agreement entered into by an Ultra Fund, the Ultra Fund would be entitled to settlement payments in the event the benchmark increases and would be required to make payments to the swap counterparties in the event the benchmark decreases, adjusted for any transaction costs or trading spreads on the notional amount the Leveraged Funds may pay. In a typical swap agreement entered into by an UltraShort Fund, the UltraShort Fund would be required to make payments to the swap counterparties in the event the benchmark increases and would be entitled to settlement payments in the event the benchmark decreases, adjusted for any transaction costs or trading spreads on the notional amount the Leveraged Funds may pay.
The net amount of the excess, if any, of each Leveraged Fund’s obligations over its entitlements with respect to each swap agreement is accrued on a daily basis and an amount of cash and/or securities having an aggregate NAV at least equal to such accrued excess is maintained in a segregated account by the Leveraged Funds’ Custodian. Until a swap agreement is settled in cash, the gain or loss on the notional amount less any transaction costs or trading spreads payable by each Leveraged Fund on the notional amount are recorded as “unrealized appreciation or depreciation on swap agreements” and, when cash is exchanged, the gain or loss realized is recorded as “realized gains or losses on swap agreements.” Swap agreements are generally valued at the last settled price of the benchmark referenced Index.
The Trust, on behalf of a Leveraged 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 Leveraged Fund to have to enter into a new transaction with the same counterparty, enter into a transaction with a different counterparty or seek to achieve its investment objective through any number of different investments or investment techniques.
Swap agreements involve, to varying degrees, elements of market risk (commodity price risk) and exposure to loss in excess of the unrealized gain/loss reflected. The notional amounts reflect the extent of the total investment exposure each Leveraged Fund has under the swap agreement, which may exceed the NAV of each Leveraged Fund. Additional risks associated with the use of swap agreements are imperfect correlation between movements in the notional amount and the price of the underlying reference index and the inability of counterparties to perform. Each Leveraged 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 Leveraged Fund will enter into swap agreements only with large, well-capitalized and well established financial institutions. The creditworthiness of each of the firms which 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 and limiting the net amount due from any individual counterparty. All of the outstanding swap agreements at December 31, 2010 contractually terminate within one month but may be terminated without penalty by either party daily. Upon termination, the Leveraged Fund is entitled to pay or receive the “unrealized appreciation or depreciation” amount.
The Leveraged Funds collateralize swap agreements with cash and/or certain securities as indicated on the Statements of Financial Condition or Schedules of Investments and such collateral is held for the benefit of the counterparty in a segregated account at the Custodian to protect the counterparty against non-payment by the Leveraged Funds. In the event of a default by the counterparty, the Leveraged Funds will seek return of this collateral and may incur certain costs and time delays in exercising its right with respect to the collateral.
The Leveraged Funds may remain subject to credit risk with respect to the amounts they expect to receive from counterparties, as those amounts are not always similarly collateralized by the counterparty. If a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the Leveraged Funds may experience significant delays in obtaining any recovery in a bankruptcy or other reorganization proceeding. The Leveraged Funds may obtain only limited recovery or may obtain no recovery in such circumstances.
Forward Contracts
The Leveraged Funds enter into forward contracts for purposes of pursuing their investment objectives and as a substitute for investing directly in (or shorting) commodities/currencies. A forward contract is an agreement between two parties to purchase or sell a specified quantity of a commodity or currency at or before a specified date in the future at a specified price. Forward contracts are typically traded in the over-the-counter (“OTC”) markets and all details of the contract are negotiated between the counterparties to the agreement. Accordingly, the forward contracts are valued by reference to the contracts traded in the OTC markets.
The contractual obligations of a buyer or seller may generally be satisfied by taking or making physical delivery of the underlying commodity or currency, establishing an opposite position in the contract and recognizing the profit or loss on both positions simultaneously on the delivery date or, in some instances, paying a cash settlement before the designated date of delivery. The forward contracts are adjusted by the daily fluctuation of the underlying commodity or currency and any gains or losses are recorded for financial statement purposes as unrealized gains or losses until the contract settlement date.
Forward contracts are, in general, not cleared or guaranteed by a third party. The Leveraged Funds may collateralize forward commodity contracts with cash and/or certain securities as indicated on their Statements of Financial Condition or Schedules of Investments and such collateral is held for the benefit of the counterparty in a segregated account at the Custodian to protect the counterparty against non-payment by the Funds. In the event of a default by the counterparty, the Leveraged Funds will seek return of this collateral and may incur certain costs exercising its right with respect to the collateral.
The Leveraged Funds may remain subject to credit risk with respect to the amounts they expect to receive from counterparties, as those amounts are not always similarly collateralized by the counterparty. If a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the Leveraged Funds may experience significant delays in obtaining any recovery in a bankruptcy or other reorganization proceeding. The Leveraged Funds may obtain only limited recovery or may obtain no recovery in such circumstances.
Participants in trading foreign exchange forward contracts often do not require margin deposits, but rely upon internal credit limitations and their judgments regarding the creditworthiness of their counterparties.
A Leveraged Fund will enter into forward contracts only with large, well-capitalized and well established financial institutions. The creditworthiness of each of the firms which is a party to a forward contract is monitored by the Sponsor.
Fair Value of Derivative Instruments
as of December 31, 2010
** 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.
Fair Value of Derivative Instruments
as of December 31, 2009
** 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.
The Effect of Derivative Instruments on the Statements of Operations
For the year ended December 31, 2010
The Effect of Derivative Instruments on the Statements of Operations
For the year ended December 31, 2009
The Effect of Derivative Instruments on the Statements of Operations
For the period ended December 31, 2008
* Commenced investment operations on November 24, 2008.
** Commenced investment operations on December 1, 2008.
NOTE 4 - AGREEMENTS
Management Fee
Each Geared Fund pays or will pay the Sponsor a Management Fee, monthly in arrears, in an amount equal to 0.95% per annum of its average daily NAV of such Fund. In the first year of the Leveraged Funds’ operations, the Sponsor waived the Management Fee to the extent that such amounts cumulatively exceeded the organization and offering costs incurred by the Leveraged Fund. Each VIX Fund will pay the Sponsor a management fee, monthly in arrears, in an amount equal to 0.85% per annum of its average daily NAV to the extent that such amounts cumulatively exceed the offering costs incurred by the VIX Funds for the first year of operations. The Management Fee is or will be paid in consideration of the Sponsor’s services as commodity pool operator and commodity trading advisor, and for managing the business and affairs of the Geared Funds and the VIX Funds. From the Management Fee, the Sponsor pays or will pay the fees and expenses of the Administrator, Custodian, Distributor, Transfer Agent and the licensors for the Commodity Index Funds (Dow Jones & Company, Inc. and UBS Securities LLC, together, “DJ-UBS”), the routine operational, administrative and other ordinary expenses of each Fund, and the normal and expected expenses incurred in connection with the continuous offering of Shares of each Geared Fund and each VIX Fund after the commencement of its trading operations, including, but not limited to, expenses such as ongoing SEC registration fees not exceeding 0.021% per annum of the NAV of a Geared Fund or a VIX Fund and Financial Industry Regulatory Authority (“FINRA”) filing fees. Each Leveraged Fund and VIX Fund incurs and pays and each Short Fund will incur and pay, its non-recurring and unusual fees and expenses. No other management fee is paid by the Leveraged Funds or will be paid by the Short Funds or the VIX Funds.
The Administrator
The Sponsor and the Trust, for itself and on behalf of each Geared Fund and each VIX Fund, has appointed Brown Brothers Harriman & Co. (“BBH&Co.”) as the Administrator of the Funds, and the Sponsor, the Trust, on its own behalf and on behalf of each Geared Fund and each VIX 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 Geared Funds and the VIX Funds. BBH&Co. may also perform other services for the Geared Funds and the VIX 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 Geared Funds and the VIX Funds. The Administrator’s fees are or will be paid on behalf of the Geared Funds and the VIX Funds by the Sponsor.
The Custodian
BBH&Co. serves as Custodian of the Geared Funds and the VIX Funds, and the Trust, on its own behalf and on behalf of each Geared Fund and each VIX 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 Geared Funds and the VIX Funds, and performing various administrative duties in accordance with instructions delivered to BBH&Co. by the Geared Funds and the VIX Funds. The Custodian’s fees are or will be paid on behalf of the Geared Funds and the VIX Funds by the Sponsor.
The Distributor
SEI Investments Distribution Co. (“SEI”), serves as Distributor of the Funds and assists the Sponsor and the Administrator with certain functions and duties relating to distribution and marketing, including taking creation and redemption orders, consulting with the marketing staff of the Sponsor and its affiliates with respect to compliance with the requirements of FINRA and/or the NFA in connection with marketing efforts, and reviewing and filing of marketing materials with FINRA and/or the NFA. SEI retains all marketing materials separately for each Geared Fund and each VIX Fund, at c/o SEI, One Freedom Valley Drive, Oaks, PA 19456. The Sponsor, on behalf of each Geared Fund and each VIX Fund, has entered into a Distribution Services Agreement with SEI.
Routine Operational, Administrative and Other Ordinary Expenses
The Sponsor pays or will pay all of the routine operational, administrative and other ordinary expenses of each Geared Fund and each VIX Fund generally, as determined by the Sponsor including, but not limited to, fees and expenses of the Administrator, Custodian, Distributor, Transfer Agent, DJ-UBS, accounting and auditing fees and expenses, tax
preparation expenses, legal fees not in excess of $100,000 per annum, ongoing SEC registration fees not exceeding 0.021% per annum of the NAV of a Geared Fund or a VIX Fund, FINRA filing fees, individual K-1 preparation and mailing fees not exceeding 0.10% per annum of the NAV of a Geared Fund or a VIX Fund, and report preparation and mailing expenses.
Non-Recurring Fees and Expenses
Each Leveraged Fund and VIX Fund pays and each Short Fund will pay all non-recurring and unusual fees and expenses, if any, as determined by the Sponsor. Non-recurring fees and expenses are fees and expenses such as legal claims and liabilities, litigation costs or indemnification or other material expenses which are not currently anticipated obligations of the Geared Funds or the VIX Funds. Such fees and expenses are those that are non-recurring, unexpected or unusual in nature.
NOTE 5 - ORGANIZATION AND OFFERING COSTS
Organization costs are expensed as incurred and offering costs will be amortized by the Funds over a twelve month period on a straight-line basis. The Sponsor did not collect any fee in the first year of operation of each Leveraged Fund in an amount equal to the organization and offering fees. The Sponsor reimbursed each Leveraged Fund to the extent that its organization and offering costs exceeded 0.95% of its average daily NAV for the first year of operations.
Offering costs on the VIX Funds will be amortized over a twelve month period on a straight-line basis. The Sponsor will not collect any fee in the first year of operation of each VIX Fund in an amount equal to the offering fees. The Sponsor will reimburse each VIX Fund to the extent that its offering costs exceed 0.85% of its average daily NAV for the first year of operations. At December 31, 2010, payable for offering costs are reflected in the Statement of Financial Condition for each VIX Fund.
NOTE 6 - CREATION AND REDEMPTION OF CREATION UNITS
Each Leveraged Fund and VIX Fund issues and redeems Shares and each Short Fund will issue and redeem 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 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. 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
Authorized Participants pay a fixed transaction fee of $500 in connection with each order to create or redeem a Creation Unit in order to compensate BBH&Co. for services in processing the creation and redemption of Creation Units. Authorized Participants are required to pay a variable transaction fee of up to 0.10% of the value of the Creation Unit that is purchased or redeemed unless the transaction fee is waived or otherwise adjusted by the Sponsor. The variable transaction fee is 0.022% for the Commodity Funds and Commodity Index Funds and 0.00% for the Currency Funds and the VIX Funds. The Sponsor will provide the Authorized Participant with prompt notice in advance of any such waiver or adjustment of transaction fee. Authorized Participants may sell the Shares included in the Creation Units they purchase from the Funds to other investors in the secondary market.
Transaction fees for the years ended December 31, 2010 and December 31, 2009 and the period ended December 31, 2008, which are included in the Sale and/or Redemption of Shares on the Statements of Changes in Shareholders’ Equity, were as follows:
NOTE 7 - FINANCIAL HIGHLIGHTS
Selected data for a Share outstanding throughout the year ended December 31, 2010:
Ultra ProShares
For the Year Ended December 31, 2010
## See Note 10 of these Notes to Financial Statements.
# The amount shown for a share outstanding throughout the period may not be in accordance with the aggregate net realized and unrealized gain (loss) for that period because of the timing of sales and repurchases of the Fund shares in relation to fluctuating market value of the investments in the Fund.
 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.
UltraShort ProShares
For the Year Ended December 31, 2010
## See Note 10 of these Notes to Financial Statements.
* See Note 1 of these Notes to Financial Statements.
# The amount shown for a share outstanding throughout the period may not be in accordance with the aggregate net realized and unrealized gain (loss) for that period because of the timing of sales and repurchases of the Fund shares in relation to fluctuating market value of the investments in the Fund.
 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.
Selected data for a Share outstanding throughout the year ended December 31, 2009:
Ultra ProShares
For the Year Ended December 31, 2009
## See Note 10 of these Notes to Financial Statements.
# The amount shown for a share outstanding throughout the period may not be in accordance with the aggregate net realized and unrealized gain (loss) for that period because of the timing of sales and repurchases of the Fund shares in relation to fluctuating market value of the investments in the Fund.
 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.
UltraShort ProShares
For the Year Ended December 31, 2009
## See Note 10 of these Notes to Financial Statements.
* See Note 1 of these Notes to Financial Statements.
 Market values are determined at the close of the New York Stock Exchange, which may be later than when the Funds’ net asset value is calculated.
Selected data for a Share outstanding throughout the period ended December 31, 2008:
Ultra ProShares
From Commencement of Operations through December 31, 2008
* Fund commenced operations on November 24, 2008.
## See Note 10 of these Notes to Financial Statements.
+ Fund commenced operations on December 1, 2008.
# The amount shown for a share outstanding throughout the period may not be in accordance with the aggregate net realized and unrealized gain (loss) for that period because of the timing of sales and repurchases of the Fund shares in relation to fluctuating market value of the investments in the Fund.
 Market values are determined at the close of the New York Stock Exchange, which may be later than when the Funds’ net asset value is calculated.
^ Percentages are not annualized for the period ended December 31, 2008.
The returns for a share outstanding for 2008 are calculated based on initial offering price upon commencement of investment operations of $25.0000.
** Percentages are annualized.
UltraShort ProShares
From Commencement of Operations through December 31, 2008
* Fund commenced operations on November 24, 2008.
^^ See Note 1 of these Notes to Financial Statements.
## See Note 10 of these Notes to Financial Statements.
+ Fund commenced operations on December 1, 2008.
# The amount shown for a share outstanding throughout the period may not be in accordance with the aggregate net realized and unrealized gain (loss) for that period because of the timing of sales and repurchases of the Fund shares in relation to fluctuating market value of the investments in the Fund.
 Market values are determined at the close of the New York Stock Exchange, which may be later than when the Funds’ net asset value is calculated.
^ Percentages are not annualized for the period ended December 31, 2008.
The returns for a share outstanding for 2008 are calculated based on initial offering price upon commencement of investment operations of $25.0000.
** Percentages are annualized.
NOTE 8 - RISK
Correlation and Compounding Risk
The Geared Funds do not seek to achieve their stated investment objective over a period of time greater than one day because mathematical compounding prevents the Funds from achieving such results. Accordingly, results over periods of time greater than one day should not be expected to be a simple inverse correlation (-100%) or multiple (+200 or -200%) of the period return of the corresponding benchmark and will likely differ significantly. The VIX Funds seek to achieve their stated investment objective both over a single day and over time.
A number of factors may affect a Geared Fund’s ability to achieve a high degree of correlation with its benchmark, and there can be no guarantee that a Fund will achieve a high degree of correlation. Failure to achieve a high degree of correlation may prevent a Geared Fund from achieving its investment objective. A number of factors may adversely affect a Geared Fund’s correlation with its benchmark, including fees, expenses, transaction costs, costs and risks associated with the use of leveraged investment techniques, income items, accounting standards and disruptions or illiquidity in the markets for the commodities or Financial Instruments (i.e., commodity-based or currency-based instruments whose value is derived from the value of an underlying asset, rate or index) in which the Fund invests. A Geared Fund may not have investment exposure to all securities in its underlying benchmark index, or its weighting of investment exposure to such stocks or industries may be different from that of the index. In addition, a Geared Fund may invest in securities or Financial Instruments not included in the index underlying its benchmark. A Geared Fund may be subject to large movements of assets into and out of the Fund, potentially resulting in the Fund being over- or under-exposed to its benchmark. Activities surrounding annual index reconstitutions and other index rebalancing or reconstitution events may hinder a Geared Fund’s ability to meet its daily investment objective on or around that day. Each Geared Fund seeks to rebalance its portfolio daily to keep leverage consistent with its daily investment objective.
Compounding affects all investments, but has a more significant impact on a Geared Fund. The Geared Funds are “geared” in the sense that they have investment objectives to match a multiple, the inverse or a multiple of the inverse of the performance of an index on a given day. These Funds are subject to all of the correlation risks described above. In addition, there is a special form of correlation risk that derives from such Funds’ having a single day investment objective in combination with the use of leverage, which is that for periods greater than one day, the effect of compounding may cause the performance of a Fund to be either greater than or less than the index performance (or the inverse of the index performance) times the stated multiple in the Fund objective, before accounting for fees and fund expenses. This effect can be even more significant in the case of the Leveraged Funds due to the use of leverage. The Geared Funds are designed to provide leveraged (e.g. 200%), inverse (e.g. -100%) or inverse leveraged (e.g. -200%) results on a daily basis (before fees and expenses). Investors should monitor their holdings consistent with their strategies, as frequently as daily.
Counterparty Risk
A Fund will be subject to credit risk with respect to the amount it expects to receive from counterparties to Financial Instruments entered into by the Fund. The Funds structure the agreements such that either party can terminate the contract without penalty prior to the termination date. A Fund may be negatively impacted if a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties. A Fund may experience significant delays in obtaining any recovery in a bankruptcy or other reorganization proceeding and a Fund may obtain only limited recovery or may obtain no recovery in such circumstances. The Funds typically enter into transactions with counterparties whose credit rating, at the time of the transaction, is investment grade, as determined by a nationally recognized statistical rating organization, or, if unrated, judged by the Sponsor to be of comparable quality.
Leverage Risk
The Funds use investment techniques that may be considered aggressive, including the use of futures contracts, swap agreements and forward agreements. The Funds’ investment in Financial Instruments may involve a small investment relative to the amount of investment exposure assumed and may result in losses exceeding the amounts invested. Such instruments, particularly when used to create leverage, may expose the Funds to potentially dramatic changes (losses or gains) in the value of the instruments.
Liquidity Risk
In certain circumstances, such as the disruption of the orderly markets for the commodities or Financial Instruments in which a Fund invests, a Fund might not be able to dispose of certain holdings quickly or at prices that represent true market value in the judgment of the Sponsor. Such a situation may prevent a Fund from limiting losses, realizing gains or achieving a high correlation or inverse correlation with its underlying index.
NOTE 9 - LEGAL PROCEEDINGS
The Trust and certain officers are defendants (along with several other parties) in a consolidated class action styled In re ProShares Trust Securities Litigation, Civ. No. 09-cv-6935, filed in the United States District Court for the Southern District of New York. The complaint, as amended, alleges that the defendants violated Sections 11 and 15 of the Securities Act of 1933 by issuing untrue statements of material fact and omitting material facts in the Registration Statement for one or more ProShares ETFs, allegedly failing to adequately disclose the Funds’ investment objectives and risks. The six Funds of the Trust named in the complaint are ProShares Ultra Silver, ProShares UltraShort Gold, ProShares Ultra Gold, ProShares UltraShort DJ-UBS Crude Oil, ProShares Ultra DJ-UBS Crude Oil, and ProShares UltraShort Silver. The Trust believes the complaint is without merit and that the anticipated outcome will not adversely impact the operation of the Trust or any of its Funds.
NOTE 10- SUBSEQUENT EVENTS
Management has evaluated the possibility of subsequent events existing in the Funds’ financial statements through the date the financial statements were issued. The subsequent events were as follows:
On January 3, 2011, the VIX Funds commenced investment operations.
On February 17, 2011, the Trust announced a reverse stock split of the shares of beneficial interest of four of its series: ProShares UltraShort DJ-UBS Commodity, ProShares UltraShort DJ-UBS Crude Oil, ProShares UltraShort Silver and ProShares Ultra DJ-UBS Crude Oil (the “Reverse Splits”). The Reverse Splits were effective prior to the opening of trading on NYSE Arca on February 25, 2011.
The Reverse Splits were effective for shareholders of record after the close of the markets on February 24, 2011. ProShares UltraShort DJ-UBS Commodity (NYSE Arca symbol “CMD”) and ProShares UltraShort DJ-UBS Crude Oil (NYSE Arca symbol “SCO”) executed a 1-for-5 reverse split of shares, and ProShares UltraShort Silver (NYSE Arca symbol “ZSL”) and ProShares Ultra DJ-UBS Crude Oil (NYSE Arca symbol “UCO”) executed a 1-for-4 reverse split of shares. The Funds traded at their post-split prices on February 25, 2011. The ticker symbols for the Funds did not change, and they will continue to trade on NYSE Arca.
The Reverse Splits were applied retroactively for all periods presented, reducing the number of shares outstanding for each of the ProShares UltraShort DJ-UBS Commodity Fund, ProShares Ultra DJ-UBS Crude Oil Fund, ProShares UltraShort DJ-UBS Crude Oil Fund and ProShares UltraShort Silver Fund, and resulted in a proportionate increase in the price per share and per share information of each of the ProShares UltraShort DJ-UBS Commodity Fund, ProShares Ultra DJ-UBS Crude Oil Fund, ProShares UltraShort DJ-UBS Crude Oil Fund and ProShares UltraShort Silver Fund. Therefore, the Reverse Splits did not change the aggregate net asset value of a shareholder’s investment at the time of the split.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PROSHARES TRUST II
/s/ Louis Mayberg
By: Louis Mayberg
Principal Executive Officer
Date: March 1, 2011
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ Louis Mayberg
By: Louis Mayberg
Principal Executive Officer
Date: March 1, 2011
/s/ Edward Karpowicz
By: Edward Karpowicz
Principal Financial Officer
Date: March 1, 2011